CENTURY BANCSHARES INC, S-1, 1997-08-20

CENTURY BANCSHARES INC
S-1, 1997-08-20
NATIONAL COMMERCIAL BANKS

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<PAGE> 1

As filed with the Securities and Exchange Commission on August 20, 1997

Registration No. 333-______
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

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

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

CENTURY BANCSHARES, INC.

<TABLE>
<S> <C> <C>
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 telephone number, including (Name, address, including zip code, and telephone number,
area code, of Registrant's principal executive offices) including area code, of agent for service)
</TABLE>

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

Copy to:

JOHN R. BRANTLEY GEORGE P. WHITLEY
BRACEWELL & PATTERSON, L.L.P. LECLAIR RYAN, P.C.
711 LOUISIANA STREET, SUITE 2900 707 EAST MAIN STREET, 11TH FLOOR
HOUSTON, TEXAS 77002-2781 RICHMOND, VIRGINIA 23219

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

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.[ ]

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. [ ]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per share (1) offering price(1) fee
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value 833,750 $7.50 $6,253,125 $1,895
============================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

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

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
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED AUGUST 20, 1997

725,000 SHARES

CENTURY BANCSHARES, INC.
COMMON STOCK

All of the Common Stock of Century Bancshares, Inc. (the "Company") offered
hereby (the "Offering") is being sold by the Company. There is currently no
established public trading market for the Common Stock, although it is quoted
on the Non-Nasdaq Over-the-Counter ("NNOTC") Bulletin Board and is traded on a
limited basis. Application has been made for inclusion of the Common Stock in
the Nasdaq SmallCap Market under the symbol "CTRY."

It is estimated that the public offering price will be in the range of $6.00
to $7.50 per share. See "Underwriting" for information concerning the factors
considered in determining the public offering price.

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 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
Price to Public and Commissions (1) Company (2)
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- - --------------------------------------------------------------------------------
Total (3) $ $ $
- - --------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company
estimated at $___________.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 108,750 additional shares of Common Stock, $1.00 par value (the
"Common Stock"), on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds
to the Company will be $__________, $__________ and $__________,
respectively. See "Underwriting."

The shares of Common Stock are being offered by the Underwriter subject to
prior sale, as, when and if delivered to and accepted by it, and subject to
certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify the Offering without notice and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock offered
hereby will be made against payment therefor on or about __________, 1997 at
the offices of Scott & Stringfellow, Inc., Richmond, Virginia.

SCOTT & STRINGFELLOW, INC.

The date of this Prospectus is _____________, 1997.
<PAGE> 3

[MAP OF EXISTING AND PROPOSED LOCATIONS]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF THE
COMMON STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS
AND THE IMPOSITION OF PENALTY BIDS.

-2-
<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. Unless
otherwise indicated, the information contained in this Prospectus (i) assumes
that the Underwriter's over-allotment option is not exercised and (ii) reflects
the five percent Common Stock dividends declared during 1993, 1994, 1995 and
1997, and the seven percent Common Stock dividend declared during 1996.

THE COMPANY

Century Bancshares, Inc. (the "Company") is a bank holding company
headquartered in Washington, D.C. that was organized to own and control all of
the capital stock of Century National Bank, a national banking association (the
"Bank"). The Bank opened in 1982 and engages in a general commercial banking
business with a particular emphasis on the needs of professionals,
entrepreneurs, small to medium-sized businesses and not-for-profit
organizations located in the Washington, D.C. metropolitan area. At June 30,
1997, the Company had total assets of $111 million, total loans of $74 million,
total deposits of $95 million and total stockholders' equity of $7 million. Net
income for the first six months of 1997 was $288,000, or $.21 per share.

One method by which the Company plans to grow is by conducting business in
multiple locations in high growth markets in Virginia and Maryland. Although
the Company successfully expanded the scope of its operations in downtown
Washington, D.C. by acquiring a branch office from the Resolution Trust
Corporation in 1994, management believes the Company's most profitable growth
opportunities are in the contiguous markets of Fairfax County, Virginia and
Montgomery County, Maryland. Both of these markets are characterized by high
concentrations of small to medium-sized businesses and professionals. Fairfax
County is one of the more densely populated and affluent counties in Virginia.
Fairfax County's median household income is the highest in the country at
$71,610, which is nearly double the national median, and its population is
projected to increase approximately eight percent from 1996 to 2001. The
demographic characteristics of Montgomery County are also compelling. Median
household income of $61,595 ranks ninth nationwide, and the County's population
is projected to increase by approximately six percent between 1996 and 2001.

Management executed the first step of the Company's branch expansion strategy
in 1996 by establishing a loan production office in Tysons Corner, Virginia,
which is Fairfax County's largest business center. The office quickly surpassed
management's performance goals, and as a result was converted to a full service
branch in April 1997. The Company is following a similar strategy with respect
to establishing a foothold in Montgomery County, Maryland. In June 1997, the
Company opened a loan production office in Bethesda, Maryland, which is one of
Montgomery County's largest business centers. The Company plans to replace this
office with a full service branch in downtown Bethesda in early 1998, for which
it has already received regulatory approval.

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<PAGE> 5
In furtherance of its expansion strategy, the Company recently entered into
an agreement to assume the deposit liabilities and leasehold interest of a
branch of Eastern American Bank, FSB ("Eastern American") located in McLean,
Virginia approximately three miles from the Bank's office in Tysons Corner. In
conjunction with the assumption of these liabilities, the Company will acquire
approximately $9.2 million in mortgage loans from Eastern American's portfolio.
The transaction, which is subject to regulatory approval and certain other
conditions, is expected to close in October 1997. As of the date of the
agreement, there were approximately $34 million in deposits at the Eastern
American branch. See "The Eastern American Transaction" and "Use of Proceeds."

The Company competes in its markets by providing a breadth of products
comparable to a regional bank, while maintaining the quick response and
personal service of a locally headquartered bank. Management believes it can
solidify the Company's competitive advantage through establishing long-term
relationships to foster customer loyalty and by continuing to provide a broad
array of commercial account and loan products.

The Company's principal executive offices are located at 1275 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, and its telephone number is (202)
496-4000.

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<PAGE> 6
THE OFFERING

<TABLE>
<S> <C>
Securities Offered(1) . . . . . . . . 725,000 shares of Common Stock.

Common Stock Outstanding
After the Offering(1). . . . . . . 1,942,429 shares.

Use of Proceeds . . . . . . . . . . . . The Company will use the net proceeds of this Offering to enhance and
support the equity capital of the Bank in view of the deposit transaction
with Eastern American and for general corporate purposes. See "Use of
Proceeds."

Proposed NASDAQ Symbol . . . . . . . . . The Company has made application to the Nasdaq Stock Market to list the
Common Stock for trading in the SmallCap Market under the symbol "CTRY."

Risk Factors . . . . . . . . . . . . . . . Prospective investors in the Common Stock should consider the information
discussed under the caption "Risk Factors."

</TABLE>

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

(1) Assumes no exercise of the Underwriter's over-allotment option to
purchase up to 108,750 shares of Common Stock. See "Underwriting."
Excludes approximately 343,787 shares of Common Stock issuable upon
exercise of outstanding stock options and warrants exercisable as of
June 30, 1997 at a weighted average exercise price of $4.72 per share.

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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated financial information 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."

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

1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income .......... $ 4,131 $ 3,759 $ 7,689 $ 7,079 $ 5,712 $ 5,455 $ 6,016
Interest expense ......... 1,641 1,331 2,776 2,562 1,902 1,987 2,486
Net interest income ...... 2,490 2,428 4,913 4,517 3,810 3,468 3,530
Provision for loan losses 72 -- 160 26 19 310 596
Noninterest income ....... 514 354 720 590 555 572 611
Noninterest expense ...... 2,463 2,307 4,920 4,157 3,381 3,071 3,303
Income taxes ............. 181 182 275 311 374 240 76
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income .............. $ 288 $ 293 $ 279 $ 613 $ 591 $ 419 $ 200(1)
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets ............. $ 110,902 $ 96,659 $ 107,186 $ 101,730 $ 90,175 $ 86,332 $ 77,280
Total loans .............. 74,346 71,455 70,676 69,204 60,663 56,644 56,331
Allowance for loan losses 710 830 826 740 740 730 744
Total deposits ........... 94,707 83,330 90,985 90,539 82,081 79,982 71,113
Long term debt ........... 6,400 -- 6,850 -- -- 207 540
Total stockholders' equity 7,078 6,671 6,750 6,365 4,810 4,804 4,469
COMMON SHARE DATA(2):
Net income ............... $ .21 $ .23 $ .22 $ .55 $ .55 $ .41 $ .18(1)
Book value(3) ............ 5.81 5.65 5.61 5.42 4.48 4.48 4.14
Common shares outstanding
at end of period ........ 1,217,429 1,179,869 1,203,329 1,175,234 971,146 969,023 967,428
Weighted average common
and equivalent shares
outstanding during period 1,341,156 1,294,594 1,256,437 1,048,438 1,007,242 968,210 967,006
PERFORMANCE DATA:
Return on average
total assets(4) ......... .53% .61% .27% .68% .71% .56% .29%
Return on average
total equity(4) ......... 8.32 8.99 4.20 11.49 12.38 9.84 5.39
Net interest margin(4) ... 5.25 5.74 5.74 5.42 4.90 4.55 4.94
Loans to deposits ........ 78.50 85.75 77.68 76.44 73.90 70.82 79.21
ASSET QUALITY RATIOS:
Nonperforming assets
to total assets ......... .15% 1.16% .30% .49% .70% .37% 1.11%
Net loan charge-offs
to average loans(4) ..... .53 (.25) .10 .04 .02 .59 1.40
Allowance for loan losses
to total loans .......... .95 1.16 1.17 1.07 1.22 1.29 1.32
Allowance for loan losses
to nonperforming loans .. 423 89 257 240 118 227 114
BANK CAPITAL RATIOS:
Tier 1 risk-based capital 9.22% 9.22% 9.15% 9.35% 10.12% 10.22% 9.65%
Total risk-based capital . 10.17 10.40 10.29 10.47 11.37 11.48 10.91
Tier 1 leverage .......... 6.59 7.33 6.44 6.88 5.74 5.24 6.09
</TABLE>

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

(1) After giving effect to an extraordinary gain of $34,000, or $.04 per
share.
(2) All common share data has been adjusted for the five percent Common Stock
dividends declared during 1993, 1994, 1995 and 1997, and the seven percent
Common Stock dividend declared during 1996.
(3) Represents total stockholders' equity (net of liquidation preference of
preferred stock of $468,000, $468,000 and $460,000 as of December 31,
1992, 1993 and 1994, respectively) divided by the number of shares of
Common Stock outstanding at the end of the period.
(4) Ratios annualized for the six-month periods ended June 30, 1997 and 1996.

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<PAGE> 8
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 before purchasing shares of Common Stock.

EXPOSURE TO LOCAL ECONOMIC CONDITIONS

The Company's success is dependent to a significant extent upon general
economic conditions in the Washington, D.C. metropolitan area which are, in
turn, dependent to a large extent on the Federal government, particularly its
local employment and spending levels. In addition, the banking industry in the
Washington, D.C. metropolitan area, similar to other geographic markets, is
affected by general economic conditions such as inflation, recession,
unemployment and other factors beyond the Company's control. Economic recession
over a prolonged period or other economic dislocation in the Washington, D.C.
metropolitan area, or a substantial reduction in the level of employment or
local spending by the Federal government, could cause increases in
nonperforming assets, thereby causing operating losses, impairing liquidity and
eroding capital. There can be no assurance that future adverse changes in the
economy in the Washington, D.C. metropolitan area would not have a material
adverse effect on the Company's financial condition, results of operations or
cash flows. See "Business."

INTEREST RATE RISK

The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
loans and investments and the interest expense paid on deposits and other
borrowings. These rates are highly sensitive to many factors which are beyond
the Company's control, including general economic conditions and the policies
of various government and regulatory authorities. From time to time, maturities
of assets and liabilities are not balanced, and a rapid increase or decrease in
interest rates could have an adverse effect on the net interest margin and
results of operations of the Company. The nature, timing and effect of any
future changes in federal monetary and fiscal policies on the Company and its
results of operations are not predictable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Interest Rate Sensitivity Management."

REGULATION AND SUPERVISION

Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal and
state regulatory agencies. The Company is subject to the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and to regulation and supervision by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Bank, as a national banking association, is subject to regulation and
supervision by the Office of the Comptroller of the Currency ("OCC") and, as a
result of the insurance of its deposits, by the Federal Deposit Insurance
Corporation (the "FDIC"). These agencies' regulations are intended primarily
for the protection of depositors, rather than for the benefit of investors.
These agencies' regulations, among other things, impose percentage limitations

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<PAGE> 9
on the acquisition of shares of Common Stock without prior agency approval,
require the satisfaction by the Bank (and, upon completion of the transaction
with Eastern American, the Company) 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. The
effects of any potential changes cannot be predicted but could adversely affect
the business and operations of the Company and the Bank in the future. See
"Supervision and Regulation."

RESTRICTIONS ON PAYMENT OF DIVIDENDS

The Company has not paid any cash dividends on the Common Stock to date, and
it intends during the near term to retain any earnings available for dividends
for the development and growth of its business. Although the Company's
long-term plan calls for the payment of cash dividends when circumstances
permit, no assurance may be given if or when the Company will adopt a policy of
paying cash dividends. See "Dividend Policy." Federal Reserve Board policy
limits the payment of cash dividends by bank holding companies and requires
that the holding company serve as a source of strength to its banking
subsidiaries. See "Supervision and Regulation -- Regulation of the Company."

The Company's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that the Company receives from the Bank.
The payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal banking laws, regulations and authorities. As
of June 30, 1997, an aggregate of approximately $1.4 million was available for
payment of dividends by the Bank to the Company under applicable restrictions,
without regulatory approval. As of the date of this Prospectus, the Bank had
not paid any dividends to the Company during 1997. See "Supervision and
Regulation -- Regulation of the Bank."

CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Certificate of Incorporation, as amended, and Bylaws contain
certain provisions which may delay, discourage or prevent an attempted
acquisition or change of control of the Company. These provisions, among other
things, impose certain procedural requirements on stockholders of the Company
who wish to make nominations for elections of directors or propose other
actions at stockholder meetings, authorize the Board of Directors to fix the
rights and preferences of the shares of series of preferred stock without
stockholder approval, prohibit stockholder action by written consent and limit
the ability of stockholders to call special meetings of stockholders. In
addition, certain provisions of the Delaware General Corporation Law prohibit a
Delaware corporation from engaging in a broad range of business combinations
with an "interested stockholder" for a period of three years following the date
that such stockholder became an interested stockholder, subject to certain
exceptions. See "Description of Capital Stock -- Anti-Takeover Protections."

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<PAGE> 10
MANAGEMENT'S OWNERSHIP INTEREST

After the consummation of the Offering, the executive officers and directors
of the Company will own 494,376 shares of the outstanding Common Stock,
representing approximately 25.5% of such class outstanding or approximately
24.1% of such class if the Underwriter's over- allotment option is fully
exercised. In addition, warrants and stock options to purchase an aggregate of
193,035 shares of Common Stock are held by the Company's directors and
executive officers. If all such warrants and stock options were exercised, the
directors and executive officers would own approximately 32.2% of the Common
Stock to be outstanding after the Offering (approximately 30.6% if the
Underwriter's over-allotment option is exercised in full). Accordingly, these
executive officers and directors will be able to influence, to a significant
extent, the outcome of all matters required to be submitted to the Company's
stockholders for approval, including decisions relating to the election of
directors of the Company and other significant corporate transactions. See
"Security Ownership of Certain Beneficial Owners and Management."

LIMITED PRIOR TRADING MARKET

Prior to this Offering, there has been no established public trading market
for the Common Stock, although it is quoted on the NNOTC Bulletin Board and is
traded on a limited basis. Application has been made for inclusion of the
Common Stock for quotation on the Nasdaq SmallCap Market under the symbol
"CTRY." There can be no assurance that an active public market will develop or
be sustained after this Offering or that if such a market develops, investors
in the Common Stock will be able to resell their shares at or above the public
offering price.

The public offering price of the shares of Common Stock will be determined by
negotiations between the Company and the Underwriter. Among the factors to be
considered in making such a determination will be any recent trading prices of
the Common Stock, an assessment of the Company's results of operations, an
evaluation of the Company's management, the future prospects of the Company and
its industry in general, relative price to earnings and book value ratios of
securities of companies engaged in activities similar to those of the Company
and the prevailing conditions in the securities market. See "Underwriting."

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. 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. See "Business -- Competition."

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<PAGE> 11
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 and Mr. Bracewell are parties to an Employment Agreement providing for
his continued employment by the Company through August 1998. See "Management --
Employment Agreement."

FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") that are based on the current
beliefs of, as well as assumptions made by and information currently available
to, the Company's management. All statements other than statements of
historical facts included in this Prospectus, including without limitation,
statements contained under the captions "Prospectus Summary," "Risk Factors,"
"The Eastern American Transaction," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking
statements. When used in this Prospectus the words "anticipate," "believe,"
"estimate," "project," "predict," "expect," "intend" and words or phrases of
similar import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results
to differ materially from the Company's expectations ("cautionary statements")
are contained under the caption "Risk Factors" and elsewhere in this
Prospectus, including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
projected, predicted, expected or intended. The Company does not intend to
update these forward-looking statements. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the applicable cautionary
statements.

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock offered hereby are
estimated to be approximately $__________ ($_________ if the Underwriter's
overallotment option is exercised in full), after deducting estimated
underwriting discounts and Offering expenses. The Company will use the net
proceeds of this Offering to enhance and support the equity capital of the Bank
in view of the deposit transaction with Eastern American and for general
corporate purposes. See "The Eastern American Transaction."

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<PAGE> 12
CAPITALIZATION

The following table sets forth the consolidated capitalization of the Company
as of June 30, 1997, and as adjusted to give effect to the sale of the shares
of Common Stock offered hereby at $___ per share (after giving effect to the
payment of estimated Offering expenses). See "Use of Proceeds."

<TABLE>
<CAPTION>
June 30, 1997
----------------------------
Historical As Adjusted
------------ ------------
<S> <C> <C>
Long term debt ................................... $ 6,400,000 $ 6,400,000
Common Stock, $1.00 par value, 5,000,000
shares authorized; 1,217,429 shares issued
and outstanding; 1,942,429 shares issued
and outstanding as adjusted(1) ................. 1,217,429
Additional paid-in capital ....................... 5,300,802
Retained earnings ................................ 603,608 603,608

Unrealized loss on investment
securities available-for-sale, net of
tax effect ..................................... (44,335) (44,335)
------------ ------------
Total stockholders' equity ....................... 7,077,504 $
------------ ------------
Total capitalization ............................. $ 13,477,504 $
============ ============
</TABLE>
_________

(1) Assumes that the Underwriter's overallotment option for 108,750 shares is
not exercised and that no outstanding stock options or stock purchase
warrants are exercised. If the Underwriter's over-allotment option is
exercised in full, Common Stock, additional paid in capital, total
stockholders' equity and total capitalization would be approximately
$______, $______, $______ and $______, respectively.

MARKET FOR COMMON STOCK

There is currently no established public trading market in the Company's
Common Stock. The Common Stock is quoted on the NNOTC Bulletin Board, a NASD
sponsored and operated inter-dealer quotation system, and is traded on a
limited basis.

Based on information available to the Company from a limited number of
sellers and purchasers of Common Stock, the Company believes that the selling
price for the Common Stock ranged from $5.50 to $6.25 during 1995; from $5.50
to $8.00 during 1996; and from $6.50 to $7.75 from January 1, 1997 through July
31, 1997. Such transactions may not be representative of all transactions
during the indicated periods or the actual fair market value of the Common
Stock at the time of such transactions due to the infrequency of trades and the
limited market for the Common Stock.

-11-
<PAGE> 13
The Company has applied to have the Common Stock approved for listing on The
Nasdaq SmallCap Market under the symbol "CTRY." There can be no assurance,
however, that an active trading market for the Common Stock will develop and
continue after the Offering. The quotation of the Common Stock on The Nasdaq
SmallCap Market is conditioned upon the Company meeting certain asset, stock
price and public float tests, and having at least three registered and active
market makers for the Common Stock. Arrangements have been made to satisfy the
market maker requirements, and the Company believes it will satisfy the other
listing requirements upon completion of this Offering.

At June 30, 1997, there were 1,217,429 shares of Common Stock outstanding
held by approximately 264 holders of record.

DIVIDEND POLICY

The Company has not paid cash dividends on its shares of Common Stock to
date, and it intends during the near term to retain any earnings available for
dividends for the development and growth of its business. The Company's
long-term plan, however, calls for the payment of cash dividends when
circumstances permit, although no assurance can be given if or when the Company
will adopt a policy of paying cash dividends. 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 and regulations.
See "Risk Factors -- Restrictions on Payment of Dividends" and "Supervision and
Regulation."

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 Company was a five percent stock dividend
payable on May 23, 1997 on shares of Common Stock held of record as of May 7,
1997. The declaration of future stock dividends is at the discretion of the
Board of Directors.

THE EASTERN AMERICAN TRANSACTION

The Bank has entered into a Purchase and Assumption Agreement with Eastern
American dated July 24, 1997, as amended August 15, 1997 (the "EAB Agreement"),
providing for the assumption by the Bank of the deposits and certain other
liabilities of the branch of Eastern American located at 6832 Old Dominion
Drive, McLean, Virginia (the "McLean Branch"). In connection with the
assumption of the deposit liabilities of the McLean Branch, the Bank also will
assume the obligations under the related lease and will acquire approximately
$9.24 million in mortgage loans from Eastern American's portfolio.

In consideration of the assumption of the deposits and other liabilities,
Eastern American will make a cash transfer to the Bank equal to the total amount
of the liabilities assumed, less the sum on the closing date of (i) the value
of vault cash at the McLean Branch, (ii) the net book value of the leasehold
improvements and the personal property located at the McLean Branch, (iii) the
amount of the security deposit related to the lease of the McLean Branch, (iv)
the unpaid

-12-
<PAGE> 14
balance of the designated mortgage loans and certain overdraft protection
loans, (v) certain proration items, and (v) a deposit premium equal to 5.6% of
the balance of the deposits assumed as of the closing date, excluding deposits
of affiliates of Eastern American and certain other types of deposits, not to
exceed $2 million. If the transactions contemplated by the EAB Agreement had
been completed as of the date of the EAB Agreement, it is estimated that
approximately $34 million in deposit liabilities would have been assumed by the
Bank and the amount of the cash transfer by Eastern American to the Bank would
have been approximately $23 million.

The obligations of the parties to complete the transactions contemplated by
the EAB Agreement are subject to the satisfaction of certain conditions,
including receipt of the unconditional approval of all required regulatory
authorities, the absence of litigation materially and adversely affecting the
operation of the branch or the transactions contemplated by the agreement, the
consent of the landlord to the assignment of the lease, the continued status of
the Bank as "well capitalized" on a pro forma basis after giving effect to the
transaction and other conditions customary in transactions of this nature.

The EAB Agreement provides that the transactions contemplated thereby will be
completed no later than October 15, 1997, subject to extension until December
1, 1997 if necessary to obtain regulatory approval. The Company anticipates
that the closing will occur substantially contemporaneously with the closing of
this Offering.

In connection with the transaction, Eastern American has agreed, for a period
of two years after the closing, that neither Eastern American nor any of its
subsidiaries, affiliates, successors or assigns will enter into any agreement
to acquire, lease, purchase, own, operate or use any building or other facility
within a two and one-half mile radius of the branch location for the purpose of
accepting deposits or cashing checks. In addition, Eastern American has agreed
that neither it nor its subsidiaries or affiliates (including the directors,
officers, employees or principal shareholders), successors or assigns will, for
a period of two years after closing, solicit deposits, loans or other business
from customers whose deposits are assumed, or whose loans are acquired,
pursuant to the agreement.

In connection with the transaction, the Bank plans to assume Eastern
American's lease for the branch location at 6832 Old Dominion Drive, McLean,
Virginia. The McLean Branch is located in Fairfax County, Virginia, in what is
referred to locally as "Old McLean." McLean, which is considered the "downtown"
of Fairfax County, encompasses approximately 26 square miles and contains
approximately 20.8 million square feet of office space. See "Business --
Primary Market Area." The branch premises consist of 2,077 square feet which
are under lease through September 30, 2003, with one additional five-year
renewal option.

The Company believes that the transaction with Eastern American will further
its strategic plan, which is directed toward the enhancement of its franchise
value and operating profitability through a significant increase in its asset
size, further expansion into nearby Virginia and Maryland markets and the
development of new commercial accounts. The Company anticipates, however, that
its net interest margin will decline immediately after the transaction, since
the proportion of non-interest bearing deposits is lower, and the average rate
paid on interest-bearing deposits is higher, at the McLean Branch than in the
Company's present deposit structure. Further, since the

-13-
<PAGE> 15
volume of loans to be acquired in connection with the transaction is
approximately 25% of the deposit liabilities to be assumed, the balance of the
assumed deposits initially will be invested in securities, which generally earn
lower rates of interest than loans. The Company anticipates that, over time,
most of these funds will be re-deployed into new loans and the net interest
margin should increase to historical levels. In addition, the transaction will
immediately increase the Company's noninterest expenses as a result of
personnel and occupancy expenses of the McLean Branch, as well as amortization
of the deposit premium. Furthermore, the transaction should increase the
Company's noninterest income due to the increase in deposit accounts.

-14-
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial information 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, 1996 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 six months ended June 30, 1997 and June 30, 1996 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 six months ended June 30, 1997
are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1997 or for any future periods.

<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------ -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ....................... $ 4,131 $ 3,759 $ 7,689 $ 7,079 $ 5,712 $ 5,455 $ 6,016
Interest expense ...................... 1,641 1,331 2,776 2,562 1,902 1,987 2,486
Net interest income ................... 2,490 2,428 4,913 4,517 3,810 3,468 3,530
Provision for loan losses ............. 72 -- 160 26 19 310 596
Noninterest income .................... 514 354 720 590 555 572 611
Noninterest expense ................... 2,463 2,307 4,920 4,157 3,381 3,071 3,303
Income taxes .......................... 181 182 275 311 374 240 76
---------- ---------- ---------- ---------- ---------- -------- --------
Net income ........................... $ 288 $ 293 $ 279 $ 613 $ 591 $ 419 $ 200(1)
========== ========== ========== ========== ========== ======== ========
BALANCE SHEET DATA:
Total assets .......................... $ 110,902 $ 96,659 $ 107,186 $ 101,730 $ 90,175 $ 86,332 $ 77,280
Total loans ........................... 74,346 71,455 70,676 69,204 60,663 56,644 56,331
Allowance for loan losses ............. 710 830 826 740 740 730 744
Total deposits ........................ 94,707 83,330 90,985 90,539 82,081 79,982 71,113
Long term debt ........................ 6,400 -- 6,850 -- -- 207 540
Total stockholders' equity ............ 7,078 6,671 6,750 6,365 4,810 4,804 4,469
COMMON SHARE DATA(2):
Net income ............................ $ .21 $ .23 $ .22 $ .55 $ .55 $ .41 $ .18(1)
Book value(3) ......................... 5.81 5.65 5.61 5.42 4.48 4.48 4.14
Common shares outstanding as of
end of period ........................ 1,217,429 1,179,869 1,203,329 1,175,234 971,146 969,023 967,428
Weighted average common and equivalent
shares outstanding during period ..... 1,341,156 1,294,594 1,256,437 1,048,438 1,007,242 968,210 967,006
PERFORMANCE DATA:
Return on average total assets(4) ..... .53% .61% .27% .68% .71% .56% .29%
Return on average total equity(4) ..... 8.32 8.99 4.20 11.49 12.38 9.84 5.39
Net interest margin(4) ................ 5.25 5.74 5.74 5.42 4.90 4.55 4.94
Loans to deposits ..................... 78.50 85.75 77.68 76.44 73.90 70.82 79.21
ASSET QUALITY RATIOS:
Nonperforming assets to total assets .. .15% 1.16% .30% .49% .70% .37% 1.11%
Net loan charge-offs to average
loans(4) ............................ .53 (.25) .10 .04 .02 .59 1.40
Allowance for loan losses to
total loans .......................... .95 1.16 1.17 1.07 1.22 1.29 1.32
Allowance for loan losses to
nonperforming loans .................. 423 89 257 240 118 227 114
BANK CAPITAL RATIOS:
Tier 1 risk-based capital ............. 9.22% 9.22% 9.15% 9.35% 10.12% 10.22% 9.65%
Total risk-based capital .............. 10.17 10.40 10.29 10.47 11.37 11.48 10.91
Tier 1 leverage ....................... 6.59 7.33 6.44 6.88 5.74 5.24 6.09
</TABLE>

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

-15-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion, 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.

OVERVIEW

As of June 30, 1997, the Company had total assets of $110,902,000, total
loans of $74,346,000, total deposits of $94,707,000 and total stockholders'
equity of $7,078,000. For the year ended December 31, 1996, and for the six
months ended June 30, 1997 (on an annualized basis), the Company's return on
equity was 4.20% and 8.32%, respectively. For the year ended December 31, 1996,
and for the six months ended June 30, 1997 (on an annualized basis), the
Company's return on assets was .27% and .53%, respectively.

The Company had net income of $288,000 for the six months ended June 30,
1997, and net income of $279,000, $613,000 and $591,000 during the years ended
December 31, 1996, 1995 and 1994, respectively. The decline in net income
during 1996 was attributable to nonrecurring expenses associated with the
installation of a new computer system and other costs incurred to position the
Company to implement its planned expansion. See " -- Results of Operations --
Noninterest Expense."

The Company has entered into an agreement to assume approximately $34 million
in deposits and the leasehold interests of a branch of Eastern American in
McLean, Virginia. In connection with this transaction, the Company will also
acquire approximately $9.24 million in mortgage loans from Eastern American's
portfolio. Although the Company believes that the transaction with Eastern
American will be in furtherance of its business strategy to significantly
increase its asset size and to expand into nearby Virginia and Maryland
markets, the Company anticipates that a short term decline in its net income
may occur as a result of increased operating expenses and the need to redeploy
the new deposits into loans. See "The Eastern American Transaction." This and
other possible effects of the transaction with Eastern American on the
Company's financial results should be considered when reviewing the Company's
reported results of operations.

-16-
<PAGE> 18
RESULTS OF OPERATIONS

NET INCOME

Net income was $288,000 ($.21 per common share) for the first six months of
1997, compared with net income of $293,000 ($.23 per common share) for the
first six months of 1996. The decrease in net income for the first six months
of 1997 compared with the same period in 1996 resulted from a $156,000 increase
in non-interest expenses and a $72,000 increase in the provision for loan
losses, which were partially offset by a $160,000 increase in non-interest
income and a $62,000 increase in net interest income. In addition, earnings per
common share were affected by an increase in the number of weighted average
common shares and common stock equivalents outstanding to 1,341,156 from
1,294,594 during the first six months of 1997 as compared to 1996.

Net income was $279,000 ($.22 per common share) for 1996, compared with net
income of $613,000 ($.55 per common share) for 1995, a decrease of $334,000 or
55%. The decrease in net income for 1996 compared with 1995 resulted
principally from a $763,000 increase in noninterest expenses, of which
approximately $416,000 was attributable to nonrecurring costs associated with
new telecommunications and computer systems, processing costs in support of new
fee-generating products and services, and expenses relating to the cost of
registering with the Securities and Exchange Commission ("SEC") the shares of
Common Stock issuable upon the exercise of certain outstanding warrants. A
$134,000 increase in the provision for loan losses also contributed to the
decrease in net income for 1996 compared with 1995. These increased expenses
were partially offset by a $396,000 increase in net interest income and a
$130,000 increase in noninterest income.

Net income for 1995 was restated to reflect an adjustment to the Company's
deferred compensation liability account. The impact of this adjustment
resulted in a decrease to previously reported net income of $67,000 in 1995.
See Note 2 of the Notes to Consolidated Financial Statements for additional
discussion.

Net income, as restated, was $613,000 for 1995 ($0.55 per common share), a 4%
increase compared with $591,000 for 1994 ($0.55 per common share). The increase
in net income from 1994 to 1995 resulted from a $707,000 increase in net
interest income and a $35,000 increase in non-interest income, which were
offset by a $776,000 increase in non-interest expenses resulting from the
acquisition of the Pennsylvania Avenue branch office and increased marketing
and business development expenses.

NET INTEREST INCOME

Net interest income, which constitutes the principal source of income for the
Company, represents the difference between interest income on earning assets
and interest expense on interest-bearing liabilities. The net yield on total
earning assets, also referred to as interest rate margin or net interest

-17-
<PAGE> 19
margin, represents net interest income divided by average earning assets. The
Company's principal earning assets are loans, investment securities, interest
bearing deposits in other banks, and federal funds sold.

Net interest income was $2,490,000 for the six months ended June 30, 1997, an
increase of $62,000 or 3% compared with the same period in 1996. This increase
was a result of a $10 million increase in total earning assets, partially
offset by a decline in the net interest margin from 5.74% in 1996 to 5.25% in
1997. This decline resulted from an increase in the balance of certificates of
deposit liabilities and fixed rate borrowings from the Federal Home Loan Bank
of Atlanta ("FHLBA"), the proceeds of which were invested primarily in
short-term investments as of June 30, 1997, pending anticipated redeployment
into higher yielding loans and securities.

Net interest income was $4,913,000 for 1996, an increase of $396,000 or 9%
compared with 1995. This increase resulted from an increase in average total
earning assets of $2,186,000, and an increase in the Company's net interest
margin from 5.42% in 1995 to 5.74% in 1996, an increase of 32 basis points. 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 that loans constituted a higher percentage of
the Company's total earning assets in 1996 than in 1995.

Net interest income was $4,517,000 for 1995, an increase of $707,000 or 19%
compared with $3,810,000 for 1994. The Company's average total earning assets
increased from $77,825,000 for 1994 to $83,348,000 for 1995, representing a 7%
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.

The Company's net interest income is affected by changes in the amount and
mix of earning assets and interest-bearing liabilities, referred to as a
"volume change." It is also affected by changes in yields earned on 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 earning assets and interest-bearing liabilities, the average
amounts outstanding, the interest earned or incurred on such amounts, and the
average rate earned or incurred for the six months ended June 30, 1997 and
1996, and for the years ended December 31, 1996, 1995 and 1994. The tables also
set forth the average rate earned on total earning assets, the average rate
paid on total interest-bearing liabilities, and the net interest margin on
average total earning assets for the same periods.

-18-
<PAGE> 20
AVERAGE BALANCES AND INTEREST RATES:
INTERIM PERIODS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans receivable, net(1) ................. $ 70,690 $ 3,457 9.78% $69,914 $ 3,385 9.68%
Investment securities, taxable(2) ........ 9,343 271 5.80% 12,392 311 5.02%
Investment securities, non-taxable(2)(3) . 165 4 4.85% 250 6 4.80%
Federal funds sold ....................... 2,904 84 5.72% 327 13 7.95%
Interest-earning deposits with banks ..... 11,726 315 5.37% 1,661 44 5.30%
-------- ------- ------- -------
Total interest-earning assets(3) ........ 94,828 4,131 8.71% 84,544 3,759 8.89%
NONINTEREST-EARNING ASSETS:
Cash and due from banks .................. 4,887 4,159
Other assets ............................. 3,134 4,047
-------- -------
Total noninterest-earning assets .......... 8,021 8,206
-------- -------
Total assets ............................ $102,849 $92,750
======== =======

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW) deposits .. $ 13,778 135 1.96% $13,086 128 1.96%
Savings deposits ........................ 2,301 28 2.43% 2,286 30 2.62%
Money market deposits ................... 21,546 385 3.57% 22,681 365 3.22%
Time deposits ........................... 30,470 831 5.45% 24,546 675 5.50%
Borrowings .............................. 7,882 262 6.65% 4,640 133 5.78%
-------- ------- ------- -------
Total interest-bearing liabilities ........ 75,977 1,641 4.32% 67,239 1,331 3.96%
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits ............. 18,979 17,486
Other liabilities ........................ 838 1,463
-------- -------
Total noninterest-bearing liabilities ..... 19,817 18,949
-------- -------
Stockholders' equity ...................... 7,055 6,562
-------- -------
Total liabilities and stockholders' equity $102,849 $92,750
======== =======
Net interest income ....................... $ 2,490 $ 2,428
======= =======
Net interest margin(3) .................... 5.25% 5.74%
==== ====
</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 fair value 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 ..... 7.35% 7.74%
Total interest-earning assets .......... 8.71% 8.90%
Net interest margin .................... 5.25% 5.75%
</TABLE>

-19-
<PAGE> 21
AVERAGE BALANCES AND INTEREST RATES:
ANNUAL PERIODS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------ -------------------------
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> <C>
EARNING ASSETS:
Loans receivable, net(1) .................$70,523 $ 6,887 9.77% $62,639 $6,011 9.60% $57,855 4,802 8.30%
Investment securities, taxable (2) ....... 10,312 545 5.29% 18,297 918 5.02% 18,251 829 4.54%
Investment securities, non-taxable (2)(3) 228 10 4.39% 991 57 5.75% 127 6 4.45%
Federal funds sold ....................... 380 35 9.21% 428 37 8.64% 1,356 65 4.79%
Interest-earning deposits with banks ..... 4,091 212 5.18% 993 56 5.64% 236 10 4.09%
------- ------- ------- ------ ------- -----
Total interest-earning assets (3) ....... 85,234 7,689 8.99% 83,348 7,079 8.49% 77,825 5,712 7.34%

NONINTEREST-EARNING ASSETS:
Cash and due from banks .................. 4,361 3,854 3,851
Other assets ............................. 4,189 2,907 1,378
------- ------- -------
Total noninterest-earning assets .......... 8,550 6,761 5,229
------- ------- -------
Total assets ............................$94,084 $90,109 $83,054
======= ======= =======

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW) deposits ..$12,522 245 1.96% $12,230 258 2.11% $11,926 248 2.08%
Savings deposits ........................ 2,217 56 2.53% 2,526 67 2.65% 2,564 66 2.59%
Money market deposits ................... 23,072 784 3.40% 25,153 778 3.09% 24,784 618 2.49%
Time deposits ........................... 25,596 1,400 5.47% 23,128 1,269 5.49% 20,738 922 4.44%
Borrowings ............................... 4,952 291 5.88% 3,526 190 5.39% 1,102 43 3.93%
Note payable .............................. -- -- N/A -- -- N/A 51 5 8.20%
------- ------- ------- ------ ------- -----
Total interest-bearing liabilities ........ 68,359 2,776 4.06% 66,563 2,562 3.85% 61,165 1,902 3.11%
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 17,525 16,841 16,159
Other liabilities 1,642 1,236 646
------- ------- -------
Total noninterest-bearing liabilities 19,167 18,077 16,805
------- ------- -------
Stockholders' equity 6,558 5,469 5,084
------- ------- -------
Total liabilities and
stockholders' equity $94,084 $90,109 $83,054
======= ======= =======
Net interest income $4,913 $4,517 $3,810
====== ====== ======
Net interest margin (3) 5.74% 5.42% 4.90%
==== ==== ====
</TABLE>

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

(1) Non-accrual loan balances are included in the calculation or Average
Balances--Loans Receivable, Net. Interest income on non-accrual 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 fair value 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 ... 6.84% 8.76% 6.72%
Total interest-earning assets ........ 9.00% 8.53% 7.34%
Net interest margin .................. 5.75% 5.45% 4.90%
</TABLE>

-20-
<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 in order 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)

Six Months Ended Year Ended Year Ended
June 30, 1997 December 31, 1996 December 31, 1995
Compared With Compared With Compared With
June 30, 1996 December 31, 1995 December 31, 1994
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> <C>
INTEREST EARNED ON:
Loans receivable, net ......... $ 38 $ 34 $ 72 $ 768 $ 108 $ 876 $ 428 $ 781 $ 1,209
Investment securities,
taxable..................... (109) 69 (40) (425) 52 (373) 2 87 89
Investment securities,
non-taxable................. (2) -- (2) (36) (11) (47) 45 6 51
Federal funds sold .......... 73 (2) 71 (5) 3 (2) (62) 34 (28)
Interest-earning deposits
with banks.................. 270 1 271 160 (4) 156 37 9 46
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest income $ 270 $ 102 $ 372 $ 462 $ 148 $ 610 $ 450 $ 917 $ 1,367
------- ------- ------- ------- ------- ------- ------- ------- -------
INTEREST PAID ON:
Interest-bearing (NOW)
deposits.................... $ 7 -- $ 7 $ 7 $ (20) $ (13) $ 6 $ 4 $ 10
Savings deposits ............ -- $ (2) (2) (8) (3) (11) (1) 2 1
Money market deposits ....... (17) 37 20 (28) 34 6 10 150 160
Time deposits ............... 162 (6) 156 136 (5) 131 119 228 347
Short-term borrowings ....... 105 24 129 82 19 101 113 34 147
Note payable ................ -- -- -- -- -- -- (5) -- (5)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense .... 257 53 310 189 25 214 242 418 660
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income ............. $ 13 $ 49 $ 62 $ 273 $ 123 $ 396 $ 208 $ 499 $ 707
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

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<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 during the first six months of 1997 was
$72,000, compared to the first six months of 1996, in which no provision was
made. The increase reflects a higher level of losses in the Company's consumer
loan and credit card loan portfolios, consistent with national trends. In the
first six months of 1997, net charge offs were $188,000. In the first six
months of 1996, the Company recovered money on previously charged off loans, so
no provision expense was required.

The provision for loan losses for 1996 was $160,000 compared with $26,000 for
1995. The increase is the result of an increase in charge offs from $26,000 in
1995 to $74,000 in 1996, the establishment of reserves for certain consumer
loans which were deemed uncollectible when the borrowers declared bankruptcy,
the establishment of a $38,000 loss reserve in the fourth quarter of 1996
resulting from a borrower's use of forged collateral as security for a loan, and
a $38,000 increase in reserves during the fourth quarter of 1996 for two
non-accrual loans secured by real estate. In addition, the Company's loan
portfolio continued to grow during 1996, with the majority of growth occurring
in the commercial portfolio.

The provision for loan losses was $26,000 for 1995 compared with $19,000 for
1994, representing an increase of $7,000 or 36% from 1994. The provision
expense was modest in both years compared to industry averages and the
Company's own historical experience, and was attributable to significant
recoveries of loans charged off prior to 1994, and an overall improvement in
the local and national economy during that period.

Management believes the allowance is adequate to absorb losses inherent in
the loan portfolio. 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. Management will continue to closely monitor the
performance of its portfolio and make additional provisions as considered
necessary. The Company does not presently anticipate that such provisions will
have a material adverse impact on the Company's results of operations in future
periods.

-22-
<PAGE> 24
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 securities and certain
other items of income, whether recurring or not, which are not elsewhere
classified.

Noninterest income for the first six months of 1997 was $514,000, an increase
of $160,000, or 45% compared with noninterest income of $354,000 for the first
six months of 1996. This increase results primarily from fees generated in
connection with the Company's MasterCard/Visa credit card program.

Noninterest income for 1996 was $720,000, an increase of $130,000 or 22%
compared with noninterest income of $590,000 for 1995. This increase resulted
primarily from fees generated in connection with the Company's credit card
program, which was initially established in March 1995. These fees, which are
reported along with other items as commission and fee income, increased
approximately $75,000 or 46% during 1996 as compared to 1995.

Noninterest income was $590,000 for 1995, compared with $555,000 for 1994, an
increase of $35,000 or 6% resulting primarily from fees associated with the
credit card program. The $123,000 or 164% increase in commission and fee income
from 1994 to 1995 was offset by a $127,000 or 93% 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 caused by the
recognition of miscellaneous non-recurring income items.

The following table sets forth the various categories of noninterest income
for the six months ended June 30, 1997 and 1996, and for the years ended 1996,
1995 and 1994.

NONINTEREST INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
----------------------- ----------------------------------------
1997 % Change 1996 1996 % Change 1995 % Change 1994
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 241 13.1% $ 213 $ 416 9.8% $ 379 11.5% $ 340
Commission and fee income ......... 261 100.0% 130 286 44.4% 198 164.0% 75
Safe deposit box rentals .......... 10 (9.1)% 11 12 100.0% 6 (60.0)% 15
Gain (loss) on sale of securities . -- -- -- -- (100.0)% (3) (75.0)% (12)
Other income ...................... 2 N/A -- 6 (40.0)% 10 (92.7)% 137
----- ----- ----- ----- ----- ----- ----- -----
Total noninterest income .......... $ 514 45.2% $ 354 $ 720 22.0% $ 590 6.3% $ 555
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

-23-
<PAGE> 25
NONINTEREST EXPENSE

The Company's noninterest expense has been consistently higher in relation to
its asset size than the average for small community banks. 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 telecommunications and computer systems
during 1995 and 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.

Noninterest expense was $2,463,000 for the first six months of 1997, an
increase of $156,000, or 7% compared with noninterest expense of $2,307,000 for
the first six months of 1996. This increase resulted principally from
depreciation expenses associated with the Company's new computer and
telecommunications systems and remote ATM, as well as data processing costs in
support of the credit card program.

Noninterest expense was $4,920,000 for 1996, an increase of $763,000 or 18%
compared with noninterest expense of $4,157,000 for 1995. The installation of
the new computer system resulted in the incurrence of substantial nonrecurring
expenses, including the writeoff of certain custom software development costs,
special consulting, audit and legal expenses. Additionally, during the same
period in 1996, management realigned the Company's operations and financial
reporting functions related to the utilization of the computer system. This
realignment resulted in additional nonrecurring expenses including negotiated
payments for personnel severance, accrued leave, and related expenses. In the
aggregate, these items represented approximately $304,000 in nonrecurring
expenses. In addition, a total of $112,000 in nonrecurring expenses were
incurred in connection with the registration with the SEC of the shares of
Common Stock issuable upon exercise of the Company's outstanding warrants to
purchase Common Stock. See "Description of Capital Stock -- The Warrants." The
remainder of the increase in noninterest expense resulted principally from
depreciation expenses associated with the Company's new computer and
telecommunications systems and remote ATM, as well as data processing costs in
support of the credit card program. Excluding nonrecurring expenses, noninterest
expenses increased 8% from $4,157,000 in 1995 to $4,504,000 in 1996.

Noninterest expense was $4,157,000 for 1995, compared with $3,381,000 for
1994, representing an increase of $776,000 or 23%. The increase from 1994 to
1995 was 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.

-24-
<PAGE> 26
The following table sets forth the various categories of noninterest expense
for the six months ended June 30, 1997 and 1996, and for the years ended 1996,
1995 and 1994.

NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------------ -------------------------------------------
1997 % Change 1996 1996 % Change 1995 % Change 1994
------ ---- ------ ------ ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits ... $1,016 6.8% $ 951 $1,988 (5.1)% $2,094 26.0% $1,662
Occupancy and equipment expense .. 295 21.9% 242 531 2.7% 517 18.0% 438
Depreciation and amortization .... 236 24.9% 189 453 104.1% 222 63.2% 136
Professional fees ................ 244 (16.2)% 291 628 130.9% 272 5.8% 257
Data processing .................. 253 90.2% 133 469 41.3% 332 83.4% 181
Federal deposit insurance premiums 5 (81.5)% 27 30 (65.9)% 88 (47.9)% 169
Communications ................... 99 5.3% 94 206 28.0% 161 41.2% 114
Marketing and public relations ... 134 (8.8)% 147 174 15.2% 151 26.9% 119
Branch expenses paid to RTC ...... -- N/A -- -- (100.0)% 21 (27.6)% 29
Office and operations expenses ... 100 (18.7)% 123 317 104.5% 155 (9.9)% 172
Insurance and lobby security ..... 45 (8.2)% 49 104 20.9% 86 48.3% 58
Provision for losses on OREO ..... -- N/A 13 7 (85.4)% 48 N/A --
Other expenses ................... 36 (25.0)% 48 13 30.0% 10 (78.3)% 46
------ ---- ------ ------ ----- ------ ---- ------
Total noninterest expense ........ $2,463 6.8% $2,307 $4,920 18.4% $4,157 23.0% $3,381
====== ==== ====== ====== ===== ====== ==== ======
</TABLE>

INCOME TAX EXPENSE

Income tax expense decreased approximately $1,000 to $181,000 for the first
six months of 1997 as compared to $182,000 for the same period of 1996. The
effective rate did not change significantly for the first six months of 1997
compared to the first six months of 1996.

The Company's effective tax rate increased from 33.7% in 1995 to 49.6% in
1996 due to the nondeductible nature of the $112,000 expense incurred in
connection with the registration with the SEC of the shares of Common Stock
issuable upon exercise of the Company's outstanding warrants to purchase Common
Stock. The Company's effective tax rate declined from 38.7% in 1994 to 33.7% 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.

INTEREST RATE SENSITIVITY MANAGEMENT

Net interest income, which constitutes the principal source of income for the
Company, represents the difference between interest income on earning assets
and interest expense on

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<PAGE> 27
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 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 interest-bearing liabilities maturing or repricing within
a given period exceeds the amount of its 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 three-month and one-year cumulative gaps
of less than plus or minus 10% of total assets. On a consolidated basis, the
Company's three-month and one year cumulative gaps were 3.33% and 12.09% of
total assets, respectively, as of June 30, 1997. The one-year cumulative gap
exceeds the ALCO policy objective because the Company has experienced recent
deposit growth, which has been invested primarily in short term investments
pending redeployment into loans and longer term assets. The Company anticipates
that the rate sensitivity gap will conform to the ALCO policy objective within
the next 12 months.

-26-
<PAGE> 28
The following table sets forth the interest-rate sensitive assets and
liabilities of the Company at June 30, 1997, which are expected to mature or
are subject to repricing in each of the time periods indicated.

INTEREST RATE SENSITIVE ASSETS AND LIABILITIES
JUNE 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TERM TO REPRICING
---------------------------------------------------------
90 Days 91-180 181 Days Over
or Less Days to 1 Year 1 Year Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits .............. $ 11,213 -- -- -- $ 11,213
Investment securities, taxable ......... 10,148 $ 207 $ 1,427 $ 5,879 17,661
Investment securities, non-taxable ..... -- 100 -- 65 165
Loans .................................. 42,101 6,685 13,302 12,349 74,437
-------- -------- -------- -------- --------
Total interest-earning assets ......... 63,462 6,992 14,729 18,293 103,476
-------- -------- -------- -------- --------

INTEREST-BEARING LIABILITIES:
Interest-bearing demand and
NOW accounts .......................... 12,499 -- -- -- 12,499
Savings deposits ....................... 2,195 -- -- -- 2,195
Money market deposits .................. 20,698 -- -- -- 20,698
Time deposits .......................... 23,457 8,485 2,817 3,285 38,044
Borrowed funds ......................... 922 250 450 6,400 8,022
-------- -------- -------- -------- --------
Total interest-bearing liabilities .... 59,771 8,735 3,267 9,685 81,458
-------- -------- -------- -------- --------

Interest sensitivity gap per period ..... $ 3,691 $ (1,743) $ 11,462 $ 8,608 $ 22,018
======== ======== ======== ======== ========
Cumulative gap .......................... $ 3,691 $ 1,948 $ 13,410 $ 22,018 $ 22,018
======== ======== ======== ======== ========
Cumulative gap as percent of total assets 3.33% 1.76% 12.09% 19.85% 19.85%
======== ======== ======== ======== ========
Cumulative interest-earning
assets as percent of cumulative
interest- bearing liabilities .......... 106% 103% 119% 127% 127%
======== ======== ======== ======== ========
</TABLE>

ANALYSIS OF FINANCIAL CONDITION

LOANS AND ASSET QUALITY

The loan portfolio is the largest category of the Company's earning assets.
Most of the Company's 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 has
been declining, however, due to the Company's recent emphasis on the
development of new commercial loan business. As of June 30, 1997 and December
31, 1996, approximately $43,246,000 (58%) and $44,109,000 (62%) of the
Company's total loan portfolio,

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<PAGE> 29
respectively, consisted of loans secured by real estate, of which
one-to-four-family residential mortgage loans and home equity lines of credit
represented $26,116,000 (35%) and $27,043,000 (38%), respectively, of the
Company's total loan portfolio.

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 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 June 30, 1997, 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
($17,918,000 or 24% of total loans), business services ($12,260,000 or 16% of
total loans), and health care services ($9,524,000 or 13% of total loans). The
Company offers commercial loans, lines of credit, credit cards, home equity
lines, and residential and commercial 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,
a consideration of past performance on loans from other creditors 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
38% 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 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. 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
general 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,

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<PAGE> 30
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 June 30, 1997, loans and commitments
outstanding to directors and executive officers of the Company and the Bank,
their associates and members of their immediate families totaled $2,420,000
(net of participations sold to other banks on a non-recourse basis), which
represented approximately 3% of total loans and commitments outstanding as of
that date. As of June 30, 1997, none of these loans outstanding from the Bank
to related parties was on non-accrual, past due, restructured or considered by
management to be a potential problem loan.

-29-
<PAGE> 31
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>
June 30, December 31,
-------- ----------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AGGREGATE PRINCIPAL AMOUNT
Type of loan:
- - -------------
1-4 family residential mortgage .................. $ 19,064 $ 20,612 $ 24,921 $ 25,610
Home equity loans ................................ 7,052 6,431 5,640 6,004
Multifamily residential .......................... 1,947 1,963 2,087 2,163
Construction ..................................... 490 382 1,545 788
Commercial real estate ........................... 14,693 14,721 11,910 9,358
Commercial loans ................................. 19,684 17,403 9,229 10,376
Installment and credit card loans ................ 11,125 9,226 9,023 4,989
Other loans ...................................... 382 -- 963 1,486
-------- -------- -------- --------
Gross loans ....................................... 74,437 70,738 69,302 60,774
Less: Unearned income ............................ (91) (62) (98) (111)
-------- -------- -------- --------
Total loans, net of unearned income ............... $ 74,346 $ 70,676 $ 69,204 $ 60,663
======== ======== ======== ========

PERCENTAGE OF LOAN PORTFOLIO
Type of loan:
- - -------------
1-4 family residential mortgage .................. 25.61% 29.14% 35.96% 42.14%
Home equity loans ................................ 9.47 9.09 8.14 9.87
Multifamily residential .......................... 2.62 2.78 3.01 3.56
Construction ..................................... 0.66 0.54 2.23 1.30
Commercial real estate ........................... 19.74 20.81 17.18 15.40
Commercial loans ................................. 26.44 24.60 19.07 17.07
Installment and credit card loans ................ 14.95 13.04 13.02 8.21
Other loans ...................................... 0.51 -- 1.39 2.45
-------- ------ ----- -------
Gross loans ....................................... 100.00% 100.00% 100.0% 100.0%
======== ====== ===== =======
</TABLE>

The following table sets forth the contractual maturities of loans
outstanding as of June 30, 1997, 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.

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<PAGE> 32
MATURITIES AND RATE SENSITIVITY OF LOANS
JUNE 30, 1997
(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 ................... $ 7,500 $ 3,521 $ 5,368 $ 175 $ 3,120 $19,684
Commercial real estate ....... 2,100 573 1,600 3,260 7,160 14,693
Residential mortgage/
home equity ................. 800 2,091 4,400 829 19,943 28,063
Construction ................. 304 186 -- -- -- 490
Installment/credit card ...... 2,900 1,042 300 67 6,816 11,125
Other ........................ 197 60 125 -- -- 382
------- ------- ------- ------- ------- -------
Total ..................... $13,801 $ 7,473 $11,793 $ 4,331 $37,039 $74,437
======= ======= ======= ======= ======= =======
</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 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.

-31-
<PAGE> 33
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
June Year Ended
30, December 31,
---- --------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-accrual loans .................... $168 $272 $ 8 $628
Accruing past due 90+ days ........... -- 50 300 --
---- ---- ---- ----
Total nonperforming loans .......... 168 322 308 628
Other real estate owned .............. -- -- 193 --
---- ---- ---- ----
Total nonperforming assets ......... $168 $322 $501 $628
==== ==== ==== ====

Nonperforming assets to total
assets ............................. .15% .30% .49% .70%
==== ==== ==== ====
</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 $7,100 for the
first six months of 1997, and approximately $17,000, $1,000 and $32,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. The amount of
interest income recognized on non-accrual loans that was included in net income
was zero for the six months ended June 30, 1997 and $19,600, $13,500 and
$13,500 for 1996, 1995 and 1994 respectively.

Loans past due 90 days or more and still accruing as of December 31, 1996
totaled $50,000, of which $44,000 was composed of unsecured commercial loans,
installment loans and credit card debt, and the remainder was secured by real
estate. As of June 30, 1997, the real estate loan had been paid off and the
other loans had been charged off, so that there were no loans past due 90 days
or more and still accruing as of that date.

Non-accrual loans as of December 31, 1996 included three loans secured by
real estate totaling $211,000, one commercial loan in the amount of $38,000 and
several smaller credits totaling $23,000. One of the real estate loans in the
amount of $100,000 (an installment loan secured by a junior lien) and other
smaller loans were charged off during the first six months of 1997. The $38,000
commercial loan was also charged off, and an insurance claim has been filed
because the borrower used forged collateral as security for the loan. As of
June 30, 1997, non-accrual loans consisted of two loans secured by real estate
totaling $109,000 and several smaller installment and credit card loans
totaling $59,000.

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

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<PAGE> 34
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
after 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 periods, as of June 30, 1997 the allowance for loan losses
amounted to $710,000 (or .95% of total loans). The Company's allowance for loan
losses was $826,000 (1.17% of total loans) as of December 31, 1996, $740,000
(1.07% of total loans) as of December 31, 1995, and $740,000 (or 1.22% of total
loans) as of December 31, 1994. The allowance for loan losses as a percentage
of nonperforming loans was 423% and 257% at June 30, 1997 and December 31,
1996, respectively.

-33-
<PAGE> 35
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)

<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, -----------------------------
1997 1996 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average loans outstanding .......................... $71,387 $70,523 $63,354 $58,636
======= ======= ======= =======
Loans outstanding at period end .................... 74,346 70,676 69,204 60,663
======= ======= ======= =======
Total nonperforming loans ........................ 168 322 308 628
======= ======= ======= =======

Beginning balance of allowance ..................... $ 826 $ 740 $ 740 $ 730
Loans charged-off:
1-4 family residential mortgage loans ............. -- -- 137 33
Home equity loans ................................. -- -- -- 61
Commercial loans .................................. 97 126 10 1
Installment & credit card loans ................... 154 129 51 11
------- ------- ------- -------
Total loans charged-off ............................ 251 255 198 106
------- ------- ------- -------

Recoveries of previous charge-offs:
1-4 family residential mortgage loans ............. -- 37 77 7
Home equity loans ................................. -- -- -- 14
Commercial loans .................................. 62 125 93 71
Installment & credit card loans ................... 1 19 2 5
------- ------- ------- -------
Total recoveries ................................... 63 181 172 97
------- ------- ------- -------
Net loans charged-off .............................. 188 74 26 9
------- ------- ------- -------
Provision for loan losses .......................... 72 160 26 19
------- ------- ------- -------
Balance at period end .............................. $ 710 $ 826 $ 740 $ 740
======= ======= ======= =======

Net charge-offs to average loans ................... .53% .10% .04% .02%

Allowance as percent of total loans ................ .95% 1.17% 1.07% 1.22%

Nonperforming loans as % of total loans ............ .23% .46% .45% 1.04%

Allowance as % of nonperforming loans .............. 423% 257% 240% 118%
</TABLE>

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

-34-
<PAGE> 36
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.

INVESTMENT ACTIVITIES

The Company generally classifies as "available-for-sale" those securities
which are held for primary or secondary liquidity purposes, and as
"held-to-maturity" those securities which are less readily marketable and/or
held primarily for interest income and/or rate sensitivity management purposes.
Beginning in 1997, the Company has elected to invest in mortgage-backed
securities only for yield and not for liquidity, so new investments in those
securities have been classified as "held-to-maturity," which represents a
change from prior years when such investments were classified as
"available-for-sale." Additionally, as of June 30, 1997, the Company owned
approximately $7 million of short-term U.S. Treasury Bills purchased for
secondary liquidity purposes, which were classified as "held-to-maturity"
because of the short term remaining until their maturity. These two factors
explain the increase in the Company's portfolio of securities
"held-to-maturity" from $958,000 as of December 31, 1996, to $9,992,000 as of
June 30, 1997.

The Company's investment portfolio of $17,826,000 as of June 30, 1997,
consisted primarily of U. S. Treasury and Government agency obligations and
mortgage-backed securities. This represented an increase of $10,454,000 or 142%
compared to the investment portfolio as of December 31, 1996, resulting from an
increase in deposits which exceeded the Company's loan demand during the first
six months of 1997.

The Company's investment portfolio of $7,372,000 as of December 31, 1996,
represented a decrease of $6,307,000 or 46% compared to the investment
portfolio as of December 31, 1995, as investment maturities were used to fund
loan growth and enhance liquidity. The investment portfolio declined 39% from
$22,461,000 as of December 31, 1994 to $13,679,000 as of December 31, 1995,
which was anticipated because the branch deposits acquired by the Company in
1994 from the RTC were initially invested in U.S. Treasury and agency
securities, pending redeployment into loans.

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 fair value in accordance with SFAS No. 115,
"Accounting For Certain Investments in Debt and Equity Securities," which was
adopted by the Company in 1994. The following table sets forth the book value
of the Company's investment portfolio as of the dates indicated:

-35-
<PAGE> 37
INVESTMENT PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
-------- ---------------------------
1997 1996 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasuries and agencies ....... $ 5,160 $ 3,136 $ 9,968 $18,323
Mortgage-backed securities ......... 2,674 3,278 2,994 3,356
------- ------- ------- -------
Total available for sale .......... 7,834 6,414 12,962 21,679

HELD TO MATURITY:
U.S. Treasuries and agencies ....... 7,938 -- -- --
Mortgage-backed securities ......... 960 -- -- --
State, county and municipal ........ 165 165 250 250
Other .............................. 929 793 467 532
------- ------- ------- -------
Total held to maturity ............ 9,992 958 717 782
------- ------- ------- -------
Total investment securities .......... $17,826 $ 7,372 $13,679 $22,461
======= ======= ======= =======

</TABLE>

-36-
<PAGE> 38
The following table sets forth the maturity distribution and weighted average
yield of the investment portfolio of the Company as of June 30, 1997. 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.

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

<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------
1 Year 1 Year to 5 Years to After
or Less 5 Years 10 Years 10 Years
------- --------- ------- -------
<S> <C> <C> <C> <C>
MATURITY DISTRIBUTION:
U.S. Treasuries and agencies .......... $ 8,147 $ 4,951 -- --
Mortgage-backed securities(1) ......... 485 -- -- $ 3,150
State, county and municipal ........... 100 65 -- --
Other ................................. -- -- -- 928
------- --------- ------- -------
Total ................................ $ 8,732 $ 5,016 -- $ 4,078
======= ========= ======= =======

WEIGHTED AVERAGE YIELD(2):
U.S. Treasuries and agencies .......... 4.89% 6.17% N/A N/A
Mortgage-backed securities(1) ......... 5.72% N/A N/A 5.98%
State, county and municipal ........... 4.55% 4.75% N/A N/A
Fully taxable equivalent .............. 7.01% 7.32% N/A N/A
Other ................................. N/A N/A N/A 6.21%
</TABLE>

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

(1) Mortgage-backed securities consist of floating rate debt securities that
reprice quarterly or more frequently.
(2) The calculation of 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.

-37-
<PAGE> 39
DEPOSIT ACTIVITIES

The Company's average balance of total deposits was $87,074,000 for the six
months ended June 30, 1997, an increase of $6,142,000 or 8% compared with the
average balance of total deposits of $80,932,000 for the year ended December
31, 1996. The average total deposits for the year ended December 31, 1996
increased $1,054,000 or 1% compared with average deposits of $79,878,000 for
the year ended December 31, 1995, which in turn represented an increase of
$3,707,000 or 5% compared with average deposits of $76,171,000 for the year
ended December 31, 1994.

The Company views deposit growth as a significant challenge in its effort to
increase its asset size, a challenge which the Company is addressing through
its branching program in Virginia and Maryland, increased emphasis on
commercial accounts, and offering more attractive interest rates to stimulate
deposit growth. See "Business -- Strategic Plan" and "The Eastern American
Transaction."

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. 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. To
stimulate deposit growth in 1997, the Company introduced a One-Year No Penalty
certificate of deposit, designed to attract local commercial and consumer
deposits in amounts of $5,000 or more.

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

<TABLE>
<CAPTION>
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)

Year Ended December 31,
Six Months Ended -------------------------------------------------------------------------------
June 30, 1997 1996 1995 1994
---------------------- ----------------------- ------------------------ ------------------------
% 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-bearing
deposits ............ $18,979 -- 21.80% $17,525 -- 21.65% $16,841 -- 21.80% $16,159 -- 21.21%
Interest-bearing demand
(NOW) deposits ...... 13,778 1.96% 15.82 12,522 1.96% 15.47 12,230 2.11% 15.31 11,926 2.08% 15.66
Savings deposits ...... 2,301 2.44 2.64 2,217 2.53 2.74 2,526 2.65 3.16 2,564 2.59 3.37
Money market deposits . 21,546 3.58 24.74 23,072 3.40 28.51 25,153 3.09 31.49 24,784 2.49 32.54
Time deposits ......... 30,470 5.45 35.00 25,596 5.47 31.63 23,128 5.49 28.96 20,738 4.44 27.22
------- ---- ------ ------- ---- ----- ------- ---- ------ ------- ---- ------
Total .............. $87,074 100.00% $80,932 100.00% $79,878 100.00% 76,171 100.00%
======= ====== ======= ====== ======= ====== ====== ======
Weighted average rate . 3.17% 3.07% 2.97% 2.43%
==== ==== ==== ====

</TABLE>

-38-
<PAGE> 40
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 (as such term is defined for regulatory purposes) to ten percent of
the Bank's total liabilities. As of June 30, 1997, brokered deposits
represented $993,000, or less than one percent, of the Company's total
liabilities.

As of June 30, 1997, total time deposits over $100,000 represented 17% of
total deposits. Of this amount, $4,395,000 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 June 30,
1997 and December 31, 1996. Most of the Company's certificates of deposit
consist of local, in market deposits.

TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
June 30, December 31,
Maturity Period 1997 1996
--------------- ------- ---------
<S> <C> <C>
Three months or less ......................................... $ 3,152 $ 6,179
Over three months through six months ......................... 1,243 4,180
Over six months through twelve months ........................ 11,033 3,905
Over twelve months ........................................... 919 905
------- -------
Totals .................................................... $16,347 $15,169
======= =======
</TABLE>

BORROWINGS

Borrowings consist of advances from the Federal Home Loan Bank of Atlanta
("FHLBA") 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 six months ended June 30, 1997 and 1996, and for the years
ended December 31, 1996, 1995 and 1994:

-39-
<PAGE> 41
SHORT TERM BORROWINGS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION> Six Months Ended Year Ended
June 30, December 31,
---------------- --------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank of Atlanta
Ending Balance ............................ $ 900 $2,100 $ 900 $2,000 $2,200
Daily average balance for the period ...... 900 598 900 2,924 707
Maximum outstanding balance at a month-
end during the period ................... 900 2,100 900 4,000 3,500
Daily average interest rate for the period 6.65% 6.14% 6.65% 5.46% 4.24%
Average interest rate on period end balance 6.65% 6.14% 6.65% 6.10% 6.88%

Treasury Tax and Loan Account
Ending balance ............................ $ 722 $ 581 $ 716 $1,808 $ 684
Daily average balance for the period ...... 409 416 393 473 394
Maximum outstanding balance at a month-
end during the period ................... 769 647 829 711 684
Daily average interest rate for the period 4.38% 4.59% 4.64% 4.60% 3.48%
Average interest rate on period end balance 3.78% 5.22% 5.16% 2.00% 2.75%
</TABLE>

-40-
<PAGE> 42
The following table shows the details of the Bank's fixed rate advances from
the FHLBA, with original maturities in excess of one year, as of June 30, 1997:

LONG TERM BORROWINGS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
June 30, 1997
--------------------------------------------
Advance Amount Outstanding Current Long Term Interest Maturity Repayment
Date Borrowed Balance Portion Portion Rate Date Terms
- - ------- -------- ------- ------- ------- ---- -------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/10/96 $ 300 $ 300 -- $ 300 6.60% 10/10/99 Due at maturity
10/10/96 300 300 -- 300 6.85% 10/10/01 Due at maturity
10/10/96 2,000 1,800 $ 400 1,400 6.57% 10/10/01 Equal installments
quarterly
commencing 1/10/97
10/10/96 2,400 2,200 400 1,800 6.66% 10/10/02 Equal installments
quarterly
commencing 1/10/97
2/8/96 800 800 -- 800 6.30% 2/8/06 Due at maturity
5/16/96 1,000 1,000 -- 1,000 7.34% 5/16/06 Due at maturity
6/24/96 1,000 900 100 800 6.94% 6/24/06 Equal installments semi-
----- --- --- --- annually commencing
12/24/96
$7,800 $7,300 $900 $6,400
======= ====== ==== ======
</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

<TABLE>
<CAPTION>
December 31,
June 30, ---------------------
1997 1996 1995 1994
---- ---- ----- ----
<S> <C> <C> <C> <C>
Return on average assets(1) .53% .27% .68% .71%
Return on average equity(1) 8.32 4.20 11.49 12.38
Average equity to average assets 6.86 6.97 6.07 6.12
- - -----
</TABLE>
(1) Annualized for the six month period ended June 30, 1997.

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 and meet deposit withdrawals, maintain reserve
requirements and otherwise sustain operations. The Company accomplishes this
primarily through management of the maturities of its earning assets and
interest-

-41-
<PAGE> 43
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. Asset
liquidity is maintained in 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 has defined
"cash and cash equivalents" as those amounts included in cash and due from
banks and federal funds sold. As of June 30, 1997, cash and cash equivalents
amounted to $4,841,000, a decrease of $14,959,000 compared to December 31,
1996, which decrease was primarily attributable to the purchase of investment
securities.

As of June 30, 1997, $21,732,000 or 75% of the Company's total investment
portfolio, including federal funds sold and interest bearing deposits held with
other financial institutions, was scheduled to mature within one year. The
remainder of the portfolio consists of $4,071,000 (14% of total portfolio) in
U.S. Government, agency, and municipal securities that will mature within three
years, and $2,308,000 (8% 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 $928,000. The unrealized gain contained in the
held-to-maturity portion of the investment portfolio as of June 30, 1997 was
$6,000.

Liability liquidity is provided by access to core funding sources,
principally various customers' deposit accounts in the Company's market area.
As a member of the FHLBA, the Bank is authorized to borrow up to $13,300,000
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 $1,000,000 and to borrow on a
secured basis ("repurchase agreements") in the amount of $5,000,000. As of June
30, 1997, the Bank had no federal funds purchased or repurchase agreements, and
was utilizing $7,300,000 of its available FHLBA borrowings in the form of
fixed-rate term credit advances with an average cost of 6.73%. 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 flow provided by operating activities was
$641,000 and $271,000 for the six months ended June 30, 1997 and 1996,
respectively, and $903,000, $448,000, and $303,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

Net cash used in investing activities was $18.9 million for the six months
ended June 30, 1997. Net cash provided by investing activities was $1.0 million
for the six months ended June 30, 1996, and $3.7 million, $6.8 million and $5.5
million for the years ended December 31, 1996, 1995 and 1994, respectively.

-42-
<PAGE> 44
Net cash provided by financing activities was $3.3 million for the six
months ended June 30, 1997. Net cash used in financing activities was $5.6
million for the six months ended June 30, 1996. Net cash provided by financing
activities was $5.2 million, $10.4 million and $3.8 million for the years ended
December 31, 1996, 1995 and 1994, respectively.

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 $78,000 as of June 30, 1997
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 June 30, 1997, the Company had no indebtedness
outstanding at the holding company level.

CAPITAL RESOURCES

Total stockholders' equity as of June 30, 1997 was $7,078,000, an increase
of $328,000 or approximately 5% compared with stockholders' equity of
$6,750,000 as of December 31, 1996. This increase was attributable to net
income for the six months ended June 30, 1997 of $288,000, a $2,000 increase in
the market value of investment securities available-for-sale, net of tax effect
and $39,000 in net proceeds from issuances of Common Stock pursuant to the
exercise of outstanding stock options and warrants.

Total stockholders' equity was $6,750,000 as of December 31, 1996, an
increase of $385,000 or 6% compared with stockholders' equity of $6,365,000 as
of December 31, 1995. The increase in total stockholders' equity as of December
31, 1996 was attributable to $279,000 of net income for 1996, a $22,000
increase in the market value of investment securities available for sale, net
of tax effect, and $84,000 received from issuances of Common Stock pursuant to
the exercise of outstanding stock options.

Total stockholders' equity was $6,365,000 as of December 31, 1995, an
increase of $1,555,000 or 32% compared with stockholders' equity of $4,810,000
as of December 31, 1994. The increase in total stockholders' equity as of
December 31, 1995 was attributable to $613,000 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.

There currently 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

-43-
<PAGE> 45
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:

BANK CAPITAL RATIOS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS
-------------------------
ADEQUATELY WELL
DECEMBER 31, CAPITALIZED CAPITALIZED
JUNE 30, -------------------------------- ----------- -----------
1997 1996 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital...................... $ 6,939 $ 6,628 $ 6,177 $ 5,085
Tier 2 capital...................... 710 826 740 629
-------- -------- -------- --------
Total capital....................... $ 7,649 $ 7,454 $ 6,917 $ 5,714
======== ======== ======== ========

Risk-weighted assets................ $ 75,229 $ 72,411 $ 66,050 $ 50,259
======== ======== ======== ========

Adjusted total assets............... $105,355 $102,852 $ 89,789 $ 88,594
======== ======== ======== ========

Capital Ratios
Tier 1 risk-based capital......... 9.22% 9.15% 9.35% 10.12% 4.00% 6.00%
Total risk-based capital.......... 10.17% 10.29% 10.47% 11.37% 8.00% 10.00%
Leverage ratio (Tier 1 capital
to adjusted total assets)....... 6.59% 6.44% 6.88% 5.74% 4.00% 5.00%
</TABLE>

The Company anticipates that, after consummation of the transaction with
Eastern American, it will have total consolidated assets of more than $150
million, and that as a result the regulatory capital standards will apply to
the Company on a consolidated basis. Because the Company has minimal assets and
liabilities at the parent company level, its consolidated capital ratios are
approximately the same as the Bank's capital ratios. See "The Eastern American
Transaction" and Note 16 of Notes to Consolidated Financial Statements.

ACCOUNTING MATTERS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128") which is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. SFAS 128 establishes
standards for computing and presenting earnings per share ("EPS") and applies
to entities with publicly held common stock or potential common stock.
Management does not expect that the adoption of SFAS 128 will have a material
impact on the Company's financial condition or reported earnings per share.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information about Capital Structure ("SFAS
129") which is effective for financial

-44-
<PAGE> 46
statements issued for periods ending after December 15, 1997. SFAS 129
establishes standards for disclosing information about an entity's capital
structure and applies to all entities. Management does not expect that the
adoption of SFAS 129 will have a material impact on the Company's financial
condition or reported capital structure.

During June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS 130 is effective for financial statements
for periods beginning after December 15, 1997.

During June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.

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.

-45-
<PAGE> 47
BUSINESS

GENERAL

The Company is a registered bank holding company under the Bank Holding
Company Act of 1956 ("BHCA"), and conducts its operations through the Bank,
which it acquired in 1986. The Company was incorporated and organized in 1985
for the purpose of acquiring the Bank. The Bank opened in 1982 and is engaged in
a general commercial banking business with a particular emphasis on the needs of
professionals, entrepreneurs, small to medium-sized businesses and
not-for-profit membership organizations located in the Washington, D. C.
metropolitan area.

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 Company's strategic plan is directed toward the enhancement of its
franchise value and operating profitability through a significant increase in
its asset size, further expansion into nearby Virginia and Maryland markets,
and the development of new commercial accounts. After opening its first branch
in the District in 1994, the Bank opened a loan production office in Tysons
Corner, Virginia in 1996, which it replaced with a full service branch in April
1997. In June 1997 the Bank opened a loan production office in Bethesda,
Maryland, which it plans to replace with a full service branch in early 1998
for which it has already received regulatory approval. On July 24, 1997, the
Company entered into an agreement to assume the deposit and certain other
liabilities of the McLean Branch of Eastern American. See "The Eastern American
Transaction."

PRIMARY MARKET AREA

The Company's market area includes the District of Columbia, Fairfax and
Arlington Counties, Virginia, the Cities of Alexandria, Falls Church and
Fairfax, Virginia, Montgomery and Prince Georges Counties, Maryland. With the
nation's capital as its center, the Washington, D.C. metropolitan area is the
eighth largest in the nation. The area population is currently 4.2 million and
has been growing at approximately 2% per year. Recent population growth has
been particularly strong in Fairfax County, Virginia and Montgomery County,
Maryland, where the Company's expansion efforts have been concentrated.
Employment is diversified among high technology firms,

-46-
<PAGE> 48
trade and professional organizations , small business and financial services
firms and the Federal and local governments.

The Washington metropolitan area has over 260 million square feet of
office space, of which 37% is in the District, 40% is in northern
Virginia, and 23% is in suburban Maryland. The largest markets in the District
are the central business district (the location of the Company's main office)
and the "East end" (the location of the Company's Pennsylvania Avenue branch),
where more than 180,000 people are employed. The businesses employing the
highest number of people are professional firms and not-for-profit membership
organizations. The largest office market in northern Virginia is Tysons Corner
(where the Bank has an existing branch), and the largest office market in
suburban Maryland is Bethesda (where the Bank has an existing loan production
office and plans to open its next branch). Both of these suburban office markets
are densely populated by small- to medium-size businesses, professional firms
and not-for-profit organizations, the main types of customers served by the
Bank.

BANKING SERVICES

The Company provides a broad range of banking-related services through its
main office located at 1875 Eye Street, N.W., Washington, D.C. and its branch
offices located at 1275 Pennsylvania Avenue, N.W., Washington, D.C., and 8251
Greensboro Drive, McLean (Tysons Corner), Virginia. In March 1997 the OCC
approved the Company's application for a full service branch in Bethesda,
Maryland, and in June 1997 the Company established a loan production office
there.

The Company strives to provide its customers with the breadth of products
comparable to a regional bank, while maintaining the quick response and
personal service of a locally headquartered bank. The Company holds deposits
for individuals, businesses, and other organizations, and provides services
related thereto for the convenience of its depositors, including credit card
programs and electronic banking. In most cases, the Company pays interest on
funds which it holds on deposit for customers, and it also charges fees for
certain services which 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. Lending services are
concentrated in professional, service, and commercial business sectors located
in the metropolitan Washington, D.C. area, with the Company emphasizing the
development of its commercial loan business.

STRATEGIC PLAN

As the economy of the Washington, D.C. area has improved since the early
1990s, the Company has maintained the conservative approach to loan
underwriting that it developed in response to the earlier challenging economic
conditions, and has devoted increasing effort and resources toward the
stimulation of business growth and the expansion of its customer base. The
Company's current strategic plan is directed toward the enhancement of its
franchise value and

-47-
<PAGE> 49
operating profitability through a significant increase in its asset size, the
development of new commercial accounts and loans, and expansion into the nearby
Maryland and Virginia markets. 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. The proposed transaction with
Eastern American is an example of the type of transaction the Company may
consider. For the foreseeable future, the Company expects to acquire or
establish branch offices in high-density commercial districts, to further its
objective of increasing the volume of commercial accounts and loans. The Company
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. Effective
January 1, 1996, the Company established a loan production office in Tysons
Corner, Virginia, which was replaced by a full service branch at 8251 Greensboro
Drive in Tysons Corner in April 1997. In March 1997 the OCC approved the
Company's application to establish a full service branch in Bethesda, Maryland,
and in June 1997 the Company established a loan production office there. The
Company expects to open a full service branch in downtown Bethesda in early
1998.

Expanding products and services. The Company recently commenced, and
expects to continue, a program to expand its products and services. The
objectives of this program are to provide "value-added" services to existing
clients, to compete more effectively for the development of new commercial
business, to stimulate deposit growth and to increase fee income. In
furtherance of this strategy, the Company established a MasterCard/Visa credit
card program for its customers, 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. In 1997, the Bank introduced a
One-Year No Penalty certificate of deposit. To serve commercial firms and
not-for-profit organizations, the Company has also introduced a variety of cash
management services, including lock box services, merchant credit card
processing, courier reimbursement and depositary transfer services, repurchase
agreements, sweep accounts and commercial account analysis. 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
as well as increased business development in the Maryland and Virginia markets.

Exploring acquisition and merger opportunities. The Company believes that
its franchise value and operating profitability would be enhanced by a
significant increase in its asset size. For

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<PAGE> 50
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.
The proposed transaction with Eastern American is an example of the type of
transaction that the Company may consider. See "The Eastern American
Transaction."

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 matters should be taken into account when considering the more
specific discussion of the Company's financial performance set forth elsewhere
in this Prospectus.

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 June 30, 1997, the Company had 43 employees, including 29 employees
at the Eye Street location, seven employees at the Pennsylvania Avenue location,
one employee at the Bethesda, Maryland location and six employees at the Tysons
Corner, Virginia location.

PROPERTIES

The Company's principal executive offices and all of its banking offices
are leased under agreements expiring at various dates, including renewal
options, through 2012. The Company's principal executive offices, which are
located in the District at 1275 Pennsylvania Avenue, N.W., also serve as a
branch location of the Bank. The premises at 1275 Pennsylvania Avenue consist
of 2,750 square feet which are under lease through 2004, with one additional
five-year renewal option. The lease for the Company's main office, located in
the District at 1875 Eye Street, N.W., extends

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<PAGE> 51
through 2002, with two additional five-year renewal options. The lease for the
main office includes 3,895 square feet of lobby space, 5,286 square feet of
Metro-level basement space and space for an ATM in the adjacent International
Square food court. The Company's branch office in Tysons Corner is located at
8251 Greensboro Drive, McLean, Virginia and consists of 1,801 square feet of
space held under lease through March 31, 1999. The Company is currently
negotiating with the landlord to extend the lease term for an additional seven
years on the terms and conditions similar to the existing lease arrangement.
See Note 14 to the Company's Audited Consolidated Financial Statements for
additional information concerning the Company's commitments under its lease
agreements.

In connection with the transaction with Eastern American, the Bank plans
to assume Eastern American's lease for the branch location at 6832 Old Dominion
Drive, McLean, Virginia. The branch premises consist of 2,077 square feet which
are under lease through September 30, 2003, with one additional five-year
renewal option.

The Bethesda office is located in a shared office facility at Three
Bethesda Metro Center. On August 6, 1997, the Bank executed a non-binding
letter of intent to establish a branch location at 7625 Wisconsin Avenue,
Bethesda, Maryland. The location is in the vicinity of Wisconsin Avenue and Old
Georgetown Road, where the Bank has authority to establish a branch pursuant to
regulatory approval received from the OCC on March 12, 1997. The proposed
branch premises consist of 2,022 square feet to be leased through October 31,
2007, with one additional five-year renewal option. The letter of intent is
subject to a number of conditions, including the execution of a mutually
acceptable final lease document. Assuming successful conclusion of lease
negotiations, management anticipates that the Bethesda branch will open for
business in early 1998.

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.

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<PAGE> 52
MANAGEMENT

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 50 Chairman of the Board, President
and Chief Executive Officer
Dr. George Contis 64 Director
Mr. John R. Cope 55 Director, Vice President and General Counsel
Mr. Bernard J. Cravath 65 Director and Assistant Secretary
Mr. Neal R. Gross 54 Director
Mr. Joseph H. Koonz, Jr 62 Director
Mr. William McKee 53 Director
Mr. William C. Oldaker 56 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 Boards of Directors of the Federal Home Loan
Bank of Atlanta and the Independent Bankers Association of America.

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
a member of its Legal Matters Review Committee. Dr. Contis is a physician and
the President of Medical Services Corporation International, an international
contract provider of medical services.

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 is a partner with the law firm of Bracewell & Patterson, L.L.P.,
which from time to time provides legal services to the Company and the Bank. Mr.
Cope is Chairman of the Marketing Committee and a member of the Executive
Compensation, Stock Option and Personnel Committees.

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<PAGE> 53
Mr. Bernard J. Cravath has served as a director of the Company since 1987
and as Assistant Secretary since 1991. In addition, Mr. Cravath is Chairman of
the Audit Committee and serves as a member of the Executive Compensation and
Asset/Liability Committees. 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 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, a senior partner of the law firm of Koonz, McKenney, Johnson,
DePaolis & Lightfoot, serves as a member of the Stock Option Committee.

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.
McKee is Chairman of the Asset/Liability Committee and a member of the
Marketing Committee.

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, Executive Compensation and Stock Option Committees. Mr. Oldaker
is a partner with the Washington, D.C. law firm of Oldaker, Ryan, Phillips &
Utrecht.

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<PAGE> 54
EXECUTIVE COMPENSATION

Executive Officer Compensation

The following table sets forth information regarding the compensation for
the Company's Chief Executive Officer, the only executive officer who received
compensation in excess of $100,000 for the year ended December 31, 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus(1) Compensation(2) Options Compensation(3)
- - ------------------ ---- ---------- ---------- --------------- ------------ ---------------

<S> <C> <C> <C> <C> <C> <C>
Mr. Joseph S. Bracewell 1996 $ 182,300 -- $ 10,750 2,735 $ 1,592
President and Chief
Executive Officer of 1995 182,300 $ 7,000 9,420 1,500 1,800
the Company; Chief
Executive Officer of 1994 182,300 11,841 9,420 14,048 1,705
the Bank
</TABLE>

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

(1) These payments are listed in the year accrued and earned, but each was
paid in the following year.

(2) Amounts in this column represent (a) contributions to the executive's
401(k) plan account and (b) director fees deferred by the executive
pursuant to the deferred compensation program for directors. Contributions
to the 401(k) plan on behalf of Mr. Bracewell were $4,750, $4,620, and
$4,620 during 1996, 1995 and 1994, respectively. During 1996, 1995 and
1994, Mr. Bracewell deferred $6,000, $4,800 and $4,800, respectively,
pursuant to the deferred compensation program for directors.

(3) Includes the dollar value of insurance premiums paid by the Company with
respect to the term life insurance portion of split dollar policies in
which the Company has the full interest in the cash surrender value.
During 1996, 1995 and 1994, the Company held three split dollar policies
covering Mr. Bracewell.

Except as set forth herein, the named executive officer did not receive
any other annual compensation, stock options, restricted stock awards, stock
appreciation rights, long term incentive plan payouts or any perquisites or
other personal benefits, securities or property that exceeded the lesser of
$50,000 or 10% of the total annual salary and bonus for such named executive
officer during the fiscal year ended December 31, 1996. See "-- Employment
Agreement."

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<PAGE> 55
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 Bank) provided the director attends at
least two-thirds of the meetings of the Board of Directors. In addition,
directors serving on the Executive Loan Committee receive cash fees of $50 per
meeting attended. No additional compensation is paid for service on other
standing committees. Directors are permitted to defer annual retainers 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 all of the directors of the Company and with
all but one of the directors of the Bank. Each director of the Company and the
Bank 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 up to 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 up to 180 months following a director's
death. The retirement benefit granted under the Compensation Agreement vests
pursuant to a schedule, with 20% of the retirement 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 1986 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 initially was reserved for issuance 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 on the date the option was granted.
All of the 1986 Plans were administered by various committees of the Board of
Directors of the Company. The 1986 Plans expired during 1992 and 1993; however,
options with respect to an aggregate of 33,374 shares granted under the 1986
Plans were outstanding and exercisable by the optionees at June 30, 1997, at
exercise prices ranging from $1.54 to $5.12 per share, of which 23,530 were
exercisable by directors of the Company. In April 1994, the 1986 Plans were
replaced by the Company's 1994 Stock Option Plan described below.

1994 Stock Option Plan

The Board of Directors approved the 1994 Stock Option Plan (the "1994
Plan") in April 1994 and it was approved by the Company's stockholders in May
1994. The Company initially reserved 150,000 shares of its Common Stock,
subject to antidilutive adjustments, for the issuance of

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<PAGE> 56
incentive stock options and nonqualified stock options to directors and key
employees under the 1994 Plan. As a result of stock dividends declared by the
Company in 1995, 1996 and 1997, the number of shares reserved for issuances
under the 1994 Plan has been increased to 176,362. The 1994 Plan is
administered by the Company's Stock Option 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.

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 Plan are not transferable by the optionee, other than by
will or the laws of descent and distribution.

As of June 30, 1997, options to purchase 150,426 shares of Common Stock at
exercise prices ranging from $1.92 to $6.88 were outstanding (of which 70,787
were held by directors of the Company) and 16,433 shares of Common Stock
remained available for future grants under the 1994 Plan.

Options Granted to Certain Executives in Last Fiscal Year

During the fiscal year ended December 31, 1996, the Company granted the
following options to purchase the Company's Common Stock to the executive
officer of the Company listed in the Summary Compensation Table.

OPTION/SAR GRANTS IN FISCAL YEAR 1996

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Per Share Option Term
Options/ Employees in Exercise Expiration --------------------
Name SARs Granted 1996 Price Date 5% 10%
- - ------------------- ------------ ---------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Bracewell 2,735 18.88% $6.00 5/21/06 $10,320 $26,153
</TABLE>

Options Exercised During Last Fiscal Year

During the fiscal year ended December 31, 1996, the following options were
exercised by the executive officer of the Company listed in the Summary
Compensation Table:

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<PAGE> 57
OPTIONS EXERCISED IN FISCAL YEAR 1996
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at Year End at Year End
on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Bracewell 3,092 $5,159 26,456 3,275 $108,399 $ 5,829
</TABLE>

EMPLOYMENT AGREEMENT

The Company and Mr. Bracewell are parties to 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, and all of his
stock options will 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, the Employment Agreement provides
that 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, 12 C.F.R. Sections 5.50 and 225.41, promulgated
thereunder. Mr. Bracewell has agreed

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<PAGE> 58
not to compete with the Company for 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 collectability or otherwise present other
terms less favorable to the Bank than would otherwise be obtained with
unrelated persons.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth, as of June 30, 1997, the shares of Common
Stock beneficially owned by (i) any person who, to the knowledge of the
Company, beneficially owns more than five percent of such stock, (ii) each
director and each executive officer of the Company named in the executive
compensation table and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, the Company believes that all
persons named in the following table have sole investment and voting power over
the shares of the Common Stock.

<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Number of Shares Percent of Class
- - ------------------ ---------------- ----------------
<S> <C> <C>
Joseph S. Bracewell 150,346(1) 11.87%
1875 Eye Street, N.W.
Washington, D.C. 20006

George Contis 90,013(2) 7.61%
1716 Wilson Boulevard
Arlington, Virginia 22209

John R. Cope 32,180(3) 2.62%
2000 K Street, N.W., Suite 500
Washington, D.C. 20006
</TABLE>

(Table Continued on Following Page)

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<PAGE> 59
<TABLE>
<S> <C> <C>
Bernard J. Cravath 67,376(4) 5.45%
9812 Falls Road, Suite 201
Potomac, Maryland 20854

Neal R. Gross 130,271(5) 10.48%
1323 Rhode Island Ave., N.W.
Washington, D.C. 20005

Joseph H. Koonz, Jr. 72,647(6) 5.92%
2020 K. Street, N.W.
Washington, D.C. 20006

William S. McKee 65,162(7) 5.29%
1730 Pennsylvania Ave., N.W.
Washington, D.C. 20006

William C. Oldaker 73,416(8) 5.91%
818 Connecticut Ave., N.W.
Suite 1100
Washington, D.C. 20006

All directors and executive officers of the 687,411 48.74%
Company and as a group (8 persons)
</TABLE>

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

(1) Includes 3,450 shares held by minor children, 22,504 shares held as
Trustee, 36,095 shares held for the benefit of Mr. Bracewell in the 401(k)
plan maintained by the Bank and 6,760 shares of Common Stock held by Mr.
Bracewell in individual retirement accounts. Also includes 24,503 shares
of Common Stock issuable upon exercise of options which are exercisable
within the next sixty days, 2,358 shares of Common Stock issuable upon the
exercise of currently exercisable Warrants held by minor children and
22,004 shares issuable on the exercise of currently exercisable Warrants
held by Mr. Bracewell as Trustee.

(2) Includes 37,569 shares held by Medical Sciences Corporation International
Profit Sharing Plan and Trust of which Dr. Contis is Trustee, 8,553 shares
of Common Stock issuable upon exercise of currently exercisable options,
and 35,960 shares issuable on the exercise of currently exercisable
Warrants.

(3) Includes 13,979 shares held by the John R. Cope Rollover IRA, 9,054 shares
of Common Stock issuable upon exercise of currently exercisable options
and 292 shares issuable on the exercise of currently exercisable Warrants.
Also includes 879 shares of Common Stock held by Mr. Cope's spouse; 4,219
shares of Common Stock held by a family trust of which Mr. Cope is
Trustee, and 2,600 shares held in trust for a minor child.

(4) Includes 1,298 shares of Common Stock held by Mr. Cravath's spouse. Also
includes 9,054 shares of Common Stock issuable upon exercise of currently
exercisable options and 9,128 shares issuable on the exercise of currently
exercisable Warrants.

(5) Includes 8,553 shares of Common Stock issuable upon exercise of currently
exercisable options and 16,839 shares issuable on the exercise of
currently exercisable Warrants.

(6) Includes 9,054 shares of Common Stock issuable upon exercise of currently
exercisable options and 63,593 shares of Common Stock held jointly with
Mr. Koonz's spouse.

(7) Includes 9,054 shares of Common Stock issuable upon exercise of currently
exercisable options and 4,403 shares issuable on the exercise of currently
exercisable Warrants.

(Footnotes Continued on Following Page)

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<PAGE> 60

(8) Includes 9,054 shares of Common Stock issuable upon exercise of currently
exercisable options and 15,192 shares issuable on the exercise of
currently exercisable Warrants. Also includes 11,114 shares of Common
Stock held in individual retirement accounts and 1,799 shares held in the
retirement account of Mr. Oldaker's spouse.

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SUPERVISION AND REGULATION

The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, and not
for the protection of bank holding company shareholders or creditors. The
banking agencies have broad enforcement power over bank holding companies and
banks including the power to impose substantial fines and other penalties for
violations of laws and regulations.

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.

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

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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 five percent 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 five percent 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; acting as an insurance agent for certain types of
credit-related insurance; leasing personal or real 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 of 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

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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 begin to terminate 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.

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," and require or permit the OCC to
take supervisory action in certain circumstances. 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 1 risk-based capital ratio of 6.0% or
greater, and a leverage ratio of 5.0% or greater, and it is not subject

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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 1 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 1 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 1 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 June 30, 1997, the Bank was classified as
"well-capitalized."

The OCC is authorized by the legislation and regulations 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 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.

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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 loan associations 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
$3,000,000,000 in tax liability and will facilitate the conversion of savings
associations into banks. Finally, the Jobs Act increased the IRA deduction 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 ("SAIF") 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"). In 1994, the Bank acquired the deposits of a
savings and loan branch, which are insured under the SAIF. Under the Growth
Act, banks with deposits that are 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 Growth
Act stipulates that the BIF assessment rate to contribute toward the FICO
obligations must

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be equal to one-fifth the SAIF assessment rate through year-end 1999, or until
the insurance funds are merged, whichever occurs first. The amount of FICO debt
service to be paid by all BIF-insured institutions is approximately $0.0126 per
$100 of BIF-insured deposits for each year from 1997 through 1999 when the
obligation of BIF-insured institutions increases to approximately $0.0240 per
$100 of BIF-insured deposits per year through the year 2019, subject in all
cases to adjustments by the FDIC on a quarterly basis. 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.

Because the SAIF was recapitalized through a special assessment imposed
under the Growth Act in 1996, BIF-insured and SAIF-insured deposits will be
subject to risk-based FDIC deposit insurance assessment rates anywhere from
zero for the most safe and sound institutions to $0.27 per $100 of deposits for
the least safe and sound institutions. See Condensed Notes to Consolidated
Financial Statements.

Various bills, including financial modernization legislation, which would
affect the operations of bank holding companies, commercial banks, and other
financial institutions, have been introduced in Congress. However, the
likelihood of passage of such legislation, its final form, manner of
implementation or impact on the Company and the Bank is unknown.

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.

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.

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OTHER MATTERS

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.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 5,000,000 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 June 30, 1997, there were 1,217,429 shares of Common Stock
outstanding, warrants to purchase 194,106 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 liabilities 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 near future, although the Company's long-term plan calls for the payment of
cash dividends when circumstances permit. The payment of dividends on Common
Stock would be subject to the prior rights of the holders of any 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," "Risk Factors -- Restrictions on Payment of Dividends" and
"Supervision and Regulation."

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

THE WARRANTS

On November 14, 1995, the Company issued 173,912 units in an offering to
its existing stockholders. Each unit consisted of one share of Common Stock and
one warrant to purchase one share of Common Stock (the "Warrants"). The
following discussion of the principal terms of the

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Warrants is qualified in its entirety by reference to the form of Warrant which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.

The Warrants were issued in registered form, with each such Warrant
initially 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. 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.

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. As a result of the stock dividends
declared by the Company since the issuance of the Warrants, each Warrant now
entitles the holder to purchase 1.1235 shares of Common Stock at $5.118 per
share.

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.

Holders of the Warrants as such do 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 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

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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. 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 Company is subject to Section 203 of the Delaware General Corporation
Act which, with certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (a) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (b) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (i) by persons
who are directors and officers and (ii) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (c) on and after such date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66_% of the outstanding voting
stock which is not owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding

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voting stock of the corporation or (b) an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

The Bylaws of the Company also impose certain procedural requirements on
stockholders who wish (a) to make nominations in the election of directors and
(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 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.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
1,942,429 shares of Common Stock (assuming 725,000 shares are issued and no
exercise of existing employee stock options to purchase Common Stock, and
further assuming that none of the outstanding Warrants are converted into
Common Stock). Of these shares, the Company estimates that 1,448,053 shares
(75% of the shares to be issued and outstanding) will be freely tradeable
without restriction or registration under the Securities Act. The Company
estimates that the remaining 494,376 shares (25% of the shares to be issued and
outstanding) will be held by "affiliates" of the Company, as defined in Rule
144 under the Securities Act, and may be sold only pursuant to Rule 144 or
another exemption from registration under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year, including persons who may be deemed "affiliates" of the Company, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of the average weekly trading volume during the

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four calendar weeks preceding such sale or 1% of the then outstanding shares of
Common Stock. A person who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned such shares for at least two years, would be entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above. Sales pursuant to Rule 144 are also subject to certain
requirements relating to the manner of sale, notice and availability of public
information about the Company.

In addition, at June 30, 1997, the Company had 183,800 stock options
outstanding, of which options with respect to 149,681 shares of Common Stock
were currently exercisable. Shares of Common Stock issued upon exercise of these
options would be "restricted securities," as defined in Rule 144, and may be
sold in accordance with the provisions of such rule. Also, at June 30, 1997,
194,106 shares of Common Stock were issuable upon the exercise of the Company's
outstanding Warrants. The shares issuable upon exercise of the outstanding
Warrants will be freely tradeable under the Securities Act, unless held by an
affiliate.

No prediction can be made regarding the effect, if any, that eventual
market sales of restricted securities or shares held by affiliates will have on
the market price of the Common Stock prevailing from time to time. There is a
possibility that substantial amounts of restricted securities may be resold in
the public market and that such shares may adversely affect the prevailing
market price of the Common Stock.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement between
the Company and Scott and Stringfellow, Inc. (the "Underwriter"), the
Underwriter has agreed to purchase from the Company, and the Company has agreed
to sell to the Underwriter, 725,000 shares of Common Stock.

The Underwriting Agreement provides that the obligations of the
Underwriter thereunder are subject to the approval of certain legal matters by
counsel and to various other conditions. The Underwriter is committed to
purchase and pay for all 725,000 shares of Common Stock if any are purchased.
The Company has been advised that the Underwriter proposes to offer the shares
of Common Stock directly to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain securities dealers at such
price less a concession not in excess of $______ per share. The Underwriter may
allow, and such selected dealers may reallow, a concession not in excess of
$_____ per share. After the shares of Common Stock are released for sale to the
public, the offering price and such concessions may be changed by the
Underwriter.

The Underwriter has informed the Company that it does not intend to
confirm sales to any account over which it exercises discretionary authority.

-71-
<PAGE> 73
The Company has granted a 30-day option to the Underwriter to purchase up
to 108,750 additional shares of Common Stock at the public offering price, less
the underwriting discount, as set forth on the cover page of the Prospectus.
The Underwriter may exercise such option solely for the purpose of covering
over-allotments. To the extent the Underwriter exercises this option, the
Underwriter will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock.

The Company and its executive officers and directors have agreed not to
offer, sell, contract or otherwise dispose of any Common Stock for at least 120
days after this Offering, without the written consent of the Underwriter.

The Company has agreed to indemnify the Underwriter against, and to
contribute to certain losses arising out of, certain civil liabilities,
including certain civil liabilities under the Securities Act.

Prior to this Offering, there has been no established public trading
market for the Common Stock. The Common Stock is quoted on the NNOTC Bulletin
Board, a NASD sponsored and operated inter-dealer quotation system for equity
securities not listed on the NASDAQ Stock Market, under the symbol "CTRY" and
is traded on a limited basis. See "Market for Common Stock." The public
offering price was determined by negotiations between the Company and the
Underwriter. Among the factors considered in determining the price were the
trading history of the Common Stock on the NNOTC Bulletin Board, the history of
and prospects for the Company and the industry in which it competes, an
assessment of the Company's management, the past earnings of the Company and
the trend and future prospects for future earnings, the general condition of
the securities markets at the time of the Offering, and the market prices of
public-traded common stock of comparable companies in recent periods.

The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not propose to be complete. Reference is made to a copy of
the Underwriting Agreement which has been filed as an exhibit to the
Registration Statement.

EXPERTS

The consolidated statements of financial condition as of December 31, 1996
and 1995, and the consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three year period ended December
31, 1996, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

-72-
<PAGE> 74
LEGAL MATTERS

The validity of the Common Stock offered hereby 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 four percent
of the shares of Common Stock outstanding. Certain legal matters relating to the
offering made hereby will be passed upon for the Underwriter by LeClair Ryan, a
Professional Corporation, Richmond, Virginia.

AVAILABLE INFORMATION

This Prospectus, which constitutes a part of a Registration Statement
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act, omits certain of the information set
forth in the Registration Statement in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described below. The Commission also
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants such as the
Company which file electronically with the Commission.

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facility maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.

-73-
<PAGE> 75
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
CENTURY BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTERIM PERIODS (UNAUDITED)

Consolidated Statement of Financial Condition as of June 30, 1997 .......... F-2

Consolidated Statements of Operations for the six months ended
June 30, 1997 and 1996 ................................................... F-3

Consolidated Statement of Stockholders' Equity for the six months ended
June 30, 1997 ............................................................ F-4

Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1996 ............................................................ F-5

Condensed Notes to Consolidated Financial Statements ....................... F-6

FULL FISCAL YEARS (AUDITED)

Independent Auditors' Report ............................................... F-9

Consolidated Statements of Financial Condition as of December 31, 1996
and 1995 ................................................................. F-10

Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994 ...................................................... F-11

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 ......................................... F-12

Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 ...................................................... F-13

Notes to Consolidated Financial Statements ............................... F-14
</TABLE>

F-1
<PAGE> 76
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Assets
------
Cash and due from banks $ 4,841,217
Interest-bearing deposits in other banks 11,213,428
Investment securities available-for-sale, at fair value (Note 1) 7,834,041
Investment securities held to maturity, at cost; fair value of $9,997,957 (Note 1) 9,991,911
Loans, net of unearned income 74,346,296
Less - allowance for loan losses (709,595)
--------------
Loans, net 73,636,701
--------------

Leasehold improvements, furniture, and equipment, net 1,555,320
Accrued interest receivable 612,863
Deposit premium 256,763
Prepaid expenses 135,256
Other assets 824,243
--------------
Total assets $ 110,901,743
==============

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

Liabilities:
Deposits:
Noninterest-bearing $ 21,270,994
Interest-bearing 73,436,455
--------------
Total deposits 94,707,449
--------------

Other borrowings 8,022,460
Other liabilities 1,094,330
--------------
Total liabilities 103,824,239
--------------

Stockholders' equity (Note 2):

Common Stock, $1 par value; 5,000,000 shares authorized;
1,217,429 shares issued and outstanding 1,217,429
Additional paid-in capital 5,300,802
Retained earnings 603,608
Unrealized loss on investment securities available-for-sale, net of
tax effect (44,335)
--------------
Total stockholders' equity 7,077,504
--------------

Commitments and contingencies
Total liabilities and stockholders' equity $ 110,901,743
==============
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-2
<PAGE> 77
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $3,456,912 $3,385,113
Interest on federal funds sold 83,488 13,057
Interest on deposits in other banks 315,225 44,227
Interest on investment securities 274,928 316,858
---------- ----------
Total interest income 4,130,553 3,759,255
---------- ----------
Interest expense:
Interest on deposits:
Certificates $100,000 and over 353,136 355,381
Certificates under $100,000 478,202 320,240
NOW accounts 134,589 128,107
Savings accounts 28,396 29,585
Money market accounts 384,646 365,346
Interest on other borrowings 261,958 132,731
---------- ----------
Total interest expense 1,640,927 1,331,390
---------- ----------

Net interest income 2,489,626 2,427,865

Provision for loan losses 72,400 --
---------- ----------
Net interest income after
provision for loan losses 2,417,226 2,427,865
---------- ----------
Noninterest income:
Service charges on deposits accounts 240,820 213,157
Other operating income 273,065 140,662
---------- ----------
Total noninterest income 513,885 353,819
---------- ----------
Noninterest expenses:
Salaries and employee benefits 1,016,229 950,814
Occupancy and equipment expense 294,958 242,083
Depreciation and amortization 236,190 188,667
Professional fees 243,989 291,313
Data processing 253,119 132,901
Federal deposit insurance premiums 4,753 27,039
Communications 99,151 93,992
Other operating expenses 314,218 379,756
---------- ----------
Total noninterest expenses 2,462,607 2,306,565
---------- ----------
Income before income tax expense 468,504 475,119

Income tax expense 180,384 181,971
---------- ----------
Net income $ 288,120 $ 293,148
========== ==========
Income per common share
(Note 3) $ .21 $ .23
========== ==========
Weighted average common and common
equivalent shares outstanding (Note 3) 1,341,156 1,294,594
========== ==========
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements

F-3

<PAGE> 78

CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
UNREALIZED LOSS
COMMON STOCK 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, 1996 1,146,028 $ 1,146,028 $ 4,870,856 $ 779,057 $ (45,900) $ 6,750,041

STOCK DIVIDEND (5% OF
SHARES OUTSTANDING) 57,793 57,793 404,551 (463,569) -- (1,225)

ISSUANCE OF COMMON STOCK ON
EXERCISE OF STOCK OPTIONS 12,385 12,385 20,043 -- -- 32,428

ISSUANCE OF COMMON STOCK ON
EXERCISE OF STOCK WARRANTS 1,223 1,223 5,352 -- -- 6,575

NET INCOME -- -- -- 288,120 -- 288,120

UNREALIZED GAIN ON INVESTMENT
SECURITIES AVAILABLE FOR SALE,
NET OF TAX EFFECT -- -- -- -- 1,565 1,565
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 1,217,429 $ 1,217,429 $ 5,300,802 $ 603,608 $ (44,335) $ 7,077,504
============ ============ ============ ============ ============ ============
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-4
<PAGE> 79

CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 288,120 $ 293,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 236,190 188,667
Provision for loan losses 72,400 --

(INCREASE) DECREASE IN:

Accrued interest receivable (103,296) (22,204)
Other assets 37,900 (539,290)

INCREASE IN:
Other liabilities 109,449 351,157
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 640,763 271,478
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Loan repayments (originations) and recoveries, net (3,858,621) (2,161,652)
(Increase) decrease in interest bearing deposits
in other banks (4,390,351) 280,207
Purchases of securities available for sale (2,059,125) --
Purchases of securities held to maturity (9,021,377) --
Maturities of securities available for sale 628,371 2,714,804
Maturities of securities held to maturity -- 466,879
Purchase of leasehold improvements, furniture and equipment (214,954) (280,456)
Proceeds from sale of other real estate -- 8,001
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (18,916,057) 1,027,783

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in certificates of deposit 11,293,984 (633,194)
Net (decrease) in demand, savings and
money market deposits (7,571,745) (6,575,909)
Proceeds from issuance of common stock 37,778 15,567
Increase (decrease) in short-term borrowings 6,583 (1,127,104)
(Decrease) increase in long-term borrowings (450,000) 2,700,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,316,600 (5,620,640)
------------ ------------
NET (DECREASE) IN CASH AND EQUIVALENTS (14,958,694) (4,321,379)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 19,799,911 10,025,561
------------ ------------

CASH AND CASH EQUIVALENTS, JUNE 30TH $ 4,841,217 $ 5,704,182
============ ============

SUPPLEMENTAL DISCLOSURES:

INTEREST PAID ON DEPOSITS AND BORROWINGS $ 1,573,122 $ 1,349,389
------------ ------------
INCOME TAXES PAID $ 39,000 $ 408,000
------------ ------------
TRANSFER OF LOANS TO OTHER REAL ESTATE OWNED -- --
------------ ------------
</TABLE>

See accompanying Condensed Notes to Consolidated Financial Statements.

F-5
<PAGE> 80

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997 AND 1996

The unaudited consolidated financial statements as of and for the six
months ended June 30, 1997 and June 30, 1996 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 six months ended
June 30, 1997 are not necessarily indicative of the results of operations that
may be expected for the year ending December 31, 1997 or for any future
periods.

(1) Investment Securities

Investment securities available-for-sale, and their contractual
maturities, at June 30, 1997, 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 $1,635,632 -- $ 1,442 $1,634,190
After one, but within five years 4,007,676 -- 666 4,007,010
After ten years 848,366 -- 19,101 829,265
---------- ---------- ---------- ----------
Total 6,491,674 -- 21,209 6,470,465

Collateralized mortgage obligations:
After ten years 1,410,391 -- 46,815 1,363,576
---------- ---------- ---------- ----------

Total investment securities
available-for-sale $7,902,065 -- $ 68,024 $7,834,041
========== ========== ========== ==========
</TABLE>

F-6
<PAGE> 81

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)

Investment securities held-to-maturity at June 30, 1997, are summarized as
follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Obligations of the U.S. Treasury,
government agencies and
corporations

Within one year $ 6,995,701 -- $ 701 $ 6,995,000
After one, but within five years 943,480 -- 164 943,316
After ten years 960,051 $ 6,333 -- 966,384
------------ ------------ ------------ ------------
Total 8,899,232 6,333 865 8,904,700

Municipal securities:
Within one year 99,975 170 -- 100,145
After one, but within five years 64,954 408 -- 65,362
------------ ------------ ------------ ------------
Total 164,929 578 -- 165,507

Federal Reserve Bank stock 119,350 -- -- 119,350
Federal Home Loan Bank stock 808,400 -- -- 808,400
------------ ------------ ------------ ------------

Total investment securities
held-to-maturity $ 9,991,911 $ 6,911 $ 865 $ 9,997,957
============ ============ ============ ============
</TABLE>

(2) Stock Option Plans

Stock option transactions for the six months ended June 30, 1997 and 1996,
are summarized as follows:

1997 1996
-------------------------------------- --------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding, at beginning of year 155,733 $ 3.81 159,863 $ 3.32

Granted 43,712 $ 6.88 34,109 $ 5.71
Forfeited (2,676) $ 5.40 -- --
Exercised (12,969) $ 2.50 (3,981) $ 3.69
------------ ------------

Outstanding, June 30 183,800 $ 4.60 189,981 $ 3.72
=========== ===========

Exercisable, June 30 149,681 $ 4.21 154,638 $ 3.49
============ ============
</TABLE>

F-7
<PAGE> 82

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)

In connection with the five percent stock dividend payable to stockholders
of record as of May 7, 1997, 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.

(3) Income Per Common Share

On April 15, 1997, the Company declared a five percent stock dividend
payable on May 23, 1997 to Common Stockholders of record as of May 7, 1997
which resulted in the issuance of 57,793 shares of Common Stock. Weighted
average shares outstanding and income per common share have been restated for
the effect of the stock dividend.

F-8
<PAGE> 83

[KPMG PEAT MARWICK LLP LETTERHEAD]

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, 1996 and
1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/s/ KPMG PEAT MARWICK LLP

Washington, D.C.
February 21, 1997

F-9
<PAGE> 84

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 8,363,911 8,045,561
Federal funds sold.......................................... 11,436,000 1,980,000
Interest bearing deposits in other banks.................... 6,823,077 6,031,700
Investment securities available-for-sale, at fair value..... 6,414,011 12,961,735
Investment securities, at cost, fair value of $959,389 and
$718,851 in 1996 and 1995, respectively................... 958,245 716,879
Loans, net of unearned income............................... 70,676,356 69,203,965
Less -- allowance for loan losses........................... (825,876) (740,000)
------------ -----------
Loans, net.................................................. 69,850,480 68,463,965
------------ -----------
Leasehold improvements, furniture, and equipment, net....... 1,558,247 1,454,056
Accrued interest receivable................................. 509,567 589,130
Other real estate owned..................................... -- 192,658
Deposit premium............................................. 275,072 320,847
Prepaid expenses............................................ 157,228 141,844
Other assets................................................ 840,171 831,681
------------ -----------
$107,186,009 101,730,056
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing............................... $ 24,064,454 24,712,204
Interest-bearing.................................. 66,920,756 65,827,158
------------ -----------
Total deposits......................................... 90,985,210 90,539,362
Other borrowings....................................... 8,465,877 3,807,910
Other liabilities...................................... 984,881 1,017,764
------------ -----------
Total liabilities........................................... 100,435,968 95,365,036
------------ -----------
Stockholders' equity:
Common stock, $1 par value; 2,000,000 shares
authorized; 1,146,028 and 1,046,047 shares issued and
outstanding at December 31, 1996 and 1995,
respectively.......................................... 1,146,028 1,046,047
Additional paid in capital............................. 4,870,856 4,410,876
Retained earnings...................................... 779,057 976,161
Unrealized loss on investment securities
available-for-sale, net of tax effect................. (45,900) (68,064)
------------ -----------
Total stockholders' equity.................................. 6,750,041 6,365,020
------------ -----------
Commitments and contingencies
$107,186,009 101,730,056
============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 85

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $6,887,424 6,010,907 4,801,905
Interest on federal funds sold........................ 34,732 37,145 64,967
Interest on deposits in other banks................... 211,563 56,258 9,622
Interest on securities available-for-sale............. 545,481 917,605 790,967
Interest on securities held to maturity............... 10,296 57,272 43,665
---------- --------- ---------
Total interest income...................................... 7,689,496 7,079,187 5,711,126
---------- --------- ---------
Interest expense:
Interest on deposits:
Certificates $100,000 and over................... 768,603 636,236 441,693
Certificates under $100,000...................... 630,875 631,662 480,060
NOW accounts..................................... 245,473 258,428 248,148
Savings accounts................................. 56,075 67,189 66,341
Money market accounts............................ 783,466 777,954 617,731
Interest on loan payable.............................. -- -- 4,246
Interest on other borrowings.......................... 291,494 190,295 43,323
---------- --------- ---------
Total interest expense..................................... 2,775,986 2,561,764 1,901,542
---------- --------- ---------
Net interest income........................................ 4,913,510 4,517,423 3,809,584
Provision for loan losses.................................. 160,000 26,347 19,431
---------- --------- ---------
Net interest income after provision for loan losses........ 4,753,510 4,491,076 3,790,153
---------- --------- ---------
Noninterest income:
Service charges on deposit accounts................... 416,357 378,739 340,291
Other operating income................................ 303,902 214,797 226,505
Loss on sale of securities............................ -- (3,197) (11,748)
---------- --------- ---------
Total noninterest income................................... 720,259 590,339 555,048
---------- --------- ---------
Noninterest expenses:
Salaries and employee benefits........................ $1,987,989 2,093,816 1,661,821
Occupancy and equipment expense....................... 531,336 516,617 438,355
Depreciation and amortization......................... 452,949 221,557 136,180
Professional fees..................................... 628,244 272,960 257,235
Data processing....................................... 468,743 332,363 180,900
Federal deposit insurance premiums.................... 30,238 88,146 169,185
Communications........................................ 206,404 161,090 113,802
Other real estate owned............................... 6,775 48,445 --
Other operating expenses.............................. 607,813 422,322 423,273
---------- --------- ---------
Total noninterest expenses................................. 4,920,491 4,157,316 3,380,751
---------- --------- ---------
Income before income tax expense........................... 553,278 924,099 964,450
Income tax expense......................................... 274,699 311,445 373,546
---------- --------- ---------
Net income................................................. $ 278,579 612,654 590,904
========== ========= =========
Income per common share.................................... $ .23 .57 .58
========== ========= =========
Weighted average common and common equivalent shares
outstanding.............................................. 1,196,607 998,512 959,278
========== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE> 86

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993, as previously
reported............................... 62,335 $ 62,335 782,316 $ 782,316 3,898,006 152,728
Adjustment related to deferred
compensation........................... -- -- -- -- -- (66,981)
------- -------- --------- ---------- --------- --------
Balance, December 31, 1993, as
restated............................... 62,335 62,335 782,316 782,316 3,898,006 85,747
Stock dividend (5% of shares
outstanding)........................... -- -- 39,061 39,061 (39,061) --
Repurchase of preferred stock............ (1,008) (1,008) -- -- (6,552) --
Exercise of stock options................ -- -- 1,855 1,855 3,258 --
Preferred stock dividend................. -- -- -- -- -- (36,796)
Net income............................... -- -- -- -- -- 590,904
Unrealized loss on investment securities
available-for-sale, net of tax
effect................................. -- -- -- -- -- --
------- -------- --------- ---------- --------- --------
Balance, December 31, 1994............... 61,327 61,327 823,232 823,232 3,855,651 639,855
Exercise of stock options................ -- -- 7,831 7,831 15,616 --
Stock dividend (5% of shares
outstanding)........................... -- -- 41,072 41,072 195,092 (236,164)
Redemption of preferred stock............ (33,878) (33,878) -- -- (220,207) --
Exchange of preferred stock.............. (27,449) (27,449) 35,814 35,814 (8,365) --
Issuance of common stock................. -- -- 138,098 138,098 573,089 --
Preferred stock dividend................. -- -- -- -- -- (40,184)
Net income............................... -- -- -- -- -- 612,654
Unrealized gain on investment securities
available-for-sale, net of tax
effect................................. -- -- -- -- -- --
------- -------- --------- ---------- --------- --------
Balance, December 31, 1995............... -- -- 1,046,047 1,046,047 4,410,876 976,161
Stock dividend (7% of shares
outstanding)........................... -- -- 73,047 73,047 401,758 (475,683)
Exercise of stock options................ -- -- 26,934 26,934 58,222 --
Net income............................... -- -- -- -- -- 278,579
Unrealized loss on investment securities
available-for-sale, net of tax
effect................................. -- -- -- -- -- --
------- -------- --------- ---------- --------- --------
Balance, December 31, 1996............... -- $ -- 1,146,028 $1,146,028 4,870,856 779,057
======= ======== ========= ========== ========= ========

<CAPTION>
UNREALIZED LOSS ON
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE TOTAL
--------------------- ---------
<S> <C> <C>
Balance, December 31, 1993, as previously
reported............................... (24,844) 4,870,541
Adjustment related to deferred
compensation........................... -- (66,981)
-------- ---------
Balance, December 31, 1993, as
restated............................... (24,844) 4,803,560
Stock dividend (5% of shares
outstanding)........................... -- --
Repurchase of preferred stock............ -- (7,560)
Exercise of stock options................ -- 5,113
Preferred stock dividend................. -- (36,796)
Net income............................... -- 590,904
Unrealized loss on investment securities
available-for-sale, net of tax
effect................................. (545,301) (545,301)
-------- ---------
Balance, December 31, 1994............... (570,145) 4,809,920
Exercise of stock options................ -- 23,447
Stock dividend (5% of shares
outstanding)........................... -- --
Redemption of preferred stock............ -- (254,085)
Exchange of preferred stock.............. -- --
Issuance of common stock................. -- 711,187
Preferred stock dividend................. -- (40,184)
Net income............................... -- 612,654
Unrealized gain on investment securities
available-for-sale, net of tax
effect................................. 502,081 502,081
-------- ---------
Balance, December 31, 1995............... (68,064) 6,365,020
Stock dividend (7% of shares
outstanding)........................... -- (878)
Exercise of stock options................ -- 85,156
Net income............................... -- 278,579
Unrealized loss on investment securities
available-for-sale, net of tax
effect................................. 22,164 22,164
-------- ---------
Balance, December 31, 1996............... (45,900) 6,750,041
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE> 87

CENTURY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 278,579 612,654 590,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 452,959 221,557 136,180
Provision for loan losses.................... 160,000 26,347 19,431
Provision for losses on other real estate
owned...................................... 10,000 48,445 --
Loss on sale of
securities -- available-for-sale........... -- 3,197 11,748
Loss (gain) on sale of other real estate
owned...................................... (21,328) 11,883 --
(Increase) decrease in accrued interest
receivable................................. 79,563 (7,509) (82,396)
Decrease in prepaid expenses and other
assets..................................... (23,874) (402,960) (117,490)
Increase in other liabilities................ (32,883) (65,943) (255,459)
----------- ---------- -----------
Net cash provided by operating activities.............. 903,016 447,671 302,918
----------- ---------- -----------
Cash flows from investing activities:
Loan repayments and recoveries (originations),
net............................................. (1,547,403) (8,951,855) (4,077,823)
Net increase in interest bearing deposits in other
banks........................................... (791,377) (5,838,933) (169,388)
Purchases of securities available-for-sale........ (3,092,717) (1,010,160) (10,454,516)
Purchases of securities held to maturity.......... (326,366) -- (254,852)
Payments and maturities of securities
available-for-sale.............................. 9,662,605 6,553,254 7,404,794
Repayments and maturities of securities held to
maturity........................................ 85,000 -- --
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..................... (511,366) (1,366,073) (95,203)
Proceeds from sale of other real estate owned..... 203,986 96,890 --
----------- ---------- -----------
Net cash provided (used) by investing activities....... 3,682,362 (6,778,446) (5,482,231)
----------- ---------- -----------
Cash flows from financing activities:
Net issuances of certificates of deposit.......... $ 262,533 3,868,183 2,072,464
Net increase in demand, savings, and money market
deposits........................................ 183,315 4,589,920 26,296
Deposit premium................................... -- (62,845) (303,000)
Repayments of loan payable........................ -- -- (207,000)
Repurchase of preferred stock..................... -- (254,085) (7,560)
Issuance of common stock.......................... 85,156 734,634 5,113
Dividend paid on preferred stock.................. -- (40,184) (36,796)
Increase in other borrowings...................... 4,657,968 1,607,910 2,200,000
----------- ---------- -----------
Net cash provided by financing activities.............. 5,188,972 10,443,533 3,749,517
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents... 9,774,350 4,112,758 (1,429,796)
Cash and cash equivalents, beginning of year........... 10,025,561 5,912,803 7,342,599
----------- ---------- -----------
Cash and cash equivalents, end of year................. $19,799,911 10,025,561 5,912,803
=========== ========== ===========
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings.......... $ 2,743,631 2,483,398 1,902,707
=========== ========== ===========
Income taxes paid (refunded)...................... $ 626,079 19,222 (88,190)
=========== ========== ===========
Transfer of loans to other real estate owned........... $ -- 946,366 --
=========== ========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-13
<PAGE> 88

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(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.

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.

F-14
<PAGE> 89

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.

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 E
Income Recognition and Disclosures (collectively referred to as SFAS No. 114).
SFAS No. 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 No. 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 No. 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 homogeneous 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

F-15
<PAGE> 90

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.

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 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. On March 19, 1996, the Company declared a 7 percent
stock dividend to common stock shareholders of record as of March 31, 1996,
resulting in the issuance of 73,047 shares.

F-16
<PAGE> 91

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.

New Accounting Standards Not Yet Implemented

During February of 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 establishes standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Management does not expect that the adoption of SFAS
128 will have a material impact on the Company's financial condition or reported
earnings per share.

During February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information about Capital Structure (SFAS 129).
SFAS 129 establishes standards for disclosing information about an entity's
capital structure and applies to all entities. SFAS 129 is effective for
financial statements issued for periods ending after December 15, 1997.

Stock Options

On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

Reclassifications

Certain amounts for 1995 and 1994 have been reclassified to conform to the
presentation for 1996.

(2) DEFERRED COMPENSATION

The deferred compensation liability for the deferred compensation contracts
was understated at December 31, 1996 by approximately $225,000. The after tax
effect of this understatement has been reflected in the appropriate periods
through restatement of previously reported results. The impact on prior periods
resulted in a decrease to previously reported net income of approximately
$67,000 in 1995 and a cumulative impact on retained earnings at December 31,
1993 of approximately $67,000. There was no impact on 1994 net income.

(3) 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

F-17
<PAGE> 92

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) RESTRICTED CASH -- (CONTINUED)
"Cash and due from banks" in the consolidated statements of financial condition
and amount to approximately $226,000 and $235,000 as of December 31, 1996 and
1995, respectively.

(4) INVESTMENT SECURITIES

Investment securities available-for-sale, and their contractual maturities,
at December 31, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
1996
--------------------------------------------------
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............................. $ 542,476 5,377 188 547,665
After one, but within five years............ 3,448,135 1,099 13,543 3,435,691
After ten years............................. 931,138 2,040 17,189 915,989
----------- ----- ------- ----------
Total............................................ 4,921,749 8,516 30,920 4,899,345
Collateralized mortgage obligations:
After ten years............................. 1,562,872 -- 48,206 1,514,666
----------- ----- ------- ----------
Total investment securities available-for-sale... $ 6,484,621 8,516 79,126 6,414,011
=========== ===== ======= ==========
</TABLE>

<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>

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.

F-18
<PAGE> 93

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) INVESTMENT SECURITIES -- (CONTINUED)
Investment securities held-to-maturity at December 31, 1996 and 1995 are
summarized as follows:

<TABLE>
<CAPTION>
1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Municipal securities -- maturing
Within one year.......................... $ 99,956 527 -- 100,483
After one, but within five years......... 64,939 617 -- 65,556
-------- ----- ----- -------
Total......................................... 164,895 1,144 -- 166,039
Federal Reserve Bank stock.................... 119,350 -- -- 119,350
Federal Home Loan Bank stock.................. 674,000 -- -- 674,000
-------- ----- ----- -------
$958,245 1,144 -- 959,389
======== ===== ===== =======
</TABLE>

<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>

Investment securities available for sale carried at $2,144,283 and
$2,000,866 at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes as required.

No investment securities were sold during 1996. Realized losses on sales of
securities available for sale during 1995 and 1994 were $3,197 and $11,748,
respectively.

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.

F-19
<PAGE> 94

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LOANS RECEIVABLE

The loan portfolio consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Commercial.................................................. $17,400,323 13,212,532
Real estate -- residential.................................. 20,932,776 27,007,742
Real estate -- commercial................................... 14,001,133 11,910,244
Real estate -- construction................................. 462,685 1,545,143
Consumer.................................................... 11,509,900 9,985,863
Home equity................................................. 6,431,425 5,640,012
----------- ----------
70,738,242 69,301,536
Unearned income............................................. (61,886) (97,571)
----------- ----------
70,676,356 69,203,965
Allowance for loan losses................................... (825,876) (740,000)
----------- ----------
Loans, net.................................................. $69,850,480 68,463,965
=========== ==========
</TABLE>

Loans on which the accrual of interest has been discontinued amounted to
approximately $249,000, $8,000, and $628,000 at December 31, 1996, 1995, and
1994, respectively. Interest lost on these nonaccrual loans was approximately
$17,000, $1,000, and $32,000 for 1996, 1995, and 1994, respectively. Interest
paid on these nonaccrual loans was approximately $19,851, $3,500, and $13,500
for 1996, 1995, and 1994, respectively. At December 31, 1996, the Bank has one
investment in impaired loans of $24,136 for which there was no specific reserve
for impairment. Average impaired loans for 1996 were approximately $12,000.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year........................... $ 740,000 740,000 730,000
Provision for loan losses....................... 160,000 26,347 19,431
Loans charged off............................... (256,245) (198,126) (106,105)
Recoveries...................................... 182,121 171,779 96,674
--------- -------- --------
Balance, end of year................................. $ 825,876 740,000 740,000
========= ======== ========
</TABLE>

An analysis of the activity of loans to directors, officers, and their
affiliates during the years ended December 31, 1996 and 1995, is as follows:

<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Balance, beginning of year........................... $ 3,320,113 2,566,970
Additions....................................... 29,961 1,550,080
Payments........................................ (1,073,366) (796,937)
----------- ---------
Balance, end of year................................. $ 2,276,708 3,320,113
=========== =========
</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.

F-20
<PAGE> 95

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LOANS RECEIVABLE -- (CONTINUED)
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, 1996, are collateralized.

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
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Financial instruments whose contract amounts represent
potential credit risk:
Commitments to extend credit........................... $19,361,000 13,910,000
Standby letters of credit.............................. 658,000 882,000
</TABLE>

At December 31, 1996, 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, service companies, and the health care
profession. Century offers lines of credit, home equity lines, and mortgage
loans to these groups. The aggregate total of loans to such groups was
approximately $17.7 million, $10.8 million, and $9.4 million respectively, as of
December 31, 1996. The aggregate total of loans to such groups was approximately
$13.9 million, $9.0 million, and $9.1 million respectively, as of December 31,
1995. The amount of such loans which are past due or considered by management to
be potential problem loans is not material.

F-21
<PAGE> 96

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Leasehold improvements.............................. $ 1,248,990 1,233,384
Furniture and equipment............................. 2,398,978 1,904,090
----------- ----------
3,647,968 3,137,474
Less accumulated depreciation and amortization...... (2,089,721) (1,683,418)
----------- ----------
Balance, end of year................................ $ 1,558,247 1,454,056
=========== ==========
</TABLE>

Depreciation and amortization expense was $407,175, $151,471, and $77,377
for 1996, 1995, and 1994, respectively.

(7) DEPOSITS

Major classifications of deposits consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Noninterest-bearing -- demand deposits.............. $24,064,454 24,712,204
----------- ----------
Interest-bearing:
NOW accounts................................... 13,852,112 15,132,526
Savings accounts............................... 3,594,587 3,703,943
Money market accounts.......................... 24,231,842 22,144,836
Certificates of deposit:
Less than $100,000........................ 10,072,924 10,930,074
$100,000 and over......................... 15,169,291 13,915,779
----------- ----------
66,920,756 65,827,158
----------- ----------
Total deposits...................................... $90,985,210 90,539,362
=========== ==========
</TABLE>

Certificates of deposit of $22,204,859 have remaining maturities of one
year or less. Certificates of deposit with a remaining term of more than one
year are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998.................................................... $ 672,238
1999.................................................... 1,335,025
2000.................................................... 792,887
2001.................................................... 232,820
2002.................................................... --
Thereafter.............................................. 4,386
----------
$3,037,356
==========
</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. The amount of accumulated amortization
is $90,928 at December 31, 1996.

F-22
<PAGE> 97

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) OTHER BORROWINGS

Other 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 are shown below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Federal Home Loan Bank
Ending balance........................................ $7,750,000 2,000,000 2,200,000
Daily average balance for the period.................. 4,559,202 2,924,163 706,739
Maximum outstanding balance at a month-end during the
period.............................................. 7,800,000 4,000,000 3,500,000
Daily average interest rate for the period............ 5.99% 5.46% 4.24%
Average interest rate on period end balance........... 6.73% 6.10% 6.88%
Treasury Tax and Loan Account
Ending balance........................................ 715,877 1,807,909 683,836
Daily average balance for the period.................. 392,740 473,062 394,396
Maximum outstanding balance at a month-end during the
period.............................................. 829,352 710,501 683,836
Daily average interest rate for the period............ 4.64% 4.60% 3.48%
Average interest rate on period and balance........... 5.16% 2.00% 2.75%
</TABLE>

FHLB advances with original maturities in excess of one year are summarized
as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ---------
<S> <C> <C>
6.60% fixed rate, due 1999............................ $ 300,000 --
6.85% fixed rate, due 2001............................ 300,000 --
6.57% fixed rate, due 2001............................ 1,600,000 --
6.66% fixed rate, due 2002............................ 2,000,000 --
6.30% fixed rate, due 2006............................ 800,000 --
7.34% fixed rate, due 2006............................ 1,000,000 --
6.94% fixed rate, due 2006............................ 850,000 --
---------- ---------
$6,850,000 --
========== =========
</TABLE>

The Bank has been advised by the FHLB that it has a total credit
availability of $13.3 million. The FHLB credit availability does not represent a
firm commitment by the FHLB. Rather, it is the FHLB's assessment of what the
Bank could borrow given the Bank's current financial condition. The credit
availability is subject to change at any time based upon the Bank's financial
condition and that of the FHLB, as well as changes in FHLB policies or
Congressional mandates. At December 31, 1996, the Bank's available credit from
the FHLB was $5.55 million.

In connection with its borrowings from the FHLB, the Bank is required to
own FHLB stock. At December 31, 1996, the Bank's investment in FHLB stock had a
par and carrying value of $674,000 and was automatically pledged against FHLB
advances. Advances from the FHLB are secured by a blanket floating lien on the
Bank's residential, one-to-four family first mortgage loans.

F-23
<PAGE> 98

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) 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.

(10) 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, 1996, after adjusting for stock dividends
and stock option activity, there are 159,685 shares of stock reserved for
issuance pursuant to the 1994 Plan, of which 104,954 shares are reserved for
outstanding options and 54,731 shares are reserved for future option grants.
These options are granted for a term of 7 years to directors with immediate
vesting, and 10 years to employees with 25 percent of the original grant vesting
after each six, eighteen, thirty and forty-two months of continued service. Both
the price per option and number of options available are adjusted for dividends.

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, 1996, after adjusting for stock dividends and
stock option activity, there are 43,363 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, 1996, all
options granted under the Prior Plans are fully exercisable.

In connection with the 5 percent stock dividend effective July 31, 1993,
March 31, 1994, and March 31, 1995, and the 7 percent stock dividend effective
March 31, 1996, the number of shares subject to any outstanding options, the
exercise price per share, and the number of shares reserved for the issuance of
future options 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 tables below, the shares and prices
per share have been adjusted to reflect the stock dividends.

F-24
<PAGE> 99

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) STOCK OPTION PLANS -- (CONTINUED)
Stock option transactions for the years ended December 31, 1996, 1995, and
1994, are summarized as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 152,250 $3.49 139,926 $3.26 91,209 $3.31
Granted................................... 33,985 6.00 34,955 5.75 66,687 3.65
Exercised................................. (26,934) 3.16 (14,252) 2.80 (15,572) 2.13
Forfeited................................. (10,984) 5.18 (8,379) 7.18 (2,398) 5.40
------- ------- -------
Outstanding at end of year................ 148,317 4.00 152,250 3.49 139,926 3.26
======= ======= =======
Options exercisable at year-end........... 134,840 3.85 131,285 3.37 115,719 3.18
======= ======= =======
Weighted-average fair value of options
granted................................. $ 2.191 $ 1.909 N/A
======= ======= =======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE AVERAGE
OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.61 to $2.22............................ 33,804 1.2 $1.92 33,804 $1.92
$2.82 to $3.83............................ 31,453 3.3 2.98 30,753 2.97
$4.23 to $5.37............................ 53,981 4.9 4.80 48,380 4.78
$6.00..................................... 29,079 9.5 6.00 21,903 6.00
------- -------
$1.61 to $6.00............................ 148,317 4.6 4.00 134,840 3.85
======= =======
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: no dividends for
either year, expected volatility of 20 percent for both years, risk free
interest rates of 6.3 percent and 5.8 percent, and expected lives of 7 and 5
years.

As the Company continues to apply APB Opinion No. 25 in accounting for its
stock options, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income, as reported.................................. $278,579 612,654
Net income, pro forma.................................... 244,585 586,074
Primary earnings per share, as reported.................. .23 .57
Primary earnings per share, pro forma.................... .20 .55
</TABLE>

Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.

F-25
<PAGE> 100

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) INCOME TAXES

The provision for taxes on income for the years ended December 31, 1996,
1995, and 1994, consisted of the following:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal income tax................................ $289,329 627,042 29,600
State income tax.................................. 73,503 127,114 (39,416)
-------- -------- -------
362,832 754,156 (9,816)
Deferred:
Federal income tax (benefit)...................... (68,715) (370,563) 289,682
State income tax (benefit)........................ (19,418) (72,148) 93,680
-------- -------- -------
(88,133) (442,711) 383,362
-------- -------- -------
Total income tax....................................... $274,699 311,445 373,546
======== ======== =======
</TABLE>

The difference between the statutory federal income tax rates and the
effective income tax rates for 1996, 1995, and 1994, are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 34.0% 34.0 34.0
State income taxes, net of federal benefit................. 6.4 3.5 4.0
Nondeductible expenses..................................... 8.1 -- 0.7
Other...................................................... 1.1 (3.8) --
---- ---- ----
Effective income tax rate.................................. 49.6 33.7 38.7
==== ==== ====
</TABLE>

F-26
<PAGE> 101

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) INCOME TAXES -- (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, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Assets:
Fixed assets........................................... $ 107,629 109,032
Book loan loss reserve................................. 428,698 432,395
Deferred rent expense.................................. 57,869 71,343
Deferred loan fees..................................... 25,113 39,936
Vacation pay accrual................................... 21,996 29,631
Directors' deferred compensation....................... 188,412 145,433
Goodwill............................................... 7,389 --
--------- ---------
Deferred tax assets......................................... 837,106 827,770
--------- ---------
Liabilities:
Federal Home Loan Bank stock dividends................. (11,484) (11,583)
Tax bad debt reserve................................... (207,305) (269,393)
Unrealized losses on investments designated as
available-for-sale recognized for tax purposes........ (5,897) (37,043)
Other.................................................. (86,327) (71,791)
--------- ---------
Deferred tax liabilities.................................... (311,013) (389,810)
--------- ---------
Net deferred tax asset (liability) attributable to
operations................................................ 526,093 437,960
Unrealized losses on investments available-for-sale charged
directly to stockholders' equity.......................... 5,897 36,650
--------- ---------
Net deferred tax asset...................................... $ 531,990 474,610
========= =========
</TABLE>

Net deferred tax assets of $531,990 and $474,610 at December 31, 1996 and
1995, 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.

(12) 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
$139,611, $102,000, and $81,000 for the years ended December 31, 1996, 1995, and
1994, respectively.

(13) 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, 1996, 1995, and 1994.

F-27
<PAGE> 102

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) 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 $327,400,
$323,600, and $301,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Total future minimum rental payments at December 31, 1996, are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997.................................................... $ 387,000
1998.................................................... 401,000
1999.................................................... 370,000
2000.................................................... 367,000
Thereafter.............................................. 680,000
----------
$2,205,000
==========
</TABLE>

(15) DIVIDENDS FROM SUBSIDIARY

Dividends paid to the Company by Century Bank are subject to restrictions
by regulatory agencies. As of December 31, 1996, approximately $1,544,000 was
available to be paid to the Company in dividends from Century Bank, pursuant to
such regulatory restrictions. As described in note 15, 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.

(16) CAPITAL AND LIQUIDITY

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires regulators to classify insured depository institutions into one of five
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.

Failure to meet minimum capital requirements can initiate certain
mandatory -- and possibly additional discretionary -- actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require The Company and Century Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined)

F-28
<PAGE> 103

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) CAPITAL AND LIQUIDITY -- (CONTINUED)
to average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 1996, the most recent notification from the OCC
categorized Century Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized Century Bank
must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.

The following table presents the actual and required capital information
for the Company and Century Bank:

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS:
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital (to Risk Weighted Assets):
Century Bancshares.................... $7,346,745 10.13% $5,803,841 8.00% $ N/A N/A
Century National Bank................. 7,453,630 10.29% 5,792,880 8.00% 7,241,200 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares.................... 6,520,869 8.99% 2,901,920 4.00% N/A N/A
Century National Bank................. 6,627,754 9.15% 2,896,440 4.00% 4,344,720 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares.................... 6,520,869 6.35% 4,110,634 4.00% N/A N/A
Century National Bank................. 6,627,754 6.44% 4,114,080 4.00% 5,232,267 5.00%

AS OF DECEMBER 31, 1995
Total Capital (to Risk Weighted Assets):
Century Bancshares.................... 6,852,237 10.34% $5,303,124 8.00% $ N/A N/A
Century National Bank................. 6,917,391 10.47% 5,287,440 8.00% 6,609,300 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares.................... 6,112,237 9.22% 2,651,562 4.00% N/A N/A
Century National Bank................. 6,177,391 9.35% 2,643,720 4.00% 3,965,580 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares.................... 6,112,237 6.80% 3,596,085 4.00% N/A N/A
Century National Bank................. 6,177,391 6.88% 3,591,560 4.00% 4,489,450 5.00%
</TABLE>

F-29
<PAGE> 104

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) PARENT COMPANY-ONLY FINANCIAL STATEMENTS

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

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 29,121 56,769
Investment in Century Bank.................................. 6,856,926 6,430,174
Other assets................................................ 112,668 112,668
---------- ---------
$6,998,715 6,599,611
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable.......................................... $ -- --
Other liabilities...................................... 248,674 234,591
---------- ---------
248,674 234,591
---------- ---------
Stockholders' equity:
Preferred stock........................................ -- --
Common stock........................................... 1,146,028 1,046,047
Additional paid-in capital............................. 4,870,856 4,410,876
Retained earnings...................................... 779,057 976,161
Unrealized loss on investment securities
available-for-sale, net of tax effect................. (45,900) (68,064)
---------- ---------
6,750,041 6,365,020
---------- ---------
$6,998,715 6,599,611
========== =========
</TABLE>

F-30
<PAGE> 105

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) PARENT COMPANY-ONLY FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from Century Bank............................ $ -- -- 140,000
Other income........................................... 1,659 929 1,336
--------- -------- -------
1,659 929 141,336
--------- -------- -------
Expenses:
Professional fees...................................... 111,754 112,663 --
Interest expense....................................... -- -- 4,246
Other expenses......................................... 15,914 50,915 17,291
--------- -------- -------
127,668 163,578 21,537
--------- -------- -------
Net income (loss) before income tax benefit and equity in
undistributed earnings of bank subsidiary................. (126,009) (162,649) 119,799
Income tax benefit.......................................... -- (55,702) (8,203)
--------- -------- -------
Net income before equity in undistributed earnings of bank
subsidiary................................................ (126,009) (106,947) 128,002
Equity in undistributed earnings of Century Bank............ 404,588 719,601 462,902
--------- -------- -------
Net income.................................................. $ 278,579 612,654 590,904
========= ======== =======
</TABLE>

F-31
<PAGE> 106

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) PARENT COMPANY-ONLY FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 278,579 612,654 590,904
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of Century Bank............ (404,588) (719,601) (462,902)
Decrease in other assets.......................... -- 134,416 174,434
Increase (decrease) in other liabilities.......... 14,083 (178,584) 52,847
--------- -------- --------
Net cash provided by (used in) operating activities......... (111,926) (151,115) 355,283
--------- -------- --------
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)
Repurchase of preferred stock.......................... -- (254,085) (7,560)
Issuance of common stock............................... 85,156 734,634 5,113
Preferred stock dividends paid......................... (878) (40,184) (36,796)
--------- -------- --------
Net cash provided (used) by financing activities............ 84,278 440,365 (246,243)
--------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (27,648) (110,750) 109,040
Cash and cash equivalents, beginning of year................ 56,769 167,519 58,479
--------- -------- --------
Cash and cash equivalents, end of year...................... $ 29,121 56,769 167,519
========= ======== ========
Supplemental disclosures of cash flow information:
Interest paid.......................................... $ -- -- 4,246
Income taxes paid (refunded)........................... -- 11,222 (88,190)
========= ======== ========
</TABLE>

(18) FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosure About Fair
Value of Financial Instruments (SFAS No. 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 the
Company'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 the Company taken as a whole.

Cash, Interest Bearing Deposits with Other Banks, and Federal Funds Sold

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

F-32
<PAGE> 107

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(18) FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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.

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.

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-33
<PAGE> 108

CENTURY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(18) FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of The Company's financial instruments at
December 31, 1996 follows:

<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
----------- ----------
<S> <C> <C>
ASSETS
Cash and interest-bearing deposits with other banks......... $ 8,363,911 8,363,911
Federal funds sold.......................................... 11,436,000 11,436,000
Interest-bearing deposits with other banks.................. 6,823,077 6,823,077
Investment securities....................................... 7,372,256 7,373,400
Loans, net.................................................. 69,850,480 69,867,616
Accrued interest receivable................................. 509,567 509,567

LIABILITIES
Noninterest-bearing deposits................................ $24,064,454 24,064,454
Interest-bearing deposits................................... 66,920,756 67,053,793
Other borrowings............................................ 8,465,877 8,465,877
Accrued interest payable.................................... 185,615 185,615
</TABLE>

(19) SUBSEQUENT EVENT

On February 1, 1997, the Company signed a lease to open a third branch of
its subsidiary, Century National Bank, in McLean, Virginia. This new branch was
approved by the regulatory authority and will allow Century to establish its
presence in the suburbs and expand its opportunities to provide loans and gather
deposits.

F-34
<PAGE> 109
===============================================================================

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer contained herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the shares of
Common Stock offered hereby by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such solicitation or offer. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.

TABLE OF CONTENTS

Page
Prospectus Summary................................... 3
Summary Consolidated Financial Information........... 6
Risk Factors......................................... 7
Forward - Looking Statements......................... 10
Use of Proceeds...................................... 10
Capitalization....................................... 11
Market for Common Stock.............................. 11
Dividend Policy...................................... 12
The Eastern American Transaction..................... 12
Selected Consolidated Financial Information.......... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 16
Business............................................. 46
Management........................................... 51
Security Ownership of Certain Beneficial
Holders and Management............................ 57
Supervision and Regulation........................... 60
Description of Capital Stock......................... 67
Shares Eligible for Future Sale...................... 70
Underwriting......................................... 71
Experts.............................................. 72
Legal Matters........................................ 72
Available Information................................ 73
Index to Financial Statements........................ F-1

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

725,000 SHARES

[LOGO]

CENTURY BANCSHARES,
INC.

COMMON STOCK

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

PROSPECTUS

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

SCOTT & STRINGFELLOW, INC.

AUGUST___, 1997

===============================================================================
<PAGE> 110

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:

Securities and Exchange Commission registration fee.............$ 1,895
National Association of Securities Dealers, Inc. filing fee.....$ *
Blue sky filing fees and expenses...............................$ *
Accountants' fees and expenses..................................$ *
Legal fees and expenses.........................................$ *
Printing fees...................................................$ *
Miscellaneous...................................................$ *

Total...........................................................$ *

* To be supplied by amendment.

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.

II-1

<PAGE> 111

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 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 173,912 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 six months ended June
30, 1997, the Company has issued an aggregate of 69,727 shares of its Common
Stock upon the exercise of outstanding stock options granted to employees or
directors at weighted average exercise prices ranging from $2.13 to $3.16 per
share. All such sales were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended.

II-2

<PAGE> 112

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits. The following exhibits are filed as part of this
Registration Statement. Except as otherwise indicated, each exhibit is
incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 filed under Registration No.
333-14417.

<TABLE>
<S> <C>
1* Form of Underwriting Agreement by and between the Company and the
Underwriter.

3.1 Certificate of Incorporation, as amended, of the Company.

3.2 Bylaws of the Company.

3.3 Articles of Association of the Bank.

3.4* Amendment dated July 24, 1997 to the Certificate of Incorporation, as
amended, of the Company, filed August 4, 1997.

4.1 Form of Warrant.

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* Executive Service Agreement dated May 20, 1997 between
InterOffice/Bethesda, Inc. and the Bank.
</TABLE>

II-3

<PAGE> 113

<TABLE>
<S> <C>
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.

10.12* Purchase and Assumption Agreement dated July 24, 1997 by and between
the Company and Eastern American Bank, FSB ("Eastern American").

10.13* Amendment No. 1 dated August 14, 1997 to Purchase and Assumption
Agreement dated July 24, 1997 by and between the Company and Eastern
American.

11 Computation of earnings per share.

21 Subsidiaries of the Registrant.

23.1* Consent of KPMG Peat Marwick LLP, independent auditors of the Company.

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

24* Powers of Attorney (included on the signature page of this
Registration Statement).
</TABLE>

---------------
* Filed herewith.
** To be filed by Amendment.

ITEM 17. UNDERTAKINGS.

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.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon

II-4

<PAGE> 114

Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall 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.

II-5

<PAGE> 115

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 20th day of August, 1997.

CENTURY BANCSHARES INC.
(Registrant)

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

Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Joseph S. Bracewell and Bernard J.
Cravath, each with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement, and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing he might do or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.

<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

/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
</TABLE>

II-6

<PAGE> 116

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
1* Form of Underwriting Agreement by and between the Company and the
Underwriter.