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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 ENDING SEPTEMBER 30, 2000
Commission File Number 0-27393
------------------------------
CUMBERLAND BANCORP, INCORPORATED
-----------------------------------------------------
(Exact Name of Registrant As Specified in Its Charter)
Tennessee 62-1297760
-------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
5120 Maryland Way, Brentwood, Tennessee 37027
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(Address of Principle 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: 6,893,628 shares at October 31, 2000
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CUMBERLAND BANCORP, INCORPORATED
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Earnings - For the three months and nine months
ended September 30, 2000 and 1999 (unaudited). 4
Consolidated Statements of Changes in Stockholders' Equity - For the nine
months ended September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows - For the nine months ended
September 30, 2000 and 1999 (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8- 12
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
</TABLE>
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
(Dollars in thousands except share amounts) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 12,773 18,255
Interest-bearing deposits in Financial Institutions 7,651 5,396
Federal funds sold 20,400 11,250
Securities available for sale, at fair value 16,322 16,213
Securities held to maturity, fair value $8,852 at September
30, 2000 and $6,594 at December 31, 1999 9,017 6,677
Loans 494,521 440,316
Allowance for loan losses (5,874) (5,146)
------------------------------------------------------------------------------------------------------
LOANS, NET 488,647 435,170
------------------------------------------------------------------------------------------------------
Premises and equipment 22,417 14,578
Accrued interest receivable 4,961 4,073
Federal Home Loan Bank and Federal Reserve Bank 3,811 3,415
Investment in unconsolidated subs 2,378 2,441
Other real estate 3,409 2,400
Loan Servicing Rights 1,035 1,021
Other intangible assets 1,613 1,523
Other assets 2,987 3,147
------------------------------------------------------------------------------------------------------
TOTAL ASSETS $597,421 525,559
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing $ 43,565 34,099
Interest-bearing 461,111 401,153
------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 504,676 435,252
------------------------------------------------------------------------------------------------------
Notes Payable 8,842 7,455
Federal funds purchased 1,284 2,275
Advances from Federal Home Loan Bank 36,296 39,554
Accrued interest payable 4,022 3,072
Other liabilities 3,763 2,676
------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 558,883 490,284
------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock, $0.50 par value, authorized 20,000,000
shares issued - 6,889,620 in 2000 and 6,857,620 in 1999 3,446 3,429
Additional paid-in capital 25,531 25,110
Less: Treasury Stock -- --
Retained earnings 9,919 7,194
Accumulated other comprehensive income (loss) (358) (458)
------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 38,538 35,275
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $597,421 525,559
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</TABLE>
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------
Dollars in thousands except per share data 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 12,138 9,309 34,955 25,470
Securities 483 291 157 1,096
Deposits in Fin. Inst. 65 13 215 234
Federal Funds Sold 304 208 743 570
Federal Home Loan Bank and FRB stock div 48 93 173 196
-----------------------------------------------------------------------------------------------------------------------------
Total Interest Income 13,038 9,914 37,243 27,566
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Time Deposits of $100,000 or more 1,604 864 4,217 2,484
Other Time Deposits 4,825 3,407 13,103 9,860
Federal Funds Purchased 78 23 214 68
Notes Payable and advances from Federal Home Loan Bank 747 532 2,053 1,358
-----------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 7,254 4,826 19,587 13,770
-----------------------------------------------------------------------------------------------------------------------------
Net Interest Income 5,784 5,088 17,656 13,796
Provision for Loan losses 547 430 1,821 906
-----------------------------------------------------------------------------------------------------------------------------
Net Interest Income after provision for loan losses 5,237 4,658 15,835 12,890
-----------------------------------------------------------------------------------------------------------------------------
Other Income:
Service Charges on deposit accounts 773 426 1,921 1,211
Other service charges, commissions and fees 1,065 372 1,776 1,182
Mortgage banking activities 257 449 703 1,160
Gain on sale of SBA loans 299 131 611 287
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TOTAL OTHER INCOME 2,394 1,378 5,011 3,840
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Other Expenses:
Salaries and employee benefits 2,963 2,378 8,340 6,634
Occupancy 707 596 1,957 1,560
Other operating expenses 1,938 1,467 5,405 4,121
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TOTAL OTHER EXPENSES 5,608 4,441 15,702 12,315
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INCOME BEFORE INCOME TAXES 2,023 1,595 5,144 4,415
INCOME TAX EXPENSE 750 601 1,901 1,601
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NET EARNINGS $ 1,273 994 3,243 2,814
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Net earnings per share - basic $ 0.19 $ 0.16 $ 0.47 $ 0.46
Net earnings per share - diluted $ 0.18 $ 0.16 $ 0.46 $ 0.45
Weighted average shares Outstanding - basic 6,891,838 6,120,936 6,880,332 6,078,542
Weighted average shares Outstanding - Diluted 7,013,262 6,283,498 7,012,563 6,216,905
</TABLE>
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS
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 issuance of common stock 36,008 17 421 438
Dividends declared -518 -518
Comprehensive Income:
Net earnings 3,243
Other Comprehensive Income
Change in unrealized loss on
securities available for sale net of
$38 in income tax expense 100
Total Comprehensive Income 3343
Balance September 30, 2000 6,893,628 $3,447 25,531 9,919 -358 38,538
</TABLE>
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
"Unaudited"
<TABLE>
<CAPTION>
(dollars in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
=========================================================================================================
<S> <C> <C>
NET EARNINGS 3,243 2,814
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Provision for loan losses 1,821 906
Depreciation and amortization 628 815
Operations of unconsolidated subsidiaries 218 0
Mortgage loans originated for sale (26,800) (38,066)
Proceeds from sale of mortgage loans 24,000 37,800
Increase in accrued interest receivable (888) (1,300)
Increase (decrease) in accrued interest payable and other liabilities 1,087 2,273
Other, net 777 (1,888)
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TOTAL ADJUSTMENTS 843 540
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,086 3,354
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits in financial institutions (2,255) 14,816
Increase in federal funds sold (9,150) 3,752
Purchases of securities available for sale (109) (8,161)
Proceeds from maturities and redemptions of securities available for sale 33 2,561
Purchases of securities held to maturity (2,340) (939)
Proceeds from maturities and redemptions of securities held to maturity 570 3,107
Net increase in loans (54,205) (115,389)
Purchase and improvements to other real estate (1,009) (407)
Purchases of premises and equipment 63 (2,373)
Investment in unconsolidated subsidiaries (7,839) (5,053)
---------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (76,241) (108,086)
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 69,424 88,226
Increase (decrease) in federal funds purchased (991) 2,700
Increase (decrease) in advances from Federal Home Loan Bank (3,258) 10,120
Proceeds from notes payable (4,264) 600
Repayments of notes payable (2,862) (378)
Cash dividend on common stock (344) 0
Proceeds from issuance of common stock 440 5,528
---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,673 106,796
---------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (5,482) 2,064
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,255 9,085
---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 12,773 11,149
=========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
---------------------------------------------------------------------------------------------------------
Interest paid 6,429 17,320
Income taxes paid 2,263 1,208
=========================================================================================================
</TABLE>
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of September 30, 2000 and
for the three month and nine month periods ended September 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
nine month periods ending September 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 the year ended December 31, 1999 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 connections 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 15% to $3,243,000 for the first nine months of 2000 and 28%
to $1,273,000 for the three months ended September 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
28% and 14% increase in net interest income for the nine months and three months
ended September 30, 2000 compared to results for the same periods one year
earlier. Increased activity from non-interest income sources also contributed to
the gain. Non-interest income increased 30% and 74% for the nine months and
three months ended September 30, 2000 compared to 1999.
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 $9,677,000 or 35% during the nine months ended September 30, 2000 and
increased $3,124,000 or 31% for the three months ended September 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 12% increase in average loans outstanding in the first nine months of 2000
as compared to 1999.
Interest expense increased $5,817,000 or 42% for the nine months ended September
30, 2000 and $2,428,000 or 50% for the three months ended September 30, 2000
compared to 1999. The overall increase in total interest expense for the first
nine months of 2000 and three months ended September 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 $3,860,000 or 28% for the nine months
ended September 30, 2000 and $696,000 or 14% for the three months ending
September 30, 2000 compared to results for the same periods in 1999.
Provision for possible loan losses
The provision for possible loan losses was $1,821,000 for the nine months ended
September 30, 2000 and $547,000 for the three months ended September 30, 2000
compared to $906,000 and $430,000 respectively in 1999. The Company has
increased its provision for loan losses during 2000 to cover increased loan
losses at its subsidiary banks. 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 $5.9 million, an
increase of 14% 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
September 30, 2000 and 1.17% 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 September 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 nine months ended September 30,
2000 increased by 30% to $5,011,000 and for the three months ended September 30,
2000 increased by 74% to $2,394,000 for the same periods in 1999. The overall
increase was due primarily to revenue generated on deposit accounts as well as
commissions on insurance and sales of securities. Service charges on deposit
accounts increased $710,000 or 59% during the nine months ended September 30,
2000 and
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<PAGE> 10
$347,000 or 81% during the three months ended September 30, 2000. Management
has increased the overall fee structure on deposit accounts in an effort to
generate more noninterest income. For the first nine months of 2000, fee income
from sales of insurance and security products have increased while mortgage
banking activities have declined. Revenue from mortgage banking activities
decreased $457,000 or 39% during the nine months ended September 30, 2000 and
$192,000 or 43% in the three months ended September 30, 2000 as a result of
changes in market conditions related to increases in interest rates. Other
service charges, fees and commissions totaled $1,776,000, or an increase of
50%, for the nine months ended September 30, 2000 and $1,065,000, or an
increase of 186%, for the three months ended September 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 $3,387,000
or 28% during the nine months ended September 30, 2000 and $1,167,000 or 26%
during the three months ended September 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 11 new offices which
have been open for less than one year as of September 30, 2000. In addition,
the number of employees increased to 257 at September 30, 2000 from 232 at
September 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 three month and nine month periods
ending September 30, 2000.
Income Taxes
The Company's income tax expense was $1,901,000 for the nine months ended
September 30, 2000, and $750,000 for the three months ended September 30, 2000.
This reflects an increase of $300,000 for the nine month period and $149,000
for the three month period from 1999.
Financial Condition
Balance Sheet Summary
The Company's total assets increased 14% to $597 million at September 30, 2000
from $526 million at December 31, 1999. Loans, net of allowance for possible
loan losses, totaled $489 million at September 30, 2000 or an 12% 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 $9,150,000 or
81% at September 30, 2000 from December 31, 1999 as a result of excess funds
being invested in short term liquid assets. Premises and equipment increased
$7.8 million during the first nine months of 2000 due to
construction-in-progress of 11 new office facilities.
Total liabilities increased 14% to $559 million at September 30, 2000 compared
to $490 million at December 31, 1999. This increase was composed primarily of a
$69 million or 16% 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,
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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.
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 $1,157,000 and $384,000 for the nine months ending
September 30, 2000 and 1999 respectively. Total non-performing loans, which
consists of loans past-due over 90 days or on nonaccrual status, at September
30, 2000 were $6.2 million or 1.3% of total loans as compared to $3.4 million
or .8% of total loans at December 31, 1999. Foreclosed properties were $3.4
million at September 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
$40.8 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
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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 $7.6 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 September
30, 2000, loans of approximately $313 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 $391 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 September 30, 2000, total stockholders' equity was $38.5 million or 6.5% of
total assets. The increase in stockholders' equity during the nine months
ending September 30, 2000 results from the Company's net income of $3,243,000
and issuance of 36,008 shares of common stock. Cash dividends of $344,000 were
paid during the first nine 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 September 30, 2000, the
Company 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 September 30, 2000, the Company had a leverage ratio of 6.25%,
compared to 6.8% at December 31, 1999.
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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 September 30, 2000.
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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
None
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 ending September 30, 2000; Exhibit 27.2 Restated Financial
Data Schedule for interim year-to-date period ended September 30, 1999 (for SEC
use only) - These schedules contain summary financial information extracted
from the consolidated financials statements of the Company at September 30,
2000 (unaudited) and September 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 September 30,
2000 and 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: 11/14/00 /s/ JOEL PORTER
-------------- -----------------------------------------------------
Joel Porter, President (Principal Executive Officer)
DATE: 11/14/00 /s/ MARK C. MCDOWELL
-------------- -----------------------------------------------------
Mark C. McDowell
Chief Administrative Officer (Principal Financial and
Accounting Officer)
15
