UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1489098
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004
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(Address of principal executive offices) (Zip Code)
(202) 496-4100
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(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant To Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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None None
Securities Registered Pursuant To Section 12(g) of the Act:
Title of Each Class
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
As of March 24, 1998, the number of shares of common stock outstanding
was 2,223,716. As of such date, the aggregate market value of voting stock held
by nonaffiliates, based upon recent "bid" and "ask" prices for the Company's
Common Stock was approximately $18,593,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual proxy statement to be
filed within 120 days of the Registrant's fiscal year ended December 31, 1997
are incorporated by reference into Part III.
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CENTURY BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 54
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 54
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Century Bancshares, Inc., a Delaware corporation ("Company"), and a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended ("BHCA"), was incorporated and organized in 1985. The Company began
active operations in 1986 with the acquisition of its subsidiary, Century
National Bank ("Bank"), a full service bank which opened for business in 1982.
The Bank 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., Washington, D.C., a branch office located at 1275 Pennsylvania
Avenue, N.W., and two offices in Northern Virginia at 8251 Greensboro Drive and
6832 Old Dominion Drive, McLean, Virginia. Lending services are concentrated in
professional, service, and commercial business sectors located in the
metropolitan Washington, D.C. area. Effective January 5, 1998, the Company
established a full service branch at 4625 Wisconsin Avenue, Bethesda, Maryland.
The Company's principal executive offices are located at 1275 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, and its phone number at that address is
(202) 496-4100.
The Company derives substantially all of its revenues and income from
the operation of the Bank, which provides a full range of commercial and
consumer banking services to small and middle market businesses and individuals
in the Washington, D.C. metropolitan area. As of December 31, 1997, the Company
had total assets of $152.6 million, total loans of $94.2 million, total deposits
of $129.6 million, and total stockholders' equity of $13.5 million. At December
31, 1997, the Company had approximately 272 holders of record of the Company's
common stock, par value $1.00 per share ("Common Stock").
COMPANY OPERATIONS
GENERAL. The Company holds deposits for individuals, businesses, and
other organizations, and provides certain services related thereto for the
convenience of its depositors. In most cases, the Company pays interest on funds
which it holds on deposit for customers, and it also charges fees for certain
services that it provides. The interest expense paid on deposits, and the
noninterest income earned from service charges, are primarily related to the
volume of deposits handled by the Company. The Company's primary source of
revenue is the interest income and fees which it 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 and fee income which can be generated thereon.
The operating income and net income of the Company will depend to a
great extent on "rate differentials," the difference between the income received
from loans, investments and other assets and the interest paid on deposits and
other liabilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These rates are highly sensitive to many
factors which are beyond the control of the Company, including general economic
conditions such as inflation, recession and unemployment, the supply and demand
for investable funds, interest rates and international economic conditions, as
well as economic conditions affecting the Washington, D.C. metropolitan area.
Consequently, the Company's success is dependent to a significant extent upon
general economic conditions in the metropolitan Washington, D.C. area, which is
dependent, among other things, on its ability to attract new business to the
area, spending on government agencies and tourism. An economic downturn in the
geographic markets served by the Company could adversely affect its ability to
attract and retain deposits and to collect loans, the value of any collateral
securing such loans, and the financial condition and results of operations of
the Company.
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MEASURES OF PERFORMANCE. The principal measures of the performance of
banking institutions are return on average equity and return on average assets.
Return on average equity ("ROE") is determined by dividing annual net income by
average stockholders' equity and indicates the effectiveness of an institution
in generating net income from the capital invested by its stockholders. For the
year ended December 31, 1997, the Company's ROE was 3.83%. Return on average
assets ("ROA") measures net income in relation to total average assets and
generally indicates an institution's ability to use its assets profitably. For
the year ended December 31, 1997, the Company's ROA was 0.29%.
GROWTH OF OPERATIONS. The Company's current strategic plan is directed
toward the enhancement of its franchise value and 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 Company plans to acquire or establish banking offices in
high-density commercial districts, and may in some cases open a temporary loan
production office ("LPO") prior to establishing a full service branch. The
Company acquired its first branch office in downtown Washington in 1994 and in
1996 established an LPO in Tysons Corner, Virginia, which was replaced by a full
service branch in April 1997. Also, in October 1997, the Company purchased a
full-service branch in McLean, Virginia, from Eastern American Bank, FSB
("Eastern American"). In June 1997, the Company established an LPO in Bethesda,
Maryland, which was replaced by a full service branch on January 5, 1998.
The establishment of full service branches in McLean, Virginia and
Bethesda, Maryland in April 1997 and January 1998, respectively, and the
establishment of a full service branch in McLean, Virginia by means of the
purchase and assumption of the deposits and certain other liabilities of the
branch of Eastern American in October 1997, has significantly affected the
Company's results of operations during 1996 and 1997. The effects of these
transactions should be considered when reviewing the financial information
contained in this report.
The Company has not sought out opportunities to be acquired by larger
financial institutions, primarily because of its view that the long-term value
of an independent banking franchise in the nation's capital will increase,
rather than diminish, as consolidation trends continue. The Company does
believe, however, that its franchise value and operating profitability would be
enhanced by a significant increase in its asset size. For this reason, the
Company in the past has explored, and expects to continue to explore in the
future, merger and acquisition opportunities which would accelerate the
Company's progress toward the achievement of its strategic plan, including
transactions in which the Company would be acquired. There can be no assurance
that any such merger and acquisition opportunities will be realized in the
future.
Additionally, there can be no assurance that the Company will be
successful in implementing any of the future plans described herein or that,
even if implemented, such actions will produce the desired financial results.
The foregoing strategy should be taken into account however when considering the
more specific discussion of the Company's financial performance set forth
herein.
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 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 believes that it 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.
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REGULATORY 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. With few
exceptions, state and federal banking laws have as their principal objective
either the maintenance of the safety and soundness of financial institutions and
the federal deposit insurance system or the protection of consumers or classes
of consumers, rather than the specific protection of stockholders of the
Company. The following discussion sets forth the material statutory and
regulatory provisions governing the Company and the Bank. To the extent such
discussion describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statute or regulation.
REGULATION OF THE COMPANY. The Company is a bank holding company within
the meaning of the BHCA, and therefore is subject to regulation, supervision and
examination by the Federal Reserve Board. As such, the Company is required to
file reports with and to furnish such other information as the Federal Reserve
Board may require pursuant to the BHCA. The Federal Reserve Board has the
authority to issue orders to bank holding companies to cease and desist from
unsound banking practices and violations of conditions imposed by, or violations
of agreements with, the Federal Reserve Board. The Federal Reserve Board is also
empowered to assess civil money penalties against companies or individuals who
violate the BHCA or orders or regulations thereunder, to order termination of
non-banking activities of non-banking subsidiaries of bank holding companies,
and to order termination of ownership and control of a non-banking subsidiary by
a bank holding company. Certain violations may also result in criminal
penalties. The Office of the Comptroller of the Currency ("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 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.
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As a bank holding company, the Company is required to obtain prior
approval to merge or consolidate with any other bank holding company, acquire
all or substantially all of the assets of any bank or acquire ownership or
control of shares of a bank or bank holding company if, after the acquisition,
the Company would directly or indirectly own or control 5% or more of the voting
shares of such bank or bank holding company.
The Company is also prohibited from acquiring a direct or indirect
interest in or control of more than 5% of the voting shares of any company that
is not a bank or bank holding company and from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiary banks, except that it may engage in and
may own shares of companies engaged in certain activities found by the Federal
Reserve Board to be so closely related to banking or managing and controlling
banks as to be a proper incident thereto. These activities include, among
others, operating a mortgage, finance, credit card, or factoring company;
performing certain data processing operations; providing investment and
financial advice; acting as an insurance agent for certain types of
credit-related insurance; leasing personal property on a full-payout,
non-operating basis; providing certain stock brokerage and investment advisory
services; derivatives trading and investment activities; and management
consulting activities. In approving acquisitions or the addition of activities,
the Federal Reserve Board considers whether the acquisition or the additional
activities can reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, that
outweigh such possible adverse effects as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. In considering any application for approval or an acquisition or
merger, the Federal Reserve Board is also required to consider the financial and
managerial resources of the companies and the banks concerned, as well as the
applicant's record of compliance with the Community Reinvestment Act (the
"CRA").
The BHCA generally imposes certain limitations on transactions by and
between banks and non-bank companies in the same holding company structure,
including limitations on extensions of credit (including guarantees of loans) by
the Bank to affiliates, investments in the stock or other securities of the
Company by the Bank, and the nature and amount of Company securities that the
Bank may accept from any affiliate to secure loans extended to the affiliate.
The Company, as an affiliate of the Bank, is also subject to these restrictions.
Under the BHCA and the Federal Reserve Board's regulations, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
REGULATION OF THE BANK. The Bank is a national banking association and
is therefore subject to regulation, supervision, and examination by the OCC. The
Bank is also a member of the Federal Reserve System and the Federal Deposit
Insurance Corporation ("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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The OCC has enforcement authority over the Bank that is similar to
that of the Federal Reserve Board with respect to the Company. In addition, upon
making certain determinations with respect to the condition of any insured
national bank, such as the Bank, the FDIC may initiate the termination of a
bank's federal deposit insurance.
There are certain statutory limitations on the payment of dividends by
national banks. Without approval of the OCC, dividends may not be paid in excess
of a bank's total net profits for that year, plus its retained profits for the
preceding two years, less any required transfers to capital surplus. However, a
national bank may not pay dividends in excess of total retained profits,
including current year's income. In some cases, the OCC may find a dividend
payment that meets these statutory requirements to be an unsafe or unsound
practice.
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.
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FDICIA requires the OCC to take "prompt corrective action" with respect
to any national bank which does not meet specified minimum capital requirements.
The applicable regulations establish five capital levels, ranging from "well
capitalized" to "critically undercapitalized," which require or permit the OCC
to take supervisory action. Under these regulations, a national bank is
considered well capitalized if it has a total risk-based capital ratio of 10.0%
or greater, a Tier I risk-based capital ratio of 6.0% or greater, and a leverage
ratio of 5.0% or greater, and it is not subject to an order, written agreement,
capital directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. A national bank is considered
adequately capitalized if it has a total risk-based capital ratio of 8.0% or
greater, a Tier I risk-based capital ratio and leverage capital ratio of 4.0% or
greater (or a leverage ratio of 3.0% or greater if the institution is rated
composite 1 in its most recent report of examination, subject to appropriate
federal banking agency guidelines), and the institution does not meet the
definition of an undercapitalized institution. A national bank is considered
undercapitalized if it has a total risk-based capital ratio that is less than
8.0%, a Tier I risk-based capital ratio that is less than 4.0%, or a leverage
ratio that is less than 4.0%. A significantly undercapitalized institution is
one which has a total risk-based capital ratio that is less than 6.0%, a Tier I
risk-based capital ratio that is less than 3.0%, or a leverage ratio that is
less than 3.0%. A critically undercapitalized institution is one which has a
ratio of tangible equity to total assets that is equal to or less than 2.0%. As
of December 31, 1997, the Bank was classified as "well-capitalized."
The OCC is authorized by the legislation to take various enforcement
actions against any undercapitalized national bank and any national bank that
fails to submit an acceptable capital restoration plan or fails to implement a
plan accepted by the OCC. These powers include, among other things, requiring
the institution to be recapitalized, prohibiting asset growth, restricting
interest rates paid, requiring prior approval of capital distributions by any
bank holding company which controls the institution, requiring divestiture by
the institution of its subsidiaries or by the holding company of the institution
itself, requiring new election of directors, and requiring the dismissal of
directors and officers.
With certain exceptions, national banks will be prohibited from making
capital distributions or paying management fees if the payment of such
distributions or fees will cause them to become undercapitalized. Furthermore,
undercapitalized national banks will be required to file capital restoration
plans with the OCC. Undercapitalized national banks also will be subject to
restrictions on growth, acquisitions, branching and engaging in new lines of
business unless they have an approved capital plan that permits otherwise. The
OCC also may, among other things, require an 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.
RECENT REGULATORY DEVELOPMENTS. 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.
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In addition, there are several pieces of legislation relevant to the
banking industry that were recently enacted into law. On August 20, 1996,
President Clinton signed the Small Business Job Protection Act (the "Jobs Act").
The Jobs Act contained several provisions that affect the banking industry.
First, the most significant part of the Jobs Act removed the prohibition against
banks, savings and loans and bank holding companies electing to be treated as S
corporations. This change is effective for tax years beginning after December
31, 1996. Second, the Jobs Act gave qualifying savings associations a tax break
when they change their method of accounting for bad debt reserves. This change
will save the thrift industry approximately $3 billion in tax liability and will
facilitate the conversion of savings associations into banks. Finally, the Jobs
Act increased the IRA deduction from $250 to $2,000 per year for a spouse that
does not work outside the home, subject to income eligibility limits.
On September 30, 1996, President Clinton signed the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the "Growth Act"), which contained a
comprehensive approach to recapitalize the FDIC's Savings Association Insurance
Fund and to assure payment of the Financing Corporation ("FICO") obligations.
Most of the Bank's deposits are insured by the FDIC's Bank Insurance Fund
("BIF"). Under the Growth Act, banks insured under the BIF are required to pay a
portion of the interest due on bonds that were issued by FICO to help shore up
the ailing Federal Savings and Loan Insurance Corporation in 1987. The amount of
FICO debt service to be paid by all BIF-insured institutions is approximately
$320,343,000 per year from 1997 through the year 1999 when the obligation of
BIF-insured institutions increases to approximately $598,500,000 per year
through the year 2019. The Bank's FICO assessment was $2 thousand per year for
1997 and 1996. The Growth Act also contained provisions protecting banks from
liability for environmental clean-up costs; prohibiting credit unions sponsored
by Farm Credit System banks; easing application requirements for most bank
holding companies when they acquire a thrift or a permissible nonbank operation;
easing Fair Credit Reporting Act restrictions between bank holding company
affiliates; and reducing regulatory burden under the Real Estate Settlement
Procedures Act, the Truth-in-Savings Act, the Truth-in-Lending Act, and the Home
Mortgage Disclosure Act.
In 1994, the Bank acquired the deposits of a savings and loan branch.
These so-called "Oakar deposits" are insured under the FDIC's Savings
Association Insurance Fund ("SAIF"). Pursuant to a rule promulgated by the FDIC
on October 8, 1996, all institutions holding SAIF insured deposits were charged
a one-time special assessment of 65.7 cents per $100 of SAIF insured deposits on
November 27, 1996. The FDIC has also promulgated a final rule regarding the
amount of premiums payable as of January 1, 1997 by institutions holding
SAIF-insured deposits. The Company's 1997 assessment was $2,000. Under the
proposed rule, which is subject to final comments and could change, institutions
will be assessed with respect to SAIF-insured deposits anywhere from zero for
most safe and sound institutions to 27 cents per $100 of deposits for the least
safe and sound institutions. See Note 6 of the Notes to Consolidated Financial
Statements for additional disclosure.
Various bills which would affect the operations of commercial banks and
other financial institutions are introduced periodically in Congress. In early
March 1998, a compromise was announced regarding conflicting legislation
currently pending in the House of Representatives for the modernization of the
financial services industry. However, the likelihood of passage of any such
legislation, its final form, manner of implementation or impact on the Company
and the Bank is unknown.
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.
EMPLOYEES
At December 31, 1997, the Company employed 49 employees, including its
four branches, one LPO and its operations staff.
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ITEM 2. 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 of Columbia 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 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 Automatic Teller Machine ("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 11 of Notes to Consolidated Financial Statements for additional information
concerning the Company's commitments under its lease agreements.
In connection with an acquisition with Eastern American in the fourth
quarter of 1997 (see Note 15 of Notes to Consolidated Financial Statements for
additional information) , the Bank assumed 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.
In 1997, the Company established a LPO in Bethesda, Maryland, which was
closed in January 1998, in connection with the establishment of a branch
location at 7625 Wisconsin Avenue, Bethesda, Maryland. The branch location is in
the vicinity of Wisconsin Avenue and Old Georgetown Road. The branch premises
consist of 2,022 square feet leased through January 2008.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of the
Company during the quarter ended December 31, 1997.
-7-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock currently trades on the Nasdaq SmallCap
Market under the symbol "CTRY." Continued inclusion of the Common Stock for
quotation on the Nasdaq SmallCap Market requires that the Company satisfy a
minimum tangible net worth or net income standard, and that the Common Stock
satisfy minimum standards as to public float, bid price and market makers. There
can be no assurance, however, that an active public market can be sustained. As
of March 24, 1998, there were 273 holders of record of Common Stock.
Prior to a common stock offering in the fourth quarter of 1997 (see
Notes 8 and 13 to the Consolidated Financial Statements for additional
information), the Company's Common Stock was quoted in the "pink sheets" of the
National Association of Securities Dealers, Inc. (which set forth the most
recent "bid" and "ask" prices), with only limited and sporadic quotations
available for shares of the Common Stock in the Washington D.C. area, after
which the Common Stock began trading on the Nasdaq SmallCap Market. Based on
information available to the Company from a limited number of sellers and
purchasers of Common Stock prior to the 1997 offering, transactions in shares of
Common Stock from January 1, 1997 through September 23, 1997, took place at
prices ranging from a low of $6.25 to a high of $8.50, with a range from $5.50
to $8.00 during 1996. From the inception of trading in the Nasdaq SmallCap
Market on September 23, 1997 (conclusion of 1997 stock offering) through
December 31, 1997, the high and low bid prices for the Common Stock ranged from
$8.125 to $10.75. Price information for transactions in the "Pink sheets" and in
the Nasdaq SmallCap Market reflects inter-dealer prices, exclusive of retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
The Company has not paid cash dividends on its shares of Common Stock
to date and has no present intention to do so in the foreseeable future. The
declaration and payment of future cash dividends will depend on, among other
things, the Company's earnings, the general economic and regulatory climate, the
Company's liquidity and capital requirements, and other factors deemed relevant
by the Company's Board of Directors. The Company's ability to pay dividends
depends mostly upon the dividends received from the Bank. Dividends from the
Bank to the Company are restricted to the extent that no portion of the Bank's
capital stock or capital surplus may be withdrawn for the payment of dividends.
In addition, no dividends may be paid by the bank in an amount greater than the
net retained profits then on hand, less certain deductions for bad debts.
Approval by the OCC is required prior to the payment of dividends by the Bank if
the total of all dividends, including the proposed dividend, declared in any
given calendar year exceeds the Bank's net profits for that year combined with
its retained net profits for the preceding two years. Under the Federal Deposit
Insurance Act, an insured bank is prohibited from paying dividends on its
capital stock while in default on payment of any assessment due to the FDIC,
except in those cases where the amount of the assessment is in dispute and the
insured bank has deposited satisfactory security. The Bank has timely paid all
such notices of assessment. In addition, banks are prohibited from paying
dividends if such dividends would cause them to be less than "adequately
capitalized," as defined by the Federal banking agencies.
Given the foregoing restrictions, and the Company's present intention
to accumulate retained earnings to support the Company's future growth, it is
unlikely that the Company will pay cash dividends with respect to the Common
Stock for the foreseeable future. The Company has declared stock dividends from
time to time in the past, but has not adopted a policy with respect to future
stock dividends. The most recent stock dividend declared by the Company was a 5%
stock dividend declared on April 22, 1997, payable on May 23, 1997, to holders
of record of shares of Common Stock as of May 7, 1997. The declaration of future
stock dividends is at the discretion of the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for
the Company for each of the five years in the period ended December 31, 1997.
The selected data for these years have been derived from the Company's audited
Consolidated Financial Statements and should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein. The Consolidated Statements of Financial
Condition as of December 31, 1997 and 1996, and the Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the years in the
three year period ended December 31, 1997 and the report thereon of KPMG Peat
Marwick LLP are included elsewhere in this report.
-8-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $9,209 $7,690 $7,079 $5,712 $5,455
Interest expense 3,765 2,776 2,562 1,902 1,987
------------- ------------- ------------- ------------- -------------
Net interest income 5,444 4,914 4,517 3,810 3,468
Provision for loan losses 336 160 26 19 310
------------- ------------- ------------- ------------- -------------
Net interest income after provision for loan losses 5,108 4,754 4,491 3,791 3,158
Noninterest income 922 720 590 555 572
Noninterest expense 5,460 4,920 4,157 3,381 3,071
------------- ------------- ------------- ------------- -------------
Income before taxes 570 554 924 965 659
Income taxes 234 275 311 374 240
------------- ------------- ------------- ------------- -------------
NET INCOME $336 $279 $613 $591 $419
COMMON SHARE DATA (1)
Net income--basic $0.23 $0.24 $0.57 $0.58 $0.41
Net income--diluted 0.21 0.22 0.55 0.55 0.41
Book value (2) 6.13 5.61 5.42 4.48 4.48
Common shares outstanding--end of period 2,209,229 1,203,329 1,175,234 971,146 969,023
Weighted-average common shares 1,477,435 1,185,133 996,819 969,161 922,105
Diluted weighted-average common shares 1,600,417 1,256,437 1,048,438 1,007,242 968,210
BALANCE SHEET DATA
Total assets $152,640 $107,186 $101,730 $90,175 $86,332
Investments (3) 46,632 25,631 21,690 22,654 25,902
Total loans (4) 94,171 70,676 69,204 60,663 56,644
Allowance for loan losses 887 826 740 740 730
Total deposits 129,605 90,985 90,539 82,081 79,982
Long-term debt 6,511 6,850 -- -- 207
Preferred equity (5) -- -- -- 460 468
Common equity (6) 13,536 6,750 6,365 4,350 4,336
Total stockholders' equity 13,536 6,750 6,365 4,810 4,804
PERFORMANCE DATA
Return on average total assets 0.29% 0.27% 0.68% 0.71% 0.56%
Return on average total equity 3.83 4.20 11.49 12.38 9.84
Net interest margin 5.17 5.74 5.42 4.90 4.55
Loans to deposits 72.7 77.7 76.4 73.9 70.8
ASSET QUALITY RATIOS
Nonperforming assets to total assets 0.49% 0.30% 0.49% 0.70% 0.37%
Nonperforming loans to total loans 0.74 0.46 0.45 1.04 0.57
Net loan charge-offs to average loans 0.36 0.10 0.04 0.02 0.59
Allowance for loan losses to total loans 0.94 1.17 1.07 1.22 1.29
Allowance to nonperforming loans 127 257 240 118 227
CAPITAL RATIOS
Tier I risk based capital 12.27% 8.99% 9.22% 10.12% 10.22%
Total risk based capital 13.19 10.13 10.34 11.37 11.48
Tier I leverage 8.83 6.35 6.80 5.74 5.24
</TABLE>
[FN]
Notes:
(1) All common share data has been adjusted for five percent Common Stock
dividends declared to stockholders of record as of July 31, 1993, March 31,
1994, March 31, 1995, and May 7, 1997, and for a seven percent Common Stock
dividend declared to stockholders of record as of March 31, 1996.
(2) Book value per common share is based on common equity (see footnote (6)
below) divided by the number of common shares outstanding.
(3) Investments include federal funds sold and interest-bearing deposits in
other financial institutions.
(4) Net of unearned income.
(5) Preferred equity is calculated based on liquidation value of $7.50 per
share of Preferred Stock. All shares of Preferred Stock outstanding as of
October 17, 1995 were redeemed by the Company on December 10, 1995.
(6) Common equity is total stockholders' equity less preferred equity.
</FN>
-9-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Century Bancshares, Inc. ("Company"), which analyzes the major
elements of the Company's consolidated statements of operations and financial
condition, should be read in conjunction with the detailed information and
consolidated financial statements, and the notes related thereto, included
elsewhere herein. References to the operations of the Company include the
operations of its wholly-owned subsidiary, Century National Bank ("Bank"),
unless the context otherwise requires.
GENERAL
The Company derives substantially all of its revenues and income from
the operation of the Bank, which provides a full range of commercial and
consumer banking services to individuals, small and middle market businesses,
and other organizations in the Washington, D.C. metropolitan area. As of
December 31, 1997, the Company had total assets of $152.6 million, total loans
of $94.2 million, total deposits of $129.6 million, and total stockholders'
equity of $13.5 million. The Company had net income of $336,000 for the year
ended December 31, 1997, resulting in a return on equity of 3.83% and a return
on assets of 0.29%.
The Company's current strategic plan is directed toward the enhancement
of its franchise value and operating profitability through a significant
increase in its asset size, the development of new commercial accounts and
loans, and continued expansion into the nearby Maryland and Virginia markets.
The Company plans to acquire or establish banking offices in high-density
commercial districts, and may in some cases open a temporary LPO prior to
establishing a full service branch. The Bank acquired its first branch office in
downtown Washington in 1994 and in 1996 established a LPO in Tysons Corner,
Virginia, which was replaced by a full service branch in April 1997. On October
10, 1997, the Company completed the purchase and assumption of the deposits and
certain other liabilities of the branch of Eastern American located at 6832 Old
Dominion Drive, McLean, Virginia. Also, in 1997 the bank established a LPO in
Bethesda, Maryland, which was replaced by a full-service branch in January 1998.
These transactions have significantly affected the Company's operations during
1997 and 1996, and their effects should be considered when reviewing the
discussion of the Company's financial condition and results of operations set
forth below.
In this report, all "per share" amounts have been adjusted to give
effect to the Company's five percent stock dividend which was distributed to
stockholders of record as of May 7, 1997, seven percent stock dividend which was
distributed to stockholders of record as of March 31, 1996, and five percent
stock dividend which was distributed to stockholders of record as of March 31,
1995.
RESULTS OF OPERATIONS
NET INCOME
Net income was $336,000 ($0.21 per diluted common share) for 1997,
compared with net income of $279,000 ($0.22 per diluted common share) for 1996,
an increase of $57,000 or 20.4%. The increase in net income for 1997 compared
with 1996 resulted principally from a $530,000 increase in net interest income
and a $202,000 increase in noninterest income between the years. These increases
are attributed to a 23.1% increase in average earning assets and the addition of
new branch offices during the year (see "Properties" above). Partially
offsetting these increases during 1997 was an increase in average
interest-bearing liabilities of 23.2%, as well as increases in several
noninterest expenses categories from the establishment of three new branch
office locations during the year. Additionally, a $176,000 increase in the
provision for loan losses also partially offset increases in net interest income
and noninterest income in 1997, the result of increased reserves in relationship
to loan portfolio growth during the year.
-10-
<PAGE>
Net income was $279,000 ($0.22 per diluted common share) for 1996,
compared with net income of $613,000 ($0.55 per diluted common share) for 1995,
a decrease of $334,000 or 54.5%. The decrease in net income for 1996 compared
with 1995 resulted principally from a $763,000 increase in noninterest expenses
primarily attributable to costs associated with new telephone and computer
systems, processing costs in support of new fee-generating products and
services, and expenses relating to the registration of the Company's Common
Stock with the Securities and Exchange Commission ("SEC"). 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 INTEREST INCOME
Net interest income was $5,444,000 for 1997, an increase of $530,000 or
10.8% compared with net interest income of $4,914,000 for 1996. The Company's
average total interest-earning assets increased from $85.5 million for 1996 to
$105.3 million for 1997, representing a 23.2% increase between the years. The
net interest margin of 5.17% for 1997 decreased 57 basis points from 5.74% for
1996, the result of reduced growth in average loans and increases in lower
yielding securities and deposits with banks from funds received from the 1997
acquisition of the Virginia branch. Net interest income was $4,914,000 for 1996,
an increase of $397,000 or 8.8% compared with 1995. This increase resulted from
an increase in average total interest 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 loans
constituting a higher percentage of the Company's total earning assets in 1996
than in 1995.
Changes in interest income and interest expense can result from changes
in both volume and rate. The Company has an asset and liability management
policy designed to provide a proper balance between rate sensitive assets and
rate sensitive liabilities, to attempt to maximize interest margins and to
provide adequate liquidity for anticipated needs. The table below 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 table on the following page
sets forth for each category of interest-earning assets and interest-bearing
liabilities, the average amounts outstanding, the interest earned or paid on
such amounts, and the average rate earned or paid for the years ended December
31, 1997, 1996 and 1995.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME (1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 Compared with 1996 1996 Compared with 1995
----------------------------------------- -----------------------------------------
Due to Due to Total Incr. Due to Due to Total Incr.
Volume Rate (Decr.) Volume Rate (Decr.)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans, including fees $ 534 $ 133 $ 667 $ 768 $ 108 $ 876
Investment securities 33 58 91 (461) 42 (419)
Federal funds sold 242 (19) 223 (5) 3 (2)
Interest bearing deposits with banks 524 14 538 160 (4) 156
------------- ------------- ------------- ------------- ------------- -------------
Total interest income 1,333 186 1,519 462 149 611
INTEREST PAID ON:
NOW accounts 30 7 37 7 (20) (13)
Savings accounts 116 39 155 (8) (3) (11)
Money market accounts (56) 46 (10) (28) 34 6
Time deposits 548 33 581 136 (5) 131
Borrowings and Notes Payable 183 43 226 82 19 101
------------- ------------- ------------- ------------- ------------- -------------
Total interest expense 821 168 989 189 25 214
------------- ------------- ------------- ------------- ------------- -------------
NET INTEREST INCOME $ 512 $ 18 $ 530 $ 273 $ 124 $ 397
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
[FN]
(1)--The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change in
volume) has been allocated between rate and volume variances based on the
percentage relationship of such variances to each other.
</FN>
-11-
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ -----------------------------
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>
INTEREST-EARNING ASSETS
Loans, net (1) $75,908 $7,555 9.95% $70,523 $6,888 9.77% $62,639 $6,011 9.60%
Investment securities (2)(3) 11,153 646 5.79 10,540 555 5.27 19,288 975 5.05
Federal funds sold 4,576 258 5.64 380 35 9.21 428 37 8.64
Interest bearing deposits
with banks 13,628 750 5.50 4,091 212 5.18 993 56 5.64
---------- --------- --------- --------- ---------- --------- --------- --------- ---------
Total interest-earning assets 105,265 $9,209 8.75% 85,534 $7,690 8.99% 83,348 $7,079 8.49%
(3)
Cash and due from banks 5,336 4,361 3,854
Other assets 3,860 4,189 2,907
---------- --------- ---------
Total Assets $114,461 $94,084 $90,109
---------- --------- ---------
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits:
NOW accounts $14,023 $ 282 2.01% $12,522 $ 245 1.96% $12,230 $ 258 2.11%
Savings accounts 5,559 211 3.80 2,217 56 2.53 2,526 67 2.65
Money market accounts 21,491 774 3.60 23,072 784 3.40 25,153 778 3.09
Time Deposits 35,399 1,981 5.60 25,596 1,400 5.47 23,128 1,269 5.49
Borrowings and
Notes Payable 7,768 517 6.66 4,952 291 5.88 3,526 190 5.39
---------- --------- --------- --------- ---------- --------- --------- --------- ---------
Total interest-bearing
liabilities 84,240 3,765 4.47% 68,359 2,776 4.06% 66,563 2,562 3.85%
Non-interest bearing deposits 20,272 17,525 16,841
Other liabilities 1,176 1,642 1,236
---------- --------- ---------
Total liabilities 105,688 87,526 84,640
Stockholders' equity 8,773 6,558 5,469
---------- --------- ---------
Total liabilities and
stockholders' equity $114,461 $94,084 $90,109
---------- --------- ---------
--------- --------- ---------- --------- --------- ---------
Net interest income and spread $5,444 4.28% $4,914 4.93% $4,517 4.64%
--------- --------- ---------- --------- --------- ---------
Net interest margin (3) 5.17% 5.74% 5.42%
--------- --------- ---------
(1) Non-accrual loan balances are included in the calculation of Average
Balances - Loans, Net. Interest income on non-accrual loan balances is
included in interest income to the extent that it has been collected.
(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and cost basis of
securities available-for-sale.
(3) Average rates on a fully taxable equivalent basis for affected portfolios
are as follows:
Investment securities 5.82% 6.84% 8.76%
Total interest-earning assets 8.75 9.00 8.53
Net interest margin 5.18 5.75 5.45
</TABLE>
-12-
<PAGE>
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 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 was $336,000 for 1997, compared with
$160,000 for 1996, increasing $176,000, or 110.0%. This significant increase is
the result of an increase in loans, net of unearned income from $70.7 million at
year-end 1996 to $94.2 million at year-end 1997, or a 33.2% increase
year-to-year. In addition, net charge-offs increased to $275,000 for 1997, from
$74,000 in 1996, primarily the result of a $146,000 increase in net charge-offs
between the years in the installment and credit card loan portfolios.
The provision for loan losses for 1996 was $160,000, compared with
$26,000 for 1995, representing an increase of 515.4%. The increase is the result
of an increase in charge offs and reserves for certain consumer loans which were
deemed uncollectible when the borrowers declared bankruptcy, an unanticipated
$38,000 loss reserve established 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.
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.
NONINTEREST INCOME
Noninterest income was $922,000 for 1997, compared with $720,000 for
1996, an increase of $202,000 or 28.1%. This increase was primarily the result
of increased fee income from the Company's Mastercard/Visa credit card program,
which increased $152,000, or 64.1% in 1997. In addition, commission and other
fee income increased $54,000, or 110.2%, due to increased ATM transactions and
other miscellaneous fee income in 1997.
Noninterest income for 1996 was $720,000, an increase of $130,000 or
22.0% 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.
The following table sets forth the various categories of, and changes
in, noninterest income for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
NONINTEREST INCOME
(Dollars in Thousands)
Year Ended December 31,
------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $410 (1.4)% $416 9.8% $379
Credit card and merchant fees 389 64.1 237 54.9 153
Commission and other fee income 103 110.2 49 8.9 45
Other income 20 11.1 18 38.5 13
--------------- -------------- --------------- --------------- ---------------
Total noninterest income $922 28.1 % $720 22.0% $590
--------------- -------------- --------------- --------------- ---------------
</TABLE>
-13-
<PAGE>
NONINTEREST EXPENSE
Noninterest expense was $5,460,000 for 1997, compared with $4,920,000
for 1996, representing an increase of $540,000 or 11.0%. The increase from 1996
to 1997 was primarily attributable to increased personnel and occupancy-related
expenses associated with the addition of two new branches in Virginia in 1997,
and other increased expenses from the establishment of the Company's LPO in
Maryland.
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 telephone 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 $4,920,000 for 1996, an increase of $763,000 or
18.4% compared with noninterest expense of $4,157,000 for 1995. The installation
of the new computer system, the write-off of certain custom software development
costs for software under design but abandoned prior to completion, unanticipated
consulting, special audit, and legal expenses related to delivery, payments, and
security for the computer system required the Company to incur substantial
nonrecurring expenses in connection with the installation of the new computer
system. Additionally, during the same period in 1996, management of the
Company's operations and financial reporting functions related to the
utilization of the computer system were realigned. This realignment resulted in
unanticipated expenses including negotiated payments for personnel severance,
accrued leave, and related expenses. In the aggregate, these items represented
approximately $304,000 in nonrecurring expenses. A total of $112,000 in
nonrecurring expenses were incurred to file a registration statement with the
SEC registering shares of the Company's Common Stock issuable upon exercise of
the Company's outstanding warrants to purchase Common Stock. The remainder of
the increase in noninterest expense resulted principally from depreciation
expenses associated with the Bank's new computer and telephone systems and
remote ATM, as well as data processing costs in support of the credit card
program.
The following table sets forth the various categories of, and changes
in, noninterest expense for the years ended December 31, 1997, 1996 and 1995:
NONINTEREST EXPENSE
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $2,201 10.7 % $ 1,988 (5.1)% $2,094
Professional fees 692 10.2 628 130.9 272
Occupancy and equipment expense 650 22.4 531 2.7 517
Depreciation and amortization 571 26.0 453 104.1 222
Data processing 534 13.9 469 41.3 332
Communications 200 (2.9) 206 28.0 161
Office and operations expenses 287 (9.5) 317 104.5 155
Marketing and public relations 157 (9.8) 174 15.2 151
Federal deposit insurance premiums 14 (53.3) 30 (65.9) 88
Other real estate owned -- (100.0) 7 (85.4) 48
Other expenses 154 31.6 117 -- 117
--------------- -------------- --------------- --------------- ---------------
Total noninterest expense $5,460 11.0 % $ 4,920 18.4 % $4,157
--------------- -------------- --------------- --------------- ---------------
</TABLE>
-14-
<PAGE>
INCOME TAX EXPENSE
The Company's income tax expense includes both federal and state income
taxes. The Company's 1997 income tax expense of $234,000 decreased from $275,000
of income tax expense for 1996. This reflects an effective tax rate of 41.0% for
1997, compared with an effective tax rate of 49.6% in 1996. The higher effective
rate in 1996 was primarily due to nondeductible expenses of $112,000 incurred in
connection with the registration of shares of the Company's Common Stock, as
well as other nondeductible expenses.
INTEREST RATE SENSITIVITY AND MANAGEMENT OF MARKET RISK
Net interest income, which constitutes one of the principal sources of
income for the Company, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The difference between the Company's interest-rate sensitive assets and
interest-rate sensitive liabilities for a specified time-frame is referred to as
an interest sensitive "gap." Interest rate sensitivity reflects the potential
effect on net interest income of a movement in interest rates. A financial
institution is considered to be asset sensitive, or having a positive gap, when
the amount of its interest-earning assets maturing or repricing 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 exceeds the amount of its
interest-earning assets. During a period of rising (falling) interest rates, a
positive gap would tend to increase (decrease) net interest income, while a
negative gap would tend to decrease (increase) net interest income.
Management 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") which reviews, on a regular
basis, the maturity and repricing of the assets and liabilities of the Company.
The ALCO has adopted the objective of achieving and maintaining a one-year
cumulative GAP, as a percent of total assets, of between plus 10% and minus 10%.
In addition, ALCO monitors potential changes in net interest income under
various interest rate scenarios. On a consolidated basis, the Company's one year
cumulative gap was a positive 6.4% of total assets at December 31, 1997. Market
risk is the risk of loss from adverse changes in market prices and rates,
arising primarily from interest rate risk in the Company's portfolios, which can
significantly impact the Company's profitability. Net interest income can be
adversely impacted where assets and liabilities do not react the same to changes
in interest rates. At year-end 1997, the forcasted impact of an immediate
increase of 100 basis points and 200 basis points would have resulted in an
increase in interest income over a 12-month period of 0.5% and 0.8%,
respectively, with a comparable decrease resulting in a decrease of 1.6% and
3.3%. Management finds the above methodologies meaningful for evaluating market
risk sensitivity; however, other factors can affect net interest income, such as
levels of non-earning assets and changes in portfolio composition. The following
table sets forth the interest-rate sensitive assets and liabilities of the
Company at December 31, 1997, which are expected to mature or are subject to
repricing in each of the time periods indicated:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES
(Dollars in Thousands)
90 Days 91 to 180 181 Days Over
Term To Repricing (At December 31, 1997) or Less Days to 1 Year 1 Year Total
- ------------------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net $46,942 $7,451 $15,011 $24,767 $94,171
Investment securities 2,617 481 3,245 13,065 19,408
Federal funds sold 5,000 - - - 5,000
Interest bearing deposits with banks 22,223 - - - 22,223
------------- ------------- ------------- ------------- -------------
Total interest-earning assets 76,782 7,932 18,256 37,832 140,802
INTEREST-BEARING LIABILITIES
NOW accounts 6,168 2,056 4,112 6,170 18,506
Savings accounts 8,175 2,725 5,458 - 16,358
Money market accounts 17,989 7,011 - - 25,000
Time deposits 22,402 8,824 6,597 5,693 43,516
Other borrowings 979 256 456 6,508 8,199
------------- ------------- ------------- ------------- -------------
Total interest-bearing liabilities 55,713 20,872 16,623 18,371 111,579
------------- ------------- ------------- ------------- -------------
Interest sensitivity gap per period $21,069 $(12,940) $1,633 $19,461 $29,223
Cumulative gap 21,069 8,129 9,762 29,223
Cumulative gap as a percentage of total assets 13.8% 5.3% 6.4% 19.1%
Cumulative int.-earning assets as % of
int.-bearing liabilities 138 111 111 126
</TABLE>
-15-
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
LOANS
The Company presently is, and in the future expects to remain, a middle
market banking organization serving professionals and businesses with interests
in and around the Washington, D.C., metropolitan area. Most of the Company's
loan portfolio is collateralized by first mortgages and home equity lines of
credit on residential real estate. Although residential real estate loans
increased during 1997 as a result of the mortgage loan portfolio acquired in
connection with the McLean branch acquisition, the Company anticipates that this
concentration will decline, as the Company continues its emphasis on the
development of new commercial loan business. As of December 31, 1997 and 1996,
approximately $56.6 million (60.1%) and $41.8 million (59.1%) of the Company's
total loan portfolio, respectively, consisted of loans secured by real estate,
of which one-to-four-family residential mortgage loans and home equity lines of
credit represented $35.3 million (37.4%) and $25.4 million (35.9%),
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 policing its concentrations and making necessary
adjustments in its lending practices to reflect current economic conditions,
loan to deposit ratios, and industry trends. As a result of the Company's
existing branch locations, the Company has significant concentrations of
customers and assets in the Washington, D.C., metropolitan area. As of December
31, 1997, the industry concentrations in excess of 10% of total loans, where the
borrowers as a group might be affected similarly by economic changes, consisted
of loans to members of the legal profession ($17.8 million, or 19.0% of total
loans) and health care services ($11.5 million, or 12.2% of total loans). The
Company offers lines of credit, credit cards, home equity lines, and mortgage
loans to these groups. At year-end 1997, the amount of such loans which were
past due or considered by management to be potential problem loans was 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 conservative underwriting policies,
primarily in the analysis of borrowers' debt service coverage capabilities for
commercial and commercial real estate loans, while emphasizing lower gross debt
ratios for consumer loans and lower loan-to-value ratios 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, 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 December 31, 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 $3.5 million (net of
participations sold to other banks on a non-recourse basis), which represented
approximately 3.7% of total loans as of that date. As of December 31, 1997, none
of these loans outstanding from the Bank to related parties were on non-accrual,
past due, restructured or considered by management to be a potential problem
loan.
-16-
<PAGE>
The following table sets forth the composition of the Company's loan portfolio
by type of loan on the dates indicated:
<TABLE>
<CAPTION>
LOAN PORTFOLIO ANALYSIS
(Dollars in Thousands)
December 31, 1997 1996 1995
- ----------------------------------------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
AGGREGATE PRINCIPAL AMOUNT
Type of loan:
1-4 family residential mortgage $27,502 $18,970 $24,921
Home equity loans 7,808 6,431 5,640
Multifamily residential 1,859 1,963 2,087
Construction 1,459 463 1,545
Commercial real estate 17,999 14,001 11,910
Commercial loans 24,132 17,400 13,213
Installment and credit card loans 13,535 11,510 9,023
Other loans - - 963
---------------------- ---------------------- ---------------------
Gross loans 94,294 70,738 69,302
Less: Unearned income (123) (62) (98)
---------------------- ---------------------- ---------------------
Total loans, net of unearned $94,171 $70,676 $69,204
---------------------- ---------------------- ---------------------
PERCENTAGE OF LOAN PORTFOLIO
Type of loan:
1-4 family residential mortgage 29.17% 26.82% 35.96%
Home equity loans 8.28 9.09 8.14
Multifamily residential 1.97 2.78 3.01
Construction 1.55 0.65 2.23
Commercial real estate 19.09 19.79 17.18
Commercial loans 25.59 24.60 19.07
Installment and credit card loans 14.35 16.27 13.02
Other loans - - 1.39
---------------------- ---------------------- ---------------------
Gross loans 100.00% 100.00% 100.00%
---------------------- ---------------------- ---------------------
</TABLE>
The following table sets forth the maturities of loans (based upon
contractual dates) outstanding as of December 31, 1997. Loans, primarily as a
result of maturities, monthly payments and repayments, are an important source
of liquidity. The Company's portfolio of adjustable rate home mortgages consists
of loans to customers in the local market area. Such loans generally have
balloon maturities within ten years or less, with two percent annual and six
percent lifetime "caps" on interest rate changes. Borrowers have the right to
prepay such loans without penalty.
MATURITIES AND RATE SENSITIVITY OF LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Over 1 Year Through 5 Years Over 5 Years
----------------------------- ----------------------------
One Year Fixed Floating Fixed Floating
or Less (1) Rate Rate Rate Rate Total
- ------------------------------ -------------- -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 9,002 $3,917 $ 7,381 $ 860 $ 2,972 $24,132
Commercial real estate 1,134 1,474 2,319 5,660 7,412 17,999
Residential mortgage/home equity 1,239 663 9,037 9,842 16,388 37,169
Construction 1,071 175 213 - - 1,459
Installment/credit card 3,972 1,141 984 67 7,371 13,535
-------------- -------------- -------------- ------------- -------------- --------------
Total $16,418 $7,370 $19,934 $16,429 $34,143 $94,294
-------------- -------------- -------------- ------------- -------------- --------------
</TABLE>
[FN]
(1) Includes demand loans, loans having no stated schedule of repayment or
maturity, and overdrafts.
</FN>
-17-
<PAGE>
ASSET QUALITY
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 120 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 the loan has been brought current and 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 until the
status of the loan has changed.
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:
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Non-accrual loans $624 $272 $ 8
Accruing past due 90 days or more 76 50 300
-------------------- -------------------- --------------------
Total nonperforming loans 700 322 308
Other real estate owned 52 - 193
-------------------- -------------------- --------------------
Total nonperforming assets $752 $322 $501
-------------------- -------------------- --------------------
Nonperforming to total assets 0.49% 0.30% 0.49%
</TABLE>
As of December 31, 1997, non-accrual loans were comprised of a
single-large residential first mortgage loan. This property is in the process of
being sold, with no material additional loss anticipated for the Company. The
amount of interest on non-accrual loans which would have been recorded as income
under the original terms of such loans was $26,000, $17,000, and $1,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The amount of
interest income recognized on non-accrual loans that was included in net income
was $0, $19,581, and $13,500 for 1997, 1996 and 1995, respectively. Loans past
due 90 days or more and still accruing as of December 31, 1997, totaled $76,000
and consisted solely of credit card debt.
-18-
<PAGE>
ALLOWANCE FOR LOAN LOSSES
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
portfolio. 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 such factors and conditions differ from the
assumptions used in making the initial determinations. Based upon criteria
consistently applied during the periods, the Company's allowance for loan losses
was $887,000 (0.94% of total loans) as of December 31, 1997, $826,000 (1.17% of
total loans) as of December 31, 1996, and $740,000 (1.07% of total loans) as of
December 31, 1995. The allowance for loan losses as a percentage of
nonperforming loans was 127%, 257% and 240% as of December 31, 1997, 1996 and
1995, respectively.
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>
Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Average net loans outstanding $75,908 $70,523 $62,639
Loans outstanding at period-end 94,171 70,676 69,204
Total nonperforming loans 700 322 308
Beginning balance of allowance 826 740 740
Loans charged-off:
1-4 family residential mortgage 29 - 137
Home equity loans 100 - -
Commercial loans 25 126 10
Installment and credit card loans 298 129 51
-------------------- -------------------- --------------------
Total loans charged off 452 255 198
Recoveries of previous charge-offs:
1-4 family residential mortgage 1 37 77
Home equity loans - - -
Commercial loans 134 125 93
Installment and credit card loans 42 19 2
-------------------- -------------------- --------------------
Total recoveries 177 181 172
-------------------- -------------------- --------------------
Net loans charged-off 275 74 26
Provision for loan losses 336 160 26
-------------------- -------------------- --------------------
Balance at end of period $ 887 $ 826 $ 740
-------------------- -------------------- --------------------
Net charge-offs to average loans 0.36% 0.10% 0.04%
Allowance as % of total loans 0.94% 1.17% 1.07%
Nonperforming loans as % of total loans 0.74% 0.46% 0.45%
Allowance as % of nonperforming loans 127% 257% 240%
</TABLE>
-19-
<PAGE>
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 for loan losses. In considering the loss potential associated
with different types of loans, the Company considers its own historical loss
experience with each type of loan, together with any internal or external
changes which might suggest that future losses will be higher or lower than the
historical loss experience. Such additional factors include changes in national
or local economic conditions which affect the repayment capacity of borrowers
and/or the market value of collateral, trends in past due payments, changes in
underwriting standards, changes in loan originating and servicing personnel,
changes in the types of credit offered, and other factors.
INVESTMENT ACTIVITIES
The Company's investment portfolio of $19.4 million as of December 31,
1997 consisted mostly of U.S. Treasury and government agency obligations. This
represented an increase of $12.0 million compared to the investment portfolio
total of $7.4 million at December 31, 1996. This substantial increase was the
result of liquidity obtained from the purchase of a retail banking branch in
Virginia in the fourth quarter of 1997. See Note 15 of Notes to Consolidated
Financial Statements. The Company's investment portfolio at December 31, 1996,
consisted primarily of U.S. government agency obligations and mortgage-backed
securities. This represented a decrease of $6.3 million, or 46.1% compared to
the investment portfolio as of December 31, 1995, as investment maturities were
used to fund loan growth and enhance liquidity.
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. The following table sets forth the
book value of the Company's investment portfolio as of the dates indicated:
INVESTMENT PORTFOLIO COMPOSITION
(Dollars In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasuries and government agencies $13,492 $ 4,899 $ 9,968
Other 2,284 2,308 3,461
-------------------- -------------------- --------------------
Total available-for-sale 15,776 7,207 13,429
HELD-TO-MATURITY:
U.S. Treasuries and government agencies 1,911 -- --
State, county and municipal 65 165 250
Other 1,656 -- --
-------------------- -------------------- --------------------
Total held-to-maturity 3,632 165 250
-------------------- -------------------- --------------------
Total investment securities $19,408 $ 7,372 $13,679
-------------------- -------------------- --------------------
</TABLE>
-20-
<PAGE>
The following table sets forth the maturity distribution and
weighted-average yield of the investment portfolio of the Company as of December
31, 1997:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO--MATURITIES AND YIELDS
(Dollars In Thousands)
Over 1 Year Over 5 Years
One Year Through 5 Through 10 After
or Less Years Years 10 Years Total
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
MATURITY DISTRIBUTION:
U.S. Treasuries and government
agencies $3,876 $ 8,547 $1,804 $1,176 $15,403
State, county and municipal 65 -- -- -- 65
Other -- 1,656 -- 2,284 3,940
-------------- -------------- -------------- -------------- --------------
Total $3,941 $10,203 $1,804 $3,460 $19,408
-------------- -------------- -------------- -------------- --------------
WEIGHTED-AVERAGE YIELD (1):
U.S. Treasuries and government
agencies 5.62% 6.02% 6.43% 6.73% 6.02%
State, county and municipal 4.75 -- -- -- 4.75
Other -- 6.53 -- 5.47 5.92
-------------- -------------- -------------- -------------- --------------
Total 5.61% 6.10% 6.43% 5.90% 6.00%
-------------- -------------- -------------- -------------- --------------
</TABLE>
[FN]
(1) 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.
</FN>
DEPOSIT ACTIVITIES
The Company's total deposits at year-end 1997 were $129.6 million, an
increase of $38.6 million, or 42.4%, over 1996's year-end balance. Total average
deposits was $96.7 million for the year ended December 31, 1997, an increase of
$15.8 million, or 19.5% compared with average deposits of $80.9 million for the
year ended December 31, 1996. The Company views deposit growth as a significant
challenge in its effort to increase its asset size. Thus, the Company is
focusing on its branching program with increased emphasis on commercial
accounts, and the offering of more competitive interest rates and products to
stimulate deposit growth.
-21-
<PAGE>
The following table sets forth the average balances and
weighted-average rates for the Company's categories of deposits for the periods
indicated:
AVERAGE DEPOSITS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------ -- ----------------------------- -- ------------------------------
1997 1996 1995
------------------------------ ----------------------------- ------------------------------
Weighted- Weighted- Weighted-
Average Average % of Average Average % of Average Average % of
Balance Rate Total Balance Rate Total Balance Rate Total
--------- ----------- -------- --------- ---------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Deposits $20,272 --% 21.0% $17,525 --% 21.7% $16,841 --% 21.1%
Interest-Bearing Deposits:
NOW accounts 14,023 2.01 14.5 12,522 1.96 15.5 12,230 2.11 15.3
Savings accounts 5,559 3.80 5.7 2,217 2.53 2.7 2,526 2.65 3.2
Money market accounts 21,491 3.60 22.2 23,072 3.40 28.5 25,153 3.09 31.5
Time deposits 35,399 5.60 36.6 25,596 5.47 31.6 23,128 5.49 28.9
--------- ----------- -------- --------- ---------- -------- --------- ----------- --------
Total $96,744 100.0% $80,932 100.0% $79,878 100.0%
--------- -------- --------- -------- --------- --------
Weighted-Average Rate 3.36% 3.07% 2.97%
----------- ---------- -----------
</TABLE>
The Company seeks to rely primarily on regular customer relationships
to provide a stable and cost-effective source of funding to support asset
growth. The Company's Asset/Liability Management Policy limits total brokered
deposits to ten percent (10%) of the Bank's total liabilities. As of December
31, 1997, brokered deposits represented $895,000 (0.6%) of the Company's total
liabilities.
As of December 31, 1997, total time deposits in excess of $100,000
accounted for $16.5 million, or 12.7% of the Company's total deposits. Of this
amount, $6.7 million had a remaining 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 December 31, 1997 and 1996:
TIME DEPOSITS OF $100,000 OR MORE
(Dollars In Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
MATURITY PERIOD:
Three months or less $ 2,783 $ 6,179
Over three months through six months 3,897 4,180
Over six months through twelve months 7,587 3,905
Over twelve months 2,185 905
-------------------- --------------------
Total $16,452 $15,169
-------------------- --------------------
</TABLE>
-22-
<PAGE>
BORROWINGS
Borrowings consist of advances from the Federal Home Loan Bank of
Atlanta ("FHLBA") and deposits received in the Company's U.S. Treasury Tax and
Loan Account. Balances outstanding and effective rates of interest are shown in
the tables below for the years ending December 31, 1997, 1996 and 1995:
BORROWINGS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995
-------------------- -- --------------------- -- --------------------
<S> <C> <C> <C>
FEDERAL HOME LOAN BANK OF ATLANTA:
Ending balance $7,423 $7,750 $2,000
Daily average balance for the period 7,397 4,559 2,924
Maximum outstanding balance at
a month-end during the period 7,675 7,800 4,000
Daily average interest rate for the period 6.75% 5.99% 5.46%
Average interest rate on period end balance 6.73 6.73 6.10
TREASURY TAX AND LOAN ACCOUNT:
Ending balance $ 776 $ 716 $1,808
Daily average balance for the period 371 393 473
Maximum outstanding balance at
a month-end during the period 776 829 711
Daily average interest rate for the period 4.61% 4.64% 4.60%
Average interest rate on period end balance 5.27 5.16 2.00
</TABLE>
The following table shows the details of the Company's fixed rate
advances from the FHLBA, with original maturities in excess of one year, as of
December 31, 1997:
BORROWINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 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>
2/08/96 $ 800 $ 800 $ -- $ 800 6.30% 2/08/06 due at
maturity
5/16/96 1,000 1,000 -- 1,000 7.34 5/16/06 due at
maturity
6/24/96 1,000 850 100 750 6.94 6/24/06 semi-annual
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 1,600 400 1,200 6.57 10/10/01 quarterly
10/10/96 2,400 2,000 400 1,600 6.66 10/10/02 quarterly
9/25/97 573 573 12 561 6.65 9/25/17 monthly
------------ -------------- ----------- ---------------
Total $8,373 $7,423 $912 $6,511
------------ -------------- ----------- ---------------
</TABLE>
-23-
<PAGE>
RETURN ON EQUITY AND ASSETS
Return on average assets ("ROA") measures net income in relation to
total average assets and generally indicates an institution's ability to use its
assets profitably. Return on average equity ("ROE") is determined by dividing
annual net income by average stockholders' equity and indicates the
effectiveness of an institution in generating net income from the capital
invested by its stockholders. The following table sets forth the Company's ROA
and ROE for the periods indicated:
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996 1995
----------------- --- ------------------ -- -------------------
<S> <C> <C> <C>
Return on average assets 0.29% 0.27% 0.68%
Return on average equity 3.83 4.20 11.49
Period-end equity to total assets 8.87 6.30 6.26
</TABLE>
LIQUIDITY
The Company's Asset/Liability Management Policy is intended to maintain
adequate liquidity for the Company 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 its 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 December 31, 1997, the Bank had cash
and cash equivalents of $12.1 million, a decrease of $7.7 million, when compared
with the $19.8 million at December 31, 1996, which decreased primarily due to
investments in loans, securities and deposits with banks exceeding the growth in
deposits between the years.
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 Federal Home Loan Bank of Atlanta ("FHLBA"), the Company is
authorized to borrow up to $19.9 million secured by a blanket pledge of its
portfolio of 1-to-4-family residential mortgage loans. The Company also has
approved lines of credit from larger correspondent banks to borrow excess
reserves on an overnight basis (known as "federal funds purchased") in the
amount of $1.0 million and to borrow on a secured basis ("repurchase
agreements") in the amount of $5.0 million. As of December 31, 1997, the Company
had no federal funds purchased or repurchase agreements, and was utilizing $7.4
million 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 provided by operating activities was
$1.0 million for the year ended December 31, 1997. Net cash used in investing
activities was $25.5 million for 1997, as net increases in loans and investments
exceeded net deposits acquired and repayments from loans and investments during
the year. Net cash provided by financing activities for 1997 was $16.8 million
and was related mostly to net increases in certificates of deposit and the
issuance of Common Stock in 1997.
-24-
<PAGE>
Net cash provided by operating activities was $903,000 for the year
ended December 31, 1996. Net cash provided by investing activities, consisting
primarily of payments and maturities of securities available-for-sale, was $3.7
million for the year ended December 31, 1996. Net cash provided by financing
activities for 1996 was $5.2 million and was related to an increase in long-term
borrowings.
In the ordinary course of business, the Company enters into commitments
to make loans and fund letters of credit, and the Company is also a party to
four 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 $3.0 million at the
holding company level at December 31, 1997. The Company anticipates using these
funds as working capital available to support the future growth of the franchise
as well as to pay normal operating expenses. Additionally, working capital is
further supported by dividends available from the Bank, subject to certain
regulatory restrictions generally applicable to national banks. As of December
31, 1997, the Company had no indebtedness outstanding at the holding company
level.
CAPITAL RESOURCES
Total stockholders' equity as of December 31, 1997 was $13.5 million,
an increase of $6.8 million, double the balance of stockholders' equity of $6.7
million as of December 31, 1996. This significant increase was the result of the
Company issuing 977,500 shares of Common Stock, at a price of $7.25 per share,
in the third quarter of 1997. The net proceeds from the sale of Common Stock
totaled approximately $6.3 million. Net income for the year ended December 31,
1997 was $336,000. In addition to retained earnings, stockholders' equity was
also augmented by a $25,000 increase in the market value of investment
securities available-for-sale, net of tax effect, and $96,000 received from the
exercise of warrants and stock options.
Total stockholders' equity as of December 31, 1996 was $6,750,000, an
increase of $385,000, compared with stockholders' equity of $6,365,000 as of
December 31, 1995. Net income for the year ended December 31, 1996 was $279,000.
In addition to retained earnings, stockholders' equity was also augmented by a
$22,000 increase in the market value of investment securities
available-for-sale, net of tax effect, and $85,000 received from the exercise of
stock options.
The OCC has established certain minimum risk-based capital standards
that apply to national banks, and the Company is subject to certain capital
requirements imposed by the Federal Reserve Board. At December 31, 1997, the
Bank exceeded all applicable regulatory capital requirements for classification
as a "well capitalized" bank, and the Company satisfied all applicable
regulatory requirements imposed on it by the Federal Reserve Board. See Note 12
of the Notes to Consolidated Financial Statements.
YEAR 2000
Information systems and technology are an integral part of the
Company's operations. The Company relies on several internal and external
systems which support its operations. Beginning in 1997, the Company started a
thorough review of its systems in regard to Year 2000 compliance. The Company's
management and board of directors have been involved in preparing and acting on
a plan to resolve Year 2000 issues in a timely manner. Such plans include the
identification, resolution and testing of Year 2000 issues. The scope of these
plans has encompassed internal system reviews as well as external reviews of
vendors, suppliers and third-party system providers. System reviews and
corrective action have been conducted by internal management, supplemented by
outside expertise.
The Company has completed the review of its operations and finalized
its plan for Year 2000 compliance. Issues with critical systems will be resolved
by December 31, 1998, in compliance with federal banking regulations applicable
to national banks. Testing of the Company's systems will begin in late 1998 and
continue into 1999. Management does not expect the resolution of Year 2000
issues to have a material impact to the Company's operations or financial
condition.
-25-
<PAGE>
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
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 Company and its
results of operations are not predictable.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements and financial discussion and analysis contained in Items 1
and 7 of this report that are not historical facts are forward looking
statements made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, forward looking statements involve a number of risks and
uncertainties and no assurance may be given that the Company's expectations will
be achieved. Among the important factors that could cause actual results to
differ materially from the Company's expectations are the Company's exposure to
local economic conditions; changes in interest rate risks and the Company's net
interest margin; the Company's ability to make acquisitions of other depository
institutions, their assets or their liabilities and the Company's successful
integration of any such acquisitions; changes in applicable statutes and
regulations or their interpretation; changes in the ability of the Bank or the
Company to pay dividends on its Common Stock; competition; and the loss of
senior management or operating personnel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For information regarding the market risk of the Company's financial
instruments, see "Management's Discussion and Analysis of Financial Condition
and Results of Operation--Interest Rate Sensitivity and Management of Market
Risk." The Company's principal market risk exposure is to interest rates.
-26-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
[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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
February 26, 1998
-27-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------- ------------------- -------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,069,139 $ 8,363,911
Federal funds sold 5,000,000 11,436,000
Interest bearing deposits in other banks 22,223,037 6,823,077
Investment securities available-for-sale, at fair value 15,776,517 7,207,361
Investment securities, at cost, fair value of $3,634,867 and
$166,039 in 1997 and 1996, respectively 3,632,076 164,895
Loans, net of unearned income 94,171,450 70,676,356
Less: allowance for loan losses (887,046) (825,876)
------------------- ------------------
Loans, net 93,284,404 69,850,480
Leasehold improvements, furniture, and equipment, net 1,708,987 1,558,247
Accrued interest receivable 922,327 509,567
Other real estate owned 52,000 -
Deposit premium 1,735,768 275,072
Net deferred taxes 693,360 531,990
Other assets 542,012 465,409
------------------- ------------------
Total Assets $152,639,627 $107,186,009
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 26,225,119 $ 24,064,454
Interest-bearing 103,379,913 66,920,756
------------------- ------------------
Total deposits 129,605,032 90,985,210
Other borrowings 8,198,843 8,465,877
Other liabilities 1,300,226 984,881
------------------- ------------------
Total Liabilities 139,104,101 100,435,968
Stockholders' Equity:
Common stock, $1 par value; 5,000,000 shares authorized;
2,209,229 and 1,146,028 shares issued and outstanding
at December 31, 1997 and 1996, respectively 2,209,229 1,146,028
Additional paid in capital 10,695,480 4,870,856
Retained earnings 651,646 779,057
Unrealized loss on investment securities available-for-sale,
net of tax effect (20,829) (45,900)
------------------- ------------------
Total Stockholders' Equity 13,535,526 6,750,041
Commitments and Contingencies
------------------- ------------------
Total Liabilities and Stockholders' Equity $152,639,627 $107,186,009
------------------- ------------------
See accompanying notes to consolidated financial statements.
</TABLE>
-28-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $7,554,812 $6,887,424 $6,010,907
Interest on federal funds sold 258,311 34,732 37,145
Interest on deposits in other banks 749,568 211,563 56,258
Interest on securities available-for-sale 529,963 545,481 917,605
Interest on securities held-to-maturity 116,220 10,296 57,272
---------------- ----------------- ----------------
Total interest income 9,208,874 7,689,496 7,079,187
INTEREST EXPENSE:
Interest on deposits:
Savings accounts 210,928 56,075 67,189
NOW accounts 282,169 245,473 258,428
Money market accounts 773,799 783,466 777,954
Certificates under $100,000 1,216,180 630,875 631,662
Certificates $100,000 and over 764,576 768,603 636,236
---------------- ----------------- ----------------
Total interest on deposits 3,247,652 2,484,492 2,371,469
---------------- ----------------- ----------------
Interest on other borrowings 517,644 291,494 190,295
---------------- ----------------- ----------------
Total interest expense 3,765,296 2,775,986 2,561,764
---------------- ----------------- ----------------
Net interest income 5,443,578 4,913,510 4,517,423
Provision for loan losses 336,200 160,000 26,347
---------------- ----------------- ----------------
Net interest income after provision for loan losses 5,107,378 4,753,510 4,491,076
NONINTEREST INCOME:
Service charges on deposit accounts 409,747 416,357 378,739
Other operating income 512,637 303,902 214,797
Loss on sale of securities - - (3,197)
---------------- ----------------- ----------------
Total noninterest income 922,384 720,259 590,339
NONINTEREST EXPENSE:
Salaries and employee benefits 2,201,299 1,987,989 2,093,816
Professional fees 691,501 628,244 272,960
Occupancy and equipment expense 649,846 531,336 516,617
Depreciation and amortization 571,033 452,949 221,557
Data processing 533,794 468,743 332,363
Communications 200,456 206,404 161,090
Federal deposit insurance premiums 13,996 30,238 88,146
Other real estate owned - 6,775 48,445
Other operating expenses 598,077 607,813 422,322
---------------- ----------------- ----------------
Total noninterest expense 5,460,002 4,920,491 4,157,316
---------------- ----------------- ----------------
Income before income tax expense 569,760 553,278 924,099
Income tax expense 233,602 274,699 311,445
---------------- ----------------- ----------------
NET INCOME $ 336,158 $ 278,579 $ 612,654
---------------- ----------------- ----------------
Basic income per common share $.23 $.24 $.57
Diluted income per common share $.21 $.22 $.55
Weighted-average common shares outstanding 1,477,435 1,185,133 996,819
See accompanying notes to consolidated financial statements.
</TABLE>
-29-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Unreal. loss
on investment
Preferred Common Additional securities Total
stock stock paid in Retained avail.-for-sale, Stockholders'
$1.00 par $1.00 par capital earnings net of tax Equity
effect
- --------------------------------- -------------- --------------- --------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 61,327 $ 823,232 $ 3,855,651 $ 639,855 $(570,145) $ 4,809,920
Exercise of common stock
options- 7,831 shares - 7,831 15,616 - - 23,447
Common stock dividend
(5% of shares outstanding)-
41,072 shares - 41,072 195,092 (236,164) - -
Redemption of preferred
stock, 33,878 shares (33,878) - (220,207) - - (254,085)
Exchange of preferred stock
(27,449 shs.) for common
stock (35,814 shs.) (27,449) 35,814 (8,365) - - -
Issuance of common stock-
138,098 shares - 138,098 573,089 - - 711,187
Preferred stock dividend - - - (40,184) - (40,184)
Net income - - - 612,654 - 612,654
Unrealized gain on invest.
securities avail.-for-sale,
net of tax effect - - - - 502,081 502,081
- --------------------------------- -------------- --------------- --------------- -------------- ----------------- --------------
Balance, December 31, 1995 - 1,046,047 4,410,876 976,161 (68,064) 6,365,020
Common stock dividend
(7% of shares outstanding)-
73,047 shares - 73,047 401,758 (475,683) - (878)
Exercise of common stock
options- 26,934 shares - 26,934 58,222 - - 85,156
Net income - - - 278,579 - 278,579
Unrealized gain on invest.
securities avail.-for-sale,
net of tax effect - - - - 22,164 22,164
- --------------------------------- -------------- --------------- --------------- -------------- ----------------- ---------------
Balance, December 31, 1996 - 1,146,028 4,870,856 779,057 (45,900) 6,750,041
Common stock dividend
(5% of shares outstanding)-
57,793 shares - 57,793 404,551 (463,569) - (1,225)
Issuance of common stock-
977,500 shares - 977,500 5,352,127 - - 6,329,627
Exercise of common stock
options- 17,699 shares - 17,699 25,590 - - 43,289
Exercise of warrants-
10,209 shares - 10,209 42,356 - - 52,565
Net income - - - 336,158 - 336,158
Unrealized gain on invest.
securities avail.-for-sale,
net of tax effect - - - - 25,071 25,071
- --------------------------------- -------------- --------------- --------------- -------------- ----------------- ---------------
Balance, December 31, 1997 $ - $2,209,229 $10,695,480 $ 651,646 $ (20,829) $13,535,526
- --------------------------------- -------------- --------------- --------------- -------------- ----------------- ---------------
See accompanying notes to consolidated financial statements.
</TABLE>
-30-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 336,158 $ 278,579 $ 612,654
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 571,033 452,959 221,557
Provision for loan losses 336,200 160,000 26,347
Provision for losses on other real estate owned - 10,000 48,445
Benefit from net deferred taxes (161,370) (88,133) (442,711)
Loss on sale of securities available-for-sale - - 3,197
Loss (gain) on sale of other real estate owned - (21,328) 11,883
(Increase) decrease in accrued interest receivable (412,760) 79,563 (7,509)
(Increase) decrease in other assets 48,471 64,259 (23,094)
Increase (decrease) in other liabilities 315,345 (32,883) (65,943)
-------------------- -------------------- --------------------
Total adjustments 696,919 624,437 (227,828)
-------------------- -------------------- --------------------
Net cash provided by operating activities 1,033,077 903,016 384,826
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (14,810,469) (1,547,403) (8,951,855)
Net increase in interest bearing deposits in other banks (15,399,960) (791,377) (5,838,933)
Purchases of securities available-for-sale (9,564,799) (3,092,717) (1,010,160)
Purchases of securities held-to-maturity (4,411,652) (326,366) -
Repayments and maturities of securities available-for-sale 1,034,208 9,662,605 6,553,254
Repayments and maturities of securities held-to-maturity 944,471 85,000 -
Proceeds from sale of securities available-for-sale - - 3,738,431
Net purchase of leasehold improv., furn. and equipment (596,888) (511,366) (1,366,073)
Acquisition of deposits, net of assets acquired 17,282,864 - -
Proceeds from sale of other real estate owned - 203,986 96,890
-------------------- -------------------- --------------------
Net cash (used in) provided by investing activities (25,522,225) 3,682,362 (6,778,446)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, savings, NOW and
money market deposit accounts (620,526) 183,315 4,589,920
Net increase in certificates of deposit 11,221,680 262,533 3,868,183
Net increase (decrease) in other borrowings 60,347 (1,092,032) 1,807,910
Net proceeds from issuance of long-term debt 573,000 5,800,000 1,800,000
Repayment of long-term debt (900,381) (50,000) (2,000,000)
Repurchase of preferred stock - - (254,085)
Net proceeds from issuance of common stock 6,424,256 85,156 734,634
Dividend paid on preferred stock - - (40,184)
-------------------- -------------------- --------------------
Net cash provided by financing activities 16,758,376 5,188,972 10,506,378
-------------------- -------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,730,772) 9,774,350 4,112,758
Cash and cash equivalents, beginning of year 19,799,911 10,025,561 5,912,803
-------------------- -------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,069,139 $19,799,911 $10,025,561
-------------------- -------------------- --------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowings $ 3,724,036 $ 2,743,631 $ 2,483,398
Income taxes paid 112,500 626,079 19,222
Transfer of loans to other real estate owned 52,000 - 946,366
See accompanying notes to consolidated financial statements.
</TABLE>
-31-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(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" or the "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 metropolitan Washington, D.C.
area 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 originating and
purchasing 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. 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.
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.
-32-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME RECOGNITION ON LOANS
Interest on loans is credited to income as earned from the principal balance
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, which is generally when a
loan is delinquent in either principal or interest for 90 days or more. 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. 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.
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 are inherent 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 these inherent 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 in
certain circumstances, 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.
The Company measures impaired loans 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, the Company determines that it is probable that it will
be unable to collect all amounts due according to the contractual terms of the
original loan agreement. All loans receivable have been evaluated for
collectibility using these criteria, except for the consumer and home equity
loan portfolios, which are evaluated collectively as large groups of smaller
balance homogeneous loans. 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.
-33-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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
In March 1997, SFAS No. 128, "Earnings Per Share" was issued. SFAS No. 128
requires income per share to be presented under two computations: basic and
diluted income per share. Basic income per share is calculated by dividing net
income (after deduction of preferred dividends), by the weighted-average common
shares outstanding. Diluted income per share is calculated by dividing net
income (after deduction of preferred dividends), by the addition of
weighted-average common shares and common stock equivalents. SFAS No. 128 was
implemented on December 31, 1997, with 1996's and 1995's computations restated
to reflect this new pronouncement. Total weighted-average shares outstanding at
December 31, 1997, 1996 and 1995 were 1,477,435, 1,185,133, and 996,819,
respectively.
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. On April 22, 1997, the Company
declared a 5 percent stock dividend to common stock shareholders of record as of
May 7, 1997, resulting in the issuance of 57,793 shares. Weighted-average shares
outstanding and income per common share have been restated for the effect of the
stock dividends.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued, as amended by
SFAS No. 127 "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125". SFAS No. 125 provides accounting and reporting policies for
transfers and servicing of financial assets and extinguishments of liabilities,
predicated on a financial components approach focusing on control. Under this
approach, after a transfer of financial or servicing assets, assets are
recognized if controlled, or liabilities are recognized if incurred. Assets are
removed from the statement of condition when control is surrendered, with
-34-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NEW FINANCIAL ACCOUNTING STANDARDS, CONTINUED
liabilities being removed when extinguished. SFAS No. 125 was effective January
1, 1997, and was applied prospectively. SFAS No. 127 defers implementation of
certain provisions of SFAS No. 125 for one year, primarily relating to
repurchase agreements and comparable transactions. The Company did not
experience any material effect on its financial position from these
pronouncements.
In June 1997, SFAS No. 130 "Reporting Comprehensive Income," and No.
131 "Disclosures about Segments of an Enterprise and Related Information" were
issued. SFAS No. 130 requires that certain financial activity normally disclosed
in stockholders' equity be reported in the statement of operations as an
adjustment to net income in computing comprehensive income. Items applicable to
the Company would be gain/loss on investment securities and preferred stock
dividends. Comprehensive income components should be reported under a separate
caption in the statements of condition and stockholders' equity. SFAS No. 130 is
effective January 1, 1998, including restatement of prior periods in conformity
with this new presentation. The Company does not anticipate any financial impact
from the implementation of SFAS No. 130.
SFAS No. 131 requires the reporting of selected segmented information
in quarterly and annual financial reporting. Information from operating segments
is derived from methods used by the Company's management to measure performance
and allocate resources. The Company is required to disclose the basis for
identifying segments and the services and products offered in each segment.
Additionally, the Company should disclose the earnings, revenues and assets of
each segment. SFAS No. 131 is effective January 1, 1998, including the
restatement of prior periods reported consistent with SFAS No. 131, if
practical. The Company does not anticipate any material impact from the
implementation of SFAS No. 131.
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 related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for the plans. The
proforma impact to compensation expense is detailed in Note 9--"Benefit and
Incentive Plans."
RECLASSIFICATIONS
Certain amounts for 1996 and 1995 have been reclassified to conform to the
presentation for 1997.
-35-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(2) INVESTMENT SECURITIES
Investment securities available-for-sale, and their contractual maturities, at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and
government agencies:
Within one year $ 3,878,954 $ 978 $ 3,839 $ 3,876,093
After one, but within five years 7,030,507 17,768 671 7,047,604
After five, but within ten years 1,807,032 - 2,558 1,804,474
After ten years 771,756 4,070 11,616 764,210
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total 13,488,249 22,816 18,684 13,492,381
Collateralized mortgage obligations:
After ten years 1,262,163 - 36,177 1,225,986
Federal Reserve Bank stock 236,350 - - 236,350
Federal Home Loan Bank stock 821,800 - - 821,800
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total investment securities available-for-sale $15,808,562 $22,816 $54,861 $15,776,517
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and
government agencies:
Within one year $ 542,476 $5,377 $ 188 $ 547,665
After one year, 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
Federal Reserve Bank stock 119,350 - - 119,350
Federal Home Loan Bank stock 674,000 - - 674,000
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total investment securities available-for-sale $7,277,971 $8,516 $79,126 $7,207,361
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
</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.
-36-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(2) INVESTMENT SECURITIES, CONTINUED
Investment securities held-to-maturity at December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury, municipals, and
government agencies:
Within one year $ 64,973 $ 161 $ - $ 65,134
After one year, but within five years 1,499,692 798 - 1,500,490
After ten years 411,434 1,719 - 413,153
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Total 1,976,099 2,678 - 1,978,777
Other securities:
After one year, but within five years 656,253 2,337 - 658,590
After ten years 999,724 - 2,224 997,500
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Total investment securities held-to-maturity $3,632,076 $5,015 $2,224 $3,634,867
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Municipal securities:
Within one year $ 99,956 $ 527 $ - $100,483
After one year, but within five years 64,939 617 - 65,556
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Total investment securities held-to-maturity $164,895 $1,144 $ - $166,039
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
</TABLE>
Investment securities totaling $3,212,794 and $2,144,283 at December
31, 1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes as required. No investment securities were sold during 1997 or
1996. Realized losses from the sale of securities available-for-sale totaled
$3,197 in 1995.
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.
-37-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(3) LOANS RECEIVABLE
The loan portfolio consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Commercial $24,132,290 $17,400,323
Real estate - residential 29,360,709 20,932,776
Real estate - commercial 17,999,360 14,001,133
Real estate - construction 1,458,520 462,685
Consumer 13,535,702 11,509,900
Home equity 7,808,051 6,431,425
------------------ ------------------
94,294,632 70,738,242
Unearned income (123,182) (61,886)
------------------ ------------------
94,171,450 70,676,536
Allowance for loan losses (887,046) (825,876)
------------------ ------------------
Loans, net $93,284,404 $69,850,480
------------------ ------------------
</TABLE>
Loans on which the accrual of interest has been discontinued amounted
to approximately $624,000, $272,000, and $8,000, at December 31, 1997, 1996, and
1995, respectively. Interest lost on these nonaccrual loans was approximately
$26,000, $17,000, and $1,000, for 1997, 1996, and 1995, respectively. The
Company did not receive any interest paid on these nonaccrual loans in 1997 and
received approximately $19,851 and $13,500, for 1996 and 1995, respectively. At
December 31, 1997, the Bank has one investment in impaired loans of $42,105 for
which there was no specific reserve for impairment. Average impaired loans for
1997 was approximately $12,000.
Analysis of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Balance, beginning of year $825,876 $740,000 $740,000
Provision for loan losses 336,200 160,000 26,347
Loans charged off (451,593) (256,245) (198,126)
Recoveries 176,563 182,121 171,779
------------------ ------------------ -------------------
Net charge-offs (275,030) (74,124) (26,347)
------------------ ------------------ -------------------
Balance, end of year $887,046 $825,876 $740,000
------------------ ------------------ -------------------
</TABLE>
-38-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(3) 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, 1997, 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
as of
December 31,
-------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent potential credit risk:
Commitments to extend credit $25,261,000 $19,361,000
Standby letters of credit 1,777,000 658,000
</TABLE>
At December 31, 1997, 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 and the health care profession. Century Bank
offers lines of credit, home equity lines, and mortgage loans to these groups.
The aggregate total of loans to such groups was approximately $17.8 million and
$11.5 million, respectively, as of December 31, 1997. The aggregate total of
loans to such groups was approximately $17.7 million and $9.4 million,
respectively, as of December 31, 1996. The amount of such loans which are past
due or considered by management to be potential problem loans is not material.
-39-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(4) RELATED PARTIES
An analysis of the activity of loans to directors, officers, and their
affiliates during the years ended December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Balance, beginning of year $2,661,708 $3,320,113
Additions 939,478 29,961
Payments (90,652) (688,366)
------------------ ------------------
Balance, end of year $3,510,534 $2,661,708
------------------ ------------------
</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. Unfunded commitments to related parties totaled
approximately $282,000 and $938,000 at December 31, 1997 and 1996, respectively.
Also, included in professional fees are legal fees paid to law firms
whose partners are directors of the Company or the Bank, totaling $282,536,
$139,611, and $102,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
(5) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT
Leasehold improvements, furniture, and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Leasehold improvements $ 1,459,696 $ 1,248,990
Furniture and equipment 2,828,881 2,398,978
------------------ ------------------
4,288,577 3,647,968
Less accumulated depreciation and amortization (2,579,590) (2,089,721)
------------------ ------------------
Balance, end of year $ 1,708,987 $ 1,558,247
------------------ ------------------
</TABLE>
Depreciation and amortization expense was $502,556, $407,175, and
$151,471 for 1997, 1996, and 1995, respectively.
-40-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(6) DEPOSITS
Major classifications of deposits consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Noninterest-bearing - demand deposits $26,225,119 $24,064,454
Interest-bearing:
NOW accounts 18,505,617 13,852,112
Savings accounts 16,357,774 3,594,587
Money market accounts 24,999,539 24,231,842
Certificates of deposit--less than $100,000 27,065,335 10,072,924
Certificates of deposit--$100,000 and over 16,451,648 15,169,291
------------------ ------------------
Total interest-bearing 103,379,913 66,920,756
------------------ ------------------
Total deposits $129,605,032 $90,985,210
------------------ ------------------
</TABLE>
Certificates of deposit of $37,823,880 have remaining maturities of one
year or less as of year-end 1997. Certificates of deposit with a remaining term
of more than one year as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
- ----------------------------------------------------------------------------------------
<S> <C>
1999 $2,662,536
2000 1,241,210
2001 727,785
2002 939,921
2003 19,581
Thereafter 102,070
--------------------
Total $5,693,103
--------------------
</TABLE>
In October 1997, Century Bank acquired deposit accounts totaling
approximately $28.0 million. This acquisition included a premium of $1.5 million
to be amortized over an estimated life of ten years on a straight-line basis.
Also, in September 1994, Century Bank acquired deposit accounts of approximately
$9.1 million, for which it paid a premium of $366 thousand. Total amortization
was $68 thousand in 1997 and $48 thousand in 1996.
-41-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(7) 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,
---------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Federal Home Loan Bank:
Ending balance $7,422,619 $7,750,000 $2,000,000
Daily average balance for the period 7,397,407 4,559,202 2,924,163
Maximum outstanding balance at a month-end 7,675,000 7,800,000 4,000,000
Daily average interest rate for the period 6.75% 5.99% 5.46%
Average interest rate on period end balance 6.73 6.73 6.10
Treasury Tax and Loan Account
Ending balance $776,224 $715,877 $1,807,909
Daily average balance for the period 370,944 392,740 473,062
Maximum outstanding balance at a month-end 776,224 829,352 710,501
Daily average interest rate for the period 4.61% 4.64% 4.60%
Average interest rate on period end balance 5.27 5.16 2.00
</TABLE>
FHLB advances with original maturities in excess of one year are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
6.60% fixed rate, due 1999 $ 300,000 $ 300,000
6.85% fixed rate, due 2001 300,000 300,000
6.57% fixed rate, due 2001 1,200,000 1,600,000
6.66% fixed rate, due 2002 1,600,000 2,000,000
6.30% fixed rate, due 2006 800,000 800,000
7.34% fixed rate, due 2006 1,000,000 1,000,000
6.94% fixed rate, due 2006 750,000 850,000
6.65% fixed rate, due 2017 561,000 -
------------------ ------------------
$6,511,000 $6,850,000
------------------ ------------------
</TABLE>
The Bank has been advised by the FHLB that it has a total credit
availability of $19.9 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, 1997, the Bank's available credit from
the FHLB was $12.5 million.
In connection with its borrowings from the FHLB, the Bank is required
to own FHLB stock. At December 31, 1997, the Bank's investment in FHLB stock had
a par and carrying value of $821,800 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.
-42-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(8) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 5 million shares of Common Stock, par value
$1.00. At December 31, 1997, the Company had 2,209,229 shares outstanding.
On September 26, 1997, the Company issued 977,500 shares of Common
Stock, at a price of $7.25 per share. The net proceeds from the sale of Common
Stock totaled approximately $6.3 million.
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 (see below). Each Unit consisted of one share of Common
Stock and one Warrant. The offering price was $5.75 per Unit. Of the 173,912
Units issued, 35,814 Units were exchanged for 27,449 shares of the Company'
Series A Cumulative Convertible Preferred Stock. The remaining 138,098 Units
were sold for cash, with net proceeds totaling $711,187.
Each Warrant entitled the holder thereof to purchase one share of
Common Stock at a price of $5.75 per share, subject to adjustment. As a result
of stock dividends declared in 1997 and 1996, the terms of the Warrants have
been adjusted to the effect that as of December 31, 1997, each Warrant entitles
the holder to purchase 1.1235 shares of Common Stock at an adjusted price of
$5.12 per share. 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. As
of December 31, 1997, there were 164,766 Warrants outstanding, entitling holders
to purchase an aggregate 185,115 shares of Common Stock.
INCOME PER COMMON SHARE
In accordance with SFAS No. 128, the calculation of basic income per common
share and diluted income per common share is detailed below:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
<S> <C> <C> <C>
Basic Income Per Share:
Net income $336,158 $278,579 $612,654
Less: Dividends paid on preferred stock -- -- 40,184
----------------- ---------------- -----------------
Net income applicable to common stock $336,158 $278,579 $572,470
Weighted-average common shares outstanding 1,477,435 1,185,133 996,819
----------------- ---------------- -----------------
Basic income per share $0.23 $0.24 $0.57
Diluted Income Per Share:
Net income applicable to common stock $336,158 $278,579 $572,470
Weighted-average common shares outstanding 1,477,435 1,185,133 996,819
Dilutive effect of warrants and stock options 122,982 71,304 51,619
----------------- ---------------- -----------------
Diluted weighted-average
common shares outstanding 1,600,417 1,256,437 1,048,438
----------------- ---------------- -----------------
Diluted income per share $0.21 $0.22 $0.55
</TABLE>
-43-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(9) BENEFIT AND INCENTIVE PLANS
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan for its board of directors and
Century Bank's board of directors, with certain limitations. Each director may
elect to enter into an agreement in lieu of receiving director's fees in cash.
The agreements generally provides for the purchase of life insurance for each
participating director and the payment of a retirement benefit for 15 years
after retirement, with certain death provisions. The retirement benefit granted
under the agreement vest pursuant to a schedule, with 20% of the benefit vesting
each year over a five-year period. As of December 31, 1997, the net present
value of the deferred compensation liability for all directors totaled
approximately $544,000, compared with $448,000 for 1996. Expenses related to the
deferred compensation program totaled $84,000 for 1997, $112,000 for 1996, and
$139,000 for 1995.
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, 1997, after adjusting for stock dividends and
stock option activity, there are 166,551 shares of stock reserved for issuance
pursuant to the 1994 Plan, of which 148,247 shares are reserved for outstanding
options and 18,304 shares are reserved for future option grants. These options
are granted for terms of 7 to 10 years, with directors having immediate vesting
and employees vesting 25 percent (of the original grant) after each six,
eighteen, thirty and forty-two month periods of continued service.
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, 1997, after adjusting for stock
dividends and stock option activity, there are 28,367 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, 1997, 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, March 31, 1995, and May 7, 1997, in addition to 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.
Stock option transactions for the years ended December 31, 1997, 1996,
and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
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 155,068 $3.83 159,001 $3.32 146,677 $3.11
Granted 45,462 6.95 33,985 6.00 34,955 5.75
Exercised (17,699) 2.45 (26,934) 3.16 (14,252) 2.80
Forfeited (6,217) 6.30 (10,984) 5.18 (8,379) 7.18
- ----------------------------------- ------------- ------------- --- ------------- ------------- --- ------------- -------------
Outstanding at end of year 176,614 $4.68 155,068 $3.81 159,001 $3.32
- ----------------------------------- ------------- ------------- --- ------------- ------------- --- ------------- -------------
Options exercisable at year-end 154,876 $4.40 141,582 $3.68 137,849 $3.21
Weighted-average fair value of
options granted $3.07 $2.09 $1.82
</TABLE>
-44-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(9) BENEFIT AND INCENTIVE PLANS, CONTINUED
STOCK OPTION PLANS, CONTINUED
The following table summarizes information about stock options
outstanding at December 31, 1997:
<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 (years) price exercisable price
- ----------------------------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$1.54 to $2.00 13,204 0.6 $1.58 13,204 $1.58
$2.01 to $3.00 35,264 2.0 2.55 35,264 2.55
$3.01 to $4.00 2,834 2.1 3.33 2,834 3.33
$4.01 to $5.00 27,366 3.3 4.03 27,366 4.03
$5.01 to $6.00 55,359 6.3 5.43 49,967 5.41
$6.01 to $8.81 42,587 9.4 6.95 26,241 6.88
- ----------------------------------- -------------- ------------- ------------- ------------- -------------
$1.54 to $8.81 176,614 5.2 $4.68 154,876 $4.40
- ----------------------------------- -------------- ------------- ------------- ------------- -------------
</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 1997, 1996 and 1995, respectively: no dividends
for either year, expected volatility of 29 percent in 1997 and 20 percent for
both 1996 and 1995, risk free interest rates of 5.8 percent for 1997, 6.3
percent for 1996 and 5.8 percent for 1995, along with expected lives of 7 years
for 1997 and 1996 and 5 years for 1995.
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>
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net income, as reported $336,158 $278,579 $612,654
Net income, pro forma 298,320 244,585 586,074
Diluted earnings per share, as reported .21 .22 .55
Diluted earnings per share, pro forma .19 .19 .53
</TABLE>
Pro forma net income reflects only options granted in 1997, 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 costs for options granted prior to January 1, 1995 are
not considered.
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 $17,000 for the year ended 1997 and $21,000
for each of the years ended December 31, 1996, and 1995.
-45-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(10) INCOME TAXES
The provision for taxes on income for the years ended December 31, 1997, 1996,
and 1995, consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Current federal income tax $304,721 $289,329 627,042
Current state income tax 90,251 73,503 127,114
------------------ ------------------ -------------------
Total current income tax 394,972 362,832 754,156
Deferred Federal income tax benefit (117,497) (68,715) (370,563)
Deferred state income tax benefit (43,873) (19,418) (72,148)
------------------ ------------------ -------------------
Total deferred income tax benefit (161,370) (88,133) (442,711)
------------------ ------------------ -------------------
Total income tax $233,602 $274,699 311,445
------------------ ------------------ -------------------
</TABLE>
The difference between the statutory federal income tax rates and the
effective income tax rates for 1997, 1996, and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0% 34.0 %
State income taxes, net of federal benefit 5.4 6.4 3.5
Nondeductible expenses 2.6 8.1 -
Other (1.0) 1.1 (3.8)
- ----------------------------------------------------- ------------------ ------------------ -------------------
Effective income tax rate 41.0 % 49.6% 33.7 %
- ----------------------------------------------------- ------------------ ------------------ -------------------
</TABLE>
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
ASSETS:
Fixed assets $ 84,289 $107,629
Bad debts 318,827 221,393
Deferred rent expense 44,703 57,869
Deferred loan fees 49,987 25,113
Vacation pay accrual 20,479 21,996
Directors' deferred compensation 220,749 188,412
Intangibles 22,254 7,389
------------------ ------------------
Deferred tax assets 761,288 629,801
LIABILITIES:
Federal Home Loan Bank stock dividends (11,484) (11,484)
Unrealized losses on investments designated as
available-for-sale recognized for tax purposes 11,217 (5,897)
Other (56,444) (86,327)
------------------ ------------------
Deferred tax liabilities (56,711) (103,708)
------------------ ------------------
Net deferred tax asset attributable to operations 704,577 526,093
Unrealized losses on investments available-for-
sale charged directly to stockholders' equity (11,217) 5,897
------------------ ------------------
Net deferred tax asset $693,360 $531,990
------------------ ------------------
</TABLE>
Net deferred tax assets of $693,360 and $531,990 at December 31, 1997 and 1996,
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.
-46-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(11) RESERVE BALANCES, FUNDS RESTRICTION, COMMITMENTS AND CONTINGENCIES
RESERVE BALANCES
Under Federal Reserve Board regulations, banks are required to maintain cash
reserves against certain categories of deposit liabilities. Cash balances
qualified to meet these reserve requirements consist of vault cash and balances
on deposit with the Federal Reserve Bank. Such restricted cash balances are
included in "Cash and due from banks" in the consolidated statements of
financial condition and amount to approximately $1 million at year-end 1997 and
$226,000 at year-end 1996.
FUNDS RESTRICTIONS
Dividends paid to the Company by Century Bank are subject to restrictions by
regulatory agencies. As of December 31, 1997, approximately $1.4 million was
available to be paid to the Company in dividends from Century Bank, pursuant to
such regulatory restrictions. As described in Note 12--Capital and Liquidity,
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.
COMMITMENTS AND CONTINGENCIES
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 $399,000,
$327,000, and $324,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. Total future minimum rental payments at December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
- ------------------------------------------------------------------------
<S> <C>
1998 $ 550,000
1999 519,000
2000 520,000
2001 528,000
2002 338,000
Thereafter 389,000
------------------
Total $2,844,000
------------------
</TABLE>
-47-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(12) 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) to average assets (as defined). Management believes, as of December 31,
1997, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997, 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, and 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 Company's category.
The following tables present 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, 1997
Total Capital (to Risk Weighted Assets):
Century Bancshares $12,686,803 13.19% $7,693,644 8.00% n/a n/a
Century National Bank 9,861,672 10.26% 7,686,055 8.00% $9,607,569 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares 11,799,757 12.27% 3,846,822 4.00% n/a n/a
Century National Bank 8,974,716 9.34% 3,843,028 4.00% 5,764,541 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares 11,799,757 8.83% 5,346,792 4.00% n/a n/a
Century National Bank 8,974,716 6.44% 5,572,560 4.00% 6,965,700 5.00%
</TABLE>
-48-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(12) CAPITAL AND LIQUIDITY, CONTINUED
<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% $7,241,100 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% 4,344,660 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% 5,142,600 5.00%
</TABLE>
-49-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(13) PARENT COMPANY-ONLY FINANCIAL STATEMENTS
The Century Bancshares, Inc. (parent company-only) condensed financial
statements are as follows:
Statements of Financial Condition
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,041,413 $ 29,121
Investment in Century Bank 10,710,484 6,856,926
Other assets 91,462 112,668
--------------------- --------------------
Total Assets $13,843,359 $6,998,715
--------------------- --------------------
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 307,833 $ 248,674
--------------------- --------------------
Total Liabilities 307,833 248,674
Stockholders' Equity:
Common stock 2,209,229 1,146,028
Additional paid-in capital 10,695,480 4,870,856
Retained earnings 651,646 779,057
Unrealized loss on investment securities available-for-sale, net of tax (20,829) (45,900)
effect
--------------------- --------------------
Total Stockholders' Equity 13,535,526 6,750,041
--------------------- --------------------
Total Liabilities and Stockholders' Equity $13,843,359 $6,998,715
--------------------- --------------------
</TABLE>
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- --------------------
<S> <C> <C> <C>
INCOME:
Interest income $ 35,421 $ - $ -
Other income - 1,659 929
-------------------- --------------------- --------------------
Total Income 35,421 1,659 929
EXPENSE:
Professional fees - 111,754 112,663
Other expenses 22,414 15,914 50,915
-------------------- --------------------- --------------------
Total Expense 22,414 127,668 163,578
-------------------- --------------------- --------------------
Net income (loss) before income tax benefit and
equity in undistributed earnings of bank subsidiary 13,007 (126,009) (162,649)
Income tax expense (benefit) 5,333 - (55,702)
-------------------- --------------------- --------------------
Net income before equity in undistributed earnings
of bank subsidiary 7,674 (126,009) (106,947)
Equity in undistributed earnings of Century Bank 328,484 404,588 719,601
-------------------- --------------------- --------------------
NET INCOME $336,158 $ 278,579 $ 612,654
-------------------- --------------------- --------------------
</TABLE>
-50-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(13) PARENT COMPANY-ONLY FINANCIAL STATEMENTS, CONTINUED
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 336,158 $ 278,579 $ 612,654
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of subsidiary (328,484) (404,588) (719,601)
Decrease in other assets 21,203 - 134,416
Increase (decrease) in other liabilities 59,159 14,083 (178,584)
-------------------- --------------------- --------------------
Net cash provided by (used in) operating activities 88,036 (111,926) (151,115)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contributions to subsidiary (3,500,000) - (400,000)
-------------------- --------------------- --------------------
Net cash used in investing activities (3,500,000) - (400,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of preferred stock - - (254,085)
Issuance of common stock 6,424,256 85,156 734,634
Preferred stock dividends paid - (878) (40,184)
-------------------- --------------------- --------------------
Net cash provided by financing activities 6,424,256 84,278 440,365
-------------------- --------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,012,292 (27,648) (110,750)
Cash and cash equivalents, beginning of year 29,121 56,769 167,519
-------------------- --------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,041,413 $ 29,121 $ 56,769
-------------------- --------------------- --------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ - $ -
Income taxes paid - - 11,222
</TABLE>
-51-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures 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, interest-bearing deposits with other banks, and federal
funds sold; the carrying amount approximates fair value.
Investment Securities: For these instruments, fair values are based on published
market or dealer quotes.
LOANS, NET OF UNEARNED INCOME: For variable rate loans that reprice on a
scheduled basis, fair values are based on carrying values. The fair value of the
remaining loans are estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
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.
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 are not material.
-52-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair values of the Company's financial instruments at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 7,069,139 $ 7,069,139 $ 8,363,911 $ 8,363,911
Federal funds sold 5,000,000 5,000,000 11,436,000 11,436,000
Interest bearing deposits with other banks 22,223,037 22,223,037 6,823,077 6,823,077
Investment securities 19,408,593 19,411,384 7,372,256 7,373,400
Loans, net of unearned income 94,171,450 93,381,358 70,676,356 69,867,616
Financial Liabilities:
Noninterest-bearing deposits $ 26,225,119 $ 26,225,119 $24,064,454 $24,064,454
Interest-bearing deposits 103,379,913 103,448,942 66,920,756 67,053,793
Other borrowings 8,198,843 8,318,962 8,465,877 8,465,877
</TABLE>
(15) ACQUISITIONS AND INTANGIBLES
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 assumed approximately
$28.0 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, in addition to $0.2 million in
equipment and other assets.
The assumption of the deposits and other liabilities by the Bank was
made pursuant to a Purchase and Assumption 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 $17.3 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. The acquisition premium of $1.5 million will be amortized
over the estimated life of the deposit account relationship on a straight-line
basis. Total accumulated amortization at December 31, 1997 was $32,000, as was
the amount of amortization expense for the 1997 year.
-53-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There was no reported disagreement on any matter of accounting
principles or procedures of financial statement disclosure during 1997 with the
Company's independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The Following Documents are Filed as Part of this Report:
1. Financial Statements Page
Independent Auditors' Report 27
Consolidated Statements of Financial Condition 28
Consolidated Statements of Operations 29
Consolidated Statements of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
2. Financial Statement Schedules
No schedules are included because either they are not
applicable or the required information is shown
in the financial statements or notes thereto.
-54-
<PAGE>
3. Exhibits
3.1 Certificate of Incorporation, as amended of the Company.
(Incorporated by reference from Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14417)).
3.2 Bylaws of the Company. (Incorporated by reference from Exhibit
3.2 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
3.3 Articles of Association of the Bank. (Incorporated by
reference from Exhibit 3.3 of the Registrant's
Registration Statement on Form S-1 (Registration
No. 333-14417)).
4.1 Form of Warrant to Purchase Common Stock of Century
Bancshares, Inc. (Incorporated by reference from Exhibit 4.1
of the Registrant's Registration Statement on Form S-1
(Registration No.
333-14417)).
4.2 Form of Common Stock certificate. (Incorporated by reference
from Exhibit 4.2 of the Registrant's Registration Statement on
Form S-1 (Registration No. 333-14417)).
10.1 Century Bancshares, Inc. 1994 Stock Option Plan.
(Incorporated by reference from Exhibit 10.1 of the
Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.2 Incentive Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.2 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14417)).
10.3 Nonqualified Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.3 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14417)).
10.4 Nonqualified Stock Option Plan for Directors, as amended.
(Incorporated by reference from Exhibit 10.4 of the
Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.5 Form of Director Compensation Agreement between the Company
and its directors. (Incorporated by reference from Exhibit
10.5 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.6 Form of Indemnity Agreement between Company and the persons
named therein. (Incorporated by reference from Exhibit 10.6
of the Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.7 Employment Agreement dated September 1, 1996, between the
Company and Mr. Joseph S. Bracewell. (Incorporated by
reference from Exhibit 10.7 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-14417)).
10.8 Lease Agreement dated January 3, 1995, between the Bank and
Pennsylvania Building Associates. (Incorporated by reference
from Exhibit 10.8 of the Registrant's Registration Statement
on Form S-1 (Registration No. 333-14417)).
10.9 Lease and Services Agreement dated November 17, 1995, between
ALLIANCE Greensboro, L.P., a Delaware limited partnership
d/b/a/ ALLIANCE Business Centers, and the Bank. (Incorporated
by reference from Exhibit 10.9 of the Registrant's
Registration Statement on Form S-1 (Registration No.
333-14417)).
-55-
<PAGE>
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. (Incorporated by reference from Exhibit 10.10 of
the Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.11 Sublease Agreement, dated May 1, 1992, between the Company and
the Bank. (Incorporated by reference from Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14417)).
10.12 Sublease Agreement dated November 1996, effective as of
February 1, 1997, by and between Chevy Chase Bank, F.S.B., and
Century National Bank. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (SEC File No.--0-16234)).
11* Statement regarding computation of per share earnings.
21* Subsidiaries of the Registrant.
24* Powers of Attorney from certain of the directors of Century
Bancshares, Inc. whose signatures are to be affixed to this
Form 10-K for the year ended December 31, 1997.
27* Financial Data Schedule.
- ---------------
* Filed herewith.
(b) Reports On Form 8-K.
On October 10, 1997, the Company filed a Form 8-K, announcing the
completion of the purchase and assumption of the deposits and certain other
liabilities of a branch from Eastern American Bank, FSB.
-56-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CENTURY BANCSHARES, INC.
(Registrant)
By: /s/ JOSEPH S. BRACEWELL
-----------------------------
Joseph S. Bracewell
Chairman of the Board, President and
Chief Executive Officer
By: /s/ JAMES T. DUKE
-----------------------------
James T. Duke
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: March 27, 1998.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant in the capacities indicated, on
the 27 day of March, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ JOSEPH S. BRACEWELL Chairman of the Board, President and
- ----------------------------------------------------- Chief Executive Officer
Joseph S. Bracewell
* Director
- -----------------------------------------------------
*George Contis
* Director
- -----------------------------------------------------
*John R. Cope
* Director
- -----------------------------------------------------
*Bernard J. Cravath
* Director
- -----------------------------------------------------
*Neal R. Gross
* Director
- -----------------------------------------------------
*Joseph H. Koonz, Jr.
Director
- -----------------------------------------------------
William McKee
* Director
- -----------------------------------------------------
*William C. Oldaker
</TABLE>
*By: /s/ Joseph S. Bracewell
- -----------------------------------------------------
ATTORNEY-IN-FACT
-57-
<PAGE>
Index to Exhibits
Exhibit No. Description
- ------------------------------------------------------------------------------
11 Earnings per share computation.
21 List of Subsidiaries.
24 Power of Attorney.
27 Financial Data Schedule.
CENTURY BANCSHARES, INC. Exhibit 11
Computation of Per Share Earnings
Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Basic Earnings Per Share:
Net income $336,158 $278,579 $612,654
Less: Dividends paid on
preferred stock -- -- 40,184
----------------------------------------
Net income applicable to
common stock $336,158 $278,579 $572,470
Weighted-average common
shares outstanding 1,477,435 1,185,133 996,819
----------------------------------------
Basic earnings per share $0.23 $0.24 $0.57
Diluted Earnings Per Share:
Net income applicable to
common stock $336,158 $278,579 $572,470
Weighted-average common
shares outstanding 1,477,435 1,185,133 996,819
Dilutive effect of warrants
and stock options 122,982 71,304 51,619
----------------------------------------
Diluted weighted-average
common shares outstanding 1,600,417 1,256,437 1,048,438
----------------------------------------
Diluted earnings per share $0.21 $0.22 $0.55
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Century National Bank, incorporated under the laws of the United States.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 17 day of March, 1998.
/s/ GEORGE CONTIS
- - --------------------
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 17 day of March, 1998.
/s/ JOHN R. COPE
- - --------------------
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney
this 17 day of March, 1998.
/s/ BERNARD J. CRAVATH
- - ----------------------------------
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 17 day of March, 1998.
/s/ NEAL R. GROSS
- - ---------------------------
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 17 day of March, 1998.
/s/ JOSEPH H. KOONZ, Jr.
- - ------------------------------------
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Century Bancshares, Inc. a Delaware corporation (the "Company"), hereby
constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful
attorney-in-fact and agent, for the undersigned and on the undersigned's behalf
and in the undersigned's name, place and stead, in any and all capacities, to
sign, execute and file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
together with all amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney-in-fact and agent, may lawfully
do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 17 day of March, 1998.
/s/ WILLIAM C. OLDAKER
- -----------------------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CENTURY BANCSHARES, INC. AND SUBSIDIARY AS OF DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C> <C> <C>
<NAME> CENTURY BANCSHARES, INC.
<CIK> 785813
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 7,069
<INT-BEARING-DEPOSITS> 22,223
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> --
<INVESTMENTS-HELD-FOR-SALE> 15,777
<INVESTMENTS-CARRYING> 3,632
<INVESTMENTS-MARKET> 3,635
<LOANS> 94,171
<ALLOWANCE> 887
<TOTAL-ASSETS> 152,640
<DEPOSITS> 129,605
<SHORT-TERM> 1,688
<LIABILITIES-OTHER> 1,300
<LONG-TERM> 6,511
<COMMON> 2,209
--
--
<OTHER-SE> 11,327
<TOTAL-LIABILITIES-AND-EQUITIES> 152,640
<INTEREST-LOAN> 7,555
<INTEREST-INVEST> 646
<INTEREST-OTHER> 1,008
<INTEREST-TOTAL> 9,209
<INTEREST-DEPOSITS> 3,248
<INTEREST-EXPENSE> 3,765
<INTEREST-INCOME-NET> 5,444
<LOAN-LOSSES> 336
<SECURITIES-GAINS> --
<EXPENSE-OTHER> 5,460
<INCOME-PRETAX> 570
<INCOME-PRE-EXTRAORDINARY> 570
<EXTRAORDINARY> --
<CHANGES> --
<NET-INCOME> 336
<EPS-PRIMARY> 0.23 0.24 0.57
<EPS-DILUTED> 0.21 0.22 0.55
<YIELD-ACTUAL> 5.17
<LOANS-NON> 624
<LOANS-PAST>
76
<LOANS-TROUBLED> --
<LOANS-PROBLEM> 640
<ALLOWANCE-OPEN> 826
<CHARGE-OFFS> 452
<RECOVERIES> 177
<ALLOWANCE-CLOSE> 887
<ALLOWANCE-DOMESTIC> 887
<ALLOWANCE-FOREIGN>
-
<ALLOWANCE-UNALLOCATED> 613
</TABLE>
