CECIL BANCORP INC - Quarter Report: 2012 September (Form 10-Q)

f10q_093012-0424.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
	o	For the quarterly period ended September 30, 2012.

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
		For the transition period from __________ to __________

Commission File Number 0-24926

CECIL BANCORP, INC.

(Exact name of Registrant as specified in its charter)

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

127 North Street, Elkton, Maryland		21921
(Address of principal executive offices)		(Zip Code)

(410) 398-1650

(Registrant’s telephone number, including area code)

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.

x YES o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x 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.

	Large accelerated filer o		Accelerated filer o
	Non-accelerated filer o		Smaller reporting company x

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

o YES x 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.

At October 31, 2012, there were 7,422,164 shares of common stock outstanding

CECIL BANCORP, INC. AND SUBSIDIARIES

CONTENTS

		PAGE
PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets -	3
	September 30, 2012 and December 31, 2011

	Consolidated Statements of Operations and Comprehensive Income Loss	4-5
	for the Three and Nine Months Ended September 30, 2012 and 2011

	Consolidated Statements of Cash Flows	6
	for the Nine Months Ended September 30, 2012 and 2011

	Notes to Consolidated Financial Statements	7-27

ITEM 2.	Management’s Discussion and Analysis of Financial Condition	28-38
	and Results of Operations

ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	38

ITEM 4.	Controls and Procedures	38

PART II – OTHER INFORMATION		38-40

SIGNATURES		41

CERTIFICATIONS		42-45

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CECIL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands)

	September 30,			December 31,
	2012			2011
ASSETS:
Cash and due from banks	$	1,618		$	1,578
Interest bearing deposits with banks		29,745			32,274
Federal funds sold		319			559
Total cash and cash equivalents		31,682			34,411
Investment securities:
Securities available-for-sale at fair value		29,205			23,656
Securities held-to-maturity (fair value of $4,904 in 2012 and $9,736 in 2011)		4,860			9,745
Restricted investment securities – at cost		4,204			4,296
Loans receivable		314,374			330,262
Less: allowance for loan losses		(9,731	)		(12,412	)
Net loans receivable		304,643			317,850
Other real estate owned		40,752			30,966
Premises and equipment, net		9,773			10,041
Accrued interest receivable		1,504			1,523
Mortgage servicing rights		444			467
Bank owned life insurance		8,422			8,284
Deferred tax assets		-			9,318
Assets held for sale		-			5,903
Income taxes receivable		5,509			5,276
Other assets		1,981			1,935
TOTAL ASSETS	$	442,979		$	463,671
LIABILITIES:
Deposits	$	342,114		$	339,075
Other liabilities		12,134			10,612
Junior subordinated debentures		17,000			17,000
Advances from Federal Home Loan Bank of Atlanta		53,500			63,500
Other borrowed funds		1,169			1,169
Total liabilities		425,917			431,356
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value; authorized 1,000,000 shares
Series A issued and outstanding 11,560 shares, liquidation preference $1,000 per share, in 2012 and 2011		11,317			11,200
Series B issued and outstanding 164,575 shares, liquidation preference $17.20 per share, in 2012 and zero in 2011		2,796			-
Common stock, $.01 par value; authorized 100,000,000 shares in 2012 and 10,000,000 in 2011, issued and outstanding 7,422,164 shares in 2012 and 2011		74			75
Additional paid in capital		12,299			12,299
Retained (deficit) earnings		(9,646	)		8,721
Accumulated other comprehensive income		222			20
Total stockholders’ equity		17,062			32,315
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	442,979		$	463,671

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
INTEREST INCOME:
Interest and fees on loans	$	4,425		$	5,130		$	13,570		$	16,321
Interest on investment securities		111			61			294			215
Dividends on FHLB and FRB stock		27			17			83			51
Other interest income		16			11			45			44
Total interest income		4,579			5,219			13,992			16,631

INTEREST EXPENSE:
Interest expense on deposits		935			1,076			2,845			3,462
Interest expense on junior subordinated debentures		96			176			354			652
Interest expense on advances from FHLB		493			620			1,649			1,841
Interest expense on other borrowed funds		-			20			20			44
Total interest expense		1,524			1,892			4,868			5,999

NET INTEREST INCOME		3,055			3,327			9,124			10,632

PROVISION FOR LOAN LOSSES		2,850			958			5,910			5,958

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		205			2,369			3,214			4,674

NONINTEREST INCOME:
Deposit account fees		125			151			361			425
ATM fees		117			116			355			339
Commission income		-			-			1			1
Gain on sale of loans		28			44			1,381			131
Loss on sale of other real estate owned		-			(141	)		(225	)		(286	)
Loss on investments		-			-			-			(50	)
Income from bank owned life insurance		46			55			138			157
Other		147			75			399			224
Total noninterest income		463			300			2,410			941

NONINTEREST EXPENSE:
Salaries and employee benefits		1,307			1,299			3,789			3,988
Occupancy expense		184			237			543			637
Equipment and data processing expense		310			331			944			957
FDIC deposit insurance premiums		272			52			802			876
Other real estate owned expense and valuation		4,520			298			6,362			1,639
Professional fees		413			482			1,327			808
Loan collection expense		86			823			516			1,337
Other		350			432			1,113			1,139
Total noninterest expense		7,442			3,954			15,396			11,381

NET LOSS BEFORE INCOME TAXES		(6,774	)		(1,285	)		(9,772	)		(5,766	)

INCOME TAX EXPENSE (BENEFIT)		9,081			(537	)		7,869			(2,370	)

NET LOSS (CARRIED FORWARD)	$	(15,855	)	$	(748	)	$	(17,641	)	$	(3,396	)

CECIL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(dollars in thousands, except per share data)

(Continued)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

NET LOSS (BROUGHT FORWARD)	$	(15,855	)	$	(748	)	$	(17,641	)	$	(3,396	)

OTHER COMPREHENSIVE GAIN (LOSS)
Unrealized gains (losses) on investment securities, net of deferred taxes		100			(10	)		202			(59	)

TOTAL COMPREHENSIVE LOSS	$	(15,755	)	$	(758	)	$	(17,439	)	$	(3,455	)

NET LOSS	$	(15,855	)	$	(748	)	$	(17,641	)	$	(3,396	)

PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION		(359	)		(182	)		(726	)		(544	)

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(16,214	)	$	(930	)	$	(18,367	)	$	(3,940	)


Loss per common share - basic	$	(2.18	)	$	(0.13	)	$	(2.47	)	$	(0.53	)

Loss per common share - diluted	$	(2.18	)	$	(0.13	)	$	(2.47	)	$	(0.53	)

Dividends declared per common share	$	0.00		$	0.00		$	0.00		$	0.00

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(dollars in thousands)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(17,641	)	$	(3,396	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,014			651
Provision for loan losses		5,910			5,958
Gain on sale of loans		(1,381	)		(131	)
Loss on sale of other real estate owned		225			286
Loss on investments		-			50
Loss on premises and equipment		6			22
Gain on assets held for sale		(18	)		-
Income from bank owned life insurance		(138	)		(157	)
Valuation allowance on other real estate owned		5,338			1,415
Valuation allowance on deferred tax assets		9,187			-
Excess servicing rights		(58	)		(69	)
Origination of loans held for sale		(19,427	)		(5,798	)
Proceeds from sales of loans held for sale		20,789			5,872
Net change in:
Accrued interest receivable and other assets		(323	)		(7,482	)
Other liabilities		913			577
Net cash provided by (used in) operating activities		4,396			(2,202	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available-for-sale		(13,692	)		(8,119	)
Purchases of investment securities held-to-maturity		(500	)		(17,519	)
Net redemption of restricted investment securities		92			53
Proceeds from sales, maturities, calls and principal payments of investment securities available-for-sale		8,054			419
Proceeds from maturities, calls and principal payments of investment securities held-to-maturity		5,253			11,697
Net (increase) decrease in loans		(10,728	)		16,429
Proceeds from sale of other real estate owned		2,768			1,707
Proceeds from sale of premises and equipment		25			20
Proceeds from sale of assets held for sale		5,911			-
Purchases of premises and equipment		(143	)		(340	)
Net cash (used in) provided by investing activities		(2,960	)		4,347
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		3,039			(15,401	)
Net decrease in advances from Federal Home Loan Bank of Atlanta		(10,000	)		-
Proceeds from issuance of preferred stock		2,796			-
Proceeds from issuance of common stock		-			21
Net cash used in financing activities		(4,165	)		(15,380	)
DECREASE IN CASH AND CASH EQUIVALENTS		(2,729	)		(13,235	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		34,411			51,969
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	31,682		$	38,734
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	-		$	1,355
Cash paid for interest	$	4,595		$	5,342
Transfer of loans to other real estate owned	$	18,044		$	10,400

See accompanying notes to consolidated financial statements.

CECIL BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

1. GENERAL

In the opinion of management 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 Company’s financial position as of September 30, 2012, the results of its operations and comprehensive income for the three and nine months ended September 30, 2012 and 2011, and cash flows for the nine months ended September 30, 2012 and 2011. 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, 2011. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year or for any other period.

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, deferred income taxes, and contingencies, among others. Actual results could differ from those estimates.

3. GOING CONCERN CONSIDERATION

Due to our elevated level of nonperforming assets and recurring operating losses, there is substantial doubt regarding our ability to continue as a going concern. Management is taking steps to improve our financial condition. The financial statements and the accompanying footnotes have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and does not include any adjustment to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result form the outcome of any extraordinary regulatory action, which would affect our ability to continue as a going concern.

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 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 nine months ended September 30, 2012 and 2011, all 523,076 options and warrants were 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, effected through a 100% stock dividend, declared by the Board of Directors in May 2011. The calculation of net loss per common share for the three and nine months ended September 30, 2012 and 2011 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
Basic and diluted:	2012			2011			2012			2011

Net loss	$	(15,855,000	)	$	(748,000	)	$	(17,641,000	)	$	(3,396,000	)
Preferred stock dividends and discount accretion		(359,000	)		(182,000	)		(726,000	)		(544,000	)
Net loss available to common stockholders	$	(16,214,000	)	$	(930,000	)	$	(18,367,000	)	$	(3,940,000	)

Average common shares outstanding		7,422,164			7,419,496			7,422,164			7,410,979

Basic and diluted loss per common share	$	(2.18	)	$	(0.13	)	$	(2.47	)	$	(0.53	)

5. ACCOUNTING FOR STOCK BASED COMPENSATION PLANS

In November 2009, the Company approved the granting of 120,250 restricted stock awards with a fair market value of $2.00 per share. The awards vest over a period of five years. All restricted stock awards have been adjusted to give retroactive effect to the 2-for-1 stock split declared by the Board of Directors in May 2011. A summary of the Company’s activity and related information for restricted stock for the periods indicated is as follows:

	Nine Months Ended						Year Ended
	September 30, 2012						December 31, 2011
				Weighted-						Weighted-
				Average						Average
	Shares			Exercise Price			Shares			Exercise Price

Unvested at beginning of period		111,694			$	2.00		116,288			$	2.00
Forfeited		(780	)			2.00		(1,926	)			2.00
Awarded		—				—		—				—
Released		—				—		(2,668	)			2.00
Unvested at end of period		110,914			$	2.00		111,694			$	2.00

6. ASSETS MEASURED AT FAIR VALUE

The Company applies guidance issued by FASB regarding fair value measurements, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. The guidance applies only to fair value measurements required or permitted under current accounting pronouncements, but does not require any new fair value measurements. Fair value is defined as the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. The guidance also expands disclosures about financial instruments that are measured at fair value and eliminates the use of large position discounts for financial instruments quoted in active markets. The disclosure’s emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the period. The adoption of the guidance did not have any effect on the Company’s financial position or results of operations. For Level 1 assets, the Company uses quoted prices in active markets. For Level 2 assets, the Company uses information from a third party pricing service, which is estimated using market prices of comparable instruments or other methods, such as the present value of future cash flows. The following table shows the value (in thousands) at September 30, 2012 and December 31, 2011 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
Description	Carrying Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2012
Investment securities available-for-sale
Mutual funds – mortgage securities	$	713	$	713	$	—	$	—
Mutual funds – U.S. Government
securities		676		676		—		—
Equity securities		434		434		—		—
SBA securitized loan pools		3,920		—		3,920		—
Other debt securities		1,288		—		1,288		—
Mortgage-backed securities		22,174		—		22,174		—
Total investment securities available-for-sale	$	29,205	$	1,823	$	27,382	$	—
	Fair Value Measurements at Reporting Date Using
Description	Carrying Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2011
Investment securities available-for-sale
Mutual funds – mortgage securities	$	711	$	711	$	—	$	—
Mutual funds – U.S. Government
securities		674		674		—		—
Equity securities		362		362		—		—
SBA securitized loan pools		4,921		—		4,921		—
Other debt securities		3,167		—		3,167		—
Mortgage-backed securities		13,821		—		13,821		—
Total investment securities available-for-sale	$	23,656	$	1,747	$	21,909	$	—

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 September 30, 2012 and December 31, 2011, the following table provides (in thousands) the level of valuation assumptions used to determine each adjustment and the carrying value of the assets. For both other real estate owned and impaired loans, Level 3 assets are valued at the lesser of the unpaid principal balance of the loan, or the appraised value of the underlying collateral, as determined by a third party appraiser. There have been no changes in valuation techniques for the quarter ended September 30, 2012. There were no transfers between valuation levels for any assets during the quarter ended September 30, 2012.

	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)
September 30, 2012
Other real estate owned:
Construction & Land Development	$	23,533	$	0	$	0	$	23,533
1-4 Family Residential		8,733		0		0		8,733
Commercial Real Estate		8,486		0		0		8,486
Total	$	40,752	$	0	$	0	$	40,752

Impaired loans:
Construction & Land Development	$	30,430	$	0	$	0	$	30,430
1-4 Family Residential		13,512		0		0		13,512
Commercial Real Estate		20,840		0		0		20,840
Commercial Business		226		0		0		226
Total	$	65,008	$	0	$	0	$	65,008

December 31, 2011
Other real estate owned:
Construction & Land Development	$	14,747	$	0	$	0	$	14,747
1-4 Family Residential		7,179		0		0		7,179
Commercial Real Estate		9,040		0		0		9,040
Total	$	30,966	$	0	$	0	$	30,966

Impaired loans:
Construction & Land Development	$	23,266	$	0	$	0	$	23,266
1-4 Family Residential		14,531		0		0		14,531
Multi-Family Residential		286		0		0		286
Commercial Real Estate		23,584		0		0		23,584
Commercial Business		661		0		0		661
Consumer		163		0		0		163
Total	$	62,491	$	0	$	0	$	62,491

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC 825-10-50 requires that the Company disclose estimated fair values for both its on and off-balance-sheet financial instruments. The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments. Changes in estimates and assumptions could have a significant impact on these fair values.

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

Loans Receivable - The fair value of the loan portfolio is estimated by evaluating homogeneous categories of loans with similar financial and credit risk characteristics. Loans are segregated by types, such as residential

mortgage, commercial real estate and consumer. Each loan category is further segmented into fixed and adjustable-rate interest terms.

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

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

Deposits - The fair values of deposits are estimated using a discounted cash flow calculation, adjusted for estimated decay rates, that applies interest rates currently offered for funding sources with similar maturities. Assumptions regarding discount rates and decay estimates are judgmentally determined by using available market information.

Junior Subordinated Debentures – The fair value was estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms.

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

Other Borrowed Funds – The fair value was estimated by computing the discounted value of contractual cash flows at current interest rates for obligations with similar remaining terms.

Commitments to Extend Credit - The Company charges fees for commitments to extend credit. Interest rates on loans for which these commitments are extended are normally committed for periods of less than one month. Fees charged on standby letters of credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face amount or expire unused. It is impractical to assign any fair value to these commitments.

The estimated fair values of financial instruments (in thousands) at September 30, 2012 are as follows:

							Fair Value Measurements at Reporting Date Using
							Quoted Prices
							In Active			Significant
							Markets for			Other			Significant
							Identical			Observable			Unobservable
	Carrying						Assets			Inputs			Inputs
	Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Investment securities:
Available-for-sale		$	29,205		$	29,205		$	1,823		$	27,382		$	—
Held-to-maturity			4,860			4,904			—			4,904			—
Loans receivable			314,374			344,922			—			—			344,922
Restricted investment securities			4,204			4,204			—			4,204			—
Financial liabilities:
Deposits			342,114			327,428			—			—			327,428
Junior subordinated debentures			17,000			17,026			—			17,026			—
Advances from FHLB			53,500			53,565			—			53,565			—
Other borrowed funds			1,169			1,168			—			1,168			—

The estimated fair values of financial instruments (in thousands) at December 31, 2011 are as follows:

							Fair Value Measurements at Reporting Date Using
							Quoted Prices
							In Active			Significant
							Markets for			Other			Significant
							Identical			Observable			Unobservable
	Carrying						Assets			Inputs			Inputs
	Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Investment securities:
Available-for-sale		$	23,656		$	23,656		$	1,747		$	21,909		$	—
Held-to-maturity			9,745			9,736			—			9,736			—
Loans receivable			330,262			401,098			—			—			401,098
Restricted investment securities			4,296			4,296			—			4,296			—
Financial liabilities:
Deposits			339,075			322,027			—			—			322,027
Junior subordinated debentures			17,000			14,711			—			14,711			—
Advances from FHLB			63,500			63,662			—			63,662			—
Other borrowed funds			1,169			1,168			—			1,168			—

8. INVESTMENT SECURITIES

Investment securities have been classified in the consolidated balance sheets according to management’s intent and ability to hold the investment. Investment securities at September 30, 2012 and December 31, 2011 are summarized in the following table (in thousands).

	September 30, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Available-for-Sale:
Mutual funds - mortgage securities	$	747	$	5	$	39	$	713
Mutual funds - U.S. Government securities		686		—		10		676
Equity securities		226		208		—		434
SBA securitized loan pools		3,964		5		49		3,920
Other debt securities		1,289		—		1		1,288
Mortgage-backed securities		21,928		269		23		22,174
	$	28,840	$	487	$	122	$	29,205

Held-to-Maturity:
SBA securitized loan pools	$	1,543	$	—	$	17	$	1,526
Other debt securities		500		10		—		510
Mortgage-backed securities		2,567		56		5		2,618
U. S. Treasury securities and obligations		250		—		—		250
	$	4,860	$	66	$	22	$	4,904

	December 31, 2011
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Available-for-Sale:
Mutual funds - mortgage securities	$	747	$	5	$	41	$	711
Mutual funds - U.S. Government securities		686		—		12		674
Equity securities		226		136		—		362
SBA securitized loan pools		4,947		9		35		4,921
Other debt securities		3,200		4		37		3,167
Mortgage-backed securities		13,817		49		45		13,821
	$	23,623	$	203	$	170	$	23,656

Held-to-Maturity:
SBA securitized loan pools	$	2,161	$	—		32	$	2,129
Other debt securities		1,500		12		—		1,512
Mortgage-backed securities		5,334		41		30		5,345
U. S. Treasury securities and obligations		750		—		—		750
	$	9,745	$	53	$	62	$	9,736

As of September 30, 2012, unrealized losses (in thousands) on securities were comprised of the following based on the length of time that the securities have been in a continuous loss position:

	Less than 12 Months				More than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available-for-Sale:
Mutual funds – mortgage securities	$	—	$	—	$	136	$	39	$	136	$	39
Mutual funds – US Govt securities		—		—		676		10		676		10
SBA securitized loan pools		1,076		38		507		11		1,583		49
Other debt securities		788		1		—		—		788		1
Mortgage-backed securities		3,699		9		336		14		4,035		23
Held-to-Maturity:
SBA securitized loan pools		301		3		1,175		14		1,476		17
Mortgage-backed securities		—		—		522		5		522		5
	$	5,864	$	51	$	3,352	$	93	$	9,216	$	144

As of December 31, 2011, unrealized losses (in thousands) on securities were comprised of the following based on the length of time that the securities have been in a continuous loss position:

	Less than 12 Months				More than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available-for-Sale:
Mutual funds – mortgage securities	$	—	$	—	$	135	$	41	$	135	$	41
Mutual funds – US Govt securities		—		—		674		12		674		12
SBA securitized loan pools		3,892		35		—		—		3,892		35
Other debt securities		913		37		—		—		913		37
Mortgage-backed securities		7,141		41		203		4		7,344		45
Held-to-Maturity:
SBA securitized loan pools		2,129		32		—		—		2,129		32
Mortgage-backed securities		1,799		30		—		—		1,799		30
	$	15,874	$	175	$	1,012	$	57	$	16,886	$	232

The securities with unrealized holding losses are impaired due to declines in fair value resulting from changes in interest rates. None of these securities have exhibited a decline in value due to changes in credit risk. Additionally, the Company has the intent and ability to hold the mortgage-backed securities until they mature, and the equity securities until the foreseeable future, does not expect to realize losses on any of the investments, and it is more likely than not that we will not be required to sell. Therefore, management does not consider the declines in fair value to be other than temporary.

9. CREDIT QUALITY OF LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The Company has segregated its loan portfolio into six segments, including construction and land development, 1-4 family residential, multi-family residential, commercial real estate, commercial business, and consumer. The Company’s primary market area is in Northeastern Maryland in Cecil and Harford Counties, so exposure to credit risk is significantly affected by changes in these counties.

Construction lending primarily involves lending for construction of single family residences, although the Bank does lend funds for the construction of commercial properties and multi-family real estate. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. The Bank has financed the construction of non-residential properties on a case by case basis. Loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. The Bank originates loans secured by raw land, which are generally granted to developers have terms of up to three years. The substantial majority of land loans have a loan-to-value ratio not exceeding 75%. Land loans have a higher level of risk than loans for the purchase of existing homes since collateral values can only be estimated at the time the loan is approved. The Bank has sought to minimize this risk by offering such financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous experience in such projects.

The Bank offers fixed and adjustable rate conventional mortgage loans on one-to-four family residential dwellings. Most loans are originated in amounts up to $350,000 on properties located in the Bank’s primary market area. These loans are generally for terms of 15, 20 and 30 years amortized on a monthly basis with interest and principal due each month. The Bank retains all adjustable rate mortgage loans it originates and sells the majority of fixed rate loans, primarily to FHLMC, with servicing retained by the Bank. The retention of adjustable rate loans helps reduce the Bank’s exposure to rising interest rates. However, it is possible that during periods of rising interest rates, the risk of default on adjustable rate mortgage loans may increase due to the upward adjustment of the interest cost to the borrower.

The Bank originates multi-family residential loans in its market area. These loans are generally larger and involve greater risks than one-to-four family residential loans. Because payments on these loans are often dependent on the successful operation or management of the property, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks in a variety of ways, including limiting the size and loan-to-value ratios. The loans typically have terms of 20 to 40 years, with rate adjustments every one, three, or five years. They generally have imbedded interest rate floors, with no interest rate ceilings, and have no interest rate change limitations.

The Bank primarily originates commercial real estate loans in its market area. These loans are generally larger and involve greater risks that one-to-four family residential loans. Because payments on these loans are often dependent on the successful operation or management of the property, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks in a variety of ways, including limiting the size and loan-to-value ratios. The loans typically have terms of 20 to 40 years, with rate adjustments every one, three, or five years. They generally have imbedded interest rate floors, with no interest rate ceilings, and have no interest rate change limitations. The Bank’s commercial real estate loans are typically secured by retail or wholesale establishments, motels/hotels, service industries, and industrial or warehouse facilities. During 2011, the Bank began making loans under the Small Business Administration (“SBA”) Section 7(a) program, under which the SBA guarantees up to 75% of loans of up to $5 million for the purchase or expansion of small businesses. The Bank may sell the guaranteed portion of SBA loans into the secondary market and retain the unguaranteed portion in its portfolio.

The Bank offers secured and unsecured commercial business loans and lines of credit to businesses located in its primary market area. Most business loans have a one-year term, while lines of credit can remain open for longer periods. All owners, partners, and officers must sign the loan agreement. The security for a business loan depends on the amount borrowed, the business involved, and the strength of the borrower’s firm. Commercial business lending entails significant risk, as the payments on such loans may depend upon the successful operation or management of the business involved. Although the Bank attempts to limit its risk of loss on such loans by limiting the amount and the term, and by requiring personal guarantees of the principals of the business, the risk of loss on these loans is substantially greater than the risk of loss from residential real estate lending.

The Bank’s consumer loans consist of automobile loans, deposit account loans, home improvement loans, and other consumer loans. The loans are generally offered for terms of up to five years at fixed interest rates. Consumer loans are generally originated at higher interest rates than residential mortgage loans because of their higher risk. Repossessed collateral for a defaulted loan may not provide an adequate source of repayment as a result of damage, loss, or depreciation. In addition, collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.

On an ongoing basis, the Bank assigns a grade to each of its loans. The internal grades are pass, special mention, substandard, doubtful, and loss. Loans graded pass are loans where the borrower exhibits a strong balance sheet position and good earnings and cash flow history. Loans graded special mention show potential weaknesses that deserve the Bank’s close attention. If these potential weaknesses are not corrected, they may result in deterioration of the repayment prospects for the loan in the Bank’s credit position at some future date. Substandard loans are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well defined weakness that could jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the weaknesses are not corrected. Loans graded doubtful have all the weaknesses inherent in substandard loans with the added characteristic that the weaknesses make collection or liquidation in full highly improbable. Assets graded loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. The classification does not mean the loan has absolutely no recovery value, but that it is not practical to defer charging off the loan even though partial recovery may be effected in the future.

In accordance with new standards issued under the Disclosures of Credit Quality of Financing Receivables and the Allowance for Loan Losses, the following tables show credit quality indicators, the aging of receivables, and disaggregated balances of loans receivable and the allowance for loan losses (in thousands) as of September 30, 2012 and December 31, 2011.

Credit Quality Indicators
As of September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Credit risk profile by internally assigned grade:

Pass	$	15,976	$	78,599	$	4,522	$	112,904	$	5,341	$	2,336	$	219,678
Special mention		2,202		1,796		-		19,327		82		5		23,412
Substandard		39,259		13,541		-		15,099		3,385		-		71,284
Total	$	57,437	$	93,936	$	4,522	$	147,330	$	8,808	$	2,341	$	314,374

Credit risk profile based on payment activity:

Current	$	54,440	$	79,188	$	4,225	$	137,700	$	8,000	$	2,339	$	285,892
Greater than 30 days past due		2,997		14,748		297		9,630		808		2		28,482
Total	$	57,437	$	93,936	$	4,522	$	147,330	$	8,808	$	2,341	$	314,374

The majority of our substandard loans are current with respect to their payment activity, but they are classified substandard because of other well defined weaknesses relating to the loan or financial condition of the borrower.

Credit Quality Indicators
As of December 31, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Credit risk profile by internally assigned grade:

Pass	$	28,194	$	86,467	$	4,458	$	118,723	$	6,359	$	2,734	$	246,485
Special mention		7,462		11,331		-		7,455		804		6		27,058
Substandard		27,342		12,823		-		15,710		686		158		56,719
Total	$	62,998	$	110,621	$	4,458	$	141,438	$	7,849	$	2,898	$	330,262

Credit risk profile based on payment activity:

Current	$	36,437	$	94,759	$	4,458	$	132,508	$	7,681	$	2,892	$	278,735
Greater than 30 days past due		26,561		15,862		-		8,930		168		6		51,527
Total	$	62,998	$	110,621	$	4,458	$	141,438	$	7,849	$	2,898	$	330,262

Age Analysis of Past Due Loans Receivable
As of September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

30-59 Days Past Due	$	191	$	5,940	$	297	$	8,232	$	297	$	2	$	14,959
60-89 Days Past Due		-		633		-		1,217		503		-		2,353
Greater Than 90 Days Past Due		2,806		8,175		-		181		8		-		11,170
Total Past Due		2,997		14,748		297		9,630		808		2		28,482
Current		54,440		79,188		4,225		137,700		8,000		2,339		285,892
Total Loans Receivable	$	57,437	$	93,936	$	4,522	$	147,330	$	8,808	$	2,341	$	314,374

Recorded Investment > 90 Days and Accruing		-		-		-		-		-		-		-

Age Analysis of Past Due Loans Receivable
As of December 31, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

30-59 Days Past Due	$	630	$	4,003	$	-	$	585	$	7	$	-	$	5,225
60-89 Days Past Due		1,117		4,335		-		2,389		-		1		7,842
Greater Than 90 Days Past Due		24,814		7,524		-		5,956		161		5		38,460
Total Past Due		26,561		15,862		-		8,930		168		6		51,527
Current		36,437		94,759		4,458		132,508		7,681		2,892		278,735
Total Loans Receivable	$	62,998	$	110,621	$	4,458	$	141,438	$	7,849	$	2,898	$	330,262

Recorded Investment > 90 Days and Accruing		-		-		-		-		-		-		-

Allowance for Loan Losses
For the Three Months Ended September 30, 2012
	Construction
	& Land			1-4 Family			Multi-Family		Commercial			Commercial
	Development			Residential			Residential		Real Estate			Business			Consumer			Unallocated		Total

Beginning balance	$	4,282		$	2,163		$	20	$	2,749		$	1,038		$	4		$	652	$	10,908
Charge-offs		(3,649	)		(414	)		-		(105	)		(29	)		(2	)		-		(4,199	)
Recoveries		1			5			-		160			5			1			-		172
Provision		2,733			471			6		(559	)		12			-			187		2,850
Ending balance	$	3,367		$	2,225		$	26	$	2,245		$	1,026		$	3		$	839	$	9,731

Allowance for Loan Losses and Recorded Investment in Loans Receivable
For the Nine Months Ended September 30, 2012
	Construction
	& Land			1-4 Family			Multi-Family		Commercial			Commercial
	Development			Residential			Residential		Real Estate			Business			Consumer			Unallocated		Total

Allowance for loan losses:

Beginning balance	$	4,234		$	2,323		$	14	$	4,243		$	636		$	169		$	793	$	12,412
Charge-offs		(5,905	)		(1,655	)		-		(1,055	)		(178	)		(168	)		-		(8,961	)
Recoveries		1			20			-		222			121			6			-		370
Provision		5,037			1,537			12		(1,165	)		447			(4	)		46		5,910
Ending balance	$	3,367		$	2,225		$	26	$	2,245		$	1,026		$	3		$	839	$	9,731

Ending balance individually evaluated for impairment	$	2,047		$	1,321		$	-	$	288		$	981		$	-		$	-	$	4,637

Ending balance collectively evaluated for impairment	$	1,320		$	904		$	26	$	1,957		$	45		$	3		$	839	$	5,094

Loans receivable:

Ending balance	$	57,437		$	93,936		$	4,522	$	147,330		$	8,808		$	2,341		$	-	$	314,374

Ending balance individually evaluated for impairment	$	39,259		$	15,498		$	-	$	26,526		$	3,385		$	-		$	-	$	84,668

Ending balance collectively evaluated for impairment	$	18,178		$	78,438		$	4,522	$	120,804		$	5,423		$	2,341		$	-	$	229,706

Allowance for Loan Losses
For the Three Months Ended September 30, 2011
	Construction
	& Land			1-4 Family			Multi-Family			Commercial			Commercial
	Development			Residential			Residential			Real Estate			Business			Consumer			Unallocated			Total

Beginning balance	$	5,090		$	1,322		$	30		$	2,488		$	693		$	175		$	4,212		$	14,010
Charge-offs		(2	)		(202	)		-			(1,012	)		(20	)		(12	)		-			(1,248	)
Recoveries		-			(8	)		10			-			-			2			-			4
Provision		141			629			(13	)		2,214			283			(1	)		(2,295	)		958
Ending balance	$	5,229		$	1,741		$	27		$	3,690		$	956		$	164		$	1,917		$	13,724

Allowance for Loan Losses and Recorded Investment in Loans Receivable
For the Nine Months Ended September 30, 2011
	Construction
	& Land			1-4 Family			Multi-Family			Commercial			Commercial
	Development			Residential			Residential			Real Estate			Business			Consumer			Unallocated		Total

Allowance for loan losses:

Beginning balance	$	7,268		$	1,480		$	51		$	4,455		$	637		$	174		$	1,012	$	15,077
Charge-offs		(2,038	)		(812	)		-			(3,396	)		(1,135	)		(28	)		-		(7,409	)
Recoveries		26			-			10			52			-			10			-		98
Provision		(27	)		1,073			(34	)		2,579			1,454			8			905		5,958
Ending balance	$	5,229		$	1,741		$	27		$	3,690		$	956		$	164		$	1,917	$	13,724

Ending balance individually evaluated for impairment	$	540		$	402		$	-		$	117		$	500		$	160		$	-	$	1,719

Ending balance collectively evaluated for impairment	$	4,689		$	1,339		$	27		$	3,573		$	456		$	4		$	1,917	$	12,005

Loans receivable:

Ending balance	$	66,354		$	111,383		$	4,489		$	148,201		$	12,240		$	3,169		$	-	$	345,836

Ending balance individually evaluated for impairment	$	29,097		$	13,305		$	-		$	16,146		$	4,521		$	160		$	-	$	63,229

Ending balance collectively evaluated for impairment	$	37,257		$	98,078		$	4,489		$	132,055		$	7,719		$	3,009		$	-	$	282,607

Loans Receivable on Nonaccrual Status
As of September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Unpaid Principal Balance	$	32,133	$	-	$	13,048	$	4,287	$	498	$	-	$	49,966

Loans Receivable on Nonaccrual Status
As of December 31, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Unpaid Principal Balance	$	23,670	$	8,023	$	-	$	5,956	$	161	$	5	$	37,815

Troubled Debt Restructurings
For the Nine Months Ended September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Troubled Debt Restructurings:

Number of Loans		6		7		-		3		-		-		16

Pre-Modification Principal Balance	$	6,337	$	1,725	$	-	$	1,457	$	-	$	-	$	9,519

Post-Modification Principal Balance	$	3,971	$	1,677	$	-	$	1,455	$	-	$	-	$	7,103

Troubled Debt Restructurings That Subsequently Defaulted:

Number of Loans		1		8		-		2		-		-		11

Current Principal Balance	$	1,814	$	1,867	$	-	$	2,864	$	-	$	-	$	6,545

Troubled Debt Restructurings
For the Nine Months Ended September 30, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Troubled Debt Restructurings:

Number of Loans		-		22		1		2		-		-		25

Pre-Modification Principal Balance	$	-	$	3,541	$	290	$	11,443	$	-	$	-	$	15,274

Post-Modification Principal Balance	$	-	$	3,439	$	287	$	11,400	$	-	$	-	$	15,126

Troubled Debt Restructurings That Subsequently Defaulted:

Number of Loans		-		-		-		-		-		-		-

Current Principal Balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Troubled Debt Restructurings
For the Three Months Ended September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Troubled Debt Restructurings:

Number of Loans		3		1		-		-		-		-		4

Pre-Modification Principal Balance	$	1,907	$	80	$	-	$	-	$	-	$	-	$	1,987

Post-Modification Principal Balance	$	1,180	$	73	$	-	$	-	$	-	$	-	$	1,253

Troubled Debt Restructurings That Subsequently Defaulted:

Number of Loans		-		4		-		-		-		-		4

Current Principal Balance	$	-	$	575	$	-	$	-	$	-	$	-	$	575

Troubled Debt Restructurings
For the Three Months Ended September 30, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Troubled Debt Restructurings:

Number of Loans		-		13		1		-		-		-		14

Pre-Modification Principal Balance	$	-	$	1,815	$	290	$	-	$	-	$	-	$	2,105

Post-Modification Principal Balance	$	-	$	1,779	$	287	$	-	$	-	$	-	$	2,066

Troubled Debt Restructurings That Subsequently Defaulted:

Number of Loans		-		-		-		-		-		-		-

Current Principal Balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Impaired Loans
For the Three Months Ended September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Loans With a Valuation Allowance:

Average Recorded Investment	$	1,132	$	614	$	-	$	496	$	490	$	-	$	2,732

Interest Income Recognized	$	226	$	88	$	-	$	17	$	3	$	-	$	334

Loans Without a Valuation Allowance:

Average Recorded Investment	$	671	$	215	$	-	$	1,471	$	14	$	-	$	2,371

Interest Income Recognized	$	634	$	107	$	-	$	258	$	-	$	-	$	999

Totals:

Average Recorded Investment	$	1,803	$	829	$	-	$	1,967	$	504	$	-	$	5,103

Interest Income Recognized	$	860	$	195	$	-	$	275	$	3	$	-	$	1,333

Impaired Loans
As of and For the Nine Months Ended September 30, 2012
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Loans With a Valuation Allowance:

Unpaid Principal Balance	$	10,843	$	5,518	$	-	$	1,193	$	490	$	-	$	18,044

Related Allowance for Loan Losses	$	1,703	$	1,228	$	-	$	274	$	272	$	-	$	3,477

Average Recorded Investment	$	8,529	$	4,588	$	-	$	1,103	$	245	$	-	$	14,465

Interest Income Recognized	$	240	$	165	$	-	$	21	$	11	$	-	$	437

Loans Without a Valuation Allowance:

Unpaid Principal Balance	$	21,290	$	9,222	$	-	$	19,921	$	8	$	-	$	50,441

Related Allowance for Loan Losses	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Average Recorded Investment	$	19,374	$	10,327	$	143	$	21,311	$	335	$	81	$	51,571

Interest Income Recognized	$	652	$	304	$	-	$	734	$	-	$	-	$	1,690

Totals:

Unpaid Principal Balance	$	32,133	$	14,740	$	-	$	21,114	$	498	$	-	$	68,485

Related Allowance for Loan Losses	$	1,703	$	1,228	$	-	$	274	$	272	$	-	$	3,477

Average Recorded Investment	$	27,903	$	14,915	$	143	$	22,414	$	580	$	81	$	66,036

Interest Income Recognized	$	892	$	469	$	-	$	755	$	11	$	-	$	2,127

Impaired Loans
As of and For the Year Ended December 31, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Loans With a Valuation Allowance:

Unpaid Principal Balance	$	6,214	$	3,658	$	-	$	1,013	$	-	$	-	$	10,885

Related Allowance for Loan Losses	$	405	$	560	$	-	$	130	$	-	$	-	$	1,095

Average Recorded Investment	$	4,986	$	2,963	$	-	$	7,168	$	260	$	80	$	15,457

Interest Income Recognized	$	116	$	179	$	-	$	50	$	-	$	-	$	345

Loans Without a Valuation Allowance:

Unpaid Principal Balance	$	17,457	$	11,433	$	286	$	22,701	$	661	$	163	$	52,701

Related Allowance for Loan Losses	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Average Recorded Investment	$	19,828	$	11,627	$	288	$	19,061	$	330	$	81	$	51,215

Interest Income Recognized	$	293	$	551	$	24	$	1,112	$	39	$	6	$	2,025

Totals:

Unpaid Principal Balance	$	23,671	$	15,091	$	286	$	23,714	$	661	$	163	$	63,586

Related Allowance for Loan Losses	$	405	$	560	$	-	$	130	$	-	$	-	$	1,095

Average Recorded Investment	$	24,814	$	14,590	$	288	$	26,229	$	590	$	161	$	66,672

Interest Income Recognized	$	409	$	730	$	24	$	1,162	$	39	$	6	$	2,370

Impaired Loans
For the Three Months Ended September 30, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Loans With a Valuation Allowance:

Average Recorded Investment	$	995	$	994	$	-	$	-	$	-	$	-	$	1,989

Interest Income Recognized	$	-	$	4	$	-	$	-	$	-	$	-	$	4

Loans Without a Valuation Allowance:

Average Recorded Investment	$	19,341	$	5,789	$	-	$	11,686	$	-	$	-	$	36,816

Interest Income Recognized	$	86	$	36	$	-	$	20	$	-	$	-	$	142

Totals:

Average Recorded Investment	$	20,336	$	6,783	$	-	$	11,686	$	-	$	-	$	38,805

Interest Income Recognized	$	86	$	40	$	-	$	20	$	-	$	-	$	146

Impaired Loans
As of and For the Nine Months Ended September 30, 2011
	Construction
	& Land		1-4 Family		Multi-Family		Commercial		Commercial
	Development		Residential		Residential		Real Estate		Business		Consumer		Total

Loans With a Valuation Allowance:

Unpaid Principal Balance	$	-	$	1,324	$	-	$	-	$	-	$	-	$	1,324

Related Allowance for Loan Losses	$	-	$	73	$	-	$	-	$	-	$	-	$	73

Average Recorded Investment	$	1,879	$	1,386	$	-	$	4,998	$	-	$	-	$	8,263

Interest Income Recognized	$	-	$	14	$	-	$	-	$	-	$	-	$	14

Loans Without a Valuation Allowance:

Unpaid Principal Balance	$	21,789	$	5,810	$	-	$	9,844	$	-	$	-	$	37,443

Related Allowance for Loan Losses	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Average Recorded Investment	$	20,918	$	6,397	$	-	$	10,433	$	-	$	-	$	37,748

Interest Income Recognized	$	187	$	137	$	-	$	48	$	-	$	-	$	372

Totals:

Unpaid Principal Balance	$	21,789	$	7,134	$	-	$	9,844	$	-	$	-	$	38,767

Related Allowance for Loan Losses	$	-	$	73	$	-	$	-	$	-	$	-	$	73

Average Recorded Investment	$	22,797	$	7,783	$	-	$	15,431	$	-	$	-	$	46,011

Interest Income Recognized	$	187	$	151	$	-	$	48	$	-	$	-	$	386

10. INCOME TAXES

During the three months ended September 30, 2012, the Company’s deferred tax assets (“DTAs”) were evaluated for recoverability. This evaluation determined that a recovery of a substantial portion of the DTAs was not likely and a valuation allowance was established. This valuation allowance resulted in recognition of income tax expense in the amount of $9.1 million for the three months ended September 30, 2012.

CECIL BANCORP, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2012 AND 2011

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 and fixed-rate mortgage loans; (2) investing in adjustable rate and short-term liquid investments; (3) controlling interest rate risk exposure; (4) improving asset quality; (5) containing operating expenses; and (6) maintaining “well capitalized” status.

On December 23, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company sold 11,560 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), and a warrant to purchase 523,076 shares of the Company’s common stock (after adjustment for the 2-for-1 stock split approved by the Board of Directors in May 2011) to the United States Department of the Treasury for an aggregate purchase price of $11.560 million in cash, with $37,000 in offering costs, and net proceeds of $11.523 million. The Preferred Stock and the warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series A Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Department of Treasury may permit the Company to redeem the Series A Preferred Stock in whole or in part at any time after consultation with the appropriate federal banking agency. Any partial redemption must involve at least 25% of the Series A Preferred Stock issued. Upon redemption of the Series A Preferred Stock, the Company will have the right to repurchase the Warrant at its fair market value.

The warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $3.315 per share of common stock. The Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant.

In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, holders of the Series A Preferred Stock shall be entitled to receive for each share of the Series A Preferred Stock, out of the assets of the Company or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Company, subject to the rights of any creditors of the Company, before any distribution of such assets or proceeds is made to or set aside for the holders of common stock and any other stock of the Company ranking junior to the Series A Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the liquidation amount of $1,000 per share and (ii) the amount of any accrued and unpaid dividends, whether or not declared, to the date of payment.

In order to conserve cash in the current uncertain economic environment, the Company’s Board of Directors determined that it was in the best interest of the Company and its stockholders to suspend the payment of dividends on the Series A Preferred Stock beginning with the dividend payable February 15, 2010. We may not declare or pay a dividend or other distribution on our common stock (other than dividends payable solely in common stock), and we generally may not directly or indirectly purchase, redeem or otherwise acquire any shares of common stock unless all accrued and unpaid dividends on the Series A Preferred Stock have been paid in full. Whenever six or more quarterly dividends, whether or not consecutive, have not been paid, the holders of the Series A Preferred Stock will have the right to elect two directors until all accrued but unpaid dividends have been paid in full.

Effective June 29, 2010, the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Richmond (the “Reserve Bank”) and the State of Maryland Commissioner of Financial Regulation (the “Commissioner”) pursuant to which the Company and the Bank have agreed to take various actions. Under the agreement, both the Company and the Bank have agreed to refrain from declaring or paying dividends without prior regulatory approval. The Company has agreed that it will not take any other form of payment representing a reduction in the Bank’s capital or make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without prior regulatory approval. The Company may not incur, increase, or guarantee any debt without prior regulatory approval and has agreed not to purchase or redeem any shares of its stock without prior regulatory approval.

On March 30, 2012, the Company completed the sale of 142,196 shares of Mandatory Convertible Cumulative Junior Preferred Stock, Series B (the “Series B Preferred Stock”) at $17.20 per share in cash for aggregate consideration of approximately $2.5 million, with offering costs of $35,000, and net proceeds of approximately $2.4 million. In April 2012, an additional 22,379 shares were sold for aggregate consideration of approximately $385,000. Total gross proceeds of the offering were $2.8 million, with offering costs of $35,000, and net proceeds of approximately $2.8 million. Upon shareholder approval of the amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of common stock at the 2012 annual meeting, each share of Series B Preferred Stock became convertible into ten shares of common stock.

The Series B Preferred Stock will pay dividends, if, as and when authorized and declared by the Board of Directors, at a rate of 5% per annum. No dividends may be paid on the Series B Preferred Stock until all dividends have been paid on our Series A Preferred Stock. Unpaid dividends will accumulate.

In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, holders of the Series B Preferred Stock shall be entitled to receive for each share of the Series B Preferred Stock, out of the assets of the Company or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Company, subject to the rights of any creditors of the Company and after payment of liquidation amounts due the holders of Series A Preferred Stock, before any distribution of such assets or proceeds is made to or set aside for the holders of common stock and any other stock of the Company ranking junior to the Series B Preferred Stock as to such distribution, payment in full in an amount equal to the $17.20 liquidation preference amount per share. To the extent the assets or proceeds available for distribution to stockholders are not sufficient to fully pay the liquidation payments owing to the holders of the Series B Preferred Stock and the holders of any other class or series of our stock ranking equally with the Series B Preferred Stock, the holders of the Series B Preferred Stock and such other stock will share ratably in the distribution.

Each share of the Series B Preferred Stock is convertible at the option of the holder into ten whole shares of common stock plus such number of whole shares that would be obtained by dividing the dollar amount of accrued but unpaid dividends by the conversion price of $1.72. The minimum conversion price will be adjusted proportionately for stock dividends, stock splits and other corporate actions. No fractional shares of common stock will be issued on the conversion of the Series B Preferred Stock. In lieu of fractional shares, holders receive the cash value of such fractional share based on the closing price of the common stock on the date preceding the conversion. Holders may exercise conversion rights by surrendering the certificates representing the shares of Series B Preferred Stock to be converted to the Company with a letter of transmittal specifying the number of shares of Series B Preferred Stock that the holder wishes to convert and the names and addresses in which the shares of common stock are to be issued.

On the earlier of five years from the date of issue or the effective date of a fundamental change in the Company, each share of the Series B Preferred Stock will be automatically converted into ten shares of common stock plus such number of whole shares of common stock that would be obtained by dividing the dollar amount of accrued but unpaid dividends by $1.72. In lieu of issuing fractional shares, the Company will pay holders cash in an amount equal to $1.72 per share.

Due to our elevated level of problem assets and recurring operating losses, there is substantial doubt about our ability to continue as a going concern. Management is taking steps to improve our financial condition. The financial statements and the accompanying footnotes have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and does not include any adjustment to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of any extraordinary regulatory action, which would affect our ability to continue as a going concern.

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 (“FHLMC”). Management has been monitoring the retention of fixed rate loans through its asset/liability management policy.

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

The Company’s assets decreased by $20.7 million, or 4.5%, to $443.0 million at September 30, 2012 from $463.7 million at December 31, 2011 primarily as a result of decreases in cash and cash equivalents, loans receivable, deferred tax assets, and assets held for sale, partially offset by an increase in other real estate owned. An increase in deposits and proceeds from the sale of Series B Preferred Stock allowed us to pay off a $10.0 million advance from the Federal Home Loan Bank of Atlanta.

Cash and cash equivalents decreased by $2.7 million, or 7.9%, to $31.7 million at September 30, 2012 from $34.4 million at December 31, 2011 primarily due to repayment of a $10.0 million advance from the Federal Home Loan Bank of Atlanta, partially offset by cash obtained from an increase in deposits, the sale of Series B Preferred Stock, and the decline in assets held for sale. Investment securities available-for-sale increased by $5.5 million, or 23.5%, to $29.2 million at September 30, 2012 from $23.7 million at December 31, 2011. Investment securities held-to-maturity decreased by $4.9 million, or 50.1%, to $4.9 million at September 30, 2012 from $9.7 million at December 31, 2011, for a net increase in investment securities of $664,000.

Gross loans receivable decreased by $15.9 million, or 4.8%, to $314.4 million at September 30, 2012 from $330.3 million at December 31, 2011 primarily due to the transfer of $18.0 million of loans receivable to other real estate owned. During the period, we realized a $16.7 million (15.1%) decrease in one-to-four family residential and home equity loans, a $5.6 million (8.8%) decrease in construction loans, and a $557,000 (19.2%) decrease in consumer loans. These decreases were partially offset by a $5.9 million (4.2%) increase in commercial real estate loans and a $959,000 (12.2%) increase in commercial business loans. The allowance for loan losses decreased by $2.7 million, or 21.6%, to $9.7 million at September 30, 2012 from $12.4 million at December 31, 2011 (see “Analysis of Allowance for Loan Losses” below).

Other real estate owned increased by $9.8 million, or 31.6%, to $40.8 million at September 30, 2012 from $31.0 million at December 31, 2011 due to the acquisition of properties in satisfaction of loans receivable. Deferred tax assets decreased by $9.3 million to zero at September 30, 2012 from $9.3 million at December 31, 2011. The Company established a full valuation allowance on its deferred tax assets during the third quarter, resulting in income tax expense of $9.1 million during the three months ended September 30, 2012. The establishment of the valuation allowance does not preclude the Company from realizing these assets in the future, and the valuation allowance complies with accounting principles generally accepted in the United States. Assets held for sale decreased by $5.9 million to zero at September 30, 2012 from $5.9 million at December 31, 2011 due to the settlement on premises held for sale and our investment in Elkton Senior Apartments LLC.

The Company’s liabilities decreased $5.4 million, or 1.3%, to $425.9 million at September 30, 2012 from $431.4 million at December 31, 2011. The $3.0 million, or 0.9%, increase in deposits to $342.1 million at September 30, 2012 from $339.1 million at December 31, 2011 was primarily due to increases in money market accounts (up $5.6 million, or 42.2%), checking accounts (up $1.6 million, or 6.7%), certificates of deposit (up $1.3 million, or 6.0%), statement savings accounts (up $601,000, or 5.7%), NOW accounts (up $559,000, or 1.9%), and passbook savings accounts (up $538,000, or 4.8%). These increases were partially offset by a decrease in IRA certificates of deposit (down $7.7 million, or 32.0%). Other liabilities increased by $1.5 million, or 14.3%, to $12.1 million at September 30, 2012 from $10.6 million at December 31, 2011 primarily due to increases in accrued FDIC premium, accrued interest on junior subordinated debentures, and preferred stock dividend payable. Advances from Federal Home Loan Bank of Atlanta decreased by $10.0 million, or 15.8%, to $53.5 million at September 30, 2012 from $63.5 million at December 31, 2011 due to the repayment of a fixed rate advance that matured in the second quarter 2012.

The Company’s stockholders’ equity decreased by $15.3 million, or 47.2%, to $17.1 million at September 30, 2012 from $32.3 million at December 31, 2011. This decrease is primarily the result of a net loss of $17.6 million and $609,000 in cash dividends accrued on preferred stock, partially offset by $2.8 million in net proceeds from the issuance of Series B Preferred Stock.

Comparison of Results of Operations for the Three Months Ended September 30, 2012 and 2011

Net loss for the three month period ended September 30, 2012 increased $15.1 million to $15.9 million, as compared to $748,000 during the same period in 2011. This decrease was primarily the result of a decrease in net interest income and increases in the provision for loan losses, noninterest expense, and income tax expense. Net loss available to common stockholders for the three-month period ended September 30, 2012 was $16.2 million as compared to $930,000 for the same period in 2011. Net loss available to common stockholders for 2012 and 2011 reflects net loss for the period, as well as dividend accruals and discount accretion on outstanding Preferred Stock of $359,000 and $182,000, respectively. Basic and diluted loss per common share were both $2.18 for the third quarter of 2012 as compared to $0.13 for the third quarter of 2011. Earnings per share have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in May 2011. The annualized return on average assets and annualized return on average equity were –13.80% and -193.79%, respectively, for the three-month period ended September 30, 2012. This compares to an annualized return on average assets and annualized return on average equity of -0.64% and -8.64%, respectively, for the same period in 2011.

Net interest income, the Company’s primary source of income, decreased $272,000, or 8.2%, to $3.1 million for the three months ended September 30, 2012, from $3.3 million over the same period in 2011. The weighted average yield on interest earning assets decreased to 4.83% for the three months ended September 30, 2012 from 5.40% for the three months ended September 30, 2011. The weighted average rate paid on interest bearing liabilities decreased to 1.47% for the three months ended September 30, 2012 from 1.78% for the three months ended September 30, 2011. The interest rate spread and the net interest margin were 3.36% and 3.22%, respectively, for the quarter ended September 30, 2012, as compared to 3.62% and 3.44%, respectively, for the quarter ended September 30, 2011.

Interest and fees on loans receivable decreased by $705,000, or 13.7%, to $4.4 million for the three months ended September 30, 2012 from $5.1 million for the three months ended September 30, 2011. The decrease is attributable to decreases in both the average balance outstanding and the weighted-average yield. The average balance outstanding decreased by $23.8 million, or 7.1%, to $312.4 million for the three months ended September 30, 2012 from $336.3 million for the three months ending September 30, 2011. The weighted-average yield decreased to 5.67% for the three months ended September 30, 2012 from 6.10% for the three months ended September 30, 2011.

Interest on investment securities increased by $50,000, or 82.0%, to $111,000 for the three months ended September 30, 2012 from $61,000 for the three months ended September 30, 2011. The increase is attributable to increases in both the average balance outstanding and the weighted-average yield. The average balance outstanding increased by $8.7 million, or 35.8%, to $33.1 million for the three months ended September 30, 2012 from $24.4 million for the three months ending September 30, 2011. The weighted-average yield increased to 1.33% for the three months ended September 30, 2012 from 1.00% for the three months ended September 30, 2011.

Dividends on Federal Reserve and Federal Home Loan Bank stock increased by $10,000, or 58.8%, to $27,000 for the three months ended September 30, 2012 from $17,000 for the three months ended September 30, 2011. The average balance outstanding decreased by $246,000, or 5.7%, to $4.1 million for the three months ended September 30, 2012 from $4.3 million for the three months ending September 30, 2011. The weighted-average yield increased to 2.63% for the three months ended September 30, 2012 from 1.53% for the three months ended September 30, 2011.

Interest expense on deposits decreased $141,000, or 13.1%, to $935,000 for the three months ended September 30, 2012 from $1.1 million for the three months ended September 30, 2011. The average balance outstanding remained level at $343.1 million for the three months ended September 30, 2012 and 2011. The weighted-average rate decreased to 1.09% for the three months ended September 30, 2012 from 1.25% for the three months ended September 30, 2011.

Interest expense on junior subordinated debentures decreased $80,000, or 45.5%, to $96,000 for the three months ended September 30, 2012 from $176,000 for the three months ended September 30, 2011. The interest rate on $10.0 million of the junior subordinated debentures began to adjust quarterly on April 1, 2011 to 3-month LIBOR plus 1.38%. The interest rate on the remaining $7.0 million began to adjust quarterly on March 7, 2012 to 3-month LIBOR plus 1.68%. The average balance

outstanding remained level at $17.0 million and the weighted average rate was 2.28% and 4.14%, respectively, for the three months ended September 30, 2012 and 2011.

Interest expense on advances from the Federal Home Loan Bank of Atlanta decreased $127,000, or 20.5%, to $493,000 for the three months ended September 30, 2012 from $620,000 for the three months ended September 30, 2011. The average balance outstanding decreased by $10.0 million, or 15.8%, to $53.5 million for the three months ended September 30, 2012 from $63.5 million for the same period in 2011. The weighted average rate decreased to 3.69% for the three months ended September 30, 2012 from 3.91% for the three months ended September 30, 2011.

Noninterest income increased 54.3%, or $163,000, to $463,000 for the three months ended September 30, 2012, from $300,000 over the same period in 2011 primarily due to lower loss on sale of other real estate owned. Deposit account fees decreased by $26,000, or 17.2% to $125,000 for the three months ended September 30, 2012 from $151,000 for the three months ended September 30, 2011. There were no gains or losses on the sale of other real estate owned for the three months ended September 30, 2012, as compared to a loss of $141,000 for the three months ended September 30, 2011. Other noninterest income increased by $72,000, or 96.0%, to $147,000 for the third quarter of 2012 from $75,000 for the three months ended September 30, 2011 primarily due to an increase in rental income on other real estate owned.

Noninterest expense increased $3.5 million, or 88.2%, to $7.4 million for the three months ended September 30, 2012, from $3.9 million over the same period in 2011 primarily due to higher other real estate owned expense and valuation. Occupancy expense decreased by $53,000, or 22.4%, to $184,000 for the three months ended September 30, 2012 from $237,000 for the same period in 2011 primarily due to a decline in office building repairs and maintenance. The FDIC insurance premium expense increased by $220,000 to $272,000 for the three months ended September 30, 2012 from $52,000 for the three months ended September 30, 2011 due to an increase in the assessment rate. Other real estate owned expense and valuation increased by $4.2 million to $4.5 million for the three months ended September 30, 2012 from $298,000 for the three months ended September 30, 2011 primarily due to the valuation of $2.4 million on 24 properties that are under contract to be sold to one investor. The Bank also continues to be proactive in adjusting offering prices in an attempt to resolve these nonperforming assets. Professional fees decreased $69,000, or 14.3%, to $413,000 for the three months ended September 30, 2012 from $482,000 for the three months ended September 30, 2011 primarily due to a reduction in legal fees resulting from an increase in loan workout staff. Loan collection expense decreased $737,000 to $86,000 for the three months ended September 30, 2012 from $823,000 for the same period in 2011. Other expenses decreased $82,000, or 19.0%, to $350,000 for the three months ended September 30, 2012 from $432,000 for the three months ended September 30, 2011, primarily due to decreases in advertising, real estate and personal property taxes, and loss on disposal of premises and equipment.

Income tax expense for the three-month period ended September 30, 2012 was $9.1 million as compared to an income tax benefit of $537,000 for the same period in 2011. In accordance with accounting principles generally accepted in the United States, the Company established a full valuation allowance on its deferred tax assets during the third quarter, resulting in income tax expense of $9.1 million during the three months ended September 30, 2012. The establishment of the valuation allowance does not preclude the Company from realizing these assets in the future.

Comparison of Results of Operations for the Nine Months Ended September 30, 2012 and 2011

Net loss increased by $14.2 million to $17.6 million for the nine month period ended September 30, 2012 as compared to $3.4 million for the same period in 2011. This increase was primarily the result of a decrease in net interest income and increases in noninterest expense and income tax expense, partially offset by an increase in noninterest income. Net loss available to common stockholders for the nine-month period ended September 30, 2012 was $18.4 million as compared to $3.9 million in 2011. Net loss available to common stockholders reflects net loss for the period and dividends and discount accretion on the outstanding Preferred Stock totaling $726,000 for the nine months ended September 30, 2012 and $544,000 for the same period in 2011. Basic and diluted loss per common share were both $2.47 for the first nine months of 2012, an increase of $1.94 from the loss of $0.53 per common share for the first nine months of 2011. Earnings per share have been adjusted to give retroactive effect to the 2-for-1 stock split approved by the Board of Directors in May 2011. The annualized return on average assets and annualized return on average equity were -5.07% and -72.09%, respectively, for the nine month period ended September 30, 2012. This compares to an annualized return on average assets and annualized return on average equity of -0.95% and -12.41%, respectively, for the same period in 2011.

Net interest income, the Company’s primary source of income, decreased by $1.5 million, or 14.2%, to $9.1 million for the nine months ended September 30, 2012 from $10.6 million for the same period in 2011. The weighted-average yield on interest earning assets decreased to 4.82% for the nine months ended September 30, 2012 from 5.61% for the nine months ended September 30, 2011. The weighted average rate paid on interest bearing liabilities decreased to 1.55% for the nine months ended September 30, 2012 from 1.86% for the nine months ended September 30, 2011. The interest rate spread and the net interest margin were 3.27% and 3.14%, respectively, for the nine-month period ended September 30, 2012 as compared to 3.74% and 3.58%, respectively, for both ratios for the same period in 2011.

Interest and fees on loans receivable decreased by $2.7 million, or 16.9%, to $13.6 million for the nine months ended September 30, 2012 from $16.3 million for the nine months ended September 30, 2011. The average balance outstanding decreased $30.5 million, or 8.8%, to $317.8 million for the nine months ended September 30, 2012 from $348.3 million for the nine months ended September 30, 2011. The weighted-average yield decreased to 5.69% for the nine months ended September 30, 2012 from 6.25% for the nine months ended September 30, 2011.

Interest income on investment securities increased $79,000, or 36.7%, to $294,000 for the nine months ended September 30, 2012 from $215,000 for the nine months ended September 30, 2011. The average balance outstanding increased $14.7 million, or 78.1%, to $33.5 million for the nine months ended September 30, 2012 from $18.8 million for the nine months ended September 30, 2011. The weighted-average yield decreased to 1.17% for the nine months ended September 30, 2012 from 1.52% for the nine months ended September 30, 2011.

Dividends on Federal Reserve and Federal Home Loan Bank stock increased $32,000, or 62.8%, to $83,000 for the nine months ended September 30, 2012 from $51,000 for the nine months ended September 30, 2011. The average balance outstanding decreased $185,000, or 4.2%, to $4.2 million for the nine months ended September 30, 2012 from $4.4 million for the nine months ended September 30, 2011. The weighted-average yield increased to 2.63% for the nine months ended September 30, 2012 from 1.55% for the nine months ended September 30, 2011.

Interest expense on deposits decreased $617,000, or 17.8%, to $2.8 million for the nine months ended September 30, 2012 from $3.5 million for the nine months ended September 30, 2011. The average balance outstanding decreased $4.8 million, or 1.4%, to $343.4 million for the nine months ended September 30, 2012 from $348.2 million for the nine months ended September 30, 2011. The weighted-average rate decreased to 1.10% for the nine months ended September 30, 2012 from 1.33% for the nine months ended September 30, 2011.

Interest expense on junior subordinated debentures decreased $298,000, or 45.7%, to $354,000 for the nine months ended September 30, 2012 from $652,000 for the nine months ended September 30, 2011. The average balance outstanding remained level at $17.0 million and the weighted-average rate decreased to 2.78% for the nine months ended September 30, 2012 from 5.11% for the same period in 2011. The interest rate on $10.0 million of the junior subordinated debentures began to adjust quarterly on April 1, 2011 to 3-month LIBOR plus 1.38%. The interest rate on the remaining $7.0 million began to adjust quarterly on March 7, 2012 to 3-month LIBOR plus 1.68%.

Interest expense on advances from the Federal Home Loan Bank of Atlanta decreased by $192,000, or 10.4%, to $1.6 million for the nine months ended September 30, 2012 from $1.8 million for the nine months ended September 30, 2011. The average balance outstanding decreased by $5.2 million, or 8.2%, to $58.3 million for the nine months ended September 30, 2012 from $63.5 million for the same period in 2011. The weighted average rate was 3.77% and 3.87%, respectively, for the nine months ended September 30, 2012 and 2011.

Noninterest income increased 156.1%, or $1.5 million, to $2.4 million for the nine months ended September 30, 2012, from $941,000 over the same period in 2011 primarily due to higher gain on sale of loans. Deposit account fees decreased $64,000, or 15.1%, to $361,000 for the nine months ended September 30, 2012 from $425,000 for the same period in 2011. ATM fees increased $16,000, or 4.7%, to $355,000 for the nine months ended September 30, 2012 from $339,000 for the nine months ended September 30, 2011 due to an increase in fees from increased use of debit cards. Gain on sale of loans increased $1.3 million to $1.4 million for the nine months ended September 30, 2012 from $131,000 for the nine months ended September 30, 2011 due to the Bank’s new Small Business Administration loan program, the guaranteed portion of which are sold in the secondary market. Loss on sale of other real estate owned decreased by $61,000 to $225,000 for the nine months ended September 30, 2012 as compared to $286,000 during the nine months ended September 30, 2011. There were no gains on investments in the first nine months of 2012, as compared to a $50,000 loss on investments in the first nine months of 2011. We fully reserved against our investment in the debt issued by a private company after the investee began experiencing financial

difficulties and it became probable that our investment would not be recovered. Income from bank owned life insurance decreased by $19,000, or 12.1%, to $138,000 for the nine months ended September 30, 2012 from $157,000 for the nine months ended September 30, 2011 due to a decrease in the crediting rate paid by the insurance carriers. Other income increased $175,000, or 78.1%, to $399,000 for the nine months ended September 30, 2012 from $224,000 for the nine months ended September 30, 2011 primarily due to an increase in rental income on other real estate owned.

Noninterest expense increased $4.0 million, or 35.3%, to $15.4 million for the nine month period ended September 30, 2012 from $11.4 million over the same period in 2011 primarily due to higher other real estate owned expense and valuation. Salaries and employee benefits decreased $199,000, or 5.0%, to $3.8 million for the nine months ended September 30, 2012 from $4.0 million over the same period in 2011 primarily due to a decline in officer salaries. Occupancy expense decreased $94,000, or 14.8%, to $543,000 for the nine months ended September 30, 2012 from $637,000 over the same period in 2011 primarily due to declines in office building repairs and maintenance and utilities expense. The FDIC insurance premium expense decreased by $74,000, or 8.5%, to $802,000 for the nine months ended September 30, 2012 from $876,000 for the nine months ended September 30, 2011. Other real estate owned expense and valuation increased by $4.7 million, or 288.2%, to $6.4 million for the nine months ended September 30, 2012 from $1.6 million for the nine months ended September 30, 2011 primarily due to the valuation of $2.4 million on 24 properties that are under contract to be sold to one investor, as well as an increase in operating expenses associated with the increase in the number of properties owned. The Bank also continues to be proactive in adjusting offering prices in an attempt to resolve these nonperforming assets. Professional fees increased $519,000 to $1.3 million for the nine months ended September 30, 2012 from $808,000 for the nine months ended September 30, 2011 primarily due to increases in legal fees relating to problem asset resolution, audit and accounting fees, and loan review and consulting expense. Loan collection expense decreased $821,000 to $516,000 for the nine months ended September 30, 2012 from $1.3 million for the same period in 2011.

Income tax expense for the nine month period ended September 30, 2012 was $7.9 million as compared to an income tax benefit of $2.4 million for the same period in 2011. In accordance with accounting principles generally accepted in the United States, the Company established a full valuation allowance on its deferred tax assets during the third quarter, resulting in income tax expense of $9.1 million during the three months ended September 30, 2012. The establishment of the valuation allowance does not preclude the Company from realizing these assets in the future.

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.

	September 30, 2012						December 31, 2011
	Amount			Percent			Amount			Percent
Type of Loan
Real estate loans:
Construction and land development	$	57,437			18.27	%	$	62,998			19.08	%
1-4 family residential and home equity		93,936			29.88			110,621			33.49
Multi-family residential		4,522			1.44			4,458			1.35
Commercial		147,330			46.86			141,438			42.83
Total real estate loans		303,225			96.45			319,515			96.75
Commercial business loans		8,808			2.80			7,849			2.37
Consumer loans		2,341			0.75			2,898			0.88
Gross loans		314,374			100.00	%		330,262			100.00	%
Less: allowance for loan losses		(9,731	)					(12,412	)
Net loans	$	304,643					$	317,850

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 owned (assets acquired in settlement of loans). The following table sets forth certain information with respect to nonperforming assets.

	September 30,			December 31,
(Dollars in thousands)	2012			2011
Nonaccrual loans	$	49,966		$	37,815
Loans 90 days or more past due still accruing interest		0			0
Restructured loans		18,519			25,771
Total nonperforming loans		68,485			63,586
Other real estate owned, net		40,752			30,966
Total nonperforming assets	$	109,237		$	94,552
Nonperforming loans to total loans		21.78	%		19.25	%
Nonperforming assets to total assets		24.66			20.39
Allowance for loan losses to nonperforming loans		14.21			19.52

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 historical charge-off experience. During regulatory examinations each year, 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. Additionally, the Bank engages an independent third party to review a significant portion of our loan portfolio. These reviews are 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 current economic conditions that may affect borrowers’ ability to pay that are not directly measured in the determination of the specific and formula allowances. Management has chosen to apply a factor derived from the Board of Governors of the Federal Reserve System’s Principal Economic Indicators, specifically the charge-off and delinquency rates on loans and leases at commercial banks. This statistical data tracks delinquency ratios on a national level. While management does not believe the region that the Bank is located in has been hit as hard as others across the nation, this ratio provides a global perspective on delinquency trends. Management has identified land acquisition and development loans, as well as construction speculation loans, as higher risk due to current economic factors. These loans are reviewed individually on a quarterly basis for specific impairment.

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 September 30, 2012 was $9.7 million, (3.10% of total loans), a decrease of $2.7 million (21.6%) from the $12.4 million allowance (3.76% of total loans) at December 31, 2011. Annualized net charge-offs for the first nine months of 2012 were 3.60% of average loans, as compared to net charge-offs of 2.81% of average loans for the year 2011. The provision for loan losses required for the first nine months of 2012 and 2011 was $5.9 million and $6.0 million, respectively.

A summary of activity in the allowance is shown below.

	Nine Months Ended			Year Ended
(Dollars in thousands)	September 30, 2012			December 31, 2011

Balance of allowance, beginning of period	$	12,412		$	15,077
Loan charge-offs:
Real estate		(8,615	)		(9,439	)
Commercial loans		(178	)		(982	)
Consumer		(168	)		(40	)
Total charge-offs		(8,961	)		(10,461	)
Loan recoveries:
Real estate		243			825
Commercial loans		121			0
Consumer		6			13
Total recoveries		370			838
Net charge-offs		(8,591	)		(9,623	)
Provision for loan losses		5,910			6,958
Balance of allowance, end of period	$	9,731		$	12,412

Net charge-offs to average loans		3.60	%		2.81	%
Allowance to total loans		3.10	%		3.76	%
Allowance to non-performing loans		14.21	%		19.52	%

The ratio of the allowance to total loans has declined to 3.10% at September 30, 2012 from 3.76% at December 31, 2011 primarily due to an increase in loans evaluated individually for impairment. Due to our collateral position, the increase in specific reserves for these loans is substantially less than the reserve that was required when the loans were evaluated for impairment collectively as part of the homogeneous loan pools.

Analysis of Deposits

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

	September 30, 2012					December 31, 2011
	Amount		Percent			Amount		Percent

Regular checking	$	24,776		7.24	%	$	23,224		6.85	%
NOW accounts		30,747		8.99			30,188		8.90
Passbook savings		11,813		3.45			11,275		3.33
Statement savings		11,161		3.26			10,560		3.11
Money market		18,802		5.50			13,220		3.90
Holiday club		319		0.09			76		0.02
Certificates of deposit		220,730		64.52			219,411		64.71
IRA certificates of deposit		16,368		4.79			24,069		7.10
Money market certificates		7,398		2.16			7,052		2.08
Total deposits	$	342,114		100.00	%	$	339,075		100.00	%

Liquidity

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

The Company’s primary source of liquidity is deposits. As of September 30, 2012, total deposits were $342.1 million, or 108.8% of total loans. The Company’s cash and cash equivalents on hand and unencumbered available-for-sale securities, which provide another source of liquidity, totaled $33.5 million at September 30, 2012. The Bank also has liability-based liquidity in the form of borrowing arrangements with correspondent banks. The Federal Home Loan Bank of Atlanta (“FHLB”) is the primary source of this liquidity. As of September 30, 2012, the maximum balance of the line of credit with FHLB was $56.8 million, which leaves $3.3 million available to be drawn against the line of credit. The Bank also has a secured line of credit with the Community Bankers’ Bank with a maximum balance of $2.0 million. As of September 30, 2012, the maximum balance was available to be drawn against the line of credit.

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 Bank’s principal federal regulator, has established requirements for total and tier 1 (core) risk-based capital and tier 1 leverage capital. The following table sets forth applicable capital ratios of the Bank as of September 30, 2012 and December 31, 2011.

							Regulatory Minimum
	2012			2011			Well			Adequately
	Actual			Actual			Capitalized			Capitalized

Total risk-based capital ratio		11.03	%		13.93	%		10.00	%		8.00	%

Tier 1 risk-based capital ratio		9.76	%		9.12	%		6.00	%		4.00	%

Tier 1 leverage ratio		7.39	%		7.04	%		5.00	%		4.00	%

As of September 30, 2012 and December 31, 2011, the Bank exceeded all applicable capital requirements to be classified as a well capitalized institution under the rules promulgated by the Federal Reserve. Designation as a well capitalized institution under these regulations does not constitute a recommendation or endorsement by the Bank’s regulators.

Item 3. Quantitative and Qualitative Disclosures about Market Risk -

Not Applicable

Item 4. 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 control over financial reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) during the quarter ended September 30, 2012, 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 -

The Registrant’s Board of Directors did not declare a dividend on the Registrant’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A for the third quarter of 2012. As of September 30, 2012, unpaid cumulative dividends on the Fixed Rate Cumulative Perpetual Preferred Stock, Series A were $1.6 million. The Registrant’s Board of Directors did not declare a dividend on the Registrant’s Mandatory Convertible Cumulative Junior Preferred Stock, Series B for the third quarter of 2012. As of September 30, 2012, unpaid cumulative dividends on the Mandatory Convertible Cumulative Junior Preferred Stock, Series B were $72,000.

Item 4. Mine Safety Disclosures –

Not Applicable

Item 5. Other Information -

Not Applicable

Item 6. Exhibits -

Exhibit No.	Description	Incorporated by Reference to:
3.1	Articles of Incorporation of Cecil Bancorp, Inc.
3.2	Bylaws of Cecil Bancorp, Inc.	Exhibit 3.2 to Current Report on Form 8-K filed November 18, 2011
3.3	Articles Supplementary for Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Exhibit 3.1 to Current Report on Form 8-K filed December 23, 2008
3.4	Articles Supplementary for Mandatory Convertible Cumulative Junior Preferred Stock, Series B	Exhibit 3.1 to Current Report on Form 8-K filed April 2, 2012
4.1	Form of Common Stock Certificate	Exhibit 4 to Registration Statement on Form S-1 (File No. 33-81374)
4.2	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Exhibit 4.1 to Current Report on Form 8-K filed December 23, 2008.
4.3	Warrant for Purchase of Shares of Common Stock	Exhibit 4.2 to Current Report on Form 8-K filed December 23, 2008.
4.4	Amended and Restated Trust Agreement, dated as of March 23, 2006, among Cecil Bancorp, Inc., as depositor, Wilmington Trust Company, as property and Delaware Trustee, and Charles F. Sposato, Mary B. Halsey and Jennifer Carr, as administrative trustees.	Not filed in accordance with the provisions of Item 601(b)(4)(iii) of Regulation S-K. The Registrant agrees to provide a copy of this document to the Commission upon request.
4.5	Junior Subordinated Indenture, dated as of March 23, 2006 between Cecil Bancorp, Inc. and Wilmington Trust Company, as Trustee.	Not filed in accordance with the provisions of Item 601(b)(4)(iii) of Regulation S-K. The Registrant agrees to provide a copy of this document to the Commission upon request.
4.6	Guarantee Agreement, dated as of March 23, 2006, between Cecil Bancorp, Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.	Not filed in accordance with the provisions of Item 601(b)(4)(iii) of Regulation S-K. The Registrant agrees to provide a copy of this document to the Commission upon request.
4.7	Amended and Restated Declaration of Trust, dated as of November 30, 2006 by and among Wilmington Trust Company, as Delaware and institutional trustee, Cecil Bancorp, Inc., as sponsor, and Charles F. Sposato, Mary B. Halsey and Jennifer Carr, as administrators.	Exhibit 10.3 to Current Report on Form 8-K filed December 4, 2006.
4.8	Indenture, dated as of November 30, 2006, between Cecil Bancorp, Inc. and Wilmington Trust Company, as trustee.	Exhibit 10.1 to Current Report on Form 8-K filed December 4, 2006.
4.9	Guarantee Agreement, dated as of November 30, 2006, between Cecil Bancorp, Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.	Exhibit 10.4 to Current Report on Form 8-K filed December 4, 2006.
4.10	Form of Certificate for Mandatory Convertible Cumulative Junior Preferred Stock, Series B	Exhibit 4.1 to Current Report on Form 8-K filed April 2, 2012

Exhibit No.	Description	Incorporated by Reference to:
31	Rule 13a-14(a)/15d-14(a) Certifications
32	18 U.S.C. Section 1350 Certifications
100	Interactive Data Files *	* Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.

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 thereunto duly authorized.

	CECIL BANCORP, INC.



Date: November 14, 2012	By:	/s/ Mary B. Halsey
		Mary B. Halsey President and Chief Executive Officer (Duly Authorized Officer



Date: November 14, 2012	By:	/s/ Robert Lee Whitehead
		Robert Lee Whitehead Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)