FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________ TO ____________.
COMMISSION FILE NUMBER: 0-16234
CENTURY BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-1489098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D. C. 20004
(Address of Principal Executive Offices)
(Zip Code)
(202) 496-4100
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At October 31, 1999, there were
2,592,090 shares of the
registrant's Common Stock, par
value $1.00 per share outstanding.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
For The Quarter Ended September 30, 1999
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
Exhibit 27
Financial Data Schedule
for the quarter ended September 30, 1999 26
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Information
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition
September 30, 1999, and December 31, 1998
September 30,
1999 December 31,
(Unaudited) 1998
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 10,085,516 $ 8,950,733
Federal funds sold 4,400,000 4,285,000
Interest bearing deposits in other banks 33,328,019 9,847,315
Investment securities available-for-sale, at fair value 14,211,726 6,811,356
Investment securities, at cost, fair value of $3,875,128
and $2,449,680 at September 30, 1999
and December 31, 1998, respectively 3,999,844 2,441,537
Loans, net of unearned income 131,647,670 115,231,298
Less: allowance for credit losses (1,350,806) (1,128,147)
----------------- -----------------
Loans, net 130,296,864 114,103,151
Premises and equipment, net 1,228,712 1,372,370
Accrued interest receivable 926,970 742,721
Deposit premiums, net 1,404,079 1,546,232
Net deferred taxes 729,224 683,113
Other assets 690,964 566,373
----------------- -----------------
Total Assets $ 201,301,918 $ 151,349,901
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 29,627,630 $ 31,676,194
Interest-bearing 107,787,499 94,535,082
----------------- -----------------
Total deposits 137,415,129 126,211,276
Federal funds purchased and securities sold under agreements to repurchase 7,796,079 1,359,330
Other borrowings 39,406,895 7,101,911
Other liabilities 1,370,523 1,360,710
----------------- -----------------
Total Liabilities 185,988,626 136,033,227
----------------- -----------------
Stockholders' Equity:
Common stock, $1 par value; 5,000,000 shares authorized; 2,722,090 and
2,574,219 shares issued at September 30, 1999 and December 31, 1998,
respectively 2,722,090 2,574,219
Additional paid in capital 13,031,558 12,343,631
Treasury stock, at cost, 130,000 shares at September 30, 1999 (789,863) -
Retained earnings 443,588 392,384
Accumulated other comprehensive income (loss),
net of tax effect (94,081) 6,440
----------------- -----------------
Total Stockholders' Equity 15,313,292 15,316,674
Commitments and contingencies
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 201,301,918 $ 151,349,901
----------------- -----------------
See accompanying condensed notes to consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 1999 and 1998
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,872,897 $ 2,364,953 $ 8,383,654 $ 6,984,256
Interest on federal funds sold 60,611 143,922 177,200 268,827
Interest on deposits in other banks 171,048 133,917 442,539 542,667
Interest on securities available-for-sale 166,590 128,341 392,023 562,739
Interest on securities held-to-maturity 52,138 47,607 123,800 192,761
-------------- -------------- -------------- --------------
Total interest income 3,323,284 2,818,740 9,519,216 8,551,250
Interest expense:
Interest on deposits:
Savings accounts 212,386 216,052 639,513 611,799
NOW accounts 53,936 75,862 169,158 240,706
Money market accounts 150,291 186,634 478,312 605,342
Certificates under $100,000 383,924 293,668 1,047,254 957,152
Certificates $100,000 and over 264,614 222,819 726,511 673,647
-------------- -------------- -------------- --------------
Total interest on deposits 1,065,151 995,035 3,060,748 3,088,646
Interest on other borrowings 218,695 125,864 534,034 377,036
-------------- -------------- -------------- --------------
Total interest expense 1,283,846 1,120,899 3,594,782 3,465,682
-------------- -------------- -------------- --------------
Net interest income 2,039,438 1,697,841 5,924,434 5,085,568
Provision for credit losses 110,000 154,000 435,000 537,000
-------------- -------------- -------------- --------------
Net interest income after provision for credit losses 1,929,438 1,543,841 5,489,434 4,548,568
Noninterest income:
Service charges on deposit accounts 162,846 114,415 491,470 323,010
Other operating income 248,226 155,277 755,608 454,134
Gain on sale of available for sale securitites - - - 14,570
Gain on liquidation of other real estate owned - - - 15,853
-------------- -------------- -------------- --------------
Total noninterest income 411,072 269,692 1,247,078 807,567
-------------- -------------- -------------- --------------
Noninterest expense:
Salaries and employee benefits 721,985 537,197 2,106,431 1,623,426
Occupancy and equipment expense 194,077 200,257 614,629 611,427
Professional fees 175,076 231,104 523,275 631,533
Depreciation and amortization of premises and equipment 112,735 117,726 340,181 354,035
Amortization of deposit premiums 47,385 47,385 142,153 142,153
Data processing 295,024 174,985 840,510 511,759
Communications 86,859 71,295 256,787 205,801
Federal deposit insurance premiums 4,365 3,827 13,021 13,464
Other operating expenses 182,742 190,375 564,945 536,982
-------------- -------------- -------------- --------------
Total noninterest expense 1,820,248 1,574,151 5,401,932 4,630,580
-------------- -------------- -------------- --------------
Income before income tax expense 520,262 239,382 1,334,580 725,555
Income tax expense 197,699 68,982 507,576 253,728
-------------- -------------- -------------- --------------
Net income $ 322,563 $ 170,400 $ 827,004 $ 471,827
-------------- -------------- -------------- --------------
Basic income per common share $ 0.12 $ 0.07 $ 0.31 $ 0.19
Diluted income per common share 0.12 0.06 0.30 0.18
Weighted-average common shares outstanding 2,671,123 2,495,090 2,698,104 2,470,201
See accompanying condensed notes to consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1999 and 1998
Accumulated
Common Additional Other Total
stock paid in Retained Comprehensive Stockholders'
$1.00 par capital Treasury Stock earnings Income (Loss) Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 2,209,229 $ 10,695,480 $ - $ 651,646 $ (20,829) $ 13,535,526
Comprehensive Income:
Net income 471,827 471,827
Unrealized gain on investment
securities available-for-sale,
net of tax effect of $15,892 29,514 29,514
-----------------------------------------------------------------------------------------------
Total Comprehensive Income (Loss) - - - 471,827 29,514 501,341
Stock dividend 112,665 shares 112,665 779,765 (894,288) (1,858)
Exercise of common stock options
56,178 shares 56,178 131,773 187,951
Exercise of warrants
25,099 shares 25,099 98,186 123,285
Other (22,858) (22,858)
-----------------------------------------------------------------------------------------------
Balance, September 30, 1998 $ 2,403,171 $ 11,682,346 $ - $ 229,185 $ 8,685 $ 14,323,387
-----------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 2,574,219 $ 12,343,631 $ - $ 392,384 $ 6,440 $ 15,316,674
Comprehensive Income:
Net income 827,004 827,004
Unrealized gain (loss) on investment
securities available-for-sale,
net of tax effect of $54,127 (100,521) (100,521)
-----------------------------------------------------------------------------------------------
Total Comprehensive Income (Loss) - - - 827,004 (100,521) 726,483
Stock dividend 129,173 shares 129,173 645,865 (775,800) (762)
Purchase of treasury stock, at cost,
130,000 shares (789,863) (789,863)
Exercise of common stock options
18,698 shares 18,698 42,062 60,760
-----------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 2,722,090 $ 13,031,558 $ (789,863) $ 443,588 $ (94,081) $ 15,313,292
-----------------------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and 1998
Nine Months Nine Months
Ended Ended
Sept 30, 1999 Sept 30, 1998
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 827,004 $ 471,827
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 340,181 354,035
Amortization of deposit premiums 142,153 142,153
Provision for credit losses 435,000 537,000
Gain on sale of available-for-sale securities - (14,570)
Gain on liquidation of other real estate owned - (15,853)
(Increase) decrease in accrued interest receivable (184,249) 219,049
(Increase) decrease in other assets (328,915) (141,645)
Increase (decrease) in other liabilities 9,813 81,715
---------------- ----------------
Total adjustments 413,983 1,161,884
---------------- ----------------
Net cash provided by operating activities 1,240,987 1,633,711
---------------- ----------------
Cash flows from investing activities:
Net decrease (increase) in loans (16,416,372) (9,655,641)
Net decrease (increase) in interest bearing deposits in other banks (23,480,704) 8,498,738
Purchases of securities available-for-sale (8,291,000) (2,872,601)
Proceeds from sale of securities available-for-sale - 6,535,849
Repayments and maturities of securities available-for-sale 735,981 2,749,172
Purchases of securities held-to-maturity (2,000,000) -
Repayments and maturities of securities held-to-maturity 441,693 1,256,146
Proceeds from sale of other real estate owned - 67,853
Purchase of premises and equipment (196,523) (90,866)
---------------- ----------------
Net cash provided by (used in) investing activities (49,206,925) 6,488,650
---------------- ----------------
Cash flows from financing activities:
Net (decrease) increase in demand, savings, NOW and
money market deposit accounts (1,651,234) 11,788,797
Net (decrease) increase in certificates of deposit 12,855,087 (5,332,918)
Net (decrease) increase in Federal funds purchased and
securities sold under agreements to repurchase 6,436,750 748,893
Net (decrease) increase in other borrowings (36,760) (498,898)
Proceeds from FHLB borrowing 33,000,000 -
Repayment of long-term debt (658,257) (657,497)
Purchase of treasury stock (789,863) -
Net proceeds from issuance of common stock 59,998 286,522
---------------- ----------------
Net cash (used in) provided by financing activities 49,215,721 6,334,899
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,249,783 14,457,260
Cash and cash equivalents, beginning of year 13,235,733 12,069,139
---------------- ----------------
Cash and cash equivalents, end of period $ 14,485,516 $ 26,526,399
---------------- ----------------
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 3,487,632 $ 2,379,016
Income taxes paid 600,000 27,000
See accompanying condensed notes to consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
In the opinion of management the unaudited consolidated financial
statements as of September 30, 1999 and December 31, 1998 and for the three and
nine months ended September 30, 1999 and 1998 contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position and results of operations of the Company as of such dates
and for such periods. The unaudited consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements of the Company
and the Notes thereto appearing in the Company's 1998 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. The results of operations for
the nine months ended September 30, 1999 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31, 1999
or any future periods. Certain prior period balances have been reclassified to
conform with the current period.
(2) Investment Securities
<TABLE>
<CAPTION>
Investment securities available-for-sale, and their contractual maturities, at
September 30, 1999 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. treasury and
government agencies:
<S> <C> <C> <C> <C>
Within one year $ 1,999,764 $ 2,128 $ - $ 2,001,892
After one, but within five years 7,139,272 - 102,274 7,036,998
After five, but within ten years 1,214,431 - 16,971 1,197,460
After ten years 448,411 - 15,551 432,860
-------------------------------------------------------------------
Total 10,801,878 2,128 134,796 10,669,210
-------------------------------------------------------------------
Collateralized mortgage obligations:
After five, but within ten years 309,909 - 6,343 303,566
After ten years 191,367 - 5,729 185,638
-------------------------------------------------------------------
Total 501,276 - 12,072 489,204
-------------------------------------------------------------------
Federal Reserve Bank stock 236,350 - - 236,350
Federal Home Loan Bank stock 1,942,800 - - 1,942,800
Other 874,162 - - 874,162
-------------------------------------------------------------------
Total investment securities available-for-sale $ 14,356,466 $ 2,128 $ 146,868 $ 14,211,726
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Investment securities held-to-maturity, and their contractual maturities at
September 30, 1999, are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. treasury and
government agencies:
<S> <C> <C> <C> <C>
After one, but within five years $ 1,999,091 $ - $ 36,245 $ 1,962,846
After ten years 2,000,753 22 88,493 1,912,282
-------------------------------------------------------------------
Total investment securities held-to-maturity $ 3,999,844 $ 22 $ 124,738 $ 3,875,128
-------------------------------------------------------------------
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) Income per Common Share
Basic income per share is calculated by dividing net income by the
weighted-average common shares outstanding. Diluted income per share is
calculated by dividing net income by the sum of weighted-average common shares
and dilutive potential common shares. On April 14, 1999, the Company declared a
5 percent stock dividend payable on May 28, 1999, to common stock shareholders
of record as of April 28, 1999, resulting in the issuance of 129,173 shares and
a corresponding increase in stock options outstanding. On May 19, 1998, the
Company declared a 5 percent stock dividend payable on June 29, 1998, to common
stock shareholders of record as of May 29, 1998, resulting in the issuance of
112,665 shares and a corresponding increase in the number of shares of common
stock issuable upon the exercise of stock options and warrants ourstanding.
Weighted-average shares outstanding and income per common share have been
restated for the effect of the stock dividends.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------------------------- -------------------------------
Basic Income Per Share:
<S> <C> <C> <C> <C>
Net income applicable to common stock $ 322,563 $ 170,400 $ 827,004 $ 471,827
Weighted-average common shares outstanding 2,671,123 2,495,090 2,698,104 2,470,201
----------------------------- -------------------------------
Basic income per share $0.12 $0.07 $0.31 $0.19
----------------------------- -------------------------------
Diluted Income Per Share:
Net income applicable to common stock $ 322,563 $ 170,400 $ 827,004 $ 471,827
Weighted-average common shares outstanding 2,671,123 2,495,090 2,698,104 2,470,201
Dilutive effect of warrants and stock options 26,259 141,613 26,259 172,507
----------------------------- -------------------------------
Diluted weighted-average common shares outstanding 2,697,382 2,636,703 2,724,363 2,642,708
Diluted income per share $0.12 $0.06 $0.30 $0.18
----------------------------- -------------------------------
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(4) New Financial Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. In certain circumstances a
derivative may be specifically designed as a hedge of the exposure to changes in
the fair values of a recognized asset or liability or an unrecognized firm
commitment, the exposure to variable cash flows of a forecasted transaction, or
the exposure to fluctuations in foreign currency. SFAS No. 133 will be effective
for all periods beginning after June 15, 2000. Earlier application is permitted,
but the statement shall not be applied retroactively to financial statements of
prior periods. The Company does not anticipate any material impact from the
implementation of SFAS No. 133.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
middle market businesses and individuals in the greater Washington, DC
metropolitan area. With the addition of a new Prince William William County
branch office in Dumfries, Virginia, in October 1999, the Company operates six
banking offices, as follows:
International Square Branch (Main office of Bank)
- 1875 Eye Street, NW, Washington, DC 20006
Pennsylvania Avenue Branch (Executive offices of Company)
- 1275 Pennsylvania Avenue, NW, Washington, DC 20004
McLean Branch - 6832 Old Dominion Drive, McLean, Virginia 22101
Tysons Corner Branch - 8251 Greensboro Drive, McLean, Virginia 22102
Bethesda Branch - 7625 Wisconsin avenue, Bethesda, Maryland 20814
Dumfries Branch - 18116 Triangle Shopping Plaza, Dumfries, Virginia 22026
The Company's principal executive offices are located at 1275 Pennsylvania
Avenue, NW, Washington, DC 20004, and its phone number at that address is (202)
496-4100.
The Company derives substantially all of its revenue 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, DC metropolitan area. As of September 30, 1999, the Company had
total assets of $201.3 million, total deposits of $137.4 million, and
stockholders' equity of $15.3 million. At September 30, 1999, the Company had
approximately 1,000 shareholders of the Company's common stock, par value $1.00
per share ("Common Stock").
Items 2 and 3 of this report contain certain forward-looking statements
regarding future financial condition and results of operations and the Company's
business operations. The words "may," "intend," "will," "believe," "expect,"
"estimate," "anticipate," "predict" and similar expressions, the negatives of
those words and other variations variations on those words or comparable
terminology, are intended to identify forward-looking statements. Such
statements involve risks, uncertainties and assumptions and, although the
Company believes that such assumptions are reasonable, it can give no assurance
that its expectations regarding these matters will be achieved. Our actual
results may differ materially from what we expect. The important factors that
could cause actual results to differ materially from the forward-looking
statements include, without limitation, the factors discussed in the Company's
Form 10-K for the year ended December 31, 1998 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as the following factors: general economic conditions in the Washington, DC
metropolitan area; changes in interest rates; changes in asset quality; the
effect on the Company of the extensive scheme of regulation by several federal
agencies; the departure of certain key executives; the year 2000 problem; and
competition from other providers of financial services. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, such actual outcomes may vary materially from those indicated.
Net Income
For the three months ended September 30, 1999, the Company's net income was
$323 thousand, or $0.12 per diluted share, compared with $170 thousand for the
third quarter of 1998, or $0.06 per diluted share. The 89 percent increase in
net income was primarily attributable to a $341 thousand increase in net
interest income resulting from a significant increase in earning assets, and a
$141 thousand increase in noninterest income, which were partially offset by a
$246 thousand increase in noninterest expense. Service charges on deposit
accounts increased 42 percent to $163 thousand, and other operating income
increased 60 percent to $248 thousand, primarily as a result of an increase in
bank card revenues. Increases in noninterest expenses included a 34 percent
increase in of salaries and benefits, and a 68 percent increase in data
processing due largely to the increased costs of bank card processing of
merchant accounts. Return on average assets was 0.74 percent in the third
quarter of 1999 compared to 0.47 percent for the same period in 1998. Return on
average stockholders' equity was 8.25 percent for the three months ended
September 30, 1999, compared with 4.77 percent for the same period in 1998. The
ratio of stockholders' equity to total assets was 7.61 percent at September 30,
1999 compared to 8.98 percent at September 30, 1998.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Net Income, continued
For the nine months ended September 30, 1999, the Company's net income was
$827 thousand, or $0.30 per diluted share, compared with $472 thousand for the
first nine months of 1998, or $0.18 per diluted share. The 75 percent increase
in net income was primarily attributable to a $839 thousand increase in net
interest income resulting from a significant increase in earning assets, and a
$439 thousand increase in noninterest income, which were partially offset by a
$771 thousand increase in noninterest expense. Service charges on deposit
accounts increased 52 percent to $491 thousand, and other operating income
increased 66 percent to $756 thousand primarily as a result of an increase in
bank card revenues. Increases in noninterest expenses included 30 percent a
increase in the cost of salaries and benefits, and a 64 percent increase in data
processing due largely to increased costs of bank card processing of merchant
accounts. Return on average assets was 0.67 percent in the nine months of 1999
compared to 0.44 percent for the same period in 1998. Return on average
stockholders' equity was 7.11 percent for the nine months ended September 30,
1999, compared with 4.53 percent for the same period in 1998. The ratio of
stockholders' equity to total assets was 7.61 percent at September 30, 1999
compared to 8.98 percent at September 30, 1998.
Net Interest Income
For the quarter ended September 30, 1999, net interest income was $2.0
million compared with $1.7 million for the quarter ended September 30, 1998, an
increase of $342 thousand, or 20 percent. The increase in net interest income
between the periods was due to an increase in the net interest spread as the
0.31 percent reduction in the cost of funds exceeded the 0.28 percent reduction
in the gross yield on earning assets, and there was a $5.4 million increase in
average net interest earning assets compared to the third quarter of 1998. The
Company's net interest margin declined by 0.08 percent to 4.99 percent in the
third quarter of 1999 compared to the same period in 1998.
For the nine months ended September 30, 1999, net interest income was $5.9
million compared with $5.1 million for the nine months ended September 30, 1998,
an increase of $839 thousand, or 16 percent. The increase in net interest income
between the periods was due to an increase in the net interest spread as the
0.40 percent reduction in the cost of funds exceeded the 0.29 percent reduction
in the gross yield on earning assets, and there was a $5.8 million increase in
average net interest earning assets compared to the first nine months of 1998.
The Company's net interest margin increased by 0.05 percent to 5.12 percent
during the first nine months of 1999 compared to the same period in 1998.
During the three and nine month periods of 1999 compared to 1998, the
reduction in the yields of the components of earning assets was greater than the
reduction in the yield on total average earning assets, because there was a
redeployment of average earning assets from relatively lower yielding securities
and short term investments to relatively higher yielding loans.
The following tables set forth the average yields and rates for interest earned
and paid for significant categories of interest earning assets and interest
bearing liabilities for the three and nine month periods ended September 30,
1999 and 1998.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
</TABLE>
<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Three Months Ended September 30,
------------------------------------------------------------------------------------
1999 1998
---------------------------------------- -----------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
---------------------------------------- -----------------------------------------
($ in thousands)
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Loans, net (1) $ 128,388 $ 2,873 8.88% $ 101,249 $ 2,365 9.27%
Investment securities (2) 15,380 219 5.65% 11,724 176 5.96%
Federal funds sold 4,714 60 5.05% 10,269 144 5.56%
Interest bearing deposits
with banks 13,483 171 5.03% 9,627 134 5.52%
------------------------------------- --------------------------------------
Total interest-earning assets 161,965 3,323 8.14% 132,869 2,819 8.42%
Cash and due from banks 6,680 5,812
Other assets 3,600 4,171
------------- --------------
Total Assets $ 172,245 $ 142,852
------------- --------------
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 19,368 $ 54 1.11% $ 17,794 $ 76 1.69%
Savings accounts 19,990 212 4.21% 18,454 216 4.64%
Money market accounts 19,362 150 3.07% 20,684 187 3.59%
Time deposits 51,035 649 5.05% 37,568 517 5.46%
Borrowings and
notes payable 15,994 219 5.43% 7,591 126 6.59%
------------------------------------- --------------------------------------
Total interest-bearing
liabilities 125,749 1,284 4.05% 102,091 1,122 4.36%
------------------------------------- --------------------------------------
Non-interest bearing deposits 29,520 25,056
Other liabilities 1,448 1,522
------------- -----------
Total liabilities 156,717 128,669
Stockholders' equity 15,528 14,183
------------- -----------
Total liabilities and
stockholders' equity $ 172,245 $ 142,852
------------- -----------
Net interest income and spread $ 2,039 4.09% $ 1,697 4.06%
------------------------ ------------------------
Net interest margin 4.99% 5.07%
---------- -----------
</TABLE>
(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.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Nine Months Ended September 30,
-------------------------------------------------------------------------------
1999 1998
------------------------------------- --------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
------------------------------------- ---------------------------------------
($ in thousands)
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans, net (1) $ 125,629 $ 8,384 8.92% $ 97,800 $ 6,984 9.55%
Investment securities (2) 12,291 516 5.61% 16,754 756 6.03%
Federal funds sold 4,766 177 4.97% 6,503 269 5.53%
Interest bearing deposits
with banks 11,902 442 4.97% 13,079 543 5.55%
---------------------------------- -----------------------------------
Total interest-earning assets 154,588 9,519 8.23% 134,136 8,552 8.52%
Cash and due from banks 6,660 5,504
Other assets 3,593 4,328
------------- -----------
Total Assets $ 164,841 $ 143,968
------------- -----------
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 19,314 $ 169 1.17% $ 17,883 $ 241 1.80%
Savings accounts 20,284 640 4.22% 17,730 612 4.62%
Money market accounts 20,538 478 3.11% 21,834 605 3.70%
Time deposits 46,238 1,774 5.13% 39,283 1,631 5.55%
Borrowings and
notes payable 12,533 534 5.70% 7,541 377 6.68%
---------------------------------- -----------------------------------
Total interest-bearing
liabilities 118,907 3,595 4.04% 104,271 3,466 4.44%
---------------------------------- -----------------------------------
Non-interest bearing deposits 28,801 24,338
Other liabilities 1,587 1,442
------------- -----------
Total liabilities 149,295 130,051
Stockholders' equity 15,545 13,917
------------- -----------
Total liabilities and
stockholders' equity $ 164,840 $ 143,968
------------- -----------
Net interest income and spread $ 5,924 4.19% $ 5,086 4.08%
-------------------- ---------------------
Net interest margin 5.12% 5.07%
---------- -----------
</TABLE>
(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.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Noninterest Income
Noninterest income was $411 thousand in the third quarter of 1999, a $141
thousand increase when compared with the same quarter of 1998, which was $270
thousand (see table below). The increase between the periods was primarily due
to increases in deposit service charges, credit card and merchant fees caused by
increased volumes, and a new mortgage loan origination program which commenced
operations in the second quarter of 1999.
<TABLE>
<CAPTION>
Noninterest Income Three Months Ended
(in thousands) September 30, Change
--------------------------------------------------
1999 1998 $ %
--------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 162,846 $ 114,415 $ 48,431 42.3%
Credit card and merchant fees 188,095 112,265 75,830 67.5%
Commission and other fee income 58,545 37,645 20,900 55.5%
Other income 1,585 5,367 (3,782) -70.5%
--------------------------------------------------
Total noninterest income $ 411,0711 $ 269,692 $141,379 52.4%
--------------------------------------------------
</TABLE>
Noninterest income was $1.2 million in the first nine months of 1999, a
$440 thousand increase when compared with the same period of 1998, which was
$808 thousand (see table below). The increase between the periods was primarily
due to increases in deposit service charges, credit card and merchant fees
caused by increased volumes, and the new mortgage loan origination program which
began in the second quarter of 1999. Unlike 1998, there were no nonrecurring
gains from the sale of investment securities or foreclosed property in 1999.
<TABLE>
<CAPTION>
Noninterest Income Nine Months Ended
(in thousands) September 30, Change
------------------------------------------------
1999 1998 $ %
------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 491,470 $ 323,010 $ 168,460 52.2%
Credit card and merchant fees 562,712 337,532 225,180 66.7%
Commission and other fee income 172,486 97,804 74,682 76.4%
Other income 20,411 18,798 1,613 8.6%
Gain on sale of investment securities - 14,570 (14,570) -100.0%
Gain on liquidation of other real estate owned - 15,853 (15,853) -100.0%
------------------------------------------------
Total noninterest income $1,247,079 $ 807,567 $ 439,512 54.4%
------------------------------------------------
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Noninterest Expense
Noninterest expense was $1.8 million in the third quarter of 1999, an
increase of $246 thousand, or 16 percent, when compared to 1998 when total
noninterest expense was $1.6 million. The increase in noninterest expense
included a $120 thousand (69 percent) increase in data processing expense, which
corresponds with the growth in the bank's operations, the increase in the volume
of bank card processing of merchant accounts, and the costs of Y2K preparedness.
An increase in the scope of the Company's operations was accompanied by
increases in several noninterest expense categories, including salaries and
benefits, which increased by $185 thousand (34 percent) and communications which
increased by $16 thousand (22 percent).
<TABLE>
<CAPTION>
Noninterest Expense Three Months Ended
(in thousands) September 30, Change
-----------------------------------------------
1999 1998 $ %
-----------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 721,985 $ 537,197 $ 184,788 34.4%
Occupancy and equipment expense 194,077 200,257 (6,180) -3.1%
Professional fees 175,077 231,104 (56,027) -24.2%
Data processing 295,024 174,985 120,039 68.6%
Depreciation and amortization of premises and equipment 112,735 117,726 (4,991) -4.2%
Amortization of deposit premiums 47,385 47,385 - 0.0%
Communications 86,859 71,295 15,564 21.8%
Federal deposit insurance premiums 4,365 4,134 231 5.6%
Other expenses 182,741 190,068 (7,327) -3.9%
-----------------------------------------------
Total noninterest expense $ 1,820,248 $1,574,151 $ 246,097 15.6%
-----------------------------------------------
</TABLE>
Noninterest expense was $5.4 million in the first nine months of 1999, an
increase of $771 thousand, or 17 percent, when when to 1998 when total
noninterest expense was $4.6 million. The increase in noninterest expense
included a $329 thousand (64 percent) increase in data processing expense, which
corresponds with the growth in the bank's operations, the increase in the volume
of bank card processing of merchant accounts, and the costs of Y2K preparedness.
An increase in the scope of the Company's operations was accompanied by
increases in several noninterest expense categories, including salaries and
benefits, which increased by $483 thousand (30 percent) and communications which
increased by $51 thousand (25 percent).
<TABLE>
<CAPTION>
Noninterest Expense Nine Months Ended
(in thousands) September 30, Change
--------------------------------------------------
1999 1998 $ %
--------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 2,106,431 $1,623,426 $ 483,005 29.8%
Occupancy and equipment expense 614,629 611,427 3,202 0.5%
Professional fees 523,275 631,533 (108,258) -17.1%
Data processing 840,510 511,759 328,751 64.2%
Depreciation and amortization of premises and equipment 340,181 354,035 (13,854) -3.9%
Amortization of deposit premiums 142,153 142,153 - 0.0%
Communications 256,787 205,801 50,986 24.8%
Federal deposit insurance premiums 13,021 13,464 (443) -3.3%
Other expenses 564,945 536,982 27,963 5.2%
----------------------------------------------
Total noninterest expense $5,401,932 $4,630,580 $ 771,352 16.7%
----------------------------------------------
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Investments
The Company's investment portfolio of $18.2 million as of September 30,
1999 consisted mostly of U.S. Government Agency obligations. This represented an
increase of $8.9 million, or 97 percent, compared with the investment portfolio
total of $9.3 million at December 31, 1998. The increase during the first nine
months of 1999 provided additional liquidity and collateral available for
borrowing and customer repurchase agreements. (see Note 2-- "Investment
Securities").
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.
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, DC metropolitan area. Most of the Company's loan
portfolio is collateralized by first mortgages on commercial and residential
real estate and home equity lines of credit on residential real estate. Most of
the Company's commercial real estate loans are secured by owner-occupied
properties with borrowers that are also banking customers of the Company. As of
September 30, 1999 and 1998, approximately $85.8 million (65 percent) and $63.0
million (61 percent) 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 $34.6
million (26 percent) and $33.8 million (33 percent), respectively, of the
Company's total loan portfolio.
<TABLE>
<CAPTION>
September 30,
------------------------------------------------
1999 1998
------------------------------------------------
Type of loan ( in thousands): $ % $ %
------------------------------------------------
<C> <C> <C> <C> <C>
1-4 family residential mortgage $ 25,541 19.4% $ 26,577 25.7%
Home equity loans 9,074 6.9% 7,209 7.0%
Multifamily residential 2,441 1.9% 2,272 2.2%
Construction 4,559 3.5% 122 0.1%
Commercial real estate 44,153 33.5% 26,848 25.9%
Commercial loans 34,615 26.3% 27,617 26.7%
Installment and credit card loans 10,748 8.2% 12,369 12.0%
Other loans 564 0.4% 468 0.5%
------------------------------------------------
Gross loans 131,695 100.0% 103,482 100.0%
-------- ---------
Less: Unearned income 47 49
----------- ----------
Total loans, net of unearned income $ 131,648 $ 103,433
----------- ----------
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Asset Quality
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The Company maintains an allowance
for credit losses based upon, among other things, such factors as historical
experience, the volume and type of lending conducted by the Company, the amount
of nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in the Company's portfolios. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current
status of loans which are contractually past due and after considering the net
realizable value of the collateral for the loan.
Management actively monitors the Company's asset quality in a continuing
effort to charge-off loans against the allowance for loan losses when
appropriate and to provide specific loss allowances when necessary. Although
management believes it uses the best information available to make
determinations with respect to the allowance for credit losses, future
adjustments may be necessary if actual economic conditions and other assumptions
differ from those used in making the initial determinations. At Sepember 30,
1999, the allowance for credit losses was $1.4 million, or 1.03 percent of total
loans. This represents an increase in the allowance compared to $1.1 million, or
0.98 percent of total loans as of December 31, 1998. The Company has increased
the allowance, as a percentage of total loans outstanding, to reflect the upward
trend in loan charge-offs experienced during the previous two years. The
allowance for credit losses as a percentage of nonperforming loans was 178
percent at September 30, 1999, compared to 72 percent at December 31, 1998 and
81 percent at September 30, 1998.
Total nonperforming loans were $760 thousand at September 30, 1999,
compared with $1.5 million at December 31, 1998, and $1.3 million at September
30, 1998. At September 30, 1999, one of these loans, in the amount of $383
thousand, is secured by owner-occupied commercial real estate with a
loan-to-value ratio of 77 percent. Other loans, amounting to $342 thousand, are
secured by residential real estate, business assets and junior liens on real
estate. In each of these cases, the borrowers and the Company are working
together to resolve the loans and, although the loans are past due, some
payments are being made on a regular basis. Where appropriate, the Company has
established reserves which management believes are sufficient to absorb future
losses.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Asset Quality, continued
Provisions for credit losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management, based on
the factors identified above. The provision for credit losses during the first
nine months of 1999 was $435 thousand, while the allowance for credit losses
increased from $1.1 million (0.98 percent of loans) to $1.4 million (1.03
percent of loans) and net charge-offs were $212 thousand. During the first nine
months of 1998, the provision for credit losses was $537 thousand, as the
allowance for credit losses increased from $887 thousand (0.94 percent of loans)
to $1.0 million (1.00 percent of loans) and net charge-offs were $394 thousand.
The increases in the valuation allowance for credit losses were largely the
result of the $16.4 million (14 percent) increase in loans outstanding during
the first nine months of 1999 and the $37.5 million (40 percent) increase in
loans since the end of 1997. These trends, taken into consideration with other
factors in the Company's internal analysis of the valuation allowance for credit
loss, have led to increased reserve requirements and a resulting provision
expense to maintain the allowance at a level deemed appropriate by management of
the Company (see table on the following page).
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Nonperforming Loans
(in thousands)
September 30,
------------------------
1999 1998
------------------------
Non-accrual loans $ 693 $ 1,257
90 days past due 67 8
------------------------
Total nonperforming loans 760 1,265
Other real estate owned - -
------------------------
Total nonperforming assets $ 760 $ 1,265
------------------------
Nonperforming assets to total assets 0.38% 0.79%
<TABLE>
<CAPTION>
Provision and Allowance for Loan Losses
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
Average net loans outstanding $ 128,388 $ 101,249 $ 125,629 $ 97,800
Loans outstanding at period-end 131,648 103,433 131,648 103,433
Total nonperforming loans at period end 760 1,265 760 1,265
Beginning balance of allowance $ 1,409 $ 1,008 1,128 887
Loans charged-off:
1-4 family residential mortgage - - - 18
Home equity loans - - - 26
Commercial loans 119 150 156 312
Installment and credit card loans 52 9 72 142
------------------------ --------------------------
Total loans charged off 171 159 228 498
Recoveries of previous charge-offs:
1-4 family residential mortgage 1 - 4 1
Home equity loans - 14 - 42
Commercial loans - - - 12
Installment and credit card loans 2 13 12 49
------------------------ --------------------------
Total recoveries 3 27 16 104
------------------------ --------------------------
Net loans charged-off (recoveries) 168 132 212 394
Provision for credit losses 110 154 435 537
------------------------ --------------------------
Balance at end of period $ 1,351 $ 1,030 $ 1,351 $ 1,030
------------------------ --------------------------
</TABLE>
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Deposits
The Company's total deposits at September 30, 1999, were $137.4 million, an
increase of $1.4 million, or 1 percent, over the balance at September 30, 1998,
and an increase of $11.2 million, or 9 percent, compared to 1998's year-end
balance. Total average deposits were $135.2 million for the nine months ended
September 30, 1999, an increase of $14.1 million, or 12 percent, compared to the
first nine months of 1998. 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. This strategy has and will continue to result in a
relatively higher cost of funds in addition to lower fee income as many of these
commercial customers may utilize accounts with lower transaction costs and have
a lower number of transactions than retail customers.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
Weighted- Weighted-
Average Average % of Average Average % of
Balance Rate Total Balance Rate Total
-----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Deposits $ 28,801 0.00% 21.3% $ 24,338 0.00% 20.1%
Interest-Bearing Deposits:
NOW accounts 19,314 1.17% 14.3% 17,883 1.80% 14.8%
Savings accounts 20,284 4.22% 15.0% 17,730 4.62% 14.6%
Money market accounts 20,538 3.11% 15.2% 21,834 3.70% 18.0%
Time deposits 46,238 5.13% 34.2% 39,283 5.55% 32.4%
---------- ------- ------- --------- -------
Total $135,175 100.0% $ 121,068 100.0%
---------- ------- ----------- -------
Weighted-Average Rate 3.03% 3.41%
------- ------
</TABLE>
Capital Resources
Total stockholders' equity at September 30, 1999, was $15.3 million,
virtually unchanged when compared to total stockholders' equity of $15.3 million
at December 31, 1998. Stockholders' equity was increased during the first nine
months of 1999 by net income of $827 thousand and by $61 thousand received from
the exercise of stock options, and was reduced by $101 thousand attributable to
the decline in the market value of investment securities available for sale net
of the tax effect and the repurchase of 130,000 shares of common stock held in
treasury at a cost of $790 thousand.
The Office of the Comptroller of the Currency has established certain
minimum risk-based capital standards that apply to national banks, and the
Company is subject to certain capital requirements imposed on bank holding
companies by the Federal Reserve Board. At September 30, 1999, Century National
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.
At September 30, 1999, the Company's risk based capital ratios for Tier I
Capital to risk weighted assets, Total Capital to risk weighted assets, and Tier
1 Capital to average assets were 10.03 percent, 11.01 percent and 8.14 percent,
respectively.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Year 2000 Compliance
The "Year 2000 problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous results. The extent of the potential impact of the Year 2000 problem
is not yet known; however, the consequences of the Year 2000 problem could have
a material effect on the Company's business, results of operations, or financial
condition.
In December 1997, the Company adopted a Year 2000 compliance plan ("Y2K Plan")
for the assessment of its exposure to the Year 2000 problem, completion of any
required remediation, and testing of systems compliance. A specific timetable
was established, and a senior officer of the Company was assigned leadership
responsibility. The officer reports monthly to the Board of Directors concerning
the status of the Y2K Plan, and the Company's progress is also reviewed from
time to time by bank regulatory authorities.
The Company believes that it is presently on schedule with respect to its
Y2K Plan, and outside reviews to date have found the Company's Year 2000
compliance efforts to be satisfactory. As of September 30, 1999, the Company's
Y2K Plan had been completed. Testing of mission critical systems was completed
in November 1998. Testing methodology included copying the entire customer data
base onto a Year 2000 compliant (hardware and software) computer system, and
utilizing the key Year 2000 dates defined by the Federal Financial Institutions
Examination Council (FFIEC) to test date sensitive transactions and
calculations. These tests were performed on all mission critical systems and the
results revealed compliance or very minor discrepancies; such failed test
transactions were tested again in 1999 and the minor discrepancies were
resolved. Material third party risks also include assessing the Year 2000
preparation status of bank borrowing customers. The Company completed a risk
assessment of Year 2000 preparedness of borrowers within its loan portfolio as
of the bank regulatory target date, September 30, 1998, and continues to monitor
Y2K preparedness related to new loans and any borrowers deemed to be at high
risk.
As part of its Y2K Plan, the Company spent approximately $145,000 for the
replacement of outdated computer hardware and software. Much of these
expenditures would have been incurred in the ordinary course of business to
maintain such computer systems, regardless of Year 2000 problem considerations.
The human resources requirement included the time of regular Company employees,
a network administration consultant, and approximately $20,000 of additional
consulting expenses. Because most of the Company's data processing is provided
by outside vendors on a contract basis, management does not currently anticipate
that the costs to address the Company's Year 2000 issues will have a significant
impact on the financial position or results of operations of the Company.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Year 2000 Compliance, continued
The Company believes that the most likely worst case scenarios due to the
Year 2000 problem could include: (1) lack of liquidity caused by customers'
withdrawal of extra cash, (2) increased criminal activity stimulated by public
awareness that banks are holding additional cash to avoid liquidity problems,
and (3) short term electric power interruptions. The Company has established and
renewed lines of credit with its correspondent banks and the Federal Home Loan
Bank of Atlanta to assure that adequate liquidity will be available to meet the
needs of customers. Additional security precautions will be taken to prevent
possible crimes due to heightened public awareness of additional cash reserves.
The Company does not believe that long term and widespread electric power
outages are likely, and has planned to address short term interruptions by
training bank management and staff to be ready to provide limited service to
customers. The Company is dependent upon the services of Electronic Data Systems
Corp. (EDS) in Reston, Virginia, to provide access to customer data bases and
other mission critical functions. EDS has informed the Company that EDS has
back-up services sites ready and available to provide services to the Company
should electric power interruptions or other problems occur in the Reston area.
The Company has completed the testing of the mission critical systems provided
by EDS. The Company does not expect any significant loss in revenue to occur as
a result of Year 2000 problems.
The Company's Y2K Plan includes certain contingency plans to be implemented in
the event compliance benchmarks are not met on a timely basis and/or systems
fail to perform in accordance with plans and expectations. For the most part,
these contingency plans involve a reversion to manual process for all mission
critical business functions, which the Company believes is practical in view of
the relative size and scope of its operations. Training of management and staff
on these procedures and processes was completed in July 1999, and additional
refresher training will be provided during November and December 1999.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
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. At September 30,
1999, the Company had cash and cash equivalents of $14.5 million, an increase of
$1.3 million, when compared with the $13.2 million at December 31, 1998.
Liability liquidity is provided by access to core funding sources,
principally customers' deposit accounts in the Company's market area. As a
member of the Federal Home Loan Bank of Atlanta ("FHLBA"), the Company is able
to borrow on a short-term or long-term basis secured by a blanket pledge of its
1-to-4-family residential mortgage loans, investment securities, and other
collateral. The Company also has lines of credit from larger correspondent banks
to borrow excess reserves on an overnight basis (known as "federal funds
purchased") in the amount of $5.7 million, and to borrow on a secured basis
("repurchase agreements") in the amount of $5.0 million. At September 30, 1999,
the Company had federal funds purchased amounting to $1.5 million, and $6.3
million in customer repurchase agreements. Also at September 30, 1999, the
Company was utilizing $38.9 million of available FHLBA credit in the form of
fixed-rate ($8.9 million) and variable-rate ($3.0 million) advances with an
average cost of 5.87 percent, and an overnight daily rate advance of $27.0
million. 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 utilized the overnight daily rate advance to invest in an overnight
deposit with the FHLBA in order to qualify, based on asset size, for the
potential issuance of subordinated debt securities to support asset growth. As
of September 30, 1999, the Company had also obtained a guaranteed $4.0 million
Y2K Commitment from the FHLBA under which funds will be available in November
and December 1999, if needed, in the form of fixed or variable rate advances
with 3 to 12 month maturities.
The Company had cash on hand of $739 thousand at the holding company level at
September 30, 1999. 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. Working capital is further augmented by dividends available
from the Bank, subject to certain regulatory restrictions generally applicable
to national banks. At September 30, 1999, the Company had no indebtedness
outstanding at the holding company level.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk exposure is to interest rates.
Net interest income, which constitutes the principal source 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 has a Finance Committee which reviews, on a regular basis, the maturity
and repricing of the assets and liabilities of the Company. The Finance
Committee has adopted the objective of achieving and maintaining a one-year
cumulative GAP, as a percent of total assets, of between plus 10 percent and
minus 10 percent. In addition, potential changes in net interest income under
various interest rate scenarios are monitored. On a consolidated basis, the
Company's one year cumulative gap was a negative 7.74 percent of total assets at
September 30, 1999.
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. The Finance
Committee has adopted the objective that an immediate increase or decrease of
200 basis points in market interest rates should not result in a change of more
than 10 percent (plus or minus) in the Company's projected net interest income
over the next twelve months, and not more than 20 percent (plus or minus) in
projected net income. At September 30, 1999, the forecasted impact of an
immediate increase (or decrease) of 200 basis points would have resulted in an
increase (or decrease) in net interest income over a twelve month period of 1.48
percent and (3.13 percent), respectively, and an increase(or decrease) in net
income over a twelve month period of 6.01 percent and (12.73 percent),
respectively.
Since there are limitations inherent in any methodology used to estimate the
exposure to changes in market interest rates, the analysis included herein is
not intended to be a forecast of the actual effect of a change in market
interest rates on the Company. The analysis is based on the Company's assets and
liabilities as of September 30, 1999, and does not contemplate any actions the
company might undertake in response to changes in market interest rates, which
could change the anticipated results. The analysis assumes repricing and/or
repayment of all assets and liabilities in accordance with their contractual
terms with the exception of (a) mortgage-backed securities, which are assumed to
prepay at a rate based on consensus market expectations, and (b) non-maturity
customer deposits, which are assumed to respond to interest rate changes on a
three-month time-lag basis consistent with the company's historical experience
for various types of deposit accounts.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
PART II - OTHER INFORMATION
Items 1 through 5
No occurrences have taken place during the reporting period which
require disclosure under any of the captioned headings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
Exhibit 27 - Financial Data Schedule,
Quarter Ended September 30, 1999
(b) Reports on Form 8-K
None.
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
For Quarter Ended September 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY BANCSHARES, INC.
Date: November 12, 1999 By: JOSEPH S. BRACEWELL
------------------------- -------------------------------------------
Joseph S. Bracewell
Chairman of the Board, President and
Chief Executive Officer
Date: November 12, 1999 By: CHARLES V. JOYCE III
------------------------- -------------------------------------------
Charles V. Joyce III
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
CENTURY BANCSHARES, INC.
EXHIBIT INDEX
September 30, 1999
The following exhibit is filed within this report.
Exhibit Number Description
-----------------------------------------------------------
27 Financial Data Schedule for the quarter ended September 30, 1999
<PAGE>
Exhibit 27
CENTURY BANCSHARES, Inc.
Financial Data Schedule
September 30, 1999
[ARTICLE] 9
[CIK] 785813
[NAME] CENTURY BANCSHARES, INC.
[MULTIPLIER] 1000
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] SEP-30-1999
[CASH] 10,086
[INT-BEARING-DEPOSITS] 33,328
[FED-FUNDS-SOLD] 4,400
[TRADING-ASSETS] -
[INVESTMENTS-HELD-FOR-SALE] 14,212 FV
[INVESTMENTS-CARRYING] 4,000 BV
[INVESTMENTS-MARKET] 3,875 MV
[LOANS] 131,648
[ALLOWANCE] 1,351
[TOTAL-ASSETS] 201,302
[DEPOSITS] 137,415
[SHORT-TERM] 34,796
[LIABILITIES-OTHER] 1,371
[LONG-TERM] 12,407
[COMMON] 2,722
[PREFERRED-MANDATORY] -
[PREFERRED] -
[OTHER-SE] 12,591
[TOTAL-LIABILITIES-AND-EQUITY] 201,302
[INTEREST-LOAN] 5,511
[INTEREST-INVEST] 8,384
[INTEREST-OTHER] 1,135
[INTEREST-TOTAL] 9,519
[INTEREST-DEPOSIT] 3,061
[INTEREST-EXPENSE] 534
[INTEREST-INCOME-NET] 5,924
[LOAN-LOSSES] 435
[SECURITIES-GAINS] -
[EXPENSE-OTHER] 5,402
[INCOME-PRETAX] 1,335
[INCOME-PRE-EXTRAORDINARY] 1,335
[EXTRAORDINARY] -
[CHANGES] -
[NET-INCOME] 827
[EPS-BASIC] 0.31
[EPS-DILUTED] 0.30
[YIELD-ACTUAL] 5.12
[LOANS-NON] 693
[LOANS-PAST] 67
[LOANS-TROUBLED] -
[LOANS-PROBLEM] -
[ALLOWANCE-OPEN] 1,128
[CHARGE-OFFS] 228
[RECOVERIES] 16
[ALLOWANCE-CLOSE] 1,351
[ALLOWANCE-DOMESTIC] 1,351
[ALLOWANCE-FOREIGN] -
[ALLOWANCE-UNALLOCATED] 811
