CECIL BANCORP INC - Quarter Report: 2008 March (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 March 31, 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):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
		(Do not check if a smaller reporting company)

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.

 

 

CECIL BANCORP, INC. AND SUBSIDIARIES

CONTENTS

						PAGE
PART I.		FINANCIAL INFORMATION
		ITEM 1.		Financial Statements (unaudited)
				Consolidated Balance Sheets — March 31, 2008 and December 31, 2007			3-4
				Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2008 and 2007			5-6
				Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007			7
				Notes to Consolidated Financial Statements			8-10
		ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			11-17
		ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk			17
		ITEM 4.		Controls and Procedures			17
		ITEM 4T.		Controls and Procedures			17
PART II.		OTHER INFORMATION					18
SIGNATURES							19
CERTIFICATIONS							20-23

PART I. Financial Information

CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

ASSETS

		March 31,				December 31,
		2008				2007
		(unaudited)
Cash and due from banks		$	12,171			$	1,205
Interest bearing deposits with banks			226				4,306
Investment securities:
Securities available-for-sale at fair value			4,578				2,470
Securities held-to-maturity (fair value of $249 in 2008 and $2,753 in 2007)			248				2,749
Restricted investment securities — at cost			4,866				4,750
Loans receivable			371,759				358,704
Less: Allowance for loan losses			(3,397	)			(3,109	)
Net loans receivable			368,362				355,595
Other real estate owned			655				655
Premises and equipment, net			12,178				11,997
Accrued interest receivable			2,034				2,122
Goodwill			2,182				2,182
Other intangible assets			263				240
Bank owned life insurance			7,577				7,532
Other assets			3,927				5,629
TOTAL ASSETS		$	419,267			$	401,432

See accompanying notes to consolidated financial statements.

LIABILITIES AND STOCKHOLDERS’ EQUITY

		March 31,				December 31,
		2008				2007
		(unaudited)
LIABILITIES:
Deposits		$	278,808			$	267,032
Other liabilities			10,649				5,659
Guaranteed preferred beneficial interest in junior subordinated debentures			17,000				17,000
Advances from Federal Home Loan Bank of Atlanta			84,929				84,499
Total liabilities			391,386				374,190
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; authorized 10,000,000 shares, issued and outstanding 3,678,286 shares in 2008 and 2007			37				37
Additional paid in capital			11,441				11,441
Retained earnings			16,528				15,856
Accumulated other comprehensive loss			(125	)			(92	)
Total stockholders’ equity			27,881				27,242
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	419,267			$	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)

		For the Three Months Ended March 31,
		2008				2007
INTEREST INCOME:
Interest and fees on loans		$	7,011			$	6,564
Interest on investment securities			71				74
Dividends on FHLB and FRB stock			68				35
Other interest-earning assets			15				24
Total interest income			7,165				6,697
INTEREST EXPENSE:
Interest expense on deposits			2,588				2,664
Guaranteed preferred beneficial interest in junior subordinated debentures			280				278
Interest expense on advances from FHLB			696				421
Total interest expense			3,564				3,363
NET INTEREST INCOME			3,601				3,334
PROVISION FOR LOAN LOSSES			325				195
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			3,276				3,139
NONINTEREST INCOME:
Checking account fees			152				138
ATM fees			83				50
Commission income			3				5
Gain on sale of loans			44				8
Income from bank owned life insurance			45				52
Other			55				41
Total noninterest income			382				294
NONINTEREST EXPENSE:
Salaries and employee benefits			1,520				1,290
Occupancy expense			188				161
Equipment and data processing expense			318				249
Other			382				310
Total noninterest expense			2,408				2,010
INCOME BEFORE INCOME TAXES			1,250				1,423
INCOME TAX EXPENSE			486				668
NET INCOME		$	764			$	755

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)

(Continued)

		For the Three Months Ended March 31,
		2008				2007
NET INCOME		$	764			$	755
OTHER COMPREHENSIVE INCOME
Unrealized (losses) gains on investment securities, net of deferred taxes			(33	)			2
TOTAL COMPREHENSIVE INCOME		$	731			$	757
Earnings per common share — basic		$	0.21			$	0.21
Earnings per common share — diluted		$	0.21			$	0.21
Dividends declared per common share		$	0.025			$	0.025

See accompanying notes to consolidated financial statements.

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

		For the Three Months Ended March 31,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	764			$	755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			145				108
Provision for loan losses			325				195
Gain on sale of loans			(44	)			(8	)
Increase in cash surrender value of bank owned life insurance			(45	)			(52	)
Excess servicing rights			(35	)			(7	)
Reinvested dividends on investments			(10	)			(26	)
Origination of loans held for sale			(2,600	)			(493	)
Proceeds from sales of loans held for sale			2,616				495
Net change in:
Accrued interest receivable and other assets			1,815				(187	)
Other liabilities			4,989				68
Net cash provided by operating activities			7,920				848
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available-for-sale			(2,161	)			—
Purchases of investment securities held-to-maturity			(247	)			(3,719	)
Net purchase of restricted investment securities			(116	)			(210	)
Proceeds from sales, maturities, calls and principal payments of investment securities available-for-sale			3				5
Proceeds from maturities, calls and principal payments of investment securities held-to-maturity			2,750				3,750
Net increase in loans			(13,064	)			(14,465	)
Surrender of bank owned life insurance			—				1,550
Purchase of bank owned life insurance			—				(3,163	)
Purchases of premises and equipment			(313	)			(1,457	)
Net cash used in investing activities			(13,148	)			(17,709	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits			11,776				12,118
Net increase in advances from Federal Home Loan Bank of Atlanta			430				2,670
Payments of cash dividends			(92	)			(92	)
Net cash provided by financing activities			12,114				14,696
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			6,886				(2,165	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			5,511				6,575
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	12,397			$	4,410
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes		$	83			$	260
Cash paid for interest		$	3,602			$	3,279
Interest capitalized during the period		$	69			$	—

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

1. GENERAL

     In the opinion of 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 March 31, 2008 and the results of its operations and cash flows for the three months ended March 31, 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 months ended March 31, 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 for the reporting period. Estimates are used when accounting for uncollectible loans, depreciation and amortization, intangible assets, deferred income taxes and contingencies, among others. Actual results could differ from those estimates.

3. 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.

4. 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 quarter. Diluted earnings per share are computed by 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 months ended

March 31, 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 March 31,
		2008				2007
Basic:
Net income available to common stockholders		$	764,000			$	755,000
Average common shares outstanding			3,678,286				3,678,286
Basic earnings per common share		$	0.21			$	0.21
Diluted:
Net income available to common stockholders		$	764,000			$	755,000
Average common shares outstanding			3,678,286				3,678,286
Stock option adjustment			5,443				5,732
Average common shares outstanding — diluted			3,683,729				3,684,018
Diluted earnings per common share		$	0.21			$	0.21

5. FAIR VALUE ACCOUNTING FOR SHARE-BASED COMPENSATION

     No options were granted or vested during the three months ended March 31, 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:

		Three months ended								Year ended
		March 31, 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			—				—				—				—
Canceled/expired			—				—				—				—
Outstanding at end of period			16,032			$	6.00				16,032			$	6.00
Options exercisable at end of period			16,032			$	6.00				16,032			$	6.00

     The following table summarizes information about stock options outstanding at March 31, 2008:

		Options Outstanding and Exercisable
Exercise		Number		Life
Price		Outstanding		(Years)		Intrinsic Value
6.00		16,032		1.1		$48,096

6. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES

     In March 2006, the Company formed a wholly-owned subsidiary, Cecil Bancorp Capital Trust I (“Trust I”). 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 (“Trust II”). 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.

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. 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 March 31, 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

Assets

Inputs

Inputs

Description

Fair Value

(Level 1)

(Level 2)

(Level 3)

Investment securities available-for-sale

$

4,578

$

2,302

$

2,276

$

0

CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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 bank 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 it 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.

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 March 31, 2008 and December 31, 2007

     The Company’s assets increased by $17.8 million, or 4.4%, to $419.3 million at March 31, 2008 from $401.4 million at December 31, 2007, primarily as a result of increases in the loans receivable portfolio, cash and cash equivalents, and investment securities available-for-sale, partially offset by decreases in investment securities held-to-maturity and other assets. The increase in total assets was funded by increases in deposits and other liabilities.

     Cash and cash equivalents increased by $6.9 million to $12.4 million at March 31, 2008 from $5.5 million at December 31, 2007. Investment securities available-for-sale increased by $2.1 million, or 85.3%, to $4.6 million at March 31, 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 91.0%, to $248,000 at March 31, 2008 from $2.7 million at December 31, 2007 primarily due to the maturity of a US Treasury security.

     The loans receivable portfolio increased by $13.1 million, or 3.6%, to $371.8 million at March 31, 2008 from $358.7 million at December 31, 2007, primarily as a result of growth in construction loans (up $3.5 million, or 4.5%), one- to four-family residential and home equity loans (up $2.9 million, or 2.3%), commercial real estate loans (up $6.5 million, or 5.1%), and commercial business loans (up $1.4 million, or 14.1%), offset in part by a decline in consumer loans (down $1.1 million, or 16.7%). The allowance for loan losses increased $288,000, or 9.3%, during the period. (See “analysis of allowance for loan losses” below.)

     Other assets decreased by $1.7 million, or 30.2%, to $3.9 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 $17.2 million, or 4.6%, to $391.4 million at March 31, 2008 from $374.2 million at December 31, 2007. The increase in deposits of $11.8 million, or 4.4%, to $278.8 million at March 31, 2008 from $267.0 million at December 31, 2007, was mainly due to increases in NOW accounts (up $7.5 million, or 47.2%), regular checking accounts (up $3.9 million, or 22.1%), IRA certificates of deposit (up $801,000, or 5.7%), and money market certificates (up $507,000, or 9.0%), partially offset by decreases in passbook savings accounts (down $1.0 million, or 8.6%). Other liabilities increased $4.9 million, or 88.2%, to $10.6 million at March 31, 2008 from $5.7 million at December 31, 2007 primarily due to an increase in the amount owed to Money Gram Payment Systems for official checks written, as well as an increase in the Supplemental Executive Retirement Plan liability.

     The Company’s stockholders’ equity increased by $639,000, or 2.4%, to $27.9 million at March 31, 2008 from $27.2 million December 31, 2007. This increase is primarily the result of net income of $764,000, offset in part by the Company’s regular cash dividend of $0.025 per share, or $92,000, for the quarter ended March 31, 2008, and a $33,000 decrease in the Company’s accumulated other comprehensive income.

Comparison of Results of Operations for the Three Months Ended March 31, 2008 and 2007

     Net income for the three-month period ended March 31, 2008 increased $9,000, or 1.2%, to $764,000 as compared to net income for the same period in 2007 of $755,000. 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 remained level at $0.21 for the three-month periods ended March 31, 2008 and 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 0.76% and 10.89%, respectively, for the three-month period ended March 31, 2008. This compares to an annualized return on average assets and annualized return on average equity of 0.86% and 12.20%, respectively, for the same period in 2007.

     Net interest income, the Company’s primary source of income, increased 8.0%, or $267,000, to $3.6 million for the three months ended March 31, 2008, from $3.3 million over the same period in 2007. The weighted average yield on interest earning assets decreased to 7.83% for the three months ended March 31, 2008 from 8.16% for the three months ended March 31, 2007. The weighted average rate paid on interest bearing liabilities decreased to 3.90% for the three months ended March 31, 2008 from 4.16% for the three months ended March 31, 2007. The net interest spread decreased to 3.93% from 4.01% and the net interest margin decreased to 3.94% for the three months ended March 31, 2008 as compared to 4.06% for the three months ended March 31, 2007.

     Interest and fees on loans increased by $447,000, or 6.8%, to $7.0 million for the three months ended March 31, 2008 from $6.6 million for the three months ended March 31, 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 $40.1 million, or 12.7%, to $356.1 million for the three months ended March 31, 2008 from $316.0 million for the three months ended March 31, 2007. The weighted-average yield decreased to 7.88% for the three months ended March 31, 2008 from 8.31% for the three months ended March 31, 2007.

     Dividends on Federal Reserve and Federal Home Loan Bank stock increased $33,000, or 94.3%, to $68,000 for the three months ended March 31, 2008 from $35,000 for the three months ended March 31, 2007. The average balance outstanding increased $2.2 million, or 89.4%, to $4.6 million for the three months ended March 31, 2008 from $2.4 million for the three months ended March 31, 2007. The weighted-average yield increased to 5.97% for the three months ended March 31, 2008 from 5.84% for the three months ended March 31, 2007.

     Interest on deposits decreased $76,000, or 2.9%, to $2.6 million for the three months ended March 31, 2008 from $2.7 million for the three months ended March 31, 2007. The average balance outstanding decreased $6.5 million, or 2.4%, to $268.4 million for the three months ended March 31, 2008 from $274.9 million for the same period in 2007. The weighted-average rate paid on deposits decreased to 3.86% for the three months ended March 31, 2008 from 3.88% for the three months ended March 31, 2007. Interest expense on advances from the Federal Home Loan Bank of Atlanta increased $275,000, or 65.3%, to $696,000 for the three months ended March 31, 2008 from $421,000 for the three months ended March 31, 2007. The average balance outstanding increased $48.8 million, or 154.3%, for the period noted above. The weighted average rate decreased to 3.46% for the three months ended March 31, 2008 from 5.32% for the three months ended March 31, 2007.

     The provision for loan losses increased by $130,000, or 66.7%, to $325,000 for the three months ended March 31, 2008 from $195,000 over the same period in 2007 (see “analysis of allowance for loan losses” below).

     Noninterest income increased 29.9%, or $88,000, for the three months ended March 31, 2008, over the same period in 2007. Checking account fees increased $14,000, or 10.1%, to $152,000 for the three months ended March 31, 2008 from $138,000 for the three months ended March 31, 2007. ATM fees increased $33,000 to $83,000 for the three months ended March 31, 2008 from $50,000 for the three months ended March 31, 2007. Gain on sale of loans increased $36,000 to $44,000 for the three months ended March 31, 2008 from $8,000 for the same period in 2007 due to an increase in the volume of loans sold during the quarter. Other income increased $14,000, or 34.2%, to $55,000 for the three months ended March 31, 2008 from $41,000 for the three months ended March 31, 2007. This increase is primarily due to an increase in rental income.

     Noninterest expense increased 19.8%, or $398,000, for the three months ended March 31, 2008, over the same period in 2007. Salary and employee benefits increased $230,000, or 17.8%, to $1.5 million for the three months ended March 31, 2008 from $1.3 million over the same period in 2007. This increase is attributable to annual merit increases and an increase in the supplemental executive retirement plan expense. Occupancy expense increased $27,000, or 16.8%, to $188,000 for the three months ended March 31, 2008 from $161,000 for the three months ended March 31, 2007 primarily due to branch expansion and the opening of the Fair Hill branch in January 2008. Equipment and data processing expense increased $69,000, or 27.7%, to $318,000 for the three months ended March 31, 2008 from $249,000 for the same period in 2007 due to an increase in fees for the Company’s data service provider. Other expenses increased $72,000, or 23.2%, to $382,000 for the three months ended March 31, 2008 compared to $310,000 during the same period in 2007, primarily due to increases in FDIC insurance premium, loan expenses, and advertising, partially offset by a decrease in costs related to Sarbanes-Oxley compliance.

     Income tax expense for the three-month periods ended March 31, 2008 and 2007 was $486,000 and $668,000, respectively, which equates to effective rates of 38.9% and 46.9% respectively. The decrease in the effective tax rate is due to the provision recorded in the first quarter of 2007 for life-to-date increases in the cash surrender value of bank owned life insurance policies that were surrendered during the period.

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.

		March 31,								December 31,
		2008								2007
		Amount				%				Amount				%
		(Dollars in thousands)
Type of Loan
Real estate loans:
Construction loans		$	82,699				22.24	%		$	79,150				22.07	%
One- to four-family residential and home equity			128,618				34.59				125,723				35.05
Multi-family residential			6,901				1.86				7,149				1.99
Land			3,299				0.89				3,262				0.91
Commercial			133,302				35.86				126,850				35.36
Commercial business loans			11,641				3.13				10,206				2.85
Consumer loans			5,299				1.43				6,364				1.77
Gross loans			371,759				100.00	%			358,704				100.00	%
Less: allowance for loan losses			(3,397	)							(3,109	)
Net loans receivable		$	368,362							$	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 nonaccrual 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.

		March 31,				December 31,
(Dollars in thousands)		2008				2007
Nonaccrual loans and leases		$	4,858			$	5,065
Loans and leases 90 days or more past due			0				0
Restructured loans and leases			0				0
Total nonperforming loans and leases			4,858				5,065
Other real estate owned, net			655				655
Total nonperforming assets		$	5,513			$	5,720
Nonperforming loans and leases to total loans			1.31	%			1.41	%
Nonperforming assets to total assets			1.31				1.42
Allowance for loan losses to non-performing loans and leases			69.93				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.

     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 March 31, 2008 was $3.4 million, (0.91% of total loans), an increase of $288,000 from the $3.1 million allowance (0.87% of total loans) at December 31, 2007. Annualized net charge-offs for the first three months of 2008 were 0.04% of average loans, while net charge-offs were 0.01% of average loans for the year 2007. The provision for loans losses required for the first three months of 2008 and 2007 was $325,000 and $195,000, respectively.

A summary of activity in the allowance is shown below.

		3 Months Ended				12 Months Ended
		March 31, 2008				December 31, 2007
		(In thousands)
Balance at beginning of period		$	3,109			$	2,217
Charge-offs:
Residential real estate			(35	)			0
Commercial			0				(30	)
Consumer			(5	)			(40	)
Total charge-offs			(40	)			(70	)
Recoveries:
Residential real estate			0				0
Commercial			0				0
Consumer			3				27
Total recoveries			3				27
Net charge-offs			(37	)			(43	)
Provision for loan losses			325				935
Balance at end of period		$	3,397			$	3,109
Net charge-offs to average loans outstanding during the period (annualized)			(0.04	)%			(0.01	)%
Allowance for loan losses to loans			0.91				0.87
Allowance for loan losses to nonperforming loans			69.93				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
		March 31,				%				December 31,				%
		2008				Deposits				2007				Deposits
						(Dollars in thousands)
Regular checking		$	21,692				7.78	%		$	17,764				6.65	%
NOW accounts			23,450				8.41				15,927				5.96
Passbook			10,818				3.88				11,830				4.43
Statement savings			8,152				2.92				8,193				3.07
Money market			6,914				2.48				7,127				2.67
Holiday club			146				0.05				72				0.03
Certificates of Deposit			186,697				66.97				186,488				69.84
IRA Certificates of Deposit			14,811				5.31				14,010				5.25
Money Market Certificates			6,128				2.20				5,621				2.10
Total Deposits		$	278,808				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 March 31, 2008 and December 31, 2007.

										Regulatory Minimums
		2008				2007				Well				Adequately
		Actual				Actual				Capitalized				Capitalized
Total risk-based capital ratio			13.11	%			13.05	%			10.00	%			8.00	%
Tier 1 risk-based capital ratio			8.47	%			8.41	%			6.00	%			4.00	%
Tangible capital ratio			7.36	%			7.34	%			5.00	%			4.00	%

     As of March 31, 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 March 31, 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 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 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.