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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 MARCH 31, 2001
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)
Tennessee 62-1297760
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4205 Hillsboro Road, Suite 212, Nashville, Tennessee 37215
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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: 13,799,756 shares at April 30, 2001.
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CUMBERLAND BANCORP, INCORPORATED
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001 (unaudited)
and December 31, 2000 3
Consolidated Statements of Earnings - For the three months ended
March 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Changes in Shareholders' Equity - For the
three months ended March 31, 2001 (unaudited) 5
Consolidated Statements of Cash Flows - For the three months
ended March 31, 2001 and 2000 (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
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
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ITEM 1. FINANCIAL STATEMENTS
CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31
(Dollars in thousands except share amounts) 2001 2000
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Assets:
Cash and due from banks $ 19,914 22,280
Interest-bearing deposits in financial institutions 9,688 14,988
Federal funds sold 69,260 33,025
Securities available for sale, at fair value 11,532 15,566
Securities held to maturity, fair value $6,367 at March 31, 2001
and $8,405 at December 31, 2000 6,320 8,425
Loans 518,993 507,217
Allowance for loan losses (6,182) (6,137)
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Loans, net 512,811 501,080
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Premises and equipment 23,884 23,467
Accrued interest receivable 5,536 5,644
Restricted equity securities 4,364 4,226
Investment in unconsolidated subsidiaries 4,940 4,983
Other real estate 2,580 3,142
Loan servicing rights 521 985
Other intangible assets 1,681 1,577
Other assets 4,144 4,069
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Total assets $ 677,175 643,457
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Liabilities and Shareholders' Equity:
Deposits
Noninterest-bearing $ 46,525 46,629
Interest-bearing 511,669 477,513
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Total deposits 558,194 524,142
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Notes payable 7,802 8,749
Federal funds purchased 9,295 9,575
Advances from Federal Home Loan Bank 45,475 46,211
Accrued interest payable 5,628 4,694
Other liabilities 2,217 2,610
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Total liabilities 628,611 595,981
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Trust preferred securities 8,000 8,000
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Shareholders' equity:
Common stock, $0.50 par value, authorized 20,000,000 shares;
shares issued - 13,799,756 in 2001 and 6,893,628 in 2000 6,900 3,447
Additional paid-in capital 22,270 25,526
Retained earnings 11,430 10,682
Accumulated other comprehensive income (loss) (36) (179)
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Total shareholders' equity 40,564 39,476
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Total liabilities and shareholders'
equity $ 677,175 643,457
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See accompanying notes to consolidated financial statements (unaudited).
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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(Dollars in thousands except per share data) 2001 2000
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Interest income:
Loans, including fees $ 12,922 10,946
Securities 370 351
Deposits in financial institutions 404 60
Federal funds sold 519 231
Federal Home Loan Bank dividends 85 55
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Total interest income 14,300 11,643
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Interest expense:
Time deposits of $100,000 or more 1,884 1,252
Other time deposits 4,958 3,981
Federal funds purchased 114 46
Notes payable, advances from Federal Home Loan Bank, and trust
preferred securities 1,176 646
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Total interest expense 8,132 5,925
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Net interest income 6,168 5,718
Provision for loan losses 262 424
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Net interest income after provision
for loan losses 5,906 5,294
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Other income:
Service charges on deposit accounts 803 518
Other service charges, commissions and fees 400 379
Mortgage banking activities 236 232
Gain on sale of SBA loans 0 65
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Total other income 1,439 1,194
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Other expenses:
Salaries and employee benefits 3,056 2,701
Occupancy 763 587
Other operating 2,039 1,690
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Total other expenses 5,858 4,978
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Income before income taxes 1,487 1,510
Income tax expense 531 562
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Net earnings $ 956 948
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Net earnings per share - basic $ 0.07 0.07
Net earnings per share - diluted 0.07 0.07
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Weighted average shares outstanding - basic 13,873,014 13,730,682
Weighted average shares outstanding - diluted 14,113,164 14,015,584
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See accompanying notes to consolidated financial statements (unaudited).
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
Accumulated
Other
Common Stock Additional Comprehensive Total
----------------------- Paid-in Retained Income Shareholders'
(Dollars in thousands) Shares Amount Capital Earnings (Loss) Equity
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Balance, December 31, 2000 6,893,628 $ 3,447 25,526 10,682 (179) 39,476
Purchase and retirement of common stock (47,000) (24) (259) (283)
Issuance of common stock in connection
with the acquisition of minority interest
of Bank of Mason 53,250 27 453 480
Dividends $0.03 per share (208) (208)
Comprehensive Income:
Net earnings 956
Other Comprehensive Income
Change in unrealized loss on
securities available for sale net of
$87 in income taxes 143
Total Comprehensive Income 1,099
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Balance, March 31, 2001 6,899,878 3,450 25,720 11,430 (36) 40,564
Effect of two for one stock split 6,899,878 3,450 (3,450) 0
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Balance, March 31, 2001 13,799,756 $ 6,900 22,270 11,430 (36) 40,564
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See accompanying notes to consolidated financial statements (unaudited).
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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(Dollars in thousands) 2001 2000
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Net earnings $ 956 948
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for loan losses 262 424
Depreciation and amortization 830 352
Operations of unconsolidated affiliates 149 106
Mortgage loans originated for sale (5,777) (8,917)
Proceeds from sale of mortgage loans 5,254 8,988
(Increase) decrease in accrued interest receivable 108 (527)
Increase (decrease) in accrued interest payable and other liabilities 541 (238)
Other, net (524) 448
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Total adjustments 843 636
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Net cash provided by operating activities 1,799 1,584
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Cash flows from investing activities:
Net decrease in interest-bearing deposits in financial institutions 5,300 598
(Increase) decrease in federal funds sold (36,235) (4,475)
Purchases of securities available for sale (305) 0
Proceeds from maturities and redemptions of securities available for sale 4,482 33
Proceeds from maturities and redemptions of securities held to maturity 2,105 164
Net increase in loans (11,470) (23,178)
Investment in unconsolidated affiliates (106) (344)
Purchases of premises and equipment (1,181) (2,576)
Proceeds from sale of other real estate 1,611 365
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Net cash used by investing activities (35,799) (29,413)
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Cash flows from financing activities:
Net increase in deposits 34,052 30,210
Increase (decrease) in federal funds purchased (280) 2,975
Decrease in advances from Federal Home Loan Bank (736) (7,135)
Proceeds from notes payable 0 2,264
Repayments of notes payable (947) (1,978)
Dividends paid (172) 0
Purchase and retirement of common stock (283) 245
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Net cash provided by financing activities 31,634 26,581
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Net decrease in cash (2,366) (1,248)
Cash and cash equivalents at beginning of year 22,280 18,255
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Cash and cash equivalents at end of period $ 19,914 17,007
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Supplemental disclosure of cash flow information:
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Interest paid $ 7,198 5,421
Income taxes paid 119 181
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Non-Cash Activities:
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Issuance of common stock - due to acquisition $ 480 0
Assets acquired through foreclosure 895 24
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See accompanying notes to consolidated financial statements (unaudited).
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CUMBERLAND BANCORP, INCORPORATED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of March 31, 2001 and for the
three month periods ended March 31, 2001 and 2000 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, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the 2000
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K.
In January 2001, the Company acquired the remaining shares outstanding of common
stock in the Bank of Mason for cash of approximately $90,000 and issuance of
53,250 shares of the Company's stock.
The Company's board of directors approved a 2 for 1 stock split for shareholders
of record as of March 22, 2001, payable April 22, 2001. Per share amounts have
been adjusted to reflect the stock split.
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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. The words
"expect," "anticipate," "plan," "believe," "could," "seek," and similar
expressions are intended to identify such forward-looking statements but other
statements not based on historical information may also be considered
forward-looking. Such forward-looking statements involve known and unknown risks
and uncertainties, including, but not limited to, increased competition with
other financial institutions, lack of sustained growth in the Company's market
areas, sudden adverse interest rate changes, inadequate allowance for loan
losses, significant downturns in the business of one or more large customers,
changes in the legislative and regulatory environment 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.
Although we have experienced substantial growth in total assets, net earnings
were relatively flat in the first quarter of 2001 as compared to 2000, primarily
due to operating expenses associated with expansion activities and shrinking
interest margins.
The Company completed the acquisition of the minority interest in Bank of Mason,
a bank with total assets of approximately $10 million, effective January 31,
2001. This acquisition was accounted for as a purchase and resulted in goodwill
of $287,000.
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RESULTS OF OPERATIONS
Net earnings increased 1% to $956,000 for the three months ended March 31, 2001
from $948,000 for the first three months of 2000.
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
$2,657,000 or 23% during the three months ended March 31, 2001 as compared to
the same period in 2000. The increase in total interest income was primarily
attributable to an increase in average earning assets, particularly the 14%
increase in average loans outstanding in the first quarter of 2001 as compared
to 2000.
Interest expense increased $2,207,000 or 37% for the three months ended March
31, 2001 as compared to the same period in 2000. The overall increase in total
interest expense for the first three months of 2001 as compared to 2000 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 $450,000 or 8% for the three months ended March
31, 2001 as compared to the same period in 2000.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $262,000 and $424,000, for the first
three months of 2001 and 2000, 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 $6.2
million, an increase from $6.1 million at December 31, 2000. The allowance for
loan losses as a percentage of total outstanding loans was approximately 1.2% at
March 31, 2001 and December 31, 2000, 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, 2001 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, 2001
increased by 21% to $1,439,000 from $1,194,000 for the same period in 2000. The
overall increase was due primarily to increased revenue generated on deposit
accounts. Service charges on deposit accounts increased $285,000 or 55% during
the three months ended March 31, 2001 compared to the same period in 2000.
Management has increased the overall fee structure on deposit accounts in an
effort to generate more noninterest income. Revenue from mortgage banking
activities increased $4,000 or 2% during the three months ended March 31, 2001
compared to the same period last year. There were no gains on sales of SBA loans
during the three months ended March 31, 2001 compared to
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$65,000 in the same period in 2000. Other service charges, fees and commissions
totaled $400,000 and $379,000 during the three months ended March 31, 2001 and
2000, respectively, an increase of $21,000 or 6%.
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 $880,000 or 18%
during the first quarter of 2001 compared to the same period in 2000. 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 number of employees increased to 281 at March
31, 2001, from 265 at March 31, 2000.
INCOME TAXES
The Company's income tax expense was $531,000 for the three months ended March
31, 2001, a decrease of $31,000 over the comparable period in 2000.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
The Company's total assets increased 5% to $677 million at March 31, 2001 from
$643 million at December 31, 2000. Loans, net of allowance for possible loan
losses, totaled $513 million at March 31, 2001 or a 2% increase compared to $501
million at December 31, 2000. Federal funds sold increased $36 million or 110%
at March 31, 2001 from December 31, 2000 due to slowing loan demand.
Interest-bearing deposits in financial institutions decreased $5 million during
the first quarter of 200l.
Total liabilities increased by 5.5% to $629 million at March 31, 2001 compared
to $596 million at December 31, 2000. This increase was composed primarily of a
$34 million or 6.5% 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.
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
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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 $217,000 and $216,000 for the three month periods ending
March 31, 2001 and 2000, respectively. Total non-performing loans at March 31,
2001 were $6.5 million or 1.26% of total loans as compared to $6.0 million or
1.2% of total loans at December 31, 2000. Other real estate was $2.6 million at
March 31, 2001, a decline from the $3.1 million level at December 31, 2000.
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 $99
million. In addition, the Company has $11 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, the FHLB and the Federal Reserve augment these traditional
sources.
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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 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,
2001, loans of approximately $316 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 $283 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. However, future decreases in
rates could have a negative effect on total deposits.
Management believes that with current liquid assets, present maturities,
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, 2001, total shareholders' equity was $40.6 million or 6.0% of total
assets. The increase in shareholders' equity during the three months ended March
31, 2001 results from the Company's net income of $956,000 and issuance of
53,250 shares of common stock. The increase was partially offset by the purchase
and retirement of 47,000 shares of common stock and $0.03 per share cash
dividend. The Company declared a $0.025 cash dividend for the same period in
2000.
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%. Trust preferred securities
are allowed to be counted in Tier I capital, subject to certain limitations.
The Company has also reached an agreement with the Federal Reserve Bank to
maintain the bank subsidiaries as well capitalized for a period of two years
beginning October 2000 and for the Company to maintain a total capital to
risk-weighted assets ratio of at least 10%. At March 31, 2001, the
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Company's total risk-based capital ratio was 10.30% and its Tier I risk-based
capital ratio was approximately 9.09% compared to ratios of 10.79% and 9.52%,
respectively at December 31, 2000. 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, 2001, the Company had a leverage ratio of 7.17%, compared
to 7.4% at December 31, 2000.
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.
Declining interest rates, such as those incurred during the three months ended
March 31, 2001, tend to have a negative impact on the Company's net interest
income and, therefore, net earnings in the short term. Further declines in
interest rates could result in lower net interest margins and lower net
earnings.
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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) No exhibits attached.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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: May 15, 2001 /s/ Joel Porter
----------------------- --------------------------------------------
Joel Porter, President (Principal Executive
Officer)
DATE: May 15, 2001 /s/ Mark C. McDowell
----------------------- --------------------------------------------
Mark C. McDowell
Chief Administrative Officer (Principal
Financial and Accounting Officer)
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