<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE ACT
From the transition period from ____________
to __________________
Commission File Number 0-22287
-------
CUMBERLAND MOUNTAIN BANCSHARES, INC.
(Exact name of small business issuer as specified in its
charter)
Tennessee 31-1499488
(State of Incorporation) (IRS Employer Identification No.)
1431 Cumberland Avenue, Middlesboro, Kentucky 40965
(Address of principal executive offices)
(606) 248-4584
(Telephone number)
Check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of April 30, 2000, there were 680,558 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
FORM 10-QSB - March 31, 2000
INDEX
Page
----
Part I - Financial Information
---------------------
Item 1. Financial Statements
Consolidated Statement of Financial Condition
March 31, 2000 and June 30, 1999 2
Consolidated Statements of Income
Three and Nine Months Ended March 31, 2000
and 1999 3
Consolidated Statements of Stockholders' Equity
Nine Months Ended March 31, 2000 4
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999 5-6
Notes to the Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Part II - Other Information 16
-----------------
Signatures 17
<PAGE>
<PAGE> CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands)
March 31, 2000 and June 30, 1999
ASSETS
------
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 1,948 $ 1,317
Investment securities, held-to-maturity - -
Investment securities available-for-sale,
at market value 3,606 3,302
Other investments, held to maturity (market
value $180,000 at March 31, 2000 and
$195,000 at June 30, 1999) 180 195
Mortgage-backed securities available-for-sale,
at market value 2,778 3,579
Loans, net of allowance for loan losses of
$1,178,000 at March 31, 2000 and
$1,576,000 at June 30, 1999 110,936 111,612
Accrued interest receivable 803 934
Real estate held for investment 1,724 1,236
Repossessed property 1,365 739
Federal Home Loan Bank (FHLB) stock, at cost 1,908 1,810
Premises and equipment, net 4,350 4,587
Prepaid expenses and other assets 488 283
-------- --------
TOTAL ASSETS $130,086 $129,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits 105,155 106,905
Advances from FHLB 13,000 12,000
Notes payable 1,578 1,674
Accrued interest payable 829 137
Other liabilities 499 170
-------- --------
Total liabilities 121,061 120,886
-------- --------
Common stock, $0.01 per value, 8,000,000 shares
authorized, 680,159 shares issued and
outstanding 7 7
Treasury stock, 0 shares outstanding at
March 31, 2000, and 5,200 shares outstanding
at December 31, 1999, at cost - (88)
Additional paid-in capital 5,532 5,560
Retained earnings 4,898 4,490
Unearned ESOP shares (841) (897)
Unearned Stock Option shares (329) (241)
Unearned MRP shares (90) --
Net unrealized loss on investment securities
available-for-sale, net of deferred tax (152) (123)
-------- --------
Total stockholders' equity 9,025 8,708
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $130,086 $129,594
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------------------------------------
2000 1999 2000 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Investment securities $ 68 $ 61 $ 184 $ 176
Mortgage-backed securities 43 61 141 203
Loans 2,331 2,442 6,936 7,542
FHLB Stock 33 30 98 91
------- -------- ------- --------
Total interest income 2,475 2,594 7,359 8,012
INTEREST EXPENSE
Deposits 1,248 1,321 3,767 3,864
FHLB advances 169 185 496 869
Other borrowed money 36 34 107 126
------- -------- ------- --------
Total interest expense 1,453 1,540 4,370 4,859
NET INTEREST INCOME 1,022 1,054 2,989 3,153
PROVISION FOR LOAN LOSSES 34 87 194 807
------- -------- ------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 988 967 2,795 2,346
------- -------- ------- --------
NON-INTEREST INCOME
Loan fees and service charges 175 233 580 571
Gains (losses) on sales of investment
securities -- -- (1) 24
Gains (losses) on sales of
repossessed assets (28) (9) (51) (19)
Gains (losses) on sales of real
estate held for investment -- 26 11 26
Other 14 51 24 51
------- -------- ------- --------
Total non-interest income 161 301 563 653
------- -------- ------- --------
NET INTEREST AND NON-INTEREST INCOME 1,149 1,268 3,358 2,999
------- -------- ------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 415 380 1,162 1,114
Data processing fees 59 67 173 186
SAIF deposit insurance premiums 14 22 62 65
Occupancy and equipment expense 147 139 437 423
Franchise and other taxes 24 43 90 129
Marketing and other professional
services 33 41 113 155
ESOP expense 13 52 39 156
Other 242 229 675 763
------- -------- ------- --------
Total non-interest expense 947 973 2,751 2,991
------- -------- ------- --------
INCOME BEFORE INCOME TAX EXPENSE 202 295 607 8
INCOME TAX EXPENSE 68 102 199 55
------- -------- ------- --------
NET INCOME (LOSS) $ 134 $ 193 $ 408 $ (47)
------- -------- ------- --------
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ 408 $ (47)
Unrealized gain (loss) on securities,
net of tax effect (152) (67)
------- --------
OTHER COMPREHENSIVE INCOME
(LOSS) $ 256 $ (114)
<PAGE>
PER SHARE OF COMMON STOCK:
Earnings (basic) $0.2381 $ 0.2840 $0.7189 $(0.0690)
======= ======== ======= ========
Earnings (diluted) $0.2160 $ 0.2775 $0.6542 $(0.0676)
======= ======== ======= ========
Dividends $ - $ - $ - $ -
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Unrealized
Loss on
Investment
Additional Securities Unearned
Common Paid-In Retained Available- ESOP
Stock Capital Earnings for Sale Shares
------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 7 $ 5,560 $ 4,490 $ (123) $ (897)
Net income for the nine month
period ended March 31, 2000 -- -- 408 -- --
Common stock issued -- -- -- -- --
ESOP shares transferred -- -- -- -- --
ESOP shares earned -- (16) -- -- 56
Stock Option shares transferred -- -- -- -- --
MRP shares acquired -- (12) -- -- --
Decrease in unrealized loss on
investment securities available-
for-sale for the period ended
March 31, 2000, net of
deferred tax -- -- -- (29) --
------- ------- ------- ------- -------
Balance at March 31, 2000 $ 7 $ 5,532 $ 4,898 $ (152) $ (841)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Unearned
Stock Unearned
Option MRP Treasury
Shares Shares Stock Total
------- --------- -------- -------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ (241) $ -- $ (88) $ 8,708
Net income for the nine month
period ended March 31, 2000 -- -- -- 408
Common stock issued -- -- -- --
ESOP shares transferred -- -- -- --
ESOP shares earned -- -- -- 40
Stock Option shares transferred (88) -- 88 --
MRP shares acquired -- (90) -- (102)
Decrease in unrealized loss on
investment securities available-
for-sale for the period ended
March 31, 2000, net of
deferred tax -- -- -- (29)
------- ------- ------- -------
Balance at March 31, 2000 $ (329) $ (90) $ -- $ 9,025
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements
4
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Nine Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 408 $ (47)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 301 252
Amortization and accretion 7 9
FHLB stock dividend (99) (91)
Provision for loan losses 194 807
(Gains) losses on sales of investment securities 1 (24)
(Gains) losses on sales of other repossessed
assets 51 19
(Gains) losses on sales of property held for
investment (11) (26)
Changes in assets and liabilities:
Accrued interest receivable 131 51
Prepaid expenses and other assets (205) (302)
Accrued interest payable 692 693
Other liabilities 329 (617)
-------- --------
Net cash provided by (used in) operating
activities 1,799 724
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of FHLB stock -- --
Principal collected on investment securities
held-to-maturity -- 7
Purchases of investment securities available-
for-sale (1,000) (3,000)
Proceeds on maturities of investment securities
available-for-sale 500 3,000
Principal collected on investment securities
available-for-sale 142 --
Purchases of other investments -- --
Proceeds on sales of other investments 15 390
Principal collected on mortgage-backed securities 801 1,649
Purchase of loans (5,785) --
Proceeds from the sale of loans -- 975
Net (increase) decrease in real estate held
for investment (477) (1,041)
Net (increase) decrease in purchased loans 2,828 203
Net (increase) decrease in loans exclusive
of loans purchased 3,441 3,475
Net (increase) decrease in repossessed property (677) 40
Purchases of premises and equipment (64) (1,497)
-------- --------
Net cash provided by (used in) investing
activities (276) 4,201
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,750) 10,214
Net increase (decrease) in advances from FHLB 1,000 (16,000)
Net increase (decrease) in other borrowings (96) (14)
ESOP shares earned, net of tax 57 --
Purchase of shares for MRP (103) --
-------- --------
Net cash provided by (used in)
financing activities (892) (5,800)
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Nine Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 631 (875)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,317 1,664
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,948 $ 789
======= =======
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 1,756 $ 1,472
======= =======
Income taxes $ -- $ --
======= =======
Loans transferred to other repossessed property
during the period $ 760 $ 231
======= =======
Total increase (decrease) in unrealized gain
(loss) on securities available for sale $ 43 $ (18)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
6
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-QSB
and, therefore, do not include all information and notes
necessary for a complete presentation of financial position,
results of operations, changes in stockholders' equity, and cash
flows in conformity with generally accepted accounting
principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the unaudited
consolidated financial statements have been included in the
results of operations for the nine months ended March 31, 2000
and 1999.
Operating results for the nine month period ended March 31,
2000 is not necessarily indicative of the results that may be
expected for the year ending June 30, 2000.
Prior to March 31, 1997, the Cumberland Mountain Bancshares,
Inc. (the "Company") did not have any material assets or
liabilities and did not engage in any material business
operations. On March 31, 1997, the Company acquired all of the
outstanding stock of Middlesboro Federal Bank, Federal Savings
Bank (the "Bank") pursuant to the Plan of Conversion of
Cumberland Mountain Bancshares, M.H.C., the Bank's former
mutual holding company, and the Agreement and Plan of
Reorganization between the Company and the Bank. In connection
with the Conversion and Reorganization, the Company sold
439,731 shares of Common Stock in an initial public offering and
issued 1.333 shares of Common Stock in exchange for each share
of the Bank's common stock then outstanding. The Company's
financial statements for the periods prior to March 31, 1997
consist of the financial statements of the Bank.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as
follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31,
2000
------------
<S> <C>
Balance, beginning of year $ 1,576
Provision for loan losses 194
Charge-offs, net of recoveries (592)
--------
Balance, March 31, 2000 $ 1,178
========
</TABLE>
7
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
NOTE 3 - NONACCRUAL LOANS
Nonaccrual loans are as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ --------
<S> <C> <C>
Construction Mortgage Loans $ -- $ --
Permanent Mortgage Loans, Secured by:
1-4 Dwelling Units 675 872
5 or More Dwellng Units -- --
Nonresidential Property (Except Land) 35 265
Land -- --
Nonmortgage Loans and Leases, Closed End:
Commercial 385 258
Auto 30 71
Mobile Home 20 --
Other Consumer 16 62
------ ------
$1,161 $1,528
====== ======
</TABLE>
8
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The principal business of Cumberland Mountain Bancshares,
Inc. (the "Company") is that of Middlesboro Federal Bank, FSB
(the "Savings Bank" or "Middlesboro Federal"). The principal
business of the Savings Bank consists of accepting deposits from
the general public and investing these funds in loans secured by
one-to-four family owner-occupied residential properties in the
Savings Bank's primary market area. The Savings Bank also
maintains an investment portfolio which includes Federal Home
Loan Bank ("FHLB") stock, Government Agency-issued bonds and
mortgage-backed securities, and other investments.
FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein,
the following discussion contains forward-looking statements
that involve risks and uncertainties. Economic circumstances,
the Company's operations and the Company's actual results could
differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include
changes in the economy and interest rates in the nation and the
Company's market area generally. Some of the forward-looking
statements included herein are the statements regarding
management's determination of the amount and adequacy of the
allowance for loan losses on loans, the effect of certain recent
accounting pronouncements.
FINANCIAL CONDITION
Total assets of the Company have increased 0.04% from
$129,594,000 at June 30, 1999 to $130,086,000 at March 31, 2000.
While maintaining the asset size of the Company, management has
focused on improving the credit quality of the institution over
the past nine months. As evidence of this improvement, past due
loans over thirty days have declined from 4.36% at June 30, 1999
to 1.62% at March 31, 2000. As a result of this concentration
on credit quality, the Company has experienced a shift in asset
composition. Consumer, commercial and commercial real estate
loans make up a lesser percentage of total loans while the
percentage of single family mortgage loans has increased.
The Company has experienced a decline in deposits during
the nine months ended March 31, 1999 of $1,750,000, or 1.64%.
This decline is primarily the result of higher interest rates
and increased competition in the Savings Bank's market area for
deposits. This decrease in funds was partially offset by an
increase in advance borrowings from the FHLB. FHLB advances
increased by $1,000,000 from $12,000,000 at June 30, 1999 to
$13,000,000 at March 31, 2000. Total stockholders' equity rose
by $317,000, or 3.64%, principally due to net income realized
during the nine months ended March 31, 2000.
9
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income The Company realized net income of $134,000
----------
for the three-month period ended March 31, 2000. This compared
to net income of $193,000 for the three-month period ended March
31, 1999. This decrease in net income was primarily the result
of a decrease in non-interest income of $140,000 from $301,000
for the three-month period ended March 31, 1999 to $161,000 for
the three-month period ended March 31, 2000.
For the nine-month period ended March 31, 2000, the
Company realized net income of $408,000, compared to a net loss
of $47,000 for the nine-month period ended March 31, 1999. This
change in net income was primarily the result of a decrease in
provision for loan losses of $613,000 along with a reduction in
non-interest expense of $240,000 during the nine-month period
ended March 31, 2000 as compared to the nine-month period ended
March 31, 1999. The decrease in provision for loan losses is
the result of management's efforts in prior quarters to increase
the amount of allowances for loan losses to levels sufficient to
absorb any losses suffered in future quarters. The reduction in
non-interest expense resulted primarily from a decrease in
expenses related to the Company's Employee Stock Ownership Plan
and cost-cutting efforts by management to control operating
expenses.
Interest Income Total interest income for the three-month
---------------
period ended March 31, 2000 amounted to $2,475,000, a decrease
of 4.59% from the Company's total interest income of $2,594,000
for the three-month period ended March 31, 1999. During the
three-month period ended March 31, 2000 as compared to the
three-month period ended March 31, 1999, the Company's interest
income on its loan portfolio decreased 4.55% from $2,442,000 to
$2,331,000; its interest income from its mortgage-backed
securities portfolio decreased 29.51% from $61,000 to $43,000;
interest income from its investment securities portfolio
increased 11.48% from $61,000 to $68,000; and interest income
from FHLB stock increased 10% from $30,000 to $33,000. The
reduction in interest income on the Company's loan portfolio has
occurred primarily due to the shrinkage of the loan portfolio
and the change in composition from higher yielding consumer and
commercial loans to lower yielding mortgage loans.
Interest income decreased from $8,012,000 for the nine-
months ended March 31, 1999 to $7,359,000 for the nine-months
ended March 31, 2000, a decrease of $653,000 or 8.15%. This
decrease resulted primarily from the decrease in interest income
on loans of $606,000 or 8.04%. The major factors contributing
to this decrease include the shrinkage of the loan portfolio and
composition change as mentioned above. Management has
undertaken efforts to strengthen the quality of the loan
portfolio and increase collection efforts thereby resulting in
the origination of fewer loans over the past nine-month period.
Interest Expense Interest expense decreased from
----------------
$1,540,000 for the three-month period ended March 31, 1999, to
$1,453,000 for the three-month period ended March 31, 2000.
During the three-month period ended March 31, 2000 as compared
to the three-month period ended March 31, 1999, the Company's
interest expense on FHLB advances decreased 8.65% from $185,000
to $169,000. This decrease in interest expense on FHLB advances
is due to the decrease in the average balance of this account
during the quarter, which had primarily been used to fund
mortgage and consumer loan demand.
10
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (CONTINUED)
Interest expense decreased $489,000, or 10.06%, from
$4,859,000 for the nine-month period ended March 31, 1999 to
$4,370,000 for the nine-month period ended March 31, 2000.
Interest expense on deposits decreased 2.51%, or $97,000 while
interest expense on FHLB advances decreased 42.92%, or $373,000
for the nine-month period ended March 31, 2000. Due to a
decrease in loans being originated during the period, additional
borrowings were not necessary to fund any loan demand that was
being experienced.
Net Interest Income During the three months ended March
-------------------
31, 2000, net interest income decreased 3.04% to $1,022,000 from
$1,054,000 for the three months ended March 31, 1999. For the
nine-month period ended March 31, 2000, net interest income
decreased 5.20% to $2,989,000 from $3,153,000 for the nine-month
period ended March 31, 1999. This decrease was due primarily to
the reduction in loan originations by the Savings Bank.
Provision for Loan Losses Provisions for loan losses are
-------------------------
charged to earnings to bring the total allowance to a level
considered adequate by management to provide for loan losses
based on the prior loss experience, volume and type of lending
conducted by Middlesboro Federal, industry standards and past
due loans in the Savings Bank's portfolio. Management also
considers general economic conditions and other factors related
to the collectibility of the Savings Bank's portfolio.
For the three-month period ended March 31, 2000, the
Savings Bank provided $34,000 for loan losses compared to
$87,000 during the three-month period ended March 31, 1999. The
provision for losses on loans decreased from $807,000 for the
nine months ended March 31, 1999 to $194,000 for the nine months
ended March 31, 2000. The decrease in provision for loan losses
for these periods represent management's proactive effort to
maintain an adequate reserve against losses. In determining the
appropriate provision, management considers a number of factors,
including specific loans in the Savings Bank's portfolio, real
estate market trends in the Company's market area, economic
conditions, interest rates, and other conditions that may affect
the borrower's ability to comply with repayment terms. At March
31, 2000, the Company's allowance for loan losses represented
101.46% of total non-accrual loans and 1.06% of the outstanding
balance of total loans.
Non-Interest Income Non-interest income for the three-
-------------------
month period ended March 31, 2000 consisted primarily of loan
fees and service charges. The Savings Bank's loan fees and
service charges fluctuate as loan demand in the market area
changes and as the fee structure is adjusted by management in
relation to market demand. The Company's non-interest income
for the three-month period ended March 31, 2000 was $161,000, a
decrease of 46.51% from $301,000 for the three-month period
ended March 31, 1999. Non-interest income decreased from
$653,000 for the nine months ended March 31, 1999 to $563,000, a
13.78% decrease, for the nine months ended March 31, 2000.
Loan fees and service charges for the three-month period
ended March 31, 2000 decreased $58,000, or 24.89%, to $175,000
from $233,000 for the three-month period ended March 31, 1999
and increased $9,000, or 1.58% for the nine-month period ended
March 31, 2000 as compared to the nine-month period ended March
31, 1999. These changes were attributable to a decrease in the
number of loan fees charged to new loan customers during the
quarter and an increase in the collection of late charge fees
during the nine-month period ended March 31, 2000. Included in
non-interest income for the three-month period ended March 31,
1999 was a one-time fee of $51,000.
11
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Expense For the three-month period ended
--------------------
March 31, 2000, as compared to the three-month period ended
March 31, 1999, total non-interest expense decreased $26,000
from $973,000 to $947,000 or 2.67%. Non-interest expense
decreased from $2,991,000 for the nine months ended March 31,
1999 to $2,751,000 for the nine months ended March 31, 2000, a
decrease of $240,000 or 8.02%.
Salaries and employee benefits increased $35,000, or
9.21%, from $380,000 for the three months ended March 31, 1999,
to $415,000 for the three months ended March 31, 2000. This
increase was primarily the result of employee salary increases
and higher educational and training costs. For the nine-month
period ended March 31, 2000, salaries and employee benefits have
increased $48,000, or 4.31% as compared to the nine-month period
ended March 31, 1999.
The Company recognized an Employee Stock Ownership Plan
expense of $13,000 for the three-month period ended March 31,
2000, and a $39,000 expense for the nine-month period ended
March 31, 2000, compared to a $52,000 expense for the three-
month period ended March 31, 1999 and a $156,000 expense for the
nine-month period ended March 31, 1999. The Company makes
annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. As the debt is
repaid, shares are released from collateral and allocated to
active employees, based on the proportion of debt service paid
during the year. As shares are released from collateral, the
Company reports compensation expense equal to the current market
price of shares and the shares become outstanding.
Other expenses of $242,000 increased $13,000 over the
three-month period ended March 31, 1999 amount of $229,000. For
the nine-month period ended March 31, 2000, other expenses
decreased $88,000 as compared to the nine-month period ended
March 31, 1999. The increase in other expenses for the three-
month period ended March 31, 2000 as compared to the three-month
period ended March 31, 1999 is primarily due to an increase in
consulting fees. Consulting fees increased $25,000 for the
three-month period ended March 31, 2000 as compared to the
three-month period ended March 31, 1999. During the quarter
ended March 31, 2000, management utilized several consulting
firms and individuals to assist management in developing a
strategic plan, performing loan review analysis, conducting
internal audit and compliance reviews, enhancing investor
relations, and managing real estate development projects.
Income Taxes Income tax expense for the three-month
------------
period ended March 31, 2000 was $68,000 compared to $102,000 for
the three-month period ended March 31, 1999. For the nine
months ended March 31, 2000, income tax expense was $199,000
compared to $55,000 for the nine month period ended March 31,
1999. The changes in income tax expense are a result of changes
in net taxable income during the periods.
12
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of
the Savings Bank and does not currently have any material
funding commitments. The Company's principal sources of
liquidity are cash on hand, payments received on its loan to the
Company's ESOP and dividends received from the Savings Bank.
The Savings Bank is subject to various regulatory restrictions
on the payment of dividends.
The Savings Bank is required by the Office of Thrift
Supervision regulations to maintain minimum levels of specified
liquid assets. On November 24, 1997, the OTS lowered this
liquidity requirement from 5 to 4 percent of the Savings Bank's
liquidity base. Additionally, the OTS streamlined the
calculations used to measure compliance with liquidity
requirements, expanded the types of investments considered to be
liquid assets, and reduced the liquidity base by modifying the
definition of net withdrawable account to exclude accounts with
maturities exceeding one year. The Savings Bank's liquidity
ratio for the quarter ended March 31, 2000 was 6.97% and its
liquidity ratio was 5.96% at March 31, 1999.
The Savings Bank's principal sources of funds for
investments and operations are net income, deposits from its
primary market area, principal and interest payments on loans
and mortgage-backed securities and proceeds from maturing
investment securities. Its principal funding commitments are
for the origination or purchase of loans and the payment of
maturing deposits. Deposits are considered a primary source of
funds supporting the Savings Banks lending and investment
activities. Deposits were $105,155,000 and $106,905,000 at
March 31, 2000 and June 30, 1999, respectively.
The Savings Bank's most liquid assets are cash and cash
equivalents, which are cash on hand, amounts due from financial
institutions, federal funds sold, certificates of deposit with
other financial institutions that have an original maturity of
three months or less and money market mutual funds. The levels
of such assets are dependent on the Savings Bank's operating,
financing and investment activities at any given time. The
Savings Bank's cash and cash equivalents totaled $1,948,000 at
March 31, 2000 and $1,317,000 at June 30, 1999. Of these
amounts, $1,560,000 and $12,000 were deposits held in interest-
bearing accounts at March 31, 2000 and June 30, 1999,
respectively. The variations in levels of cash and cash
equivalents are influenced by deposit flows and anticipated
future deposit flows.
At March 31, 2000, the Savings Bank had $271,000 in
commitments to originate loans. At March 31, 2000, the Savings
Bank had $51,974,000 in certificates of deposit which were
scheduled to mature in one year or less. It is anticipated that
the majority of these certificates will be renewed in the normal
course of operations.
Middlesboro Federal is not aware of any trends or
uncertainties that will have or are reasonably expected to have
a material effect on the Savings Bank's liquidity or capital
resources. The Savings Bank has no current plans for material
capital improvements or other capital expenditures that would
require more funds than are currently on hand.
13
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein
have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial
position and operating results in terms of historical dollars,
without considering changes in the relative purchasing power of
money over time due to inflation.
Unlike most companies, the assets and liabilities of a
financial institution are primarily monetary in nature. As a
result, interest rates have a more significant impact on a
financial institution's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in
the same direction or in the same magnitude as the price of
goods and services, since such prices are affected by inflation.
In the current interest rate environment, liquidity and the
maturity structure of the Savings Bank's assets and liabilities
are critical to the maintenance of acceptable performance
levels.
NEW ACCOUNTING PRONOUNCEMENTS
Disclosures About Fair Value of Financial Instruments In
-----------------------------------------------------
December 1991, the FASB issued Statement of Financial Accounting
Standards No. 107 (SFAS No. 107) "Disclosure About Fair Value of
Financial Instruments." SFAS No. 107 requires all entities to
disclose the fair value of financial instruments (both assets
and liabilities recognized and not recognized in the financial
statements) for which it is practicable to estimate fair value,
except those financial instruments specifically excluded. The
disclosure shall be either in the body of the financial
statements or in the accompanying notes and shall also include
the methods and significant assumptions used to estimate the
fair value of financial instruments. Additional information is
required to be disclosed if it is not practicable for an entity
to estimate the fair value of a financial instrument or a class
of financial instruments as well as the reasons why it is not
practicable to estimate fair value. SFAS No. 107 is effective
for entities with less than $150 million in total assets in the
current statement of financial condition for financial
statements issued for the fiscal year beginning July 1, 1995.
Accounting By Creditors For Impairment of a Loan During
------------------------------------------------
May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan" that requires impaired loans be
measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or at the
loan's market price or fair value of collateral, if the loan is
collateral dependent. Adoption of SFAS No. 114, as amended by
SFAS No. 118, occurred on June 30, 1996, and is did not have a
material impact on the financial statements.
14
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
MANAGEMENT'S DISCUSSION AND ANALYSIS
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Comprehensive Income In June, 1997, the FASB issued SFAS
--------------------
No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements.
This statement requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial
statements.
This statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. This statement is effective for fiscal
years beginning after December 15, 1997.
Disclosures about Segments of an Enterprise and Related
-------------------------------------------------------
Information In June, 1997, the FASB issued SFAS No. 131,
- -----------
"Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The
Company does not believe that the adoption of this accounting
statement will have a material impact on its financial
statements.
15
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time between 1987 and 1994 the Savings Bank
has purchased whole loans and loan participations from an
unaffiliated mortgage broker based in Lexington, Kentucky. The
mortgage broker had been servicing such loans for the Savings
Bank remitting payments on a monthly basis. During the three
months ended September 30, 1999, the Savings Bank became aware
that certain such loans might have been refinanced although the
mortgage broker failed to remit the payoffs on such loans to the
Savings Bank. At March 31, 2000, the aggregate principal
balance of such loans amounted to $668,000. The Savings Bank
has begun to service all such loans directly and is pursuing a
claim for the unpaid principal balance with its fidelity
insurance carrier. Although the Savings Bank believes it has a
claim under its fidelity bond or through other insurance
policies, there can be no assurance that full or partial
recovery of these loans will be obtained or that loss in
connection with these loans will be incurred.
Item 5. Other Information
-----------------
Effective December 13, 1999, the Savings Bank entered into
an Agreement with the Office of Thrift Supervision. The
Agreement requires that the Savings Bank establish the position
of Compliance Officer and develop and adopt a written compliance
program designed to ensure the Savings Bank is operating in
compliance with all applicable consumer protection and other
laws and regulations. The Savings Bank is also required to
ensure its compliance with its written loan and collection
policies. The Agreement limits the size of any new commercial
loans to $100,000 and any unsecured consumer loans to $25,000.
The Savings Bank was also required to modify its existing
strategic plan and budget to reflect these requirements and was
required to make certain filings with the OTS in accordance with
deadlines established in the Agreement. The Savings Bank does
not believe that the terms of this Agreement will have a
material adverse effect on the Savings Bank.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. During the quarter ended
-------------------
March 31, 2000, the registrant did not file any reports on
Form 8-K.
16
<PAGE>
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Middlesboro, Kentucky
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.
Cumberland Mountain Bancshares, Inc.
By: /s/ James J. Shoffner
_________________________
James J. Shoffner
President
(Duly Authorized Officer)
By: /s/ J. D. Howard
_________________________
J. D. Howard
Senior Vice President
(Duly Authorized Officer)
Date: May 12, 2000
17
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 388
<INT-BEARING-DEPOSITS> 1,560
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,384
<INVESTMENTS-CARRYING> 180
<INVESTMENTS-MARKET> 180
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<ALLOWANCE> 1,178
<TOTAL-ASSETS> 130,086
<DEPOSITS> 105,155
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 1,328
<LONG-TERM> 6,578
<COMMON> 7
0
0
<OTHER-SE> 9,018
<TOTAL-LIABILITIES-AND-EQUITY> 130,086
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<INTEREST-DEPOSIT> 3,767
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<INTEREST-INCOME-NET> 2,989
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<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 2,751
<INCOME-PRETAX> 607
<INCOME-PRE-EXTRAORDINARY> 408
<EXTRAORDINARY> 0
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<NET-INCOME> 408
<EPS-BASIC> 0.719
<EPS-DILUTED> 0.654
<YIELD-ACTUAL> 3.27
<LOANS-NON> 1,161
<LOANS-PAST> 0
<LOANS-TROUBLED> 567
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<ALLOWANCE-OPEN> 1,576
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