CENTURY BANCSHARES INC, S-1/A, 1996-12-31

CENTURY BANCSHARES INC
S-1/A, 1996-12-31
NATIONAL COMMERCIAL BANKS

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<PAGE> 1

As filed with the Securities and Exchange Commission on December 31, 1996

Registration No. 333-14417
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 2
TO

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

---------------

CENTURY BANCSHARES, INC.

DELAWARE 6712 52-1489098
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

JOSEPH S. BRACEWELL
1275 PENNSYLVANIA AVENUE, N.W. 1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20004
(202) 496-4000 (202) 496-4000
(Address, including zip code, and (Address, including zip code, and
telephone number, including area code, telephone number, including area code,
of Registrant's principal of agent for service)
executive offices)

---------------

Copy to:

JOHN R. BRANTLEY
BRACEWELL & PATTERSON, L.L.P.
711 LOUISIANA STREET, SUITE 2900
HOUSTON, TEXAS 77002-2781

---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================

<PAGE> 2

CENTURY BANCSHARES, INC.

186,086 Shares of Common Stock, $1.00 Par Value
Issuable Upon Exercise of Warrants to Purchase Common Stock

This Prospectus relates to the issuance of 186,086 shares of Common Stock
to be issued from time to time after November 14, 1996, upon exercise of
certain warrants (the "Warrants") to purchase shares of common stock, $1.00 par
value per share ("Common Stock"), issued on November 14, 1995 by Century
Bancshares, Inc., a Delaware corporation (the "Company"). The shares offered
hereby include 173,913 shares of Common Stock initially issuable upon exercise
of the Warrants, an additional 12,173 shares of Common Stock issuable to
holders of Warrants due to the declaration of a 7% stock dividend payable to
stockholders of record as of March 31, 1996, and such additional shares of
Common Stock as may become issuable as a result of future stock splits, stock
dividends, share reclassifications, mergers or consolidations and certain other
capital readjustments and events.

There is currently no established market for the Common Stock or the
Warrants, although limited and sporadic quotations with respect to, and trading
in, the Common Stock occur in the Washington, D.C. area. As of the date of
this Prospectus, there were 173,913 Warrants outstanding. Each Warrant is
exercisable at an exercise price of $5.75 and entitles the holder to receive
1.07 shares of Common Stock.

For a description of the Common Stock and the Warrants, see "Description
of Capital Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH ANY INVESTMENT IN THE COMMON STOCK.

THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER FEDERAL OR
STATE AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Underwriting Discounts Proceeds to the
Warrant Exercise Price and Commissions (1) Company (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Warrant (3) $5.75 None $5.75
- ----------------------------------------------------------------------------------------------------------
Total $999,999.75 None $999,999.75
- ----------------------------------------------------------------------------------------------------------
</TABLE>

(1) No commissions or brokerage fees will be paid by the Company in
connection with the exercise of the Warrants.
(2) Before deducting expenses of this offering, which are estimated to be
$121,000.
(3) Each Warrant is exercisable into 1.07 shares of Common Stock.

The date of this Prospectus is December 31, 1996.

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<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TRADING MARKET FOR THE COMMON STOCK . . . . . . . . . . . . . . . . . . . . . 10
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DIVIDEND POLICY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . 12
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
BUSINESS AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS . . . . . . . 61
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . 63
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-1
</TABLE>

THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND
WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL INFORMATION FOR
EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.

NO DEALER, SALESMAN OR PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

UNTIL FEBRUARY 10, 1997 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. As used in this Prospectus, unless the context otherwise requires,
the term "Company" means Century Bancshares, Inc. and its subsidiary, Century
National Bank.

THE COMPANY. . . . . . . . . Century Bancshares, Inc., a Delaware
corporation ("Company"') and a registered bank
holding company under the Bank Holding Company
Act of 1956, as amended, was incorporated and
organized in 1985. The Company began active
operations in April 1986 with the acquisition of
its subsidiary, Century National Bank ("Bank"),
a full service bank which opened for business in
May 1982. The Company's principal executive
offices are located at 1275 Pennsylvania Avenue,
N.W., Washington, D.C. 20004, and its phone
number at that address is (202) 496-4000.

THE OFFERING . . . . . . . . The Prospectus relates to the issuance by the
Company of 186,086 shares of its common stock,
$1.00 par value ("Common Stock"), upon exercise
of the Company's outstanding warrants
("Warrant") to purchase one share of Common
Stock, at a price of $5.75 per Warrant, subject
to adjustment in certain circumstances. Because
the Company declared a 7% stock dividend on
March 19, 1996, each Warrant is currently
exercisable for 1.07 shares of Common Stock.

WARRANTS . . . . . . . . . . The Warrants were originally issued in an
offering to the Company's stockholders exempt
from registration under the Securities Act of
1933, as amended (the "Securities Act"). Each
Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $5.75
per share, subject to adjustment in certain
circumstances. Because the Company declared a
7% stock dividend on March 19, 1996, each
Warrant is currently exercisable for 1.07 shares
of Common Stock. The Warrants may be exercised
at any time after November 14, 1996 and prior to
5:00 p.m. Eastern Time on November 16, 1998
unless repurchased. The Warrants may be
repurchased by the Company at any time on and
after November 14, 1997 at a price of $.26 per
Warrant on not less than 30 days written notice
given by the Company. See "Description of
Capital Stock -- The Warrants."

USE OF PROCEEDS. . . . . . . The estimated net proceeds of the Offering to be
received by the Company, assuming all Warrants
are exercised, and after deducting legal,
financial, accounting, printing and distribution
expenses incurred in connection with the
Offering, will be approximately $879,000. The
proceeds from the Offering will be used for
general corporate purposes. See "Use of
Proceeds."

COMMON STOCK
OUTSTANDING AFTER
THE OFFERING . . . . . . . . Immediately after completion of the Offering,
excluding shares issuable upon exercise of
options heretofore granted under the Company's
stock option plans, and assuming that all
Warrants are exercised, there will be 1,312,989
shares of Common Stock outstanding. See
"Capitalization" and "Management
--Compensation."

RISK FACTORS . . . . . . . . The Common Stock offered hereby involves certain
risks. Holders of Warrants should consider
carefully and thoroughly the information
contained in this Prospectus, and in particular,
the information contained under the caption
"Risk Factors."

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<PAGE> 5

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated financial data of the Company
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto appearing elsewhere in this Prospectus and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected historical consolidated
financial data as of and for the five years in the period ended December 31,
1995 are derived from the Company's Consolidated Financial Statements, which
have been audited by independent public accountants. The selected historical
consolidated financial data as of and for the nine months ended September 30,
1996 and September 30, 1995 are unaudited. Weighted average shares outstanding
and income per common share have been restated in all periods presented to give
effect to the 7% stock dividend declared by the Company on March 19, 1996.

<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
-------------------------------- ---------------------------------
(Dollars in thousands, except per share data)

1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C>
INCOME STATEMENT DATA:
Interest income . . . . . . . . . . . . . $5,657 $5,210 $7,079 $5,711 $5,455 $6,016 $6,871
Interest expense . . . . . . . . . . . . 2,015 1,869 2,562 1,902 1,987 2,486 3,458
Net interest income . . . . . . . . . . 3,642 3,341 4,517 3,809 3,468 3,530 3,413
Provision for loan losses . . . . . . . . 63 45 26 19 310 596 592
Net interest income after
provision for loan losses . . . . . . . 3,579 3,296 4,491 3,790 3,158 2,934 2,821
Noninterest income . . . . . . . . . . . 536 400 590 555 572 611 440
Noninterest expense . . . . . . . . . . . 3,470 2,930 4,045 3,381 3,036 3,284 3,124
Income taxes . . . . . . . . . . . . . . 249 292 357 374 264 89 100
Income before extraordinary item . . . . 396 474 680 591 429 173 38
Extraordinary item . . . . . . . . . . . -- -- -- -- -- 34 100
Net income . . . . . . . . . . . . . . 396 474 680 591 429 207 138
COMMON SHARE DATA:(1)
Net income before extra-
ordinary item . . . . . . . . . . . . . $.34 $.45 $.64 $.58 $.42 $.15 $0
Extraordinary item . . . . . . . . . . -- -- -- -- -- .04 .11
Net income . . . . . . . . . . . . . . .34 .45 .64 .58 .42 .19 .11
Book value(2) . . . . . . . . . . . . . 5.88 5.28 5.53 4.60 4.77 4.38 4.19
Common and common equivalent shares outstanding
End of period . . . . . . . . . . . . 1,178,096 984,090 1,174,763 961,169 922,105 920,958 921,493
Weighted average during period . . . 1,174,843 971,540 998,512 959,278 922,105 920,958 921,493
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . 94,950 93,046 101,639 90,129 86,286 77,258 84,137
Investments(3) . . . . . . . . . . . . . 7,223 17,196 21,690 22,654 25,902 14,918 25,982
Total loans(4) . . . . . . . . . . . . . 72,265 65,237 69,204 60,663 56,644 56,331 52,758
Allowance for loan losses . . . . . . . . 738 736 740 740 730 744 946
Total deposits . . . . . . . . . . . . . 83,787 82,027 90,539 82,081 79,982 71,113 78,032
Long term debt . . . . . . . . . . . . . 2,800 -- -- -- 207 540 540
Preferred equity(5) . . . . . . . . . . . -- 460 -- 460 468 468 468
Common equity(6) . . . . . . . . . . . . 6,926 5,200 6,499 4,417 4,403 4,033 3,862
Total stockholders' equity . . . . . . . 6,926 5,660 6,499 4,877 4,871 4,501 4,330
</TABLE>

-5-

<PAGE> 6

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE DATA (%):
Return on average total assets(7) . . . .57 .70 .75 .71 .52 .27 .19
Return on average total equity(7) . . . 7.82 11.98 12.43 12.21 9.04 4.10 3.13
Net interest margin(7) . . . . . . . . 5.78 5.39 5.42 4.90 4.55 4.94 4.80
Loans to deposits . . . . . . . . . . . 86.24 79.53 76.44 73.90 70.82 79.21 67.61
ASSET QUALITY RATIOS (%):
Nonperforming assets to total assets . 1.24 .08 .49 .70 .37 1.11 .77
Nonperforming loans to total loans . . 1.63 .08 .45 1.04 .57 1.16 .78
Net loan charge-offs to average loans(7) .01 .05 .04 .02 .59 1.40 .72
Allowance for loan losses to total loans 1.02 1.12 1.07 1.22 1.29 1.32 1.79

Allowance for loan losses to
nonperforming loans . . . . . . . . . 100 1,410 240 118 227 114 230
BANK CAPITAL RATIOS (%):
Tier I risk-based capital . . . . . . . 9.62 9.39 9.29 10.12 10.64 9.58 8.15
Total risk-based capital . . . . . . . 10.70 10.16 10.41 11.37 11.89 10.83 9.41

Tier I leverage . . . . . . . . . . . . 7.20 7.25 6.83 5.74 5.24 6.09 4.93
</TABLE>

-----------------
(1) All common share data has been adjusted for three (3) five
percent (5%) Common Stock dividends declared to stockholders
of record as of July 31, 1993, March 31, 1994 and March 31,
1995, and one (1) seven percent (7%) Common Stock dividend
declared to stockholders of record as of March 31, 1996.

(2) Book value per common share is based on common equity,
calculated in the manner described in footnote (6) below,
divided by the number of common and common equivalent shares
outstanding.

(3) Investments include federal funds sold and interest-bearing
deposits in other financial institutions.

(4) Net of unearned income.

(5) Preferred equity is calculated based on liquidation value of
$7.50 per share of Preferred Stock. All shares of Preferred
Stock outstanding as of October 17, 1995 were redeemed by the
Company on December 10, 1995.

(6) Common equity is total stockholders' equity less preferred
equity.

(7) Ratios annualized for the nine-month periods ended September
30, 1996 and 1995.

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<PAGE> 7
RISK FACTORS

An investment in the Common Stock offered hereby involves certain
risks. The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered carefully in evaluating the Company and its
business.

ILLIQUID INVESTMENT

There is no active trading market in the Common Stock or the Warrants.
Although prices for the Common Stock from time to time are quoted in the "pink
sheets" of the National Association of Securities Dealers, Inc. (which set forth
the most recent "bid" and "ask" prices), only limited and sporadic quotations
are available for the Common Stock in the Washington, D.C. area. Accordingly,
holders of Common Stock may experience some difficulty in selling the Common
Stock. The most recent transactions in the Common Stock known to the Company
involved 1,600 shares of Common Stock on December 23, 1996 at a price of $8.00
per share. Further, there is no assurance that an active trading market in the
Common Stock will develop. See "Trading Market for the Common Stock."

POTENTIAL ADVERSE EFFECT OF REPURCHASE OF WARRANTS

The Warrants may be repurchased by the Company at a price of $.26 per
Warrant at any time on and after November 14, 1997 and prior to their
expiration at 5:00 p.m., Eastern Time, on November 16, 1998, on written notice
mailed by the Company to the registered holder thereof at least 30 days prior
to the date fixed for the repurchase. As a result, holders of the Warrants may
be forced either to accept the repurchase price for the Warrants or exercise
them and pay the exercise price at a time when it may be disadvantageous to the
holder to do so. There can be no assurance that, if the Company elects to
repurchase the Warrants, the Common Stock to be acquired upon the exercise
thereof will be trading at a price in excess of the exercise price then in
effect. See "Description of Capital Stock -- The Warrants."

RESTRICTIONS ON DIVIDENDS BY THE COMPANY

The Company has not paid any cash dividends on the Common Stock to
date and presently intends to retain any earnings available for dividends for
use in its business. The Company's ability to pay dividends to its
shareholders is dependent upon the dividends the Company receives from the
Bank. Dividends paid by the Bank are subject to restrictions under various
banking laws. See "Business and Regulation--Supervision and Regulation of the
Bank." The shares of Common Stock are not suitable for purchase by persons who
desire dividend income.

-7-

<PAGE> 8
RESTRICTIONS ON DIVIDENDS BY THE BANK

The cash revenues of the Company are derived principally from
dividends paid to the Company by the Bank. Moreover, the payment of dividends
by the Bank is subject to certain restrictions imposed by national banking laws
applicable to the Bank. Dividends are restricted to the extent that no portion
of the Bank's capital stock or capital surplus may be withdrawn for the payment
of dividends. In addition, no dividends may be paid in an amount greater than
the net retained profits then on hand, less certain deductions for bad debts.
Approval by the Office of the Comptroller of the Currency ("OCC") is required
prior to the payment of dividends if the total of all dividends, including the
proposed dividend, declared by the Bank in any given calendar year exceeds the
Bank's net profits for that year combined with its retained net profits for the
preceding two years.

Under the Federal Deposit Insurance Act, an insured bank is prohibited
from paying dividends on its capital stock while in default on payment of any
assessment due to the Federal Deposit Insurance Corporation ("FDIC"), except in
those cases where the amount of the assessment is in dispute and the insured
bank has deposited satisfactory security. The Bank has timely paid all such
notices of assessment. In addition, banks are prohibited from paying dividends
if such dividends would cause them to be less than "adequately capitalized," as
defined by the Federal banking agencies. See "Business and Regulation --
Supervision and Regulation."

REGULATION

The Company and the Bank are subject to extensive governmental
regulation, including that of the Federal Reserve Board, the FDIC and the OCC.
These agencies' regulations, among other things, impose percentage limitations
on the acquisition of shares of Common Stock without prior agency approval,
require the satisfaction by the Bank of certain minimum capital standards and
limit the activities which may be conducted by the Company and the Bank. In
addition, other agencies regulate certain aspects of the Bank's lending
activities. All of these agencies can be expected to continue to propose new
regulatory and legislative actions which would affect the operations of the
Company and which may alter the competitive nature of the banking business.
See "Business and Regulation -- Supervision and Regulation."

MONETARY POLICY AND GENERAL ECONOMIC CONDITIONS

The operating income and net income of the Bank, and, consequently, of
the Company will depend to a great extent on "rate differentials," the
difference between the income the Bank receives from its loans, investments and
other assets and the interest it pays on deposits and other liabilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General." These rates are highly sensitive to many factors which
are beyond the control of the Company or the Bank, including general economic
conditions such as inflation, recession and unemployment, the supply and demand
for investable funds, interest rates and international

-8-

<PAGE> 9
economic conditions, as well as economic conditions affecting the Washington,
D.C. metropolitan area. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of Inflation, Changing Prices and
Monetary Policies."

EXPOSURE TO LOCAL ECONOMIC CONDITIONS

The Company's success is dependent to a significant extent upon
general economic conditions in the metropolitan Washington, D.C. area. The
economy of this area is dependent, among other things, on its ability to
attract new business to the area, spending on government agencies and tourism.
An economic downturn in the geographic markets served by the Bank could
adversely affect the Bank's ability to attract and retain deposits and to
collect loans, the value of any collateral securing such loans and the
financial condition and results of operations of the Company.

COMPETITION

The Bank is subject to vigorous competition in all aspects and areas
of its business from banks and other financial institutions, including savings
and loan associations, savings banks, finance companies, credit unions and
other providers of financial services, such as money market mutual funds,
brokerage firms, consumer finance companies and insurance companies. The Bank
competes in its market area with a number of much larger financial institutions
with greater resources, lending limits, larger branch systems and a wider array
of commercial banking services. See "Business and Regulation -- Competition."
The Company believes the Bank has been able to compete effectively with other
financial institutions by emphasizing customer service, establishing long-term
customer relationships, building customer loyalty, and providing products and
services designed to address the specific needs of its customers. No assurance
may be given, however, that the Bank will continue to be able to compete
effectively with other financial institutions in the future.

DEPENDENCE ON KEY EMPLOYEES

To a large extent, the Company is dependent upon the experience and
abilities of certain key employees, including the services of Mr. Joseph S.
Bracewell, its President. Should the services of these employees become
unavailable for any reason, the business of the Company could be adversely
affected. The Company has entered into an Employment Agreement with Mr.
Bracewell effective September 1, 1996 providing for his continued employment
through August 1998. See "Management--Employment Agreements."

SHARES OF COMMON STOCK ARE NOT INSURED DEPOSITS

The securities offered pursuant to this Prospectus are not deposits
and are not insured by the FDIC or any other federal or state agency.

-9 -

<PAGE> 10
USE OF PROCEEDS

The estimated net proceeds of the Offering to be received by the
Company, assuming that all Warrants are exercised, and after deducting legal,
financial, accounting, printing and distribution expenses in connection with
the Offering, will be approximately $879,000. The net proceeds will be used by
the Company for general corporate purposes, including but not limited to, using
such proceeds as additional capital to support the Bank's growth and expansion
program. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Strategic Plan."

TRADING MARKET FOR THE COMMON STOCK

There is no active trading market in the Company's Common Stock and no
assurance may be given that one will develop. Although the Company's shares of
Common Stock are quoted in the "pink sheets" of the National Association of
Securities Dealers, Inc. (which set forth the most recent "bid" and "ask"
prices), only limited and sporadic quotations are available for shares of the
Common Stock in the Washington D.C. area. Accordingly, investors who exercise
their Warrants may experience difficulty in selling the shares of Common Stock
received on exercise of Warrants. Each Warrant holder should consider the
Common Stock offered hereby only as a long-term investment, as it may be
difficult to promptly liquidate the investment at a reasonable price in the
event of personal financial emergency or upon the occurrence of some other
event which may result in an immediate requirement for cash. Further, there is
no assurance that transactions in the Common Stock to be acquired upon exercise
of the Warrants, can be effected at or above the exercise price of the
Warrants. See "Risk Factors -- Illiquid Investment."

Based on information available to the Company from a limited number of
sellers and purchasers of Common Stock, transactions in shares of Common Stock
during the past twelve months took place at prices ranging from a low of $5.50
to a high of $8.00. The most recent transactions in the Common Stock known to
the Company involved 1,600 shares of Common Stock on December 23, 1996 at a
price of $8.00 per share.

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<PAGE> 11
CAPITALIZATION

The following table sets forth, as of September 30, 1996, (i) the
historical capitalization of the Company and (ii) the pro forma capitalization
of the Company as adjusted to give effect to the Offering, assuming that all
Warrants are exercised. See "Use of Proceeds."

<TABLE>
<CAPTION>
September 30, 1996
------------------------------------
Pro Forma
Historical As Adjusted
---------- -----------
<S> <C> <C>
Common Stock, $1.00 par value, 2,000,000
shares authorized; 1,126,903 shares
issued and outstanding; 1,312,989
shares issued and outstanding as
adjusted . . . . . . . . . . . . . . $1,126,903 $1,312,989
Additional paid-in capital . . . . . . . . . 4,834,395 5,527,309
Retained earnings . . . . . . . . . . . . . . 1,031,602 1,031,602
Unrealized loss on investment
securities available-for-sale,
net of tax effect . . . . . . (67,037) (67,037)
---------- ----------

Total stockholders' equity . . . . . . . . . $6,925,863 $7,804,863
========== ==========
</TABLE>

DIVIDEND POLICY OF THE COMPANY

The Company has not paid cash dividends on its shares of Common Stock
to date and has no present intention to do so in the foreseeable future. The
declaration and payment of future cash dividends will depend on, among other
things, the Company's earnings, the general economic and regulatory climate,
the Company's liquidity and capital requirements, and other factors deemed
relevant by the Company's Board of Directors. The Company's ability to pay
dividends depends, to a large extent, upon the dividends received from the
Bank. Dividends paid by the Bank are subject to restrictions under various
federal banking laws. In addition, the Bank must maintain certain capital
levels in order to comply with legal and regulatory requirements, which may
also restrict its ability to pay dividends to the Company. See "Risk
Factors--Restrictions on Dividends by the Bank" and "Business and Regulation--
Supervision and Regulation."

Given the foregoing restrictions, and the Company's present intention
to accumulate retained earnings to support the Company's future growth, it is
unlikely that the Company will pay cash dividends with respect to the Common
Stock for the foreseeable future.

The Company has declared stock dividends from time to time in the
past, but has not adopted a policy with respect to future stock dividends. The
most recent stock dividend declared by the

-11-

<PAGE> 12
Company was a 7% stock dividend declared on March 19, 1996, payable on April 20,
1996 on shares of Common Stock held of record as of March 29, 1996. The
declaration of future stock dividends is at the discretion of the Board of
Directors.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected financial data should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes thereto
appearing elsewhere in this Prospectus and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected historical consolidated financial data as of and for
the five years ended December 31, 1995 are derived from the Company's
Consolidated Financial Statements, which have been audited by independent
public accountants. The selected historical consolidated financial data as of
and for the nine months ended September 30, 1996 and September 30, 1995 have
not been audited but, in the opinion of management, contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position and results of operations of the Company as of such
dates and for such periods in accordance with generally accepted accounting
principles. The results of operations for the nine months ended September 30,
1996 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1996 or for any future periods.

-12-

<PAGE> 13
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)

<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income . . . . . . . . . . . . . $5,657 $5,210 $7,079 $5,711 $5,455 $6,016 $6,871
Interest expense . . . . . . . . . . . . 2,015 1,869 2,562 1,902 1,987 2,486 3,458
Net interest income . . . . . . . . . . 3,642 3,341 4,517 3,809 3,468 3,530 3,413
Provision for loan losses . . . . . . . . 63 45 26 19 310 596 592
Net interest income after
provision for loan losses . . . . . . . 3,579 3,296 4,491 3,790 3,158 2,934 2,821
Noninterest income . . . . . . . . . . . 536 400 590 555 572 611 440
Noninterest expense . . . . . . . . . . . 3,470 2,930 4,045 3,381 3,036 3,284 3,124
Income taxes . . . . . . . . . . . . . . 249 292 357 374 264 89 100
Income before extraordinary item . . . . 396 474 680 591 429 173 38
Extraordinary item . . . . . . . . . . . -- -- -- -- -- 34 100
Net income . . . . . . . . . . . . . . 396 474 680 591 429 207 138
COMMON SHARE DATA:(1)
Net income before extraordinary item. . $.34 $.45 $.64 $.58 $.42 $.15 $0
Extraordinary item . . . . . . . . . . -- -- -- -- -- .04 .11
Net income . . . . . . . . . . . . . . .34 .45 .64 .58 .42 .19 .11
Book value(2) . . . . . . . . . . . . . 5.88 5.28 5.53 4.60 4.77 4.38 4.19
Common and common equivalent shares outstanding
End of period . . . . . . . . . . . . 1,178,096 984,090 1,174,763 961,169 922,105 920,958 921,493
Weighted average during period . . . 1,174,843 971,540 998,512 959,278 922,105 920,958 921,493
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . 94,950 93,046 101,639 90,129 86,286 77,258 84,137
Investments(3) . . . . . . . . . . . . . 7,223 17,196 21,690 22,654 25,902 14,918 25,982
Total loans(4) . . . . . . . . . . . . . 72,265 65,237 69,204 60,663 56,644 56,331 52,758
Allowance for loan losses . . . . . . . . 738 736 740 740 730 744 946
Total deposits . . . . . . . . . . . . . 83,787 82,027 90,539 82,081 79,982 71,113 78,032
Long term debt . . . . . . . . . . . . . 2,800 -- -- -- 207 540 540
Preferred equity(5) . . . . . . . . . . . -- 460 -- 460 468 468 468
Common equity(6) . . . . . . . . . . . . 6,926 5,200 6,499 4,417 4,403 4,033 3,862
Total stockholders' equity . . . . . . . 6,926 5,660 6,499 4,877 4,871 4,501 4,330
PERFORMANCE DATA (%):
Return on average total assets(7) . . . .57 .70 .75 .71 .52 .27 .19
Return on average total equity(7) . . . 7.82 11.98 12.43 12.21 9.04 4.10 3.13
Net interest margin(7) . . . . . . . . 5.78 5.39 5.42 4.90 4.55 4.94 4.80
Loans to deposits . . . . . . . . . . . 86.24 79.53 76.44 73.90 70.82 79.21 67.61
ASSET QUALITY RATIOS (%):
Nonperforming assets to total assets . 1.24 .08 .49 .70 .37 1.11 .77
Nonperforming loans to total loans . . 1.63 .08 .45 1.04 .57 1.16 .78
Net loan charge-offs to average loans(7) .01 .05 .04 .02 .59 1.40 .72
Allowance for loan losses to total loans 1.02 1.12 1.07 1.22 1.29 1.32 1.79
Allowance for loan losses to
nonperforming loans . . . . . . . . . 100 1,410 240 118 227 114 230
BANK CAPITAL RATIOS (%):
Tier I risk-based capital . . . . . . . 9.62 9.39 9.29 10.12 10.64 9.58 8.15
Total risk-based capital . . . . . . . 10.70 10.16 10.41 11.37 11.89 10.83 9.41

Tier I leverage . . . . . . . . . . . . 7.20 7.25 6.83 5.74 5.24 6.09 4.93
</TABLE>

(footnotes on following page)

-13-

<PAGE> 14
(continued from previous page)

(1) All common share data has been adjusted for three (3) five
percent (5%) Common Stock dividends declared to stockholders
of record as of July 31, 1993, March 31, 1994 and March 31,
1995, and one (1) seven percent (7%) Common Stock dividend
declared to stockholders of record as of March 31, 1996.

(2) Book value per common share is based on common equity,
calculated in the manner described in footnote (6) below,
divided by the number of common and common equivalent shares
outstanding.

(3) Investments include federal funds sold and interest-bearing
deposits in other financial institutions.

(4) Net of unearned income.

(6) Common equity is total stockholders' equity less preferred
equity.

(7) Ratios annualized for the nine-month periods ended September
30, 1996 and 1995.

-14-

<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company, which analyzes the major elements of the
Company's consolidated statements of operations and financial condition, should
be read in conjunction with the detailed information and consolidated financial
statements, and the notes related thereto, included elsewhere herein.
References to the operations of the Company include the operations of the Bank,
unless the context otherwise requires.

GENERAL

The Company derives substantially all of its revenues and income from
the operation of the Bank, which provides a full range of commercial and
consumer banking services to small and middle market businesses and individuals
in the Washington, D.C. metropolitan area. As of September 30, 1996, the
Company had total assets of $94,949,696, net loans of $71,527,101, total
deposits of $83,787,059 and total stockholders' equity of $6,925,863. The
Company had net income of $679,598 for the year ended December 31, 1995, and
$396,321 for the nine months ended September 30, 1996.

The Company holds deposits for individuals, businesses, and other
organizations, and provides certain services related thereto for the
convenience of its depositors. In most cases, the Company pays interest on
funds which it holds on deposit for customers, and it also charges fees for
certain services that it provides. The interest expense paid on deposits, and
the noninterest income earned from service charges, are primarily related to
the volume of deposits handled by the Company. The Company's primary source of
revenue is the interest income and fees which its earns by lending and
investing the funds which are held on deposit. Because loans generally earn
higher rates of interest than investments, the Company seeks to employ as much
of its deposit funds as possible in the form of loans to individuals,
businesses and other organizations. In the interest of liquidity, however, a
portion of the Company's deposits are maintained in cash, government
securities, deposits with other financial institutions, and overnight loans of
excess reserves (known as "federal funds sold") to large correspondent banks.
The revenue which the Company earns (prior to deducting its overhead expenses)
is essentially a function of the amount of the Company's loans and deposits, as
well as the profit margin ("interest spread") and fee income which can be
generated thereon.

The principal measures of the performance of banking institutions are
return on average equity and return on average assets. Return on average
equity ("ROE") is determined by dividing annual net income by average
stockholders' equity and indicates the effectiveness of an institution in
generating net income from the capital invested by its stockholders. For the
year ended December 31, 1995, and for the nine months ended September 30, 1996
(on an annualized basis), the Company's ROE was 12.4% and 7.82%, respectively.
Return on average assets ("ROA") measures net income in relation to total
average assets and generally indicates an institution's ability to use its
assets

-15-

<PAGE> 16

profitably. For the year ended December 31, 1995, and for the nine months
ended September 30, 1996 (on an annualized basis), the Company's ROA was 0.75%
and 0.57%, respectively.

STRATEGIC PLAN

As the local economy has improved during the last four years, the
Company has devoted increasing effort and resources toward the stimulation of
business growth and the expansion of its customer base. The following are the
key action plans being pursued by the Company in the implementation of its
growth and expansion strategy:

Expanding the branch network. One of the methods by which the
Company plans to grow is to conduct business in multiple locations, including
expansion into the nearby Maryland and Virginia markets. For the foreseeable
future, the Company expects to acquire or establish branch offices in
high-density commercial districts, rather than residential areas, to further
its objective of increasing the volume of commercial accounts and loans. The
Bank established its first branch office in September 1994 by acquiring from
the Resolution Trust Corporation ("RTC") a branch of a failed savings and loan
association. The branch is located at 1275 Pennsylvania Avenue, N.W., in an
area of downtown Washington which is experiencing significant development. As
of September 30, 1996, the branch office had approximately 543 accounts with
total deposits of approximately $8.8 million. Effective January 1, 1996, the
Bank established a loan production office at 8201 Greensboro Drive in Tysons
Corner, Virginia. On September 20, 1996, the OCC approved the Bank's
application to establish a full service branch in Tysons Corner, which branch
is expected to open for business in early 1997.

Expanding products and services. In 1994, the Company commissioned a
professional market research firm to evaluate the satisfaction level, service
experience, and service needs among the Bank's current clients and certain
clients who had recently closed their accounts. The survey identified the
potential usage by existing clients of banking-related services not currently
offered by the Bank. In response to needs identified in the market survey, the
Bank established its own MasterCard/Visa credit card program, introduced two
new types of accounts (Basic Checking, designed for customers with low and
moderate incomes, and Century Pro, designed for higher-income professionals),
introduced two new electronic banking services (TeleBank for personal accounts
and ExecuBank for business accounts), established overdraft lines of credit for
small businesses (Century Reserve), developed a comprehensive no-charge banking
package for related accounts (Century Link), installed a remote ATM in the
International Square food court, developed a high-interest money market account
to compete with brokerage funds (Premier Investment Account), and introduced
check-image statements for all accounts in June of 1996. The Company's current
plan contemplates a continued emphasis on the development of commercial loan
and deposit business, including expansion of its commercial product line (i.e.,
cash management and electronic banking services) as well as increased business
development in the Maryland and Virginia markets.

-16-

<PAGE> 17
Exploring acquisition and merger opportunities. The Company has not
sought out opportunities to be acquired by larger financial institutions,
primarily because of its view that the long-term value of an independent
banking franchise in the nation's capital will increase, rather than diminish,
as consolidation trends continue. The Company does believe, however, that its
franchise value and operating profitability would be enhanced by a significant
increase in its asset size. For this reason, the Company in the past has
explored, and expects to continue to explore in the future, merger and
acquisition opportunities which would accelerate the Company's progress toward
the achievement of its strategic plan, including transactions in which the
Company would be acquired. There can be no assurance that any such merger and
acquisition opportunities will be realized in the future.

There can be no assurance that the Company will be successful in
implementing any of the future plans described above or that, even if
implemented, such actions will produce the desired financial results. The
foregoing strategy should be taken into account however when considering the
more specific discussion of the Company's financial performance set forth
herein.

RESULTS OF OPERATIONS

NET INCOME

Net income was $396,321 ($0.34 per common share) for the first nine
months of 1996, compared with net income of $473,903 ($0.45 per common share)
for the first nine months of 1995, a decrease of $77,582 or 16.4%. The
decrease in net income for the first nine months of 1996 compared with the
first nine months of 1995 resulted principally from a $543,468 increase in
noninterest expenses primarily attributable to costs associated with the Bank's
new computer systems, as well as processing costs in support of new fee-
generating products and services. These increased expenses were partially
offset by a $300,644, or 9.0%, increase in net interest income and a $136,626,
or 35.4% increase in noninterest income.

Net income was $679,598 for 1995 ($0.64 per common share), compared
with $590,904 for 1994 ($0.58 per common share), and $428,978 for 1993 ($0.42
per common share). These improvements resulted primarily from reductions in
expenses relating to problem assets (provisions for losses on loans and other
real estate owned, legal expenses related to collection matters, and similar
expenses). As the local economy and the Company's asset quality have improved,
the Company has utilized some of the expense reductions in the problem asset
area to support new initiatives designed to stimulate quality asset growth,
such as the branch office and business development efforts described above.

In the above discussion, all "per share" amounts have been adjusted to
give effect to the Company's seven percent (7%) stock dividend which was
distributed to stockholders of record as of

-17-

<PAGE> 18
March 31, 1996, and the three (3) five percent (5%) stock dividends which were
distributed to stockholders of record as of March 31, 1995, March 31, 1994 and
July 31, 1993.

NET INTEREST INCOME

Net interest income was $3,641,616 for the first nine months of 1996,
an increase of $300,644 or 9.0% compared with the first nine months of 1995.
The Company's average balance of net loans receivable and investment securities
increased approximately $556,000 for the first nine months of 1996. The
increase in loans and investments contributed to a net increase of
approximately $1,680,000 in the Company's average total interest-earning assets
for the first nine months of 1996. The Company's loan growth resulted
primarily from new commercial loans generated through the Bank's loan
production office in Tysons Corner, Virginia which was opened in January 1996,
and not in operation during 1995. The net interest margin of 5.78% for the
first nine months of 1996 increased 39 basis points from 5.39% for the first
nine months of 1995. The improvement in net interest margin resulted from the
Company's increased emphasis on commercial loans which has increased the
overall yield of the loan portfolio, together with the fact loans constitute a
higher percentage of the Company's total earning assets.

Net interest income was $4,517,423 for 1995, an increase of $707,839
or 18.6% compared with net interest income of $3,809,584 for 1994, which
represented an increase of $341,640 or 9.9% compared with net interest income
of $3,467,944 for 1993. The Company's average total interest-earning assets
increased from approximately $77,825,000 for 1994 to $83,348,000 for 1995,
representing a 7.1% increase resulting principally from an increase in loans.
The net interest margin of 5.42% for 1995 increased 52 basis points from 4.90%
for 1994.

Net interest income was $3,810,000 for 1994, an increase of $342,000
or 9.9% compared with net interest income of $3,468,000 for 1993, which
represented a decrease of $62,000 or 1.8% compared with net interest income of
$3,530,000 for 1992. The Company's average total interest-earning assets
increased from approximately $76,226,000 for 1993 to $77,825,000 for 1994,
representing a 2.1% increase resulting principally from an increase in loans
and investment securities. The net interest margin of 4.90% for 1994 increased
35 basis points from 4.55% for 1993.

The Company's net interest income is affected by changes in the amount
and mix of interest-earning assets and interest-bearing liabilities, referred
to as a "volume change." It is also affected by

-18-

<PAGE> 19
changes in yields earned on interest-earning assets and rates paid on interest-
bearing deposits and other borrowed funds, referred to as a "rate change." The
following tables set forth for each category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding, the interest
earned or paid on such amounts, and the average rate earned or paid for the
nine months ended September 30, 1996 and 1995, and for the years ended December
31, 1995, 1994 and 1993. The tables also set forth the average rate earned on
total interest-earning assets, the average rate paid on total interest-bearing
liabilities, and the net interest margin on average total interest-earning
assets for the same periods.

-19-

<PAGE> 20
AVERAGE BALANCES AND INTEREST RATES:
INTERIM PERIODS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------
1996 1995
----------------------------- ---------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net(1) $70,454 5,131 9.70% 61,514 $4,374 9.47%
Investment securities, taxable(2) 11,038 419 5.06% 18,626 725 5.19%
Investment securities, non-taxable(2)(3) 250 8 4.27% 1,241 54 5.80%
Federal funds sold -- -- -- 492 37 10.02%
Interest-earning deposits with banks 2,287 98 5.70% 476 19 5.32%
------- ------- ---- ------- ------- ------
Total interest-earning assets(3) 84,029 5,656 8.97% 82,349 5,209 8.43%
NONINTEREST-EARNING ASSETS:
Cash and due from banks 4,039 3,963
Other assets 3,815 2,232
------- -------
Total noninterest-earning assets 7,854 6,195
------- -------
Total assets $91,883 $88,544
======= =======

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW) deposits $12,632 187 1.97% 12,320 190 2.05%
Savings deposits 2,244 43 2.55% 2,607 52 2.66%
Money market deposits 22,920 570 3.31% 25,540 584 3.05%
Time deposits 24,849 1,023 5.48% 22,470 910 5.40%
Borrowings 4,176 192 6.12% 3,250 133 5.46%
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 66,821 2,015 4.02% 66,187 1,869 3.76%
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 17,342 16,505
Other liabilities 980 522
-------- -------
Total noninterest-bearing liabilities 18,322 17,027
------ -------
Stockholders' equity 6,740 5,330
------- -------
Total liabilities and stockholders' equity $91,883 $88,544
======= =======

Net interest income $3,641 3,340
====== =====

Net interest margin(3) 5.78% 5.39%
- ------------------------
</TABLE>

(1) Non-accrual loan balances are included in the calculation of Average
Balances - Loans Receivable, net. Interest income on non-accrual loan
balances is included in interest income to the extent that it has been
collected.

(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and cost basis of
securities available-for-sale.

(3) Average rates on a fully taxable equivalent basis are as follows:

<TABLE>
<S> <C> <C>
Investment securities, non-taxable . . 7.74% 9.56%
Total interest-earning assets . . . . 8.97% 8.49%
Net interest margin . . . . . . . . . 5.79% 5.47%
</TABLE>

-20-

<PAGE> 21
AVERAGE BALANCES AND INTEREST RATES:
ANNUAL PERIODS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1995 1994 1993
-------------------------- ---------------------- --------------------------
Interest Interest Interest
Average Income/ Average Average Income/Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ------- ------- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: . . . . . . . . .
Loans receivable, net(1) . . . . . . . . $62,639 6,011 9.60% $57,855 4,802 8.30% 54,069 4,572 8.46%
Investment securities, taxable (2) . . . 18,297 918 5.02% 18,251 829 4.54% 13,737 607 4.42%
Investment securities, non-taxable (2)(3) 991 57 5.75% 127 6 4.45% 0 0 N/A
Federal funds sold . . . . . . . . . . . 428 37 8.64% 1,356 65 4.79% 6,101 182 2.99%
Interest-earning deposits with banks . . 993 56 5.64% 236 10 4.09% 2,319 94 4.02%
------- ------- -------- ------- ------- ------
Total interest-earning assets (3) . . . 83,348 7,079 8.49% 77,825 5,712 7.34% 76,226 5,455 7.16%
NONINTEREST-EARNING ASSETS:
Cash and due from banks . . . . . . . . . 3,854 3,851 4,389
Other assets . . . . . . . . . . . . . . 2,907 1,378 1,239
------- ------- -------
Total noninterest-earning assets . . . . . 6,761 5,229 5,628
------- ------- -------
Total assets . . . . . . . . . . . . . $90,109 $83,054 $81,854
======= ======= =======

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW) deposits $12,230 258 2.11% $11,926 248 2.08% 11,995 262 2.18%
Savings deposits . . . . . . . . . . . 2,526 67 2.65% 2,564 66 2.59% 2,137 60 2.80%
Money market deposits . . . . . . . . . 25,153 778 3.09% 24,784 618 2.49% 27,024 700 2.59%
Time deposits . . . . . . . . . . . . . 23,128 1,269 5.49% 20,738 922 4.44% 20,039 920 4.59%
Borrowings . . . . . . . . . . . . . . 3,526 190 5.39% 1,102 43 3.93% 437 11 2.48%
Note payable . . . . . . . . . . . . . 0 0 N/A 51 5 8.20% 374 34 9.00%
--------- ------- -------- ------ -------- ------
Total interest-bearing liabilities . . . . 66,563 2,562 3.85% 61,165 1,902 3.11% 62,006 1,987 3.20%
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits . . . . . . 16,841 16,159 14,756
Other liabilities . . . . . . . . . . . . 1,236 646 346
-------- -------- --------
Total noninterest-bearing liabilities . . . 18,077 16,805 15,102
------- ------ -------
Stockholders' equity . . . . . . . . . . . 5,469 5,084 4,746
-------- ------- --------
Total liabilities and stockholders' equity $90,109 $83,054 $81,854
======= ======= =======

Net interest income . . . . . . . . . . . . $4,517 $3,810 $3,468
====== ====== ======

Net interest margin (3) . . . . . . . . . . 5.42% 4.90% 4.55%
- ---------------------------
</TABLE>

(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and cost basis of
securities available-for-sale.

(3) Average rates on a fully taxable equivalent basis are as follows:

<TABLE>
<S> <C> <C> <C>
Investment securities, non-taxable 9.27% 7.29% N/A
Total interest-earning assets . . 8.53% 7.34% 7.16%
Net interest margin . . . . . . . 5.46% 4.90% 4.55%
</TABLE>

-21-

<PAGE> 22
Changes in interest income and interest expense can result from
changes in both volume and rate. The Company has an asset and liability
management policy designed to provide a proper balance between rate sensitive
assets and rate sensitive liabilities, to attempt to maximize interest margins
and to provide adequate liquidity for anticipated needs.

The following table sets forth for the periods indicated a summary of
the changes in interest earned and interest paid resulting from changes in
volume and rate. The allocation of the rate/volume variance has been made pro
rata based on the percentage that volume and rate variances produce in each
category.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1996 December 31, 1995 December 31, 1994
Compared With Compared With Compared With
September 30, 1995 December 31, 1994 December 31, 1993
Increase (Decrease) due to Increase (Decrease) due to Increase (Decrease) due to
------------------------------ ------------------------------ --------------------------------
Volume Rate Changes Volume Rate Changes Volume Rate Changes
--------- ------- ----------- --------- ------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans receivable, net $643 114 757 428 781 1,209 (317) (87) (230)
Investment securities,
taxable . . . . . . . (291) (14) (306) 2 87 89 202 20 222
Investment securities,
non-taxable . . . . . (37) (9) (46) 45 6 51 3 3 6
Federal funds sold . . (37) (37) (62) 34 (28) (185) 67 (117)
--
Interest-earning
deposits with banks . 75 4 79 37 9 47 (84) 1 (84)
---- --- ---- ---- --- ----- --- -- ---
Total interest income $352 95 447 450 917 1,368 253 4 257
---- --- ---- ---- --- ----- --- -- ---

INTEREST PAID ON:
Interest-bearing (NOW)
deposits . . . . . . . 6 (8) (2) 6 4 10 (2) (12) (14)

Savings deposits . . . (7) (2) (9) (1) 2 1 12 (6) 6
Money market deposits (61) 47 (14) 10 150 160 (57) (25) (82)

Time deposits . . . . 97 16 113 119 228 346 32 (30) 2

Borrowings . . . . . . 40 18 59 113 34 147 21 11 32

Note payable . . . . . -- -- -- (5) -- (4) (28) (1) (29)
---- --- ---- ----- -- ----- ---- -- ---
Total interest 74 71 146 242 418 660 (22) (63) (85)
expense . . . . . . . ---- --- ---- ---- --- ----- ---- -- ---
Net interest income . . . . $278 24 302 208 499 708 275 67 342
==== === ==== ==== === ===== ==== == ===

</TABLE>

-22-

<PAGE> 23
PROVISION FOR LOAN LOSSES

Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management of the
Company based on such factors as historical experience, the volume and type of
lending conducted by the Company, the amount of nonperforming assets,
regulatory policies, generally accepted accounting principles, general economic
conditions, and other factors related to the collectibility of loans in the
Company's portfolio.

The provision for loan losses for the first nine months of 1996 was
$63,000, compared with $44,866 for the first nine months of 1995, representing
an increase of 40.4%. The provision for loan losses was $26,347 for 1995
compared with $19,431 for 1994, representing an increase of $6,916 or 36% from
1994, and a decrease of $290,839 compared with the provision for loan losses of
$310,270 for 1993, which represented a decrease of $285,671 or 48% compared
with the provision for loan losses of $595,941 for 1992. The prior reductions
in the loan loss provision since 1992 reflect improvement in national and local
economic conditions as well as the quality of the Company's asset portfolio.
For the periods from 1992 to 1994, the decline in the provision for loan losses
relative to 1992 and prior periods was the primary cause of the reported
improvements in the Company's financial performance.

During the third quarter of 1996 the Company experienced an increase
in charge offs for certain consumer loans which were not previously delinquent
but were deemed uncollectible when the borrowers declared bankruptcy. As a
result, the Company provided $63,000 to increase the allowance for loan losses.
Management will continue to closely monitor the performance of its consumer
portfolio and make additional provisions as considered necessary. Management
believes the allowance is adequate to absorb losses inherent in the loan
portfolio.

From January 1, 1994 through September 30, 1996, the Company's
provisions for loan losses have been modest compared to the provisions charged
to income in the preceding three years. The reasons for this are two-fold.
First, the Company has been able to recover sufficient monies on previously
charged-off loans to offset loan losses experienced since 1993, with the result
that the allowance has been maintained or increased with minimal provisions
charged to income. Second, improvements in national and local economic
conditions, as well as the Company's asset portfolio, have resulted in such
allowance being deemed adequate even though the overall size of the portfolio
has increased significantly.

In view of the Company's plans to continue its loan growth with
increased emphasis on commercial loans (which are generally considered to be
more risky than loans secured by real estate), it is likely that the Company
will continue to maintain an adequate allowance for loan losses through future
provisions charged to income. The Company does not presently anticipate that
such

-23-

<PAGE> 24
provisions will have a material adverse impact on the Company's results of
operations in future periods.

NONINTEREST INCOME

The Company's primary source of noninterest income is service charges
on deposit accounts. The remaining noninterest income is derived from
Mastercard/Visa, wire transfer, collection and cashier's check fees, mortgage
loan referral fees, and safe deposit box rentals. Also included in this
category are gains and losses realized on the sale of investment securities and
certain other items of income, whether recurring or not, which are not
elsewhere classified.

Noninterest income for the first nine months of 1996 was $536,303, an
increase of $136,626 or 35.4% compared with noninterest income of $399,677 for
the first nine months of 1995. This increase results primarily from fees
generated in connection with the Bank's Mastercard/Visa credit card program,
which was initially established in March 1995. These fees are reported as
commission and fee income and increased $100,000 or 83.3% during the first nine
months of 1996 as compared to the same period in 1995.

Noninterest income was $590,339 for 1995, compared with $555,048 for
1994, an increase of $35,291 or 6.4% resulting primarily from fees associated
with the credit card program, which were not present in 1994. The $123,000 or
164% increase in commission and fee income from 1994 to 1995 was partially
offset by a $127,000 or 92.7 decrease in other income during the same period.
This decline in other income represented a return to more normal levels from
the unusually high levels in 1994 and 1993 caused by the receipt of proceeds
from a $70,000 insurance claim, the recovery of approximately $22,000 in other
real estate owned expense incurred in prior years, the sale of assets
resulting in an approximate $15,000 gain, and the receipt of other similar
miscellaneous income items.

Noninterest income of $555,048 for 1994 represented a decrease of
$16,536 or 2.9% compared with noninterest income of $571,584 for 1993, which
represented a decrease of $39,755 or 6.5% compared with noninterest income of
$611,339 for 1992. Substantially all of the decrease from 1993 to 1994
resulted from the $11,748 loss realized in 1994 in connection with the sale of
certain investment securities, compared with no gains or losses on such sales
in 1993.

-24-

<PAGE> 25
The following table sets forth the various categories of noninterest
income for the nine months ended September 30, 1996 and 1995, and for the years
ended 1995, 1994 and 1993.

NONINTEREST INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------ -------------------------------------------

1996 % Change 1995 1995 % Change 1994 % Change 1993
---- -------- ---- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts . . . . $300 32.5% 229 379 11.5% 340 -1.2% 344
Commission and fee income . . . . . . . . 220 37.5% 160 198 164.0% 75 -27.9% 104
Safe deposit box rentals . . . . . . . . . 11 120.0% 5 6 -60.0% 15 15.4% 13
Gain (loss) on sale of securities . . . . -0- N/A (3) (3) -75.0% (12) N/A 0
Other income . . . . . . . . . . . . . . 5 -37.5% 8 10 -92.7% 137 23.4% 111
---- ----- --- --- ----- -- ---- ---

Total noninterest income . . . . . . . . . $536 35.4% 399 590 6.3% 555 2.9% 572
==== ===== === === ===== === === ===
</TABLE>

-25-

<PAGE> 26
NONINTEREST EXPENSE

The Company's noninterest expense has been consistently higher in
relation to its asset size than the average for small community banks. As
described above under "-- Strategic Plan," the Company's strategy is to
increase its asset size significantly so that its level of noninterest expense
in relation to its assets is more in line with those of comparable
institutions.

To support an increased rate of asset growth, branch expansion and
increased product and service offerings, the Company invested approximately $1
million to upgrade its telephone and computer systems during 1995 and the first
nine months of 1996. In addition to these capital expenditures, the Company
incurred consulting expenses associated with the installation, specialized
programming and security aspects of the computer system. As a result, the
Company's noninterest expenses during such periods have increased in
anticipation of a subsequent increase in total assets. In addition, to the
extent that asset growth results from branch expansion, noninterest expenses
can be expected to increase further as a result of rental, salary and other
operating expenses associated with such branches. No assurance may be given,
however, that the anticipated asset growth or branch expansions will occur.

Noninterest expense was $3,470,094 for the first nine months of 1996,
an increase of $540,499 or 18.6% compared with noninterest expense of
$2,929,645 for the first nine months of 1995. The installation of the new
computer system, the writeoff of certain custom software development costs for
software under design but abandoned prior to completion, unanticipated
consulting, special audit, and legal expenses related to delivery, payments,
and security for the computer system required the Bank to incur substantial
nonrecurring expenses in connection with the computer conversion.
Additionally, during the same period in 1996, management of the Bank's
operations and financial reporting functions related to the utilization of the
computer system were realigned. This realignment resulted in unanticipated
expenses including negotiated payments for personnel severance, accrued leave,
and related expenses. In the aggregate, these items represented approximately
$260,000 in nonrecurring expenses. Management believes that the installation
of the computer system was substantially complete, and the system fully
operational, as of September 30, 1996, and does not anticipate significant
nonrecurring future expense related to the computer system. The remainder of
the increase resulted principally from depreciation expenses associated with
the Bank's new computer and telephone systems and remote ATM, as well as data
processing costs in support of the credit card program.

Noninterest expense was $4,044,653 for 1995, compared with $3,380,751
for 1994, representing an increase of $663,902 or 19.6%, and which represented
an increase of $344,371 or 11.4% compared with noninterest expense of
$3,036,380 for 1993. The increases from 1993 to 1994 and from 1994 to 1995
were primarily attributable to increased personnel and occupancy expenses
associated with the Pennsylvania Avenue branch office, which was acquired on
September 16, 1994, together with increased expenses incurred in connection
with marketing programs.

-26-

<PAGE> 27

The Company's effective tax rate declined from 38.1% and 38.7% in 1993
and 1994, respectively, to 34.5% in 1995 as a result of adjustments made to the
amounts of deferred tax assets and deferred tax liabilities. These adjustments
were recorded based upon the Company's analysis of the carrying value of its
deferred tax items.

The following table sets forth the various categories of noninterest
expense for the nine months ended September 30, 1996 and 1995, and for the
years ended 1995, 1994 and 1993.

NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------- -------------------------------------------

1996 % Change 1995 1995 % Change 1994 % Change 1993
---- --------- ---- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits . . . . . . $1,426 4.7% 1,361 1,927 20.8% 1,595 12.6% 1,417
Occupancy and equipment expense . . . . . . 296 -22.5% 382 517 18.0% 438 21.3% 361
Depreciation and amortization . . . . . . . 332 166.6% 125 151 11.0% 136 130.5% 59
Professional fees . . . . . . . . . . . . . 339 32.9% 255 327 0.9% 324 0.9% 321
Data processing . . . . . . . . . . . . . . 199 20.6% 165 332 83.4% 181 -16.2% 216
Federal deposit insurance premiums . . . . 27 -69.3% 88 88 -47.9% 169 0.0% 169
Communications . . . . . . . . . . . . . . 157 41.4% 111 161 41.2% 114 6.5% 107
Marketing and public relations . . . . . . 111 40.5% 79 169 42.0% 119 2.6% 116
Branch expenses paid to RTC . . . . . . . . -0- -100.0% 21 21 -27.6% 29 N/A 0
Office and operations expenses . . . . . . 478 116.3% 221 208 20.9% 172 18.6% 145
Insurance and lobby security . . . . . . . 77 16.6% 66 86 48.3% 58 11.5% 52
OREO expense . . . . . . . . . . . . . . . 19 -60.4% 48 48 N/A 0 -100.0% 3
Other expenses . . . . . . . . . . . . . . 9 28.5% 7 10 -78.3% 46 -34.3% 70
------ ------ -------- ------- ----- ------- ------ -------

Total noninterest expense . . . . . . . . . $3,470 18.6% 2,929 4,045 19.6% 3,381 11.4% 3,036
====== ======= ===== ===== ===== ====== ====== ======

</TABLE>

INTEREST RATE SENSITIVITY MANAGEMENT

Net interest income, which constitutes one of the principal sources of
income for the Company, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The difference between the Company's interest-rate sensitive assets and
interest-rate sensitive liabilities for a specified time-frame is referred to
as "gap." Interest rate sensitivity reflects the potential effect on net
interest income of a movement in interest rates. A financial institution is
considered to be asset sensitive, or having a positive gap, when the amount of
its interest-earning assets maturing or repricing within a given period exceeds
the amount of its interest-bearing liabilities also maturing or repricing
within that time period. Conversely, a financial institution is considered to
be liability sensitive, or having a negative gap, when the amount of its

-27-

<PAGE> 28
interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a positive
gap would tend to increase net interest income, while a negative gap would tend
to have an adverse effect on net interest income. During a period of falling
interest rates, a positive gap would tend to have an adverse effect on net
interest income, while a negative gap would tend to increase net interest
income.

Management of the Company seeks to maintain a balanced interest rate
risk position to protect its net interest margin from market fluctuations.
Toward this end, the Company maintains an Asset/Liability Committee (the "ALCO
Committee") which reviews, on a regular basis, the maturity and repricing of
the assets and liabilities of the Company. The ALCO Committee has adopted the
objective of achieving and maintaining a one-year cumulative GAP, as a percent
of total assets, of between plus 10% and minus 10%. On a consolidated basis,
the Company's one year cumulative GAP was plus 8.76% at September 30, 1996.

The following table sets forth the interest-rate sensitive assets and
liabilities of the Company at September 30, 1996, which are expected to mature
or are subject to repricing in each of the time periods indicated.

-28-
<PAGE> 29
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TERM TO REPRICING (at September 30, 1996)
------------------------------------------------------------
90 Days 91-180 181 Days Over
or Less Days to 1 Year 1 Year Total
------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $9,232 - - - 9,232
Investment securities, taxable 2,997 - 1,448 2,527 6,972
Investment securities, non-taxable 85 - - 165 250
Loans 35,167 5,374 14,601 17,205 72,347
------ ----- ------ ------ ------
Total interest-earning assets 47,481 5,374 16,049 19,897 88,801

Interest-bearing liabilities:
Interest-bearing demand and
NOW accounts 10,590 - - - 10,590

Savings deposits 2,187 - - - 2,187
Money market deposits 22,953 - - - 22,953

Time deposits 10,559 3,709 10,588 3,719 28,575

Borrowed funds - - - 2,800 2,800
------ ----- ------ ------ ------
Total interest-bearing liabilities 46,289 3,709 10,588 6,519 67,105
------ ----- ------ ------ ------

Interest sensitivity gap per period $1,192 1,665 5,461 13,378 21,696
====== ===== ====== ====== ======

Cumulative gap $1,192 2,857 8,318 21,696 21,696
====== ===== ====== ====== ======

Cumulative gap as percent of total assets 1.25% 3.01% 8.76% 22.9% 22.9%
====== ===== ====== ====== ======

Cumulative interest-earning
assets as percent of cumulative
interest- bearing liabilities 103% 106% 114% 132% 132%
- ------------- ======= ===== ===== ====== ======

</TABLE>

ANALYSIS OF FINANCIAL CONDITION

LOANS AND ASSET QUALITY

The loan portfolio is the largest category of the Company's earning
assets. The Company presently is, and in the future expects to remain, a
middle market banking organization serving professionals and businesses with
interests in and around Washington, D.C. Management believes that the net
increase in loans from $56,644,000 at the end of 1993 to $72,265,000 as of
September 30, 1996, is primarily attributable to increased loan demand
resulting from the improving economy in the Washington, D.C. metropolitan area
and the Company's business development and marketing initiatives. The volume
of the Company's loans remained virtually unchanged during the three year
period ended December 31, 1993, principally as a result of a weak local economy
and an internal focus on maintaining and improving the quality of the Company's
loan portfolio.

-29-
<PAGE> 30
Most of the Company's real estate lending is in the Washington, D.C.
metropolitan area, and a substantial portion of its loan portfolio is
collateralized by first mortgages and home equity lines of credit on
residences. This concentration is declining, however, as the Company continues
its emphasis on the development of new commercial loan business. As of
September 30, 1996 and December 31, 1995, approximately $43,213,000 (60%) and
$46,103,000 (67%) of the Company's total loan portfolio, respectively,
consisted of loans secured by real estate, of which one-to-four-family
residential mortgage loans and home equity lines of credit represented
$26,917,000 (37%) and $30,561,000 (44%), respectively, of the Company's total
loan portfolio.

The level of nonperforming loans is also relevant to the credit
quality of a loan portfolio. As of September 30, 1996, December 31, 1995 and
December 31, 1994, nonperforming loans amounted to approximately $1,180,000,
$308,000 and $628,000 or 1.63%, 0.45% and 1.04% of total loans, respectively.
The increase in nonperforming loans from December 31, 1995 to September 30,
1996, resulted primarily from the past due status of certain fully-secured real
estate loans originated prior to 1993. See "-- Nonperforming Assets." No loss
is anticipated with respect to these credits in excess of any amounts
considered in establishing the level of the allowance for loan losses.

Loan concentrations are defined as aggregate credits extended to a
number of borrowers engaged in similar activities or resident in the same
geographic region, which would cause them to be similarly affected by economic
or other conditions. The Company, on a routine basis, evaluates these
concentrations for purposes of policing its concentrations and making necessary
adjustments in its lending practices to reflect current economic conditions,
loan to deposit ratios and industry trends. As a result of the Company's
existing branch locations, the Company has significant concentrations of
customers and assets in the metropolitan Washington, D.C. area.

As of September 30, 1996, the industry concentrations in excess of 10%
of total loans, where the borrowers as a group might be affected similarly by
economic changes, consists of loans to members of the legal profession
($19,609,000 or 27% of total net loans), business services ($10,613,000 or 15%
of total net loans), and health care services ($9,241,000 or 13% of total net
loans). The Company offers lines of credit, credit cards, home equity lines,
and mortgage loans to these groups. The amount of such loans which are past
due or considered by management to be potential problem loans is not material.

The primary types of loans in the Company's portfolio are residential
mortgages and home equity loans, commercial real estate loans, commercial
loans, and consumer installment and credit card loans. Generally the Company
underwrites loans based upon the borrower's debt service capacity or cash flow,
as well as an evaluation of the collateral securing the loan. With some
exceptions, the Company's general policy is to require a debt service coverage
ratio of 120% for commercial and commercial real estate loans, a maximum gross
debt ratio of 36% for consumer loans (including residential mortgage and home
equity loans), and a maximum loan-to-value ratio of 80% for all types of real
estate loans. Most of the Company's commercial real estate loans consist

-30-
<PAGE> 31
of owner-occupied properties financed for the Company's regular commercial
customers, rather than speculative or investor-owned properties. Most of the
Company's commercial and commercial real estate loans are personally guaranteed
by the owners of the business, the primary exceptions to this requirement being
loans to non-profit and membership organizations. Given the localized nature
of the Company's lending activities, the primary risk factor affecting the
portfolio as a whole is the health of the local economy in the Washington
metropolitan area and its effects on the value of local real estate and the
incomes of local professionals and business firms. See "Risk Factors--Exposure
to Local Economic Conditions." To mitigate this risk, the Company's
underwriting policy provides that each loan should be supported by an
economically independent secondary source of repayment. Any exceptions to the
loan policy must be approved by the Executive Loan Committee.

Loans to directors, executive officers and principal stockholders of
the Company and to directors and officers of the Bank are subject to
limitations contained in the Federal Reserve Act, the principal effect of which
is to require that extensions of credit by the Bank to executive officers,
directors, and ten percent stockholders satisfy certain standards. The Bank
routinely makes loans in the ordinary course of business to certain directors
and executive officers of the Company and the Bank, their associates, and
members of their immediate families. In accordance with Federal Reserve Act
guidelines, these loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with others and do not involve more than normal risk of collectibility or
present other unfavorable features. As of September 30, 1996, loans and
commitments outstanding to directors and executive officers of the Company and
the Bank, their associates and members of their immediate families totaled
$2,505,000 (net of participations sold to other banks on a non-recourse basis),
which represented approximately 2.8% of total loans and commitments outstanding
as of that date. As of September 30, 1996, none of these loans outstanding
from the Bank to related parties were on non-accrual, past due, restructured or
considered by management to be a potential problem loan.

-31-
<PAGE> 32
The following table sets forth the composition of the Company's loan
portfolio by type of loan on the dates indicated.

LOAN PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
----------------- ------------------------------------------------------
1996 1995 1994 1993
----------------- ----------------- ----------------- -----------------
Aggregate Principal Amount
--------------------------
<S> <C> <C> <C>
Type of loan:
1-4 family residential mortgage $ 20,535 24,921 25,610 25,282
Home equity loans 6,382 5,640 6,004 6,973

Multifamily residential 2,136 2,087 2,163 2,230
Construction 651 1,545 788 2,536
Commercial real estate 13,510 11,910 9,358 5,539
Commercial loans 17,961 13,213 10,376 8,199

Installment and credit card loans 10,499 9,023 4,989 5,536
Other loans 673 963 1,486 441
-------------- -------------- -------------- --------------
Gross loans 72,347 69,302 60,774 56,736
Less: Unearned income (82) (98) (111) (92)
-------------- -------------- -------------- --------------

Total loans, net of unearned $ 72,265 69,204 60,663 56,644
============== ============== ============== ==============

Percentage of Loan Portfolio
----------------------------
Type of loan:
1-4 family residential mortgage 28.38% 35.96% 42.14% 44.56%

Home equity loans 8.82% 8.14% 9.87% 12.29%
Multifamily residential 2.95% 3.01% 3.56% 3.93%
Construction .90% 2.23% 1.30% 4.47%
Commercial real estate 18.67% 17.18% 15.40% 9.76%

Commercial loans 24.83% 19.07% 17.07% 14.45%
Installment and credit card loans 14.51% 13.02% 8.21% 9.76%
Other loans 0.94% 1.39% 2.45% 0.78%
-------------- -------------- -------------- --------------
Gross loans 100.00% 100.00% 100.0% 100.0%
============== ============== ============== ==============
</TABLE>

-32-
<PAGE> 33
The following table sets forth the maturities of loans (based upon
contractual dates) outstanding as of September 30, 1996, and an analysis of
sensitivities of loans due to changes in interest rates. The Company's
portfolio of adjustable rate home mortgages consists of loans to regular
customers in the local market area. Such loans generally have balloon
maturities within ten years or less, with 2% annual and 6% lifetime "caps" on
interest rate changes. Borrowers have the right to prepay such loans without
penalty.

MATURITIES AND RATE SENSITIVITY OF LOANS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
OVER 1 YEAR
THROUGH 5 YEARS OVER 5 YEARS
--------------------- ----------------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
-------- ---------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . $ 6,984 2,611 7,073 200 1,093 17,961

Commercial real estate . . . . . 1,376 344 1,651 2,659 7,480 13,510
Residential mortgage/
home equity . . . . . . . . . . 230 1,615 5,831 543 20,834 29,053
Construction . . . . . . . . . . 397 253 - - - 650
Installment/credit card . . . . . 6,916 1,046 1,504 23 1,010 10,499

Other . . . . . . . . . . . . . . 661 12 - - - 673
------- ----- ------ ----- ------ ------
Total . . . . . . . . . . . $16,564 5,881 16,059 3,425 30,417 72,346
======= ===== ====== ===== ====== ======
</TABLE>

NONPERFORMING ASSETS

Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is the Company's policy to
discontinue the accrual of interest income and classify a loan as non-accrual
when principal or interest is past due 90 days or more and the loan is not well
secured and in the process of collection, or when, in the opinion of
management, principal or interest is not likely to be paid in accordance with
the terms of the obligation. The Company will generally charge-off loans after
180 days of delinquency unless adequately collateralized and in the process of
collection. A loan is considered in the process of collection if, based on a
probable specific event, management believes that the loan will be repaid or
brought current within a reasonable period of time. Loans will not be returned
to accrual status until future payments of principal and interest appear
certain. Interest accrued and unpaid at the time a loan is placed on non-
accrual status is charged against interest income. Subsequent payments
received are applied to the outstanding principal balance.

Real estate acquired by the Company as a result of foreclosure or in-
substance foreclosure is classified as other real estate owned ("OREO"). Such
loans are reclassified to OREO and recorded at the lower of cost or fair market
value less estimated selling costs, and the estimated loss, if any, is charged
to the allowance for loan losses at that time. Further allowances for losses
are recorded

-33-
<PAGE> 34
as charges to other expenses at the time management believes additional
deterioration in value has occurred.

The following table sets forth certain information with respect to the
Company's non-accrual loans, OREO, and accruing loans which are contractually
past due 90 days or more as to principal or interest, for the periods
indicated.

NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
September 30, Year Ended December 31,
--------------- ----------------------------
1996 1995 1994 1993
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
Non-accrual loans $ 618 8 628 322

Accruing past due 90 days or more 379 300 0 0
------ ----- ---- ----
Total nonperforming loans 997 308 628 322
Other real estate owned 183 193 0 0
--- ----- - ----
Total nonperforming assets $1,180 501 628 322
====== ===== ==== ====

Nonperforming to total assets 1.24% 0.49% 0.70% 0.37%
====== ===== ==== ====
</TABLE>

The amount of interest on non-accrual loans which would have been
recorded as income under the original terms of such loans was approximately
$123,606 for the first nine months of 1996, and approximately $1,000, $32,000
and $2,000 for the years ended 1995, 1994 and 1993, respectively. The amount
of interest income recognized on non-accrual loans that was included in net
income for the first nine months of 1996 and for the year ended 1995 was
approximately $50,805 and $3,500, respectively.

Loans past due 90 days or more and still accruing as of September 30,
1996 consisted primarily of three secured real estate loans totaling $365,000.
As of December 15, 1996, one of those loans in the amount of $100,000 had been
paid in full, another loan in the amount of $194,000 had been brought current
and renewed with additional collateral, and a third loan in the amount of
$71,000 had been placed on non-accrual status based on the borrower's inability
to bring the loan current and management's opinion that full collection of all
past due interest is in doubt.

Non-accrual loans as of September 30, 1996 included two large secured
credits totaling $570,000 and six smaller credits. As of November 30, 1996,
one of the large credits in the amount of $270,000 had been brought current and
renewed. The collateral on the other large loan of $300,000 has been sold and
the balance on the loan reduced to $25,000.

Other real estate owned as of September 30, 1996 consisted of one
property located in the District of Columbia, which the Company acquired
through foreclosure of a loan that was originated

-34-
<PAGE> 35
prior to 1993. As of October 15, 1996, the property had been sold for cash
and the Company had recovered the full balance carried on its books at
September 30, 1996.

ALLOWANCE FOR LOAN LOSSES

In originating loans, the Company recognizes that credit losses will
be experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The Company maintains an
allowance for loan losses based upon, among other things, such factors as
historical experience, the volume and type of lending conducted by the Company,
the amount of nonperforming assets, regulatory policies, generally accepted
accounting principles, general economic conditions, and other factors related
to the collectibility of loans in the Company's portfolios. In addition to
unallocated allowances, specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the collateral for the loan.

Management actively monitors the Company's asset quality in a
continuing effort to charge-off loans against the allowance for loan losses
when appropriate and to provide specific loss allowances when necessary.
Although management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future
adjustments may be necessary if economic conditions differ from the assumptions
used in making the initial determinations. Based upon criteria consistently
applied during the period 1993 to 1996, the Company's allowance for loan losses
was $730,000 (or 1.29% of total loans) as of December 31, 1993, $740,000 (or
1.22% of total loans) as of December 31, 1994, and $740,000 (or 1.07% of total
loans) as of December 31, 1995. As of September 30, 1996, the allowance for
loan losses amounted to $738,000 (or 1.02% of total loans). The allowance for
loan losses as a percentage of nonperforming loans decreased from 240% as of
December 31, 1995 to 63.0% as of September 30, 1996, as a result of the
increased level of nonperforming loans discussed above.

-35-
<PAGE> 36
The following table sets forth an analysis of the Company's allowance
for loan losses for the periods indicated.

ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)

Nine Months
Ended
September 30, Year Ended December 31,
----------------- ---------------------------------------------------
1996 1995 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Average loans outstanding $ 71,243 63,354 58,636 54,945
============== ============== ============== ==============

Loans outstanding at period-end 72,265 69,204 60,663 56,644
============== ============== ============== ==============

Total nonperforming loans 997 308 628 322
============== ============== ============== ==============

Beginning balance of allowance 740 740 730 744
Loans charged-off:
1-4 family residential mortgage 0 137 33 84
Home equity loans 0 0 61 0
Multifamily residential 0 0 0 0

Construction 0 0 0 0
Commercial real estate 0 0 0 0
Commercial loans 122 10 1 232
Installment & credit card loans 99 51 11 70
Other loans 0 0 0 1
-------------- -------------- -------------- --------------
Total loans charged-off: 221 198 106 387
Recoveries of previous charge-offs:
1-4 family residential mortgage 37 77 7 1
Home equity loans 0 0 14 0
Multifamily residential 0 0 0 0
Construction 0 0 0 0
Commercial real estate 0 0 0 0
Commercial loans 108 93 71 54
Installment & credit card loans 11 2 5 5
Other loans 0 0 0 3
-------------- -------------- -------------- --------------
Total recoveries 156 172 97 63

-------------- -------------- -------------- --------------

Net loans charged-off 65 26 9 324

Provisions for loan losses 63 26 19 310
-------------- -------------- -------------- --------------

Balance at period-end $ 738 740 740 730
============== ============== ============== ==============

Net charge-offs to average loans(1) 0.12% 0.04% 0.02% 0.59%

Allowance as percent of total loans 1.02% 1.07% 1.22% 1.29%

Nonperforming as % of total loans 1.63% 0.45% 1.04% 0.57%

Allowance as % of nonperforming 63% 240% 118% 227%
</TABLE>

- -----------------

(1) The Interim period has been annualized.

-36-
<PAGE> 37
Although the Company considers the composition of its loan portfolio,
and the loss potential associated with different types of loans, in determining
the level of the allowance, the Company does not formally allocate its
allowance for loan losses by loan category.

In considering the loss potential associated with different types of
loans, the Company considers its own historical loss experience with each type
of loan, together with any internal or external changes which might suggest
that future losses will be higher or lower than the historical loss experience.
Such additional factors include changes in national or local economic
conditions which affect the repayment capacity of borrowers and/or the market
value of collateral, trends in past due payments, changes in underwriting
standards, changes in loan originating and servicing personnel, changes in the
types of credit offered, and other factors. As previously discussed under the
caption "--Provision for Loan Losses", the volume of loan recoveries may be
expected to decline in the future relative to the level of charge-offs, because
many of the recoveries related to loans charged off in previous years. Other
than this possible decline in recoveries, the Company does not anticipate that
the amount of charge-offs by loan category during the next full year of
operation will be significantly different from its experience reflected in the
preceding table.

INVESTMENT ACTIVITIES

The Company's investment portfolio increased significantly in 1993 as
loan growth lagged behind deposit growth. In 1994, all of the branch deposits
acquired by the Bank from the RTC were initially invested in U.S. Treasury and
agency securities, pending anticipated deposit runoff and eventual redeployment
of such deposits into the loan portfolio. As anticipated, the investment
portfolio declined during 1995, as total investment securities declined 39%
from $22,461,000 as of December 31, 1994 to $13,679,000 as of December 31,
1995. The Company's investments of $7,223,000 as of September 30, 1996
consisted primarily of U.S. Treasury securities, federal agency obligations,
and mortgage-backed securities. This represented a decline of $6,456,000 or
47% compared to December 31, 1995, as investment maturities were used to fund
loan growth and cyclical deposit runoff.

The following table sets forth the book value of the Company's
investment portfolio as of the dates indicated. Investment securities held to
maturity are stated at cost, adjusted for amortization of premium and accretion
of discount. Investment securities available for sale are stated at market in
accordance with SFAS No. 115, "Accounting For Certain Investments in Debt and
Equity Securities," which was adopted by the Company in 1994. Investments
classified as available for sale at December 31, 1993, prior to the adoption of
SFAS No. 115, were considered held for sale and carried at the lower of cost or
market value.

-37-
<PAGE> 38
INVESTMENT PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, Year Ended December 31,
----------------- ------------------------------------------------------
1996 1995 1994 1993
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for sale:

U.S. Treasuries and agencies $ 3,978 9,968 18,323 14,866
Mortgage-backed securities 2,528 2,994 3,356 6,485
-------------- -------------- -------------- --------------
Total available for sale 6,506 12,962 21,679 21,351

Held to maturity:
State, county and municipal 250 250 250 0
Other 467 467 532 527
-------------- -------------- -------------- --------------
Total held to maturity 717 717 782 527

-------------- -------------- -------------- --------------
Total investment securities $ 7,223 13,679 22,461 21,878
============== ============== ============== ==============
</TABLE>

-38-
<PAGE> 39
The following table sets forth the maturity distribution and weighted
average yield of the investment portfolio of the Company as of September 30,
1996.

INVESTMENT PORTFOLIO--MATURITY AND YIELDS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------
1 Year 1 Year to 5 Years to After
or Less 5 Years 10 Years 10 Years
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Maturity Distribution:

U.S. Treasury securities $ 1,000 0 0 0
U.S. Government agencies 1,998 981 0 0
Mortgage-backed securities(1) 0 0 0 2,527
State, county and municipal 85 165 0 0

Other 0 0 0 468
-------------- -------------- -------------- --------------
Total $ 3,083 1,146 0 2,995
============== ============== ============== ==============

Weighted Average Yield(2):

U.S. Treasury securities 5.04% N/A N/A N/A
U.S. Government agencies 5.66% 6.18% N/A N/A
Mortgage-backed securities N/A N/A N/A 6.31%
State, county and municipal 4.29% 4.62% N/A N/A

Fully taxable equivalent 6.61% 7.11% N/A N/A
Other N/A N/A N/A 6.30%

- -----------------
</TABLE>

(1) Mortgage-backed securities consist of floating rate debt securities
that reprice quarterly or more frequently.
(2) The calculation of the weighted average yields is based on yield,
weighted by the respective book value of the securities, using cost
basis in the case of securities available for sale.

DEPOSIT ACTIVITIES

Deposits are attracted through the offering of a broad variety of
deposit instruments, including checking accounts, money market accounts, NOW
accounts, savings accounts, certificates of deposit (including "jumbo"
certificates in denominations of $100,000 or more), and retirement savings
plans. To stimulate deposit growth in 1995, the Company introduced higher-rate
deposit instruments, in the form of Investor Certificates of Deposits and the
Premier Investment Account, designed to attract local institutional deposits in
amounts of $100,000 or more.

-39-
<PAGE> 40
The Company's average balance of total deposits was $79,987,000 for the
nine months ended September 30, 1996, an increase of $109,000 or 0.1% compared
with the average balance of total deposits of $79,878,000 for the year ended
December 31, 1995. The average balance of total deposits of $79,878,000 for the
year ended December 31, 1995, represented an increase of $3,707,000 or 4.9%
compared with the average balance of total deposits of $76,171,000 for the year
ended December 31, 1994, which represented an increase of $220,000 or 0.3%
compared with the average balance of total deposits of $75,951,000 for the year
ended December 31, 1993.

The following table sets forth the average balances and weighted
average rates for the Company's categories of deposits for the periods
indicated.

AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)

Year Ended December 31,
Nine Months Ended --------------------------------------------------------------------------
September 30, 1996 1995 1994 1993
--------------------------------------------------------------------------- ------------------------
% of % of % of % of
Average Average Total Average Average Total Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
-------- ------- -------- ------- ------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest $ 17,342 0.00% 21.68% 16,841 0.00% 21.08% 16,159 0.00% 21.21% 14,756 0.00% 19.44%
Interest-bearing 12,632 1.97% 15.79% 12,230 2.11% 15.31% 11,926 2.08% 15.66% 11,995 2.18% 15.79%
Savings deposits 2,244 2.55% 2.80% 2,526 2.65% 3.16% 2,564 2.59% 3.37% 2,137 2.80% 2.81%
Money market 22,920 3.31% 28.66% 25,153 3.09% 31.49% 24,784 2.49% 32.54% 27,024 2.59% 35.58%
Time deposits 24,849 5.49% 31.07% 23,128 5.49% 21.08% 20,738 4.44% 27.22% 20,039 4.59% 26.38%
-------- ---- ------ ------ ---- ----- ------ ---- ------ ------ ---- ------
Total $ 79,987 100.00% 79,878 100.00% 76,171 100.00% 75,951 100.00%
======== ====== ====== ====== ====== ====== ====== ======

Weighted average 3.04% 2.97% 2.43% 2.56%
===== ==== ==== ====
</TABLE>

The Company seeks to rely primarily on core deposits from regular
customers to provide a stable and cost-effective source of funding to support
asset growth. The Company's Asset/Liability Management Policy limits total
brokered deposits to ten percent (10%) of the Bank's total liabilities. As of
September 30, 1996, brokered deposits represented $3,872,000 (4.4%) of the
Company's total liabilities.

As of September 30, 1996, non-brokered time deposits over $100,000
represented 18.9% of total deposits, compared with 8.7% of total deposits as of
December 31, 1995, 9.4% as of December 31, 1994, and 10.6% as of December 31,
1993. As of September 30, 1996, total time deposits in excess of $100,000
accounted for $16,246,000 or 19.4% of the Company's total deposits. Of this
amount, $8,811,000 had a term of six months or less.

The following table sets forth the amount of the Company's
certificates of deposit of $100,000 or more by time remaining until maturity as
of September 30, 1996 and December 31, 1995.

-40-
<PAGE> 41
TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
September 30, December 31,
--------------- -------------

Maturity Period 1996 1995
--------------- --------------- -------------
<S> <C> <C>
Three months or less . . . . . . . . . . . . . . . . . . $ 7,171 5,405
Over three months through six months . . . . . . . . . . 1,640 2,320
Over six months through twelve months . . . . . . . . . . 6,431 2,142
Over twelve months . . . . . . . . . . . . . . . . . . . 1,004 3,141
------------- -------------

Totals . . . . . . . . . . . . . . . . . . . . . . . $ 16,246 13,018
============= =============
</TABLE>

BORROWINGS

Short-Term Borrowings

Short-term borrowings consists of advances from the Federal Home Loan
Bank of Atlanta and deposits received in the Bank's U.S. Treasury Tax and Loan
Account. Balances outstanding and effective rates of interest are shown in the
tables below for the nine month period ending September 30, 1996 and the years
ending December 31, 1995 and 1994.

<TABLE>
<CAPTION>
September 30, Year-ended December 31,
---------------------------
1996 1995 1994
------------------ ---- ----
<S> <C> <C> <C>
Federal Home Loan Bank
- ----------------------
Ending Balance $ -- $2,000,000 $2,200,000
Daily average balance for the period $2,214,401 $2,924,163 $706,739
Maximum outstanding balance at
a month-end during the period $5,210,000 $4,000,000 $3,500,000
Daily average interest rate for
the period 5.97% 5.46% 4.24%
Average interest rate on period
end balance 6.90% 6.10% 6.88%

Treasury Tax and Loan Account
- -----------------------------

Ending balance $593,338 $1,807,909 $683,836
Daily average balance for the period $412,724 $473,062 $394,396
Maximum outstanding balance at a
month-end during the period $829,352 $710,501 $683,836
Daily average interest rate for
the period 4.59% 4.60% 3.48%
Average interest rate on period
end balance 5.22% 2.00% 2.75%
</TABLE>

-41-
<PAGE> 42
Long-Term Borrowings

Long-term borrowings consist of $2,800,000 in fixed rate advances from
the Federal Home Loan Bank of Atlanta with terms as follows:

<TABLE>
<CAPTION>
Repayment
Amount Borrowed Fixed Rate Maturity Terms
--------------- ---------- -------- ----------------------
<S> <C> <C> <C>
$ 800,000 6.30% 2/8/2006 Due at maturity
1,000,000 7.34% 5/16/2006 Due at maturity
1,000,000 6.94% 6/24/2006 Equal installments
semi annually
commencing
12/24/96
</TABLE>

RETURN ON EQUITY AND ASSETS

The following table sets forth the Company's performance ratios for
the periods indicated.

RETURN ON EQUITY AND ASSETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
September 30 December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993
--------------------- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Return on average assets 0.57% 0.75% 0.71% 0.52%
Return on average equity 7.82% 12.43% 12.21% 9.04%
Period-end equity to total 7.29% 6.39% 5.41% 5.64%
assets
</TABLE>

LIQUIDITY

The Company's Asset/Liability Management Policy is intended to
maintain adequate liquidity for the Bank and thereby enhance its ability to
raise funds to support asset growth, meet deposit withdrawals and lending
needs, maintain reserve requirements and otherwise sustain operations. The
Company accomplishes this primarily through management of the maturities of its
interest-earning assets and interest-bearing liabilities. The Company believes
that the Bank's present liquidity position is adequate to meet its current and
future needs.

Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
The asset liquidity of the Bank is maintained in

-42-
<PAGE> 43
the form of vault cash, demand deposits with commercial banks, federal funds
sold, interest bearing deposits with other financial institutions, short-term
investment securities, other investment securities available-for-sale, and
short-term loans. The Company's management monitors liquidity requirements as
warranted by interest rate trends, changes in the economy and the maturity
schedule and interest rate sensitivity of the investment and loan portfolios
and deposits.

Liability liquidity is provided by access to core funding sources,
principally various customers' interest-bearing and noninterest-bearing deposit
accounts in the Company's market area. The Bank does have the ability to
solicit brokered deposits. Federal funds purchased and short-term borrowings
by the Bank are additional sources of liquidity. These sources of liquidity
are short-term in nature and are used by the Bank as necessary to fund asset
growth and meet short-term liquidity needs. As a member of the FHLBA, the Bank
is authorized to borrow up to $13.3 million secured by a blanket pledge of its
portfolio of 1-to-4-family residential mortgage loans. The Bank also has
approved lines of credit from larger correspondent banks to borrow excess
reserves on an overnight basis (known as "federal funds purchased") in the
amount of $1.0 million and to borrow on a secured basis ("repurchase
agreements") in the amount of $5.0 million. As of September 30, 1996, the Bank
had no federal funds purchased or sold, no repurchase agreements, and
$2,800,000 in fixed-rate term credit advances from the FHLBA maturing in 2006
at an average cost of 6.90%. The Company utilizes fixed rate term credit
advances from the FHLBA to fund fixed rate real estate loans of comparable
terms and maturities.

The Company's cash flows are composed of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Net cash provided by operating activities was
$557,800 for the nine months ended September 30, 1996, $412,796 for the year
ended December 31, 1995 and $302,918 for the year ended December 31, 1994. Net
cash used in investing activities, consisting primarily of loan and investment
funding, was $357,001 for the nine months ended September 30, 1996, and $6.74
million and $5.48 million for the years ended December 31, 1995 and 1994,
respectively. Net cash used in financing activities for the nine months
ended September 30, 1996 was $7.14 million and was related to a decrease in
demand, savings and money market deposits. Net cash provided by financing
activities, consisting primarily of growth in deposits and issuances of
certificates of deposits, was $10.44 million and $3.75 million for the years
ended December 31, 1995 and 1994, respectively.

As of September 30, 1996, $12,314,000 or 75% of the Company's total
investment portfolio, including interest bearing deposits held with other
financial institutions, was scheduled to mature within one year. The remainder
of the portfolio consists of $1,147,000 (7% of total portfolio) in U.S.
Government, agency, and municipal securities that will mature within two and
one half years, and $2,527,000 (15% of total portfolio) in federal agency
mortgage pass-through securities and collateralized mortgage obligations with
an estimated weighted average duration of approximately three years, and the
Bank's required stock investment in the FHLBA and the Federal Reserve Bank of
Richmond totaling $467,000. The unrealized gain contained in the held-to-
maturity portion of the investment portfolio as of September 30, 1996 was less
than $1,000.

-43-
<PAGE> 44
Normal fluctuations in the deposit levels of some of the Company's
customers may result in corresponding fluctuations in the Company's liquidity
position. Such fluctuations comprise the majority of the Company's $7.1
million in net cash outflows from financing activities for the first nine
months of 1996, as reductions in deposits totaled $6.8 million. Cash and
equivalents were correspondingly reduced by $6.9 million during the first nine
months of 1996. Maturities and scheduled amortization of investment securities
were reinvested primarily in net loan originations ($3.0 million) and interest
bearing deposits in other banks ($3.2 million), resulting in a net outflow of
$357,000 from investing activities.

In the ordinary course of business, the Bank enters into commitments
to make loans and fund letters of credit, and the Company is also a party to
two operating leases with respect to its banking quarters. Details of these
commitments may be found in the accompanying Notes to Consolidated Financial
Statements.

The Company had cash on hand in the amount of $93,263 as of September
30, 1996 at the holding company level. The Company anticipates using these
funds, together with dividends received from the Bank, as working capital to
pay normal operating expenses. As of September 30, 1996, the Company had no
indebtedness outstanding at the holding company level.

CAPITAL RESOURCES

Total stockholders' equity as of September 30, 1996 was $6,926,000, an
increase of $427,000 or 6.6% compared with stockholders' equity of $6,499,000
as of December 31, 1995. Net income for the nine months ended September 30,
1996 was $396,000. In addition to these retained earnings, stockholders'
equity was also augmented by a $1,000 increase in the market value of
investment securities available-for-sale, net of tax effect, and $30,000
received from the exercise of employee stock options.

Total stockholders' equity was $6,499,000 as of December 31, 1995, an
increase of $1,622,000 or 33.3% compared with stockholders' equity of
$4,877,000 as of December 31, 1994. The increase in total stockholders' equity
as of December 31, 1995 was attributable to $680,000 of net income for 1995,
$480,000 in net proceeds from the issuance of Common Stock, and a $502,000
increase in the market value of investment securities available-for-sale, net
of tax effect, all partially offset by a $40,000 preferred stock dividend.

Total stockholders' equity was $4,877,000 as of December 31, 1994, an
increase of $6,000 or 0.1% compared with stockholders' equity of $4,871,000 as
of December 31, 1993. The increase in total stockholders' equity as of
December 31, 1994 was attributable to $591,000 of net income for 1994, offset
by a $37,000 preferred stock dividend and a $545,000 decline in the market
value of investment securities available-for-sale, net of tax effect.

-44-
<PAGE> 45
There are no regulatory capital requirements applicable to the
Company, because it has total consolidated assets of less than $150 million.
The Bank, however, is required to comply with capital standards promulgated by
the OCC. The OCC has established certain minimum risk-based capital standards
that apply to national banks. The following table sets forth the capital
standards required by the OCC, as well as the capital ratios of the Bank as of
the dates indicated:

RISK-BASED CAPITAL RATIOS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
September Regulatory Capital Ratios
30, December 31, -------------------------
----------- ---------------------------------- Adequately Well
1996 1995 1994 1993 Capitalized Capitalized
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tier I risk-based capital . . . . . $ 6,625 6,134 5,085 4,890
Tier II risk-based capital . . . . 738 740 629 599
----------- ---------- ----------- -----------
Total capital . . . . . . . . . . . 7,363 6,874 5,714 5,489
=========== ========== =========== ===========

Risk-weighted assets . . . . . . . 68,848 66,050 50,259 47,835
=========== ========== =========== ===========

Adjusted total assets . . . . . . . 91,992 89,789 88,594 93,350
=========== ========== =========== ===========

Capital Ratios
Tier I risk-based capital . . . 9.62% 9.29% 10.12% 10.22% 4.00% 6.00%
Total risk-based capital . . . . 10.70% 10.41% 11.37% 11.48% 8.00% 10.00%
Leverage ratio (Tier I risk-
based capital to adjusted
total assets) . . . . . . . . 7.20% 6.83% 5.74% 5.24% 4.00% 5.00
</TABLE>

At September 30, 1996, risk based capital ratios and risk based
capital exceeded the requirements of well capitalized regulatory capital
standards as follows.

<TABLE>
<CAPTION>
Ratio/Dollar Amount in
Excess of Well Capitalized
September 30, 1996 Regulatory Capital Standard
------------------ ---------------------------

Excess Excess
Ratio $ Amount
------- --------
<S> <C> <C>
Tier 1 risk based capital 3.62% $2,492
Total risk based capital .70% 475
Leverage ratio 2.20% 2,024
</TABLE>

ACCOUNTING MATTERS

In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
will be effective for transactions occurring after December 31, 1996. This
Statement requires that, after a transfer of financial assets,

-45-
<PAGE> 46
an entity recognize the financial and servicing assets it controls and the
liabilities it has incurred, and derecognize financial assets when control has
been surrendered. The transferor has surrendered control over financial assets
only if such assets have been isolated from the transferor, the transferee
obtains the right to pledge or exchange the transferred assets, and any
agreement to repurchase the transferred assets can be satisfied by delivery of
assets that are readily obtainable. Liabilities and derivatives incurred or
obtained in exchange for transferred assets are initially measured at fair
value. Servicing assets and other retained interests in the transferred assets
are measured by allocating the carrying amount between the assets and the
retained interests based on their relative fair values. It is management's
belief that the adoption of this Statement will not have a material impact on
the Company or its results of operations.

IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES

The financial statements and related financial data concerning the
Company presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of the Company is
reflected in increased operating costs. Unlike industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, changes in interest rates have a more significant effect
on the performance of a financial institution than do the effects of changes in
the general rate of inflation and changes in prices. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices
of goods and services. Interest rates are highly sensitive to many factors
which are beyond the control of the Company, including the influence of
domestic and foreign economic conditions and the monetary and fiscal policies
of the United States government and federal agencies, particularly the Federal
Reserve Board. The Federal Reserve Board implements national monetary policy
such as seeking to curb inflation and combat recession by its open market
operations in United States government securities, control of the discount rate
applicable to borrowing by banks, and establishment of reserve requirements
against bank deposits. The actions of the Federal Reserve Board in these areas
influence the growth of bank loans, investments and deposits, and affect the
interest rates charged on loans and paid on deposits. The nature, timing and
impact of any future changes in federal monetary and fiscal policies on the
Bank and its results of operations are not predictable.

BUSINESS AND REGULATION

GENERAL

The Company is a registered bank holding company under the Bank
Holding Company Act of 1956 ("BHCA"), and conducts its operations through
Century National Bank, which it acquired in 1986. The Company was incorporated
and organized in 1985.

-46-
<PAGE> 47
The Bank provides a full range of banking-related services through its
main office located at 1875 Eye Street, N.W., Washington, D.C. and its branch
office located at 1275 Pennsylvania Avenue, N.W. Effective January 1, 1996,
the Company established a loan production office at 8201 Greensboro Drive in
Tysons Corner, Virginia. The Company's principal executive offices are located
at 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and its telephone
number at that address is (202) 496-4000. As of September 30, 1996, the
Company had approximately 272 stockholders and total assets of $94,949,696,
total deposits of $83,787,059 and stockholders' equity of $6,925,863.

The Bank provides a broad line of financial products and services to
small and medium sized businesses and consumers. Lending services are
concentrated in professional, service, and commercial business sectors located
in the metropolitan Washington, D.C. area.

COMPETITION

The Company is subject to vigorous competition in all aspects and
areas of its business from banks and other financial institutions, including
savings and loan associations, savings banks, finance companies, credit unions
and other providers of financial services, such as money market mutual funds,
brokerage firms, consumer finance companies and insurance companies. The
Company also competes with non-financial institutions that maintain their own
credit programs and governmental agencies that make available low cost or
guaranteed loans to certain borrowers. The principal methods of competition
include interest rates paid on deposits and charged on loans and the
availability of other banking products and services. The Company competes in
its market area with a number of much larger financial institutions that have
substantially greater resources, including larger lending limits, larger branch
systems and a wider array of commercial banking services. The Company has been
able to compete effectively with other financial institutions by emphasizing
customer services, establishing long-term customer relationships and building
customer loyalty, and by providing products and services designed to address
the specific needs of its customers.

PERSONNEL

At September 30, 1996, the Company employed 36 employees, including 28
employees at the Eye Street location, 7 employees at the Pennsylvania Avenue
location and 1 employee at the Tysons Corner, Virginia location.

PROPERTY

The Company's principal executive offices are located at 1275
Pennsylvania Avenue, N.W., Washington, D.C. 20004.

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<PAGE> 48
Century National Bank leases its banking location at 1875 Eye Street,
N.W., Washington D.C. 20006. Effective January 1, 1996, the Bank also leases
space for its loan production office in Tysons Corner, Viriginia at 8201
Greensboro Drive.

LEGAL PROCEEDINGS

The nature of the business of the Company causes it (and the Bank) to
be involved in routine legal proceedings from time to time. Management of the
Company believes that there are no pending or threatened legal proceedings that
upon resolution would have a material adverse impact on the Company.

SUPERVISION AND REGULATION

In addition to the generally applicable state and federal laws
governing business and employers, the Company and Bank are further regulated by
special federal and state laws and regulations applicable only to financial
institutions and their parent companies. Virtually all aspects of the
operations of the Company and the Bank are subject to specific requirements or
restrictions and general regulatory oversight, from laws regulating consumer
finance transactions, such as the Truth in Lending Act, the Home Mortgage
Disclosure Act and the Equal Credit Opportunity Act, to laws regulating
collections and confidentiality, such as the Fair Debt Collections Practices
Act, the Fair Credit Reporting Act and the Right to Financial Privacy Act.
With few exceptions, state and federal banking laws have as their principal
objective either the maintenance of the safety and soundness of financial
institutions and the federal deposit insurance system or the protection of
consumers or classes of consumers, rather than the specific protection of
stockholders of the Company. The following discussion sets forth the material
statutory and regulatory provisions governing the Company and the Bank. To the
extent such discussion describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statute or regulation.

Regulation of the Company

The Company is a bank holding company within the meaning of the BHCA,
and therefore is subject to regulation, supervision and examination by the
Federal Reserve Board. As such, the Company is required to file reports with
and to furnish such other information as the Federal Reserve Board may require
pursuant to the BHCA. The Federal Reserve Board has the authority to issue
orders to bank holding companies to cease and desist from unsound banking
practices and violations of conditions imposed by, or violations of agreements
with, the Federal Reserve Board. The Federal Reserve Board is also empowered
to assess civil money penalties against companies or individuals who violate
the BHCA or orders or regulations thereunder, to order termination of non-
banking activities of non-banking subsidiaries of bank holding companies, and
to order termination of ownership and control of a non-banking subsidiary by a
bank holding company. Certain violations may also result in criminal
penalties. The OCC is authorized to exercise comparable authority with respect
to the Bank.

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<PAGE> 49
The Federal Reserve Board takes the position that a bank holding
company is required to serve as a source of financial and managerial strength
to its subsidiary banks and may not conduct its operations in an unsafe or
unsound manner. In addition, it is the Federal Reserve Board's position that,
in serving as a source of strength to its subsidiary banks, a bank holding
company should stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or
adversity and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks. A
bank holding company's failure to meet its obligations to serve as a source of
strength to its subsidiary banks will generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice or a violation of
the Federal Reserve Board regulations or both. This doctrine has become known
as the "source of strength" doctrine. In addition, statutory changes in the
Federal Deposit Insurance Act (the "FDIA") made by the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") now require the
holding company parent of an undercapitalized bank to guarantee, up to certain
limits, the bank's compliance with a capital restoration plan approved by the
bank's primary federal supervisory agency.

The BHCA and the Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve Board, require that, depending on the
particular circumstances, either Federal Reserve Board approval must be
obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or company acquiring "control" of a bank
holding company, such as the Company, subject to certain exemptions for certain
transactions. Control is conclusively presumed to exist if an individual or
company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities and either the
company has securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or no other person will own a greater
percentage of that class of voting securities immediately after the
transaction. The regulations provide a procedure for challenge of the
rebuttable control presumption.

As a bank holding company, the Company is required to obtain prior
approval to merge or consolidate with any other bank holding company, acquire
all or substantially all of the assets of any bank or acquire ownership or
control of shares of a bank or bank holding company if, after the acquisition,
the Company would directly or indirectly own or control 5% or more of the
voting shares of such bank or bank holding company.

The Company is also prohibited from acquiring a direct or indirect
interest in or control of more than 5% of the voting shares of any company that
is not a bank or bank holding company and from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiary banks, except that it may engage in and
may own shares of companies engaged in certain activities found by the Federal
Reserve Board to be so closely related to banking or managing and controlling
banks as to be a proper incident thereto. These activities include, among
others, operating a mortgage, finance, credit card, or factoring company;
performing certain data processing operations; providing investment and
financial advice;

-49-
<PAGE> 50
acting as an insurance agent for certain types of credit-related insurance;
leasing personal property on a full-payout, non-operating basis; and providing
certain stock brokerage and investment advisory services. In approving
acquisitions or the addition of activities, the Federal Reserve Board considers
whether the acquisition or the additional activities can reasonably be expected
to produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh such possible adverse
effects as undue concentration of resources, decreased or unfair competition,
conflicts of interest or unsound banking practices. In considering any
application for approval or an acquisition or merger, the Federal Reserve Board
is also required to consider the financial and managerial resources of the
companies and the banks concerned, as well as the applicant's record of
compliance with the Community Reinvestment Act (the "CRA").

The BHCA generally imposes certain limitations on transactions by and
between banks and non-bank companies in the same holding company structure,
including limitations on extensions of credit (including guarantees of loans)
by the Bank to affiliates, investments in the stock or other securities of the
Company by the Bank, and the nature and amount of Company securities that the
Bank may accept from any affiliate to secure loans extended to the affiliate.
The Company, as an affiliate of the Bank, is also subject to these
restrictions. Under the BHCA and the Federal Reserve Board's regulations, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services.

Regulation of the Bank

The Bank is a national banking association and is therefore subject to
regulation, supervision, and examination by the OCC. The Bank is also a member
of the Federal Reserve System and the FDIC. Requirements and restrictions
under the laws of the United States include the requirement that reserves be
maintained against deposits, restrictions on the nature and the amount of loans
which can be made, restrictions on the business activities in which a bank may
engage, restrictions on the payment of dividends to stockholders, and minimum
capital requirements. See "Risk Factors--Restrictions on Dividends by the
Bank" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The OCC has enforcement authority over the Bank that
is similar to that of the Federal Reserve Board with respect to the Company.
In addition, upon making certain determinations with respect to the condition
of any insured national bank, such as the Bank, the FDIC may initiate the
termination of a bank's federal deposit insurance.

There are certain statutory limitations on the payment of dividends by
national banks. Without approval of the OCC, dividends may not be paid in
excess of a bank's total net profits for that year, plus its retained profits
for the preceding two years, less any required transfers to capital surplus.
However, a national bank may not pay dividends in excess of total retained
profits, including current year's income. In some cases, the OCC may find a
dividend payment that meets these statutory requirements to be an unsafe or
unsound practice.

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<PAGE> 51
Banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve Board, which affect the national
supply of bank credit. Such policies influence overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve Board have
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future.

FDICIA requires the OCC to take "prompt corrective action" with
respect to any national bank which does not meet specified minimum capital
requirements. The applicable regulations establish five capital levels,
ranging from "well capitalized" to "critically undercapitalized," which require
or permit the OCC to take supervisory action. Under these regulations, a
national bank is considered well capitalized if it has a total risk-based
capital ratio of 10.0% or greater, a Tier I risk-based capital ratio of 6.0% or
greater, and a leverage ratio of 5.0% or greater, and it is not subject to an
order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure. A national bank is considered adequately capitalized if it has a
total risk-based capital ratio of 8.0% or greater, a Tier I risk-based capital
ratio and leverage capital ratio of 4.0% or greater (or a leverage ratio of
3.0% or greater if the institution is rated composite 1 in its most recent
report of examination, subject to appropriate federal banking agency
guidelines), and the institution does not meet the definition of an
undercapitalized institution. A national bank is considered undercapitalized
if it has a total risk-based capital ratio that is less than 8.0%, a Tier I
risk-based capital ratio that is less than 4.0%, or a leverage ratio that is
less than 4.0%. A significantly undercapitalized institution is one which has
a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0%, or a leverage ratio that is less than
3.0%. A critically undercapitalized institution is one which has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. As of
September 30, 1996, the Bank was classified as "well-capitalized."

The OCC is authorized by the legislation to take various enforcement
actions against any undercapitalized national bank and any national bank that
fails to submit an acceptable capital restoration plan or fails to implement a
plan accepted by the OCC. These powers include, among other things, requiring
the institution to be recapitalized, prohibiting asset growth, restricting
interest rates paid, requiring prior approval of capital distributions by any
bank holding company which controls the institution, requiring divestiture by
the institution of its subsidiaries or by the holding company of the
institution itself, requiring new election of directors, and requiring the
dismissal of directors and officers.

With certain exceptions, national banks will be prohibited from making
capital distributions or paying management fees if the payment of such
distributions or fees will cause them to become undercapitalized. Furthermore,
undercapitalized national banks will be required to file capital restoration
plans with the OCC. Undercapitalized national banks also will be subject to
restrictions on growth, acquisitions, branching and engaging in new lines of
business unless they have an approved capital plan that permits otherwise. The
OCC also may, among other things, require an

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<PAGE> 52
undercapitalized national bank to issue shares or obligations, which could be
voting stock, to recapitalize the institution or, under certain circumstances,
to divest itself of any subsidiary.

Significantly and critically undercapitalized national banks may be
subject to more extensive control and supervision. The OCC may prohibit any
such institutions from, among other things, entering into any material
transaction not in the ordinary course of business, amending their charter or
bylaws, or engaging in certain transactions with affiliates. In addition,
critically undercapitalized institutions generally will be prohibited from
making payments of principal or interest on outstanding subordinated debt.
Within 90 days of a national bank becoming critically undercapitalized, the OCC
must appoint a receiver or conservator unless certain findings are made with
respect to the prospect for the institution's continued viability.

Current Regulatory Issues

The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Interstate Banking Act") authorizes the Federal Reserve Board to permit
adequately capitalized and adequately managed bank holding companies to acquire
all or substantially all of the assets of an out-of-state bank after September
29, 1995, subject to deposit concentration limits, state law limits on the time
period a target bank must be in existence and consideration of the acquiring
bank's compliance with Federal and state community reinvestment laws. Thus,
nationwide interstate banking became effective on September 29, 1995. The
Interstate Banking Act also authorizes banking subsidiaries of bank holding
companies to act as agent for depository institution affiliates in other states
when receiving deposits, renewing time deposits, closing loans, servicing
loans, or receiving payments on loans and other obligations; and the Interstate
Banking Act expressly states that banks acting in an agency capacity are not
branches. With respect to interstate branching by multi-state bank holding
companies, states have two options -- for the period from September 29, 1994
through June 1, 1997, states may enact legislation that either prohibits
interstate merger transactions involving out-of-state banks ("opt-out") or
permits interstate merger transactions prior to June 1, 1997 ("opt-in"), so
long as the law applies equally to all out-of-state banks. The Interstate
Banking Act also contained provisions addressing branch retention in interstate
merger transactions and de novo branching by out-of-state banks. Maryland,
Virginia, and the District of Columbia have each adopted "opt-in" provisions
permitting de novo branching prior to June 1, 1997.

In addition, there are several pieces of legislation relevant to the
banking industry that were recently enacted into law. On August 20, 1996,
President Clinton signed the Small Business Job Protection Act (the "Jobs
Act"). The Jobs Act contained several provisions that affect the banking
industry. First, the most significant part of the Jobs Act removed the
prohibition against banks, savings and loans and bank holding companies
electing to be treated as S corporations. This change is effective for tax
years beginning after December 31, 1996. Second, the Jobs Act gave qualifying
savings associations a tax break when they change their method of accounting
for bad debt reserves. This change will save the thrift industry approximately
$3 billion in tax liability and will facilitate the conversion of savings
associations into banks. Finally, the Jobs Act increased the IRA deduction

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<PAGE> 53

from $250 to $2,000 per year for a spouse that does not work outside the home,
subject to income eligibility limits.

On September 30, 1996, President Clinton signed the Economic Growth
and Regulatory Paperwork Reduction Act of 1996 (the "Growth Act"), which
contained a comprehensive approach to recapitalize the FDIC's Savings
Association Insurance Fund and to assure payment of the Financing Corporation
("FICO") obligations. Most of the Bank's deposits are insured by the FDIC's
Bank Insurance Fund ("BIF"). Under the Growth Act, banks insured under the BIF
are required to pay a portion of the interest due on bonds that were issued by
FICO to help shore up the ailing Federal Savings and Loan Insurance Corporation
in 1987. The amount of FICO debt service to be paid by all BIF-insured
institutions is approximately $320,343,000 per year from 1997 through the year
1999 when the obligation of BIF-insured institutions increases to approximately
$598,500,000 per year through the year 2019. The Bank's portion of this amount
has not yet been determined. The Growth Act also contained provisions
protecting banks from liability for environmental clean-up costs; prohibiting
credit unions sponsored by Farm Credit System banks; easing application
requirements for most bank holding companies when they acquire a thrift or a
permissible nonbank operation; easing Fair Credit Reporting Act restrictions
between bank holding company affiliates; and reducing regulatory burden under
the Real Estate Settlement Procedures Act, the Truth-in-Savings Act, the Truth-
in-Lending Act, and the Home Mortgage Disclosure Act.

In 1994, the Bank acquired the deposits of a savings and loan branch.
These so-called "Oakar deposits" are insured under the FDIC's Savings
Association Insurance Fund ("SAIF"). Pursuant to a rule promulgated by the
FDIC on October 8, 1996, all institutions holding SAIF insured deposits were
charged a one-time special assessment of 65.7 cents per $100 of SAIF insured
deposits on November 27, 1996. The FDIC has also promulgated a proposed rule
regarding the amount of premiums payable as of January 1, 1997 by institutions
holding SAIF-insured deposits. The Company expects its January 1, 1997
assessment, which is due on January 2, 1997, to be $2,644. Under the proposed
rule, which is subject to final comments and could change, institutions will be
assessed with respect to SAIF-insured deposits anywhere from zero for most safe
and sound institutions to 27 cents per $100 of deposits for the least safe and
sound institutions. See Note 2 of Condensed Notes to Consolidated Financial
Statements for additional disclosure.

EFFECT OF ECONOMIC ENVIRONMENT

The policies of regulatory authorities, including the monetary policy
of the Federal Reserve Board, have a significant effect on the operating
results of bank holding companies and their subsidiaries. Among the means
available to the Federal Reserve Board to affect the money supply are open
market operations in U.S. Government securities, changes in the discount rate
on member bank borrowings, and changes in reserve requirements against member
bank deposits. These means are used in varying combinations to influence
overall growth and distribution of bank loans, investment and deposits, and
their use may affect interest rates charged on loans or paid for deposits.

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<PAGE> 54
Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect
of such policies on the business and income of the Company and the Bank cannot
be predicted.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK

Directors and Executive Officers of the Company

The directors and executive officers of the Company, all of whom are
elected annually, are as follows:

<TABLE>
<CAPTION>
Name Age Position(s) with the Company
---- --- ----------------------------
<S> <C> <C>
Mr. Joseph S. Bracewell 49 Chairman of the Board, President
and Chief Executive Officer
Dr. George Contis 63 Director
Mr. John R. Cope 54 Director, Vice President and General Counsel
Mr. Bernard J. Cravath 65 Director and Assistant Secretary
Mr. Neal R. Gross 53 Director
Mr. Joseph H. Koonz, Jr. 61 Director
Mr. William McKee 52 Director
Mr. William C. Oldaker 55 Director and Secretary
</TABLE>

Mr. Joseph S. Bracewell has been Chairman of the Board, President and
Chief Executive Officer of the Company and Chairman of the Board of the Bank
since 1985. Mr. Bracewell has also served as Chief Executive Officer of the
Bank since 1982 and as President of the Bank from 1982-1988 and since August
15, 1996. Mr. Bracewell serves on the Executive Loan Committee, the
Asset/Liability Committee, the Personnel Committee and the Marketing Committee.
Mr. Bracewell also serves on the Board of Directors of First University
Corporation, a bank holding company located in Houston, Texas.

Dr. George Contis was elected as a director of the Company in
November, 1995. Dr. Contis has served as a member of the Board of Directors of
the Bank since 1988 and is currently Chairman of the Bank's Executive Loan
Committee and Legal Matters Review Committee. Dr. Contis is a physician and
the President of Medical Services Corporation International, an international
contract provider of medical services.

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<PAGE> 55
Mr. John R. Cope has served as a director and Vice President of the
Company since 1985. Since 1982, Mr. Cope has served on the Board of Directors
of the Bank, and he has served as Vice Chairman of the Board of the Bank since
1985. In addition, Mr. Cope serves as General Counsel to the Company and the
Bank. Mr. Cope serves as a member of the Compensation Committee. Mr. Cope is
a partner with the law firm of Bracewell & Patterson, L.L.P., who from time to
time provides legal services to the Company and the Bank.

Mr. Bernard J. Cravath has served as a director of the Company since
1987. In addition, Mr. Cravath is Chairman of the Audit Committee and serves
as a member of the Asset/Liability Committee. Mr. Cravath is president of
Reality Properties, Inc., a real estate investment firm.

Mr. Neal R. Gross was elected as a Director of the Company in October
1995. Mr. Gross has served as a member of the Board of Directors of the Bank
since 1992 and is a member of the Bank's Audit Committee. Mr. Gross serves as
Chairman of the Board and Chief Executive Officer of Neal R. Gross and Co.,
Inc., a corporation providing court reporting services to attorneys, law firms,
the federal government, and other private organizations and individuals.

Mr. Joseph H. Koonz, Jr. has served as a director of the Company since
1985. Mr. Koonz is a senior partner of the law firm of Koonz, McKenney,
Johnson & Regan.

Mr. William McKee has served as a director of the Company since 1992.
Mr. McKee is a partner with the law firm of King & Spalding in Washington, D.C.

Mr. William C. Oldaker has served the Company as a director since
1986. In 1992, Mr. Oldaker was elected as Secretary. Since 1984, Mr. Oldaker
has served on the Board of Directors of the Bank. Mr. Oldaker also serves as
Chairman of the Personnel Committee and as a member of the Compensation
Committee. Mr. Oldaker is a partner with the Washington, D.C. law firm of
Oldaker, Ryan, Phillips & Utrecht.

Directors and Executive Officers of the Bank

The directors and executive officers of the Bank, all of whom are
elected annually, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>

Mr. Joseph S. Bracewell 49 Chairman of the Board, President and Chief
Executive Officer
Hon. Iraline Barnes 49 Director
Mr. George Connors 37 Senior Vice President
Dr. George Contis 63 Director
Mr. John R. Cope 54 Vice Chairman of the Board and General
Counsel
Mr. Marvin Fabrikant 51 Director
</TABLE>

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<PAGE> 56
<TABLE>
<S> <C> <C>
Mr. Neal R. Gross 53 Director
Mr. Thomas B. Hoppin 57 Director
Mr. Robert W. Hutchins 50 Executive Vice President
Mr. Roger C. Johnson 44 Director
Dr. Michael E. Kossak 49 Director
Mr. William C. Oldaker 55 Director and Secretary
Ms. Ellen B. Safir 52 Director
Ms. Linda Townsend 49 Senior Vice President
</TABLE>

Hon. Iraline Barnes has served as a director of the Bank since January
1994 and is a member of the Bank's Executive Loan Committee. Ms. Barnes is a
former Judge of the D.C. Superior Court and currently serves as the Vice
President of Corporate Relations for Potomac Electric Power Co.

Mr. George Connors has served as Senior Vice President of the Bank
since July 8, 1996. He has been employed by the Bank since 1990 where he has
been involved principally in the generation and maintenance of commercial loan
and deposit relationships.

Mr. Marvin Fabrikant has served as a director of the Bank since 1994
and is a member of the Bank's Executive Loan Committee. Mr. Fabrikant has been
engaged in private investments since 1991.

Mr. Thomas B. Hoppin has served as a member of the Board of Directors
of the Bank since 1988. Mr. Hoppin also served as the President and Chief
Operating Officer of the Bank from 1988 through August 14, 1996. Mr. Hoppin
also serves as a member of the Bank's Executive Loan Committee, Asset/Liability
Committee, and Legal Matters Review Committee. Mr. Hoppin is Executive Vice
President of Medical Services Corporation International.

Mr. Robert W. Hutchins has served as Executive Vice President of the
Bank since 1989. Mr. Hutchins has served as Chief Lending Officer of the Bank
since 1990. Mr. Hutchins also serves as a member of the Bank's Executive Loan
Committee and Asset/Liability Committee, and has been the Virginia Division
Manager since January 1996.

Mr. Roger C. Johnson has served as a director of the Bank since 1987.
Mr. Johnson also serves as Chairman of the Legal Matters Committee and is a
member of the Personnel Committee. Mr. Johnson is a senior partner with the
law firm of Koonz, McKenney, Johnson & Regan.

Dr. Michael E. Kossak has served as a director of the Bank since 1987.
Dr. Kossak also serves as a member of the Audit Committee as well as the
Marketing Committee. Dr. Kossak is a periodontist.

Ms. Ellen B. Safir has served the Company as a director since 1994.
Ms. Safir also serves a member of the Company's Asset/Liability Committee.
Since 1986, Ms. Safir has been affiliated with the Howard Hughes Medical
Institute, and presently serves as the Institute's Managing Director of
Investments.

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<PAGE> 57
Ms. Linda W. Townsend has been a Senior Vice President of the Bank
since August, 1996. She also served as an officer of the Bank from 1984-1990.
Prior to her rejoining the Bank, from 1991-1994, Ms. Townsend served as Senior
Vice President at Tysons National Bank, where she managed operations, retail,
accounting and human resources. From 1995-1996, Ms. Townsend served as a
business analyst for the banking services division of a financial services
group.

EXECUTIVE COMPENSATION

Executive Officer Compensation

The following table sets forth information regarding the compensation
for the Company's Chief Executive Officer and each other executive officer who
received compensation in excess of $100,000 for the year ended December 31,
1995:

<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------- ----------------------
Name and Principal Other Annual Securities Underlying
Position Year Salary Bonus Compensation Options
- ----------------------------- ---- ------ ----- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
Mr. Joseph S. Bracewell 1995 $ 182,300 $ 11,841 (1) 1,605
President and Chief
Executive Officer of
the Company; Chief
Executive Officer of
the Bank

Mr. Thomas B. Hoppin 1995 $ 117,200 10,643 (1) 1,605
President and Chief
Operating Officer of
the Bank(2)
</TABLE>

_________________

(1) Neither of the named executive officers received any other annual
compensation, perquisites or other personal benefits, securities or
property that exceeded the lesser of $50,000 or 10% of the total
annual salary and bonus reported for such named executive officer.

(2) Mr. Hoppin resigned as President and Chief Operating Officer of the
Bank on August 14, 1996.

Director Compensation

Each member of the Board of Directors of the Company and/or the Bank
receives a retainer of $4,200 annually ($6,000 for those directors serving on
the Boards of both the Company and the

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<PAGE> 58

Bank) provided the director attends at least two-thirds of the meetings of the
Board of Directors. No additional compensation is paid for service on standing
committees. Directors are permitted to defer cash fees in lieu of a deferred
compensation plan to provide retirement income, as described below.

The Company has entered into Director Compensation Agreements (the
"Compensation Agreements"), with the directors of the Company and the Bank,
other than Mr. Fabrikant. Each director may elect to enter into a Compensation
Agreement in lieu of receiving director's fees in cash. The Compensation
Agreements generally provide for the purchase of life insurance for each
director with the deferred director's fees and the payment of a retirement
benefit for 180 months following retirement, or in the case of an individual's
death prior to retirement, the payment of an amount for a period of months,
generally 120-180 months following a director's death. The retirement benefit
granted under the Compensation Agreement vests pursuant to a schedule, with 20%
of the pension benefit vesting each year over a five year period.

Prior Stock Option Plans

In 1986, the Board of Directors of the Company approved an Incentive
Stock Option Plan for Key Employees, a Nonqualified Stock Option Plan for Key
Employees and a Nonqualified Stock Option Plan for Directors (collectively
referred to herein as the "1986 Plans"). The purpose of each of the plans was
to encourage ownership of the Company's Common Stock by key employees and
directors of the Company and its subsidiaries. A total of 130,000 shares of
Common Stock were reserved under the 1986 Plans. Under the 1986 Plans, the
exercise price of any option granted could not be less than the fair market
value of the Common Stock subject to the option on the date the option was
granted. All of the 1986 Plans were administered by various "option"
committees of the Board of Directors of the Company. The 1986 Plans expired
during 1992 and 1993; however, many of the options granted under the 1986 Plan
are still exercisable by the optionee. In April 1994, the 1986 Plans were
replaced by the Company's 1994 Stock Option Plan described below.

1994 Stock Option Plan

The Company has reserved 150,000 shares of its Common Stock for the
issuance of incentive stock options and nonqualified stock options to directors
and key employees under the Century Bancshares, Inc. 1994 Stock Option Plan
(the "1994 Plan"). The Board of Directors approved the 1994 Plan in April 1994
and it was approved by the Company's stockholders in May 1994. The 1994 Plan
provides for the issuance of stock options covering up to 150,000 shares of
Common Stock, subject to adjustment in certain events. The 1994 Plan is
administered by the Company's Compensation Committee and provides that the
options granted under the 1994 Plan may be either incentive stock options
pursuant to Section 422A of the Internal Revenue Code of 1986, as amended, or
nonqualified options. Directors and certain key employees are entitled to
participate under the 1994 Plan.

-58-

<PAGE> 59
Options granted under the 1994 Plan will terminate (i) ten years after
the date the option was granted, unless the option was granted for a shorter
period, (ii) five years from the date of grant in the case of an incentive
stock option granted to a 10% or more stockholder of the Company, (iii) three
months after the date on which employment with the Company was terminated, or
(iv) one year after the death or disability of an optionee. Options granted
under the 1994 Option Plan are not transferable by the optionee, other than by
will or the laws of descent and distribution.

As of September 30, 1996, options to purchase 168,207 shares of Common
Stock at exercise prices ranging from $1.61 to $6.00 were outstanding
(including 56,285 options issued pursuant to the Company's 1986 Plans). There
are 53,967 shares of Common Stock available for future grants under the 1994
Plan.

Options Granted to Certain Executives in Last Fiscal Year

During the fiscal year ended December 31, 1995, the Company granted
the following options to purchase the Company's Common Stock to the executive
officers of the Company and the Bank listed in the Summary Compensation Table.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO PER SHARE FOR OPTION TERM
OPTIONS/ SARS EMPLOYEES IN EXERCISE EXPIRATION -----------
NAME GRANTED (1) 1995 PRICE (1) DATE 5% 10%
---- ------- ---- ----- ---- --- --
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Bracewell 1,605 4.6% $5.37 May 17, 2002 $3,509 $8,177

Thomas B. Hoppin 1,605 4.6% $5.37 May 17, 2002 3,509 8,177
</TABLE>

- -----------------

(1) Adjusted to give effect to a 7% stock dividend declared in March
1996.

Options Exercised During Last Fiscal Year

During the fiscal year ended December 31, 1995, no options were
exercised by executive officers of the Company.

-59-

<PAGE> 60
EMPLOYMENT AGREEMENTS

The Company and Mr. Bracewell have entered into an Employment
Agreement which became effective on September 1, 1996 and will terminate on
August 31, 1998 unless renewed by the parties on written notice. Under the
Employment Agreement, Mr. Bracewell receives an annual salary of $182,300, the
use of a Company car, the payment by the Company of life insurance premiums,
and certain country club dues. Upon termination of Mr. Bracewell's employment
during the term of the Employment Agreement (except by reason of his death or
upon termination by the Company for cause), Mr. Bracewell would be entitled to
receive a payment in an amount equal to twice his annual salary, maintenance of
certain health care and life insurance benefits for a period of one year
subject to extension after such time at Mr. Bracewell's expense, and all his
stock options would automatically vest. If Mr. Bracewell elects not to renew
the Employment Agreement upon its expiration, the Employment Agreement provides
for a severance payment in the amount of his annual salary. In the event of a
change of control, all of Mr. Bracewell's stock options automatically vest.
Under the Employment Agreement, a "change of control" means (i) the acquisition
by any person or group of persons of beneficial ownership of securities
representing more than fifty percent (50%) of the combined voting power of the
then outstanding voting securities of the Company or the Bank, (ii) a
reorganization with respect to which those persons who had been beneficial
owners of the voting securities of either the Bank or the Company immediately
prior to such reorganization do not, following such reorganization,
beneficially own shares representing more than 50% of the combined voting power
of the voting securities of the resulting corporation, (iii) a sale of
substantially all the assets of the Bank or Company, (iv) the cessation for any
reason of the individuals who constituted the Board of Directors of the Company
on the date of the agreement (the "Incumbent Board"), to constitute at least a
majority of the Incumbent Board, provided that any person becoming a director
subsequent to the date of the agreement whose election or whose nominations for
election by the Company's stockholders was approved by a majority vote of the
directors comprising the Incumbent Board are, for purposes of the agreement,
considered as though he or she were a member of the Incumbent Board, or (v) a
change in the Company's status requiring prior notice to the Board of Governors
of the Federal Reserve System and/or the OCC pursuant to the Change in Bank
Control Act of 1978 and regulations promulgated thereunder. Mr. Bracewell has
agreed not to compete with the Company during the term of the Employment
Agreement and for 12 months thereafter.

CERTAIN TRANSACTIONS

The Bank has and expects to have various loan transactions with
directors, officers and employees of the Company and the Bank. All loans that
have been made and any loans in the future will be made in the ordinary course
of business and on the same terms and conditions, including interest rates and
collateral, as those of comparable transactions prevailing at the time with
non-affiliated parties and, in the opinion of management do not and will not
involve more than the normal risk of collectibility or otherwise present other
terms less favorable to the Bank than would otherwise be obtained with
unrelated persons. See "Management's Discussion and Analysis of

-60-

<PAGE> 61
Financial Condition and Results of Operations--Analysis of Financial Condition-
- -Loans and Asset Quality" and Note 4 of the Notes to Consolidated Financial
Statements.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of September 30, 1996, the shares
of Common Stock beneficially owned by (i) any person who, to the knowledge of
the Company, beneficially owns more than 5% of such stock, (ii) the directors
of the Company and the executive officers of the Company and the Bank and (iii)
all directors of the Company and executive officers of the Company and the Bank
as a group.

<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Number of Shares(1) Percent of Class
- -------------------- ------------------- ----------------
<S> <C> <C>
Joseph S. Bracewell 139,398(2) 10.82%
1875 Eye Street, N.W.
Washington, D.C. 20004

George Contis 56,462(3) 4.99%
1716 Wilson Boulevard
Arlington, Virginia 22209

John R. Cope 35,123(4) 3.11%
2000 K Street, N.W.
Suite 500
Washington, D.C. 20006

Bernard J. Cravath 70,741(5) 6.20%
9812 Falls Road, Suite 201
Potomac, Maryland 20854

Neal R. Gross 106,622(6) 9.43%
1323 Rhode Island Ave., N.W.
Washington, D.C. 20005

Thomas B. Hoppin 25,810(7) 2.27%
1875 Eye Street, N.W.
Washington, D.C. 20004

Robert W. Hutchins 18,058(8) 1.59%
1875 Eye Street, N.W.
Washington, D.C. 20004

</TABLE>

-61-

<PAGE> 62

<TABLE>
<S> <C> <C>
Joseph H. Koonz, Jr. 67,760(9) 5.99%
2020 K. Street, N.W.
Washington, D.C. 20006

William S. McKee 60,637(10) 5.34%
1730 Pennsylvania Ave., N.W.
Washington, D.C. 20006

William C. Oldaker 66,780(11) 5.83%
818 Connecticut Ave., N.W.
Suite 1100
Washington, D.C. 20006

All directors of the Company and executive 647,391 55.57%
officers of the Company and the Bank
as a group (10 persons)

- -------------------------
</TABLE>

(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole investment and voting power over the shares of Common
Stock and/or Preferred Stock owned.

(2) Includes 25,416 shares held directly by Mr. Bracewell, 3,288 shares held
by his children, 20,957 shares held as Trustee, 34,205 shares held for the
benefit of Mr. Bracewell in the 401(k) plan maintained by the Bank and
6,441 shares of Common Stock held by Mr. Bracewell in individual
retirement accounts. Also includes 24,975 shares of Common Stock issuable
upon exercise of options which are exercisable within the next 60 days and
24,116 shares issuable on the exercise of Warrants.

(3) Includes 7,089 shares of Common Stock issuable upon exercise of currently
exercisable options and 697 shares issuable on the exercise of Warrants.

(4) Includes 6,209 shares of Common Stock issuable upon exercise of currently
exercisable options and 279 shares issuable on the exercise of Warrants.
Also includes 784 shares of Common Stock held by Mr. Cope's wife, Jan
Naylor Cope; 5,521 shares of Common Stock held by The Lloyd Chapman Cope
Family Trust; 2,315 shares of Common Stock held by the Lloyd Chapman Cope
Trust and 261 shares of Common Stock held by John Cope, as Trustee for the
Lloyd Chapman Cope Family Trust.

(5) Includes 1,237 shares of Common Stock held by Mr. Cravath's wife, Jeanne
Cravath. Also includes 7,894 shares of Common Stock issuable upon
exercise of currently exercisable options and 8,694 shares issuable on the
exercise of Warrants.

(6) Includes 6,718 shares of Common Stock issuable upon exercise of currently
exercisable options.

(7) Includes 15,221 shares of Common Stock issuable upon exercise of currently
exercisable options and 3,375 shares issuable on the exercise of
Warrants.

(8) Includes 9,663 shares of Common Stock issuable upon exercise of currently
exercisable options and 8,395 shares of Common Stock held for the benefit
of Mr. Hutchins in the 401(k) plan maintained by the Bank.

(9) Includes 7,894 shares of Common Stock issuable upon exercise of currently
exercisable options. Includes 59,866 shares of Common Stock held as joint
tenants with Ann G. Koonz.

(10) Includes 7,894 shares of Common Stock issuable upon exercise of currently
exercisable options and 4,194 shares issuable on the exercise of Warrants.

(11) Includes 7,894 shares of Common Stock issuable upon exercise of currently
exercisable options and 14,469 shares issuable on the exercise of the
Warrants. Also includes 10,586 shares of Common Stock held in individual
retirement accounts for Mr. Oldaker's benefit.

-62-

<PAGE> 63
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 2,000,000
shares of Common Stock, par value $1.00 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share, issuable in series. The terms of
each series of preferred stock may be fixed by the Board of Directors of the
Company, within certain limits set by the Company's Certificate of
Incorporation, as amended. As of September 30, 1996, there were 1,126,903
shares of Common Stock outstanding, and no shares of preferred stock
outstanding.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share
held on all matters with respect to which the holders of Common Stock are
entitled to vote. The Common Stock has no preemptive or conversion rights and
is not subject to redemption. Holders of Common Stock are not entitled to
cumulative voting in the election of directors. In the event of dissolution or
liquidation, after payment of all creditors the holders of the Common Stock
(subject to the prior rights of the holders of any outstanding preferred stock)
will be entitled to receive pro rata any assets distributable to stockholders
in respect of the number of shares held by them.

The holders of shares of Common Stock are entitled to such dividends
as the Board of Directors, in its discretion, may declare out of funds legally
available therefor. Under the Delaware General Corporation Law, dividends may
not be paid if, after the payment, the Company's total assets would be less
than the sum of its total debts and stated capital, or if the Company would be
unable to pay its debts as they become due in the usual course of its business.
The Company has not paid dividends on shares of its Common Stock to date. The
Company does not anticipate paying dividends on the Common Stock in the
foreseeable future. The payment of dividends on Common Stock is subject to the
prior rights of any holders of preferred stock. Payment of future dividends on
both the Common Stock and any preferred stock, will be dependent upon, among
other things, the earnings and financial condition of the Company and the Bank,
the Company's other cash flow requirements and the general economic and
regulatory climate. See "Dividend Policy of the Company" and "Risk Factors--
Restrictions on Dividends by the Company, "Risk Factors--Restrictions on
Dividends by the Bank," and "Business and Regulation."

The Transfer Agent and Registrar for the Common Stock is Chase Mellon
Shareholder Services, Inc.

THE WARRANTS

The following discussion of the principal terms of the Warrants is
qualified in its entirety by reference to the form of Warrant which has been
filed as an exhibit to this Registration Statement.

-63-

<PAGE> 64
The Warrants are in registered form, with each such Warrant entitling
the registered owner thereof to purchase one share of Common Stock at an
exercise price of $5.75 per share, subject to antidilutive adjustments. As a
result of certain stock dividends, as of the date of this Prospectus, each
Warrant entitles the registered holder thereof to purchase 1.07 shares of
Common Stock at an exercise price of $5.75 per share. The Warrants will
automatically expire at 5:00 p.m., Washington D.C. time, on November 16, 1998
(the "Expiration Date"). The Warrants are exercisable after November 14, 1996
at any time by surrendering the Warrants, with the subscription form properly
completed and duly executed, to the Company together with the payment of the
applicable exercise price in lawful money of the United States of America, in
cash or by certified check or bank draft payable to the order of the Company.

The Company has the option, on and after November 14, 1997 and prior
to 5:00 p.m. Washington, D.C. time on the Expiration Date to repurchase the
Warrants at a price equal to $.26 per Warrant (the "Warrant Call Price"). The
Company may exercise its right to repurchase the Warrants by mailing notice of
its election to do so to the record holder of the Warrant at least 30, but no
more than 50, days prior to the date fixed for such repurchase (the "Warrant
Call Date"). Each such notice shall specify (i) the Warrant Call Date, (ii)
the Warrant Call Price, (iii) the place for payment and for delivering this
Warrant certificate and transfer instrument(s) in order to receive the Warrant
Call Price, (iv) the number of Warrants to be repurchased, and (v) the then
effective exercise price and that the right of the holder of this Warrant to
exercise such Warrants shall terminate as to the Warrants specified in the
Warrant Call Notice at the close of business on the Warrant Call Date (provided
that no default by the Company in the payment of the applicable Warrant Call
Price shall have occurred and be continuing on the Warrant Call Date). Any
notice mailed in such manner shall be conclusively deemed to have been duly
given regardless of whether such notice is in fact received. If less than all
of the outstanding Warrants are to be repurchased, then the Company will select
the Warrants to be repurchased on a pro rata basis, by lot or by another
equitable method. In order to facilitate the repurchase of the Warrants, the
Board of Directors of the Company may fix a record date for determination of
holders of Warrants to be called, which shall not be more than 60 days prior to
the Warrant Call Date with respect thereto. If no record date is fixed by the
Board of Directors, the record date shall be the date the Warrant Call Notice
is mailed.

Provision is made in the Warrants for adjustment of the price and
number of shares of Common Stock purchasable upon exercise of the Warrant in
the event of a stock dividend, stock split, or reclassification of shares, and
certain reorganizations, consolidations and mergers. Holders of the Warrants
as such will not have voting, dividend or other rights as stockholders of the
Company unless and until their Warrants have been duly exercised.

PREFERRED STOCK

The preferred stock is available for issuance from time to time for
various purposes as determined by the Company's Board of Directors, including
without limitation, making future acquisitions and raising additional equity
capital. Subject to certain limitations set forth in the

-64-

<PAGE> 65
Company's Certificate of Incorporation, as amended, the preferred stock may be
issued on such terms and conditions, and at such times and in such situations,
as the Board of Directors in its sole discretion determines to be appropriate,
without any further approval or action by the stockholders, unless otherwise
required by laws, rules, regulations or agreements applicable to the Company.

Because the Certificate of Incorporation of the Company does not
prescribe rights and preferences, the Board of Directors of the Company has
virtually unlimited authority to set rights and preferences of any series
established, including voting rights. The effects of the issuance of preferred
stock on the stockholders could include, among other things, (i) reduction of
the amount otherwise available for payments of dividends on Common Stock if
dividends are payable on a series of preferred stock; (ii) restrictions on
dividends on Common Stock if dividends on the series of preferred stock are in
arrears, (iii) dilution of the equity interest of holders of Common Stock if
the series of preferred stock is convertible, and is converted, into Common
Stock; and (iv) restrictions on the rights of holders of Common Stock to share
in the Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the holders of the series of preferred stock.

ANTI-TAKEOVER PROTECTIONS

As described above, the Company's Certificate of Incorporation permits
the issuance of preferred stock in series by action of the Board of Directors.
Although the Company has no plans to utilize the issuance of shares of
preferred stock as a deterrent to possible takeover attempts, the power to
issue shares of preferred stock in series and to determine certain rights and
preferences with respect to each such series may have dilutive effect on the
value of shares of Common Stock and other ownership rights of the holders of
Common Stock, and may have the effect of discouraging attempts to acquire
control of the Company.

The Company's Certificate of Incorporation and Bylaws contain certain
provisions, in addition to the authority to issue preferred stock in series,
which may have the effect of delaying or preventing a change in control of the
Company. The Company's Certificate of Incorporation contains provisions which
prohibit stockholder action by written consent and which require certain
extraordinary corporate transactions, including amendment to the Certificate of
Incorporation, to be approved by the vote of the holders of two-thirds of the
outstanding shares of capital stock entitled to vote thereon, rather than a
majority of such shares. The effect of these provisions, when coupled with
existing statutory restrictions on the purchase of voting securities of a
registered bank holding company, may be to delay or prevent a change in control
of the Company.

The Bylaws of the Company also impose certain procedural requirements
on stockholders who wish (a) to make nominations in the election of directors
or (b) to present any other proposal to the stockholders for action, including
any repeal or change in the Bylaws of the Company. The requirements include,
among other things, the timely delivery to the Company's Secretary of notice of
the nomination or proposal and evidence of (i) the stockholder's status as
such, (ii) the number of shares the stockholder beneficially owns, (iii) a list
of the persons with whom the stockholder is

-65-

<PAGE> 66
acting in concert and (iv) the number of shares such persons beneficially own.
The Bylaws further provide that when nominating directors, the stockholder must
also submit such information with respect to the nominee as would be required
by a proxy statement and certain other information. The Bylaws provide that
failure to follow the required procedures renders the nominee or proposal
ineligible to be voted upon by the stockholders.

The Company believes that the provisions noted above are prudent and
will reduce the Company's vulnerability to takeover attempts and certain other
transactions that are not negotiated with or approved by the Board of
Directors. In the judgment of the Company, its Board of Directors will be in
the best position to determine the true value of the Company and negotiate
effectively for what might be in the best interests of its stockholders.
Accordingly, the Company believes that it is in the best interests of the
Company and its stockholders to encourage potential acquirors to negotiate
directly with the Board of Directors, and that these provisions will both
encourage this negotiation and discourage hostile takeover attempts. It is
also the Company's view that these provisions should not discourage persons
from proposing mergers or other transactions at prices that reflect the true
value of the Company and are in the best interest of all of the stockholders.

PLAN OF DISTRIBUTION

The shares of Common Stock issuable upon the exercise of the Warrants
are being offered by the Company through its officers and directors who will
receive no commissions or other direct or indirect compensation in connection
therewith. This Prospectus will be delivered to all Warrant holders of record
as of the date hereof. Any supplement or amendment to this Prospectus will be
provided to all Warrant holders of record on the date the same is filed with or
declared effective by the Securities and Exchange Commission, as applicable.

The Warrants are exercisable at a price of $5.75 through November 16,
1998. Persons who wish to exercise their Warrants must deliver an executed
Warrant with the Subscription Form, duly executed and accompanied by payment in
check or money order payable to "Century Bancshares, Inc." (the "Warrant
Agent"). All payments must be received by the Warrant Agent prior to the
Expiration Date, and Warrants which are not exercised prior to the Expiration
Date will expire.

The Company may redeem the Warrants, in whole or in part, at any time
after November 14, 1997 until the Expiration Date. See "Description of Capital
Stock--The Warrants."

EXPERTS

The consolidated statements of financial condition as of December 31,
1995 and 1994 and the consolidated statements of operations, statements of
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995, included in this Prospectus have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat

-66-

<PAGE> 67
Marwick LLP, Independent Certified Public Accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

LEGAL MATTERS

The validity of the shares of Common Stock will be passed upon for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Mr. John R. Cope, a
director and officer of the Company as well as the Bank, is a partner in the
law firm of Bracewell & Patterson, L.L.P. Mr. Cope and other partners of
Bracewell & Patterson, L.L.P. own in the aggregate approximately 4% of the
shares of Common Stock.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement"), on Form S-1 under the Securities Act with respect to the Common
Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement, of which this Prospectus is a part. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits, annexes and schedules
thereto. Although the Prospectus contains a discussion of the terms of any
contracts or other documents referred to in the Prospectus that the Company
believes to be material to investors, statements contained in this Prospectus
are not necessarily complete. In each instance, if such contract is filed as
an exhibit, each such statement is qualified in its entirety by reference to
such exhibit. The Registration Statement and the exhibits and schedules
thereto may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and upon request at the Commission's regional offices located at:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Copies of such information may be accessed through the
Commission's Internet web site at http://www.sec.gov.

-67-
<PAGE> 68

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
CENTURY BANCSHARES, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
CENTURY BANCSHARES, INC. AND SUBSIDIARY,
CONSOLIDATED FINANCIAL STATEMENTS:

INTERIM PERIODS (UNAUDITED):

Consolidated Statement of Financial Condition as of September 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Statements of Operations for the nine month periods
ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statement of Stockholders' Equity for the nine months
ended September 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Condensed Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . F-6

FULL FISCAL YEARS (AUDITED):

INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Consolidated Statements of Financial Condition as of December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-10

Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-11

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-13

Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-14

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .F-16
</TABLE>

F-1
<PAGE> 69
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 3,089,055
Interest-bearing deposits in other banks 9,231,996
Investment securities available-for-sale,
at fair value (Note 1) 6,505,876
Investment securities held to maturity, at cost,
fair value of $717,924 (Note 1) 716,945
Loans, net of unearned income 72,265,260
Less - allowance for loan losses (738,159)
-------------

Loans, net 71,527,101

Leasehold improvements, furniture, and equipment, net 1,649,199
Accrued interest receivable 566,861
Other real estate owned 182,658
Deposit premium (Note 2) 281,175
Other assets 1,198,830
-------------
$ 94,949,696
=============

Liabilities and Stockholders' Equity
------------------------------------

Liabilities:
Deposits:
Noninterest-bearing $ 19,322,401
Interest-bearing 64,464,658
-------------

Total deposits 83,787,059

Short-term borrowings 593,338
Long-term borrowings 2,800,000
Other liabilities 843,436
-------------

Total liabilities 88,023,833
-------------

Stockholders' equity (Note 3):

Preferred stock, issuable in series, 1,000,000 shares
authorized, no shares issued and outstanding --

Common Stock, $1 par value; 2,000,000 shares authorized;
1,126,903 shares issued and outstanding at September 30, 1996 1,126,903
Additional paid-in capital 4,834,395
Retained earnings 1,031,602
Unrealized loss on investment securities available-for-sale,
net of tax effect ( 67,037)
-------------

Total stockholders' equity 6,925,863

Commitments and contingencies
-------------
$ 94,949,696
=============
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-2
<PAGE> 70
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $5,130,672 $4,374,051
Interest on federal funds sold -- 36,989
Interest on deposits in other banks 98,141 19,423
Interest on investment securities 427,809 779,139
---------- ----------

Total interest income 5,656,622 5,209,602
---------- ----------

Interest expense:
Interest on deposits:
Certificates $100,000 and over 547,207 448,335
Certificates under $100,000 476,206 461,956
NOW accounts 186,857 189,528
Savings accounts 42,942 51,899
Money market accounts 569,665 583,678
Interest on short-term borrowings 113,184 133,234
Interest on long-term borrowings 78,945 --
---------- ----------

Total interest expense 2,015,006 1,868,630
---------- ----------

Net interest income 3,641,616 3,340,972

Provision for loan losses 63,000 44,866
---------- ----------

Net interest income after
provision for loan losses 3,578,616 3,296,106
---------- ----------

Noninterest income:
Service charges on deposits accounts 300,426 229,350
Other operating income 235,877 170,327
---------- ----------

Total noninterest income 536,303 399,677
---------- ----------

Noninterest expenses:
Salaries and employee benefits 1,425,939 1,360,509
Occupancy and equipment expense 295,875 382,273
Depreciation and amortization 331,919 124,582
Professional fees 339,449 255,072
Data processing 198,738 165,428
Federal deposit insurance premiums 27,484 88,146
Communications 156,840 111,135
Other real estate owned 19,289 48,444
Other operating expenses 674,561 394,056
---------- ----------

Total noninterest expenses 3,470,094 2,929,645
---------- ----------

Income before income tax
expense 644,825 766,138

Income tax expense 248,504 292,235
---------- ----------
Net income $ 396,321 $ 473,903
========== ==========

Income per common share
(Note 4) $ .34 $ .45
========== ==========

Weighted average common and common
equivalent shares outstanding (Note 4) 1,174,843 971,540
========== ==========
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements

F-3
<PAGE> 71
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
Common Stock Unrealized loss
--------------------------- on investment
Additional Retained securities
Shares Amount paid-in-capital earnings available-for-sale Total
------------ ------------ --------------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,046,047 $ 1,046,047 $ 4,410,876 $ 1,110,086 $ (68,064) $ 6,498,945
Stock dividend (7% of
shares outstanding) 73,047 73,047 401,758 (474,805) -- --
Issuance of common stock on
exercise of stock options 7,809 7,809 21,761 -- -- 29,570

Net income -- -- -- 396,321 -- 396,321
Unrealized gain on investment
securities available for
sale, net of tax effect -- -- -- -- 1,027 1,027
------------ ------------ ----------- ------------ ------------- -----------

Balance, September 30, 1996 1,126,903 1,126,903 4,834,395 1,031,602 (67,037) 6,925,863
============ ============ =========== ============ ============= ===========
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-4
<PAGE> 72
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Net Income $ 396,321 $ 471,492
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 331,919 124,584
Provision for loan losses 63,000 44,866
Provision for losses on other real estate owned 10,000 --
Loss on sale of other real estate owned -- 11,833
Loss on sale of securities -- 3,197

(INCREASE) DECREASE IN:

Accrued interest receivable 22,269 (104,099)
Other assets (316,768) (658,138)

INCREASE (DECREASE) IN:
Other liabilities 51,059 168,470
------------- ------------

NET CASH PROVIDED BY OPERATING ACTIVITIES 557,800 62,205
------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Loan repayments (originations) and recoveries, net $ (3,024,082) $ (4,660,483)
(Increase) in interest bearing deposits
in other banks (3,200,296) (1,955,854)
Purchases of securities available for sale -- (1,010,160)
Maturities of securities available for sale 6,454,766 2,987,013
Proceeds from sale of securities available for sale -- 3,735,234
Purchase of leasehold improvements, furniture and equipment (587,389) (672,892)
-------------- ------------

NET CASH PROVIDED BY INVESTING ACTIVITIES (357,001) (1,577,142)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit $ 2,503,591 $ 57,073
Net (decrease) in demand, savings and
money market deposits (9,255,894) (103,756)
Deposit premium -- (62,845)
Proceeds from issuance of common stock 29,570 23,477
(Decrease) in short-term borrowings (3,214,572) 1,887,545
Increase in long-term borrowings 2,800,000
------------- ------------

NET CASH USED BY FINANCING ACTIVITIES (7,137,305) 1,801,494
------------- ------------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (6,936,506) 286,557

CASH AND CASH EQUIVALENT, BEGINNING OF YEAR 10,025,561 5,912,803
------------- ------------

CASH AND CASH EQUIVALENT, SEPTEMBER 30TH $ 3,089,055 $ 6,199,360
============= ============

SUPPLEMENTAL DISCLOSURES:

INTEREST PAID ON DEPOSITS AND BORROWINGS $ 2,011,141 $ 1,804,151
------------- ------------

INCOME TAXES PAID (REFUNDED) $ 634,988 $ 87,656
------------- ------------

TRANSFER OF LOANS TO OTHER REAL ESTATE OWNED $ -- $ 993,496
------------- ------------
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-5
<PAGE> 73
CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996 AND 1995

The unaudited consolidated financial statements as of and for the nine
months ended September 30, 1996 and September 30, 1995 have not been audited
but, in the opinion of management, contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations of the Company as of such date and for such
periods. The unaudited consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto appearing elsewhere herein. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31,
1996 or for any future periods.

(1) Investment Securities

Investment securities available-for-sale, and their contractual
maturities, at September 30, 1996, are summarized as follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury,
government agencies and
corporations:
Within one year $ 2,998,643 -0- $ 1,769 $2,996,874
After one, but within five years 1,000,000 -0- 18,600 981,400
After ten years 963,526 -0- 33,553 929,973
----------- ---- ------- ----------
Total 4,962,169 -0- 53,922 4,908,247

Collateralized mortgage obligations:
After ten years 1,646,841 -0- 49,212 1,597,629
----------- ---- ------ ----------

Total investment securities
available-for-sale $ 6,609,010 -0- $103,134 $6,505,876
=========== === ======== ==========
</TABLE>

F-6
<PAGE> 74
Investment securities held-to-maturity at September 30, 1996, are summarized as
follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value

<S> <C> <C> <C> <C>
Municipal securities:
Within one year $ 85,000 $ -0- -0- $ 85,000
After one, but within five years 164,895 844 -0- 165,739
--------- ----- ------- -------
Total $249,895 844 -0- 250,739

Federal Reserve Bank stock 119,350 -0- -0- 119,350
Federal Home Loan Bank stock 347,700 -0- -0- 347,700
--------- ----- ------- -------

Total investment securities
held-to-maturity $716,945 $ 844 -0- $717,789
======== ====== ======= ========
</TABLE>

(2) Deposit Premium and SAIF Insurance

Because it retained possession of the Pennsylvania Avenue branch lease
space previously occupied by the Resolution Trust Corporation ("RTC"), the
Company was obligated to purchase from the RTC all of the branch-related
furniture, fixtures, and equipment at the RTC's book value. This price
exceeded the fair value of certain assets purchased in 1994 by $62,045, which
amount was classified as an additional premium paid for the acquisition of the
branch deposits. The purchased deposits of the Pennsylvania Avenue branch are
insured by the Savings Association Insurance Fund ("SAIF"). The Company
accrued a one-time insurance premium of approximately $21,000 on its SAIF
deposits at September 30, 1996 as a result of recent Federal legislation.

The Company expects its January 1, 1997 assessment pursuant to the
Bank's SAIF-insured deposits to be $2,644.

F-7
<PAGE> 75
(3) Stock Option Plans

Stock option transactions for the nine months ended September 30,
1996, are summarized as follows:

<TABLE>
<CAPTION>
Total Options Option Price Per Share
------------- ----------------------
<S> <C>
Outstanding, January 1, 1996 152,250 $1.61 to $5.37

Granted 33,985 $6.00
Forfeited (10,219) $2.22 to $6.00
Exercised (7,809) $2.22 to $5.37
-------

Outstanding, September 30, 1996 168,207 $1.61 to $6.00
=======

Exercisable, September 30, 1996 148,352 $1.61 to $6.00
=======
</TABLE>

In connection with the 7% stock dividend payable to stockholders of record as
of March 31, 1996, the number of shares subject to any outstanding options, as
well as the exercise price per share, have been appropriately and equitably
adjusted, pursuant to the stock option plans, so as to maintain the
proportionate number of shares without changing the aggregate option price. In
the table above, the shares and prices per share have been adjusted to reflect
the stock dividend.

(4) Income Per Common Share

On March 19, 1996, the Company declared a 7% stock dividend to Common
Stock holders of record as of March 31, 1996, resulting in the issuance of
73,047 shares of Common Stock on April 20, 1996. Weighted average shares
outstanding and income per common share have been restated for the effect of
the stock dividend.

F-8
<PAGE> 76
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Century Bancshares, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Century Bancshares, Inc. and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Century Bancshares,
Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

/s/ KPMG Peat Marwick LLP

Washington, D.C.
March 15, 1996, except as to Note 17, which is as of March 19, 1996
<PAGE> 77
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and due from banks $ 8,045,561 5,912,803
Federal funds sold 1,980,000 -
Interest bearing deposits in other banks 6,031,700 192,767
Investment securities available-for-sale, at fair value 12,961,735 21,679,053
Investment securities, at cost, fair value of $718,849 and
$774,426 in 1995 and 1994, respectively 716,879 782,202
Loans, net of unearned income 69,203,965 60,663,208
Less - allowance for loan losses (740,000) (740,000)
------------- ----------
Loans, net 68,463,965 59,923,208
------------- ----------
Leasehold improvements, furniture, and equipment, net 1,454,056 239,622
Accrued interest receivable 589,130 581,621
Other real estate owned 192,658 -
Deposit premium 320,847 293,045
Other assets 882,062 524,821
------------- ----------
$ 101,638,593 90,129,142
------------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Noninterest-bearing $ 24,712,204 20,122,284
Interest-bearing 65,827,158 61,958,975
------------- ----------
Total deposits 90,539,362 82,081,259
Short-term borrowings 3,807,910 2,883,836
Other liabilities 792,376 287,146
------------- ----------
Total liabilities 95,139,648 85,252,241
------------- ----------
Stockholders' equity:
Preferred stock, issuable in series, 1,000,000 shares
authorized: Series A cumulative preferred stock,
$1 par value; $7.50 liquidation preference (none
in 1995 and $459,953 in 1994); no shares
issued and outstanding in 1995 and 66,500 shares
authorized, 61,327 shares issued and outstanding
in 1994 - 61,327
Common stock, $1 par value; 2,000,000 shares
authorized; 1,046,047 and 823,232 shares issued
and outstanding at December 31, 1995 and 1994,
respectively 1,046,047 823,232
Additional paid in capital 4,410,876 3,855,651
Retained earnings 1,110,086 706,836
Unrealized loss on investment securities
available-for-sale, net of tax effect (68,064) (570,145)
------------- ----------
Total stockholders' equity 6,498,945 4,876,901
------------- ----------
Commitments and contingencies
$ 101,638,593 90,129,142
============= ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 78
CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $6,010,907 4,801,905 4,572,307
Interest on federal funds sold 37,145 64,967 182,451
Interest on deposits in other banks 56,258 9,622 93,211
Interest on securities available-for-sale 917,605 790,967 606,614
Interest on securities held to maturity 57,272 43,665 -
---------- --------- ---------
Total interest income 7,079,187 5,711,126 5,454,583
---------- --------- ---------
Interest expense:
Interest on deposits:
Certificates $100,000 and over 636,236 441,693 350,874
Certificates under $100,000 631,662 480,060 569,383
NOW accounts 258,428 248,148 261,651
Savings accounts 67,189 66,341 59,929
Money market accounts 777,954 617,731 700,348
Interest on loan payable - 4,246 33,622
Interest on short term borrowings 190,295 43,323 10,832
---------- --------- ---------
Total interest expense 2,561,764 1,901,542 1,986,639
---------- --------- ---------
Net interest income 4,517,423 3,809,584 3,467,944
Provision for loan losses 26,347 19,431 310,270
---------- --------- ---------
Net interest income after provision for loan losses 4,491,076 3,790,153 3,157,674
---------- --------- ---------
Noninterest income:
Service charges on deposit accounts 378,739 340,291 344,322
Other operating income 214,797 226,505 227,262
Loss on sale of securities (3,197) (11,748) -
---------- --------- ---------
Total noninterest income 590,339 555,048 571,584
---------- --------- ---------
</TABLE>

F-11
<PAGE> 79
CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Noninterest expenses:
Salaries and employee benefits $1,926,939 1,594,625 1,417,496
Occupancy and equipment expense 516,617 438,355 360,678
Depreciation and amortization 151,471 136,180 58,857
Professional fees 327,174 324,431 320,850
Data processing 332,363 180,900 216,371
Federal deposit insurance premiums 88,146 169,185 169,117
Communications 161,090 113,802 106,994
Provision for losses on other real estate owned 48,445 - 3,393
Other operating expenses 492,408 423,273 382,624
---------- --------- ---------
Total noninterest expenses 4,044,653 3,380,751 3,036,380
---------- --------- ---------
Income before income tax expense 1,036,762 964,450 692,878
Income tax expense 357,164 373,546 263,900
---------- --------- ---------
Net income $ 679,598 590,904 428,978
---------- --------- ---------
Income per common share $ .64 .58 .42
---------- --------- ---------
Weighted average common and common equivalent
shares outstanding 998,512 959,278 922,105
---------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE> 80
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 62,335 $ 62,335 743,837 $ 743,837
Stock dividend (5% of shares outstanding) - - 37,166 37,166
Stock Options - - 1,313 1,313
Preferred stock dividend ($.60 per share) - - - -
Net income - - - -
Unrealized loss on investment securities
available-for-sale, net of tax effect - - - -
------ ---------- --------- ----------
Balance, December 31, 1993 62,335 62,335 782,316 782,316
Stock dividend (5% of shares outstanding) - - 39,061 39,061
Repurchase of preferred stock (1,008) (1,008) - -
Stock Options - - 1,855 1,855
Preferred stock dividend ($.60 per share) - - - -
Net income - - - -
Unrealized loss on investment securities
available-for-sale, net of tax effect - - - -
------ ---------- --------- ----------
Balance, December 31, 1994 61,327 61,327 823,232 823,232
Stock options - - 7,831 7,831
Stock dividend (5% of shares outstanding) - - 41,072 41,072
Redemption of preferred stock (33,878) (33,878) - -
Exchange of preferred stock (27,449) (27,449) 35,814 35,814
Issuance of common stock - - 138,098 138,098
Preferred stock dividend - - - -
Net income - - - -
Unrealized gain on investment securities
available-for-sale, net of tax effect - - - -
------ ---------- --------- ----------
Balance, December 31, 1995 - $ - 1,046,047 $1,046,047
------ ---------- --------- ----------
</TABLE>

<TABLE>
<CAPTION>
UNREALIZED LOSS ON
ADDITIONAL RETAINED INVESTMENT
PAID-IN EARNINGS SECURITIES
CAPITAL (DEFICIT) AVAILABLE-FOR-SALE TOTAL
------- --------- ------------------ -----
<S> <C> <C> <C> <C>
Balance, December 31, 1992 3,933,529 (238,849) - 4,500,852
Stock dividend (5% of shares outstanding) (37,166) - - -
Stock Options 1,643 - - 2,956
Preferred stock dividend ($.60 per share) - (37,401) - (37,401)
Net income - 428,978 - 428,978
Unrealized loss on investment securities
available-for-sale, net of tax effect - - (24,844) (24,844)
--------- --------- -------- ---------
Balance, December 31, 1993 3,898,006 152,728 (24,844) 4,870,541
Stock dividend (5% of shares outstanding) (39,061) - - -
Repurchase of preferred stock (6,552) - - (7,560)
Stock Options 3,258 - - 5,113
Preferred stock dividend ($.60 per share) - (36,796) - (36,796)
Net income - 590,904 - 590,904
Unrealized loss on investment securities
available-for-sale, net of tax effect - - (545,301) (545,301)
--------- --------- -------- ---------
Balance, December 31, 1994 3,855,651 706,836 (570,145) 4,876,901
Stock options 15,616 - - 23,447
Stock dividend (5% of shares outstanding) 195,092 (236,164) - -
Redemption of preferred stock (220,207) - - (254,085)
Exchange of preferred stock (8,365) - - -
Issuance of common stock 573,089 - - 711,187
Preferred stock dividend - (40,184) - (40,184)
Net income - 679,598 - 679,598
Unrealized gain on investment securities
available-for-sale, net of tax effect - - 502,081 502,081
--------- --------- -------- ---------
Balance, December 31, 1995 4,410,876 1,110,086 (68,064) 6,498,945
--------- --------- -------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-13
<PAGE> 81
CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 679,598 590,904 428,978
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 186,682 136,180 58,857
Provision for loan losses 26,347 19,431 310,270
Provision for losses on other real estate owned 48,445 - 3,393
Loss on sale of securities available for sale 3,197 11,748 -
Loss (gain) on sale of other real estate owned 11,883 - (23,395)
(Increase) decrease in accrued interest receivable (7,509) (82,396) (48,498)
Decrease (increase) in other assets (357,241) (117,490) 157,117
Increase (decrease) in other liabilities (178,606) (255,459) 121,951
---------- ----------- -----------

Net cash provided by operating activities 412,796 302,918 1,008,673

Cash flows from investing activities:
Loan repayments and recoveries (originations), net (8,916,980) (4,077,823) (637,794)
Net decrease (increase) in interest-bearing
deposits in other banks (5,838,933) (169,388) 5,256,621
Purchases of securities available-for-sale (1,010,160) (10,454,516) (20,573,337)
Purchases of securities held to maturity - (254,852) -
Maturities of securities available-for-sale 6,553,254 7,404,794 7,300,000
Proceeds from sale of investment securities
available-for-sale 3,738,431 2,164,757 -
Purchase of leasehold improvements, furniture and
equipment, net of disposals (1,366,073) (95,203) (73,109)
Proceeds from sale of other real estate owned 96,890 - 220,000
---------- ----------- -----------

Net cash used by investing activities (6,743,571) (5,482,231) (8,507,619)
---------- ----------- -----------
</TABLE>

F-14
<PAGE> 82

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net issuances (maturities) of certificates of deposit $ 3,868,183 2,072,464 (691,535)
Net increase in demand, savings, and money market deposits 4,589,920 26,296 9,561,160
Deposit premium (62,845) (303,000) -
Repayments of loan payable - (207,000) (333,000)
Repurchase of preferred stock (254,085) (7,560) -
Issuance of common stock 734,634 5,113 2,956
Dividend paid on preferred stock (40,184) (36,796) (37,401)
Increase in short-term borrowings 1,607,910 2,200,000 -
------------ ---------- ---------
Net cash provided by financing activities 10,443,533 3,749,517 8,502,180
Net increase (decrease) in cash and cash equivalents 4,112,758 (1,429,796) 1,003,234
Cash and cash equivalents, beginning of year 5,912,803 7,342,599 6,339,365
------------ ---------- ---------
Cash and cash equivalents, end of year $10,025,561 5,912,803 7,342,599
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 2,483,398 1,902,707 1,938,141
------------ ---------- ---------
Income taxes paid (refunded) $ 19,222 (88,190) (67,694)
------------ ---------- ---------
Transfer of loans to other real estate owned $ 946,366 - -
------------ ---------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-15
<PAGE> 83
CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

The primary business of Century Bancshares, Inc. (the Company) and its
subsidiary, Century National Bank (Century Bank) is to attract
deposits from individual and corporate customers and to originate
loans secured by residential and commercial real estate, business
assets, and other personal property. The Company operates primarily in
the District of Columbia and targets individuals and businesses in
professional services as its clientele. The Company is subject to
competition from other financial institutions in attracting and
retaining deposits and in making loans. The Company and Century Bank
are subject to the regulations of certain agencies of the federal
government and undergo periodic examinations by those agencies.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The financial statements have been prepared on the accrual basis and
in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly
from those estimates.

The consolidated financial statements include the accounts of the
Company and Century Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.

INVESTMENT SECURITIES

The Company classifies its debt and marketable equity securities in
one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term. Held-to-maturity
securities are those securities that the Company has the ability and
intent to hold until maturity. All other securities not classified as
trading or held-to-maturity are classified as available-for-sale. The
Company does not engage in trading activities and, accordingly, has no
trading portfolio.

Available-for-sale and trading securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are
reported as a separate component of stockholders' equity until
realized.

A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary is charged to earnings, resulting in the establishment of a
new cost basis for the security.

F-16
<PAGE> 84

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) CONTINUED

Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when
earned. Realized gains and losses for securities classified as
available-for-sale and held-to-maturity are included in earnings and
are derived using the specific identification method for determining
the cost of securities sold.

Prepayment of the mortgages securing the collateralized mortgage
obligations may affect the maturity date and yield to maturity. The
Company uses actual principal prepayment experience and estimates of
future principal prepayments in calculating the yield necessary to
apply the effective interest method.

INCOME RECOGNITION ON LOANS

Interest on loans is credited to income as earned on the principal
amount outstanding. When, in management's judgment, the full
collectibility of principal or interest on a loan becomes uncertain,
that loan is placed on a cash basis (nonaccrual) for purposes of
income recognition. Accrued but uncollected interest on nonaccrual
loans is charged against current income.

Interest accruals are resumed on such loans only when they are brought
fully current with respect to principal and interest and when, in the
judgment of management, the loans have demonstrated a new period of
performance and are estimated to be fully collectible as to both
principal and interest.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a valuation allowance available for
losses incurred on loans. It is established through charges to
earnings in the form of provisions for loan losses. Loan losses are
charged to the allowance for loan losses when a determination is made
that collection is unlikely to occur. Recoveries are credited to the
allowance at the time of recovery.

Prior to the beginning of each year, and quarterly during the year,
management estimates whether the allowance for loan losses is adequate
to absorb losses that can be anticipated in the existing portfolio.
Based on these estimates, an amount is charged to the provision for
loan losses to adjust the allowance to a level determined to be
adequate to absorb currently anticipated losses.

F-17
<PAGE> 85
CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) CONTINUED

Management's judgment as to the level of future losses on existing
loans involves management's internal review of the loan portfolio,
including an analysis of the borrowers' current financial position,
the consideration of current and anticipated economic conditions and
their potential effects on specific borrowers; an evaluation of the
existing relationships among loans, potential loan losses, and the
present level of the loan loss allowance; and results of examinations
by independent consultants. In determining the collectibility of
certain loans, management also considers the fair value of any
underlying collateral. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowances for losses on loans and other real estate owned.
Such agencies may require the Company to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.

Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by Statement 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures
(collectively referred to as SFAS 114). SFAS 114 addresses the
accounting by creditors for the impairment of all loans except for
large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment, and certain other types of
loans specifically excluded by the Standard.

SFAS 114 requires that impaired loans be measured at the present value
of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the original loan agreement. The
adoption of SFAS 114 did not have a significant effect on the
Company's financial statements. All loans receivable have been
evaluated for collectibility under the provisions of these standards,
except for the consumer and home equity loan portfolios, which are
evaluated collectively as large groups of smaller balance homogenous
loans.

Impaired loans are specifically reviewed loans for which it is
probable that the Company will be unable to collect all amounts due
according to the terms of the loan agreement. The specific factors
that influence management's judgment in determining when a loan is
impaired include evaluation of financial strength of the borrower and
the fair value of the collateral. The Company's impaired loans are
generally nonaccrual loans and restructured loans. Restructured loans
are impaired loans in the year of restructuring and thereafter, such
loans are subject to management's evaluation of impairment based on
the restructured terms. The Company's charge-off policy for impaired
loans is consistent with its policy for all loan charge-offs.
Impaired loans are charged-off when all or a portion thereof is
considered uncollectible or transferred to foreclosed properties.
Consistent with the Company's method for nonaccrual loans, interest
receipts on impaired loans are applied to principal.

LOAN FEES

Loan origination fees and direct loan origination costs are deferred
and recognized either upon the sale of a loan or amortized as an
adjustment to yield over the life of the loan.

LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT

Leasehold improvements, furniture, and equipment are stated at cost,
less accumulated depreciation and amortization. Amortization of
leasehold improvements is computed using the straight-line method over
the estimated useful lives of the improvements or the lease term,
whichever is shorter. Depreciation of furniture and equipment is
computed using the straight-line method over their estimated useful
lives.

F-18
<PAGE> 86

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) CONTINUED

OTHER REAL ESTATE OWNED

Real estate acquired through foreclosure is recorded at the lower of
cost or fair value less estimated selling costs. Management
periodically evaluates the recoverability of the carrying value of
other real estate owned. Costs relating to property improvements are
capitalized, and costs relating to holding properties are charged to
expense. Gains or losses on the sale of other real estate owned are
recognized upon disposition of the property.

INCOME TAXES

The Company accounts for income taxes based upon the asset and
liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

INCOME PER COMMON SHARE

Income per common share is computed by dividing net income less
preferred stock dividends by the weighted average number of common and
common equivalent shares (when dilutive and significant) outstanding
during the year. Common equivalent shares result from stock options
and warrants outstanding and are computed using the treasury stock
method.

On March 23, 1994, the Company declared a 5 percent stock dividend to
common stock shareholders of record as of March 31, 1994, resulting in
the issuance of 39,061 shares. On March 14, 1995, the Company declared
a 5 percent stock dividend to common stock shareholders of record as
of March 31, 1995, resulting in the issuance of 41,072 shares.

Weighted average shares outstanding and income per common share have
been restated for the effect of the stock dividends.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, the Company has defined cash and
cash equivalents as those amounts included in cash and due from banks
and federal funds sold.

F-19
<PAGE> 87

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) CONTINUED

NEW ACCOUNTING STANDARDS NOT YET IMPLEMENTED

During March 1995 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long Lived Assets and For Long-Lived Assets to
be Disposed Of (SFAS 121). SFAS 121 provides guidance for recognition
and measurement of impairment of long-lived assets and certain
intangible assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Management does not expect that the adoption
of SFAS 121 will have a material impact on the Company's financial
condition or results of operations.

During May 1995 the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights. SFAS 122 is effective for fiscal years beginning
after December 15, 1995. Management does not expect that the adoption
of SFAS 122 will have a material impact on the Company's financial
condition or results of operations.

During October 1995 the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS 123 defines a fair value approach to
measuring employee stock options. In lieu of recording the value of
such options as compensation expense, companies may provide pro forma
disclosures quantifying the difference between compensation cost
included in net income as prescribed by current accounting standards
and the cost measured using the fair value approach. SFAS 123 is
effective for awards granted in fiscal years beginning after December
15, 1995. Management does not expect to change its current method of
accounting for stock options.

RECLASSIFICATIONS

Certain amounts for 1994 and 1993 have been reclassified to conform to
the presentation for 1995.

(2) RESTRICTED CASH

Under Federal Reserve Board regulations, banks are required to
maintain cash reserves against certain categories of deposit
liabilities. Cash balances qualified to meet these reserve
requirements consist of vault cash and balances on deposit with the
Federal Reserve Bank. Such restricted cash balances are included in
"Cash and due from banks" in the consolidated statements of financial
condition and amount to approximately $235,000 and $910,000 as of
December 31, 1995 and 1994, respectively.

F-20
<PAGE> 88

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTMENT SECURITIES

Investment securities available-for-sale, and their contractual
maturities, at December 31, 1995 and 1994 are summarized as follows:

<TABLE>
<CAPTION>
1995
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury, government
agencies and corporations:
Within one year $ 9,001,131 - 26,133 8,974,998
After one, but within five years 1,000,000 - 7,400 992,600
After ten years 1,116,701 - 15,669 1,101,032
----------- ---------- ------- ----------
Total 11,117,832 - 49,202 11,068,630
Collateralized mortgage obligations:
After ten years 1,948,619 - 55,514 1,893,105
----------- ---------- ------- ----------
Total investment securities
available-for-sale $13,066,451 - 104,716 12,961,735
=========== ========== ======= ==========
</TABLE>

<TABLE>
<CAPTION>
1994
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury, government
agencies and corporations:
Within one year $ 5,961,438 - 71,125 5,890,313
After one, but within five years 12,978,693 - 545,168 12,433,525
After ten years 1,323,396 - 61,749 1,261,647
----------- ---------- ------- ----------
Total 20,263,527 - 678,042 19,585,485
Collateralized mortgage obligations:
After ten years 2,292,672 - 199,103 2,093,568
----------- ---------- ------- ----------

Total investment securities
available-for-sale $22,556,199 - 877,145 21,679,053
=========== ========== ======= ==========
</TABLE>

F-21
<PAGE> 89

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) CONTINUED

Expected maturities may differ from contractual maturities of mortgage
backed securities and collateralized mortgage obligations because
borrowers have the right to prepay their obligations at any time.

Investment securities held-to-maturity at December 31, 1995 and 1994
are summarized as follows:

<TABLE>
<CAPTION>
1995
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Municipal securities-maturing
Within one year $ 85,000 170 - 85,170
After one, but within five years 164,829 1,802 - 166,631
-------- ----- ----- -------
Total 249,829 1,972 - 251,801
Federal Reserve Bank stock 119,350 - - 119,350
Federal Home Loan Bank stock 347,700 - - 347,700
-------- ----- ----- -------
$716,879 1,972 - 718,851
======== ===== ===== =======
</TABLE>

<TABLE>
<CAPTION>
1994
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Municipal securities - maturing after one
but within five years $249,752 - 7,776 241,976
Federal Reserve Bank stock 119,350 - - 119,350
Federal Home Loan Bank stock 413,100 - - 413,100
-------- ----- ----- -------
$782,202 - 7,776 774,426
======== ===== ===== =======
</TABLE>

Securities carried at $1,000,866 and $1,002,560 at December 31, 1995
and 1994, respectively, were pledged to secure public deposits and for
other purposes as required by law.

F-22
<PAGE> 90

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) CONTINUED

As a member of the Federal Reserve and Federal Home Loan Bank Systems,
Century Bank is required to hold stock in the Federal Reserve Bank of
Richmond and the Federal Home Loan Bank of Atlanta. These stocks,
which have no stated maturity, are carried at cost since no active
trading markets exist.

During January 1995, Century Bank entered into a principal membership
agreement with Mastercard International for the credit card business
Century Bank established in 1995. As part of the agreement, Century
Bank pledged securities worth $1,000,000.

(4) LOANS RECEIVABLE

The loan portfolio consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
Commercial $13,212,532 10,375,877
Real estate - residential 27,007,742 27,773,228
Real estate - commercial 11,910,244 9,357,921
Real estate - construction 1,545,143 788,310
Consumer 9,985,863 6,474,801
Home equity 5,640,012 6,003,519
----------- ----------
69,301,536 60,773,656
Unearned income (97,571) (110,448)
----------- ----------
69,203,965 60,663,208
Allowance for loan losses (740,000) (740,000)
----------- ----------
Loans, net $68,463,965 59,923,208
=========== ==========
</TABLE>

Loans on which the accrual of interest has been discontinued amounted
to approximately $8,000, $628,000, and $322,000 at December 31, 1995,
1994, and 1993, respectively. Interest lost on these nonaccrual loans
was approximately $1,000, $32,000, and $2,000 for 1995, 1994, and
1993, respectively. Interest paid on these nonaccrual loans was
approximately $3,500, $13,500, and $3,000 for 1995, 1994, and 1993,
respectively. At December 31, 1995, the Company does not have any
impaired loans.

F-23
<PAGE> 91

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) CONTINUED

Analysis of the activity in the allowance for loan losses is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $740,000 730,000 744,422
Provision for loan losses 26,347 19,431 310,270
Loans charged off (198,126) (106,105) (386,586)
Recoveries 171,779 96,674 61,894
-------- -------- --------
Balance, end of year $740,000 740,000 730,000
======== ======== ========
</TABLE>

An analysis of the activity of loans to directors, officers, and their
affiliates during the years ended December 31, 1995 and 1994, is as
follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year $2,566,970 1,868,931
Additions 1,550,080 1,629,291
Payments (796,937) (931,252)
---------- ---------
Balance, end of year $3,320,113 2,566,970
========== =========
</TABLE>

In the opinion of management, all transactions entered into between
the Company and such related parties have been and are in the ordinary
course of business and made on the same terms and conditions as
similar transactions with unaffiliated persons.

The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit and financial guarantees.
Commitments to extend credit are agreements to lend to a customer so
long as there is no violation of any condition established in the
contract. Commitments usually have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.

Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of the contractual obligations by
a customer to a third party. The majority of these guarantees extend
until satisfactory completion of the customer's contractual
obligations. All standby letters of credit outstanding at December 31,
1995, are collateralized.

F-24
<PAGE> 92

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) CONTINUED

Those instruments may involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. Credit risk is defined
as the possibility of sustaining a loss because the other parties to a
financial instrument failed to perform in accordance with the terms of
the contract. The Company's maximum exposure to credit loss under
standby letters of credit and commitments to extend credit is
represented by the contractual amounts of those instruments.

<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL AMOUNT
FOR THE YEARS DECEMBER 31,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent
potential credit risk:
Commitments to extend credit $13,910,000 $12,858,395
Standby letters of credit 882,000 897,430
=========== ===========
</TABLE>

At December 31, 1995, the Company did not have any financial
instruments whose notional or contractual amounts exceed the amount of
credit risk.

The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
The Company evaluates each customer's creditworthiness on a
case-by-case basis and requires collateral to support financial
instruments when deemed necessary. The amount of collateral obtained
upon extension of credit is based on management's evaluation of the
counterparty. Collateral held varies but may include deposits held by
the Company; marketable securities; accounts receivable; inventory;
property, plant and equipment; and income-producing commercial
properties.

Most of the Company's business activity is with customers located in
the District of Columbia, Maryland, and northern Virginia.
Accordingly, the ultimate collectibility of a substantial portion of
the Company's loan portfolio is susceptible to changes in conditions
in these markets.

Industry concentrations in excess of 10 percent of total loans where
the borrowers as a group might be affected similarly by economic
changes consist of loans to members of the legal profession, health
care profession, and service companies. Century offers lines of
credit, home equity lines, and mortgage loans to these groups. The
aggregate total of loans to such groups was approximately $13.9
million, $9.1 million, and $9.0 million respectively, as of December
31, 1995. The aggregate total of loans to such groups was
approximately $12.9 million, $16.4 million, and $9.6 million,
respectively as of December 31, 1994. The amount of such loans which
are past due or considered by management to be potential problem loans
is not material.

F-25
<PAGE> 93

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT

Leasehold improvements, furniture, and equipment consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
Leasehold improvements $ 1,233,384 888,963
Furniture and equipment 1,904,090 882,438
----------- ----------
3,137,474 1,771,401
Less accumulated depreciation and amortization (1,683,418) (1,531,779)
----------- ----------
Balance, end of year $ 1,454,056 239,622
=========== ==========
</TABLE>

Depreciation and amortization expense was $151,471, $77,377, and
$58,857 for 1995, 1994, and 1993, respectively.

(6) DEPOSITS

Major classifications of deposits consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
Noninterest-bearing - demand deposits $24,712,204 20,122,284
----------- ----------
Interest-bearing:
NOW accounts 15,132,526 12,083,692
Savings accounts 2,226,283 2,814,662
Money market accounts 22,144,836 24,986,673
Certificates of deposit:
Less than $100,000 12,407,734 14,197,539
$100,000 and over 13,915,779 7,876,409
----------- ----------
65,827,158 61,958,975
----------- ----------
Total deposits $90,539,362 82,081,259
=========== ==========
</TABLE>

On September 16, 1994, Century Bank acquired deposit accounts of approximately
$9.1 million, for which it paid a premium of $366,000. The premium is amortized
over the estimated remaining lives of the deposit account relationships on a
straight-line basis.

F-26
<PAGE> 94

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) STOCKHOLDERS' EQUITY

On November 14, 1995, the Company issued 173,912 Units pursuant to an
Offering made on September 15, 1995, to existing holders of the
Company's Common and Preferred Stock. Each Unit consisted of one share
of Common Stock and one Warrant. The offering price was $5.75 per
Unit.

Each Warrant entitles the holder thereof to purchase one share of
Common Stock at a price of $5.75 per share, subject to adjustment. The
Warrants may be exercised at any time from November 15, 1996 through
November 16, 1998. The Warrants may be repurchased by the Company at
any time on and after November 14, 1997 at a price of $.26 per
Warrant.

Holders of the Company's Series A Cumulative Convertible Preferred
Stock were given the opportunity to exchange their Preferred Stock for
Units at an exchange ratio of 1.305 Units per share of Preferred
Stock. At the time of the Offering, there were 61,327 shares of
Preferred Stock outstanding. A total of 27,449 shares of Preferred
Stock were exchanged, resulting in the issuance of 35,814 Units and
the payment of $40 to redeem fractional shares.

The remaining 138,098 Units were sold for cash, yielding net proceeds
to the Company of $711,187 after payment of costs associated with the
Offering. The Company used a portion of such proceeds to redeem the
remaining 33,878 shares of Preferred Stock, which was callable at
$7.50 per share. All of the Preferred Stock was redeemed, or funds set
aside therefor, as of December 10, 1995, at an aggregate cost of
$254,085.

The holders of Preferred Stock were entitled to receive annual
cumulative dividends equal to $.60 per share per year, payable
semiannually. Regular dividends amounting to $36,796, $36,796, and
$37,401 were paid during 1995, 1994, and 1993, respectively.
Additional dividends paid during 1995, in the amount of $3,388,
represented accrued dividends through December 10, 1995, on shares
redeemed.

(8) STOCK OPTION PLANS

Pursuant to the Century Bancshares, Inc. 1994 Stock Option Plan ("1994
Plan") the Company in 1994 reserved 150,000 shares of its common stock
for the issuance of incentive stock options and nonqualified stock
options to directors and key employees. As of December 31, 1995, after
adjusting for stock dividends and stock option activity, there are
155,821 shares of stock reserved for issuance pursuant to the 1994
Plan, of which 83,277 shares are reserved for outstanding options and
72,544 shares are reserved for future option grants.

F-27
<PAGE> 95

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) CONTINUED

In addition, there remain outstanding certain options granted to
directors and key employees under two prior option plans ("Prior
Plans") which expired in 1992 and 1993. As of December 31, 1995, after
adjusting for stock dividends and stock option activity, there are
59,012 shares of stock reserved for issuance pursuant to options
granted under the Prior Plans, which options are still valid and were
not affected by the Plans' expiration. As of December 31, 1995, all
options granted under the Prior Plans are fully exercisable.

In 1994, the Company issued nonqualified stock options to certain key
employees to replace options intended to have been granted in 1992 and
1993, when no stock option plan was in effect, with the option price
for each such option being equal to the option price previously
intended. With the exception of these replacement options, all options
issued pursuant to the Prior Plans and the 1994 Plan are priced at no
less than 100 percent of the fair market value of the stock on the
date of the option grant.

In connection with the 5 percent stock dividend effective July 31,
1993, March 31, 1994, and March 31, 1995, the number of shares subject
to any outstanding options, as well as the exercise price per share,
have been appropriately and equitably adjusted, pursuant to the stock
option plans, so as to maintain the proportionate number of shares
without changing the aggregate option price. Additionally, in
connection with the 5 percent stock dividend effective March 31, 1995,
the number of shares reserved for the issuance of future options
pursuant to the 1994 Plan have been proportionately increased as
prescribed in the 1994 Plan. In the tables below, the shares and
prices per share have been adjusted to reflect the stock dividends.

F-28
<PAGE> 96

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) CONTINUED

Stock option transactions for the years ended December 31, 1995, 1994,
and 1993, are summarized as follows:

<TABLE>
<CAPTION>
TOTAL OPTIONS OPTION PRICE PER SHARE
------------- ----------------------
<S> <C> <C> <C>
Outstanding December 31, 1992 97,709 $1.73 to $9.07
Granted 11,183 3.02 to 3.02
Forfeited (22,202) 1.73 to 9.07
Exercised (1,448) 1.73 to 4.10
-------

Outstanding December 31, 1993 85,242 1.73 to 9.07
Granted 62,324 2.16 to 4.52
Forfeited (14,553) 1.73 to 9.07
Exercised (2,241) 1.73 to 4.10
-------

Outstanding December 31, 1994 130,772 1.73 to 9.07
Granted 32,668 5.75 to 5.75
Forfeited (13,320) 2.16 to 9.07
Exercised (7,831) 1.73 to 4.52
-------

Outstanding December 31, 1995 142,289 1.73 to 5.75
-------

Exercisable, December 31, 1995 122,697 1.73 to 5.75
-------
</TABLE>

F-29
<PAGE> 97

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) INCOME TAXES

The provision for taxes on income for the years ended December 31,
1995, 1994, and 1993, consisted of the following:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal income tax $ 627,042 29,600 237,000
State income tax 127,114 (39,416) 53,900
--------- ------- --------
754,156 (9,816) 290,900
Deferred:
Federal income tax (benefit) (329,404) 289,682 (20,000)
State income tax (benefit) (67,588) 93,680 (7,000)
--------- ------- --------
(396,992) 383,362 (27,000)
--------- ------- --------
Total income tax $ 357,164 373,546 263,900
========= ======= ========

The difference between the statutory federal income tax rates and the effective income tax rates for 1995, 1994,
and 1993, are as follows:

1995 1994 1993
---- ---- ----

Statutory federal income tax rate 34.0% 34.0 34.0
State income taxes, net of federal benefit 1.0 4.0 4.4
Nondeductible expenses - 0.7 0.4
Other (0.5) - (0.7)
---- ---- ----
Effective income tax rate 34.5 38.7 38.1
==== ==== ====
</TABLE>

F-30
<PAGE> 98

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) CONTINUED

The following is a summary of the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets:
Fixed assets $ 109,032 58,362
Book general loan loss reserve 432,395 432,395
Deferred rent expense 71,343 76,095
Deferred loan fees 39,936 30,012
Vacation pay accrual 29,631 21,073
Director' deferred compensation 53,970 36,625
--------- --------

Deferred tax assets 736,307 654,562
--------- --------

Liabilities:
Federal Home Loan Bank stock dividends (11,583) (14,039)
Tax bad debt reserve (269,393) (284,092)
Unrealized losses on investments designated as
available-for-sale recognized for tax purposes (37,043) (356,060)
Other (71,791) (50,866)
--------- --------

Deferred tax liabilities (389,810) (705,057)
--------- --------

Net deferred tax asset (liability) attributable to
operations 346,497 (50,495)
Unrealized losses on investments available-for-sale
charged directly to stockholders' equity 36,650 307,001
--------- --------

Net deferred tax asset $ 383,147 256,506
========= ========
</TABLE>

Net deferred tax assets of $383,147 and $256,506 at December 31, 1995
and 1994, respectively, are included in other assets.

The Company has not established a valuation allowance for deferred tax
assets. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not some portion
or all of the deferred tax assets will not be realized. Based on the
level of historical taxable income during the carryback period and the
reversal of certain deferred tax liabilities, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences.

F-31
<PAGE> 99

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) PROFESSIONAL FEES TO RELATED PARTIES

Included in professional fees are legal fees paid to law firms whose
partners are directors of the Company or the Bank, totaling
approximately $102,000, $81,000, and $129,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.

(11) EMPLOYEE BENEFIT PLAN

The Company maintains a 401(k) plan which covers substantially all
employees. Participants may contribute up to 6 percent of their
compensation. The Company matches 50 percent of participant
contributions to the Plan. This matching contribution totaled
approximately $21,000 for each of the years ended December 31, 1995,
1994, and 1993.

(12) COMMITMENTS

The Company leases its banking facilities under operating leases
providing for payment of fixed rentals and providing for pass-through
of certain landlord expenses, with options to renew. Rental expense
was approximately $323,600, $301,000, and $223,000 for the years ended
December 31, 1995, 1994, and 1993, respectively. Total future minimum
rental payments at December 31, 1995, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1996 $ 352,000
1997 272,000
1998 238,000
1999 240,000
2000 240,000
Thereafter 528,000
----------
1,870,000
==========
</TABLE>

(13) DIVIDENDS FROM SUBSIDIARY

Dividends paid to the Company by Century Bank are subject to
restrictions by regulatory agencies. As of December 31, 1995,
approximately $1,539,000 was available to be paid to the Company in
dividends from Century Bank, pursuant to such regulatory restrictions.
As described in note 14, regulatory agencies have established laws and
guidelines with respect to the maintenance of appropriate levels of
bank capital that could further limit the amount available for payment
of dividends by Century Bank under regulatory restrictions if applied
in the future.

F-32
<PAGE> 100

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) CAPITAL AND LIQUIDITY

The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires regulators to stratify depository institutions into
five quality tiers based upon their relative capital strengths and to
increase progressively the degree of regulation over the weaker ones,
limits the pass-through deposit insurance treatment of certain types
of accounts, adopts a "Truth in Savings" program, calls for the
adoption of risk-based premiums on deposit insurance, and requires
banks to observe insider credit underwriting procedures no less strict
than those applied to comparable non-insider transactions.

The Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) of 1989 requires depository institutions to maintain minimum
capital levels. In addition to its capital requirements, FIRREA
includes provisions for changes in the federal regulatory structure
for institutions, including a new deposit insurance system, increased
deposit insurance premiums, and restricted investment activities with
respect to noninvestment grade corporate debt and certain other
investments.

During 1993, Century Bank entered into a line of credit arrangement
with the Federal Home Loan Bank of Atlanta. There was $2.0 million and
$2.2 million outstanding under the borrowing arrangement at December
31, 1995 and 1994, respectively; the amount available under such
arrangement totaled $13.3 million. The interest rate at December 31,
1995 was 6.10%; the balance matures in June 1996. The line of credit
is secured by a blanket lien on 1-4 family whole first mortgage loans.

Other balances in short-term borrowings include deposits to the U.S.
Treasury Tax and Loan Account.

F-33
<PAGE> 101

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) PARENT COMPANY-ONLY FINANCIAL STATEMENTS

The Century Bancshares, Inc. (parent company-only) condensed financial
statements are as follows:

<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
--------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS

Cash and cash equivalents $ 56,769 167,519
Investment in Century Bank 6,430,174 4,808,492
Other assets 21,205 201,340
----------- ---------
$ 6,508,148 5,177,351
=========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Notes payable $ - -
Other liabilities 9,203 300,450
----------- ---------
9,203 300,450
----------- ---------
Stockholders' equity:
Preferred stock - 61,327
Common stock 1,046,047 823,232
Additional paid-in capital 4,410,876 3,855,651
Retained earnings 1,110,086 706,836
Unrealized loss on investment securities
available-for-sale, net of tax effect (68,064) (570,145)
----------- ---------
6,498,945 4,876,901
----------- ---------

$ 6,508,148 5,177,351
=========== =========
</TABLE>

F-34
<PAGE> 102

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) CONTINUED

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from Century Bank $ - 140,000 111,000
Other income 929 1,336 84,661
-------- ------- -------
929 141,336 195,661
-------- ------- -------
Expenses:
Interest expense - 4,246 33,622
Other expenses 50,915 17,291 14,095
-------- ------- -------
50,915 21,537 47,717
-------- ------- -------
Net income (loss) before income tax benefit and
equity in undistributed earnings of
bank subsidiary (49,986) 119,799 147,944
Income tax benefit (9,983) (8,203) (10,875)
-------- ------- -------
Net income before equity in undistributed earnings
of bank subsidiary (40,003) 128,002 158,819
Equity in undistributed earnings of Century Bank 719,601 462,902 270,159
-------- ------- -------

Net income $679,598 590,904 428,978
======== ======= =======
</TABLE>

F-35
<PAGE> 103

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) CONTINUED

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 679,598 590,904 428,978
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of Century Bank (719,601) (462,902) (270,159)
Decrease in other assets 180,135 174,434 108,741
Increase (decrease) in other liabilities (291,247) 52,847 (111,867)
--------- -------- --------

Net cash provided by (used in) operating activities (151,115) 355,283 155,693
--------- -------- --------
Cash flows from investing activities:
Capital contributions to Century Bank (400,000) - -
--------- -------- --------

Net cash used in investing activities (400,000) - -
--------- -------- --------

Cash flows from financing activities:
Repayments under notes payable - (207,000) (333,000)
Repurchase of preferred stock (254,085) (7,560) -
Issuance of common stock 734,634 5,113 2,956
Preferred stock dividends paid (40,184) (36,796) (37,401)
--------- -------- --------

Net cash provided by (used in) financing activities 440,365 (246,243) (367,445)
--------- -------- --------

Net (decrease) increase in cash and cash equivalents (110,750) 109,040 (211,752)
Cash and cash equivalents, beginning of year 167,519 58,479 270,231
--------- -------- --------
Cash and cash equivalents, end of year $ 56,769 167,519 58,479
Supplemental disclosures of cash flow information:
Interest paid $ - 4,246 35,639
Income taxes paid (refunded) 11,222 (88,190) (67,694)
========= ======== ========
</TABLE>

F-36
<PAGE> 104

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosure About
Fair Value of Financial Instruments (FAS 107), requires the disclosure
of estimated fair values for financial instruments. Quoted market
prices, if available, are utilized as an estimate of the fair value of
financial instruments. Because no quoted market prices exist for a
portion of Century Bank's financial instruments, the fair value of
such instruments has been derived based on management's assumptions
with respect to future economic conditions, the amount and timing of
future cash flows and estimated discount rates. Different assumptions
could significantly affect these estimates. Accordingly, the net
realizable value could be materially different from the estimates
presented below. In addition, the estimates are only indicative of
individual financial instruments' values and should not be considered
an indication of the fair value of Century Bank taken as a whole.

CASH AND INTEREST BEARING DEPOSITS WITH OTHER BANKS

For cash and due from banks and interest-bearing deposits with other
banks, the carrying amount approximates fair value.

INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

For these instruments, fair values are based on published market or
dealer quotes.

LOANS, NET

The fair value of loans is estimated by discounting the future cash
flows, including estimated prepayments of principal, using the current
rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.

ACCRUED INTEREST RECEIVABLE

The carrying amount approximates fair value.

NONINTEREST-BEARING DEPOSITS

The fair value of these deposits is the amount payable on demand at the
reporting date.

INTEREST-BEARING DEPOSITS

The fair value of demand deposits, savings accounts, and money market
deposits with no defined maturity is the amount payable on demand at
the reporting date. The fair value of certificates of deposit is
estimated by discounting the future cash flows using the current rates
at which similar deposits would be accepted.

F-37
<PAGE> 105

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) CONTINUED

ADVANCE FROM FEDERAL HOME LOAN BANK OF ATLANTA AND OTHER BORROWINGS

The carrying amount for variable rate borrowings approximate the fair
values at the reporting date. The fair values of the fixed rate
borrowings are estimated by discounting the future cash flows using
interest rates currently available for borrowings with similar terms
and remaining maturities.

ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE

The carrying amount approximates fair value.

ACCRUED INTEREST PAYABLE

The carrying amount approximates fair value.

OFF-BALANCE SHEET ITEMS

Century Bank has reviewed the unfunded portion of commitments to extend
credit, as well as standby and other letters of credit, and has
determined that the fair value of such instruments is not material.

F-38
<PAGE> 106

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) CONTINUED

The estimated fair values of Century Bank's financial instruments
required to be disclosed under SFAS No. 107 at December 31, 1995
follows:

<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
----- -----

<S> <C> <C>
ASSETS
------

Cash and interest-bearing deposits with other banks $ 8,045,561 8,045,561
Federal funds sold 1,980,000 1,980,000
Interest-bearing deposits with other banks 6,031,700 6,031,700
Investment securities 13,678,614 13,680,586
Loans, net 68,463,965 75,871,743
Accrued interest receivable 589,130 589,130

LIABILITIES
-----------

Noninterest-bearing deposits 24,712,204 24,712,204
Interest-bearing deposits 65,827,158 70,915,705
Short-term borrowings 3,807,910 3,807,910
Accured interest payable 157,882 157,882
</TABLE>

(17) SUBSEQUENT EVENT

On March 19, 1996, the Company declared a 7 percent stock dividend to
its common stockholders, resulting in the issuance of 73,047 shares.
Weighted average shares outstanding and income per common share have
been restated in all periods presented for the effect of this stock
dividend.

F-39
<PAGE> 107
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses in connection with the
shares of Common Stock being registered. All amounts shown below are
estimates, except the registration fee:

<TABLE>
<S> <C>
Registration fee of Securities and Exchange Commission . . $ 304
Accountants' fees and expenses . . . . . . . . . . . . . . $ 30,000
Legal fees and expenses . . . . . . . . . . . . . . . . . $ 75,000
Printing fees . . . . . . . . . . . . . . . . . . . . . . $ 15,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . $ 696

Total . . . . . . . . . . . . . . . . . . . . . . . . . $121,000
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware General Corporation Law

Section 145 of the Delaware General Corporation Law provides
generally that a person sued as a director, officer, employee or agent of a
corporation may be indemnified by the corporation for reasonable expenses,
including attorneys' fees, if in the case of other than derivative suits, such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation (and, in the
case of a criminal proceeding, had no reasonable cause to believe that such
person's conduct was unlawful). In the case of a derivative suit, an officer,
employee or agent of the corporation may be indemnified by the corporation for
reasonable expenses, including attorneys' fees, if such person has acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of
any claim as to which an officer, employee or agent has been adjudged to be
liable to the corporation unless that person is fairly and reasonably entitled
to indemnity for proper expenses. Indemnification is mandatory in the case of
a director, officer, employee, or agent who is successful on the merits in
defense of a suit against such person.

Certificate of Incorporation

Consistent with applicable law, the Company's Certificate of
Incorporation limits a director's monetary liability to the Company or its
stockholders for breach of fiduciary duty, except for breaches of

II-1
<PAGE> 108
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, unlawful dividend
payments or acts from which the director derived an improper personal benefit.
The Company's Certificate of Incorporation does not limit the availability of
equitable remedies based on breach of fiduciary duty and does not limit a
director's liability for violations of the federal securities laws. The
Company believes that the foregoing provisions of its Certificate of
Incorporation may assist it in attracting and retaining qualified individuals
to serve on its Board of Directors.

Indemnification Agreements

The Company has entered into indemnification agreements with its
officers and directors. The indemnification agreements require the Company to
indemnify each of such persons to the full extent permitted by Delaware law and
provide for the advancement of expenses to them on receipt of an undertaking to
repay any advances to which such persons are later determined not to be
entitled.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On November 14, 1995, the Company issued and sold an aggregate
of 173,913 Units, each Unit consisting of one share of Common Stock and one
warrant to purchase Common Stock (the "Units"), in reliance upon the exemption
provided by Section 3(b) of the Securities Act of 1933, as amended and Rule 504
of Regulation D promulgated thereunder. The Units were offered and sold
exclusively to holders of record as of September 15, 1995 of shares of the
Company's Common Stock and shares of the Company's Preferred Stock. No other
person was permitted to subscribe for Units in the offering.

The Units were offered and sold for cash, at a price of $5.75 per
Unit, of which $5.49 represented the purchase price of the Common Stock, and
$.26 was attributable to the Warrant. In addition to cash subscriptions,
holders of the Company's Preferred Stock were given the opportunity to
subscribe for the Units by voluntarily exchanging shares of Preferred Stock for
Units.

During the past three fiscal years and the nine months ended
September 30, 1996, the Company has issued an aggregate of 19,024 shares of its
Common Stock upon the exercise of outstanding stock options granted to
employees or directors at prices ranging from $1.73 to $5.37 per share. All
such sales shares were made in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<S> <C>
3.1 Certificate of Incorporation, as amended of the Company.

3.2 Bylaws of the Company.

3.3 Articles of Association of the Bank.

4.1 Form of Warrant.

</TABLE>

II-2
<PAGE> 109

<TABLE>
<S> <C>
4.2 Form of Common Stock certificate.

5 Opinion and Consent of Bracewell & Patterson, L.L.P., as to the
validity of the Common Stock registered hereunder.

10.1 Century Bancshares, Inc. 1994 Stock Option Plan.

10.2 Incentive Stock Option Plan for Key Employees, as amended.

10.3 Nonqualified Stock Option Plan for Key Employees, as amended.

10.4 Nonqualified Stock Option Plan for Directors, as amended.

10.5 Form of Director Compensation Agreement between the Company and
its directors.

10.6 Form of Indemnity Agreement between Company and the persons named
therein.

10.7 Employment Agreement dated September 1, 1996, between the Company
and Mr. Joseph S. Bracewell.

10.8 Lease Agreement dated January 3, 1995, between the Bank and
Pennsylvania Building Associates.

10.9 Lease and Services Agreement dated November 17, 1995, between
ALLIANCE Greensboro, L.P., a Delaware limited partnership d/b/a/
ALLIANCE Business Centers, and the Bank.

10.10 Retail Lease dated January 14, 1982, between the Square 106
Associates and the Bank, as amended on March 14, 1984, December
18, 1991, February 12, 1992, October 27, 1995, and June 1, 1996.

10.11 Sublease Agreement, dated May 1, 1992, between the Company and
the Bank.

11 Computation of earnings per share.

21 Subsidiaries of the Registrant.

23.1* Consent of KPMG Peat Marwick LLP, independent auditors of the
Company (See page II-7).

23.2 Consent of Bracewell & Patterson, L.L.P. (included in the opinion
filed as Exhibit 5 hereto).

24 Powers of Attorney.

</TABLE>

- -----------------
* Filed herewith.

II-3
<PAGE> 110
ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
registration statement;

(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in this registration statement or any material change to such
information in this registration statement;

Provided, however, that the undertakings set forth in
paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.

(b) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
should be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.

(c) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.

(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

II-4
<PAGE> 111
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has caused this Registration Statement or amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia on the 31st day of December, 1996.

CENTURY BANCSHARES INC.
(Registrant)

By: /s/ JOSEPH S. BRACEWELL
--------------------------------------
Joseph S. Bracewell
Chairman of the Board, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed by the following persons in
the capacities indicated and on the 31st day of December, 1996.

<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ JOSEPH S. BRACEWELL Chairman of the Board, President
- --------------------------- and Chief Executive Officer
Joseph S. Bracewell (Principal Financial and Accounting Officer)

/s/ GEORGE CONTIS* Director
- ----------------------------
*George Contis

/s/ JOHN R. COPE* Director and Vice President
- ----------------------------
*John R. Cope

/s/ BERNARD J. CRAVATH* Director and Assistant Secretary
- ----------------------------
*Bernard J. Cravath

/s/ NEAL R. GROSS* Director
- ----------------------------
*Neal R. Gross
</TABLE>

II-5
<PAGE> 112

Signature Position
--------- --------
/s/ JOSEPH H. KOONZ, JR.* Director
- ------------------------------
*Joseph H. Koonz, Jr.

/s/ WILLIAM McKEE* Director
- ------------------------------
*William McKee

/s/ WILLIAM C. OLDAKER* Director and Secretary
- ------------------------------
*William C. Oldaker

By: /s/ JOSEPH S. BRACEWELL
---------------------------
Joseph S. Bracewell*
Attorney-in-Fact

II-6
<PAGE> 113
Exhibit 23.1

Consent of Independent Auditors

The Board of Directors
Century Bancshares, Inc.:

We consent to the use of our report dated March 15, 1996, except as to
Note 17, which is as of March 19, 1996, included herein, and to the reference
to our firm under the heading "Experts" in the Prospectus.

KPMG Peat Marwick LLP

Washington, D.C.
December 31, 1996

II-7
<PAGE> 114

INDEX TO EXHIBITS

<TABLE>
<S> <C>
3.1 Certificate of Incorporation, as amended of the Company.

3.2 Bylaws of the Company.

3.3 Articles of Association of the Bank.

4.1 Form of Warrant.

4.2 Form of Common Stock certificate.