CECIL BANCORP INC - Quarter Report: 2008 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the quarterly period ended June 30, 2008.

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

For the transition period from _________ to _________

CECIL BANCORP, INC.

(Name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		52-1883546 (I.R.S. Employer Identification Number)
127 North Street, Elkton, Maryland (Address of principal executive office)		21921-5547 (Zip Code)

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

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.

þ YES o NO          

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o YES þ NO          

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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

 

 

CECIL BANCORP INC. AND SUBSIDIARIES

CONTENTS

						PAGE
PART I.		FINANCIAL INFORMATION
		ITEM 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets — June 30, 2008 and December 31, 2007					3
		Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2008 and 2007					4-5
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007					6
		Notes to Consolidated Financial Statements					7-10
		ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			11-18
		ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk			19
		ITEM 4.		Controls and Procedures			19
		ITEM 4T.		Controls and Procedures			19
PART II.		OTHER INFORMATION					19
SIGNATURES							20
CERTIFICATIONS							21-24
EX-3.1: AMENDED ARTICLES OF INCORPORATION
EX-31.A: CERTIFICATION
EX-31.B: CERTIFICATION
EX-32.A: CERTIFICATION
EX-32.B: CERTIFICATION

PART I. Financial Information

CECIL BANCORP, INC. AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

		June 30,				December 31,
		2008				2007
		(Unaudited)
ASSETS:
Cash and due from banks		$	7,193			$	1,205
Interest bearing deposits with banks			190				4,306
Investment securities:
Securities available-for-sale at fair value			4,408				2,470
Securities held-to-maturity (fair value of $250 in 2008 and $2,753 in 2007)			250				2,749
Restricted investment securities — at cost			5,353				4,750
Loans receivable			392,674				358,704
Less: allowance for loan losses			(3,724	)			(3,109	)
Net loans receivable			388,950				355,595
Other real estate owned			655				655
Premises and equipment, net			12,137				11,997
Accrued interest receivable			2,145				2,122
Goodwill			2,182				2,182
Other intangible assets			306				240
Bank owned life insurance			7,636				7,532
Other assets			3,969				5,629
TOTAL ASSETS		$	435,374			$	401,432
LIABILITIES:
Deposits		$	285,779			$	267,032
Other liabilities			10,175				5,659
Guaranteed preferred beneficial interest in junior subordinated debentures			17,000				17,000
Advances from Federal Home Loan Bank of Atlanta			93,811				84,499
Total liabilities			406,765				374,190
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; authorized 10,000,000 shares, issued and outstanding 3,682,294 shares in 2008 and 3,678,286 shares in 2007			37				37
Additional paid in capital			11,465				11,441
Retained earnings			17,309				15,856
Accumulated other comprehensive loss			(202	)			(92	)
Total stockholders’ equity			28,609				27,242
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	435,374			$	401,432

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands, except per share data)

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
INTEREST INCOME:
Interest and fees on loans		$	7,120			$	6,845			$	14,131			$	13,409
Interest on investment securities			52				76				123				150
Dividends on FHLB and FRB stock			75				34				143				69
Other interest income			9				31				24				55
Total interest income			7,256				6,986				14,421				13,683
INTEREST EXPENSE:
Interest expense on deposits			2,434				2,916				5,022				5,580
Guaranteed preferred beneficial interest in junior subordinated debentures			280				280				560				558
Interest expense on advances from FHLB			779				361				1,475				782
Total interest expense			3,493				3,557				7,057				6,920
NET INTEREST INCOME			3,763				3,429				7,364				6,763
PROVISION FOR LOAN LOSSES			275				195				600				390
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			3,488				3,234				6,764				6,373
NONINTEREST INCOME:
Checking account fees			165				131				317				269
ATM fees			97				86				180				136
Commission income			33				14				36				19
Gain on sale of loans			64				39				108				47
Income from bank owned life insurance			59				74				104				126
Other			72				30				127				71
Total noninterest income			490				374				872				668
NONINTEREST EXPENSE:
Salaries and employee benefits			1,678				1,497				3,198				2,787
Occupancy expense			163				150				351				311
Equipment and data processing expense			333				312				651				561
Other			379				377				761				687
Total noninterest expense			2,553				2,336				4,961				4,346
INCOME BEFORE INCOME TAXES			1,425				1,272				2,675				2,695
INCOME TAX EXPENSE			552				476				1,038				1,144
NET INCOME		$	873			$	796			$	1,637			$	1,551

CECIL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands, except per share data)

(Continued)

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
NET INCOME		$	873			$	796			$	1,637			$	1,551
OTHER COMPREHENSIVE INCOME
Unrealized losses on investment securities, net of deferred taxes			(77	)			(29	)			(110	)			(27	)
TOTAL COMPREHENSIVE INCOME		$	796			$	767			$	1,527			$	1,524
Earnings per common share — basic		$	0.24			$	0.22			$	0.44			$	0.42
Earnings per common share — diluted		$	0.24			$	0.22			$	0.44			$	0.42
Dividends declared per common share		$	0.025			$	0.025			$	0.05			$	0.05

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

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

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

1. GENERAL

     In the opinion of Cecil Bancorp, Inc. and subsidiaries (the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2008 and the results of its operations and cash flows for the three and six months ended June 30, 2008 and 2007. These statements are condensed and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year.

2. FINANCIAL STATEMENT PREPARATION

     The preparation of 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for uncollectible loans, depreciation and amortization, intangible assets, employee benefit plans, and contingencies, among others. Actual results could differ from those estimates.

3. EARNINGS PER SHARE

     Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed after adjusting the denominator of the basic earnings per share computation for the effects of all dilutive potential common shares outstanding during the period. The dilutive effects of options, warrants, and their equivalents are computed using the “treasury stock” method. For the three and six months ended June 30, 2008 and 2007, there were no options excluded from the diluted earnings per share calculation because their effect was antidilutive. All earnings per share calculations have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in March 2007.

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

4. STOCK OPTION PLANS

     No options were granted or vested during the three and six months ended June 30, 2008 and 2007. The Company’s stock options have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in March 2007. A summary of the Company’s stock option activity, and related information for the periods indicated is as follows:

		Six months ended								Year ended
		June 30, 2008								December 31, 2007
						Weighted-								Weighted-
						Average								Average
		Shares				Exercise Price				Shares				Exercise Price
Outstanding at beginning of period			16,032			$	6.00				16,032			$	6.00
Granted			—				—				—				—
Exercised			(4,008	)			6.00				—				—
Canceled/expired			—				—				—				—
Outstanding at end of period			12,024			$	6.00				16,032			$	6.00
Options exercisable at end of period			12,024			$	6.00				16,032			$	6.00

     The following table summarizes information about stock options outstanding at June 30, 2008:

Options Outstanding and Exercisable

Remaining

Exercise

Number

Life

Price

Outstanding

(Years)

Intrinsic Value

$6.00

12,024

0.8

$

26,693

5. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES

     In March 2006, the Company formed a wholly-owned subsidiary, Cecil Bancorp Capital Trust I (the “Trust”). On March 23, 2006, the Trust sold $10.0 million of trust preferred securities in a private placement. The Trust used the proceeds to purchase $10.3 million of the Company’s 30-year junior subordinated debentures. The trust preferred securities and the junior subordinated debentures bear interest at a fixed rate of 6.51% for five years and then at a variable rate, which resets quarterly, of 3-month LIBOR plus 1.38%. Interest is cumulative and payable quarterly in arrears. The trust preferred securities and the junior subordinated debentures mature March 23, 2036 and are callable at par after five years. The trust preferred securities, classified on the balance sheet as “guaranteed preferred beneficial interest in junior subordinated debentures”, qualify as Tier 1 capital for regulatory purposes, subject to applicable limits. The Company used the proceeds to increase the regulatory capital of the Bank and for other corporate purposes.

     In November 2006, the Company formed a wholly-owned subsidiary, Cecil Bancorp Capital Trust II (the “Trust”). On November 30, 2006, the Trust sold $7.0 million of trust preferred securities in a private placement. The Trust used the proceeds to purchase $7.2 million of the Company’s 30-year junior subordinated debentures. The trust preferred securities and the junior subordinated debentures bear interest at a fixed rate of 6.58% for five years and then at a variable rate, which resets quarterly, of 3-month LIBOR plus 1.68%. Interest is cumulative and payable quarterly in arrears. The trust preferred securities and the junior subordinated debentures mature March 6, 2037 and are callable at par after five years. The trust preferred securities, classified on the balance sheet as “guaranteed preferred beneficial interest in junior subordinated debentures”, qualify as Tier 1 capital for regulatory purposes, subject to applicable limits. The Company used the proceeds to increase the regulatory capital of the Bank and for other corporate purposes.

6. RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. While the Statement applies under other accounting pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Lastly, SFAS No. 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this Statement did not have a material impact on the Company’s consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”. This statement permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This pronouncement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Effective January 1, 2008, the Company is able to elect the fair value option for certain assets and liabilities but has not yet elected to do so; therefore, SFAS No. 159 did not have a material effect on its consolidated financial statements.

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 141, Revised 2007 (SFAS 141R), Business Combinations. SFAS 141R’s objective is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after December 31, 2008. The Company does not expect the implementation of SFAS 141R to have a material impact on its consolidated financial statements.

     In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160’s objective is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 shall be effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements.

     In March 2008, the FASB issued SFAS 163, Disclosures about Derivative Instruments and Hedging Activities, and amendment of SFAS 133. SFAS 163 establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. SFAS 163 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users financial statements with enhanced understanding of: (a) How and why an entity uses derivative instruments; (b) How derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 163 shall be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect the implementation of SFAS 163 to have a material impact on its consolidated financial statements.

     In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendment to AU 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the implementation of SFAS 162 to have a material impact on its consolidated financial statements.

7. ASSETS MEASURED AT FAIR VALUE

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. While the Statement applies under other accounting pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 assets are valued based on readily available pricing sources for transactions involving identical assets. Level 2 assets are valued based on transactions in less active markets. Valuations are obtained from third parting pricing services which use observable inputs for comparable assets other than level 1 assets. Level 3 assets are valued based on unobservable inputs that are supported by little or no market activity that are significant to the fair value. Lastly, SFAS No. 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. The following table shows the value (in thousands) at June 30, 2008 of each major category of assets measured at fair value on the consolidated balance sheets, which consists solely of investment securities available-for-sale. The changes in fair value were reflected as a component of other comprehensive income and did not affect net income.

Fair Value Measurements at Reporting Date Using

Quoted Prices

In Active

Significant

Markets For

Other

Significant

Identical

Observable

Unobservable

Carrying

Assets

Inputs

Inputs

Description

Value

(Level 1)

(Level 2)

(Level 3)

Investment securities available-for-sale

$

4,408

$

2,164

$

2,244

$

0

     We may be required from time to time to measure certain other financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower of cost or market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis at June 30, 2008, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the assets:

										Significant
										Other				Significant
						Quoted				Observable				Unobservable
		Carrying				Prices				Inputs				Inputs
		Value				(Level 1)				(Level 2)				(Level 3)
Other real estate owned		$	655			$	0			$	0			$	655
Impaired loans			8,036				0				0				8,036

CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007

Forward-Looking Statements. This Management’s Discussion and Analysis of financial condition and results of operations and other portions of this report include forward-looking statements such as: statements of the Company’s goals, intentions, and expectations; estimates of risks and of future costs and benefits; assessments of loan quality and of possible loan losses; and statements of the Company’s ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon: future interest rates, market behavior, and other economic conditions; future laws and regulations; and a variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past growth and performance do not necessarily indicate its future results.

     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.

General

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

     The Bank conducts its business through its main office in Elkton, Maryland, and branches in Elkton, North East, Fair Hill, Rising Sun, Cecilton, Aberdeen, Conowingo, and Havre de Grace, Maryland.

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

     In the normal course of business, the Bank originates construction loans, the majority of which are located in the Bank’s primary market of Cecil and Harford Counties in Maryland, after thoroughly reviewing the borrower and the proposed project. These loans provide short term funding primarily for the construction of residential real estate, and are granted to both builders, who are constructing homes for their customers, and to individuals, who use the proceeds to pay custom builders under a contract or act as their own contractor. The total outstanding at June 30, 2008 and December 31, 2007 was $100,564 and $79,150, respectively. The Bank currently does not, and never has, participated in subprime lending activities.

Asset/Liability Management

     The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread (the difference between the weighted average interest yields earned on interest-earning assets and the weighted average interest rates paid on interest-bearing liabilities) that can be sustained during fluctuations in prevailing interest rates. 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 favorable relationship between the maturities or repricing dates of its interest-earning assets and interest-bearing liabilities. The Bank’s lending policy emphasizes the origination of one-year, three-year, or five-year adjustable rate mortgage loans, adjustable rate commercial loans and lines of credit, and short-term consumer loans. The Bank is currently originating

residential mortgage loans for sale in the secondary market through the Federal Home Loan Mortgage Corporation. Management has been monitoring the retention of fixed rate loans through its asset/liability management policy.

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

     The Company’s assets increased by $33.9 million, or 8.5%, to $435.4 million at June 30, 2008 from $401.4 million at December 31, 2007 primarily as a result of increases in loans receivable and cash and cash equivalents, partially offset by decreases in investment securities and other assets. This increase was funded by increases in deposits, other liabilities, and advances from the Federal Home Loan Bank of Atlanta. Cash and cash equivalents increased by $1.9 million, or 34.0%, to $7.4 million at June 30, 2008 from $5.5 million at December 31, 2007. Investment securities available-for-sale increased by $1.9 million, or 78.5%, to $4.4 million at June 30, 2008 from $2.5 million at December 31, 2007 primarily due to the purchase of a Small Business Administration guaranteed securitized loan pool. Investment securities held-to-maturity decreased by $2.5 million, or 90.9%, to $250,000 at June 30, 2008 from $2.7 million at December 31, 2007 primarily due to the maturity of a US Treasury security. Restricted investment securities, which consist of Federal Home Loan and Federal Reserve Bank stock, increased $603,000, or 12.7%, during this period as a result of the ongoing review of the investment requirements by the FHLB and the FRB.

     The loans receivable portfolio increased by $34.0 million, or 9.5%, to $392.7 million at June 30, 2008 from $358.7 million at December 31, 2007, primarily as a result of increased marketing efforts of our business development and loan departments. During the period, we realized a $21.4 million (27.1%) increase in construction loans, a $1.5 million (14.3%) increase in commercial business loans, a $11.1 million (8.8%) increase in commercial real estate loans loans, a $0.2 million (7.6%) increase in land loans, and a $1.5 million (1.2%) increase in one-to-four family residential and home equity loans, offset in part by a $0.4 million (5.0%) decrease in multi-family residential loans and a $1.4 million (22.4%) decrease in personal consumer loans. The allowance for loan losses increased by $615,000, or 19.8%, during the period (see “Analysis of Allowance for Loan Losses” below).

     Other assets decreased by $1.7 million, or 29.5%, to $4.0 million at March 31, 2008 from $5.6 million at December 31, 2007 primarily due to a receivable from Money Gram Payment Systems, the Company’s third party official check processing agent, which was outstanding at December 31, 2007 and received in January 2008.

     The Company’s liabilities increased $32.6 million, or 8.7%, to $406.8 million at June 30, 2008 from $374.2 million at December 31, 2007. Deposits increased $18.7 million, or 7.0%, to $285.8 million at June 30, 2008 from $267.0 million at December 31, 2007. Increases in certificates of deposit (up $7.5 million, or 4.1%), checking accounts (up $4.9 million, or 27.8%), NOW accounts (up $4.8 million, or 30.4%), and IRA certificates (up $1.2 million, or 8.7%) were primarily due to marketing campaigns and product specials focused on local core funding. Other liabilities increased by $4.5 million, or 79.8%, to $10.2 million at June 30, 2008 from $5.7 million at December 31, 2007 primarily due to increases in the amount owed to Money Gram Payment Systems for the official checks written on June 30 and SERP payable, partially offset by a decrease in income taxes payable. Advances from the Federal Home Loan Bank of Atlanta increased $9.3 million, or 11.0%, to $93.8 million at June 30, 2008 from $84.5 million at December 31, 2007 to complement deposits in funding asset growth.

     The Company’s stockholders’ equity increased by $1.4 million, or 5.0%, to $28.6 million at June 30, 2008 from $27.2 million at December 31, 2007. The increase was primarily the result of net income of $1.6 million, partially offset by the Company’s regular dividend of $0.05 per share, or $184,000, for the six months ended June 30, 2008.

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

     Net income for the three month period ended June 30, 2008 increased $77,000, or 9.7% to $873,000 as compared to net income for the same period in 2007 of $796,000. This increase was primarily the result of increases in net interest income and noninterest income, partially offset by increases in the provision for loan losses, noninterest expense, and income tax expense. Basic and diluted earnings per share were both $0.24 for the second quarter of 2008, an increase of 9.1%, from $0.22 for the same period in 2007. The earnings per share calculations have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in March 2007. The annualized return on average assets and annualized return on average equity were 0.82% and 12.15% respectively, for the three-month period ended June 30, 2008. This compares to an annualized return on average assets and annualized return on average equity of 0.87% and 12.63% respectively, for the same period in 2007.

     Net interest income, the Company’s primary source of income, increased 9.7%, or $334,000, to $3.8 million for the three months ended June 30, 2008, from $3.4 million over the same period in 2007. The weighted average yield on interest earning assets decreased to 7.43% for the three months ended June 30, 2008 from 8.25% for the three months ended June 30, 2007. The weighted average rate paid on interest bearing liabilities decreased to 3.58% for the three months ended June 30, 2008

from 4.24% for the three months ended June 30, 2007. The net interest margin decreased to 3.86% for the three months ended June 30, 2008 as compared to 4.05% for the same period in 2007.

     Interest and fees on loans increased by $275,000, or 4.0%, to $7.1 million for the three months ended June 30, 2008 from $6.8 million for the three months ended June 30, 2007. The increase is attributable to an increase in the average balance outstanding, partially offset by a decrease in the weighted-average yield. The average balance outstanding increased by $54.0 million, or 16.5%, to $380.2 million for the three months ended June 30, 2008 from $326.2 million for the three months ended June 30, 2007. The weighted-average yield decreased to 7.49% for the three months ended June 30, 2008 from 8.39% for the three month period ended June 30, 2007.

     Interest on investment securities decreased $24,000, or 31.6%, to $52,000 for the three months ended June 30, 2008 from $76,000 for the three months ended June 30, 2007. The average balance outstanding decreased $1.3 million for the three months ended June 30, 2008 over the three months ended June 30, 2007. The weighted-average yield decreased to 4.32% for the three months ended June 30, 2008 from 4.94% for the three months ended June 30, 2007.

     Dividends on Federal Reserve and Federal Home Loan Bank stock increased to $75,000 for the three months ended June 30, 2008 from $34,000 for the three months ended June 30, 2007. The average balance outstanding increased $2.9 million, or 129.3%, to $5.2 million for the three months ended June 30, 2008 from $2.2 million for the three months ended June 30, 2007. The weighted-average yield decreased to 5.74% for the three months ended June 30, 2008 from 5.98% for the three months ended June 30, 2007.

     Other interest income, consisting of income on interest bearing deposits of banks and interest on outstanding official checks, decreased $22,000 to $9,000 for the three months ended June 30, 2008 from $31,000 for the three months ended June 30, 2007 due to a decrease in the fed funds interest rate.

     Interest on deposits decreased $482,000, or 16.5%, to $2.4 million for the three months ended June 30, 2008 from $2.9 million for the three months ended June 30, 2007. The average balance outstanding decreased $9.3 million, or 3.2%, to $282.0 million for the three months ended June 30, 2008 from $291.3 million for the three months ended June 30, 2007. The weighted-average rate paid decreased to 3.45% for the three months ended June 30, 2008 from 4.00% for the three months ended June 30, 2007. Interest expense on advances from the Federal Home Loan Bank of Atlanta increased $418,000, or 115.8%, to $779,000 for the three months ended June 30, 2008 from $361,000 for the three months ended June 30, 2007. The average balance outstanding increased $63.6 million, or 234.5%, to $90.8 million for the three months ended June 30, 2008 from $27.2 million for the three months ended June 30, 2007. The weighted average rate decreased to 3.43% for the three months ended June 30, 2008 from 5.32% for the three months ended June 30, 2007.

     Noninterest income increased 31.0%, or $116,000, for the three months ended June 30, 2008, over the same period in 2007. Checking account fees increased by $34,000, or 26.0%, to $165,000 for the quarter ended June 30, 2008 from $131,000 over the three months ended June 30, 2007. ATM fees increased $11,000 to $97,000 for the three months ended June 30, 2008 from $86,000 for the three months ended June 30, 2007 due to an increase in surcharge fees from non-customer usage of our ATM machines. Commission income increased $19,000 to $33,000 for the three months ended June 30, 2008 from $14,000 for the same period in 2007 due to an increase in brokerage and investment services. Gain on sale of loans increased 64.1% to $64,000 for the three months ended June 30, 2008 from $39,000 for the three months ended June 30, 2007. Income from bank owned life insurance decreased 20.3% to $59,000 for the three months ended June 30, 2008 from $74,000 for the three months ended June 30, 2007 due to a decrease in rates being paid by the insurance carriers, as well as policy anniversary charge incurred during the period. Other income increased by $42,000 to $72,000 for the three months ended June 30, 2008 from $30,000 for the three months ended June 30, 2007 primarily due to increases in rental income and income from our investment in Maryland Title Center LLC.

     Noninterest expense increased 9.3%, or $217,000, to $2.6 million for the three months ended June 30, 2008, from $2.3 million over the same period in 2007. Salaries and employee benefits increased 12.1% to $1.7 million for the three months ended June 30, 2008 from $1.5 million for the three months ended June 30, 2007. This is attributable to annual merit increases and an increase in the supplemental executive retirement plan expense. Occupancy expense increased $13,000, or 8.7%, to $163,000 for the three months ended June 30, 2008, as compared to $150,000 for the same period in 2007 due to an increase in depreciation expense after the opening of our Fair Hill branch in January 2008. Equipment and data processing expense increased $21,000, or 6.7%, to $333,000 for the three months ended June 30, 2008 from $312,000 for the three months ended June 30, 2007. This increase is attributable to an increase in fees for the Company’s data service provider.

     Income tax expense for the three-month periods ended June 30, 2008 and 2007 was $552,000 and $476,000, respectively, which equates to effective rates of 38.7% and 37.4%.

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

     Net income for the six month period ended June 30, 2008 increased $86,000, or 5.5%, to $1.64 million as compared to net income for the same period in 2007 of $1.55 million. This increase was primarily the result of increases in net interest income and noninterest income and a decrease in income tax expense, partially offset by increases in the provision for loan losses and noninterest expense. Basic and diluted earnings per share both increased 4.8% to $0.44 for the six-month period ended June 30, 2008 as compared to $0.42 for the same period in 2007. The earnings per share calculations have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in March 2007. The annualized return on average assets and annualized return on average equity were 0.79% and 11.53% respectively, for the six-month period ended June 30, 2008. This compares to an annualized return on average assets and annualized return on average equity of 0.86% and 12.45% respectively, for the same period in 2007.

     Net interest income, the Company’s primary source of income, increased 8.9%, or $601,000, to $7.4 million for the six months ended June 30, 2008, from $6.8 million over the same period in 2007. The weighted-average yield on interest earning assets decreased to 7.63% for the six months ended June 30, 2008 from 8.21% for the six months ended June 30, 2007. The weighted-average rate paid on interest bearing liabilities decreased to 3.74% for the six months ended June 30, 2008 from 4.20% for the six months ended June 30, 2007. The net interest margin was 3.89% for the six months ended June 30, 2008 as compared to 4.06% for the same period in 2007.

     Interest and fees on loans increased by $722,000, or 5.4%, to $14.1 million for the six months ended June 30, 2008 from $13.4 million for the six months ended June 30, 2007. The increase is attributable to an increase in the average balance outstanding partially offset by a decrease in the weighted-average yield. The average balance outstanding increased by $47.2 million to $368.1 million for the six months ended June 30, 2008 from $320.9 million for the six months ended June 30, 2007. The weighted-average yield decreased to 7.68% for the six months ended June 30, 2008 from 8.36% for the six months ended June 30, 2007.

     Interest on investment securities decreased $27,000, or 18.0%, to $123,000 for the six months ended June 30, 2008 from $150,000 for the six months ended June 30, 2007. The average balance outstanding decreased $1.2 million for the six months ended June 30, 2008 over the six months ended June 30, 2007. The weighted-average yield increased to 5.03% for the six months ended June 30, 2008 from 4.94% for the six months ended June 30, 2007.

     Dividends on Federal Reserve and Federal Home Loan Bank stock increased $74,000 to $143,000 for the six months ended June 30, 2008 from $69,000 for the six months ended June 30, 2007. The average balance outstanding increased $2.5 million, or 108.7%, to $4.9 million for the six months ended June 30, 2008 from $2.3 million for the six months ended June 30, 2007. The weighted-average yield decreased to 5.85% for the six months ended June 30, 2008 from 5.91% for the six months ended June 30, 2007.

     Other interest income, consisting of income on interest bearing deposits of banks and interest on outstanding official checks, decreased $31,000 to $24,000 for the three months ended June 30, 2008 from $55,000 for the three months ended June 30, 2007 due to a decrease in the fed funds interest rate.

     Interest on deposits decreased $558,000, or 10.0%, to $5.0 million for the six months ended June 30, 2008 from $5.6 million for the six months ended June 30, 2007. The average balance outstanding decreased $8.0 million, or 2.8%, to $275.2 million for the six months ended June 30, 2008 from $283.2 million for the six months ended June 30, 2007. The weighted-average rate paid decreased to 3.65% for the six months ended June 30, 2008 from 3.94% for the six months ended June 30, 2007. Interest expense on advances from the Federal Home Loan Bank of Atlanta increased $693,000, or 88.6%, to $1.5 million for the six months ended June 30, 2008 from $782,000 for the six months ended June 30, 2007. The average balance outstanding increased $56.2 million, or 191.5%, to $85.6 million for the six months ended June 30, 2008 from $29.4 million for the six months ended June 30, 2007. The weighted-average rate decreased to 3.44% for the six months ended June 30, 2008 from 5.32% for the six months ended June 30, 2007.

     Noninterest income increased 30.5%, or $204,000, for the six months ended June 30, 2008, over the same period in 2007. Checking account fees increased $48,000, or 17.8%, to $317,000 for the six months ended June 30, 2008 from $269,000 for the six months ended June 30, 2007 due to the growth in deposits. ATM fees increased by $44,000 to $180,000 for the six months ended June 30, 2008 from $136,000 for the six months ended June 30, 2007 due to an increase in surcharge fees from non-customer usage of our ATM machines. Commission income increased $17,000 to $36,000 for the six months ended June 30, 2008 from $19,000 for the same period in 2007 due to an increase in brokerage and investment services. Gain on sale of loans increased $61,000 to $108,000 for the six months ended June 30, 2008 from $47,000 for the six months ended June 30, 2007. Income from bank owned life insurance decreased 17.5% to $104,000 for the six months ended June 30, 2008 from $126,000 for the six months ended June 30, 2007 due to a decrease in rates being paid by the insurance carriers, as well as policy

anniversary charge incurred during the period. Other income increased $56,000 to $127,000 for the six months ended June 30, 2008 from $71,000 for the same period in 2007, primarily due to increases in rental income, as well as income earned on our investments in Triangle Capital Partners, Maryland Title Center LLC and CBS Holdings LLC.

     Noninterest expense increased 14.2%, or $615,000, for the six months ended June 30, 2008, over the same period in 2007. Salaries and employee benefits increased 14.8% to $3.2 million for the six months ended June 30, 2008 from $2.8 million for the six months ended June 30, 2007. This is attributable to annual merit increases and an increase in the supplemental executive retirement plan expense. Occupancy expense increased by $40,000, or 12.9%, to $351,000 for the six months ended June 30, 2008 from $311,000 for the same period in 2007 primarily due to depreciation expense on our new Fair Hill branch and an increase in real estate taxes. Equipment and data processing expense increased by $90,000, or 16.0%, to $651,000 for the six months ended June 30, 2008 from $561,000 for the six months ended June 30, 2007. This increase is due to an increase in fees charged by the Company’s data service provider. Other expense increased by $74,000, or 10.8%, to $761,000 for the six months ended June 30, 2008 from $687,000 for the six months ended June 30, 2007 primarily due to increases in advertising, loan collection expense, and FDIC insurance premiums, partially offset by decreases in legal fees, audit and accounting services, and loan expense.

     Income tax expense for the six-month periods ended June 30, 2008 and 2007 was $1.0 million and $1.1 million, respectively, which equates to effective rates of 38.8% and 42.5% respectively.

Loans Receivable

     The Company’s lending activities are predominantly conducted in Cecil and Harford Counties in the State of Maryland. The following table shows the composition of the loan portfolio at the indicated dates.

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

Nonperforming Assets

Management reviews and identifies loans and investments that require designation as nonperforming assets. Nonperforming assets are: loans accounted for on a non-accrual basis, loans past due by 90 days or more but still accruing, restructured loans, and other real estate (assets acquired in settlement of loans). The following table sets forth certain information with respect to nonperforming assets.

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

Analysis of 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. The 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 credit portfolio and ongoing, quarterly assessments of the probable losses inherent in the loan portfolio. The Bank employs a systematic methodology for assessing the appropriateness of the allowance, which includes determination of a specific allowance, a formula allowance, and an unallocated allowance. During the first six months of 2008, there were no changes in the Bank’s methodology for assessing the appropriateness of the 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, 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 rating, for loans categorized as substandard or doubtful either by the Bank in its ongoing reviews or by bank examiners in their periodic examinations, or (b) by type of loans, for other credits without specific allowances. These factors are set by management to reflect its assessment of the relative level of risk inherent in each category of loans, based primarily on the credit risk factors employed by bank examiners at their most recent periodic examination of the Bank. Bank regulatory examinations usually occur each year. In these examinations, the examiners review the credit 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.

     The unallocated allowance is based upon management’s evaluation of various conditions that are not directly measured in the determination of the specific and formula allowances. These conditions 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. In addition to these conditions, management has identified land acquisition and development loans, as well as construction speculation loans, as higher risk due to economic factors. Additionally, management has identified commercial business loans as higher risk based on the change in the nature and the volume of the portfolio over the last several periods. Therefore, management has allocated additional reserves to these two pools of loans over and above the specific and formula allowances.

     Determining the amount of the allowance for loan losses requires the use of estimates and assumptions, which is permitted under accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates. While management uses available information to estimate losses on loans, future additions to

the allowance may be necessary based on changes in economic conditions. In addition, as noted above, federal and state financial institution examiners, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses, and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

     Management determined that the appropriate allowance for loan losses at June 30, 2008 was $3.7 million, (0.95% of total loans), an increase of $615,000 (19.8%) from the $3.1 million allowance (0.87% of total loans) at December 31, 2007. Annualized net recoveries for the first six months of 2008 were 0.01% of average loans, as compared to net charge-offs of 0.01% of average loans for the year 2007. The provision for loan losses required for the first six months of 2008 and 2007 was $600,000 and $390,000, respectively.

     A summary of activity in the allowance is shown below.

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

Analysis of Deposits

The following table sets forth the dollar amount of deposits in the various types of accounts offered by the Bank at the dates indicated.

		Balance at								Balance at
		June 30,				%				December 31,				%
		2008				Deposits				2007				Deposits
		(Dollars in thousands)
Regular checking		$	22,709				7.94	%		$	17,764				6.65	%
NOW accounts			20,769				7.27				15,927				5.96
Passbook			11,769				4.12				11,830				4.43
Statement savings			8,685				3.04				8,193				3.07
Money market			6,790				2.37				7,127				2.67
Holiday club			237				0.08				72				0.03
Certificates of Deposit			194,033				67.90				186,488				69.84
IRA Certificates of Deposit			15,224				5.33				14,010				5.25
Money Market Certificates			5,563				1.95				5,621				2.10
		$	285,779				100.00	%		$	267,032				100.00	%

Capital Adequacy

     Capital adequacy refers to the level of capital required to sustain asset growth and to absorb losses. The Board of Governors of the Federal Reserve System (“Federal Reserve”), which is the Company’s principal federal regulator, has established requirements for total and tier 1 (core) risk-based capital and tangible capital. The following table sets forth applicable capital ratios of the Bank as of June 30, 2008 and December 31, 2007.

										Regulatory Minimums
		2008				2007				Well				Adequately
		Actual				Actual				Capitalized				Capitalized
Total risk-based capital ratio			12.27	%			13.05	%			10.00	%			8.00	%
Tier 1 risk-based capital ratio			7.92	%			8.41	%			6.00	%			4.00	%
Tangible capital ratio			7.06	%			7.34	%			5.00	%			4.00	%

     As of June 30, 2008 and December 31, 2007, the Bank exceeded all applicable capital requirements to be classified as a well capitalized institution under the rules promulgated by the Board of Governors of the Federal Reserve System. Designation as a well capitalized institution under these regulations does not constitute a recommendation or endorsement of the Bank’s regulators.

Item 3.		Qualitative and Quantitative Disclosures about Market Risk -

Not Applicable

Item 4.		Controls and Procedures -

Not Applicable

Item 4T.		Controls and Procedures

Cecil Bancorp’s management, under the supervision and with the participation of its Chief Executive Officer and its Chief Financial Officer, evaluated as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no significant changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended June 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. Other Information:

Item 1.     Legal Proceedings -

     Not Applicable

Item 1A.  Risk Factors -

     Not Applicable

Item 2.     Unregistered Sale of Equity Securities and Use of Proceeds -

     Not Applicable

Item 3.     Defaults Upon Senior Securities -

     Not Applicable

Item 4.     Submission of Matters to a Vote of Security Holders -

     Not Applicable

Item 5.     Other Information -

     Not Applicable

Item 6.     Exhibits -

	Exhibit 3.1		Cecil Bancorp, Inc. Amended Articles of Incorporation.
	Exhibit 31(a),(b)		Rule 13a-14(a)/15d-14(a) Certification
	Exhibit 32(a),(b)		18 U.S.C. Section 1350 Certification

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.