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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-KSB

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

For the Year Ended December 31, 2002

Commission File Number 0-24926

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

Maryland(State or other jurisdiction of
incorporation or organization)

52-1883546(I.R.S. Employer Identification No.)127 North Street, Elkton, Maryland(Address of principal executive office)

21921-5547(Zip Code)


Registrant's
telephone number, including area code:(301) 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)

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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 ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not 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-K or any amendment to this
Form 10-KSB. ý

State
issuer's revenues for its most recent fiscal year: $9,075,807

As
of March 21, 2003, the registrant had 799,448 shares of Common Stock issued and outstanding. The aggregate market value of shares held by nonaffiliates on such date was
$8,975,275 based on the closing sale price of $20.90 per share of the Registrant's Common Stock on March 21, 2003. For purposes of this calculation, it is assumed that the 370,000 shares held
by directors and officers of the Registrant, are shares held by affiliates.

Documents
Incorporated by Reference: NA

Transitional
small business disclosure format (check
one): Yes o    No ý

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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:



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



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. 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. On October 1, 2002, the Bank converted from a stock federal savings bank to a commercial bank chartered under the laws of the State of
Maryland and became a member of the Federal Reserve System.

Cecil
Federal is a community-oriented financial institution, which commenced operations in 1959 as a Federal savings and loan association. Its deposits have been federally insured up to
applicable limits, and it has been a member of the Federal Home Loan Bank ("FHLB") system since 1959. Cecil Federal's deposits are currently insured by the Savings Association Insurance Fund ("SAIF")
of the FDIC and it is a member of the FHLB of Atlanta.

Cecil
Federal's primary business is the origination of mortgage loans secured by single-family residential real estate located primarily in Cecil and Harford counties, Maryland, with
funds obtained through the attraction of deposits, primarily certificate accounts with terms of 60 months or less, savings accounts and transaction accounts. To a lesser extent, Cecil Federal
also makes loans on commercial and multi-family real estate, construction loans on one- to four-family residences, home equity loans and land loans. Cecil Federal also makes
consumer loans including education loans, personal and commercial lines of credit, automobile loans and loans secured by deposit accounts. Cecil Federal purchases mortgage-backed securities and
invests in other liquid investment securities when warranted by the level of excess funds. Cecil Federal conducts it business through its main office in Elkton, Maryland, branches in Elkton and North
East, Maryland, and through the Columbian Bank division's main office and a branch office in Havre de Grace, Maryland.

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Cecil
Federal 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 commercial bank dedicated to residential mortgage lending, and, to a lesser extent, construction and
consumer lending, funded primarily by retail deposits. Cecil Federal has sought to implement this strategy by (1) emphasizing residential mortgage lending through the origination of
adjustable-rate mortgage loans; (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 combined with moderate growth.

The
Company and the Bank are subject to supervision and regulation by the Federal Reserve System. The Bank's deposit accounts are insured by the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum permitted by law. The Bank is a member of the Federal Home Loan Bank System and is an Equal Housing
Lender.

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.

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

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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 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.

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. See
"Note 11-Stockholders' Equity," of the Notes to the Consolidated Financial Statements.

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

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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 2002.
Deposit insurance rates may be increased during 2002 or later years.

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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.

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 had assets of less than $150 million during 2002, and
was not subject to the holding company risk- based capital rules. 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 Company had assets of less than $150 million during 2002, and was not
subject to the holding company risk- based capital rules. 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

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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 2000, 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, 2001, the Bank was well-capitalized
as defined in the Federal Reserve's regulations.

For
additional information regarding the Company's and the Bank's compliance with their respective regulatory capital requirements, see Note 11. "Regulatory Matters." To the
consolidated financial statements.

Limits on Loans to Affiliates.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.

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

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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 and one branch are in Elkton, Maryland, and an additional Cecil County branch is located in 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 are Perry Point Veterans Hospital, medical services; W. L. Gore & Associates,
GORE-TEX fabric products; Union Hospital, medical services; Thiokol Corporation; Blue Chip Products, automotive products; Terumo Medical, medical products; 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., Bata Shoe Co., Clorox Co., Constar/Crown, Cork
and Seal, Cy-tec Industries, Frito-Lay, Inc., GAP Stores, Mercedes, N.A., Saks Fifth Avenue and General Electric. The U.S. Army Aberdeen Proving Ground is the major
government employer in the county.

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) and
loans originated under the Maryland Community Development Administration ("CDA") loan program.

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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 which 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 and CDA 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, 2002, Cecil Federal originated $18.9 million in adjustable-rate mortgage loans and $11.7 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 which 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 75%. 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

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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.

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
which 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

9

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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 which 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
which 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 (see discussion below).

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, 2002, Cecil
Federal's loans-to-one borrower cannot exceed $1,732,200.

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

10

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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, 2002, Cecil Federal was servicing $9.3 million in loans for other financial institutions. For the years
ended December 31, 2002 and 2001 Cecil Federal recognized gross servicing income of $26,000 and $37,000, respectively, and total loan fee income of $101,000 and $155,000, 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 loan which 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.

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, 2002, 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 paid, maturity terms, service fees and withdrawal penalties are established by Cecil Federal on a periodic basis. Determination of
rates and terms are

11

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predicated upon funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations.

Borrowings.Savings 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 would be secured by Cecil Federal's stock in the FHLB and a portion of Cecil Federal's mortgage loans. Cecil Federal utilized advances from
FHLB during the year. The FHLB of Atlanta functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member, Cecil Federal is
required to own capital stock in the FHLB and are authorized to apply for advances
on the security of such stock and certain of its home mortgages 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
savings associations, commercial banks, mortgage bankers, mortgage brokers, and insurance companies. The Bank's principal competitors for deposits are other financial institutions, including other
savings associations, banks, 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.

The
banking business in Maryland generally, and the Bank's primary service areas specifically, are 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.

12

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In
addition to competing with other savings associations, commercial banks, and credit unions, savings associations such as the Bank 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, 2003, the Company and the Bank employed 46 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. PROPERTIES

Following are the locations of Cecil Federal at December 31, 2002. The Company has no other locations.

|Popular Name            |  | Location                                        
|----------------------- |  | ------------------------------------------------
|Main Office             |  | 127 North Street, Elkton, MD 21922              
|*North East             |  | 108 North East Plaza, Elkton, MD 21901          
|*Big Elk Mall           |  | 108 Big Elk Mall, Elkton, MD 21921              
|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  

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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 2002, through solicitation of proxies or otherwise.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Common shares of Cecil Bancorp are traded over the counter under the symbol CECB. Shareholders received quarterly cash dividends totaling $0.40 per share in both
2002 and 2001. The ratio of dividends per share to diluted net income per share was 25.48% in 2002, compared to 32.79% for 2001. 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 4,011 in 2002 and 6,809 in 2001.

The
number of common shareholders of record was approximately 775 as of March 21, 2003, excluding shareholders who hold in nominee or "street name."

Quarterly Stock Information

|    |       | 2002 |       | 2001
|--- | ----- | ---- | ----- | ----
|
|
|
|1st |       | $    | 17.50 |     
|2nd |       |      | 17.67 |     
|3rd |       |      | 18.00 |     
|4th |       |      | 18.00 |     
|    |       |      |       |     
|    | Total |      |       |     
|    |       |      |       |     

---

The
following table presents disclosure regarding equity compensation plans in existence at December 31, 2002, 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 Option Plan" in Note 12 to the consolidated financial
statements).

Equity Compensation Plan Information

|Plan category                                              |       | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a) |        | Weighted average exercise
price of outstanding options,
warrants and rights
(b) |       | Number of securities remaining
available for future issuance
under equity compensation
plans excluding securities
reflected in column (a)
(c)
|---------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |       | 17,528                                                                                          |        | $                                                                               | 14.08 |                                                                                                                                              
|Equity compensation plans not approved by security holders |       | 0                                                                                               |        |                                                                                 | 0     |                                                                                                                                              
|                                                           |       |                                                                                                 |        |                                                                                 |       |                                                                                                                                              
|                                                           | Total |                                                                                                 | 17,528 |                                                                                 | $     | 14.08                                                                                                                                        
|                                                           |       |                                                                                                 |        |                                                                                 |       |                                                                                                                                              

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. See Note 12 to the consolidated financial statements.

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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 unaudited consolidated financial statements and the accompanying notes

Four Year Summary of Selected Financial Data

|                                                             |                     | 2002 |         | 2001  |   | 2000    |       | 1999(2) |        
|------------------------------------------------------------ | ------------------- | ---- | ------- | ----- | - | ------- | ----- | ------- | -------
|
|RESULTS OF OPERATIONS:                                       |                     |      |         |       |   |         |       |         |        
|Interest Income                                              |                     | $    | 8,385   |       | $ | 9,336   |       | $       | 9,363  
|Interest Expense                                             |                     |      | 3,190   |       |   | 4,729   |       |         | 4,875  
|                                                             |                     |      |         |       |   |         |       |         |        
|                                                             | Net Interest Income |      |         | 5,195 |   |         | 4,607 |         |        
|Provision for Loan Losses                                    |                     |      | 568     |       |   | 190     |       |         | 305    
|                                                             |                     |      |         |       |   |         |       |         |        
|Net Interest Income after Provision for Loan Losses          |                     |      | 4,626   |       |   | 4,417   |       |         | 4,183  
|Noninterest Income                                           |                     |      | 691     |       |   | 588     |       |         | 573    
|Noninterest Expenses                                         |                     |      | 3,709   |       |   | 3,773   |       |         | 3,570  
|                                                             |                     |      |         |       |   |         |       |         |        
|Income before Income Taxes                                   |                     |      | 1,608   |       |   | 1,232   |       |         | 1,186  
|Income Tax Expense                                           |                     |      | 613     |       |   | 471     |       |         | 467    
|                                                             |                     |      |         |       |   |         |       |         |        
|Net Income                                                   |                     | $    | 995     |       | $ | 761     |       | $       | 719    
|                                                             |                     |      |         |       |   |         |       |         |        
|PER SHARE DATA:                                              |                     |      |         |       |   |         |       |         |        
|Basic Net Income Per Share                                   |                     | $    | 1.59    |       | $ | 1.24    |       | $       | 1.20   
|Diluted Net Income Per Share                                 |                     |      | 1.57    |       |   | 1.22    |       |         | 1.18   
|Dividends Declared                                           |                     |      | .40     |       |   | .40     |       |         | .40    
|Book Value (at year end)                                     |                     |      | 20.59   |       |   | 19.27   |       |         | 18.37  
|Tangible Book Value (at year end)(1)                         |                     |      | 17.08   |       |   | 15.71   |       |         | 14.26  
|FINANCIAL CONDITION (at year end):                           |                     |      |         |       |   |         |       |         |        
|Assets                                                       |                     | $    | 123,120 |       | $ | 127,498 |       | $       | 121,961
|Deposits                                                     |                     |      | 99,831  |       |   | 104,035 |       |         | 95,913 
|Loans, net                                                   |                     |      | 101,571 |       |   | 101,393 |       |         | 102,582
|Investment Securities                                        |                     |      | 10,488  |       |   | 13,817  |       |         | 7,948  
|Stockholders' Equity                                         |                     |      | 13,186  |       |   | 12,197  |       |         | 11,416 
|PERFORMANCE RATIOS (for the year):                           |                     |      |         |       |   |         |       |         |        
|Return on Average Assets                                     |                     |      | .81     | %     |   | .61     | %     |         | .59    
|Return on Average Equity                                     |                     |      | 7.86    |       |   | 6.41    |       |         | 6.48   
|Net Interest Margin                                          |                     |      | 4.43    |       |   | 4.01    |       |         | 3.89   
|Efficiency Ratio(2)                                          |                     |      | 63.02   |       |   | 72.63   |       |         | 70.54  
|Dividends Declared Per Share to Diluted Net Income Per Share |                     |      | 25.48   |       |   | 32.79   |       |         | 33.90  
|CAPITAL AND CREDIT QUALITY RATIOS:                           |                     |      |         |       |   |         |       |         |        
|Average Equity to Average Assets                             |                     |      | 10.25   | %     |   | 9.48    | %     |         | 9.09   
|Allowance for Loan Losses to Loans                           |                     |      | .60     |       |   | .32     |       |         | .41    
|Nonperforming Assets to Total Assets                         |                     |      | .50     |       |   | .54     |       |         | .73    
|Net Charge-offs to Average Loans                             |                     |      | .28     |       |   | .28     |       |         | .31    

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15

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Summary

Cecil Bancorp, Inc. (the "Company") is the bank holding company for Cecil Federal Bank ("Cecil Federal" or the "Bank. The Bank converted from a stock
federal savings bank to a commercial bank chartered under the laws of the State of Maryland on October 1, 2002. The Bank 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 converted to a Federal
mutual savings bank in January 1993 and, effective November 10, 1994, Cecil Federal converted from mutual to stock form, with the sale and issuance of 100,000 shares of its Common Stock
to the Company. Its deposits have been federally insured up to applicable limits, and it has been a member of the Federal Home Loan Bank ("FHLB"), system since 1959. Cecil Federal's primary business
is the origination of mortgage loans secured by single-family residential real estate located primarily in Cecil and Harford counties, Maryland, with funds obtained through the attraction of deposits,
primarily certificate accounts with terms of 60 months or less, savings accounts and transaction accounts. To a lesser extent, Cecil Federal also makes loans on commercial and multi-family real
estate, construction loans on one- to four-family residences, home equity loans, and land loans. Cecil Federal also makes consumer loans including education loans, personal and
commercial lines of credit, automobile loans and loans secured by deposit accounts. Cecil Federal purchases mortgage-backed securities and invests in other liquid investment securities when warranted
by the level of excess funds.

Cecil
Federal conducts its business through its main office in Elkton, Maryland, branches in Elkton 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 North East Plaza Branch. 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.

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Consolidated Average Balances, Yields and Rates(1)

|                                                                                 |                                            | 2002 |         | 2001    |  
|-------------------------------------------------------------------------------- | ------------------------------------------ | ---- | ------- | ------- | -
|
|
|ASSETS                                                                           |                                            |      |         |         |  
|Loans                                                                            |                                            | $    | 100,324 |         | $
|Investment securities                                                            |                                            |      | 12,927  |         |  
|Other interest-earning assets                                                    |                                            |      | 4,017   |         |  
|                                                                                 |                                            |      |         |         |  
|                                                                                 | Total Earning Assets                       |      |         | 117,268 |  
|                                                                                 |                                            |      |         |         |  
|Non-Interest earning assets                                                      |                                            |      | 6,213   |         |  
|                                                                                 |                                            |      |         |         |  
|                                                                                 | Total Assets                               |      | $       | 123,481 |  
|                                                                                 |                                            |      |         |         |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                             |                                            |      |         |         |  
|Deposits                                                                         |                                            | $    | 100,355 |         |  
|FHLB advances                                                                    |                                            |      | 9,220   |         |  
|Advances from borrowers for taxes and insurance                                  |                                            |      | 678     |         |  
|                                                                                 |                                            |      |         |         |  
|                                                                                 | Total Interest-Bearing Liabilities         |      |         | 110,253 |  
|                                                                                 |                                            |      |         |         |  
|Non-Interest bearing liabilities                                                 |                                            |      | 571     |         |  
|                                                                                 |                                            |      |         |         |  
|                                                                                 | Total liabilities                          |      |         | 110,824 |  
|Stockholders' equity                                                             |                                            |      | 12,657  |         |  
|                                                                                 |                                            |      |         |         |  
|                                                                                 | Total Liabilities and Stockholders' Equity |      | $       | 123,481 |  
|                                                                                 |                                            |      |         |         |  
|Net Interest income                                                              |                                            |      |         |         | $
|                                                                                 |                                            |      |         |         |  
|Interest Rate Spread                                                             |                                            |      |         |         |  
|Net Interest Margin                                                              |                                            |      |         |         |  
|Ratio of average interest earning assets to average interest bearing liabilities |                                            |      |         |         |  

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Results of Operations

2002 versus 2001

Net income increased $233,447, or 30.7% to $994,522 for the year ended December 31, 2002, from $761,075 for the same period in 2001. The increase in net
income is the result of a $587,532, or 12.7%, increase in net interest income due mainly to declining rates on interest bearing liabilities and growth in average investment securities; a $102,487, or
17.4%, increase in noninterest income, due mainly to a 100,321 gain on sale of other real estate owned and a $71,679 increase in gains on sale of loans, and a $64,812 decrease in noninterest expense,
due mainly to the cessation of amortization of goodwill related to the 1999 branch acquisition; offset, in part, by a $379,167 increase in the provision for loan losses. Basic and diluted net income
per share for 2002 were, $1.59 and 1.57, respectively, each up $0.35, or approximately 28%, over corresponding 2001 earnings per share amounts.

The
annualized return on average assets and annualized return on average equity were 0.81% and 7.86% respectively, for the year ended December 31, 2002. This compares to an
annualized return on

17

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average assets and the annualized return on average equity of 0.61% and 6.41%, respectively for the same period in 2001.

Net
interest income, the Company's primary source of income, increased $587,532, or 12.8% to $5,194,333 for the year ended December 31, 2002, from $4,606,801 for the year ended
December 31, 2001. The weighted average yield on all interest-earning assets decreased to 7.15% for the year ended December 31, 2002 from 8.13% for the year ended December 31,
2001. The weighted average rate paid on interest bearing liabilities decreased to 2.90% for the year ended December 31, 2002 from 4.20% for the year ended December 31, 2001. As a result,
the net interest spread increased to 4.25% for 2002 from 3.93% for 2001. The net interest margin increased by 42 basis points to 4.43%, from 4.01%

Interest
and fees on loans receivable decreased by $779,021, or 9.0% to $7,847,240 for the year ended December 31, 2002 from $8,626,261 for the year ended December 31,
2001. The decrease is attributable to a decrease in the average yield and, to a lesser extent, and decrease in average balance outstanding. The weighted average yield decreased to 7.82% for the year
ended December 31, 2002 from 8.44% for the year ended December 31, 2001. The average outstanding balance decreased $1,898,433, or 1.9%, to $100,324,343 for the year ended
December 31, 2002 from $102,222,776 for the year ended December 31, 2001.

Interest
on investment securities decreased $104,342, or 18.9% to $446,644 for the year ended December 31, 2002 from $550,986 for the year ended December 31, 2001. The
decrease is a result of a decrease in the weighted average yield offset in part by an increase in the average balance. The weighted average yield decreased to 3.46% for the year ended
December 31, 2002 from 6.60% for the year ended December 31, 2001. The average outstanding balance increased $4,581,424, or 54.9%, to $12,927,301 for the year ended December 31,
2002 from $8,345,877 for the year ended December 31, 2001. Dividends on Federal Home Loan and Federal Reserve Bank stock decreased $6,338, or 10.3% to $55,470 for the year ended
December 31, 2002 from $61,808 for the year ended December 31, 2001 as a result of a decrease in the weighted average yield offset in part by an increase in the average balance
outstanding.

Interest
on other earning assets decreased $61,215, or 63.3% to $35,481 for the year ended December 31, 2002 from $96,696 for the year ended December 31, 2001 as a result
of a decrease in the weighted average yield and the average balance outstanding. The average outstanding balance decreased $235,205, or 7.2%, from $3,270,993 for the year ended December 31,
2001 to $3,035,788 for the year ended December 31, 2002. The weighted average yield decreased from 2.96% for the year ended December 31, 2001 to 1.17% for the year ended
December 31, 2002. Other earning assets primarily are short-term liquidity accounts with variable rates.

Interest
paid on savings deposits decreased $1,378,966, or 33.3% to $2,758,612 for the year ended December 31, 2002 from $4,137,578 for the year ended December 31, 2001.
The decrease was the result of a decrease in the average cost of funds, and, to a much smaller extent, to a decrease in the average
balance. The weighted average rate decreased to 2.75% for the year ended December 31, 2002 from 4.07% for the year ended December 31, 2001. The average outstanding balance decreased
$1,139,583, or 1.1%, to $100,355,145 for the year ended December 31, 2002 from $101,494,728 for the year ended December 31, 2001. Interest expense paid on borrowings decreased $159,482,
or 27.0% to $431,890 for the year ended December 31, 2002 from $591,372 for the year ended December 31, 2001. The decrease was a result of decreases in the average cost of funds and the
average balance outstanding. The average outstanding balance decreased $1,194,035, or 11.5%, to $9,220,548 for the year ended December 31, 2002 from $10,414,583 for the year ended
December 31, 2001. The weighted average rate decreased to 4.68% for the year ended December 31, 2002 from 5.68% for the year ended December 31, 2001.

18

---

Effect of Volume and Rate Changes on Net Interest Income

|                                     |                       | 2002 vs. 2001                                   |                        | 2001 vs. 2000       |       
|------------------------------------ | --------------------- | ----------------------------------------------- | ---------------------- | ------------------- | ------
|
|
|
|
|Interest income from earning assets: |                       |                                                 |                        |                     |       
|                                     |                       | Loans                                           |                        | $                   | (779  
|                                     |                       | Investment securities                           |                        |                     | (104  
|                                     |                       | Other interest-earning assets                   |                        |                     | (68   
|                                     |                       |                                                 |                        |                     |       
|                                     | Total Interest Income |                                                 |                        | (951                | )     
|                                     |                       |                                                 |                        |                     |       
|Interest expense:                    |                       |                                                 |                        |                     |       
|                                     |                       | Interest-bearing deposits                       |                        |                     | (1,375
|                                     |                       | FHLB advances                                   |                        |                     | (159  
|                                     |                       | Advances from borrowers for taxes and insurance |                        |                     | (4    
|                                     |                       |                                                 |                        |                     |       
|                                     |                       |                                                 | Total Interest Expense |                     |       
|                                     |                       |                                                 |                        |                     |       
|                                     |                       |                                                 |                        | Net Interest Income |       
|                                     |                       |                                                 |                        |                     |       

---

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. See "Allowance for Loan Losses." The provision for loan losses increased $379,167, or 200.1% to
$568,667 for the year ended December 31, 2002 from $189,500 for the year ended December 31, 2001 as a result of this analysis. (See "Allowance for Loan Losses.")

Non-interest
income increased $102,487, or 17.4% to $690,972 for the year ended December 31, 2002 from $588,485 for the year ended December 31, 2001. Checking
account fees decreased $9,448 or 3.2% to $287,440 for the year ended December 31, 2002 from $296,888 for the year ended December 31, 2001. ATM fees increased $9,665 or 9.9% to $107,245
for the year ended December 31, 2002 from $97,580 for the year ended December 31, 2001. Gain on the sale of loans increased $71,679 or 100.0%. Gain on the sale of real estate increased
$104,938 to $100,321 for the year ended December 31, 2002 from $(4,617) for the year ended December 31, 2001. Commission income on alternative investment products decreased $38,030, or
46.2% to $44,291 for the year ended December 31, 2002 from $82,321 for the year ended December 31, 2001. Other income decreased $36,317 or 31.2% to $79,996 for the year ended
December 31, 2002 from $116,313 for the year ended December 31, 2001.

Non-interest
expense decreased $64,812, or 1.7% to $3,708,823 for the year ended December 31, 2002 from $3,773,635 for the year ended December 31, 2001. The
Company experienced an increase in salaries and employee benefits of $96,808, or 5.4% to $1,897,891 for the year ended December 31, 2002 from $1,801,083 for the year ended December 31,
2001. The increase can be attributable to increased personnel and annual merit increases. Occupancy expense decreased $8,415, or 3.6% to $224,891 for

19

---

the year ended December 31, 2002 from $233,306 for the year ended December 31, 2001. The Company's SAIF premium decreased $10,917, or 16.1% to $57,068 for the year ended
December 31, 2002 as compared to $67,985 for the year ended December 31, 2001. Amortization of goodwill decreased $281,567, or 100.0% due to a change in the accounting for intangible
assets. See Notes 2 and 6 to the consolidated financial statements for details of the accounting change. Other expenses increased $151,401, or 16.5% to $1,068,913 for the year ended
December 31, 2002 from $917,512 for the year ended December 31, 2001. The increase is attributable to an increase in advertising and promotion expense, loan expense, stationery and
office supplies, postage, meeting expense, and charitable contributions.

Income
tax expense for the year ended December 31, 2002 and December 31, 2001 was $613,293 and $471,076, respectively, which equates to effective rates of 38.1% and 38.2%,
respectively.

2001 versus 2000

Net income increased $41,762, or 5.8% to $761,075 for the year ended December 31, 2001, from $719,313 for the same period in 2000. The increase in net
income is the direct result of a slight increase in interest income on loans along with decreases in interest expense on deposits and Federal Home Loan Bank advances. Basic and diluted net income per
share were $1.24 and $1.22, respectively, each up $0.04, approximately 3%, from the corresponding 2000 earnings per share amounts. The annualized return on average assets and annualized return on
average equity were 0.61% and 6.41% respectively, for the year ended December 31, 2001. This compares to an annualized return on average assets and the annualized return on average equity of
0.59% and 6.48%, respectively for the same period in 2000.

Net
interest income increased $119,056, or 2.7% to $4,606,801 for the year ended December 31, 2001, from $4,487,745 for the year ended December 31, 2000. The weighted
average yield on all interest-earning assets increased to 8.13% for the year ended December 31, 2001 from 8.11% for the year ended December 31, 2000. The weighted average rate paid on
interest bearing liabilities decreased to 4.20% for the year ended December 31, 2001 from 4.42% for the year ended December 31, 2000.

Interest
on loans receivable increased by $97,558, or 1.1% to $8,626,261 for the year ended December 31, 2001 from $8,528,703 for the year ended December 31, 2000. The
increase is attributable to an increase in the average balance outstanding, and average yield. The average outstanding balance increased $652,318, or 0.6%, to $102,222,776 for the year ended
December 31, 2001 from $101,570,458 for the year ended December 31, 2000. The weighted average yield increased to 8.44% for the year ended December 31, 2001 from 8.40% for the
year ended December 31, 2000.

Interest
on investment securities increased $35,906, or 7.0% to $550,986 for the year ended December 31, 2001 from $515,080 for the year ended December 31, 2000. The
increase is a result of a decrease in the average balance offset by an increase in the weighted average yield. The average outstanding balance decreased $911,982, or 9.9%, to $8,345,877 for the year
ended December 31, 2001 from $9,257,859 for the year ended December 31, 2000. The weighted average yield increased to 6.60% for the year ended December 31, 2001 from 5.56% for the
year ended December 31, 2000. Dividends on Federal Home Loan Bank stock decreased $718, or 1.1% to $61,808 for the year ended December 31, 2001 from $62,526 for the year ended
December 31, 2000 as a result of an decrease in the weighted average yield offset by an increase in the average balance outstanding. Interest on other earning assets decreased $160,050, or
62.3% to $96,696 for the year ended December 31, 2001 from $256,746 for the year ended December 31, 2000 as a result of a decrease in the weighted average yield and the average balance
outstanding. The average outstanding balance decreased $474,900, or 12.7%, to $3,270,993 for the year ended December 31, 2001 from $3,745,893 for the year ended December 31, 2000. The
weighted
average yield decreased to 2.96% for the year ended December 31, 2001 from 6.85% for the year ended December 31, 2000.

20

---

Interest
paid on savings deposits decreased $32,457, or 0.8% to $4,137,578 for the year ended December 31, 2001 from $4,170,035 for the year ended December 31, 2000. The
increase was the result of an increase in the average balance outstanding offset by a decrease in the average cost of funds. The average outstanding balance increased $4,345,492, or 4.5%, to
$101,494,728 for the year ended December 31, 2001 from $97,149,236 for the year ended December 31, 2000. The weighted average rate decreased from 4.28% for the year ended
December 31, 2000 to 4.07% for the year ended December 31, 2001. Interest expense paid on borrowings decreased $113,903, or 16.2% to $591,372 for the year ended December 31, 2001
from $705,275 for the year ended December 31, 2000. The increase was a result of a decrease in the average cost of funds and the average balance outstanding. The average outstanding balance
decreased $1,829,685, or 14.9%, from $12,244,268 for the year ended December 31, 2000 to $10,414,583 for the year ended December 31, 2001. The weighted average rate decreased to 5.68%
for the year ended December 31, 2001 from 5.76% for the year ended December 31, 2000.

The
provision for loan losses decreased 115,500, or 37.9% to $189,500 for the year ended December 31, 2001 from $305,000 for the year ended December 31, 2000.

Non-interest
income increased $14,996, or 2.6% to $588,485 for the year ended December 31, 2001 from $573,489 for the year ended December 31, 2000. Checking
account fees increased $15,100 or 5.4% to $296,888 for the year ended December 31, 2001 from $281,788 for the year ended December 31, 2000. ATM fees increased $13,431 or 16.0% to $97,580
for the year ended December 31, 2001 from $84,149 for the year ended December 31, 2000. Commission income on alternative investment products decreased $32,912, or 28.6% to $82,321 for
the year ended December 31, 2001 from $115,233 for the year ended December 31, 2000. Other fees increased $19,377 or 21.0% to $111,696 for the year ended December 31, 2001 from
$92,319 for the year ended December 31, 2000.

Non-interest
expense increased $204,067, or 5.7% to $3,773,635 for the year ended December 31, 2001 from $3,569,568 for the year ended December 31, 2000. The
Company experienced an increase in salaries and employee benefits of $61,611, or 3.5% to $1,801,083 for the year ended December 31, 2001 from $1,739,472 for the year ended December 31,
2000. The increase can be attributable to increased personnel and annual merit increases. Occupancy expense increased $30,801, or 15.2% to $233,306 for the year ended December 31, 2001 from
$202,505 for the year ended December 31, 2000. The Company's SAIF premium decreased $2,648, or 3.7% to $67,985 for the year ended December 31, 2001 as compared to $70,633 for the year
ended December 31, 2000. Other expenses increased $90,470, or 10.9% to $917,512 for the year ended December 31, 2001 from $827,042 for the year ended December 31, 2000. The
increase is attributable to an increase in advertising and promotion expense, loan expense, stationery and office supplies, postage, meeting expense, and charitable contributions.

Income
tax expense for the year ended December 31, 2001 and December 31, 2000 was $471,076 and $467,353, respectively, which equates to effective rates of 38.2% and 39.4%,
respectively.

Comparison of Financial Condition.

2002 versus 2001

The Company's assets decreased by $4,378,427, or 3.4% to $123,119,614 at December 31, 2002 from $127,498,041 at December 31, 2001, primarily due to
a decrease in investments, liquidated to fund the decrease in savings deposits. The loans receivable portfolio, net of the allowance for loan losses, decreased by $177,384, or 0.2% to $101,570,875 at
December 31, 2002 from $101,393,491 at December 31, 2001. Cash and interest-bearing deposits with banks decreased $1,021,283 or 18.4% to $4,524,959 at December 31, 2002 from
$5,546,242 at December 31, 2001. The Company's investments held to maturity increased by $444,656, or 14.6% to $3,494,020 at December 31, 2002 from $3,049,364 at December 31,
2001. Investments available for sale decreased $3,773,417 or 35.0% to $6,994,386 at December 31, 2002 from $10,767,803 at December 31, 2001. Premises and equipment net of

21

---

accumulated depreciation decreased by $117,454, or 5.1% to $2,202,506 at December 31, 2002 from $2,319,960 at December 31, 2001. The decrease was the result of the depreciation of the
Bank's fixed assets. Restricted investment securities, which consist of Federal Home Loan and Federal Reserve Bank stock increased $117,850 or 12.3% to $1,072,850 at December 31, 2002 from
$955,000 at December 31, 2001. Cecil Federal was required to make an initial investment upon acceptance as a Federal Reserve System member. Other assets decreased $65,571 or 11.8% to $491,330
at December 31, 2002 from $556,901 at December 31, 2001.

The
Company's liabilities decreased $5,367,423, or 4.7% to $109,933,307 at December 31, 2002 from $115,300,730 at December 31, 2001. Savings deposits decreased $4,203,695,
or 4.0% to $99,831,411 at December 31, 2002 from $104,035,106 at December 31, 2001. Savings deposit runoff was due primarily to the conservative pricing philosophy of the Bank. Advances
from the Federal Home Loan Bank of Atlanta decreased $1,000,000 or 10.0% to 9,000,000 at December 31, 2002 from $10,000,000 and at December 31, 2001. Other liabilities remained stable in
comparison with the prior year.

The
Company's stockholders' equity increased by $988,996, or 8.1% to $13,186,307 at December 31, 2002 from $12,197,307 at December 31, 2001. The increase was primarily due
to an increase in retained earnings of $744,194, or 10.5% primarily as a result of 2002 earnings, net of dividends. For the year ended December 31, 2002, the Company paid an annualized dividend
of $.40 per share.

2001 versus 2000

The Company's assets increased by $5,537,341, or 4.5% to $127,498,041 at December 31, 2001 from $121,960,700 at December 31, 2000. The Company
increased assets by expanding investments available for sale. The loans receivable portfolio, net of the allowance for loan losses, decreased by $1,188,081, or 1.2% to $101,393,491 at
December 31, 2001 from $102,581,572 at December 31, 2000. Cash and interest-bearing deposits with banks increased $1,665,636 or 42.9% to $5,546,242 at December 31, 2001 from
$3,880,606 at December 31, 2000. The Company's investments held to maturity decreased by $2,285,925, or 42.8% to $3,049,364 at December 31, 2001 from $5,335,289 at December 31,
2000. Investments available for sale increased $8,154,921 or 312.1% to $10,767,803 at December 31, 2001 from $2,612,882 at December 31, 2000. Premises and equipment net of accumulated
depreciation decreased by $181,971, or 7.3% to $2,319,960 at December 31, 2001 from $2,501,931 at December 31, 2000. The decrease was the result of the depreciation of the Bank's fixed
assets. Federal Home Loan Bank stock increased $50,000 or 5.5% to $955,000 at December 31, 2001 from $905,000 at December 31, 2000.

The
Company's liabilities increased $4,756,316, or 4.3% to $115,300,730 at December 31, 2001 from $110,544,414 at December 31, 2000. Savings deposits increased $8,121,719,
or 8.5% to $104,035,106 at December 31, 2001 from $95,913,387 at December 31, 2000. Advances from the Federal Home Loan Bank of Atlanta decreased $3,250,000 or 24.5% to 10,000,000 at
December 31, 2001 from $13,250,000 and at December 31, 2000. The decrease was the result of decreased loan activity and increased savings deposits. Other liabilities remained stable in
comparison with the prior year.

The
Company's stockholders' equity increased by $781,025, or 6.8% to $12,197,311 at December 31, 2001 from $11,416,286 at December 31, 2000. The increase was primarily due
to an increase in retained earnings of $516,347, or 7.9%. For the year ended December 31, 2001, the Company paid an annualized dividend of $.40 per share.

22

---

Loans

Cecil Federal's primary business is the origination of mortgage loans secured by single-family residential real estate located in Cecil and Harford Counties in
Maryland. Cecil Federal also makes loans on commercial and multi-family real estate, construction loans on one- to four-family residences, loans for the construction or
renovation of commercial property, home equity loans, land loans, and consumer loans including education loans, personal and commercial lines of credit, automobile loans, and loans secured by deposit
accounts. Although total loans grew approximately $464 thousand or, less than 1%, during 2002, Cecil Federal's commercial real estate loans increased by $6.2 million, or 72.3%, and
accounted for approximately 14% of the total portfolio, up from approximately 8% at year-end 2001, and commercial business loans increased by almost $4 million, or 67.8%, and
accounted for approximately 10% of the portfolio, up form approximately 6% at year-end 2001. Multi-family residential, and savings account loans also increased during 2002, while other
categories decreased. The following table shows the composition of the loan portfolio at December 31.

|                                |                                                 | 2002                    |       | 2001   |        
|------------------------------- | ----------------------------------------------- | ----------------------- | ----- | ------ | -------
|
|
|Real estate loans:              |                                                 |                         |       |        |        
|                                | Construction loans                              |                         | $     | 5,871  |        
|                                | One- to four-family residential and home equity |                         |       | 61,026 |        
|                                | Multi-family residential                        |                         |       | 2,559  |        
|                                | Land                                            |                         |       | 1,781  |        
|                                | Commercial                                      |                         |       | 14,803 |        
|                                |                                                 |                         |       |        |        
|                                |                                                 | Total real estate loans |       |        | 86,040 
|                                |                                                 |                         |       |        |        
|Commercial business loans       |                                                 |                         | 9,783 |        | 9.57   
|                                |                                                 |                         |       |        |        
|Consumer loans:                 |                                                 |                         |       |        |        
|                                | Automobile loans                                |                         |       | 1,528  |        
|                                | Education loans                                 |                         |       | 18     |        
|                                | Savings account loans                           |                         |       | 928    |        
|                                | Personal loans                                  |                         |       | 3,887  |        
|                                |                                                 |                         |       |        |        
|                                |                                                 | Total consumer loans    |       |        | 6,361  
|                                |                                                 |                         |       |        |        
|                                |                                                 | Gross loans             |       |        | 102,184
|                                |                                                 |                         |       |        |        
|Less: Allowance for Loan Losses |                                                 |                         | (613  | )      |        
|                                |                                                 |                         |       |        |        
|                                |                                                 | Total loans             |       | $      | 101,571
|                                |                                                 |                         |       |        |        

23

---

The
following table shows the remaining maturities of outstanding loans at December 31, 2002. Balances are not reduced for loans in process or discounts.

|             |                                  | At December 31, 2002
Remaining Maturities of Selected Credits in Years
|------------ | -------------------------------- | ----------------------------------------------------------------------
|
|
|Real estate: |                                  |                                                                       
|             | Construction                     |                                                                       
|             | Mortgage                         |                                                                       
|             | Home equity and second mortgages |                                                                       
|             | Commercial                       |                                                                       
|             | Consumer                         |                                                                       
|             |                                  |                                                                       
|             |                                  | Total                                                                 
|             |                                  |                                                                       
|Rate Terms:  |                                  |                                                                       
|             | Fixed                            |                                                                       
|             | Variable or adjustable           |                                                                       
|             |                                  |                                                                       
|             |                                  | Total                                                                 
|             |                                  |                                                                       

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, and, to a lesser extent, unused commitments to provide financing. 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 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 federal 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
federal examiners at their most recent periodic examination of the Bank. Federal examinations usually occur each year. In these examinations, the federal 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 also may establish and unallocated allowance based upon its evaluation of

24

---

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 2002 and 2001. Determining the
amount of the allowance for loan losses requires the use of estimates and assumptions, which is permitted under generally accepted accounting principles. 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 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 2002, 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, 2002 was $612,679, (0.60% of total loans), an increase of $286,864
from the $325,815 allowance (0.32% of loans) at December 31, 2001. Annual net charge offs were 0.28% of average loans in both 2002 and 2001. Total nonperforming loans at December 31,
2002 were $613,000, down $77,000 (11.16%) from year-end 2001. At December 31, 2002, one-to-four family residential and home equity loans, which generally are
assigned the lowest credit risk factors, comprise 59.72% of the portfolio, compared to 68.17% at December 31, 2001, while commercial business loans, which generally are assigned higher risk
factors, comprise 9.57% of the portfolio, compared to 5.73% at December 31, 2001. The provision for loans losses required for 2002 was $568,667, up $379,167 from 2001. A summary of activity in
the allowance is shown below.

|                                                               |                                        | 2002 |       | 2001 |  
|-------------------------------------------------------------- | -------------------------------------- | ---- | ----- | ---- | -
|
|Balance at beginning of period                                 |                                        | $    | 326   |      | $
|                                                               |                                        |      |       |      |  
|Loans charged-off:                                             |                                        |      |       |      |  
|                                                               | Residential real estate mortgage loans |      |       | 0    |  
|                                                               | Commercial                             |      |       | 49   |  
|                                                               | Consumer                               |      |       | 271  |  
|                                                               |                                        |      |       |      |  
|Total charge-offs                                              |                                        |      | 320   |      |  
|                                                               |                                        |      |       |      |  
|Recoveries:                                                    |                                        |      |       |      |  
|                                                               | Residential real estate mortgage loans |      |       |     |  
|                                                               | Commercial                             |      |       |     |  
|                                                               | Consumer                               |      |       | 38   |  
|                                                               |                                        |      |       |      |  
|Total recoveries                                               |                                        |      | 38    |      |  
|                                                               |                                        |      |       |      |  
|Net loans charged-off                                          |                                        |      | 282   |      |  
|Provision for loan losses                                      |                                        |      | 569   |      |  
|                                                               |                                        |      |       |      |  
|Balance at end of period                                       |                                        | $    | 613   |      | $
|                                                               |                                        |      |       |      |  
|Net charge-offs to average loans outstanding during the period |                                        |      | .28   | %    |  
|Allowance for loan losses to loans                             |                                        |      | .60   |      |  
|Allowance for loan losses to nonperforming loans               |                                        |      | 99.82 |      |  

The
following table presents a two year history of the allocation of the allowance for loan losses, reflecting the methodology described above, along with the percentage or total loans
in each category. The increase in the allowance for 2002 was primarily the result of larger reserves for commercial

25

---

business loans, reflecting growth in that loan category, and for automobile and personal loans, primarily reflecting loss history and current economic conditions.

|                          |                                                | 2002 |     | 2001 |       
|------------------------- | ---------------------------------------------- | ---- | --- | ---- | ------
|
|
|Real estate loans:        |                                                |      |     |      |       
|                          | Construction loans                             |      | $   |     |       
|                          | One-to four-family residential and home equity |      |     | 41   |       
|                          | Multi-family residential                       |      |     |     |       
|                          | Land                                           |      |     |     |       
|                          | Commercial                                     |      |     | 20   |       
|                          |                                                |      |     |      |       
|                          | Total Real Estate Loans                        |      |     | 61   |       
|                          |                                                |      |     |      |       
|Commercial business loans |                                                |      | 123 |      | 9.57  
|                          |                                                |      |     |      |       
|Consumer loans:           |                                                |      |     |      |       
|                          | Automobile loans                               |      |     | 278  |       
|                          | Education loans                                |      |     |     |       
|                          | Savings account loans                          |      |     |     |       
|                          | Personal loans                                 |      |     | 151  |       
|                          |                                                |      |     |      |       
|                          | Total Consumer Loans                           |      |     | 429  |       
|                          |                                                |      |     |      |       
|Total                     |                                                | $    | 613 |      | 100.00
|                          |                                                |      |     |      |       

Nonperforming Assets

Management reviews and identifies all 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:

|                                     |  | 2002 |     | 2001 |  
|------------------------------------ |  | ---- | --- | ---- | -
|
|Nonaccrual loans(1)                  |  | $    | 578 |      | $
|Loans 90 days or more past due       |  |      | 35  |      |  
|Restructured loans                   |  |      | 0   |      |  
|                                     |  |      |     |      |  
|Total Nonperforming Loans(2)         |  |      | 613 |      |  
|Other real estate owned, net         |  |      | 0   |      |  
|                                     |  |      |     |      |  
|Total Nonperforming Assets           |  | $    | 613 |      | $
|                                     |  |      |     |      |  
|Nonperforming loans to total loans   |  |      | .60 | %    |  
|Nonperforming assets to total assets |  |      | .50 |      |  

---

26

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Investment Securities

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

|                       |                                         | 2002                             |  | 2001 
|---------------------- | --------------------------------------- | -------------------------------- |  | -----
|
|Available-for-Sale:(1) |                                         |                                  |  |      
|                       |                                         | Mutual FundsMortgage Securities |  | $    
|                       | Mutual FundsU.S. Government Securities |                                  |  | 1,658
|                       | Mortgage-backed Securities              |                                  |  | 388  
|                       |                                         |                                  |  |      
|                       |                                         | Total                            |  |      
|                       |                                         |                                  |  |      
|Held-to-Maturity:      |                                         |                                  |  |      
|                       | U.S. Government and Agency              |                                  |  | 3,494
|                       |                                         |                                  |  |      
|                       |                                         | Total Investment Securities (3)  |  | $    
|                       |                                         |                                  |  |      

---

Maturities
and weighted average yields for debt securities available-for-sale and held-to-maturity at December 31, 2002 are
presented below. All such securities are due within one year of December 31, 2002, with the exception of $376,619 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 maturity adjusted for estimated calls.

|                    |                                       | Amount                      |   | Weighted
Average
Yield |       
|------------------- | ------------------------------------- | --------------------------- | - | ---------------------- | ------
|
|Available for Sale: |                                       |                             |   |                        |       
|                    | Mortgage-backed Securities            |                             | $ | 5,336                  |       
|                    | Mutual Funds-US Government Securities |                             |   | 1,658                  |       
|                    |                                       |                             |   |                        |       
|                    |                                       | Total                       |   |                        | 6,994 
|                    |                                       |                             |   |                        |       
|Held-to-Maturity:   |                                       |                             |   |                        |       
|                    | U.S. Government and Agency            |                             | $ | 3,494                  |       
|                    | Mortgage-backed Securities            |                             |   |                       |       
|                    |                                       | Total                       |   |                        | 3,494 
|                    |                                       |                             |   |                        |       
|                    |                                       | Total Investment Securities |   | $                      | 10,488
|                    |                                       |                             |   |                        |       

27

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Deposits

The following table sets forth the dollar amount of deposits in the various types of accounts offered by Cecil Federal between the dates indicated.

|                              |                | 2002 |        | 2001   |     
|----------------------------- | -------------- | ---- | ------ | ------ | ----
|
|
|NOW and Money Market Accounts |                | $    | 22,619 |        | 1.22
|Savings accounts              |                |      | 15,926 |        | 1.03
|Term Certificates             |                |      | 55,101 |        | 3.33
|Checking Accounts             |                |      | 6,185  |        |     
|                              |                |      |        |        |     
|                              | Total Deposits |      | $      | 99,831 |     
|                              |                |      |        |        |     

Borrowings

Year-end advances from the Federal Home Loan Bank of Atlanta consisted of the following:

|2002 |       | 2001
|---- | ----- | ----
|
|$    | 6,000 |     
|     | 3,000 |     
|     |       |     
|     |       |     
|$    | 9,000 |     
|     |       |     

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.

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. Presently, the Bank is not originating loans for
sale in the secondary market. Management has been monitoring the retention of fixed rate loans through its asset/liability management policy. Management intends to continue to concentrate on
maintaining its interest rate spread in a manner consistent with its lending policies, which are principally the origination of adjustable-rate mortgages, with an appropriate blend of
fixed-rate mortgage loans in its primary market area.

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

28

---

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 shareholders' 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 determine 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, 2002, this analysis indicated
that shock increases of 200 and 300 basis points and shock decreases of 100, 200, and 300 basis points would increase the market value of portfolio equity, while an interest rate shock of 100 basis
points would decrease the market value of portfolio equity by 1.2%, (14.82% 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, 2002 asset/liability position, of 3.3% from a 300 basis point rate shock. Although the effects of 300
basis point decreases in rates shocks are calculated in these modes, management believes that such a decrease in general rates of that magnitude are down were not possible in the low rate environment
prevailing at December 31, 2002.

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 $1.0 million during 2002. This decrease was the result of cash used by financing activities (primarily decreased deposits) of
$5.4 million offset by $1.8 million in cash provided by operating activities and $2.5 million in cash provided by investing activities..

During
2001, cash and cash equivalents increased $1.7 million as compared to the year ended December 31, 2000. The increase was the result of cash provided from financing
activities (primarily increased deposits) of $4.8 million and operating activities of $1.6 million offset by $4.7 million in cash used in investing activities.

29

---

Cecil
Federal maintains liquid assets which 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. Cecil Federal carries its investments at cost as adjusted for discounts and unamortized premiums. Cecil
Federal's intention is to hold all investments available for sale.

The
Company's time deposits of $100,000 or more represented 16.62% of total deposits at December 31, 2002, and are shown by maturity in the table below.

|                                    |  | Months to Maturity |       | 
|----------------------------------- |  | ------------------ | ----- | 
|
|
|Time deposits$100 thousand or more |  | $                  | 4,214 | 

Capital

Capital adequacy refers to the level of capital required to sustain asset growth and to absorb losses. There are currently no regulatory capital guidelines or
requirements for the Company. The Board of Governors of the Federal Reserve System ("Federal Reserve"), which is the Bank's principal regulator, has established requirements for total and tier 1
(core) risk-based capital and tangible capital. At December 31, 2002, the Bank exceeded all applicable capital requirements, having a total risk based capital ratio of 15.01%, a
tier 1 risk-based capital ratio of 14.20%, and a tangible capital ratio of 8.99%. As of December 31, 2002, the Bank also met the criteria for classification as a
"well-capitalized" institution under the prompt correction action rules promulgated under the Federal Deposit Insurance
Act. Designation of the bank as a "well-capitalized" institution under these regulations does not constitute a recommendation or endorsement of Cecil Federal Bank's regulators. See
Note 11 "Regulatory Matters" in the notes to the consolidated financial statements.

RECENT DEVELOPMENT

On March 4, 2003, The Board of Directors of Cecil Bancorp, Inc. announced the completion of a private placement of 158,735 shares of newly issued
common stock, par value $0.01 per share, at a price per share of $15.80, for gross proceeds of $2,508,013.

30

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ITEM 7. FINANCIAL STATEMENTS

CECIL BANCORP, INC. AND SUBSIDIARIES

REPORT ON AUDITS OF CONSOLIDATED
FINANCIAL STATEMENTS

FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001

31

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TABLE OF CONTENTS

|                                              |  | Page   
|--------------------------------------------- |  | -------
|INDEPENDENT AUDITORS' REPORT                  |  | 33     
|CONSOLIDATED FINANCIAL STATEMENTS             |  |        
|Balance Sheets                                |  | 34     
|Statements of Income                          |  | 35     
|Statements of Changes in Stockholders' Equity |  | 36     
|Statements of Cash Flows                      |  | 37     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    |  | 38 - 59

32

---



INDEPENDENT AUDITORS' REPORT

Audit
Committee of 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, 2002 and 2001, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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, 2002 and 2001, 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, 2002 and 2001, 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 31, 2003

33

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CECIL BANCORP, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        DECEMBER 31, 2002 AND 2001

|                                     |                                                                                                                                     | 2002      |                                            | 2001       |            
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | --------- | ------------------------------------------ | ---------- | -----------
|ASSETS                               |                                                                                                                                    
|Cash and due from banks              |                                                                                                                                     | $         | 986,389                                    |            | $          
|Interest bearing deposits with banks |                                                                                                                                     |           | 3,538,570                                  |            |            
|Investment securities:               |                                                                                                                                     |           |                                            |            |            
|                                     | Securities available-for-sale at fair value                                                                                         |           |                                            | 6,994,386  |            
|                                     | Securities held-to-maturity (fair value of $3,491,406 in 2002 and $3,055,783 in 2001)                                               |           |                                            | 3,494,020  |            
|Loans                                |                                                                                                                                     |           | 102,183,554                                |            |            
|                                     | Less allowance for loan losses                                                                                                      |           |                                            | (612,679   | )          
|                                     |                                                                                                                                     |           |                                            |            |            
|                                     |                                                                                                                                     | Net loans |                                            |            | 101,570,875
|                                     |                                                                                                                                     |           |                                            |            |            
|Premises and equipmentnet           |                                                                                                                                     |           | 2,202,506                                  |            |            
|Restricted investment securities     |                                                                                                                                     |           | 1,072,850                                  |            |            
|Accrued interest receivable          |                                                                                                                                     |           | 524,892                                    |            |            
|Goodwill                             |                                                                                                                                     |           | 2,182,144                                  |            |            
|Other intangible assets              |                                                                                                                                     |           | 61,652                                     |            |            
|Other assets                         |                                                                                                                                     |           | 491,330                                    |            |            
|                                     |                                                                                                                                     |           |                                            |            |            
|                                     |                                                                                                                                     |           | TOTAL ASSETS                               |            | $          
|                                     |                                                                                                                                     |           |                                            |            |            
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                    
|LIABILITIES:                         |                                                                                                                                     |           |                                            |            |            
|                                     | Savings deposits                                                                                                                    |           | $                                          | 99,831,411 |            
|                                     | Advance payments by borrowers for property taxes and insurance                                                                      |           |                                            | 544,961    |            
|                                     | Employee stock ownership plan debt                                                                                                  |           |                                            | 77,016     |            
|                                     | Other liabilities                                                                                                                   |           |                                            | 479,919    |            
|                                     | Advances from Federal Home Loan Bank of Atlanta                                                                                     |           |                                            | 9,000,000  |            
|                                     |                                                                                                                                     |           |                                            |            |            
|                                     |                                                                                                                                     |           | Total liabilities                          |            |            
|                                     |                                                                                                                                     |           |                                            |            |            
|STOCKHOLDERS' EQUITY:                |                                                                                                                                     |           |                                            |            |            
|                                     | Common stock, $.01 par value; authorized 4,000,000 shares, issued and outstanding 640,559 shares in 2002 and 633,108 shares in 2001 |           |                                            | 6,405      |            
|                                     | Additional paid in capital                                                                                                          |           |                                            | 5,427,154  |            
|                                     | Employee stock ownership plan ("ESOP") debt                                                                                         |           |                                            | (77,016    | )          
|                                     | Deferred compensationManagement Recognition Plan                                                                                   |           |                                            | (11,655    | )          
|                                     | Retained earnings                                                                                                                   |           |                                            | 7,803,743  |            
|                                     | Accumulated other comprehensive income (loss), net                                                                                  |           |                                            | 37,676     |            
|                                     |                                                                                                                                     |           |                                            |            |            
|                                     |                                                                                                                                     |           | Total stockholders' equity                 |            |            
|                                     |                                                                                                                                     |           |                                            |            |            
|                                     |                                                                                                                                     |           | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |            | $          
|                                     |                                                                                                                                     |           |                                            |            |            

See accompanying notes.

34

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CECIL BANCORP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF INCOME        FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

|                                                    |                                                                | 2002                      |           | 2001      |          
|--------------------------------------------------- | -------------------------------------------------------------- | ------------------------- | --------- | --------- | ---------
|INTEREST INCOME:                                    |                                                                |                           |           |           |          
|                                                    | Interest and fees on loans                                     |                           | $         | 7,847,240 |          
|                                                    | Interest on investment securities                              |                           |           | 446,644   |          
|                                                    | Dividends on Federal Home Loan Bank of Atlanta stock           |                           |           | 55,470    |          
|                                                    | Other interest-earning assets                                  |                           |           | 35,481    |          
|                                                    |                                                                |                           |           |           |          
|                                                    |                                                                | Total interest income     |           |           | 8,384,835
|                                                    |                                                                |                           |           |           |          
|INTEREST EXPENSE:                                   |                                                                |                           |           |           |          
|                                                    | Interest expense on deposits                                   |                           |           | 2,758,612 |          
|                                                    | Interest expense on Federal Home Loan Bank of Atlanta advances |                           |           | 431,890   |          
|                                                    |                                                                |                           |           |           |          
|                                                    |                                                                | Total interest expense    |           |           | 3,190,502
|                                                    |                                                                |                           |           |           |          
|NET INTEREST INCOME                                 |                                                                |                           | 5,194,333 |           |          
|PROVISION FOR LOAN LOSSES                           |                                                                |                           | 568,667   |           |          
|                                                    |                                                                |                           |           |           |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |                                                                |                           | 4,625,666 |           |          
|                                                    |                                                                |                           |           |           |          
|NONINTEREST INCOME:                                 |                                                                |                           |           |           |          
|                                                    | Checking account fees                                          |                           |           | 287,440   |          
|                                                    | ATM fees                                                       |                           |           | 107,245   |          
|                                                    | Commission income                                              |                           |           | 44,291    |          
|                                                    | Gain (loss) on sale of real estate owned                       |                           |           | 100,321   |          
|                                                    | Gain on sale of loans                                          |                           |           | 71,679    |          
|                                                    | Other                                                          |                           |           | 79,996    |          
|                                                    |                                                                |                           |           |           |          
|                                                    |                                                                | Total noninterest income  |           |           | 690,972  
|                                                    |                                                                |                           |           |           |          
|NONINTEREST EXPENSE:                                |                                                                |                           |           |           |          
|                                                    | Salaries and employee benefits                                 |                           |           | 1,897,891 |          
|                                                    | Occupancy expense                                              |                           |           | 224,891   |          
|                                                    | Equipment and data processing expense                          |                           |           | 460,060   |          
|                                                    | SAIF deposit insurance premium                                 |                           |           | 57,068    |          
|                                                    | Checking account expense                                       |                           |           | 109,624   |          
|                                                    | Professional fees                                              |                           |           | 186,439   |          
|                                                    | Stationery, printing and supplies                              |                           |           | 107,876   |          
|                                                    | ATM expense                                                    |                           |           | 109,083   |          
|                                                    | Goodwill amortization                                          |                           |           |          |          
|                                                    | Other                                                          |                           |           | 555,891   |          
|                                                    |                                                                |                           |           |           |          
|                                                    |                                                                | Total noninterest expense |           |           | 3,708,823
|                                                    |                                                                |                           |           |           |          
|INCOME BEFORE INCOME TAXES                          |                                                                |                           | 1,607,815 |           |          
|INCOME TAX EXPENSE                                  |                                                                |                           | 613,293   |           |          
|                                                    |                                                                |                           |           |           |          
|NET INCOME                                          |                                                                | $                         | 994,522   |           | $        
|                                                    |                                                                |                           |           |           |          
|Basic net income per common share                   |                                                                | $                         | 1.59      |           | $        
|                                                    |                                                                |                           |           |           |          
|Diluted net income per common share                 |                                                                | $                         | 1.57      |           | $        
|                                                    |                                                                |                           |           |           |          

See accompanying notes.

35

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CECIL BANCORP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

|                              |                                               | Common
Stock                                                 |                            | Additional
Paid-in
Capital |   | Employee
Stock
Ownership
Plan |         | Deferred
Compensation
Management
Recognition
Plan |          | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income (Loss) |       | Total
Stockholders'
Equity |          
|----------------------------- | --------------------------------------------- | ------------------------------------------------------------ | -------------------------- | -------------------------- | - | ----------------------------- | ------- | -------------------------------------------------- | -------- | ----------------- | - | --------------------------------------------- | ----- | -------------------------- | ---------
|BALANCES AT JANUARY 1, 2001   |                                               | $                                                            | 6,215                      |                            | $ | 5,046,082                     |         | $                                                  | (154,032 | )                 | $ | (22,565                                       | )     | $                          | 6,543,202
|                              | Comprehensive income:                         |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|                              |                                               | Net income                                                   |                            |                            |  |                               |         |                                                   |          |                   |  |                                               |       |                           |          
|                              |                                               | Other comprehensive income, net of related income tax effect |                            |                            |  |                               |         |                                                   |          |                   |  |                                               |       |                           |          
|                              |                                               |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|                              |                                               |                                                              | Total comprehensive income |                            |   |                              |         |                                                    |         |                   |   |                                              |       |                            |         
|                              | Cash dividends paid                           |                                                              |                            |                           |   |                               |        |                                                    |          |                  |   |                                               |      |                            |          
|                              | Repayment of ESOP debt                        |                                                              |                            |                           |   |                               |        |                                                    |          | 38,508            |   |                                               |      |                            |          
|                              | Release of ESOP shares                        |                                                              |                            |                           |   |                               | 38,508  |                                                    |          |                  |   |                                               |      |                            |          
|                              | Deferred compensation amortization            |                                                              |                            |                           |   |                               |        |                                                    |          |                  |   |                                               | 5,082 |                            |          
|                              | Stock purchased by dividend reinvestment plan |                                                              |                            | 68                         |   |                               | 123,028 |                                                    |          |                  |   |                                               |      |                            |          
|                              | Stock options exercised                       |                                                              |                            | 48                         |   |                               | 42,927  |                                                    |          |                  |   |                                               |      |                            |          
|                              | ESOP expense                                  |                                                              |                            |                           |   |                               | 16,363  |                                                    |          |                  |   |                                               |      |                            |          
|                              |                                               |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|BALANCES AT DECEMBER 31, 2001 |                                               |                                                              | 6,331                      |                            |   | 5,266,908                     |         |                                                    | (115,524 | )                 |   | (17,483                                       | )     |                            | 7,059,549
|                              | Comprehensive income:                         |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|                              |                                               | Net income                                                   |                            |                            |  |                               |         |                                                   |          |                   |  |                                               |       |                           |          
|                              |                                               | Other comprehensive income, net of related income tax effect |                            |                            |  |                               |         |                                                   |          |                   |  |                                               |       |                           |          
|                              |                                               |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|                              |                                               |                                                              | Total comprehensive income |                            |   |                              |         |                                                    |         |                   |   |                                              |       |                            |         
|                              | Cash dividends paid                           |                                                              |                            |                           |   |                               |        |                                                    |          |                  |   |                                               |      |                            |          
|                              | Repayment of ESOP debt                        |                                                              |                            |                           |   |                               |        |                                                    |          | 38,508            |   |                                               |      |                            |          
|                              | Release of ESOP shares                        |                                                              |                            |                           |   |                               | 38,508  |                                                    |          |                  |   |                                               |      |                            |          
|                              | Deferred compensation amortization            |                                                              |                            |                           |   |                               |        |                                                    |          |                  |   |                                               | 5,828 |                            |          
|                              | Stock purchased by dividend reinvestment plan |                                                              |                            | 40                         |   |                               | 73,829  |                                                    |          |                  |   |                                               |      |                            |          
|                              | Stock options exercised                       |                                                              |                            | 34                         |   |                               | 30,627  |                                                    |          |                  |   |                                               |      |                            |          
|                              | ESOP expense                                  |                                                              |                            |                           |   |                               | 17,282  |                                                    |          |                  |   |                                               |      |                            |          
|                              |                                               |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          
|BALANCES AT DECEMBER 31, 2002 |                                               | $                                                            | 6,405                      |                            | $ | 5,427,154                     |         | $                                                  | (77,016  | )                 | $ | (11,655                                       | )     | $                          | 7,803,743
|                              |                                               |                                                              |                            |                            |   |                               |         |                                                    |          |                   |   |                                               |       |                            |          

See accompanying notes.

36

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CECIL BANCORP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

|                                                                       |                                                                                                    | 2002                                                |                                              | 2001                                             |           
|---------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------------- | ------------------------------------------------ | ----------
|OPERATING ACTIVITIES:                                                  |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Net income                                                                                         |                                                     | $                                            | 994,522                                          |           
|                                                                       | Adjustments to reconcile net income to net cash provided by operating activities:                  |                                                     |                                              |                                                  |           
|                                                                       |                                                                                                    | Depreciation and amortization                       |                                              |                                                  | 269,829   
|                                                                       |                                                                                                    | Provision for loan losses                           |                                              |                                                  | 568,667   
|                                                                       |                                                                                                    | Gain on sale of real estate owned                   |                                              |                                                  | (100,321  
|                                                                       |                                                                                                    | Gain on sale of loans                               |                                              |                                                  | (71,679   
|                                                                       |                                                                                                    | Deferred income taxes                               |                                              |                                                  | (65,242   
|                                                                       |                                                                                                    | Excess servicing rights                             |                                              |                                                  | (37,384   
|                                                                       |                                                                                                    | Distribution from management recognition plan trust |                                              |                                                  | 5,828     
|                                                                       |                                                                                                    | Originations of loans held for sale                 |                                              |                                                  | (2,857,316
|                                                                       |                                                                                                    | Proceeds from loans held for sale                   |                                              |                                                  | 2,928,995 
|                                                                       |                                                                                                    | Net change in:                                      |                                              |                                                  |           
|                                                                       |                                                                                                    |                                                     | Accrued interest receivable and other assets |                                                  |           
|                                                                       |                                                                                                    |                                                     | Other liabilities                            |                                                  |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       |                                                                                                    |                                                     |                                              | Net cash provided by operating activities        |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                  |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Purchase of investment securities available-for-sale                                               |                                                     |                                              | (11,858,820                                      | )         
|                                                                       | Purchase of investment securities held to maturity                                                 |                                                     |                                              | (9,460,652                                       | )         
|                                                                       | Proceeds from maturities, calls and principal payments of investment securities available-for-sale |                                                     |                                              | 15,707,253                                       |           
|                                                                       | Proceeds from maturities, calls and principal payments of investment securities held-to-maturity   |                                                     |                                              | 9,000,000                                        |           
|                                                                       | Purchase of stock in Federal Home Loan Bank of Atlanta                                             |                                                     |                                              |                                                 |           
|                                                                       | Purchase of stock in Federal Reserve Bank                                                          |                                                     |                                              | (117,850                                         | )         
|                                                                       | Net (increase) decrease in loans                                                                   |                                                     |                                              | (823,549                                         | )         
|                                                                       | Proceeds from sales of foreclosed real estate                                                      |                                                     |                                              | 177,819                                          |           
|                                                                       | Purchases of premises and equipmentnet                                                            |                                                     |                                              | (85,306                                          | )         
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       |                                                                                                    |                                                     |                                              | Net cash provided (used) by investing activities |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                  |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Net (decrease) increase in deposits                                                                |                                                     |                                              | (4,203,695                                       | )         
|                                                                       | ESOP expense                                                                                       |                                                     |                                              | 17,282                                           |           
|                                                                       | Decrease in advance payments by borrowers for property taxes and insurance                         |                                                     |                                              | (106,771                                         | )         
|                                                                       | Proceeds from issuance of common stock                                                             |                                                     |                                              | 104,530                                          |           
|                                                                       | Net decrease in advances from Federal Home Loan Bank                                               |                                                     |                                              | (1,000,000                                       | )         
|                                                                       | Unearned ESOP compensation decrease                                                                |                                                     |                                              | 38,508                                           |           
|                                                                       | Payments of cash dividends                                                                         |                                                     |                                              | (250,328                                         | )         
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       |                                                                                                    |                                                     |                                              | Net cash (used) provided by financing activities |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                       |                                                                                                    |                                                     | (1,021,283                                   | )                                                |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                         |                                                                                                    |                                                     | 5,546,242                                    |                                                  |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|CASH AND CASH EQUIVALENTS AT END OF YEAR                               |                                                                                                    | $                                                   | 4,524,959                                    |                                                  | $         
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|Supplemental disclosure of cash flows information:                     |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Cash paid for income taxes                                                                         |                                                     | $                                            | 760,516                                          |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Cash paid for interest                                                                             |                                                     | $                                            | 3,190,574                                        |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|Supplemental disclosure of noncash investing and financing activities: |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Conversion of loans receivable to real estate owned                                                |                                                     | $                                            | 77,498                                           |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|Sale of real estate owned:                                             |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Carrying value                                                                                     |                                                     | $                                            | 77,498                                           |           
|                                                                       | Charge-off                                                                                         |                                                     |                                              |                                                 |           
|                                                                       | Financed sale                                                                                      |                                                     |                                              |                                                 |           
|                                                                       | Gain on sale                                                                                       |                                                     |                                              | 100,321                                          |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           
|                                                                       | Cash received from sale                                                                            |                                                     | $                                            | 177,819                                          |           
|                                                                       |                                                                                                    |                                                     |                                              |                                                  |           

See accompanying notes.

37

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CECIL BANCORP, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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.

On
October 1, 2002, the Bank converted from a stock federal savings bank to a commercial bank chartered under the laws of the State of Maryland and became a member of the Federal
Reserve System.

Certain
reclassifications have been made to amounts previously reported to conform to the classifications made in 2002. The following is a summary of the more significant accounting
policies:



Through its subsidiary bank, the Corporation conducts full-service commercial banking. Services to individuals and businesses include accepting
deposits, extending real estate and 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.



The consolidated financial statements include the accounts of the Corporation and its subsidiaries. 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.



The preparation of the financial statements in conformity with accounting principles generally accepted 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.



Marketable equity securities and debt securities not classified as held-to-maturity or trading are classified as
available-for-sale. Securities available-for-sale are acquired as part of the Corporation's asset/liability management strategy and may be sold in
response to changes in interest rates, loan demand, changes in prepayment risk and other factors. Securities available-for-sale are carried at fair value, with unrealized gains
or losses based on the difference between amortized cost and fair value reported as accumulated other comprehensive income, a separate component of stockholders' equity, net of deferred tax. Realized
gains and losses, using the specific identification method, are included as a separate component of noninterest income. Related interest and dividends are included in interest income.

38

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Investments held-to-maturity are those securities which the Corporation has the ability and positive intent to hold until maturity.
Securities so classified at time of purchase are recorded at cost. The carrying values of securities held-to-maturity are adjusted for premium amortization and discount
accretion.



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.



The allowance for loan losses represents an amount which, in management's judgment, will be adequate to absorb probable losses on existing loans that may become
uncollectible. The allowance for loan losses consists of an allocated component and an unallocated component. The components of the
allowance for loan losses represent an estimation done pursuant to either Statement of Financial Accounting Standards ("SFAS") No. 5,Accounting for
Contingencies,or SFAS No. 114,Accounting by Creditors for Impairment of a Loan.The adequacy of the allowance for loan
losses is determined through careful and continuous review and evaluation of the loan portfolio and involves the balancing of a number of factors as outlined below to establish a prudent level. Loans
deemed uncollectible are charged against, while recoveries are credited, to the allowance. Management adjusts the level of the allowance through the provision for loan losses, which is recorded as a
current period operating expense. The Corporation's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific
allowances and the unallocated allowance.

The
allowance formula is calculated by applying loss factors to corresponding categories of outstanding loans. Loss factors are based on the Corporation's historical loss experience. The
use of

39

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these loss factors is intended to reduce the difference between estimated losses inherent in the portfolio and observed losses.

Specific
allowances are established in cases where management has identified significant conditions or circumstances related to a loan 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. Allowances are established for credits that do not have specific allowances
according to the application of these credit loss factors to 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 federal examiners in their periodic examinations, or (b) by type of loans, for other credits.

The
unallocated allowance is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. Such
conditions include general economic and business conditions affecting key lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from
existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business
cycle, bank regulatory examination results, and management's judgment with respect to various other conditions including loan administration and management and the quality of risk identification
systems. Executive management reviews these conditions quarterly.

Management
believes that the allowance for loan losses is adequate. However, the determination of the allowance requires significant judgment, and estimates of probable losses inherent
in the loan 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 loans comprising the loan portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions. In addition, various
regulatory agencies; as an integral part of their examination process, periodically review the Bank's loan portfolio and allowance for loan losses. Such review may result in recognition of additions
to the allowance based on their judgments of information available to them at the time of their examination.



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 range from three to seven years for furniture, fixtures and equipment and forty years
for buildings. Leasehold improvements are amortized over 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 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 consist of Federal Reserve Bank and Federal Home Loan Bank of Atlanta ("FHLB") stock which are required by law and are restricted
as to marketability.

40

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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 periodically tested for impairment.



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.



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 costs are expensed as incurred. Advertising expense was $53,416 and $47,439 for the years ended December 31, 2002 and 2001, respectively.



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.



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.

41

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2.    RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,Business Combinations(SFAS No. 141) and No. 142Goodwill and Other Intangible Assets(SFAS No. 142). SFAS No. 141 changes the accounting for
business combinations, requiring that all business combinations be accounted for using the purchase method and that intangible assets be recognized as assets apart from goodwill if they arise from
contractual or other legal rights, or if they are separable or capable of being separated from the acquired entity and sold, transferred, licensed, rented or exchanged. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001. SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets.
Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001.

SFAS
No. 142 requires that the useful lives of intangible assets acquired on or before June 30, 2001 be reassessed and the remaining amortization periods adjusted
accordingly. Previously recognized intangible assets deemed to have indefinite lives shall be tested for impairment.

In
June 2002, the Financial Accounting Standards Board issued SFAS No. 143,Accounting for Asset Retirement Obligations.SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of intangible long-lived assets and the associated asset retirement costs and is effective for the fiscal years beginning after June 15, 2002.
Management does not expect the impact of SFAS No. 143 to be material to the Corporation's consolidated financial statements.

In
August 2002, the Financial Accounting Standards Board issued SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived
Assets.SFAS No. 144 amends SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of,and establishes a single accounting model for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The adoption of this standard did not have a material impact on the Corporation's consolidated financial statements.

In
April 2002, the Financial Accounting Standards Board issued SFAS No. 145, which updates, clarifies, and simplifies certain existing accounting pronouncements beginning
at various dates in 2002 and 2003. The statement rescinds SFAS No. 4 and SFAS No. 64, which required net gains or losses from the extinguishment of debt to be classified as an
extraordinary item in the income statement. These gains and losses will now be classified as extraordinary only if they meet the criteria for such classification as outlined in Accounting Principles
Board ("APB") Opinion 30, which allows for extraordinary treatment if the item is material and both unusual and infrequent in nature. The statement also rescinds SFAS No. 44 related to the
accounting for intangible assets for motor carriers and amends SFAS No. 13 to require certain lease modifications that have economic effects similar to sale-leaseback transactions
to be accounted for as such. The changes required by SFAS No. 145 are not expected to have a material impact on results of operations, financial position, or liquidity.

In
July 2002, the Financial Accounting Standards Board issued SFAS No. 146,Accounting for Costs Associated With Exit or Disposal
Activities, which becomes effective for the Corporation beginning January 1, 2003. This statement requires a cost associated with an exit or disposal activity, such as
the sale or termination of a line of business, the closure of business activities in a particular location, or a change in management structure, to be recorded as a liability at fair value when it
becomes probable the cost will be incurred and no future economic benefit will be gained by the Company for such cost. Applicable costs include employee termination benefits, contract termination
costs, and costs to consolidate facilities or relocate employees. SFAS No. 146 supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity,which in some cases required certain costs to be
recognized before a liability was actually incurred. The adoption of this standard is not expected to have a material impact on results of operations, financial position, or liquidity.

42

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On
October 1, 2002, the Financial Accounting Standards Board issued SFAS No. 147,Acquisitions of Certain Financial
Institutions,which amends certain provisions of SFAS No. 72, SFAS No. 144, and FASB Interpretation No. 9. SFAS No. 147 removes acquisitions of
financial institutions from the scope of SFAS No. 72 and requires that such acquisitions be accounted for in accordance with SFAS No. 141,Business
Combinations.If the acquisition meets the definition of a business combination, it shall be accounted for by the purchase method in accordance with the provision of SFAS
No. 141. Any goodwill that results
will be accounted for in accordance with the provisions of SFAS No. 142. If the acquisition does not meet the definition of a business combination, the cost of the assets acquired shall be
allocated to the individual assets acquired and liabilities assumed based on their relative fair values and shall not give rise to goodwill.

In
addition, this proposed statement would amend SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such
as depositor- and borrower-relationship intangible assets and credit-cardholder intangible assets. Accordingly, those intangible assets would be subject to the same undiscounted cash flow
recoverability tests and impairment loss recognition and measurement provisions that SFAS No. 144 requires for long-term tangible assets and other finite-lived intangible assets
that are held and used.

Existing
unidentifiable intangible assets, as that term is defined in SFAS No. 72, previously recognized under the provisions of SFAS No. 72 shall continue to be amortized
(consistent with the existing clarifying provisions of EITF Topic D-100) unless the transaction in which the intangible asset arose meets the definition of a business combination.

Management
believes the 1999 branch office acquisition meets the definition of a business combination and has discontinued amortizing the intangible, subject to periodic review for
impairment.

In
December 2002, the Financial Accounting Standards Board issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and
Disclosure,which provides guidance on how to transition from the intrinsic value method of accounting for stock-based employee compensation under APB No. 25 to SFAS
No. 123's fair value method of accounting, if a company so elects. The Corporation will not adopt the fair value method of recording stock options under SFAS No. 123 and accordingly,
this standard will not have a material impact on results of operations, financial position or liquidity.

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.

43

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Investment
securities at December 31, 2002 and 2001 are summarized as follows:

|                    |                                         | 2002
|------------------- | --------------------------------------- | ----
|
|Available for sale: |                                         |     
|                    | Mutual fundsmortgage securities        |     
|                    | Mutual fundsU.S. Government securities |     
|                    | Mortgage-backed securities              |     
|                    |                                         |     
|                    |                                         | $   
|                    |                                         |     

|                    |                                         | 2001
|------------------- | --------------------------------------- | ----
|
|Available for Sale: |                                         |     
|                    | Mutual fundsmortgage securities        |     
|                    | Mutual fundsU.S. Government securities |     
|                    | Mortgage-backed securities              |     
|                    |                                         |     
|                    |                                         | $   
|                    |                                         |     

|                  |                                                                                  | 2002
|----------------- | -------------------------------------------------------------------------------- | ----
|
|Held to Maturity |                                                                                  |     
|                  | U.S. Treasury securities and obligations of U.S. Government and Federal agencies |     
|                  |                                                                                  |     

|                  |                                                                                  | 2001
|----------------- | -------------------------------------------------------------------------------- | ----
|
|Held to Maturity |                                                                                  |     
|                  | U.S. Treasury securities and obligations of U.S. Government and Federal agencies |     
|                  |                                                                                  |     

The
amortized costs and estimated fair values of U. S. Treasury securities and obligations of the U.S. Government and Federal agencies at December 31, 2002 by contractual
maturities are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:

|                                       |  | Amortized
Cost |           | Estimated
Fair
Value
|-------------------------------------- |  | -------------- | --------- | --------------------
|Due in one year or less                |  | $              | 3,494,020 |                     
|Due in one year through five years     |  |                |          |                     
|Due after five years through ten years |  |                |          |                     
|Due after ten years                    |  |                |          |                     

There
were no sales of investment securities during the years ended December 31, 2002 and 2001.

44

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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:

|                      |                                          | 2002        |             | 2001       |            
|--------------------- | ---------------------------------------- | ----------- | ----------- | ---------- | -----------
|First mortgage loans: |                                          |             |             |            |            
|                      | 1 - 4 dwelling units                     |             | $           | 54,868,523 |            
|                      | 5 or more                                |             |             | 2,558,614  |            
|                      | Nonresidential                           |             |             | 14,802,871 |            
|                      | Land                                     |             |             | 1,780,841  |            
|                      | Construction                             |             |             | 13,489,219 |            
|                      |                                          |             |             |            |            
|                      |                                          |             | 87,500,068  |            |            
|                      |                                          |             |             |            |            
|Other loans:          |                                          |             |             |            |            
|                      | Home equity loans                        |             |             | 6,669,878  |            
|                      | Commercial loans                         |             |             | 9,769,296  |            
|                      | Consumer loans                           |             |             | 5,299,728  |            
|                      | Loans on savings deposits                |             |             | 927,979    |            
|                      | Education                                |             |             | 18,151     |            
|                      |                                          |             |             |            |            
|                      |                                          |             | 22,685,032  |            |            
|                      |                                          |             |             |            |            
|                      |                                          | Total loans |             |            | 110,185,100
|Less:                 |                                          |             |             |            |            
|                      | Undisbursed proceeds on loans in process |             |             | (7,618,320 | )          
|                      | Deferred loan fees and costs             |             |             | (383,226   | )          
|                      |                                          |             |             |            |            
|                      |                                          | $           | 102,183,554 |            | $          
|                      |                                          |             |             |            |            

At
December 31, 2002 and 2001, the Bank was servicing loans for others amounting to approximately $9,300,000 and $13,800,000, 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 $61,651 and $72,117 as of December 31,
2002 and 2001, respectively. Estimated fair values of these servicing rights approximate carrying value. Amortization expense of servicing rights was $22,048 and $16,403 for the years ended
December 31, 2002 and 2001, respectively.

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:

|                                    |  | 2002 |        | 2001
|----------------------------------- |  | ---- | ------ | ----
|Balance at beginning of year        |  | $    | 45,744 |     
|New loans and additional borrowings |  |      |       |     
|Repayments                          |  |      | 39,362 |     
|                                    |  |      |        |     
|Balance at end of year              |  | $    | 6,382  |     
|                                    |  |      |        |     

45

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An analysis of the allowance for loan losses for the years ended December 31, 2002 and 2001 is as follows:

|                                |  | 2002 |          | 2001 |  
|------------------------------- |  | ---- | -------- | ---- | -
|Balance at beginning of period  |  | $    | 325,815  |      | $
|Provision charged to operations |  |      | 568,667  |      |  
|Charge-offs, net                |  |      | (281,803 | )    |  
|                                |  |      |          |      |  
|Balance at end of period        |  | $    | 612,679  |      | $
|                                |  |      |          |      |  

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, 2002 and 2001 and for the years then ended is as follows:

|                                                               |                                 | 2002 |           | 2001     
|-------------------------------------------------------------- | ------------------------------- | ---- | --------- | ---------
|Impaired loans with a valuation allowance                      |                                 | $    | 613,821   |          
|Impaired loans without a valuation allowance                   |                                 |      | 568,455   |          
|                                                               |                                 |      |           |          
|                                                               | Total impaired loans            |      | $         | 1,182,276
|                                                               |                                 |      |           |          
|Allowance for loan losses related to impaired loans            |                                 | $    | 226,111   |          
|Allowance for loan losses related to other than impaired loans |                                 |      | 386,568   |          
|                                                               |                                 |      |           |          
|                                                               | Total allowance for loan losses |      | $         | 612,679  
|                                                               |                                 |      |           |          
|Average impaired loans for the year                            |                                 | $    | 1,372,629 |          
|Interest income on impaired loans recognized on the cash basis |                                 | $    | 76,649    |          

5.    PREMISES AND EQUIPMENT

Premises and equipment are summarized by major classifications as follows:

|                                  |  | 2002 |           | 2001
|--------------------------------- |  | ---- | --------- | ----
|Land                              |  | $    | 298,500   |     
|Buildings and improvements        |  |      | 1,790,833 |     
|Furniture, fixtures and equipment |  |      | 1,229,950 |     
|Leasehold improvements            |  |      | 252,614   |     
|                                  |  |      |           |     
|                                  |  |      | 3,571,897 |     
|Accumulated depreciation          |  |      | 1,369,391 |     
|                                  |  |      |           |     
|                                  |  | $    | 2,202,506 |     
|                                  |  |      |           |     

Depreciation
expense for the years ended December 31, 2002 and 2001 was $202,760 and $215,894, respectively.

46

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The
Bank leases two of its branch facilities 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, 2002:

|Year ending December 31: |  |  
|------------------------ |  | -
|2003                     |  | $
|2004                     |  |  
|2005                     |  |  
|2006                     |  |  
|2007                     |  |  
|Thereafter               |  |  

Rent
expense was $63,995 and $63,796 for the years ended December 31, 2002 and 2001, respectively.

6.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets represent 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 and mortgage servicing rights. 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. Effective January 1, 2002, goodwill will no longer be amortized but rather tested for
impairment under the provisions of SFAS No. 142.

The
significant components of goodwill and intangible assets are as follows:

|                          |  | 2002 |           | 2001
|------------------------- |  | ---- | --------- | ----
|
|Goodwill                  |  | $    | 2,815,669 |     
|Mortgage servicing rights |  |      | 114,016   |     
|                          |  |      |           |     
|                          |  | $    | 2,929,685 |     
|                          |  |      |           |     

Upon
adoption of SFAS No. 147, the Corporation reclassified its unidentifiable intangible asset to goodwill. The reclassification was retroactive to January 1, 2002 and
allowed for the cessation of amortization for the year ended December 31, 2002. The following table shows the pro forma effects of the adoption of SFAS No. 147:

|                       |                                           | 2002 |         | 2001   
|---------------------- | ----------------------------------------- | ---- | ------- | -------
|Goodwill amortization: |                                           |      |         |        
|                       | Pretax                                    |      | $       |       
|                       |                                           |      |         |        
|                       | After-tax                                 |      | $       |       
|                       |                                           |      |         |        
|Net income:            |                                           |      |         |        
|                       | Reported                                  |      | $       | 994,522
|                       | Add back: after-tax goodwill amortization |      |         |       
|                       |                                           |      |         |        
|Adjusted               |                                           | $    | 994,522 |        
|                       |                                           |      |         |        

47

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7.    SAVINGS DEPOSITS

The
following is a summary of savings deposits as of December 31:

|                                 |  | 2002 |            | 2001 |     
|-------------------------------- |  | ---- | ---------- | ---- | ----
|
|N.O.W. and Money Market accounts |  | $    | 22,619,451 |      | 1.22
|Savings accounts                 |  |      | 15,926,458 |      | 1.03
|Term certificates                |  |      | 55,100,770 |      | 3.33
|Checking accounts                |  |      | 6,184,732  |      |     
|                                 |  |      |            |      |     
|                                 |  | $    | 99,831,411 |      |     
|                                 |  |      |            |      |     

A
summary of certificate accounts by maturity as of December 31, 2002 follows:

|Three months or less               |  | $ | 14,174
|---------------------------------- |  | - | ------
|Three months through twelve months |  |   | 24,467
|twelve months to thirty-six months |  |   | 11,663
|Over thirty-six months             |  |   | 4,797 

Eligible
savings 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 $16,587,399 and $19,499,625 as of December 31, 2002 and 2001, respectively.

Officers'
and directors' deposit accounts amounted to approximately $1,106,716 and $820,000 at December 31, 2002 and 2001, respectively.

8.    ADVANCES FROM FHLB

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

|2002 |           | 2001
|---- | --------- | ----
|
|$    | 6,000,000 |     
|     | 3,000,000 |     
|     |           |     
|     |           |     
|     |           |     
|$    | 9,000,000 |     
|     |           |     

The
Bank has lines of credit with the FHLB with a total maximum available balance of $12,300,000. As of December 31, 2002, $3,300,000 was available to be drawn against the lines
of credit.

Wholly
owned first mortgage loans on 1 - 4 dwelling units with unpaid principal balances of approximately $51,200,000 were pledged to the FHLB as collateral on
advances.

48

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9.    INCOME TAXES

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

|                       |         | 2002                     |         | 2001    |        
|---------------------- | ------- | ------------------------ | ------- | ------- | -------
|Current income taxes:  |         |                          |         |         |        
|                       | Federal |                          | $       | 527,391 |        
|                       | State   |                          |         | 114,604 |        
|                       |         |                          |         |         |        
|                       |         |                          | 641,995 |         |        
|                       |         |                          |         |         |        
|Deferred income taxes: |         |                          |         |         |        
|                       | Federal |                          |         | (23,500 | )      
|                       | State   |                          |         | (5,202  | )      
|                       |         |                          |         |         |        
|                       |         |                          | (28,702 | )       |        
|                       |         |                          |         |         |        
|                       |         | Total income tax expense |         | $       | 613,293
|                       |         |                          |         |         |        

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:

|                     |                                                      | 2002                            |   | 2001   
|-------------------- | ---------------------------------------------------- | ------------------------------- | - | -------
|Deferred tax assets: |                                                      |                                 |   |        
|                     | Deferred loan origination fees                       |                                 | $ | 148,002
|                     | Loan loss allowance                                  |                                 |   | 225,031
|                     | Deferred compensation                                |                                 |   | 96,171 
|                     | Net unrealized loss on available for sale securities |                                 |   |       
|                     | Tax basis of goodwill in excess of book              |                                 |   | 25,824 
|                     | Other                                                |                                 |   | 18,818 
|                     |                                                      |                                 |   |        
|                     |                                                      | Total gross deferred tax assets |   |        
|                     |                                                      |                                 |   |        

|                          |                                                      | 2002                                 |         | 2001  
|------------------------- | ---------------------------------------------------- | ------------------------------------ | ------- | ------
|Deferred tax liabilities: |                                                      |                                      |         |       
|                          | FHLB stock dividends                                 |                                      | $       | 27,691
|                          | Tax reserves for bad debts                           |                                      |         | 17,483
|                          | Mortgage servicing rights                            |                                      |         | 23,809
|                          | Tax accumulated depreciation in excess of book       |                                      |         | 68,598
|                          | Net unrealized gain on available-for-sale securities |                                      |         | 28,503
|                          |                                                      |                                      |         |       
|                          |                                                      | Total gross deferred tax liabilities |         |       
|                          |                                                      |                                      |         |       
|Net deferred tax assets   |                                                      | $                                    | 347,762 |       
|                          |                                                      |                                      |         |       

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:

|                        |                          | 2002                                                  |   | 2001 |  
|----------------------- | ------------------------ | ----------------------------------------------------- | - | ---- | -
|Federal income tax rate |                          | 34.0                                                  | % | 34.0 | %
|                        | Increase resulting from: |                                                       |   |      |  
|                        |                          | State income taxes, net of federal income tax benefit |   | 4.5  |  
|                        |                          | Other                                                 |   | (.4  | )
|                        |                          |                                                       |   |      |  
|Effective tax rate      |                          | 38.1                                                  | % | 38.2 | %
|                        |                          |                                                       |   |      |  

49

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At
December 31, 2002 and 2001, there is no valuation allowance maintained against the deferred tax assets. The Corporation expects to fully realize the benefit of the deferred tax
assets.

10.  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.

11.  REGULATORY MATTERS

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. 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, 2002 and
2001, the capital levels of the Company and the Bank substantially exceed all capital adequacy requirements to which they are subject.

As
of December 31, 2002, the Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the Corporation's or the Bank's category.

50

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

|                         |                                                    | Actual |   | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions | 
|------------------------ | -------------------------------------------------- | ------ | - | ---------------------------------------------------------------- | 
|
|
|As of December 31, 2002: |                                                    |        |   |                                                                  | 
|                         | Total risk-based capital (to risk-weighted assets) |        | $ | 11,412                                                           | 
|                         | Tier I capital (to risk-weighted assets)           |        |   | 10,799                                                           | 
|                         | Tier I capital (to adjusted total assets)          |        |   | 10,799                                                           | 
|                         | Tangible capital (to adjusted total assets)        |        |   | 10,799                                                           | 
|As of December 31, 2001: |                                                    |        |   |                                                                  | 
|                         | Total risk-based capital (to risk-weighted assets) |        | $ | 10,180                                                           | 
|                         | Tier I capital (to risk-weighted assets)           |        |   | 9,855                                                            | 
|                         | Tier I capital (to adjusted total assets)          |        |   | 9,855                                                            | 
|                         | Tangible capital (to adjusted total assets)        |        |   | 9,855                                                            | 

12.  OFFICER, DIRECTOR AND EMPLOYEE BENEFIT PLANS



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%. (5.25% at December 31,
2002) over a ten-year period. Payments began on December 31, 1995. The Bank contributes sufficient cash funds to the ESOP to repay the loan, plus such other amounts as the
Corporation's Board of Directors may determine in its discretion.

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. 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

51

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acquire the shares of stock. ESOP compensation expense was $71,848 and $53,502 in 2002 and 2001, respectively. The ESOP shares as of December 31, 2002 were as follows:

|Shares released for allocation                       |                   |   | 30,806  |       
|---------------------------------------------------- | ----------------- | - | ------- | ------
|Shares distributed                                   |                   |   | (3,575  | )     
|Unreleased shares                                    |                   |   | 7,702   |       
|                                                     |                   |   |        
|                                                     | Total ESOP shares |   |         | 34,933
|                                                     |                   |   |        
|Fair value of unreleased shares at December 31, 2002 |                   | $ | 150,189 |       
|                                                     |                   |   |        



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 $5,848 and $5,082 for the years ended December 31, 2002 and 2001, 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 57,838 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 44,519 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:

|                                 |  | 2002   |   | 2001
|-------------------------------- |  | ------ | - | ----
|
|Outstanding at beginning of year |  | 20,967 |   | $   
|Granted                          |  |       |   |     
|Exercised                        |  | (3,439 | ) |     
|                                 |  |        |   |     
|Outstanding at end of year       |  | 17,528 |   | $   
|                                 |  |        |   |     
|Options exercisable at year end  |  | 15,575 |   | $   
|                                 |  |        |   |     

52

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The
following table summarizes information about stock options outstanding at December 31, 2002:

|       |  | Options Outstanding |  | Options Exercisable
|------ |  | ------------------- |  | -------------------
|
|$11.00 |  | 13,676              |  | 3.7                
|$25.00 |  | 3,852               |  | 6.3                

No
stock options were granted in the years ended December 31, 2002 and 2001.

As
of December 31, 2002, 13,676 of the Corporation's outstanding stock options were considered to be in the money.

For
financial statement purposes, the Corporation measures the compensation costs of its stock option plans under Accounting Principles Board (APB) Opinion No. 25 whereby, no
compensation cost is recorded if, at the grant date, the exercise price of the options is equal to the fair market value of the Corporation's common stock. Had the Corporation determined cost based on
the fair value at the grant date for its stock options under SFAS Statement No. 123,Accounting for Stock-Based Compensation, the Corporation's
net income and earnings per share for the years ended December 31, 2002 and 2001 would have been reduced to the pro forma amounts as follows:

|                                                                                                                                            |                      | 2002 |         | 2001    |  
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ---- | ------- | ------- | -
|Net income as reported                                                                                                                      |                      | $    | 994,522 |         | $
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects |                      |      | (6,549  | )       |  
|                                                                                                                                            |                      |      |         |         |  
|                                                                                                                                            | Pro forma net income |      | $       | 987,973 |  
|                                                                                                                                            |                      |      |         |         |  
|Earnings per share:                                                                                                                         |                      |      |         |         |  
|                                                                                                                                            | Basicas reported    |      | $       | 1.59    |  
|                                                                                                                                            |                      |      |         |         |  
|                                                                                                                                            | Basicpro forma      |      | $       | 1.58    |  
|                                                                                                                                            |                      |      |         |         |  
|                                                                                                                                            | Dilutedas reported  |      | $       | 1.57    |  
|                                                                                                                                            |                      |      |         |         |  
|                                                                                                                                            | Dilutedpro forma    |      | $       | 1.55    |  
|                                                                                                                                            |                      |      |         |         |  

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, 2002 or 2001.

13.  PENSION PLANS

The Corporation 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. 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 Corporation 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 Corporation may also make a discretionary contribution to the Plan as determined by the Board of Directors. For the years ended December 31,
2002 and 2001, the Corporation's expense related to the Plan was $97,776 and $80,083, respectively.

53

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14.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business, the Corporation 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 Corporation's clients. The associated credit risk is controlled by subjecting such activity to the same credit and quality controls as exist
for the Company'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 Corporation. 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 $13,752,791 at December 31, 2002, and $12,206,453 at December 31, 2001.
These commitments are contingent upon continuing customer compliance with the terms of the agreement.

Unused
portions of equity lines at year-end amounted to $2,410,370 in 2002 and $1,636,559 in 2001. The Corporation's home equity line accounts are secured by the borrower's
residence.

Irrevocable
letters of credit, totaling $4,853,787 at December 31, 2002 and $4,722,287 at December 31, 2001, 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.

15.  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 impact 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:

|         |                                             | 2002                         |   | 2001   
|-------- | ------------------------------------------- | ---------------------------- | - | -------
|BASIC:   |                                             |                              |   |        
|         | Net income available to common stockholders |                              | $ | 994,522
|         |                                             |                              |   |        
|         | Average common shares outstanding           |                              |   | 625,618
|         |                                             |                              |   |        
|         |                                             | Basic net income per share   |   | $      
|         |                                             |                              |   |        
|DILUTED: |                                             |                              |   |        
|         | Net income available to common stockholders |                              | $ | 994,522
|         |                                             |                              |   |        
|         | Average common shares outstanding           |                              |   | 625,618
|         | Stock option adjustment                     |                              |   | 9,755  
|         |                                             |                              |   |        
|         | Average common shares outstandingdiluted   |                              |   | 635,373
|         |                                             |                              |   |        
|         |                                             | Diluted net income per share |   | $      
|         |                                             |                              |   |        

16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107Disclosure About Fair Value of Financial Instrumentsrequires that the Corporation disclose
estimated fair values for both its on and off-balance-sheet financial instruments. The following

54

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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 approximates 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 SecurityThe fair value of the Corporation's investment in stock of the FHLB and FAB approximates its
carrying value.

Savings Deposits and Advance Payments by BorrowersThe fair values of passbook accounts, NOW accounts, demand deposit accounts
and variable rate money market accounts approximates 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.

Employee Stock Ownership Plan DebtThe fair value of the Corporation's employee stock ownership plan debt is estimated using a
discounted cash flow analysis based on current market rates for debt with similar terms and remaining maturity.

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.

55

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The
estimated fair values of financial instruments at December 31, 2002 are as follows:

|                       |                                                    | Carrying
Value |   | Estimated
Fair
Value
|---------------------- | -------------------------------------------------- | -------------- | - | --------------------
|Financial assets:      |                                                    |                |   |                     
|                       | Cash and cash equivalents                          |                | $ | 4,524,959           
|                       | Investment securities:                             |                |   |                     
|                       | Available for sale                                 |                |   | 6,994,386           
|                       | Held to maturity                                   |                |   | 3,494,020           
|                       | Loans                                              |                |   | 102,183,554         
|                       | Restricted investment securities                   |                |   | 1,072,850           
|                       | Accrued interest receivable                        |                |   | 524,892             
|Financial liabilities: |                                                    |                |   |                     
|                       | Savings deposits and advance payments by borrowers |                |   | 100,376,372         
|                       | Employee stock ownership plan debt                 |                |   | 77,016              
|                       | Advances from Federal Home Loan Bank of Atlanta    |                |   | 9,000,000           

The
estimated fair values of financial instruments at December 31, 2001 are as follows:

|                       |                                                    | Carrying
Value |   | Estimated
Fair
Value
|---------------------- | -------------------------------------------------- | -------------- | - | --------------------
|Financial assets:      |                                                    |                |   |                     
|                       | Cash and cash equivalents                          |                | $ | 5,546,242           
|                       | Investment securities:                             |                |   |                     
|                       | Available for sale                                 |                |   | 10,767,803          
|                       | Held to maturity                                   |                |   | 3,049,364           
|                       | Loans                                              |                |   | 101,719,306         
|                       | Stock in FHLB                                      |                |   | 955,000             
|                       | Accrued interest receivable                        |                |   | 655,019             
|Financial liabilities: |                                                    |                |   |                     
|                       | Savings deposits and advance payments by borrowers |                |   | 104,686,838         
|                       | Employee stock ownership plan debt                 |                |   | 115,524             
|                       | Advances from Federal Home Loan Bank of Atlanta    |                |   | 10,000,000          

Off-balance
sheet financial assets:

|                             |  | 2002 |            | 2001
|---------------------------- |  | ---- | ---------- | ----
|
|Commitments to extend credit |  | $    | 16,163,000 |     
|Letters of credit            |  |      | 4,854,000  |     

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17.  CECIL BANCORP, INC.HOLDING COMPANY ONLY FINANCIAL INFORMATION

The following condensed balance sheets as of December 31, 2002 and 2001 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

|                                                  |                                                                                                                                     | December 31, |           
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------ | ----------
|
|ASSETS                                            |                                                                                                                                    
|Cash                                              |                                                                                                                                     | $            | 120,756   
|Investment in subsidiary banks                    |                                                                                                                                     |              | 13,116,782
|Other assets                                      |                                                                                                                                     |              | 29,647    
|                                                  |                                                                                                                                     |              |           
|                                                  |                                                                                                                                     | Total assets |           
|                                                  |                                                                                                                                     |              |           
|LIABILITIES AND STOCKHOLDERS' EQUITY              |                                                                                                                                    
|Other liabilities                                 |                                                                                                                                     | $            | 3,862     
|Employee stock ownership plan debt                |                                                                                                                                     |              | 77,016    
|                                                  |                                                                                                                                     |              |           
|                                                  |                                                                                                                                     |              | 80,878    
|                                                  |                                                                                                                                     |              |           
|Stockholders' equity:                             |                                                                                                                                     |              |           
|                                                  | Common stock, $.01 par value, authorized 4,000,000 shares, issued and outstanding 633,108 shares in 2002 and 621,486 shares in 2001 |              |           
|                                                  | Additional paid-in capital                                                                                                          |              |           
|Employee stock ownership plan debt                |                                                                                                                                     |              | (77,016   
|Deferred Compensation Management Recognition Plan |                                                                                                                                     |              | (11,655   
|Retained earnings                                 |                                                                                                                                     |              | 7,803,743 
|Accumulated other comprehensive loss              |                                                                                                                                     |              | 37,676    
|                                                  |                                                                                                                                     |              |           
|                                                  |                                                                                                                                     |              | 13,186,307
|                                                  |                                                                                                                                     |              |           
|Total liabilities and stockholders' equity        |                                                                                                                                     | $            | 13,267,185
|                                                  |                                                                                                                                     |              |           

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STATEMENTS OF INCOME

|                               |                                        | Years Ended December 31,
|------------------------------ | -------------------------------------- | ------------------------
|
|Income:                        |                                        |                         
|                               | Interest income                        |                         
|                               | Equity in earnings of subsidiary banks |                         
|                               |                                        |                         
|                               |                                        | Total income            
|                               |                                        |                         
|Operating expenses:            |                                        |                         
|                               | Compensation and benefits              |                         
|                               | Other                                  |                         
|                               |                                        |                         
|                               |                                        |                         
|                               |                                        |                         
|Net income before income taxes |                                        |                         
|Income tax benefit             |                                        |                         
|                               |                                        |                         
|Net income                     |                                        | $                       
|                               |                                        |                         

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STATEMENTS OF CASH FLOWS

|                                      |                                                                                   | Years Ended December 31,                            |                                                       
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                   |                                                     |                                                       
|                                      | Net income                                                                        |                                                     | $                                                     
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                     |                                                       
|                                      |                                                                                   | Equity in undistributed earnings of subsidiary      |                                                       
|                                      |                                                                                   | Reimbursement of tax benefit from subsidiary        |                                                       
|                                      |                                                                                   | Net change in other assets and other liabilities    |                                                       
|                                      |                                                                                   | Distribution from Management Recognition Plan Trust |                                                       
|                                      |                                                                                   |                                                     |                                                       
|                                      |                                                                                   |                                                     | Net cash flows (used) provided by operating activities
|                                      |                                                                                   |                                                     |                                                       
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                   |                                                     |                                                       
|                                      | Dividends paid                                                                    |                                                     |                                                       
|                                      | Unearned ESOP compensation expense                                                |                                                     |                                                       
|                                      | Proceeds from sale of common stock                                                |                                                     |                                                       
|                                      | Proceeds from exercise of stock options                                           |                                                     |                                                       
|                                      |                                                                                   |                                                     |                                                       
|                                      |                                                                                   |                                                     | Net cash used in financing activities                 
|                                      |                                                                                   |                                                     |                                                       
|NET (DECREASE) INCREASE IN CASH       |                                                                                   |                                                     | (137,480                                              
|CASH AT BEGINNING OF PERIOD           |                                                                                   |                                                     | 258,236                                               
|                                      |                                                                                   |                                                     |                                                       
|CASH AT END OF PERIOD                 |                                                                                   | $                                                   | 120,756                                               
|                                      |                                                                                   |                                                     |                                                       

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Other Executive Officers

Following are the name, age (as of December 31, 2002) and principal position of executive officers of the Company and Cecil Federal who are not directors.

|Name              |  | Age |  | Title                                                         
|----------------- |  | --- |  | --------------------------------------------------------------
|Brian J. Hale     |  | 42  |  | Senior Vice President/Chief Operating Officer of Cecil Federal
|Sandra D. Feltman |  | 52  |  | Vice President/Director of Lending of Cecil Federal           
|Thomas L. Lofland |  | 50  |  | President/Chief Executive Officer of Columbian Division       
|Taylor F. Cameron |  | 31  |  | Vice President of Cecil Bancorp, Inc.                         

BRIAN
J. HALE is Senior Vice President/Chief Operating Officer of Cecil Federal. Mr. Hale joined Cecil Federal in 1995, Mr. Hale's responsibilities as Chief Operating
Officer include the administration of all lending, savings, human resources, and operational activities of Cecil Federal. Mr. Hale is currently a Director of the United Way of Cecil County.

SANDRA
D. FELTMAN is 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 has participated in various activities for the Business and Education Partnership Advisory Council. Ms. Feltman is a past member and 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, 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 serves
as a Director the Economic and Development Commission for the State of Maryland and the Cecil Community College Foundation Board. He also is a Director of Union Hospital of Cecil County Heath
Systems, Inc., chairing the Quality Control Committee. He is a member of the Maryland Bankers Education Council and the Maryland Bank Services Committee of the Maryland Bankers Association.
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 Northern Chesapeake Hospice. Mr. Lofland, formerly of Havre de Grace, resides in Fair Hill, Maryland.

TAYLOR
F. CAMERON is Vice President/Corporate Affairs for Cecil Bancorp, Inc. Mr. Cameron has served in various capacities prior to carrying out his current
responsibilities of managing the corporate affairs of the Company. Mr. Cameron is a Director of the Cecil County Revolving Loan Fund and a member of the Maryland Bankers Association's
Leadership and Development Committee.

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He also serves as the Secretary of the St. Andrew's School Alumni Corporation Board and as a Director of the Cecil County Chamber of Commerce. He resides in North East, 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 STOCKHOLDER 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



61

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No.

Exhibit3.1

Articles of Incorporation of Cecil Bancorp, Inc.*3.2

Amended Bylaws of Cecil Bancorp, Inc.**3.3

Articles of Incorporation of Cecil Federal Bank3.4

Bylaws of Cecil Federal Bank4

Form of Common Stock Certificate*10.2

Employment Agreement between Cecil Bancorp, Inc., Cecil Federal Savings Bank and Mary Halsey*10.3

Cecil Bancorp, Inc. Stock Option and Incentive Plan****10.4

Cecil Bancorp, Inc. Management Recognition Plan****10.5

Cecil Federal Savings Bank Retirement Plan for Non-Employee Directors*****10.6

Columbian Bank, a Federal Savings Bank 1994 Stock Option and Incentive Plan***21

Subsidiaries23

Consent of Stegman & Company99

Certification of Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. Section 1350


---

|     |  | Management contract or compensation plan or arrangement.                                                                               
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|*     |  | Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-81374).                                     
|**    |  | Incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 2001 File No. (0-24926).                        
|***   |  | Incorporated by reference to Columbian's Registrant's Registration Statement on Form 10-SB.                                            
|****  |  | Incorporated by reference to the Company's Proxy Statement for its Annual Meeting of May 25, 1995 (File No. 0-24926).                  
|***** |  | Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994 (File No. 0-24926).

(b)Reports on Form 8-K.

None

(c)Exhibits.See (a)(3) above for all exhibits filed herewith and the Exhibit Index.

ITEM 14. CONTROLS AND PROCEDURES.

Within the ninety days prior to the filing of this report, the Company's management, under the supervision and with the participation of its Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rule 13a-14 under the
Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were adequate. There
were no significant changes (including corrective actions with regard to significant or material weaknesses) in the Company's internal controls or in other factors subsequent to the date of the
evaluation that could significantly affect those controls.

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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 31, 2003 |  | By:                

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. HALSEYMary B. Halsey
President and Chief Executive Officer
(Principal Executive Officer)                |  | Date: March 31, 2003
|By: |  | /s/MARY B. HALSEYMary B. Halsey
President and Chief Executive Officer
(Principal Financial and Accounting Officer) |  | Date: March 31, 2003
|By: |  | /s/CHARLES F. SPOSATOCharles F. Sposato
Chairman of the Board                                                      |  | Date: March 31, 2003
|By: |  | /s/DORIS P. SCOTTDoris P. Scott
Director                                                                           |  | Date: March 31, 2003
|By: |  | /s/HOWARD B. TOMEHoward B. Tome
Director                                                                           |  | Date: March 31, 2003
|By: |  | /s/DONALD F. ANGERTDonald F. Angert
Director                                                                       |  | Date: March 31, 2003
|    |  |                                                                                                                    |  |                     

63

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|By: |  | /s/MATTHEW G. BATHONMatthew G. Bathon
Director |  | Date: March 31, 2003
|--- |  | ---------------------------------------------- |  | --------------------

64

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CERTIFICATIONS

I,
Mary B. Halsey, certify that:





|Date: March 31, 2003 |  | /s/MARY B. HALSEYMary B. Halsey President, Chief Executive
Officer and Chief Financial Officer (Principal Executive Officer
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------

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