<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 SEPTEMBER 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)
DELAWARE 52-1489098
(State or other jurisdiction of (I.R.S. Employer
incorporation or identification No.)
organization)
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 November 14, 1997, there were 2,207,991 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 SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 10
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities and Use of Proceeds. . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . 19
Item 4. Submissions of Matters to a Vote of Security Holders 19
Item 5. Other Information . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8K . . . . . . . . 19
</TABLE>
(a) The following exhibits are filed with this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) No Reports on Forms 8-K were filed by the Company during the three
months ended September 30, 1997.
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
<PAGE> 4
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 (UNAUDITED) AND
DECEMBER 31, 1996 (AUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks 5,458,178 8,363,911
Federal funds sold 7,575,000 11,436,000
Interest bearing deposits in other banks 7,568,936 6,823,077
Investment securities available-for-sale, at fair value 9,722,577 6,414,011
Investment securities hold to maturity, at cost, fair value of
$4,309,472 at September 30, 1997 and $959,389 at
December 31, 1996 4,310,129 958,245
Loans net of unearned income 79,449,927 70,676,356
Less - allowance for loan losses (750,105) (825,876)
------------ ------------
Loans, net 78,699,822 69,850,480
============ ============
Leasehold improvements, furniture, and equipment, net 1,521,051 1,558,247
Accrued interest receivable 630,730 509,567
Other real estate owned 52,000 -
Deposit premium 247,608 275,072
Prepaid expenses 208,099 157,228
Other assets 950,338 840,171
------------ ------------
Total assets 116,944,468 107,186,009
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing 20,049,071 24,064,454
Interest bearing 73,785,213 66,920,756
------------ ------------
Total deposits 93,834,284 90,985,210
============ ============
Other borrowings 8,269,794 8,465,877
Other liabilities 1,307,782 984,881
------------ ------------
Total liabilities 103,411,860 100,435,968
============ ============
Shareholders' equity:
Common stock, $1 par value: 5,000,000 shares authorized;
2,194,929 and 1,146,028 shares issued and outstanding
at September 30, 1997 and December 31, 1996 respectively 2,194,929 1,146,028
Additional paid in capital 10,652,929 4,870,856
Retained earnings 712,835 779,057
Unrealized loss on securities available-for-sale, net of
tax effect (28,085) (45,900)
------------ ------------
Total shareholders' equity 13,532,608 6,750,041
============ ============
------------ ------------
Total liabilities and shareholders' equity 116,944,468 107,186,009
============ ============
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
4
<PAGE> 5
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans 1,949,522 1,745,559 5,406,434 5,130,672
Interest on federal funds sold 90,162 0 173,650 13,057
Interest on deposits in other banks 118,480 40,857 433,705 85,084
Interest on investment securities 176,488 110,951 451,416 427,809
---------- ---------- ---------- ----------
Total interest income 2,334,652 1,897,367 6,465,205 5,656,622
========== ========== ========== ==========
INTEREST EXPENSE:
Interest on deposits:
Certificates $100,000 and over 203,056 191,826 556,192 547,207
Certificates under $100,000 328,195 155,966 806,397 476,206
NOW accounts 70,192 58,750 204,781 186,857
Savings accounts 13,926 13,357 42,322 42,942
Money market accounts 192,894 204,319 577,540 569,665
Interest on other borrowings 125,822 59,398 387,780 192,129
---------- ---------- ---------- ----------
Total interest expense 934,085 683,616 2,575,012 2,015,006
========== ========== ========== ==========
Net interest income 1,400,567 1,213,751 3,890,193 3,641,616
Provision for loan loss 43,800 63,000 116,200 63,000
---------- ---------- ---------- ----------
Net interest income after provision 1,356,767 1,150,751 3,773,993 3,578,616
========== ========== ========== ==========
NONINTEREST INCOME:
Service charges on deposit accounts 104,636 87,269 345,456 300,426
Other operating income 121,725 95,215 394,790 235,877
---------- ---------- ---------- ----------
Total noninterest income 226,361 182,484 740,246 536,303
========== ========== ========== ==========
NONINTEREST EXPENSES:
Salaries and employee benefits 579,030 475,125 1,595,259 1,425,939
Occupancy and equipment expense 164,373 53,792 459,331 295,875
Depreciation and amortization 132,078 143,252 386,578 331,919
Professional fees 183,064 86,499 427,053 377,812
Data processing 125,302 121,018 378,421 338,481
FDIC premiums 1,530 445 6,283 27,484
Communications 49,881 62,848 149,032 156,840
Other real estate owned - 19,289 - 19,289
Other operating expenses 160,621 239,624 456,529 534,818
---------- ---------- ---------- ----------
Total noninterest expenses 1,395,879 1,201,892 3,858,486 3,508,457
========== ========== ========== ==========
Income before income tax expense 187,249 131,343 655,753 606,462
Income tax expense 78,022 51,955 258,406 233,926
---------- ---------- ---------- ----------
Net income 109,227 79,388 397,347 372,536
========== ========== ========== ==========
Primary earnings per share $ 0.08 $ 0.06 $ 0.30 $ 0.30
========== ========== ========== ==========
Primary weighted average shares
outstanding including common stock
equivalents 1,378,023 1,234,976 1,341,772 1,233,585
========== ========== ========== ==========
Fully diluted earnings per share $ 0.08 $ 0.06 $ 0.29 $ 0.30
========== ========== ========== ==========
Fully diluted weighted average shares
outstanding including common stock
equivalents 1,429,991 1,235,258 1,391,360 1,233,867
========== ========== ========== ==========
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
5
<PAGE> 6
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 397,347 372,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 386,578 331,919
Provision for loan losses 116,200 63,000
Provision for losses on other real estate owned - 10,000
(Increase) decrease in accrued interest receivable (121,163) 22,269
(Increase) in other assets and prepaid expenses (161,038) (408,230)
Increase in other liabilities 322,901 166,307
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 940,825 557,801
----------- -----------
CASHFLOWS FROM INVESTING ACTIVITIES:
Loan repayments (originations) and recoveries, net (9,017,542) (3,024,082)
(Increase) in interest bearing deposits in other banks (745,859) (3,200,296)
Purchases of securities available for sale (4,040,018) -
Purchases of securities held to maturity (10,570,606) -
Payments and maturities of securities available for sale 749,302 6,454,766
Payments and maturities of securities held to maturity 7,218,722 -
Purchase of leasehold improvements, furniture and equipment (321,918) (587,389)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (16,727,919) (357,001)
----------- -----------
CASHFLOWS FROM FINANCING ACTIVITIES:
Net increase in certificates of deposit 10,323,464 2,503,591
Net (decrease) in demand, savings and money markets (7,474,390) (9,255,894)
Proceeds from issuance of common stock 6,367,370 29,570
Net (decrease) in short-term borrowings (121,083) (3,214,572)
Net increase (decrease) in long-term borrowings (75,000) 2,800,000
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,020,361 (7,137,305)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (6,766,733) (6,936,505)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 19,799,911 10,025,561
----------- -----------
CASH AND EQUIVALENTS, SEPTEMBER 30TH 13,033,178 3,089,056
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID ON DEPOSITS AND BORROWINGS 2,500,647 2,011,141
INCOME TAXES PAID 128,769 634,988
TRANSFERS OF LOANS TO OTHER REAL ESTATE 52,000 -
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
6
<PAGE> 7
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
The unaudited consolidated financial statements as of and for the three and
nine months ended September 30, 1997 and September 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 nine
months ended September 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. Certain prior period balances have been restated to conform
with the current period.
(1) INVESTMENT SECURITIES
7
<PAGE> 8
Investment securities available-for-sale, and their contractual
maturities, at September 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 2,338,320 5,078 68 2,343,330
After one, but within five years 5,288,451 18,381 5,048 5,301,784
After ten years 800,723 1,360 15,508 786,575
--------- --------- --------- ---------
Total 8,427,494 24,819 20,624 8,431,689
Collateralized mortgage obligations:
After ten years 1,338,291 - 47,403 1,290,888
--------- --------- --------- ---------
Total investment securities
available-for-sale 9,765,785 24,819 68,027 9,722,577
========= ========= ========= =========
</TABLE>
Investment securities held-to-maturity at September 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:
After one, but within five years 1,359,182 6,914 - 1,366,096
After five, but within ten years 999,698 948 998,750
After ten years 845,135 6,792 838,343
--------- --------- --------- ---------
Total 3,204,015 6,914 7,740 3,203,189
Municipal securities:
Within one year 100,000 - - 100,000
After one, but within five years 64,964 169 65,133
--------- --------- --------- ---------
Total 164,964 169 - 165,133
Federal Reserve Bank stock 119,350 - - 119,350
Federal Home Loan Bank stock 821,800 - - 821,800
--------- --------- --------- ---------
Total investment securities
held-to-maturity 4,310,129 7,083 7,740 4,309,472
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
(2) STOCK OPTION PLANS
Stock option transactions for the nine months ended September 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 35,684 5.71
FORFEITED (3,744) 5.69 (10,731) 2.12
EXERCISED (12,969) 2.50 (8,199) 3.61
-------- --------
OUTSTANDING, SEPTEMBER 30 182,732 176,617 3.69
-------- --------
EXERCISABLE, SEPTEMBER 30 149,363 4.21 155,770 3.50
======== ========
</TABLE>
(3) SUBSEQUENT EVENT
On October 10, 1997 the Company completed the previously announced purchase
and assumption of the deposits and certain other liabilities of the branch of
Eastern American Bank, FSB ("Eastern American") located at 6832 Old Dominion
Drive, McLean Virginia (the "McLean Branch"). As part of the transaction, the
Company's wholly-owned subsidiary, Century National Bank (the "Bank") assumed
approximately $27.8 million in deposits at the McLean Branch, and also assumed
the obligations under the related lease and acquired approximately $9.0 million
in mortgage loans from Eastern American's portfolio.
The assumption of the deposits and other liabilities by the Bank was made
pursuant to a Purchase and Asumption Agreement between the Bank and Eastern
American dated July 24, 1997, as amended August 15, 1997 and October 10, 1997.
In consideration of the assumption of the deposits and liabilities, Eastern
American made a cash transfer to the Bank on the closing date of approximately
$17.4 million, representing the total amount of the liabilities assumed, less
the sum on the closing date of (i) the value of the 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) a deposit premium of approximately $1.5 million,
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.
9
<PAGE> 10
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 as discussed under the caption "Risk Factors" in the Company's Registration
Statement (Registration No. 333-34057), and in 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 September 30, 1997, the Company's net income was
$109,000 ($.08 per common share) up $30,000 or 38% ($.02 per common share) from
the $79,000 ($.06 per common share) earned during the same period in 1996.
This increase resulted from increases of $187,000 in net interest income and
$44,000 in non-interest income, a decrease of $19,000 in the provision for loan
losses partially offset by increases of $194,000 in non-interest expenses and
$26,000 in tax expense.
Net income was $397,000 ($.30 per common share) for the first nine months of
1997, compared with net income of $373,000 ($.30 per common share) for the
first nine months of 1996, an increase of $24,000 or 6.4% (unchanged on a per
common share basis). The increase in net income for the first nine months of
1997 compared with the same period in 1996 resulted from increases in net
interest income and non-interest income of $248,000 and $204,000 respectively,
partially offset by increases in the provision for loan loss, non-interest
expenses and tax expense of $53,000, $350,000 and $25,000 respectively.
NET INTEREST INCOME
Net interest income was $1,401,000 for the three months ended September 30,
1997, compared with net interest income of $1,214,000 for the three months
ended September 30, 1996, an increase of $187,000 or 15.4%. The increase
resulted from an increase in average earning assets of $18 million, or 21.7%,
from $83 million to $101 million, partially offset by a decline in the net
interest margin of 32 basis points, from 5.85% to 5.53%.
Net interest income was $3,890,000 for the nine months ended September 30,
1997, compared with net interest income of $3,642,000 for the nine months ended
September 30, 1996, an increase of $248,000 or 6.8%. This increase resulted
from a $13 million increase in total interest earning assets which was partially
offset by a decline in the net interest margin from 5.79% in 1996 to 5.36% in
1997.
10
<PAGE> 11
Both of these declines in the net interest margin 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 September 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 nine months ended
September 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.
11
<PAGE> 12
AVERAGE BALANCES AND INTEREST RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 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) 72,142 5,406 10.02% 70,454 5,131 9.70%
Investment securities, taxable(2) 9,216 415 6.02% 11,038 420 5.09%
Investment securities, nontaxable(2)(3) 165 6 4.86% 250 8 4.28%
Federal Funds sold 4,111 174 5.66% 217 13 8.01%
Interest-earning deposits with banks(3) 11,351 464 5.47% 2,070 85 5.49%
-------- ------- --------- ----------
Total interest earning assets(3) 96,985 6,465 8.91% 84,029 5,657 9.00%
NONINTEREST-EARNING ASSETS:
Cash and due from banks 5,081 4,039
Other assets 3,490 3,815
-------- ---------
Total noninterest-earning assets 8,571 7,854
-------- ---------
Total assets 105,556 91,883
======== =========
INTEREST BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW) deposits 13,757 205 1.99% 12,632 187 1.97%
Savings deposits 2,270 42 2.47% 2,244 43 2.55%
Money market deposits 21,240 578 3.64% 22,920 570 3.31%
Time deposits 32,926 1,362 5.53% 24,849 1,023 5.48%
Borrowings 7,738 388 6.70% 4,176 192 6.12%
-------- ---------
Total interest-bearing liabilities 77,931 2,575 4.42% 66,821 2,015 4.02%
NONINTEREST-BEARING LIABILITIES:
Non-interest bearing deposits 19,368 17,342
Other liabilities 1,083 980
-------- ---------
Total noninterest-bearing liabilities 20,451 18,322
-------- ---------
Stockholders' equity 7,174 6,740
-------- ---------
Total liabilities and stockholders' equity 105,556 91,883
======== =========
Net interest income 3,890 3,642
======= ========
Net interest margin(3) 5.36% 5.79%
</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, nontaxable 7.37% 6.48%
Total interest-earning assets 8.92% 9.01%
Net interest margin 5.37% 5.80%
</TABLE>
12
<PAGE> 13
NONINTEREST INCOME
The Company's primary source of noninterest income is other operating income,
primarily fees from Mastercard/Visa transactions. The remaining noninterest
income is derived from service charges on deposit accounts, and wire transfer,
collection, official check, and mortgage loan referral fees, as well as safe
deposit box rentals. Also included in this category are certain other items of
income, which are not elsewhere classified.
Noninterest income for the third quarter of 1997 was $226,000, an increase of
$44,000 or 24.2% compared with noninterest income of $182,000 for the same
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 nine months of 1997 was $740,000, an
increase of $204,000 or 38% compared with noninterest income of $536,000 for
the first nine 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. Additional staff were
added for the two branches opened during 1997. 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 continue.
Noninterest expense was $1,396,000 for the three months ended September 30,
1997, an increase of $194,000 or 16.1% compared with noninterest expense of
$1,202,000 for the three months ended September 30, 1996. This increase
resulted principally from costs of rent and staff associated with the Tysons
Corner branch, which opened for business in April of 1997, as well as higher
professional fees associated with the company's reporting requirements to the
Securities and Exchange Commission.
Noninterest expense was $3,858,000 for the first nine months of 1997, an
increase of $350,000 or 10% compared with noninterest expense of $3,508,000 for
the first nine months of 1996. This increase resulted principally from
depreciation expenses associated with computer and telecommunications systems,
as well as overhead costs associated with the Tysons Corner branch.
13
<PAGE> 14
INCOME TAX EXPENSE
Income tax expense increased approximately $26,000 to $78,000 for the third
quarter of 1997 as compared to $52,000 for the same period of 1996. The
effective tax rate did not change significantly for the third quarter of 1997
compared to the third quarter of 1996.
Income tax expense increased approximately $25,000 to $258,000 for the first
nine months of 1997 as compared to $234,000 for the same period of 1996. The
effective rate did not change significantly for the first nine months of 1997
compared to the first nine months of 1996.
LOANS, ASSET QUALITY, PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio is the largest category of the Company's earning assets.
Net loans increased 13.7% from $69.9 million as of December 31, 1996, to $79.5
million as of September 30, 1997. This increase is primarily attributable to a
$6.9 million increase in commercial loans and $1.5 million increase in
consumer installment loans.
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 actual economic conditions and other
assumptions differ from those used in making the initial determinations. As of
September 30, 1997, the allowance for loan losses amounted to $750,000 (or .94%
of total loans). The allowance for loan losses as a percentage of nonperforming
loans was 431% at September 30, 1997, compared to 257% at December 31, 1996.
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 third
quarter of 1997 was $44,000, representing a decrease of $19,000 compared to the
third quarter of 1996.
The provision for loan losses during the first nine months of 1997 was
$116,000, compared to $63,000 during the first nine months of 1996. The
increase reflects a higher level of losses in the Company's consumer loan and
credit card loan portfolios, consistent with national trends, and the absence
of a provision during the first six months of 1996.
14
<PAGE> 15
Set forth below is an analysis of the allowance for loan losses for the nine
months ended September 30, 1997 and 1996:
NON-PERFORMING ASSETS
Non-performing assets decreased 46% from $322,000 as of December 31, 1996, to
$174,000 as of September 30, 1997. The decrease is primarily the result of a
$150,000 reduction in non-accrual loans.
15
<PAGE> 16
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
------ ------
<S> <C> <C>
Average loans outstanding 72,928 71,243
====== ======
Loans outstanding at period-end 79,541 72,265
====== ======
Total Nonperforming loans 174 997
====== ======
Beginning balance of allowance 826 740
Loans charged-off:
1-4 family residential mortgage 0 -
Home equity loans 100 -
Multifamily residential 29 -
Commercial loans 24 122
Installment and Credit card loans 189 99
------ ------
Total loans charged off 342 221
Recoveries of previous charge-offs:
1-4 family residential mortgage - 37
Commercial loans 133 108
Installment and Credit card loans 17 11
------ ------
Total recoveries 150 156
------ ------
Net loans charged-off 192 65
Provision for loan losses 116 63
------ ------
Balance at end of period 750 738
====== ======
Net charge-offs to average loans, annualized 0.35% 0.12%
Allowance as % of total loans 0.94% 1.02%
Nonperforming as % of total loans 0.22% 1.63%
Allowance as % of Nonperforming 431.03% 63.00%
</TABLE>
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 management purposes.
Beginning in 1997, the Company has elected to invest in a variety of U.S.
Treasury, government agencies and corporate and 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." The
increase in the Company's portfolio of securities "held-to-maturity" from
$958,000 as of December 31, 1996, to $4,310,000 as of September 30, 1997 is a
reflection of this election.
16
<PAGE> 17
The Company's investment portfolio of $14,033,000 as of September 30, 1997,
consisted primarily of U.S. Treasury and government agency obligations and
mortgage-backed securities. This represented an increase of $6,660,000 or
90.4% compared to the investment portfolio as of December 31, 1996, resulting
from an increase in deposits during the first nine months of 1997.
DEPOSIT ACTIVITIES
The Company's average balance of total deposits was $89,561,000 for the nine
months ended September 30, 1997, an increase of $9,574,000 or 12% compared
with the average balance of total deposits of $79,987,000 for the nine months
ended September 30, 1996. Deposits are attracted through the offering of a
broad variety of deposit instruments. 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.
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 September 30, 1997, the Bank had cash and
cash equivalents of $13,033,000, a decrease of $6,767,000 compared to December
31, 1996, which was primarily attributable to the purchase of investment
securities.
As of September 30, 1997, $17,588,000 or 60.3% 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. Another $6,726,000 (23.1% of total portfolio) in U.S. Government,
agency and municipal securities will mature within five years. Maturing in
over five years is $3,922,000 (13.5% of total portfolio) in U.S. government,
agency and collateralized mortgage obligations. The Bank's required stock
investment in the FHLBA and the Federal Reserve Bank of Richmond totals
$941,000.
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
September 30, 1997, the Bank had no federal
17
<PAGE> 18
funds purchased or repurchase agreements, and was utilizing $7,675,000 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
$941,000 and $558,000 for the nine months ended September 30, 1997 and 1996,
respectively. The increase is primarily due to the changes in other liabilities
and other assets and prepaid expenses.
Net cash used in investing activities was $16.7 million and $357,000 for the
nine months ended September 30, 1997 and 1996, respectively. The increase can
be primarily attributable to increases in net loan originations and the
purchases in excess of paydowns and maturities of investments.
Net cash provided by (used in) financing activities was $9.0 million and
($7.1) million for the nine months ended September 30, 1997 and 1996,
respectively. The increase is primarily due to the increase in certificates
of deposit and the proceeds from the issuance of common stock.
CAPITAL RESOURCES
Total stockholders' equity as of September 30, 1997 was $13,533,000, an
increase of $6,783,000 or approximately 101% compared with stockholders' equity
of $6,750,000 as of December 31, 1996. This increase was attributable to the
proceeds from the Company's issuance of 977,000 shares of common stock in a
public offering completed on September 26, 1997, from which the company
received net proceeds of approximately $6,330,000 and net income for
the nine months ended September 30, 1997 of $397,000
As of September 30, 1997, there were 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 September 30, 1997, with Tier-1 Capital, Total Risk-Based
Capital and Leverage Capital Ratios of 11.73%, 12.61% and 9.14%, respectively,
compared to 9.15%, 10.29% and 6.44%, respectively at December 31, 1996.
DEPOSIT TRANSACTION
On October 10, 1997 the Company completed the previously announced purchase
and assumption of the deposits and certain other liabilities of the branch of
Eastern American Bank, FSB ("Eastern American") located at 6832 Old Dominion
Drive, McLean Virginia (the "McLean Branch"). As part of the transaction, the
Companys wholly-owned subsidiary, Century National Bank (the "Bank") assumed
approximately $27.8 million in deposits at the McLean Branch, and also assumed
the obligations under the related lease and acquired approximately $9.0 million
in mortgage loans from Eastern Americans portfolio.
The assumption of the deposits and other liabilities by the Bank was made
pursuant to a Purchase and Asumption Agreement between the Bank and Eastern
American dated July 24, 1997, as amended August 15, 1997 and October 10, 1997.
In consideration of the assumption of the deposits and liabilities, Eastern
American made a cash transfer to the Bank on the closing date of approximately
$17.4 million, representing the total amount of the liabilities assumed, less
the sum on the closing date of (i) the value of the 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) a deposit premium of approximately $1.5 million,
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.
18
<PAGE> 19
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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 September 30, 1997.
19
<PAGE> 20
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: November 14, 1997 By:
Joseph S. Bracewell
President and Chief Executive Officer
(for the registrant and as its
principal financial officer)
20
<PAGE> 1
EXHIBIT 11
CENTURY BANCSHARES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
PRIMARY:
Weighted average common shares outstanding 1,231,923 1,180,114
Dilutive effect of stock options 58,862 53,471
Dilutive effect of stock warrants 50,988 -
---------- ----------
Primary weighted average common share and common
stock equivalents outstanding 1,341,772 1,233,585
========== ==========
Net income applicable to common stock $ 397,347 372,536
========== ==========
Primary earnings per share 0.30 0.30
========== ==========
FULLY DILUTED:
Weighted average common shares outstanding 1,231,923 1,180,114
Dilutive effect of stock options 78,071 53,753
Dilutive effect of stock warrants 81,366 -
---------- ----------
Fully diluted weighted average common share and common
stock equivalents outstanding 1,391,360 1,233,867
========== ==========
Net income applicable to common stock $ 397,347 $ 372,536
========== ==========
Fully diluted earnings per share 0.29 0.30
========== ==========
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,458,178
<INT-BEARING-DEPOSITS> 7,568,936
<FED-FUNDS-SOLD> 7,575,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,722,577
<INVESTMENTS-CARRYING> 4,310,129
<INVESTMENTS-MARKET> 4,309,472
<LOANS> 79,449,927
<ALLOWANCE> 750,105
<TOTAL-ASSETS> 116,944,468
<DEPOSITS> 91,763,275
<SHORT-TERM> 1,307,782
<LIABILITIES-OTHER> 1,307,782
<LONG-TERM> 8,269,794
0
0
<COMMON> 2,194,929
<OTHER-SE> 11,337,679
<TOTAL-LIABILITIES-AND-EQUITY> 108,036,686
<INTEREST-LOAN> 5,406,434
<INTEREST-INVEST> 451,416
<INTEREST-OTHER> 607,355
<INTEREST-TOTAL> 6,465,205
<INTEREST-DEPOSIT> 2,187,232
<INTEREST-EXPENSE> 387,780
<INTEREST-INCOME-NET> 3,890,193
<LOAN-LOSSES> 116,200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,858,486
<INCOME-PRETAX> 655,753
<INCOME-PRE-EXTRAORDINARY> 655,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,347
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 8.91
<LOANS-NON> 122,359
<LOANS-PAST> 9,509
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,512,731
<ALLOWANCE-OPEN> 826,000
<CHARGE-OFFS> 342,000
<RECOVERIES> 150,000
<ALLOWANCE-CLOSE> 750,000
<ALLOWANCE-DOMESTIC> 750,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 750,000
</TABLE>
