<PAGE> 1
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
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File Number 0-27393
------------------------------
CUMBERLAND BANCORP, INCORPORATED
------------------------------------------------------
(Exact Name of Registrant As Specified in Its Charter)
<TABLE>
<S> <C>
Tennessee 62-1297760
- ------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
</TABLE>
5120 Maryland Way, Brentwood, Tennessee 37027
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(615) 377-9395
--------------
(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.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock outstanding: 6,877,877 shares at April 30, 2000.
1
<PAGE> 2
CUMBERLAND BANCORP, INCORPORATED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 (unaudited) 3
and December 31, 1999 (audited).
Consolidated Statements of Earnings - For the three months ended
March 31, 2000 and 1999 (unaudited). 4
Consolidated Statements of Changes in Stockholders' Equity - For the 5
three months ended March 31, 2000 (unaudited).
Consolidated Statements of Cash Flows - For the three months ended
March 31, 2000 and 1999 (unaudited). 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8-13
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
</TABLE>
2
<PAGE> 3
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 December 31
(Dollars in thousands except share amounts) 2000 1999
==========================================================================================================================
ASSETS:
<S> <C> <C>
Cash and due from banks $ 17,007 $ 18,255
Interest-bearing deposits in financial institutions 4,798 5,396
Federal funds sold 15,725 11,250
Securities available for sale, at fair value 16,180 16,213
Securities held to maturity, fair value $6,197 at March 31, 2000
and $6,594 at December 31, 1999 6,513 6,677
Loans 463,207 440,316
Allowance for loan losses (5,354) (5,146)
- --------------------------------------------------------------------------------------------------------------------------
LOANS, NET 457,853 435,170
- --------------------------------------------------------------------------------------------------------------------------
Premises and equipment 16,828 14,578
Accrued interest receivable 4,600 4,073
Federal Home Loan Bank and Federal Reserve Bank stock - restricted 3,478 3,415
Investment in unconsolidated subsidiaries 2,679 2,441
Other real estate 2,049 2,400
Loan servicing rights 1,001 1,021
Other intangible assets 1,498 1,523
Other assets 2,648 3,147
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 552,857 $525,559
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Noninterest-bearing $ 40,557 $ 34,099
Interest-bearing 424,905 401,153
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 465,462 435,252
- --------------------------------------------------------------------------------------------------------------------------
Notes payable 7,741 7,455
Federal funds purchased 5,250 2,275
Advances from Federal Home Loan Bank 32,419 39,554
Accrued interest payable 3,576 3,072
Other liabilities 2,093 2,676
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 516,541 490,284
- --------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value, authorized 20,000,000 shares;
shares issued - 6,877,477 in 2000 and 6,857,620 in 1999 3,439 3,429
Additional paid-in capital 25,345 25,110
Retained earnings 7,983 7,194
Accumulated other comprehensive income (loss) (451) (458)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 36,316 35,275
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 552,857 $525,559
==========================================================================================================================
</TABLE>
3
<PAGE> 4
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------------
(Dollars in thousands except per share data) 2000 1999
===========================================================================================================================
INTEREST INCOME:
<S> <C> <C>
Loans, including fees $ 10,946 $ 7,886
Securities 351 405
Deposits in financial institutions 60 172
Federal funds sold 231 167
Federal Home Loan Bank dividends 55 54
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 11,643 8,684
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,252 803
Other time deposits 3,981 3,195
Federal funds purchased 46 10
Notes payable and advances from Federal Home Loan Bank 646 385
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,925 4,393
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,718 4,291
PROVISION FOR LOAN LOSSES 424 218
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,294 4,073
- ---------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts 518 362
Other service charges, commissions and fees 379 338
Mortgage banking activities 232 290
Gain on sale of SBA loans 65 86
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,194 1,076
- ---------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 2,701 2,060
Occupancy 587 486
Other operating 1,690 1,275
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 4,978 3,821
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,510 1,328
INCOME TAX EXPENSE 562 470
- ---------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 948 $ 858
===========================================================================================================================
NET EARNINGS PER SHARE - BASIC $ 0.14 $ 0.14
NET EARNINGS PER SHARE - DILUTED 0.14 0.14
===========================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 6,865,341 6,021,349
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 7,007,792 6,139,580
===========================================================================================================================
</TABLE>
4
<PAGE> 5
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
(Dollars in thousands) SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 6,857,620 $ 3,429 25,110 7,194 (458) 35,275
Proceeds from sale of common stock 19,457 10 233 243
Exercise of stock options 400 -- 2 2
Dividends declared (159) (159)
Comprehensive Income:
Net earnings -- -- -- 948 --
Other Comprehensive Income
Change in unrealized loss on
securities available for sale net of
$4 in income tax expense -- -- -- -- 7
Total Comprehensive Income 955
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 6,877,477 $ 3,439 25,345 7,983 (451) 36,316
=================================================================================================================================
</TABLE>
5
<PAGE> 6
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
(Dollars in thousands) 2000 1999
=========================================================================================================================
<S> <C> <C>
NET EARNINGS $ 948 $ 858
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Provision for loan losses 424 218
Depreciation and amortization 352 232
Operations of unconsolidated subsidiaries 106 --
Mortgage loans originated for sale (8,917) (11,650)
Proceeds from sale of mortgage loans 8,988 11,703
Increase in accrued interest receivable (527) (277)
Decrease in accrued interest payable and other liabilities (238) (212)
Other, net 448 279
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 636 293
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,584 1,151
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits in financial institutions 598 10,224
Increase in federal funds sold (4,475) (5,625)
Purchases of securities available for sale -- (1,284)
Proceeds from maturities and redemptions of securities available for sale 33 1,137
Proceeds from maturities and redemptions of securities held to maturity 164 1,592
Net increase in loans (23,178) (20,672)
Purchase of and improvements to other real estate -- (135)
Investment in unconsolidated subsidiaries (344) (383)
Purchases of premises and equipment (2,576) (820)
Proceeds from sale of other real estate 365 --
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (29,413) (15,966)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 30,210 13,122
Increase in federal funds purchased 2,975 2,000
Decrease in advances from Federal Home Loan Bank (7,135) (510)
Proceeds from notes payable 2,264 275
Repayments of notes payable (1,978) (219)
Proceeds from issuance of common stock, net 245 1,000
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,581 15,668
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,248) 853
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,255 8,972
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 17,007 $ 9,825
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------------------------------------------------------------------------------
Interest paid $ 5,421 $ 4,326
Income taxes paid 181 100
=========================================================================================================================
NON-CASH ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------------
10% stock dividend $ -- $ 6,341
=========================================================================================================================
</TABLE>
6
<PAGE> 7
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of March 31, 2000 and for
the three month periods ended March 31, 2000 and 1999 were prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, to present
fairly the information. They do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the three month period ending March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the 1999
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K.
7
<PAGE> 8
CUMBERLAND BANCORP, INCORPORATED
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to provide insight into the financial
condition and results of operations of the Company and its subsidiaries. This
discussion should be read in conjunction with the consolidated financial
statements. Reference should also be made to the Company's Annual Report on
Form 10-K, for a more complete discussion of factors that impact liquidity,
capital and the results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions investors that future
financial and operating results may differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known and unknown risks and uncertainties,
including, but not limited to, sudden adverse interest rate changes, inadequate
allowance for loan losses and loss of key personnel. These risks and
uncertainties may cause the actual results or performance of the Company to be
materially different from any future results or performance expressed or
implied by such forward-looking statements. The Company's future operating
results depend on a number of factors which were derived utilizing numerous
assumptions and other important factors that could cause actual results to
differ materially from those projected in forward-looking statements.
OVERVIEW
The Company continues to experience growth due to recent entries in new markets,
acquisitions and aggressive marketing techniques. An "initial public offering"
was undertaken to sell 700,000 shares during the third quarter of 1999 without
the benefit of an underwriter. All of the shares were subscribed for prior to
December 31, 1999. The proceeds for approximately 13,832 shares have not been
collected as of March 31, 2000.
The Company consummated the acquisition of Bank of Dyer, a bank with total
assets of approximately $37 million and offices in Dyer and Humboldt,
Tennessee, effective December 31, 1999. This acquisition was accounted for as a
pooling of interest. Therefore, financial information for prior periods has
been restated as if the business combination was effective as of the earliest
period presented.
8
<PAGE> 9
RESULTS OF OPERATIONS
Net earnings increased 10% to $948,000 for the three months ended March 31,
2000 from $858,000 in the first three months of 1999. The increase in net
earnings during the three months ended March 31, 2000 was primarily due to
growth in earning assets and overall growth of the banks as demonstrated by the
33% increase in net interest income.
NET INTEREST INCOME
Net interest income represents the amount by which interest earned on various
earning assets exceeds interest paid on deposits and other interest-bearing
liabilities and is the most significant component of the Company's earnings.
The Company's total interest income, excluding tax equivalent adjustments,
increased $2,959,000 or 34% during the three months ended March 31, 2000 as
compared to the same period in 1999. The increase in total interest income was
primarily attributable to an increase in average earning assets, particularly
the 37% increase in average loans outstanding in the first quarter of 2000 as
compared to 1999.
Interest expense increased $1,532,000 or 35% for the three months ended March
31, 2000 as compared to the same period in 1999. The overall increase in total
interest expense for the first three months of 2000 as compared to 1999 was
primarily attributable to an increase in average interest-bearing liabilities.
The foregoing resulted in an increase in net interest income, before the
provision for loan losses, of $1,427,000 or 33% for the quarter as compared to
the same period in 1999.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $424,000 and $218,000, for the first
three months of 2000 and 1999, respectively. The provision for loan losses is
based on past loan experience and other factors which, in management's
judgment, deserve current recognition in estimating possible loan losses. Such
factors include past loan loss experience, growth and composition of the loan
portfolio, review of specific problem loans, the relationship of the allowance
for loan losses to outstanding loans, and current economic conditions that may
affect the borrower's ability to repay. Management has in place a system
designed for monitoring its loan portfolio in an effort to identify potential
problem loans. The provision for loan losses raised the allowance for loan
losses to $5.4 million, an increase of 4% from $5.1 million at December 31,
1999. The allowance for loan losses as a percentage of total outstanding loans
was approximately 1.2% at March 31, 2000 and December 31, 1999, respectively.
The level of the allowance and the amount of the provision involve evaluation
of uncertainties and matters of judgment. Management believes the allowance for
loan losses at March 31, 2000 to be adequate.
NONINTEREST INCOME
The components of the Company's noninterest income include service charges on
deposit accounts, other fees and commissions, mortgage banking activities, gain
on sale of SBA loans, gain on sale of fixed assets and gain on sale of other
real estate. Total noninterest income for the three months ended March 31, 2000
increased by 11% to $1,194,000 from $1,076,000 for the same period in 1999. The
overall increase was due primarily to increased revenue generated on deposit
accounts. Service charges on deposit accounts increased $156,000 or 43% during
the three months ended March 31, 2000 compared to the same period in 1999.
Management has increased the overall fee structure on deposit accounts in an
effort to generate more noninterest income. Revenue from mortgage banking
activities decreased $58,000 or 20% during the three months ended March 31,
2000 as a result of changes in market conditions related to increases in
interest rates. Other service charges, fees and commissions totaled $379,000
and $338,000 during the three months ended March 31, 2000 and 1999,
respectively, an increase of $41,000 or 12%.
9
<PAGE> 10
NONINTEREST EXPENSE
Noninterest expense consists primarily of salaries and employee benefits,
occupancy expenses, furniture and equipment expenses, data processing expenses
and other operating expenses, including minority interest in net earnings of
unconsolidated subsidiaries. Total noninterest expense increased $1,157,000 or
30% during the first quarter of 2000 compared to the same period in 1999. The
increases in noninterest expense are primarily attributable to increases in
salaries and employee benefits, and other costs necessary to support the
Company's expanded operations. The Company has 7 new offices open during the
first quarter of 2000, which were not in operation in the first quarter of 1999.
In addition, the number of employees increased to 265 at March 31, 2000, from
205 at March 31, 1999. Furthermore, the Company has a 50% interest in Insurors
Bank of Tennessee in Organization. In accordance with the equity method of
accounting, 50% of the operating losses of this development stage enterprise are
included in other operating expenses in the first quarter of 2000.
INCOME TAXES
The Company's income tax expense was $562,000 for the three months ended March
31, 2000, an increase of $92,000 over the comparable period in 1999.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
The Company's total assets increased 5% to $553 million at March 31, 2000 from
$526 million at December 31, 1999. Loans, net of allowance for possible loan
losses, totaled $458 million at March 31, 2000 or a 5% increase compared to $435
million at December 31, 1999. These increases were primarily due to the
Company's ability to increase its market share of loans, and being in markets
with strong loan demand. Federal funds sold increased $4,475,000 or 40% at March
31, 2000 from December 31, 1999 as a result of excess funds being invested in
short term liquid assets. Premises and equipment increased $2 million during the
first quarter of 2000 due to construction-in-progress of 6 new office
facilities.
Total liabilities increased by 5% to $517 million at March 31, 2000 compared to
$490 million at December 31, 1999. This increase was composed primarily of a
$30 million or 7% increase in total deposits and partially offset by a decrease
of $7 million or 18% in FHLB advances during the three months ended March 31,
2000.
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". These pronouncements apply to impaired loans
except for large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment including credit card, residential
mortgage, and consumer installment loans.
A loan is impaired when it is probable that the Company will be unable to
collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with a corresponding
charge to the provision for loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.
10
<PAGE> 11
The Company's first mortgage single family residential and consumer loans are
divided into various groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment and thus are not subject to the
provisions of SFAS Nos. 114 and 118. Substantially all other loans of the
Company are evaluated for impairment under the provisions of SFAS Nos. 114 and
118.
The Company considers all loans subject to the provisions of SFAS 114 and 118
that are on nonaccrual status to be impaired. Loans are placed on nonaccrual
status when doubt as to timely collection of principal or interest exists, or
when principal or interest is past due 90 days or more unless such loans are
well-secured and in the process of collection. Delays or shortfalls in loan
payments are evaluated with various other factors to determine if a loan is
impaired. The decision to place a loan on nonaccrual status is also based on an
evaluation of the borrower's financial condition, collateral, liquidation
value, and other factors that affect the borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status, all interest
accrued on the loan in the current fiscal year is reversed from income, and all
interest accrued and uncollected from the prior year is charged off against the
allowance for loan losses. Thereafter, interest on nonaccrual loans is
recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt.
Other loans may be classified as impaired when the current net worth and
financial capacity of the borrower or of the collateral pledged, if any, is
viewed as inadequate. In those cases, such loans have a well-defined weakness
or weaknesses that jeopardize the liquidation of the debt, and if such
deficiencies are not corrected, there is a probability that the Company will
sustain some loss. In such cases, interest income continues to accrue as long
as the loan does not meet the Company's criteria for nonaccrual status.
The Company's charge-off policy for impaired loans is similar to its charge-off
policy for all loans in that loans are charged-off in the month when they are
considered uncollectible.
Net charge-offs were $216,000 and $202,000 for the three month periods ending
March 31, 2000 and 1999, respectively. Total non-performing loans at March 31,
2000 were $5.0 million or 1.1% of total loans as compared to $3.4 million or
0.8% of total loans at December 31, 1999. Foreclosed properties was $2.0
million at March 31, 2000, a decline from the $2.4 million level at December
31, 1999.
LIQUIDITY AND ASSET MANAGEMENT
The Company's management seeks to maximize net interest income by managing the
Company's assets and liabilities within appropriate constraints on capital,
liquidity and interest rate risk. Liquidity is the ability to maintain
sufficient cash levels necessary to fund operations, meet the requirements of
depositors and borrowers and fund attractive investment opportunities. Higher
levels of liquidity bear corresponding costs, measured in terms of lower yields
on short-term, more liquid earning assets and higher interest expense involved
in extending liability maturities.
Liquid assets including cash, due from banks and federal funds sold totaled $38
million. In addition, the Company has $16 million in securities classified as
available for sale that could be sold for liquidity needs.
The Company's primary source of liquidity is a stable core deposit base. In
addition, loan payments provide a secondary source. Borrowing lines with
correspondent banks, FHLB and Federal Reserve augment these traditional
sources.
11
<PAGE> 12
Interest rate risk (sensitivity) focuses on the earnings risk associated with
changing interest rates. Management seeks to maintain profitability in both
immediate and long term earnings through funds management/interest rate risk
management. The Company's rate sensitivity position has an important impact on
earnings. Senior management of the banks meet monthly to analyze the rate
sensitivity position of the subsidiary banks. These meetings focus on the
spread between the banks' cost of funds and interest yields generated primarily
through loans and investments.
The Company's securities portfolio consists of earning assets that provide
interest income. For those securities classified as held-to-maturity the
Company has the ability and intent to hold these securities to maturity or on a
long-term basis. Securities classified as available-for-sale include securities
intended to be used as part of the Company's asset/liability strategy and/or
securities that may be sold in response to changes in interest rate, prepayment
risk, the need or desire to increase capital and similar economic factors.
Securities totaling approximately $6.2 million mature or will be subject to
rate adjustments within the next twelve months.
A secondary source of liquidity is the Company's loan portfolio. At March 31,
2000, loans of approximately $295 million either will become due or will be
subject to rate adjustments within twelve months from the respective date.
Continued emphasis will be placed on structuring adjustable rate loans.
As for liabilities, certificates of deposits of approximately $219 million will
become due during the next twelve months. Historically, there has been no
significant reduction in immediately withdrawable accounts such as negotiable
order of withdrawal accounts, money market demand accounts, demand deposit and
regular savings. Management anticipates that there will be no significant
withdrawals from these accounts in the future.
Management believes that with present maturities, the anticipated growth in
deposit base, borrowing sources and the efforts of management in its
asset/liability management program, liquidity will not pose a problem in the
near term future. At the present time there are no known trends or any known
commitments, demands, events or uncertainties that will result in or that are
reasonably likely to result in the Company's liquidity changing in a materially
adverse way.
CAPITAL POSITION AND DIVIDENDS
At March 31, 2000, total stockholders' equity was $36.3 million or 6.6% of
total assets. The increase in stockholders' equity during the three months
ended March 31, 2000 results from the Company's net income of $948,000, and
issuance of 19,857 shares of common stock.
The Company's principal regulators have established minimum risk-based capital
requirements and leverage capital requirements for the Company and its
subsidiary banks. These guidelines classify capital into two categories of Tier
I and total risk-based capital. Total risk-based capital consists of Tier I (or
core) capital (essentially common equity less intangible assets) and Tier II
capital (essentially qualifying long-term debt, of which the Company and
subsidiary banks have none, and a part of the allowance for possible loan
losses). In determining risk-based capital requirements, assets are assigned
risk-weights of 0% to 100%, depending on regulatory assigned levels of credit
risk associated with such assets. The risk-based capital guidelines require the
subsidiary banks and the Company to have a total risk-based capital ratio of
8.0% and a Tier I risk-based capital ratio of 4.0%. At March 31, 2000, the
Company's total risk-based capital ratio was 9.7% and its Tier I risk-based
capital ratio was approximately 8.5% compared to ratios of 9.5% and 8.2%,
respectively at December 31, 1999. The required Tier I leverage capital ratio
(Tier I capital to average assets for the most recent quarter) for the Company
is 4.0%. At March 31, 2000, the Company had a leverage ratio of 6.6%, compared
to 6.8% at December 31, 1999.
12
<PAGE> 13
IMPACT OF INFLATION
Although interest rates are significantly affected by inflation, the inflation
rate is immaterial when reviewing the Company's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on a large portion of the Company's assets
and liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Based upon the nature of the Company's operations, the Company does
not maintain any foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings
risk associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the
subsidiary banks meet monthly to analyze the rate sensitivity position. These
meetings focus on the spread between the cost of funds and interest yields
generated primarily through loans and investments.
There have been no material changes in reported markets risks during
the three months ended March 31, 2000.
13
<PAGE> 14
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
(a) Exhibit 27.1 Financial Data Schedule for the interim year-to-date
period ended March 31, 2000; Exhibit 27.2 Restated Financial Data Schedule for
interim year-to-date period ended March 31, 1999 (for SEC use only) - These
schedules contain summary financial information extracted from the consolidated
financial statements of the Company at March 31, 2000 (unaudited) and March 31,
1999 (unaudited) and are qualified in their entirety by reference to such
financial statements as set forth in the Company's quarterly report on Form 10-Q
for the periods ending March 31, 2000 and March 31, 1999 respectively.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
14
<PAGE> 15
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 BANCORP, INCORPORATED
(Registrant)
DATE: 5/15/00 /s/ JOEL PORTER
-------------- -----------------------------------------------------
Joel Porter, President (Principal Executive Officer)
DATE: 5/15/00 /s/ MARK C. MCDOWELL
-------------- -----------------------------------------------------
Mark C. McDowell
Chief Administrative Officer (Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,007
<INT-BEARING-DEPOSITS> 4,798
<FED-FUNDS-SOLD> 15,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,180
<INVESTMENTS-CARRYING> 6,513
<INVESTMENTS-MARKET> 6,197
<LOANS> 463,207
<ALLOWANCE> 5,354
<TOTAL-ASSETS> 552,857
<DEPOSITS> 465,462
<SHORT-TERM> 5,250
<LIABILITIES-OTHER> 5,669
<LONG-TERM> 40,160
0
0
<COMMON> 3,439
<OTHER-SE> 32,877
<TOTAL-LIABILITIES-AND-EQUITY> 552,857
<INTEREST-LOAN> 10,946
<INTEREST-INVEST> 351
<INTEREST-OTHER> 346
<INTEREST-TOTAL> 11,643
<INTEREST-DEPOSIT> 5,233
<INTEREST-EXPENSE> 5,925
<INTEREST-INCOME-NET> 5,718
<LOAN-LOSSES> 424
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,978
<INCOME-PRETAX> 1,510
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948
<EPS-BASIC> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 4.55
<LOANS-NON> 4,591
<LOANS-PAST> 386
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,146
<CHARGE-OFFS> 249
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 5,354
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,825
<INT-BEARING-DEPOSITS> 11,772
<FED-FUNDS-SOLD> 19,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,306
<INVESTMENTS-CARRYING> 7,814
<INVESTMENTS-MARKET> 7,871
<LOANS> 341,948
<ALLOWANCE> 4,012
<TOTAL-ASSETS> 426,925
<DEPOSITS> 370,525
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 5,721
<LONG-TERM> 26,752
2,987
0
<COMMON> 0
<OTHER-SE> 20,892
<TOTAL-LIABILITIES-AND-EQUITY> 426,925
<INTEREST-LOAN> 7,886
<INTEREST-INVEST> 405
<INTEREST-OTHER> 393
<INTEREST-TOTAL> 8,684
<INTEREST-DEPOSIT> 3,998
<INTEREST-EXPENSE> 4,393
<INTEREST-INCOME-NET> 4,291
<LOAN-LOSSES> 218
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,821
<INCOME-PRETAX> 1,328
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 858
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 4.78
<LOANS-NON> 1,985
<LOANS-PAST> 505
<LOANS-TROUBLED> 652
<LOANS-PROBLEM> 5,600
<ALLOWANCE-OPEN> 4,012
<CHARGE-OFFS> 249
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 4,012
<ALLOWANCE-DOMESTIC> 3,200
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 812
</TABLE>
