<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER: 0-16234
CENTURY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1489098
(State or other jurisdiction of incorporation or (I.R.S. Employer identification No.)
organization)
</TABLE>
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D. C. 20004
(Address of principal executive offices)
(Zip Code)
(202) 496-4100
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of August 14, 1997, there were 1,217,429 shares of the registrant's Common
Stock, par value $1.00 per share outstanding.
<PAGE> 2
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PAGE
PART I
Item 1. Financial Statements ............................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 8
PART II
Item 1. Legal Proceedings................................................. 16
Item 2. Changes in Securities............................................. 16
Item 3. Defaults Upon Senior Securities................................... 16
Item 4. Submissions of Matters to a Vote of Security Holders.............. 16
Item 5. Other Information................................................. 17
Item 6. Exhibits and Reports on Form 8K................................... 17
(a) The following exhibits are filed with this report:
Exhibit
Number Description of Exhibit
------ ----------------------
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) No Reports on Forms 8-K were filed by the Company during the three
months ended June 30, 1997.
-ii-
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3-
<PAGE> 4
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1997 (UNAUDITED) AND
DECEMBER 31, 1996 (AUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
ASSETS
- ------
<S> <C> <C>
Cash and due from banks 4,841,217 8,363,911
Federal funds sold -- 11,436,000
Interest bearing deposits in other banks 11,213,428 6,823,077
Investment securities AFS at fair value 7,834,041 6,414,011
Investment securities, HTM at cost; fair value of $ 9,997,957
at June 30, 1997 and $959,389 at December 31, 1996. 9,991,911 958,245
Loans net of unearned income 74,346,296 70,676,356
Less - allowance for loan losses (709,595) (825,876)
------------ ------------
Loans, net 73,636,701 69,850,480
------------ ------------
Leasehold improvements, furniture, and equipment, net 1,555,320 1,558,247
Accrued interest receivable 612,863 509,567
Deposit premium 256,763 275,072
Prepaid expenses 135,256 157,228
Other assets 824,243 840,171
------------ ------------
Total assets 110,901,743 107,186,009
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
- ------------
Deposits:
noninterest bearing 21,270,994 24,064,454
interest bearing 73,436,455 66,920,756
------------ ------------
Total deposits 94,707,449 90,985,210
------------ ------------
Other borrowings 8,022,460 8,465,877
Other liabilities 1,094,330 984,881
------------ ------------
Total liabilities 103,824,239 100,435,968
------------ ------------
Shareholders' equity:
- ---------------------
Common stock, $1 par value: 5,000,000 shares authorized;
1,217,429 and 1,146,028 shares issued and outstanding
at June 30, 1997 and December 31, 1996 respectively. 1,217,429 1,146,028
Additional paid in capital 5,300,802 4,870,856
Retained earnings 603,608 779,057
Unrealized loss on Securities available-for-sale, net of tax effect (44,335) (45,900)
------------ ------------
Total shareholders' equity 7,077,504 6,750,041
------------ ------------
------------ ------------
Total liabilities and shareholders' equity 110,901,743 107,186,009
------------ ------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
4-
<PAGE> 5
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans 1,775,673 1,714,826 3,456,912 3,385,113
Interest on federal funds sold 14,746 -- 83,488 13,057
Interest on deposits in other banks 211,981 11,892 315,225 44,227
Interest on investment securities 149,073 151,898 274,928 316,858
--------- --------- --------- ---------
Total interest income 2,151,473 1,878,616 4,130,553 3,759,255
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits:
Certificates $100,000 and over 165,095 182,089 353,136 355,381
Certificates under $100,000 300,779 157,207 478,202 320,240
NOW accounts 67,589 61,107 134,589 128,107
Savings accounts 13,951 14,259 28,396 29,585
Money market accounts 199,726 183,556 384,646 365,346
Interest on other borrowings 130,976 71,669 261,958 132,731
--------- --------- --------- ---------
Total interest expense 878,116 669,887 1,640,927 1,331,390
--------- --------- --------- ---------
Net interest income 1,273,357 1,208,729 2,489,626 2,427,865
Provision for loan losses 51,400 (21,000) 72,400 --
--------- --------- --------- ---------
Net interest income after provision 1,221,957 1,229,729 2,417,226 2,427,865
--------- --------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 111,824 100,131 240,820 213,157
Other operating income 129,651 71,981 273,065 140,662
--------- --------- --------- ---------
Total noninterest income 241,475 172,112 513,885 353,819
--------- --------- --------- ---------
NONINTEREST EXPENSES:
Salaries and employee benefits 528,119 458,695 1,016,229 950,814
Occupancy and equipment expense 156,012 109,432 294,958 242,083
Depreciation and amortization 120,396 99,955 236,190 188,667
Professional fees 141,280 201,378 243,989 291,313
Data processing 117,953 21,077 253,119 132,901
FDIC premiums 3,553 24,678 4,753 27,039
Communications 52,944 50,582 99,151 93,992
Other operating expenses 150,936 237,931 314,218 379,756
--------- --------- --------- ---------
Total noninterest expenses 1,271,193 1,203,728 2,462,607 2,306,565
--------- --------- --------- ---------
Income before income tax expense 192,239 198,113 468,504 475,119
Income tax expense 74,023 77,805 180,384 181,971
--------- --------- --------- ---------
Net income 118,216 120,308 288,120 293,148
--------- --------- --------- ---------
Income per common share $ 0.08 $ 0.08 $ 0.21 $ 0.23
========= ========= ========= =========
Weighted average shares
outstanding including common stock
equivalents 1,366,447 1,356,241 1,341,156 1,294,594
========= ========= ========= =========
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
5-
<PAGE> 6
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASHFLOWS 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
------------ ------------
CASHFLOWS 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) --
Payments and maturities of securities available for sale 628,371 2,714,804
Payments and 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
------------ ------------
CASHFLOWS 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-borrowings (450,000) 2,700,000
------------ ------------
NET CASH USED BY FINANCING OPERATIONS 3,316,600 (5,620,640)
------------ ------------
Net decrease in cash and cash 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 30 4,841,217 5,704,182
============ ============
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings 1,573,122 1,349,389
------------ ------------
Income taxes paid (refunded) 39,000 408,000
------------ ------------
Transfer of loans to other real estate owned -- --
------------ ------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
6-
<PAGE> 7
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 three
and six months ended June 30, 1997 and June 30, 1996 have not been audited but,
in the opinion of management contain all adjustments (consisting only of 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. The
unaudited consolidated financial statements should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto
appearing in the 10-K. 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 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>
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
corporation
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 -0- 100,145
After one, but within five years 64,954 408 -0- 65,362
------- ---- ---- ---------
Total 164,929 578 -0- 165,507
Federal Reserve Bank stock 119,350 -0- -0- 119,350
FederalHome Loan Bank stock 808,400 -0- -0- 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:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares 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
Exercised (2,676) $5.40 (3,981) $3.60
Forfeited (12,969) $2.50 -- --
-------- --------
Outstanding, June 30 183,800 $4.60 189,991 $3.60
======== ========
Options exercisable at
June 30 149,681 $4.21 154,638 $3.49
</TABLE>
(3) INCOME PER COMMON SHARE
On April 15, 1997, the Company declared afive percent stock dividend
payable on May 23, 1997 to Common Shareholders 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 share have been restated for the
effect of the stock dividend.
7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Century Bancshares, Inc. (the "Company") is a registered bank holding
company that derives substantially all of its revenues and income from the
operation of Century National Bank (the "Bank"). The Bank is a full service
bank that provides a broad line of financial products and services to small and
medium sized businesses and consumers through its main office located at 1875
Eye Street, N.W., in Washington, D.C., and its branches located at 1275
Pennsylvania Avenue, N.W. in Washington, D.C., and 8251 Greensboro Drive in
Tysons Corner, Virginia. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward-looking
statements regarding future financial condition and results of operations and
the Company's business operations. Such statements involve risks, uncertainties
and assumptions, including, but not limited to, monetary policy and general
economic conditions in the Washington, D.C. area, the actions of competitors
and customers, the success of the Company in implementing its strategic plan,
and the effects of regulatory restrictions imposed on banks and bank holding
companies generally, as discussed in the Company's Form 10-K for the year ended
1996 and other filings with the Securities and Exchange Commission. Should one
or more of these risks or uncertainties materialize, or should these underlying
assumptions prove incorrect, actual outcomes may vary materially from outcomes
expected or anticipated by the Company.
NET INCOME
For the three months ended June 30, 1997, the Company's net income was
$118,000 ($.08 per common share) down $2,000 or 1.7% (unchanged on a per common
share basis) form the $120,000 ($.08 per common share) earned during the
same period in 1996. This decrease resulted from increases of $72,000 in the
provision for loan losses and $68,000 in non-interest expenses, partially
offset by increases of $65,000 in net interest income and $69,000 in
non-interest 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, a decrease of $5,000 or 2% ($.02 or 5% per common
share). 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. Earnings per common share decreased
primarily due to 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 INTEREST INCOME
Net interest income was $1,273,000 for the three months ended June 30,
1997, an increase of $65,000 or 5.4% compared with the same period in 1996.
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. The $10
million increase in total interest earning assets was partially offset by a
decline in the net interest margin from 5.74% in 1996 to 5.25% in 1997.
8-
<PAGE> 9
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.
The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or incurred on such
amounts, and the average rate earned or incurred for the six months ended June
30, 1997 and 1996. The tables also set forth the average rate earned on total
interest-earning assets, the average rate paid on total interest-bearing
liabilities, and the net interest margin on average total interest-earning
assets for the same periods.
9-
<PAGE> 10
AVERAGE BALANCES AND INTEREST RATES
(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>
INTEREST-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 83 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 4,130 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 $ 2,489 $ 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>
10-
<PAGE> 11
NONINTEREST INCOME
The Company's primary source of noninterest income is service charges on
deposit accounts. The remaining noninterest income is derived from
Mastercard/Visa, wire transfer, collection and cashier's check fees, mortgage
loan referral fees, and safe deposit box rentals. Also included in this
category are gains and losses realized on the sale of investment securities and
certain other items of income, whether recurring or not, which are not
elsewhere classified.
Noninterest income for the second quarter of 1997 was $241,000, an
increase of $69,000 or 40% compared with noninterest income of $172,000 for the
second quarter of 1996. This increase results primarily from fees generated in
connection with the Bank's Mastercard/Visa credit card program.
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 Bank's Mastercard/Visa credit card program.
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. No assurance may be
given, however, that the anticipated asset growth or branch expansions will
occur.
Noninterest expense was $1,271,000 for the second three months of 1997, an
increase of $67,000 or 5.6% compared with noninterest expense of $1,204,000 for
the second three months of 1996. This increase resulted principally from
depreciation expenses associated with the Bank's new computer
telecommunications systems and remote ATM, as well as data processing costs in
support of the credit card program.
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 Bank's new computer and
telecommunications systems and remote ATM, as well as data processing costs in
support of the credit card program.
INCOME TAX EXPENSE
Income tax expense decreased approximately $4,000 to $74,000 for the
second three months of 1997 as compared to $78,000 for the same period of 1996.
The effective tax rate did not change significantly for the first six month
period of 1997 compared to the first six month period of 1996.
Income tax expense decreased approximately $2,000 to $180,000 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 month period
of 1997 compared to the first six month period of 1996.
<PAGE> 12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The Company maintains an allowance
for loan losses based upon, among other things, such factors as historical
experience, the volume and type of lending conducted by the Company, the amount
of nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in the Company's portfolios. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current
status of loans which are contractually past due and 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. As of June 30, 1997, the allowance
for loan losses amounted to $710,000 (or .95% of total loans). The allowance
for loan losses as a percentage of nonperforming loans was 423% at June 30,
1997, compared to 257% at December 31, 1996.
The provision for loan losses during the second quarter of 1997 was
$51,000, representing an increase of $72,000 compared to the second quarter of
1996, in which a reduction of the 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.
Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management, based
on the factors identified above.
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 1996, the Company recovered money on previously charged off
loans, so no provision expense was required. During the first six months of
1997, the Company recovered $63,000, which was added to the allowance.
Set forth below is an analysis of the allowance for loan losses as of June
30, 1997:
LOANS AND ASSET QUALITY
The loan portfolio is the largest category of the Company's earning
assets. Net loans increased 5.4% from $69.9 million as of December 31, 1996,
to $73.6 million as of June 30, 1997. This increase is primarily attributable
to a $2.3 million increase in commercial loans and a $1.9 million increase in
consumer installment and credit card loans.
NONPERFORMING ASSETS
Non-performing assets declined 41% from $322,000 as of December 31, 1996,
to $168,000 as of June 30, 1997. This was the result of a reduction in
non-accrual loans during the period.
11-
<PAGE> 13
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Average loans outstanding 71,387 70,792
========== ==========
Loans outstanding at period-end 74,346 71,455
========== ==========
Total nonperforming loans 168 934
========== ==========
Beginning balance of allowance 826 740
Loans charged-off:
Commercial loans 97 --
Installment and Credit card loans 154 16
---------- ----------
Total loans charged off 251 16
---------- ----------
Recoveries of previous charge-offs:
1-4 family residential mortgage -- 37
Commercial loans 62 69
Installment and Credit card loans 1 --
---------- ----------
Total recoveries 63 106
---------- ----------
Net loans charged-off 188 (90)
---------- ----------
Provision for loan losses 72 0
---------- ----------
Balance at end of period 710 830
========== ==========
Net charge-offs to average loans 0.53% -0.25%
========== ==========
Allowance as % of total loans 0.95% 1.16%
========== ==========
Nonperforming as % of total loans 0.23% 1.31%
========== ==========
Allowance as % of nonperforming 423% 89%
========== ==========
</TABLE>
12-
<PAGE> 14
INVESTMENT ACTIVITIES
The Company generally classified 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 managment 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.
DEPOSIT ACTIVITIES
The Company's average balance of total deposits was $87,074,000 for the
first 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. 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.
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 bulk of the Company's certificates of deposit consist of local, in market
deposits. As of June 30, 1997, brokered deposits represented $993,000, or less
that one percent, of the Company's total liabilities.
LIQUIDITY
The Company's Asset/Liability Management Policy is intended to maintain
adequate liquidity for the Bank and thereby enhance its ability to raise funds
to support asset growth, meet deposit withdrawals and lending needs, maintain
reserve requirements and otherwise sustain operations. The Company accomplishes
this primarily through management of the maturities of its interest-earning
assets and interest-bearing liabilities. The Company believes that the Bank's
present liquidity position is adequate to meet its current and future needs.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
The asset liquidity of the Bank is maintained in 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, the Bank had cash and
cash equivalents of $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.
Net cash provided by (used in) investing activities was $(18.9 million)
and $1.0 million for the six months ended June 30, 1997 and 1996, respectively.
Net cash provided by financing activities was $3.3 million and $5.6
million for the six months ended June 30, 1997 and 1996, respectively.
14-
<PAGE> 15
Net cash provided by (used in) financing activities was $3.3 million and
($5.6) million for the six months ended June 30, 1997 and 1996, respectively.
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 $38,000 net proceeds from issuances of Common Stock pursuant to the
exercise of outstanding stock options and warrants.
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 risk-based capital standards
that apply to national banks. The Bank's risk-based capital ratios remain
above the levels designated as "Well Capitalized" on June 30, 1997, with
Tier-1 Capital, Total Risk-Based Capital and Leverage Capital Ratios of 9.22%,
10.17% and 6.59%, respectively, compared to 9.15%, 10.29% and 6.44%,
respectively at December 31, 1996.
PENDING DEPOSIT TRANSACTION
On July 24, 1997 the Bank entered into a Purchase and Assumption Agreement
with Eastern American Bank, FSB providing for the assumption by the Bank of the
deposit and certain other liabilities of the branch of Eastern American
located at 6832 Old Dominion Drive, McLean, Virginia. The Bank also will
acquire the leasehold improvements located at the site, 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 deposit and other liabilities,
Eastern American will make a cash payment 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 balance of the designated mortgage loans and certain overdraft
protection loans, (v) certain proration items, and (vi) an amount equal to
5.6% of the balance of the deposits. If the transactions contemplated by the
EAB Agreement had been completed on July 23, 1997, it is estimated that
approximately $34 million in deposit liabilities would have been assumed by the
Bank and the amount of the cash payment by Eastern American 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 form 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 it will raise sufficient additional capital to enhance and
support the equity capital of the Bank in order to satisfy certain of the
conditions set forth above.
15-
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) On June 6, 1997 the Registrant held its annual meeting
of stockholders to (i) elect a board of eight directors to serve
until the 1998 annual meeting of stockholders, (ii) consider and act
upon a proposed amendment to the Registrant's certificate of
incorporation, as amended, to increase the number of authorized
shares of common stock from two million to five million shares, and
(iii) transact such other business as may properly come before the
meeting.
(b), (c) With respect to the election of directors, the
voting was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
---------------------------------------------------------
<S> <C> <C>
Joseph S. Bracewell 814,505 23,326
George Contis, M.D. 813,970 23,861
John R. Cope 814,505 23,326
Bernard J. Cravath 814,505 23,326
Neal R. Gross 814,505 23,326
Joseph H. Koonz 813,970 23,861
William S. McKee 814,505 23,326
William C. Oldaker 814,505 23,326
</TABLE>
With respect to the proposed amendment to the Registrant's
certificate of incorporation, as amended, to increase the number of
authorized shares of common stock from two million to five million
shares, the vote was as follows:
16-
<PAGE> 17
<TABLE>
Broker
For Against Abstain Nonvote
----------------------------------------------------------
<S> <C> <C> <C>
826,156 11,552 123 --
</TABLE>
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this report:
Exhibit
Number Description of Exhibit
- ------------------------------------------
11 - Computation of Per Share Earnings
27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during
the three months ended June 30, 1997.
17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY BANCSHARES, INC.
Date: August __, 1997 By:
Joseph S. Bracewell
President and Chief Executive
Officer (for the registrant and as its
principal financial officer)
18-
<PAGE> 1
EXHIBIT 11
CENTURY BANCSHARES, INC.
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Months Ended
June 31,
1997 1996
------------- ----------------
<S> <C> <C>
PRIMARY:
Weighted average common shares outstanding 1,212,288 1,234,578
Dilutive effect of stock options 79,129 60,016
Dilutive effect of stock warrants 49,739 --
------------- ----------------
Weighted average common share and common
stock equivalents outstanding 1,341,156 1,294,594
============= ================
Net income applicable to common stock $288,120 293,148
============= ================
Primary earnings per share 0.21 .23
============= ================
FULLY DILUTED:
Weighted average common shares outstanding 1,212,288 1,234,578
Dilutive effect of stock options 84,961 64,440
Dilutive effect of stock warrants 61,673 --
------------- ----------------
Fully diluted weighted average common share and common
stock equivalents outstanding 1,358,922 1,299,018
============= ================
Net income applicable to common stock $288,120 $293,148
============= ================
Fully diluted earnings per share 0.21 .23
============= ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,841,217
<INT-BEARING-DEPOSITS> 11,213,428
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,834,041
<INVESTMENTS-CARRYING> 9,991,911
<INVESTMENTS-MARKET> 9,998,375
<LOANS> 74,346,296
<ALLOWANCE> 709,595
<TOTAL-ASSETS> 110,901,743
<DEPOSITS> 94,707,449
<SHORT-TERM> 1,622,460
<LIABILITIES-OTHER> 1,094,330
<LONG-TERM> 6,400,000
0
0
<COMMON> 1,217,429
<OTHER-SE> 5,860,075
<TOTAL-LIABILITIES-AND-EQUITY> 110,901,743
<INTEREST-LOAN> 3,456,912
<INTEREST-INVEST> 274,928
<INTEREST-OTHER> 398,713
<INTEREST-TOTAL> 4,130,553
<INTEREST-DEPOSIT> 1,378,969
<INTEREST-EXPENSE> 261,958
<INTEREST-INCOME-NET> 2,489,626
<LOAN-LOSSES> 72,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,462,607
<INCOME-PRETAX> 468,504
<INCOME-PRE-EXTRAORDINARY> 468,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,120
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 0
<LOANS-NON> 168,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 109,332
<LOANS-PROBLEM> 2,791,226
<ALLOWANCE-OPEN> 826,000
<CHARGE-OFFS> 251,000
<RECOVERIES> 63,000
<ALLOWANCE-CLOSE> 710,000
<ALLOWANCE-DOMESTIC> 710,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 710,000
</TABLE>
