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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 JUNE 30, 2000
Commission File Number 0-27393
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CUMBERLAND BANCORP, INCORPORATED
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(Exact Name of Registrant As Specified in Its Charter)
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Tennessee 62-1297760
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
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5120 Maryland Way, Brentwood, Tennessee 37027
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(Address of Principal Executive Offices and Zip Code)
(615) 377-9395
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(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: 6,889,628 shares at July 31, 2000.
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CUMBERLAND BANCORP, INCORPORATED
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited)
and December 31, 1999 (audited). 3
Consolidated Statements of Earnings - For the three months and six months
ended June 30, 2000 and 1999 (unaudited). 4
Consolidated Statements of Changes in Stockholders' Equity - For the
six months ended June 30, 2000 (unaudited). 5
Consolidated Statements of Cash Flows - For the six months ended
June 30, 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 15
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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(Unaudited)
JUNE 30, December 31,
(Dollars in thousands except share amounts) 2000 1999
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ASSETS:
Cash and due from banks $ 16,337 18,255
Interest-bearing deposits in financial institutions 4,376 5,396
Federal funds sold 14,950 11,250
Securities available for sale, at fair value 16,318 16,213
Securities held to maturity, fair value $5,980 at June 30, 2000
and $6,594 at December 31, 1999 6,107 6,677
Loans 476,432 440,316
Allowance for loan losses (5,663) (5,146)
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LOANS, NET 470,769 435,170
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Premises and equipment 18,574 14,578
Accrued interest receivable 4,812 4,073
Federal Home Loan Bank and Federal Reserve Bank stock - restricted 3,627 3,415
Investment in unconsolidated subsidiaries 2,857 2,441
Other real estate 2,890 2,400
Loan servicing rights 1,021 1,021
Other intangible assets 1,471 1,523
Other assets 2,766 3,147
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TOTAL ASSETS $ 566,875 525,559
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Noninterest-bearing $ 40,615 34,099
Interest-bearing 435,019 401,153
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TOTAL DEPOSITS 475,634 435,252
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Notes payable 6,920 7,455
Federal funds purchased 1,959 2,275
Advances from Federal Home Loan Bank 39,335 39,554
Accrued interest payable 3,753 3,072
Other liabilities 2,048 2,676
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TOTAL LIABILITIES 529,649 490,284
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STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value, authorized 20,000,000 shares;
shares issued - 6,885,628 in 2000 and 6,857,620 in 1999 3,443 3,429
Additional paid-in capital 25,436 25,110
Less: Treasury Stock (5) --
Retained earnings 8,815 7,194
Accumulated other comprehensive income (loss) (463) (458)
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TOTAL STOCKHOLDERS' EQUITY 37,226 35,275
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 566,875 525,559
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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(Dollars in thousands except share amounts) 2000 1999 2000 1999
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INTEREST INCOME:
Loans, including fees $ 11,768 $ 8,490 $ 22,817 $ 16,161
Securities 334 386 674 805
Deposits in financial institutions 79 49 150 221
Federal funds sold 208 199 439 362
Federal Home Loan Bank and Federal Reserve Bank dividends 70 49 125 103
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TOTAL INTEREST INCOME 12,459 9,173 24,205 17,652
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INTEREST EXPENSE:
Time deposits of $100,000 or more 1,366 818 2,613 1,620
Other time deposits 4,293 3,224 8,278 6,453
Federal funds purchased 90 35 136 45
Notes payable and advances from Federal Home Loan Bank 660 441 1,306 826
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TOTAL INTEREST EXPENSE 6,409 4,518 12,333 8,944
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NET INTEREST INCOME 6,050 4,655 11,872 8,708
PROVISION FOR LOAN LOSSES 843 258 1,274 476
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,207 4,397 10,598 8,232
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OTHER INCOME:
Service charges on deposit accounts 630 415 1,148 785
Other service charges, commissions and fees 508 255 711 810
Mortgage banking activities 184 421 446 711
Gain on sale of SBA loans 247 70 312 156
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TOTAL OTHER INCOME 1,569 1,161 2,617 2,462
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OTHER EXPENSES:
Salaries and employee benefits 2,663 2,194 5,377 4,256
Occupancy 632 532 1,250 964
Other operating 1,853 1,343 3,467 2,654
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TOTAL OTHER EXPENSES 5,148 4,069 10,094 7,874
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INCOME BEFORE INCOME TAXES 1,628 1,489 3,121 2,820
INCOME TAX EXPENSE 606 518 1,151 1,000
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NET EARNINGS $ 1,022 $ 971 $ 1,970 $ 1,820
============================================================================================================
NET EARNINGS PER SHARE - BASIC $ 0.15 0.16 0.29 0.30
NET EARNINGS PER SHARE - DILUTED 0.15 0.16 0.28 0.29
============================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 6,883,817 6,093,340 6,874,579 6,057,345
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 7,016,636 6,227,636 7,012,214 6,183,608
============================================================================================================
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
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ACCUMULATED LESS:
COMMON STOCK ADDITIONAL OTHER TREASURY TOTAL
------------------------- PAID-IN RETAINED COMPREHENSIVE STOCK STOCKHOLDERS'
(Dollars in thousands) SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) AT COST EQUITY
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BALANCE, DECEMBER 31, 1999 6,857,620 $3,429 25,110 7,194 (458) 35,275
Proceeds from issuance of common stock 26,678 14 319 333
Acquisitions of Treasury Stock (5) (5)
Exercise of stock options 1,330 7 7
Dividends declared (349) (349)
Comprehensive Income:
Net earnings 1,970
Other Comprehensive Income
Change in unrealized loss on
securities available for sale net of
$2 in income tax benefit (5)
Total Comprehensive Income 1,965
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BALANCE, JUNE 30, 2000 6,885,628 $3,443 25,436 8,815 (463) (5) 37,226
===================================================================================================================================
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
"Unaudited"
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(dollars in thousands)
SIX MONTHS ENDED
JUNE 30,
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2000 1999
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NET EARNINGS $ 1,970 1,820
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Provision for loan losses 1,274 476
Depreciation and amortization 593 478
Operations of unconsolidated subsidiaries 167 --
Mortgage loans originated for sale (16,800) (22,911)
Proceeds from sale of mortgage loans 16,200 23,300
Increase in accrued interest receivable (739) (175)
Increase (decrease) in accrued interest payable and other liabilities 53 (153)
Other, net (804) 846
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TOTAL ADJUSTMENTS (56) 1,861
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,914 3,681
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing deposits in financial institutions 1,020 19,080
Increase in federal funds sold (3,700) (6,250)
Purchases of securities available for sale (360) (2,108)
Proceeds from maturities and redemptions of securities available for sale 33 2,299
Purchases of securities held to maturity 0 (600)
Proceeds from maturities and redemptions of securities held to maturity 570 2,435
Net increase in loans (36,116) (48,781)
(Purchase) and improvements to other real estate (490) (512)
Purchases of premises and equipment (3,996) (1,757)
Investment in unconsolidated subsidiaries (416) (2,373)
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NET CASH USED BY INVESTING ACTIVITIES (43,455) (38,567)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 40,382 20,676
Increase (decrease) in federal funds purchased (316) 3,400
Increase (decrease) in advances from Federal Home Loan Bank (219) 9,474
Proceeds from notes payable 2,264 500
Repayments of notes payable (2,656) (376)
Cash dividend on common stock (172)
Proceeds from issuance of common stock 340 1,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 39,623 34,674
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NET DECREASE IN CASH (1,918) (212)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,255 9,085
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,337 8,873
=========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
---------------------------------------------------------------------------------------------------------
Interest paid $ 11,652 8,299
Income taxes paid 1,588 1,166
=========================================================================================================
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of June 30, 2000 and for the
three month and six month periods ended June 30, 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 and six month
periods ending June 30, 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.
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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.
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RESULTS OF OPERATIONS
Net income increased 8% to $1,970,000 for the first six months of 2000 and 5% to
$1,022,000 for the three months ended June 30, 2000 as compared to the same
periods in 1999. The increase in net income was primarily due to growth in
earning assets and overall growth of the banks as demonstrated by the respective
36% and 30% increase in net interest income for the first six months and three
months ended June 30, 2000 compared to results one year earlier.
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
$6,553,000 or 37% during the six months ended June 30, 2000 and increased
$3,286,000 or 36% for the three months ended June 30, 2000 compared to the same
periods in 1999. The increase in total interest income was primarily
attributable to an increase in average earning assets, particularly the 36%
increase in average loans outstanding in the first half of 2000 as compared to
1999.
Interest expense increased $3,389,000 or 38% for the six months ended June 30,
2000 and $1,891,000 or 42% in the three months ended June 30, 2000 compared to
1999. The overall increase in total interest expense for the first six months of
2000 and three months ended June 30, 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 $3,164,000 or 36% for the six months ended June 30, 2000 and
$1,395,000 or 30% for the three months ending June 30, 2000 compared to year
earlier results.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $1,274,000 for the six months ended
June 30, 2000 and $843,000 for the three months ended June 30, 2000 compared to
$476,000 and $258,000, respectively in 1999. The company increased its provision
for loan losses during the second quarter of 2000 to cover increased loan losses
at a subsidiary bank. The provision for loan losses is based on past loan loss
experience and other factors which, in management's judgement, deserve current
recognition in estimating possible loan losses. Such factors include growth and
composition of the loan portfolio, review of specific problem 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 $5.7 million, an increase of 12% from $5.1 million
at December 31, 1999. The allowance for loan losses as a percentage of total
outstanding loans was approximately 1.19% at June 30, 2000 and 1.20% at December
31, 1999.
The level of the allowance and the amount of the provision involve evaluation of
uncertainties and matters of judgement. Management believes the allowance for
loan losses at June 30, 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 six months ended June 30, 2000
increased by 6% to $2,617,000 and for the three months ended June 30, 2000
increased by 35% to $1,569,000 from the same periods in 1999. The overall
increase was due primarily to increased revenue generated on deposit accounts
and improvement in sales of SBA loans. Service charges on deposit accounts
increased $363,000 or 46% during the six months ended June 30, 2000 and $215,000
or 52% during the three months ended June 30, 2000. Management has increased the
overall fee structure on deposit accounts in an effort to generate more
noninterest income. For the first six months of 2000, fee income from sales of
government guaranteed loans has increased while mortgage banking activities have
declined. Revenue from mortgage banking activities decreased $265,000 or 37%
during the six months
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ended June 30, 2000 and $237,000 or 56% in the three months ended June 30, 2000
as a result of changes in market conditions related to increases in interest
rates. Other service charges, fees and commissions totaled $711,000, or a
decline of 12%, for the six months ended June 30, 2000 and $508,000, or an
increase of 99%, for the three months ended June 30, 2000 compared to 1999.
NONINTEREST EXPENSE
Noninterest expense consists primarily of salaries and employee benefits,
occupancy expenses, furniture and equipment expenses, data processing expenses
and other operating expenses. Total noninterest expenses increased $2,220,000 or
28% during the six months ended June 30, 2000 and $1,079,000 or 27% during the
three months ended June 30, 2000 compared to comparable periods 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 9 new offices which have been
open for less than one year as of June 30, 2000. In addition, the number of
employees increased to 254 at June 30, 2000 from 210 at June 30, 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 half of 2000.
INCOME TAXES
The Company's income tax expense was $1,151,000 for the six months ended June
30, 2000, and $606,000 for the three months ended June 30, 2000. This reflects
an increase of $151,000 for the six month period and $88,000 for the three month
period from 1999.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
The Company's total assets increased 8% to $567 million at June 30, 2000 from
$526 million at December 31, 1999. Loans, net of allowance for possible loan
losses, totaled $470 million at June 30, 2000 or a 8% 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 $3,700,000 or 33% at June
30, 2000 from December 31, 1999 as a result of excess funds being invested in
short term liquid assets. Premises and equipment increased $4 million during the
first half of 2000 due to construction-in-progress of 9 new office facilities.
Total liabilities increased 8% to $530 million at June 30, 2000 compared to $490
million at December 31, 1999. This increase was composed primarily of a $40
million or 9% increase in total deposits.
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.
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The Company considers all loans that are on nonaccrual status to be impaired
subject to the provisions of SFAS 114 and 118. Loans are placed on nonaccrual
when principal or interest is past due 90 days or more unless such loans are
well-secured and in 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 liquidations 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 $825,000 and $280,000 for the six months ending June 30,
2000 and 1999 respectively. Total non-performing loans, which consists of loans
past-due over 90 days or on nonaccural status, at June 30, 2000 were $4.8
million or 1% of total loans as compared to $3.4 million or .8% of total loans
at December 31, 1999. Foreclosed properties was $2.9 million at June 30, 2000,
an increase 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
$35.7 million. In addition, the Company has $16.3 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.
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
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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 $6.8 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 June 30,
2000, loans of approximately $300.8 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, time deposits of approximately $327.8 million will become
due or be subject to rate adjustments within 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
deposits and regular savings. Management anticipates that there will be no
significant withdrawals from these accounts in the future.
CAPITAL POSITION AND DIVIDENDS
At June 30, 2000, total stockholders' equity was $37.2 million or 6.6% of total
assets. The increase in stockholders' equity during the six months ending June
30, 2000 results from the Company's net income of $1,970,000 and issuance of
25,417 shares of common stock. Cash dividends of $159,000 were paid during the
first six months.
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 June 30, 2000, the
Company's total risk-based capital ratio was 9.5% and its Tier I risk-based
capital ratio was approximately 8.2% 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 June 30, 2000, the Company had a leverage ratio of 6.7%, compared to
6.8% at December 31, 1999.
IMPACT OF INFLATION
Although interest rates are significantly affected by inflation, the inflation
rate is immaterial when reviewing the Company's results of operations.
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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 June 30, 2000.
13
<PAGE> 14
PART II. OTHER INFORMATION
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
(a) The annual meeting of the shareholders was held on April 28, 2000.
(b) At the Company's annual meeting the entire board of directors
was elected.
(c) (1) Each director was elected by the following tabulation:
<TABLE>
<CAPTION>
Number
of Shares Broker
voting For Against Abstain Non-Votes
------ --- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Tom Brooks 6,022,607 6,002,928 19,679 0 0
Jerry Cole 6,022,607 6,002,928 19,679 0 0
Jack Everett 6,022,607 6,002,928 19,679 0 0
Ronnie Gibson 6,022,607 6,002,928 19,679 0 0
Danny Herron 6,022,607 6,002,928 19,679 0 0
Frank Inman, Jr. 6,022,607 6,002,928 19,679 0 0
Tom E. Paschal 6,022,607 6,002,928 19,679 0 0
Joel Porter 6,022,607 6,002,928 19,679 0 0
Alex Richmond 6,022,607 6,002,928 19,679 0 0
Wayne Rodgers 6,022,607 6,002,928 19,679 0 0
John Shepherd 6,022,607 6,002,928 19,679 0 0
Bill Smallwood 6,022,607 6,002,928 19,679 0 0
John S. Wilder, Sr. 6,022,607 6,002,928 19,679 0 0
</TABLE>
(2) Approval of the Company's 1998 Stock Option Plan was
as follows:
<TABLE>
<CAPTION>
Number
of Shares Broker
voting For Against Abstain Non-Votes
------ --- ------- ------- ---------
<S> <C> <C> <C> <C>
6,022,607 5,942,607 0 80,000 0
</TABLE>
(3) The ratification of the appointment of Heathcott & Mullaly PC
as the Company's independent auditor was approved as follows:
<TABLE>
<CAPTION>
Number
of Shares Broker
voting For Against Abstain Non-Votes
------ --- ------- ------- ---------
<S> <C> <C> <C> <C>
6,022,607 6,022,607 0 0 0
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 Financial Data Schedule for the interim year-to-date
period ended June 30, 2000; Exhibit 27.2 Restated Financial Data Schedule for
interim year-to-date period ended June 30, 1999 (for SEC use only) - These
schedules contain summary financial information extracted from the consolidated
financial statements of the Company at June 30, 2000 (unaudited) and June 30,
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 period ending June 30, 2000 and the Amendment No. 1 to the Company's
registration statement on Form S-1, as filed with the SEC on September 8, 1999.
(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: 8/14/00 /s/ JOEL PORTER
-------------- -----------------------------------------------------
Joel Porter, President (Principal Executive Officer)
DATE: 8/14/00 /s/ MARK C. MCDOWELL
-------------- -----------------------------------------------------
Mark C. McDowell
Chief Administrative Officer (Principal Financial and
Accounting Officer)
15
