UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 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, NW, Washington, DC 20004
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(Address of principal executive offices) (Zip Code)
(202) 496-4100
(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
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 February 29, 2000, the number of shares of common stock
outstanding was 2,722,685. As of such date, the aggregate market value of voting
stock held by nonaffiliates was approximately $12,801,000.
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, 1999
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, 1999
TABLE OF CONTENTS
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Page
PART I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 57
PART III
Item 10. Directors and Executive Officers of the Registrant 57
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners and Management 57
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 57
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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.
With the addition of a new Prince 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 - 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 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, DC metropolitan area. As of December 31, 1999, the Company
had total assets of $204.8 million, total loans of $138.1 million, total
deposits of $153.9 million, and total stockholders' equity of $15.7 million. At
December 31, 1999, there were approximately 1,000 shareholders 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 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, DC metropolitan area.
Consequently, the Company's success is dependent to a significant extent upon
general economic conditions in the metropolitan Washington, DC area, which is
dependent, among other things, on new business formations, spending by
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, 1999, the Company's ROE was 7.65%. 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, 1999, the Company's ROA was 0.70%.
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 suburban Maryland and
Virginia markets around Washington, DC. 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, DC in 1994 and in 1996 established an LPO in Tysons Corner,
Virginia, which was replaced by a full service branch in April 1997. 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 in January 1998. In October 1999, the Company purchased a full-service
branch in Dumfries, Virginia, from One Valley Bancorp ("One Valley"). In
February 2000, the Company established a loan production office (LPO) in
Rockville, Maryland.
The Company believes 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.
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, responsiveness and creativity in
addressing customer needs, 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 service,
establishing long-term customer relationships and building customer loyalty, and
by providing products and services designed to address the specific needs of its
customers.
Under the Gramm-Leach-Bliley Act, effective March 11, 2000, securities
firms and insurance companies that elect to become financial holding companies
may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act
may significantly change the competitive environment in which the Company and
its subsidiaries conduct business. See "Regulatory Matters." The financial
services industry is also likely to become even more competitive as further
technological advances enable more companies to provide financial services.
These technological advances may diminish the importance of depository
institutions and other financial intermediaries in the transfer of funds between
parties.
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Regulatory Matters
In addition to the state and federal laws applicable to business and
employers generally, 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. 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. Additionally, 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 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. If a bank holding
company fails in its obligations to serve as a source of strength to its
subsidiary banks, the Federal Reserve Board will generally consider such action
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.
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.
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Under the BHCA, bank holding companies historically have been generally
precluded 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 or from engaging in activities other than those of banking, managing or
controlling banks or furnishing services to or performing services for its
subsidiaries, except that it may engage in, directly or indirectly, certain
activities that the Federal Reserve Board determined to be closely related to
banking or managing and controlling banks as to be a proper incident thereto.
However, on November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act which eliminated the barriers to affiliations among
banks, securities firms, insurance companies and other financial service
providers. The Gramm-Leach-Bliley Act will, effective March 11, 2000, permit
bank holding companies to become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. No regulatory approval will be required
for a financial holding company to acquire a company, other than a bank or
savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the
Federal Reserve Board.
Under the Gramm-Leach-Bliley Act, a bank holding company may become a
financial holding company by filing a declaration with the Federal Reserve Board
if each of its subsidiary banks is well capitalized under the FDICIA prompt
corrective action provisions, is well managed, and has at least a satisfactory
rating under the Community Reinvestment Act ("CRA"). The Gramm-Leach-Bliley Act
defines "financial in nature" to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities; and activities that the
Federal Reserve Board has determined to be closely related to banking.
While the Federal Reserve Board will serve as the "umbrella" regulator
for financial holding companies and has the power to examine banking
organizations engaged in new activities, regulation and supervision of
activities which are financial in nature or determined to be incidental to such
financial activities will be handled along functional lines. Accordingly,
activities of subsidiaries of a financial holding company will be regulated by
the agency or authorities with the most experience regulating that activity as
it is conducted in a financial holding company.
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 that 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.
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Under the Gramm-Leach-Bliley Act, a national bank may establish a
financial subsidiary and engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting as
principal, insurance company portfolio investment, real estate development and
real estate investment and annuity issuance. To do so, a bank must be well
capitalized, well managed and have a CRA rating of satisfactory or better.
Subsidiary banks of a financial holding company or national banks with financial
subsidiaries must remain well capitalized and well managed in order to continue
to engage in activities that are financial in nature without regulatory actions
or restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a financial holding company or a bank
may not acquire a company that is engaged in activities that are financial in
nature unless each of the subsidiary banks of the financial holding company or
the bank has CRA rating of satisfactory or better.
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 the bank's profits for the
preceding two years, less any required transfers to capital surplus. However, a
national bank may not pay dividends in excess of total retained profits,
including current year's income. In some cases, the OCC may find a dividend
payment that meets these statutory requirements to be an unsafe or unsound
practice.
Banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve Board, which affect the national
supply of bank credit. Such policies influence overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve Board have
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future.
FDICIA requires the OCC to take "prompt corrective action" with respect
to any national bank which does not meet specified minimum capital requirements.
The applicable regulations establish five capital levels, ranging from "well
capitalized" to "critically undercapitalized," 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, 1999, 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 that 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.
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With certain exceptions, national banks are 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 are required to file capital restoration plans
with the OCC. Undercapitalized national banks also are 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.
The Bank must pay assessments to the FDIC for federal deposit insurance
protection. The FDIC has adopted a risk-based assessment system as required by
FDICIA. Under this system, FDIC-insured depository institutions pay insurance
premiums at rates based on their risk classification. Institutions assigned to
higher-risk classifications (that is, institutions that pose a greater risk of
loss to their respective deposit insurance funds) pay assessments at higher
rates than institutions that pose a lower risk. An institution's risk
classification is assigned based on its capital levels and the level of
supervisory concern the institution poses to the regulators. In addition, the
FDIC can impose special assessments in certain instances. The current range of
BIF assessments is between 0% and 0.27% of deposits.
The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
new system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the assessment schedule adopted. Changes in
the rate schedule outside the five-cent range above or below the current
schedule can be made by the FDIC only after a full rulemaking with opportunity
for public comment.
Insurance Activities. In 1999 the Bank formed a subsidiary,
headquartered in Dumfries, Virginia, for the purpose of engaging in insurance
agency activities pursuant to the provisions of the National Bank Act which
permit national banks to sell insurance in any town with a population of 5,000
or less. The provisions of the Gramm-Leach-Bliley Act concerning the state
regulation of insurance activities, which became effective on November 12, 1999,
provide that insurance activities of the type proposed to be conducted by the
Bank's new subsidiary are to be regulated by the appropriate state insurance
commissioner. However, the Gramm-Leach-Bliley Act prohibits national banks and
subsidiaries of national banks from underwriting insurance and annuity products,
except for certain types of credit related insurance. As of the end of 1999,
this subsidiary had not yet commenced active operations.
Other Regulatory Matters. 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
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 in 1987 to help
shore up the ailing Federal Savings and Loan Insurance Corporation. The BIF-rate
was required to equal one-fifth of the SAIF rate through year-end 1999, or until
the insurance funds merged, whichever occurred first. Thereafter, BIF and SAIF
payers will be assessed pro rata for the FICO bond obligations. With regard to
the assessment for the FICO obligation, for the fourth quarter 1999 , the BIF
rate was .01184% of deposits and the SAIF rate was .05920% of deposits, and for
the first quarter of 2000, both the BIF and SAIF rates are .02120% of deposits.
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.
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Various legislation, such as the recent Gramm-Leach-Bliley Act which
expands the powers of banking institutions and bank holding companies, and
proposals to overhaul the bank regulatory system and limit the investments that
a depository institution may make with insured funds, is from time to time
introduced in Congress. Such legislation may change banking statutes and the
operating environment of the Company and its banking subsidiaries in substantial
and unpredictable ways. The Company cannot determine the ultimate effect that
the Gramm-Leach-Bliley Act will have, or the effect that any potential
legislation, if enacted, or implementing regulations with respect thereto, would
have, upon the financial condition or results of operations of the Company or
its subsidiaries.
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve Board and
OCC possess extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
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, 1999, the Company had 60 employees.
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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, NW, 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 Bank's main office, located in the District at 1875
Eye Street, NW, 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 2004.
In connection with the acquisition of the McLean branch in the fourth
quarter of 1997 (see Note 15 of Notes to Consolidated Financial Statements for
additional information) , the Bank assumed Eastern American Bank'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
2003, with one additional five-year renewal option.
In 1998, the Company established a new branch location at 7625
Wisconsin Avenue, Bethesda, Maryland. The branch premises consist of 2,022
square feet leased through January 2008.
In connection with the acquisition of the Dumfries branch in the fourth
quarter of 1999 (see Note 15 of Notes to Consolidated Financial Statements for
additional information) , the Bank assumed One Valley's lease for the branch
location at 18116 Triangle Shopping Plaza, Dumfries, Virginia. The branch and
contiguous premises consist of approximately 7,200 square feet, which are under
lease through February 2002, with one additional five-year renewal option.
See Note 11 of Notes to Consolidated Financial Statements for
additional information concerning the Company's commitments under its lease
agreements.
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, 1999.
-8-
<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.
Continued inclusion of the Common Stock for quotation in this market does not
assure, however, an active public market. As of February 29, 2000, the Company
estimates that it had approximately 1,000 shareholders.
The following table sets forth the high, low and closing sale prices
(adjusted to reflect 5% stock dividends in 1999 and 1998) for the Common Stock
for each full quarterly period within the two most recent years:
Common Stock Price Per Share
----------------------------------------
Quarter ended High Low Closing
- ---------------------- -------------- ------------ ------------
March 31, 1998 $ 10.54 $ 9.07 $ 9.86
June 30, 1998 10.09 8.57 9.05
September 30, 1998 10.00 7.86 8.10
December 31, 1998 8.57 5.71 6.43
March 31, 1999 7.14 5.66 5.83
June 30, 1999 6.79 5.00 6.00
September 30, 1999 6.38 5.50 5.88
December 31, 1999 6.50 5.88 6.50
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.
Dividends may be paid by the Bank in an amount equal to the Bank's net income
for the current year combined with the retained net income for the preceding two
years. 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 February 18, 2000, payable on April 17, 2000, to
holders of record of shares of Common Stock as of March 15, 2000. The
declaration of future stock dividends is at the discretion of the Board of
Directors.
-9-
<PAGE>
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, 1999.
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, 1999 and 1998, and the Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the years in the
three year period ended December 31, 1999 and the report thereon of KPMG LLP are
included elsewhere in this report.
-10-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------ -------------
Income Statement Data:
Interest income $13,220 $11,355 $9,209 $7,690 $7,079
Interest expense 4,996 4,537 3,765 2,776 2,562
------------- ------------- ------------- ------------ -------------
Net interest income 8,224 6,818 5,444 4,914 4,517
Provision for credit losses 640 620 336 160 26
------------- ------------- ------------- ------------ -------------
Net interest income after provision for
credit losses 7,584 6,198 5,108 4,754 4,491
Noninterest income 1,669 1,103 922 720 590
Noninterest expense 7,335 6,309 5,460 4,920 4,157
------------- ------------- ------------- ------------ -------------
Income before taxes 1,918 992 570 554 924
Income taxes 729 355 234 275 311
------------- ------------- ------------- ------------ -------------
Net income $ 1,189 $ 637 $ 336 $ 279 $ 613
Common Share Data (1):
Net income--basic $ 0.42 $ 0.24 $ 0.20 $ 0.20 $ 0.53
Net income--diluted 0.42 0.24 0.18 0.19 0.50
Book value (2) 5.76 5.40 5.29 4.85 4.68
Common shares outstanding--end of period 2,721,902 2,574,219 2,209,229 1,146,028 1,046,047
Weighted average common shares 2,804,994 2,632,787 1,710,316 1,371,940 1,153,943
Diluted weighted average common shares 2,832,683 2,688,583 1,852,683 1,454,483 1,213,698
Balance Sheet Data:
Total assets $204,809 $151,350 $152,640 $107,186 $101,730
Investments (3) 53,144 23,385 46,632 25,631 21,690
Total loans (4) 138,076 115,231 94,171 70,676 69,204
Allowance for credit losses 1,519 1,128 887 826 740
Total deposits 153,900 126,211 129,605 90,985 90,539
Long-term debt 11,301 5,301 6,511 6,850 --
Total stockholders' equity 15,668 15,317 13,536 6,750 6,365
Performance Data:
Return on average total assets 0.70% 0.44% 0.29% 0.27% 0.68%
Return on average total equity 7.65 4.49 3.83 4.20 11.49
Net interest margin 5.15 5.07 5.17 5.74 5.42
Loans to deposits 89.7 91.3 72.7 77.7 76.4
Asset Quality Ratios:
Nonperforming assets to total assets 0.25% 1.02% 0.49% 0.30% 0.49%
Nonperforming loans to total loans 0.37 1.34 0.74 0.46 0.45
Net loan charge-offs to average loans 0.21 0.38 0.36 0.10 0.04
Allowance for credit losses to total loans 1.10 0.98 0.94 1.17 1.07
Allowance to nonperforming loans 295 73 127 257 240
Capital Ratios:
Tier I risk based capital 9.74% 11.60% 12.27% 8.99% 9.22%
Total risk based capital 10.79 12.56 13.19 10.13 10.34
Tier I leverage 7.64 9.46 8.83 6.35 6.80
</TABLE>
Notes:
(1) Per share data has been adjusted to reflect five percent Common Stock
dividends in 1999, 1998, 1997 and 1995, seven percent Common Stock
dividends in 1996, and retroactively restated to reflect the five percent
Common Stock dividends declared on February 18, 2000.
(2) Book value per common share is based on stockholders' equity divided by the
number of common shares outstanding, adjusted for stock dividends.
(3) Investments include federal funds sold and interest-bearing deposits in
other financial institutions.
(4) Net of unearned income.
-11-
<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, DC metropolitan area. As of December
31, 1999, the Company had total assets of $204.8 million, total loans of $138.1
million, total deposits of $153.9 million, and total stockholders' equity of
$15.7 million. The Company had net income of $1.2 million for the year ended
December 31, 1999, resulting in a return on average total equity of 7.65% and a
return on average total assets of 0.70%.
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, DC 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 significantly affected the Company's operations during 1999,
1998 and 1997, and their effects should be considered when reviewing the
discussion of the Company's financial condition and results of operations set
forth below. In October 1999, the Company purchased a full-service branch in
Dumfries, Virginia, from One Valley.
In this report, all "per share" amounts have been adjusted to reflect
five percent Common Stock dividends in 1999, 1998, 1997 and 1995, seven percent
Common Stock dividends in 1996, and retroactively restated to reflect the five
percent Common Stock dividends declared on February 18, 2000.
Results of Operations
Net Income
Net income was $1.2 million ($0.42 per diluted common share) for 1999,
compared with net income of $637,000 ($0.24 per diluted common share) for 1998,
an increase of $552,000 or 87%. The increase in net income for 1999 compared
with 1998 resulted principally from a $1.4 million increase in net interest
income and a $566,000 increase in noninterest income. These increases were the
result of an 18.6% increase in average earning assets and the addition of four
new branch offices during the past three years (see "General" above). Partially
offsetting these increases during 1999 were a corresponding increase in average
interest-bearing liabilities of 18.1%, as well as increases in several
noninterest expense categories resulting from the establishment of the four new
branch office locations, and a $20,000 increase in the provision for credit
losses resulting from increased reserves in relation to loan portfolio growth
during the year.
-12-
<PAGE>
Net income was $637,000 ($0.24 per diluted common share) for 1998,
compared with net income of $336,000 ($0.18 per diluted common share) for 1997,
an increase of $301,000 or 89.6%. The increase in net income for 1998 compared
with 1997 resulted principally from a $1.4 million increase in net interest
income and a $181,000 increase in noninterest income. These increases were
attributable to a 27.8% increase in average earning assets and the addition of
three new branch offices during the previous two years. Partially offsetting
these increases during 1998 were a corresponding increase in average
interest-bearing liabilities of 23.6%, as well as increases in several
noninterest expense categories resulting from the establishment of the three new
branch office locations, and a $284,000 increase in the provision for credit
losses resulting from increased reserves in relation to loan portfolio growth
during the year.
Net Interest Income
Net interest income was $8,224,000 for 1999, an increase of $1,406,000
or 20.6% compared with net interest income of $6,818,000 for 1998. The Company's
average total interest-earning assets increased to $159.6 million for 1999 from
$134.6 million for 1998, representing an 18.6% increase between the years. The
net interest margin of 5.15% for 1999 increased 8 basis points from 5.07% for
1998, the result of a 30 basis point decline in the average cost of interest
bearing liabilities, which was partially offset by a 16 basis point decline in
the average yield on interest earning assets.
Net interest income was $6,818,000 for 1998, an increase of $1,374,000
or 25.2% compared with net interest income of $5,444,000 for 1997. The Company's
average total interest-earning assets increased to $134.6 million for 1998 from
$105.3 million for 1997, representing a 27.8% increase between the years. The
net interest margin of 5.07% for 1998 decreased 10 basis points from 5.17% for
1997, the result of a 31 basis point decline in the average yield on interest
earning assets that was only partially offset by an 11 basis point decline in
the cost of interest bearing liabilities.
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 income and interest
expense 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
income or expense on such amounts, and the average rate for the years ended
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME/EXPENSE (1)
(Dollars In Thousands)
1999 Compared with 1998 1998 Compared with 1997
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due to Due to Total Incr. Due to Due to Total Incr.
Volume Rate (Decr.) Volume Rate (Decr.)
------------- ------------- ------------- ------------- ------------- -------------
Interest Earned On:
Loans, including fees $ 2,596 $ (446) $ 2,150 $ 2,262 $ (424) $ 1,838
Investment securities (84) (53) (137) 240 17 257
Federal funds sold (88) 1 (87) 116 (23) 93
Interest bearing deposits with banks (27) (35) (62) (43) 2 (41)
------------- ------------- ------------- ------------- ------------- -------------
Total interest income 2,397 (533) 1,864 2,575 (428) 2,147
Interest Paid On:
NOW accounts 30 (106) (76) 67 (51) 16
Savings accounts 86 (20) 66 563 44 607
Money market accounts (43) (88) (131) 8 (11) (3)
Time deposits 469 (211) 258 190 (21) 169
Borrowings and notes payable 416 (75) 341 (15) (1) (16)
------------- ------------- -------------
------------- ------------- -------------
Total interest expense 958 (500) 458 813 (40) 773
------------- ------------- ------------- ------------- ------------- -------------
Net interest income $ 1,439 $ (33) $ 1,406 $ 1,762 $ (388) $ 1,374
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
(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.
-13-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(Dollars in Thousands)
Year Ended December 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ -------------------------------- ----------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
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) $128,419 $11,543 8.99% $99,724 $9,393 9.42% $75,908 $7,555 9.95%
Investment securities (2)(3) 13,737 766 5.58 15,200 903 5.94 11,153 646 5.79
Federal funds sold 5,095 264 5.18 6,801 351 5.16 4,576 258 5.64
Interest bearing deposits
with other banks 12,362 647 5.23 12,855 709 5.52 13,628 750 5.50
---------- --------- ----------- ---------- ----------- ---------
Total interest-earning assets(3) 159,613 13,220 8.28% 134,580 11,356 8.44% 105,265 9,209 8.75%
Cash and due from banks 6,862 5,667 5,336
Other assets 3,682 4,491 3,860
---------- ----------- -----------
Total Assets $170,157 $144,738 $114,461
---------- ----------- -----------
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $19,700 $ 222 1.13% $17,722 $ 298 1.68% $14,023 $ 282 2.01%
Savings accounts 20,241 884 4.37 18,285 818 4.47 5,559 211 3.80
Money market accounts 20,451 640 3.13 21,723 771 3.55 21,491 774 3.60
Time deposits 47,895 2,408 5.03 38,832 2,150 5.54 35,399 1,981 5.60
Borrowings and
notes payable 14,653 842 5.75 7,547 501 6.64 7,768 517 6.66
---------- --------- ----------- ---------- ----------- ---------
Total interest-bearing
liabilities 122,940 4,996 4.06% 104,109 4,538 4.36% 84,240 3,765 4.47%
Non-interest bearing 30,101 24,981 20,272
deposits
Other liabilities 1,570 1,459 1,176
---------- ----------- -----------
Total liabilities 154,611 130,549 105,688
Stockholders' equity 15,546 14,189 8,773
---------- ----------- -----------
Total liabilities and
stockholders' equity $170,157 $144,738 $114,461
---------- ----------- -----------
--------- ---------- ---------
Net interest income and spread $ 8,224 4.22% $6,818 4.08% $5,444 4.28%
--------- ---------- ---------
Net interest margin (3) 5.15% 5.07% 5.17%
</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. (3)
Average rates on a fully taxable equivalent basis for affected portfolios are as
follows:
1999 1998 1997
--------- ---------- ------------
Investment securities 5.58% 5.94% 5.82%
Total interest-earning assets 8.28 8.44 8.75
Net interest margin 5.15 5.07 5.18
-14-
<PAGE>
Provision for Credit Losses
Provisions for credit losses are charged to income to bring the total
allowance for credit 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 credit losses was $640,000 in 1999, compared with
$620,000 for 1998, increasing $20,000, or 3.2%. The increase was largely the
result of a 19.8% increase in loans, net of unearned income, to $138.1 million
at December 31, 1999 from $115.2 million at year-end 1998. Net charge-offs
decreased to $249,000 in 1999, from $379,000 in 1998, the result of a $134,000
decrease in charge-offs in the commercial loan portfolio accompanied by reduced
charge-offs and recoveries in other loan categories.
The provision for credit losses was $620,000 in 1998, compared with
$336,000 for 1997, increasing $284,000, or 84.5%. The increase was largely the
result of a 22.3% increase in loans, net of unearned income to $115.2 million at
December 31, 1998 from $94.2 million at year-end 1997. Net charge-offs increased
to $379,000 in 1998, from $275,000 in 1997, the result of a $289,000 increase in
charge-offs in the commercial loan portfolios accompanied by reduced charge-offs
in other loan categories.
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 credit
losses through future provisions charged to income. Management will continue to
closely monitor the performance of the loan portfolio and make additional
provisions as considered necessary. No assurance can be given that such
provisions will not have a material adverse impact on the Company's results of
operations in future periods.
Noninterest Income
Noninterest income for 1999 was $1,669,000, an increase of $566,000 or
51.3% compared with noninterest income of $1,103,000 in 1998. This increase
resulted largely from growth of fees earned in the credit card program,
increases in service charges on deposit accounts, commissions from a new
mortgage loan origination program, as well as other commissions and other fee
income.
Noninterest income for 1998 was $1,103,000, an increase of $181,000 or
19.6% compared with noninterest income of $922,000 in 1997. This increase
resulted largely from growth of fees earned in the credit card program,
increases in service charges on deposit accounts, as well as commissions and
other fee income. Noninterest income in 1998 also included $15,000 in gains from
the sale of investment securities and $16,000 from the liquidation of other real
estate owned.
The following table sets forth the various categories of, and changes
in, noninterest income for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
NONINTEREST INCOME
(Dollars in Thousands)
Year Ended December 31,
----------------------------------------------------------------------------
1999 % Change 1998 % Change 1997
--------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 661 47.8 % $ 447 9.0 % $ 410
Credit card and merchant fees 732 55.4 471 21.1 389
Mortgage loan origination fees 97 - - -
-
Commission and other fee income 179 ( 3.2) 185 50.4 123
--------------- -------------- --------------- --------------- -------------
Total noninterest income $1,669 51.3 % $1,103 19.6 % $ 922
--------------- -------------- --------------- --------------- -------------
</TABLE>
-15-
<PAGE>
Noninterest Expense
Noninterest expense was $7,335,000 in 1999, compared with $6,309,000 in
1998, representing an increase of $1,026,000 or 16.3%. The increase in 1999 was
due largely to increases in salaries and employee benefits of $783,000 and data
processing services of $422,000. These increases in salaries and employee
benefits reflect the opening of the Dumfries branch office in October 1999, a
full year of compensation expense for the employees at the branch opened in
1998, the addition of personnel to support growth in the loan portfolio, and a
reduction in the amount of loan origination costs deferred in the current year.
The increases in the cost of data processing services were primarily
attributable to growth in the credit card program, additional transaction
volume, and efforts to prepare for and comply with Year 2000 readiness issues.
Noninterest expense was $6,309,000 in 1998, compared with $5,460,000 in
1997, representing an increase of $849,000 or 15.5%. The increase in 1998 was
attributable to increased occupancy and equipment expenses of $176,000,
professional fees of $234,000, data processing services of $200,000 and other
operating expenses of $197,000. These increases were primarily attributable to
the opening of three new branch offices in Maryland and Virginia in 1997 and
1998, the corresponding growth in the loan portfolio, and efforts to prepare for
and comply with Year 2000 readiness issues.
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. No assurance may be given, however, that the
anticipated asset growth or branch expansions will occur.
The following table sets forth the various categories of, and changes
in, noninterest expense for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
(Dollars in Thousands)
Year Ended December 31,
------------------------------------------------------------------------------
1999 % Change 1998 % Change 1997
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $2,859 37.7 % $2,076 (5.7) % $2,201
Professional fees 696 (24.8) 926 33.8 692
Occupancy and equipment expense 842 1.9 826 27.1 650
Depreciation and amortization 643 (2.7) 661 15.8 571
Data processing 1,156 57.5 734 37.5 534
Communications 355 27.2 279 39.5 200
Office and operations expenses 277 (23.1) 360 25.4 287
Marketing and public relations 180 (8.2) 196 24.8 157
Federal deposit insurance premiums 20 11.1 18 28.6 14
Other expenses 307 31.8 233 51.3 154
--------------- -------------- --------------- --------------- ---------------
Total noninterest expense $7,335 16.3 % $6,309 15.5 % $5,460
--------------- -------------- --------------- --------------- ---------------
</TABLE>
Income Tax Expense
The Company's income tax expense includes federal, state and local
income taxes. The provision for income taxes was $729,000 in 1999 compared to
$355,000 in 1998 and $234,000 in 1997. This reflects effective tax rates of 38.0
percent in 1999, 35.8 percent in 1998, and 41.0 percent in 1997. The effective
tax rate was reduced in 1999 and 1998 from previous years due to the increase in
interest income derived from US agency securities and short term investments
which are not fully taxable for state and local purposes, and a greater portion
of earnings derived from Virginia and Maryland where the local income tax rates
are lower than in Washington, DC.
-16-
<PAGE>
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 ("ALCO") which reviews, on a
regular basis, the maturity and repricing of the assets and liabilities of the
Company. 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%.
On a consolidated basis, the Company's one year cumulative gap was a negative
4.99% of total assets at December 31, 1999. In addition, ALCO monitors potential
changes in net interest income, net income and the market value of portfolio
equity under various interest rate scenarios. 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 loan and investment 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 1999, the impact of an immediate increase in
interest rates of 200 basis points would have resulted in a decrease in net
interest income over a 12-month period of 0.71%, with a comparable decrease in
interest rates resulting in an increase in net interest income of 1.12%.
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, 1999, 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, 1999) or Less Days to 1 Year 1 Year Total
- ------------------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans, net $64,202 $10,181 $16,745 $46,948 $138,076
Investment securities 3,659 236 391 18,175 22,461
Federal funds sold 11,015 - - - 11,015
Interest bearing deposits with banks 16,894 1,200 1,573 - 19,667
------------- ------------- ------------- ------------- -------------
Total interest earning assets 95,770 11,617 18,709 65,123 191,219
Interest Bearing Liabilities
NOW accounts 23,112 - - - 23,112
Savings accounts 20,572 - - - 20,572
Money market accounts 18,657 - - 1,021 19,678
Time deposits 7,335 11,901 28,865 5,865 53,966
Other borrowings 25,162 254 459 7,384 33,259
------------- ------------- ------------- ------------- -------------
Total interest bearing liabilities 94,838 12,155 29,324 14,270 150,587
------------- ------------- ------------- ------------- -------------
Interest sensitivity gap per period $ 932 $ (538) $(10,615) $50,853 $ 40,632
Cumulative gap 932 394 (10,221) 40,622
Cumulative gap as a percentage of total assets 0.46% 0.19% (4.99)% 19.84%
Cumulative interest earning assets as a percent
of interest bearing liabilities 100.98% 100.37% 92.50% 126.98%
</TABLE>
-17-
<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, DC metropolitan area. As of December 31, 1999 and
1998, approximately $90.0 million (65%) and $73.8 million (64%) 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 $34.7 million (25%) and $34.9 million (30%), 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, DC metropolitan area.
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, DC
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, 1999, loans and commitments outstanding to
directors and executive officers of the Company and the Bank, their associates
and members of their immediate families totaled $3.3 million (net of
participations sold to other banks on a non-recourse basis), which represented
approximately 2.4 percent of total loans as of that date. As of December 31,
1999, 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.
-18-
<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,
-------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ---------------------
Aggregate Principal Amount
<S> <C> <C> <C>
Type of loan:
1-4 family residential mortgage $ 24,926 $ 27,679 $ 27,502
Home equity loans 9,724 7,185 7,808
Multifamily residential 2,635 1,884 1,859
Construction 4,425 1,205 1,459
Commercial real estate 48,242 35,821 17,999
Commercial loans 37,585 28,906 24,132
Installment and credit card loans 10,612 12,517 13,535
---------------------- ---------------------- ---------------------
Gross loans 138,149 115,197 94,294
Unearned income and deferred costs (73) 34 (123)
---------------------- ---------------------- ---------------------
Total loans, net of unearned $138,076 $115,231 $94,171
---------------------- ---------------------- ---------------------
Percentage of Loan Portfolio
Type of loan:
1-4 family residential mortgage 18.04% 24.03% 29.17%
Home equity loans 7.04 6.24 8.28
Multifamily residential 1.91 1.64 1.97
Construction 3.20 1.05 1.55
Commercial real estate 34.92 31.10 19.09
Commercial loans 27.21 25.09 25.59
Installment and credit card loans 7.68 10.85 14.35
---------------------- ---------------------- ---------------------
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, 1999. 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.
<TABLE>
<CAPTION>
MATURITIES AND RATE SENSITIVITY OF LOANS
(Dollars in Thousands)
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 $15,119 $ 8,024 $ 9,603 $ 1,891 $ 2,948 $ 37,585
Commercial real estate 2,424 10,834 4,372 12,486 18,126 48,242
Residential mortgage/home 2,788 6,752 4,302 8,902 14,541 37,285
equity
Construction 3,319 - 178 - 928 4,425
Installment/credit card 2,780 2,053 363 114 5,302 10,612
-------------- -------------- -------------- ------------- -------------- --------------
Total $ 26,430 $ 27,663 $ 18,818 $ 23,393 $ 41,845 $ 138,149
-------------- -------------- -------------- ------------- -------------- --------------
</TABLE>
(1) Includes demand loans, loans having no stated schedule of repayment or
maturity, and overdrafts.
-19-
<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 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
credit 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)
December 31,
------------------------------------
1999 1998 1997
----------- ------------ -----------
Non-accrual loans $515 $1,163 $624
Accruing past due 90 days or more - 383 76
----------- ------------ -----------
Total nonperforming loans 515 1,546 700
Other real estate owned - - 52
----------- ------------ -----------
Total nonperforming assets $515 $1,546 $752
----------- ------------ -----------
Nonperforming loans to total loans 0.37% 1.34% 0.74%
Nonperforming assets to total asset 0.25% 1.02% 0.49%
As of December 31, 1999, non-accrual loans consisted of one borrowing
relationship. The Company has real property collateral at acceptable margins and
has maintained a good working relationship with the borrower.
Interest lost on these nonaccrual loans was $23,807 and $19,365 for
1999 and 1998, respectively. The Company received interest payments on these
nonaccrual loans amounting to $67,871, $26,686, and $48,613 for 1999, 1998 and
1997, respectively.
-20-
<PAGE>
Allowance for Credit Losses
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
portfolio. 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 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 credit
losses was $1,519,000 (1.10% of total loans), $1,128,000 (0.98% of total loans)
and $887,000 (0.94% of total loans) as of December 31, 1999, 1998 and 1997,
respectively The allowance for credit losses as a percentage of nonperforming
loans was 295%, 73% and 127% as of December 31, 1999, 1998 and 1997,
respectively.
The following table sets forth an analysis of the Company's allowance
for credit losses for the periods indicated:
ALLOWANCE FOR CREDIT LOSSES
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
---------------- --------------- --------------
Average net loans outstanding $ 128,419 $ 99,724 $75,908
Loans outstanding at period-end 138,076 115,231 94,171
Total nonperforming loans 515 1,546 700
--------------- --------------- --------------
Beginning balance of allowance $ 1,128 $ 887 $ 826
Loans charged-off:
1-4 family residential mortgage - 18 29
Home equity loans - 26 100
Commercial loans 180 314 25
Installment and credit card loans 90 129 298
---------------- --------------- --------------
Total loans charged off 270 487 452
Recoveries of previous charge-offs:
1-4 family residential mortgage - - 1
Home equity loans 8 43 -
Commercial loans - 36 134
Installment and credit card loans 13 29 42
---------------- --------------- --------------
Total recoveries 21 108 177
---------------- --------------- --------------
Net loans charged-off 249 379 275
Provision for credit losses 640 620 336
---------------- --------------- --------------
Balance at end of period $ 1,519 $ 1,128 $ 887
---------------- --------------- --------------
Net charge-offs to average loans 0.19% 0.38% 0.36%
Allowance as % of total loans 1.10% 0.98% 0.94%
Nonperforming loans as % of total loans 0.37% 1.34% 0.74%
Allowance as % of nonperforming loans 295% 73% 127%
-21-
<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 credit 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. For a description of
the Company's accounting policy for the allowance for credit losses, see Note 1
of Notes to Consolidated Financial Statements.
The following table describes the allocation of the allowance for
credit losses among various categories of loans and certain other information at
December 31, 1999. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(Dollars in Thousands)
December 31, 1999 December 31, 1998
---------------------------- ----------------------------
Percent of Loans Percent of Loans
Amount to Total Loans Amount to Total Loans
Balance of allowance for credit losses applicable to:
<S> <C> <C> <C> <C>
Commercial and industrial $ 285 27% $ 319 25%
Real estate 20 65% 154 64%
Consumer 222 8% 17 11%
Unallocated 992 - 638 -
---------------------------------------------------------------
Total allowance for credit losses $1,519 100% $1,128 100%
---------------------------------------------------------------
</TABLE>
Investment Activities
The Company's investment portfolio of $22.5 million as of December 31,
1999 consisted mostly of U.S. government agency obligations. This represented an
increase of $13.2 million compared to the investment securities of $9.3 million
at December 31, 1998. The Company's investment portfolio of $9.3 million as of
December 31, 1998 consisted mostly of U.S. government agency obligations. This
represented a decrease of $10.1 million compared to the investment securities of
$19.4 million at December 31, 1997. The reductions in investment securities and
interest bearing deposits during 1998 were used to fund the $21.1 million
increase in loans during that year.
Investment securities available-for-sale are stated at fair value.
These securities may be sold, retained until maturity, or pledged as collateral
for liquidity and borrowing in response to changing interest rates, changes in
prepayment risk, and other factors as a part of the Company's overall asset
liability management strategy.
Investment securities held-to-maturity are stated at amortized cost.
The Company has the intent and ability to hold these securities until maturity,
and they are also available to be pledged as collateral for liquidity and
borrowing needs if and when such needs may occur.
-22-
<PAGE>
The following table sets forth the carrying value of the Company's
investment portfolio as of the dates indicated:
INVESTMENT PORTFOLIO COMPOSITION
(Dollars In Thousands)
December 31,
---------------------------------------
1999 1998 1997
------------ ------------ -------------
Available-for-sale (fair value):
U.S. Treasuries and government agencies $ 13,526 $ 4,060 $ 13,492
Other 2,969 2,751 2,284
------------ ------------ -------------
Total available-for-sale 16,495 6,811 15,776
Held-to-maturity (amortized cost):
U.S. Treasuries and government agencies 5,966 2,164 1,911
State, county and municipal - - 65
Other - 278 1,656
------------ ------------ -------------
Total held-to-maturity 5,966 2,442 3,632
------------ ------------ -------------
Total investment securities $ 22,461 $ 9,253 $ 19,408
------------ ------------ -------------
The following table sets forth the maturity distribution and weighted
average yield of the investment portfolio of the Company as of December 31,
1999:
<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
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Maturity Distribution:
<S> <C> <C> <C> <C> <C>
U.S. Treasuries and government
agencies $ 1,999 $ 15,111 - $ 2,382 $ 19,492
Other - - $ 288 2,681 2,969
-------------- -------------- -------------- -------------- --------------
Total $ 1,999 $ 15,111 $ 288 $ 5,063 $ 22,461
-------------- -------------- -------------- -------------- --------------
Weighted Average Yield (1):
U.S. Treasuries and government
agencies 5.64% 6.07% - 6.27% 6.05%
Other - - 5.10% 6.56% 6.42%
-------------- -------------- -------------- -------------- --------------
Total 5.64% 6.07% 5.10% 6.42% 6.10%
-------------- -------------- -------------- -------------- --------------
</TABLE>
(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.
-23-
<PAGE>
Deposit Activities
The Company's total deposits at year-end 1999 were $153.9 million, an
increase of $27.7 million, or 22.0%, compared to the year-end 1998 balance.
Total average deposits were $138.4 million for the year ended December 31, 1999,
an increase of $16.8 million, or 13.9% compared with average deposits of $121.5
million for the year ended December 31, 1998. The Company's total deposits at
year-end 1998 were $126.2 million, a decrease of $3.4 million, or 2.6%, compared
to the year-end 1997 balance. Total average deposits were $121.5 million for the
year ended December 31, 1998, an increase of $24.8 million, or 25.6% compared
with average deposits of $96.7 million for the year ended December 31, 1997. The
Company views deposit growth as a significant challenge in its effort to
increase its asset size. Thus, the Company continues to focus on its branching
program with increased emphasis on commercial accounts, and the offering of
competitive interest rates and products to stimulate deposit growth.
The following table sets forth the average balances and weighted
average rates for the Company's categories of deposits for the periods
indicated:
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
(Dollars In Thousands)
Year Ended December 31,
------------------------------ -- ------------------------------ -- -----------------------------
1999 1998 1997
------------------------------ ------------------------------ -----------------------------
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 $ 30,101 0.00% 21.8% $ 24,981 0.00% 20.6% $20,272 0.00% 21.0%
Interest-Bearing Deposits:
NOW accounts 19,700 1.13 14.2 17,722 1.68 14.6 14,023 2.01 14.5
Savings accounts 20,241 4.37 14.6 18,285 4.47 15.0 5,559 3.80 5.7
Money market accounts 20,451 3.37 14.8 21,723 3.55 17.9 21,491 3.60 22.2
Time deposits 47,895 5.03 34.6 38,832 5.54 31.9 35,399 5.60 36.6
---------- ---------- -------- ---------- ---------- -------- --------- ---------- --------
Total $138,388 100.0% $121,543 100.0% $96,744 100.0%
---------- -------- ---------- -------- --------- --------
Weighted Average Rate 3.00% 3.32% 3.36%
---------- ---------- ----------
</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, 1999, brokered deposits represented $300,000, or 0.2% of the Company's total
liabilities.
As of December 31, 1999, total time deposits in excess of $100,000
accounted for $26.1 million, or 17.0% of the Company's total deposits. Of this
amount, $8.5 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, 1999 and 1998:
TIME DEPOSITS OF $100,000 OR MORE
(Dollars In Thousands)
December 31,
----------------------------
1999 1998
------------- --------------
Maturity Period:
Three months or less $ 2,501 $ 2,565
Over three months through six months 6,029 4,413
Over six months through twelve months 14,997 7,650
Over twelve months 2,574 2,714
------------- --------------
Total $26,101 $17,342
------------- --------------
-24-
<PAGE>
Borrowings
Borrowings consist of advances from the Federal Home Loan Bank of
Atlanta ("FHLBA"), deposits received in the Company's U.S. Treasury Tax and Loan
Account, and securities sold under repurchase agreements. Balances outstanding
and effective rates of interest are shown in the tables below for the years
ending December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
BORROWINGS
(Dollars In Thousands)
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
----------------- -------------- ----------------
<S> <C> <C> <C>
Federal Home Loan Bank of Atlanta:
Ending balance $26,301 $6,513 $7,423
Daily average balance for the period 11,031 6,911 7,397
Maximum outstanding balance at
a month-end during the period 38,855 7,222 7,675
Daily average interest rate for the period 6.25% 6.81% 6.75%
Average interest rate on period end balance 5.21 6.74 6.73
Treasury Tax and Loan Account:
Ending balance $ 599 $ 589 $ 776
Daily average balance for the period 357 361 371
Maximum outstanding balance at
a month-end during the period 599 2,101 776
Daily average interest rate for the period 4.27% 4.79% 4.61%
Average interest rate on period end balance 4.56 4.45 5.27
Securities sold under repurchase agreements:
Ending balance $ 6,359 $ 1,359 -
Daily average balance for the period 3,256 264 -
Maximum outstanding balance at
a month-end during the period 6,359 1,359 -
Daily average interest rate for the period 4.23% 4.72% -
Average interest rate on period end balance 4.42 4.72 -
</TABLE>
The following table shows the details of the Company's fixed and
variable rate advances from the FHLBA, with original maturities in excess of one
year, as of December 31, 1999:
<TABLE>
<CAPTION>
BORROWINGS
(Dollars in Thousands)
December 31, 1999
------------------------------------------------
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 1,000 650 100 550 6.94 6/24/06 semi-annual
10/10/96 300 300 - 300 6.85 10/10/01 due at maturity
10/10/96 2,000 800 400 400 6.57 10/10/01 quarterly
10/10/96 2,400 1,200 400 800 6.66 10/10/02 quarterly
9/25/97 573 551 12 539 6.62 9/25/17 monthly
4/22/99 3,000 3,000 - 3,000 5.01 4/22/04 due at maturity
4/23/99 3,000 3,000 - 3,000 Variable 4/23/04 due at maturity
------------ -------------- ----------- ---------------
Total $14,073 $11,301 $ 912 $10,389
------------ -------------- ----------- ---------------
</TABLE>
-25-
<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
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
----------------- ------------------- ------------------
Return on average assets 0.70% 0.44% 0.29%
Return on average equity 7.65 4.49 3.83
Period-end equity to
total assets 7.65 10.12 8.87
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, 1999, the Bank had cash
and cash equivalents of $20.2 million, an increase of $7.0 million, when
compared with the $13.2 million at December 31, 1998.
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 funds secured by a blanket pledge of its portfolio of
1-to-4-family residential mortgage loans and other collateral. The total amount
of credit availability, determined periodically by the FHLBA, is generally based
on a percentage (currently 20%) of total assets of the Bank. At December 31,
1999, the Company had a total credit availability from the FHLBA of $35.7
million. The most recent update of the Bank's credit availability from the FHLBA
was as of June 30, 1999, when total assets of the Bank were $178.3 million. 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 $5.7 million. As of December 31, 1999, there were
no federal funds purchased, customer repurchase agreements amounted to $6.4
million, and the Company had outstanding borrowings of $26.3 million from the
FHLBA in the form of fixed and variable rate advances with an average interest
rate of 5.21%. The Company utilizes fixed rate term credit advances from the
FHLBA to manage interest rate risk by match funding 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
$2.9 million for the year ended December 31, 1999. Net cash used in investing
activities was $38.3 million for 1999, as a result of the $41.5 million net
increase in loans and investment securities which was partially offset by the
acquisition of deposits, net of assets acquired of $2.9 million. Net cash
provided by financing activities for 1999 of $42.4 million, which resulted from
a $18.3 million increase in deposits, an increase of $19.8 million in
borrowings, the proceeds of $5.0 million from customer repurchase accounts, and
proceeds of $60,760 from the exercise of options for common stock, partially
offset by the purchase of 136,500 shares of treasury stock for $789,863.
-26-
<PAGE>
Net cash provided by operating activities was $2.1 million for the year
ended December 31, 1998. Net cash provided by investing activities was $1.1
million for 1998, as the $21.4 million net increase in loans was funded largely
by decreases in investment securities and interest bearing deposits in other
banks. Net cash used in financing activities for 1998 of $2.0 million resulted
from a $3.4 million decrease in deposits, reduction of $1.1 million in
borrowings, the proceeds of $1.4 million from customer repurchase accounts, and
proceeds of $1.1 million from the exercise of options and warrants for common
stock.
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
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 $739,944 at the holding
company level at December 31, 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. 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, 1999,
the Company had no indebtedness outstanding at the holding company level.
Capital Resources
Total stockholders' equity as of December 31, 1999 was $15.7 million,
an increase of $0.4 million in 1999 and $1.8 million in 1998, compared to
stockholders' equity of $15.3 million and $13.5 million as of December 31, 1998
and 1997, respectively. In 1999, additional capital was raised from the exercise
of stock options amounting to $60,760, and 136,500 treasury shares were acquired
at a cost of $789,863. In 1998, additional capital was raised from the exercise
of warrants and stock options amounting to $1.1 million. Net income was
$1,188,622 in 1999 and $636,884 in 1998.
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, 1999, 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
General. 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 failure of the Company, its vendors or its
borrowers to address these issues could have a material effect on the Company's
business, results of operations, or financial condition.
State of Readiness. 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 Board of Directors received
monthly reports concerning the status of the Y2K Plan, and the Company's
progress was also reviewed from time to time by bank regulatory authorities.
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
Counsel (FFIEC) to test date sensitive transactions and calculations. These
tests were performed on all mission critical systems and the results revealed
compliance only very minor discrepancies; such failed test transactions were
tested again in 1999 and minor discrepancies were resolved. Material third party
risks also included assessing the Year 2000 preparation status of the bank's
customers. The Company completed a risk assessment of Year 2000 preparedness of
borrowers within its loan portfolio as of September 30, 1998, the date
established by bank regulatory authorities. By September 30, 1999, the Company's
Y2K Plan had been completed. The Company continued to monitor Y2K preparedness
related to new loans and any borrowers deemed to be at high risk.
-27-
<PAGE>
Costs of Compliance. 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. The costs to address
the Company's Year 2000 issues have not had a significant impact on the
financial position or results of operations of the Company.
While the Company does not believe that it will incur any additional
material expenses related to the Year 2000 issue, there can be no assurance that
the Company will not be impacted by a Year 2000 related problem which occurs
after the date hereof or by the failure of a third party to achieve proper Year
2000 compliance.
Transition Into the Year 2000. The Company suffered no failures in any
system or product upon the date change from December 31, 1999 to January 1,
2000. In addition, management is not aware of any vendor used by the Company for
data processing or related services which experienced a material failure of its
product or service due to a Year 2000 related problem. The Company was also
subject to risks associated with Year 2000 noncompliance by customers of the
Bank. Management is not aware of any customer which suffered losses related to a
Year 2000 problem which would adversely affect that customer's financial
condition or its ability to repay any outstanding loan it has from the Bank.
Ongoing Plans. Although many of the critical dates related to potential
Year 2000 related problems have passed, some experts predict that Year 2000
related failures could occur throughout the year, such as on February 29, 2000
and December 31, 2000. Accordingly, the Company's Year 2000 project team will
continue to monitor the Company's IT and non-IT systems and attempt to identify
any potential problems during the course of the year. In addition, the Company
will continue to monitor the Year 2000 compliance of the third parties, with
which the Company transacts business, for delayed effects or future problems.
Contingency Plans. The Company continues to maintain its contingency
plans with respect to Year 2000 related issues and believes that if its own
systems should fail, it could convert to a manual entry system for mission
critical business functions for a period of up to six months without significant
losses. The Company believes that any mission critical systems could be
recovered and operating within seven days.
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.
-28-
<PAGE>
Disclosure Regarding Forward Looking Statements
Statements and financial discussion and analysis contained in Items 1,
7 and 7A 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 increase deposits; 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.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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, 1999 and 1998, 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,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
McLean, VA
February 18, 2000
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<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
1999 1998
- -------------------------------------------------------------- ------- ------------------- -------- ------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 9,222,005 $ 8,950,733
Federal funds sold 11,015,000 4,285,000
Interest bearing deposits in other banks 19,667,075 9,847,315
Investment securities available-for-sale, at fair value 16,495,049 6,811,356
Investment securities held-to-maturity, at cost,
fair value of $5,837,867 and $2,449,680
in 1999 and 1998, respectively 5,966,403 2,441,537
Loans, net of unearned income 138,076,486 115,231,298
Less: allowance for credit losses (1,518,911) (1,128,147)
------------------- ------------------
Loans, net 136,557,575 114,103,151
Leasehold improvements, furniture, and equipment, net 1,372,267 1,372,370
Accrued interest receivable 1,034,270 742,721
Loans held for sale 439,600 -
Deposit premium, net 1,675,813 1,546,232
Net deferred taxes 767,893 683,113
Other assets 595,948 566,373
------------------- ------------------
Total Assets $204,808,898 $151,349,901
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 36,571,508 $ 31,676,194
Interest-bearing 117,328,222 94,535,082
------------------- ------------------
Total deposits 153,899,730 126,211,276
Federal funds purchased and securities sold under
agreements to repurchase 6,358,654 1,359,330
Other borrowings 26,900,223 7,101,911
Other liabilities 1,982,184 1,360,710
------------------- ------------------
Total Liabilities 189,140,791 136,033,227
------------------- ------------------
Stockholders' Equity:
Common stock, $1 par value; 5,000,000 shares authorized;
2,858,402 and 2,574,219 shares issued at
December 31, 1999 and 1998, respectively 2,858,402 2,574,219
Additional paid in capital 13,700,452 12,343,631
Retained earnings - 392,384
Treasury stock, at cost, 136,500 shares (789,863) -
Other comprehensive income (loss), net of tax effect (100,884) 6,440
------------------- ------------------
Total Stockholders' Equity 15,668,107 15,316,674
Commitments and contingencies
------------------- ------------------
Total Liabilities and Stockholders' Equity $204,808,898 $151,349,901
------------------- ------------------
See accompanying notes to consolidated financial statements.
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- -------------------------------------------------------------- ---------------- ----------------- ----------------
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 11,542,779 $ 9,393,339 $ 7,554,812
Interest on federal funds sold 264,204 350,846 258,311
Interest on deposits in other banks 646,800 708,431 749,568
Interest on securities available-for-sale 574,836 718,829 529,963
Interest on securities held-to-maturity 191,570 184,035 116,220
---------------- ----------------- ----------------
Total interest income 13,220,189 11,355,480 9,208,874
Interest expense:
Interest on deposits:
Savings accounts 884,150 818,417 210,928
NOW accounts 221,816 298,423 282,169
Money market accounts 640,427 771,400 773,799
Certificates under $100,000 1,385,414 1,254,993 1,216,180
Certificates $100,000 and over 1,021,854 894,004 764,576
---------------- ----------------- ----------------
Total interest on deposits 4,153,661 4,037,237 3,247,652
---------------- ----------------- ----------------
Interest on other borrowings 842,576 500,335 517,644
---------------- ----------------- ----------------
Total interest expense 4,996,237 4,537,572 3,765,296
---------------- ----------------- ----------------
Net interest income 8,223,952 6,817,908 5,443,578
Provision for credit losses 640,000 620,000 336,200
---------------- ----------------- ----------------
Net interest income after provision for credit losses 7,583,952 6,197,908 5,107,378
Noninterest income:
Service charges on deposit accounts 660,942 447,105 409,747
Other operating income 1,008,195 625,745 512,637
Gain on sale of securities - 14,570 -
Gain on liquidation of other real estate owned - 15,853 -
---------------- ----------------- ----------------
Total noninterest income 1,669,137 1,103,273 922,384
Noninterest expense:
Salaries and employee benefits 2,858,900 2,075,963 2,201,299
Occupancy and equipment expense 842,263 825,839 649,846
Professional fees 696,113 925,664 691,501
Depreciation and amortization 445,381 471,591 502,556
Amortization of deposit premiums 198,052 189,538 68,477
Data processing 1,155,809 733,544 533,794
Communications 355,242 278,611 200,456
Federal deposit insurance premiums 20,124 17,678 13,996
Other operating expenses 763,370 790,978 598,077
---------------- ----------------- ----------------
Total noninterest expense 7,335,254 6,309,406 5,460,002
---------------- ----------------- ----------------
Income before income tax expense 1,917,835 991,775 569,760
Income tax expense 729,213 354,891 233,602
---------------- ----------------- ----------------
Net income $ 1,188,622 $ 636,884 $ 336,158
---------------- ----------------- ----------------
Basic income per common share $.42 $.24 $.20
Diluted income per common share $.42 $.24 $.18
Weighted average common shares outstanding 2,804,994 2,632,787 1,710,316
Diluted weighted average common shares outstanding 2,832,683 2,688,583 1,852,683
See accompanying notes to consolidated financial statements.
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
Other
Common Additional Treasury comprehensive Total
stock paid in Retained stock, income (loss), Stockholders'
$1.00 par capital earnings at cost net of tax effect Equity
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $1,146,028 $ 4,870,856 $ 779,057 $ - $ (45,900) $ 6,750,041
Comprehensive income:
Net income 336,158 336,158
Unrealized gain on
investment securities,
net of tax effect 25,071 25,071
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Comprehensive income 336,158 25,071 361,229
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
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Balance, December 31, 1997 2,209,229 10,695,480 651,646 (20,829) 13,535,526
Comprehensive income:
Net income 636,884 636,884
Unrealized gain on
investment securities,
net of tax effect 27,269 27,269
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Comprehensive income 636,884 27,269 664,153
Common stock dividend
(5% of shares outstanding) -
112,665 shares 112,665 781,623 (894,288)
Payments for fractional shares (1,858) (1,858)
Exercise of common stock
options - 60,831 shares 60,831 146,546 207,377
Exercise of warrants -
191,494 shares 191,494 742,840 934,334
Other - (22,858) (22,858)
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Balance, December 31, 1998 2,574,219 12,343,631 392,384 6,440 15,316,674
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Comprehensive income:
Net income 1,188,622 - 1,188,622
Unrealized gain (loss) on
investment securities,
net of tax effect (107,324) (107,324)
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Comprehensive income 1,188,622 (107,324) 1,081,298
Common stock dividends:
declared March 1999 (5%) 129,333 645,705 (775,038)
declared February 2000 (5%) 136,152 669,054 (805,206)
Payments for fractional shares (762) (762)
Purchase of treasury stock -
136,500 shares $ (789,863) (789,863)
Exercise of common stock
options- 18,698 shares 18,698 42,062 60,760
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
Balance, December 31, 1999 $2,858,402 $13,700,452 $ - $ (789,863) $( 100,884) $15,668,107
- --------------------------------- -------------- ---------------- -------------- ------------- ------------------ -----------------
See accompanying notes to consolidated financial statements.
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- -------------------------------------------------------------- -------------------- -------------------- --------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,188,622 $ 636,884 $ 336,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 445,381 471,591 502,556
Amortization of deposit premiums 198,052 189,538 68,477
Provision for credit losses 640,000 620,000 336,200
Provision (benefit) for net deferred taxes (26,990) 25,715 (161,370)
Gain on sale of securities available-for-sale - (14,570) -
Gain on sale of other real estate owned - (15,853) -
(Increase) decrease in accrued interest receivable (291,549) 179,606 (412,760)
(Increase) decrease in other assets 109,445 (47,062) 48,471
Increase (decrease) in other liabilities 621,475 53,032 315,345
-------------------- -------------------- --------------------
Total adjustments 1,695,814 1,461,997 696,919
-------------------- -------------------- --------------------
Net cash provided by operating activities 2,884,436 2,098,881 1,033,077
Cash flows from investing activities:
Net increase in loans (17,517,607) (21,438,747) (14,810,469)
Net (increase) decrease in interest bearing deposits
in other banks (9,819,760) 12,375,722 (15,399,960)
Purchases of securities available-for-sale (10,123,682) (2,872,601) (9,564,799)
Purchases of securities held-to-maturity (3,999,062) (2,005,882) (4,411,652)
Repayments and maturities of securities available-for-sale 274,875 3,196,421 1,034,208
Repayments and maturities of securities held-to-maturity 474,196 5,358,436 944,471
Proceeds from sale of securities available-for-sale - 6,535,849 -
Net purchase of leasehold improvements, furniture
and equipment (445,278) (134,976) (596,888)
Acquisition of deposits, net of assets acquired 2,901,744 - 17,282,864
Proceeds from sale of other real estate owned - 67,853 -
-------------------- -------------------- --------------------
Net cash (used in) provided by investing activities (38,254,574) 1,082,075 (25,522,225)
Cash flows from financing activities:
Net increase (decrease) in demand, savings, NOW and
money market deposit accounts 4,038,562 3,394,503 (620,526)
Net increase (decrease) in certificates of deposit 14,265,109 (6,788,259) 11,221,680
Net increase in customer repurchase accounts 4,999,324 1,359,330 -
Net increase (decrease) in other borrowings 15,009,426 (186,813) 60,347
Net proceeds from issuance of long-term debt 6,000,000 - 573,000
Repayment of long-term debt (1,211,146) (910,118) (900,381)
Purchase of treasury stock (789,863) - -
Net proceeds from issuance of common stock 59,998 1,143,150 6,424,256
Other - (26,155) -
-------------------- -------------------- --------------------
Net cash provided by (used in) financing activities 42,371,410 (2,014,362) 16,758,376
-------------------- -------------------- --------------------
Net increase (decrease) in cash and cash equivalents 7,001,272 1,166,594 (7,730,772)
Cash and cash equivalents, beginning of year 13,235,733 12,069,139 19,799,911
-------------------- -------------------- --------------------
Cash and cash equivalents, end of year $ 20,237,005 $ 13,235,733 $ 12,069,139
-------------------- -------------------- --------------------
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 4,823,033 $ 4,572,718 $ 3,724,036
Income taxes paid 625,000 300,000 112,500
Transfer of loans to other real estate owned - - 52,000
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------
(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, DC
area, and is managed as a single business segment. The Company 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 and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ 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. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as other comprehensive
income which is a separate component of stockholders' equity.
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.
-35-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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 Credit Losses
The allowance for credit losses is a valuation allowance available for losses
incurred on loans. It is established through charges to earnings in the form of
provisions for credit losses. Credit losses are charged to the allowance for
credit losses when a determination is made that collection is unlikely to occur.
Recoveries are credited to the allowance at the time of recovery.
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.
Prior to the beginning of each year, and quarterly during the year,
management estimates whether the allowance for credit 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 credit 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 credit 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. 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.
-36-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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, ranging from 3 to 10 years.
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 Common 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 dilutive potential common stock. SFAS No.128 was
implemented on December 31, 1997.
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. On May 19, 1998, the Company declared a 5 percent stock
dividend to common stock shareholders of record as of May 29, 1998, resulting in
the issuance of 112,665 shares. On March 28, 1999, the Company declared a 5
percent stock dividend to common stock shareholders of record as of April 28,
1999, resulting in the issuance of 129,333 shares. On February 18, 2000, the
Company declared a 5 percent stock dividend to be distributed on April 17, 2000,
to shareholders of record as of the close of business on March 15, 2000.
Weighted average shares outstanding and all income per common share amounts have
been restated for the effect of the stock dividends.
Loans Held for Sale
Loans held for sale consists mainly of mortgage loans, which are
carried at the lower of cost or market, as determined in the aggregate. Market
is determined by commitment prices at the date of the financial statements.
-37-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
New Financial Accounting Standards, Continued
The reclassification entries for the three years ended December 31, 1999, 1998,
and 1997 are as follows:
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Net unrealized holding gains (losses) during the year, net of income
taxes of $57,790, $20,220, and $17,422, respectively ($ 107,324) $ 36,303 $ 25,071
Less: reclassification adjustment for gains included in net income,
net of income taxes of $5,536 in 1998 - (9,034) -
------------- ------------- ------------
Net unrealized gains (losses) on investment securities during the year,
net of income taxes ($ 107,324) $ 27,269 $ 25,071
------------- ------------- ------------
</TABLE>
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 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 designated 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.
Stock Options
The Company accounts for its stock option plans under the provisions of APB
Opinion No. 25 and related interpretations. Accordingly, no compensation expense
has been recognized for the plans under SFAS No. 123, "Accounting for
Stock-Based Compensation," and the pro forma impact to compensation expense is
detailed in Note 9--"Benefit and Incentive Plans."
(2) INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Investment securities available-for-sale, and their contractual maturities, at
December 31, 1999 and 1998 are summarized as follows:
Amortized Gross unrealized Gross unrealized
December 31, 1999 cost gains losses Fair value
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
Within one year $ 1,999,974 $ - $ 612 $ 1,999,362
After one, but within five years 11,241,574 - 129,979 11,111,595
After ten years 427,851 301 12,946 415,206
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total 13,669,399 301 143,537 13,526,163
Collateralized mortgage obligations:
After five, but within ten years 294,482 - 6,068 288,414
After ten years 183,162 - 5,902 177,260
Federal Reserve Bank stock 311,350 - - 311,350
Federal Home Loan Bank stock 1,317,700 - - 1,317,700
Other 874,162 - - 874,162
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total investment securities available-for-sale $ 16,650,255 $ 301 $ 155,507 $ 16,495,049
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------- -------------------- -------------------- -------------
(2) INVESTMENT SECURITIES, CONTINUED
Amortized Gross unrealized Gross unrealized
December 31, 1998 cost gains losses Fair value
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
After one, but within five years $ 1,999,133 $ 14,460 $ - $ 2,013,593
After five, but within ten years 1,461,012 10,502 - 1,471,514
After ten years 581,371 - 6,180 575,191
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total 4,041,516 24,962 6,180 4,060,298
Collateralized mortgage obligations:
After five, but within ten years 394,691 - 5,160 389,531
After ten years 432,929 - 3,714 429,215
Federal Reserve Bank stock 236,350 - - 236,350
Federal Home Loan Bank stock 821,800 - - 821,800
Other 874,162 - - 874,162
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
Total investment securities available-for-sale $ 6,801,448 $ 24,962 $ 15,054 $ 6,811,356
- ------------------------------------------------ ------------------ ------------------ ------------------- ------------------
</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.
As a member of the Federal Reserve and Federal Home Loan Bank Systems, Century
National Bank is required to hold shares of stock in the Federal Reserve Bank of
Richmond and the Federal Home Loan Bank of Atlanta. Those shares, which have no
stated maturity, are carried at cost since no active trading markets exist.
Investment securities totaling $14,278,188 and $3,619,322 at December 31, 1999
and 1998, respectively, were pledged to secure FHLBA borrowing, public deposits,
customer repurchase accounts, and other borrowing. Investment securities
available for sale with an amortized cost of $6,617,084 were sold for gross
proceeds of $6,631,654 resulting in gains of $14,570 in 1998. No investment
securities were sold during 1999 or 1997.
Investment securities held-to-maturity at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Gross unrealized Gross unrealized
December 31, 1999 cost gains losses Fair value
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury, municipals, and
government agencies:
Within one year $ 3,999,138 $ - $ 37,572 $ 3,961,566
After ten years 1,967,265 260 91,224 1,876,301
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Total investment securities held-to-maturity $ 5,966,403 $ 260 $ 128,796 $ 5,837,867
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Amortized Gross unrealized Gross unrealized
December 31, 1998 cost gains losses Fair value
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Obligations of U.S. Treasury, municipals, and
government agencies:
After ten years $ 2,163,449 $ 9,508 $ 1,799 $ 2,171,158
Other securities:
After one year, but within five years 278,088 434 - 278,522
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
Total investment securities held-to-maturity $ 2,441,537 $ 9,942 $ 1,799 $ 2,449,680
- ----------------------------------------------------- ------------------ ------------------ ------------------- ------------------
</TABLE>
-39-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(3) LOANS RECEIVABLE
The loan portfolio consists of the following:
December 31,
-------------------------------------
1999 1998
------------------ ------------------
Commercial $ 37,584,578 $ 28,905,741
Real estate - residential 27,560,404 29,563,080
Real estate - commercial 48,241,506 35,820,890
Real estate - construction 4,425,278 1,205,397
Consumer 10,612,630 12,517,045
Home equity 9,724,453 7,184,985
------------------ ------------------
138,148,849 115,197,138
Unearned income and deferred costs (72,363) 34,160
------------------ ------------------
138,076,486 115,231,298
Allowance for credit losses (1,518,911) (1,128,147)
------------------ ------------------
Loans, net $ 136,557,575 $ 114,103,151
------------------ ------------------
Loans on which the accrual of interest has been discontinued amounted
to approximately $515,000, $1,163,000, and $624,000, at December 31, 1999, 1998,
and 1997, respectively. Interest lost on nonaccrual loans was $24,000, $26,000,
and $17,000 for 1999, 1998, and 1997, respectively. The Company received
interest payments on nonaccrual loans amounting to approximately $68,000,
$100,000 and $26,000 for 1999, 1998 and 1997, respectively.
Analysis of the activity in the allowance for credit losses is as
follows:
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
------------- --------------- -----------------
Balance, beginning of year $ 1,128,147 $ 887,046 $ 825,876
Provision for credit losses 640,000 620,000 336,200
Loans charged off (270,341) (486,916) (451,593)
Recoveries 21,105 108,017 176,563
-------------- ---------------- ------------------
Net charge-offs (249,236) (378,899) (275,030)
-------------- ---------------- ------------------
Balance, end of year $1,518,911 $1,128,147 $ 887,046
-------------- ---------------- ------------------
-40-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- -------------------------------------------------------------------------------
(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, 1999, 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,
-------------------------------------
1999 1998
------------------ ------------------
Financial instruments whose contract amounts represent potential credit risk:
<S> <C> <C>
Commitments to extend credit $31,873,000 $27,246,000
Standby letters of credit 2,818,000 2,251,000
</TABLE>
At December 31, 1999, 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 $24.2 million and
$13.2 million, respectively, as of December 31, 1999. The aggregate total of
loans to such groups was approximately $19.8 million and $11.6 million,
respectively, as of December 31, 1998. The amount of such loans which are past
due or considered by management to be potential problem loans is not material.
-41-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(4) RELATED PARTIES
An analysis of the activity of loans to directors, officers, and their
affiliates during the years ended December 31, 1999 and 1998, is as follows:
Year Ended December 31,
1999 1998
------------------ ------------------
Balance, beginning of year $ 3,390,254 $ 3,510,534
Additions 17,000 1,664,714
Payments (155,614) (1,784,994)
------------------ ------------------
Balance, end of year $ 3,251,640 $ 3,390,254
------------------ ------------------
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 $956,000 and $539,000 at December 31, 1999 and 1998, respectively.
Also, included in professional fees are legal fees paid to law firms
whose partners are directors of the Company or the Bank, totaling $116,907,
$270,041, and $282,536 for the years ended December 31, 1999, 1998, and 1997,
respectively.
(5) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT
Leasehold improvements, furniture, and equipment consist of the following:
December 31,
1999 1998
------------------ ------------------
Leasehold improvements $ 1,497,339 $ 1,485,970
Furniture and equipment 3,371,492 2,937,583
------------------ ------------------
4,868,831 4,423,553
Less accumulated depreciation
and amortization (3,496,564) (3,051,183)
------------------ ------------------
Balance, end of year $ 1,372,267 $ 1,372,370
------------------ ------------------
Depreciation and amortization expense for leasehold improvements,
furniture and equipment was $445,381, $471,591, and $502,556 for 1999, 1998, and
1997, respectively.
-42-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(6) DEPOSITS
Major classifications of deposits consist of the following:
December 31,
1999 1998
--------------- --------------
Noninterest-bearing - demand deposits $ 36,571,508 $ 31,676,194
Interest-bearing:
NOW accounts 23,112,258 19,345,373
Savings accounts 20,572,494 19,649,757
Money market accounts 19,677,736 17,995,450
Certificates of deposit--less than $100,000 27,864,994 20,202,277
Certificates of deposit--$100,000 and over 26,100,740 17,342,225
------------- --------------
Total interest-bearing 117,328,222 94,535,082
------------- --------------
Total deposits $ 153,899,730 $ 126,211,276
------------- --------------
Certificates of deposit of $43,733,850 have remaining maturities of one
year or less as of December 31, 1999. Certificates of deposit with a remaining
term of more than one year as of December 31, 1998, are as follows:
Year Ending December 31,
- ----------------------------------
2001 $ 8,967,899
2002 1,015,513
2003 147,986
2004 100,486
Thereafter -
----------------------
Total $ 10,231,884
----------------------
-43-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(7) OTHER BORROWINGS
Other borrowings consist of advances from the Federal Home Loan Bank of Atlanta
(FHLB), deposits received in the Bank's U.S. Treasury Tax and Loan Account, and
securities sold under repurchase agreements. Balances outstanding are shown
below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
Federal Home Loan Bank:
<S> <C> <C> <C>
Ending balance $ 26,301,355 $ 6,512,501 $ 7,422,619
Daily average balance for the period 11,031,064 6,911,185 7,397,407
Maximum outstanding balance at a month-end 38,855,191 7,221,812 7,675,000
Daily average interest rate for the period 6.25% 6.81% 6.75%
Average interest rate on period end balance 5.21 6.74 6.73
Treasury Tax and Loan Account
Ending balance $ 598,868 $ 589,410 $ 776,224
Daily average balance for the period 356,978 360,645 370,944
Maximum outstanding balance at a month-end 598,868 2,101,044 776,224
Daily average interest rate for the period 4.27% 4.79% 4.61%
Average interest rate on period end balance 4.56 4.45 5.27
Securities sold under repurchase agreements
Ending balance $ 6,358,654 $ 1,359,330 -
Daily average balance for the period 3,256,330 264,329 -
Maximum outstanding balance at a month-end 6,358,654 1,359,330 -
Daily average interest rate for the period 4.23% 4.72% -
Average interest rate on period end balance 4.42 4.72 -
</TABLE>
The balance of FHLB advances with original maturities in excess of
one year are summarized as follows:
December 31,
-------------------------------------
1999 1998
------------------ ------------------
6.60% fixed rate, due 1999 $ - $ 300,000
6.85% fixed rate, due 2001 300,000 300,000
6.57% fixed rate, due 2001 800,000 1,200,000
6.66% fixed rate, due 2002 1,200,000 1,600,000
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 650,000 750,000
6.62% fixed rate, due 2017 551,355 563,000
5.01% fixed rate, due 2004 3,000,000 -
Variable rate, due 2004 3,000,000 -
------------------ ------------------
$ 11,301,355 $ 6,513,000
------------------ ------------------
As of December 31, 1999, the Bank has been advised by the FHLB that it has a
total credit availability of $35.7 million based on 20% of the Bank's total
assets of $178.3 million as of June 30, 1999. The Bank is authorized to borrow
funds secured by residential mortgage loans and other collateral. The 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, 1999, the
balance of advances payable to the FHLB was $26.3 million and the credit
available from the FHLB was $9.4 million.
-44-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(7) OTHER BORROWINGS, CONTINUED
In connection with its borrowings from the FHLB, the Bank is required
to own FHLB stock. At December 31, 1999, the Bank's investment in FHLB stock had
a par and carrying value of $1,317,700 and was automatically pledged against
FHLB advances.
(8) STOCKHOLDERS' EQUITY
Common Stock
The Company is authorized to issue 5 million shares of Common Stock, par value
$1.00. At December 31, 1999, the Company had 2,858,402 shares issued, 2,721,902
shares outstanding, and 136,500 shares of treasury stock.
In September 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.
In November 1995, the Company issued 173,912 Units pursuant to an
Offering made in September 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 1998, 1997 and 1996, the terms of the Warrants
were adjusted to the effect that each Warrant entitled the holder to purchase
1.179675 shares of Common Stock at an adjusted price of $4.874 per share at any
time through November 16, 1998. Prior to the November 16, 1998 expiration date,
the exercise of warrants during 1998 generated additional proceeds of $934,334
from the issuance of shares of common stock.
Income Per Common Share
On February 18, 2000, the Board of Directors declared a five percent stock
dividend to be distributed on April 17, 2000, to stockholders of record as of
the close of business on March 15, 2000. The effect of the stock dividend has
been recognized retroactively in the stockholders' equity accounts in the
consolidated statements of financial condition as of December 31, 1999, and in
all share and per share data in the accompanying consolidated financial
statements, notes to consolidated financial statements and supplemental
financial data.
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,
----------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Basic Income Per Share:
Net income $ 1,188,622 $ 636,884 $ 336,158
Weighted average common shares outstanding 2,804,994 2,632,787 1,710,316
----------------- ---------------- -----------------
Basic income per share $0.42 $0.24 $0.20
Diluted Income Per Share:
Net income $ 1,188,622 $ 636,884 $ 336,158
Weighted average common shares outstanding 2,804,994 2,632,787 1,710,316
Dilutive effect of warrants and stock options 27,689 55,796 142,367
----------------- ---------------- -----------------
Diluted weighted average
common shares outstanding 2,832,683 2,688,583 1,852,683
----------------- ---------------- -----------------
Diluted income per share $0.42 $0.24 $0.18
</TABLE>
-45-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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 provide 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 vests pursuant to a schedule, with 20% of the benefit
vesting each year over a five-year period. As of December 31, 1999, the net
present value of the deferred compensation liability for all directors totaled
approximately $794,000, compared with $674,000 for 1998. Expenses related to the
deferred compensation program totaled $120,000 for 1999, $108,000 for 1998, and
$84,000 for 1997.
Stock Option Plans
Pursuant to the Century Bancshares, Inc. 1994 Stock Option Plan ("1994 Plan")
the Company reserved 350,000 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, 1999, after adjusting for stock dividends and
stock option activity, there are 334,362 shares of stock reserved for issuance
pursuant to the 1994 Plan, of which 332,366 shares are reserved for outstanding
options and 1,996 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, 1999, after adjusting for stock
dividends and stock option activity, there are 4,111 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, 1999, all options granted under the Prior Plans are fully exercisable.
In connection with the 5 percent stock dividends effective July 31,
1993, March 31, 1994, March 31, 1995, May 7, 1997, June 29, 1998, and May 28,
1999, 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.
<TABLE>
<CAPTION>
Stock option transactions for the years ended December 31, 1999, 1998,
and 1997, are summarized as follows:
1999 1998 1997
--------------------------- --------------------------- ---------------------------
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 225,657 $6.04 193,093 $4.24 170,470 $3.47
Granted 143,170 6.22 104,895 7.82 47,735 6.62
Exercised (18,698) 3.25 (63,873) 3.27 (18,584) 2.33
Forfeited (13,652) 6.98 (8,458) 9.04 (6,528) 6.00
- ----------------------------------- ------------- ------------- --- ------------- ------------- --- ------------- -------------
Outstanding at end of year 336,477 $6.24 225,657 $6.04 193,093 $4.24
- ----------------------------------- ------------- ------------- --- ------------- ------------- --- ------------- -------------
Options exercisable at year-end 198,613 $6.06 141,608 $5.50 162,620 $4.19
Weighted average fair value of
options granted $3.27 $4.08 $2.92
</TABLE>
-46-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(9) BENEFIT AND INCENTIVE PLANS, CONTINUED
Stock Option Plans, Continued
<TABLE>
<CAPTION>
The following table summarizes information about stock options
outstanding at December 31, 1999:
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>
$2.44 to $3.00 7,242 0.5 $ 2.60 7,242 $ 2.60
$3.01 to $4.00 18,325 1.4 3.65 18,325 3.65
$4.01 to $5.00 17,719 2.4 4.64 17,719 4.64
$5.01 to $6.00 23,543 6.5 5.20 22,755 5.19
$6.01 to $7.00 225,522 9.1 6.23 100,219 6.22
$8.01 to $9.00 27,589 8.5 8.86 22,982 8.87
$9.01 to $9.86 16,537 8.2 9.65 9,371 9.65
- ----------------------------------- -------------- ------------- ------------- ------------- -------------
$2.44 to $9.86 336,477 7.8 $ 6.24 198,613 $ 6.06
- ----------------------------------- -------------- ------------- ------------- ------------- -------------
</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 1999, 1998 and 1997, respectively: no dividends
for any year, expected volatility of 39 percent for 1999, 28 percent for 1998,
and 29 percent for 1997, risk free interest rates of 5.9 percent for 1999, 5.4
percent for 1998, and 5.8 percent for 1997, along with expected lives of 7 years
for 1999, 1998 and 1997.
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>
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net income, as reported $1,188,622 $636,884 $336,158
Net income, pro forma 1,020,982 519,502 298,320
Diluted earnings per share, as reported .42 .24 .18
Diluted earnings per share, pro forma .36 .19 .16
</TABLE>
Pro forma net income reflects only options granted in 1999, 1998 and
1997. 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, 1997 are
not considered.
Employee Benefit Plan
The Company maintains a 401(k) plan which covers substantially all employees.
Participants may contribute up to 15 percent of their compensation, subject to
certain limitations imposed by the Internal Revenue Service. The Company makes
matching contributions of one-half of up to 6 percent of participants'
compensation contributed to the Plan. The Company's matching contributions
totaled approximately $95,000 for 1999, $38,000 for 1998 and $17,000 for 1997.
-47-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(10) INCOME TAXES
The provision for taxes on income for the years ended December 31, 1999, 1998,
and 1997, consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Current federal income tax $617,898 $328,429 $304,721
Current state income tax 138,305 747 90,251
------------------ ------------------ -------------------
Total current income tax 756,203 329,176 394,972
Deferred Federal income tax expense (benefit) (21,696) (15,915) (117,497)
Deferred state income tax expense (benefit) (5,294) 41,630 (43,873)
------------------ ------------------ -------------------
Total deferred income tax expense (benefit) (26,990) 25,715 (161,370)
------------------ ------------------ -------------------
Total income tax $729,213 $354,891 $233,602
------------------ ------------------ -------------------
</TABLE>
<TABLE>
<CAPTION>
The difference between the statutory federal income tax rates and the
effective income tax rates for 1999, 1998, and 1997, are as follows:
1999 1998 1997
- ----------------------------------------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
State income taxes, net of federal benefit 4.6 2.8 5.4
Nondeductible expenses 0.5 1.1 2.6
Other (1.1) (2.1) (1.0)
- ----------------------------------------------------- ------------------ ------------------ -------------------
Effective income tax rate 38.0 % 35.8 % 41.0 %
- ----------------------------------------------------- ------------------ ------------------ -------------------
</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, 1999 and 1998:
1999 1998
---------------- -----------------
Assets:
Fixed assets $ 120,627 $ 102,797
Bad debts 194,691 218,021
Deferred rent expense 85,288 28,741
Deferred loan fees 24,957 37,460
Vacation pay accrual 15,200 22,800
Directors' deferred compensation 301,884 256,284
Intangibles 68,853 44,847
---------------- -----------------
Deferred tax assets 811,500 710,950
Liabilities:
Federal Home Loan Bank stock dividends (11,484) (11,484)
Unrealized (gains)losses on investments
designated as available-for-sale charged
to stockholders' equity 54,322 (3,468)
Other (86,445) (12,885)
---------------- -----------------
Deferred tax liabilities (43,607) (27,837)
---------------- -----------------
Net deferred tax asset $ 767,893 $ 683,113
---------------- -----------------
Net deferred tax assets of $767,893 and $683,113 at December 31, 1999
and 1998, 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.
-48-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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 were approximately $1.8 million and $1.0 million at
year-end 1999 and 1998, respectively.
Funds Restrictions
Dividends paid to the Company by Century National Bank are subject to
restrictions by regulatory agencies. As of December 31, 1999, approximately $2.1
million was available to be paid to the Company in dividends from Century
National 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 $557,000,
$548,000, and $399,000, for the years ended December 31, 1999, 1998, and 1997,
respectively. Total future minimum rental payments at December 31, 1999, are as
follows:
Year Ending December 31,
- --------------------------------------
2000 $ 721,000
2001 728,000
2002 426,000
2003 199,000
2004 136,000
Thereafter 130,000
----------------
Total $2,340,000
----------------
-49-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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,
1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notification from the OCC
categorized Century National Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
Century National 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 National Bank:
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
-------------------------- ------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------- ------------ ------------- ------------ ----------- ----------- -----------
As of December 31, 1999
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Century Bancshares, Inc. $15,612,089 10.79% $11,577,857 8.00% n/a n/a
Century National Bank 14,851,326 10.27% 11,570,540 8.00% $14,463,176 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares, Inc. 14,093,178 9.74% 5,788,929 4.00% n/a n/a
Century National Bank 13,332,415 9.22% 5,785,270 4.00% 8,677,905 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares, Inc. 14,093,178 7.64% 7,378,520 4.00% n/a n/a
Century National Bank 14,463,176 7.23% 7,376,440 4.00% 9,220,550 5.00%
</TABLE>
-50-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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
- -------------------------------------------- ------------ ------------ ------------ ----------- ------------ -----------
As of December 31, 1998
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Century Bancshares, Inc. $14,892,149 12.56% $9,489,120 8.00% n/a n/a
Century National Bank 12,906,593 10.93% 9,449,360 8.00% $11,811,700 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares, Inc. 13,764,002 11,60% 4,744,560 4.00% n/a n/a
Century National Bank 11,778,446 9.97% 4,724,680 4.00% 7,087,020 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares, Inc. 13,764,002 9.46% 5,818,840 4.00% n/a n/a
Century National Bank 11,778,446 8.17% 5,769,440 4.00% 7,211,800 5.00%
</TABLE>
-51-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(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, 1999 and 1998
1999 1998
--------------------- --------------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 739,944 $ 1,958,401
Investment in Century Bank 14,907,344 13,331,118
Other assets 91,462 91,462
--------------------- --------------------
Total Assets $ 15,738,750 $15,380,981
--------------------- --------------------
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 70,643 $ 64,307
--------------------- --------------------
Total Liabilities 70,643 64,307
Stockholders' Equity:
Common stock 2,858,402 2,574,219
Additional paid-in capital 13,700,452 12,343,631
Retained earnings - 392,384
Treasury stock, at cost (789,863) -
Accumulated other comprehensive income (loss), net of tax effect (100,884) 6,440
--------------------- --------------------
Total Stockholders' Equity 15,668,107 15,316,674
--------------------- --------------------
Total Liabilities and Stockholders' Equity $ 15,738,750 $15,380,981
--------------------- --------------------
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
-------------------- --------------------- --------------------
Income:
<S> <C> <C> <C>
Interest income $ 49,539 $ 96,846 $ 35,421
Other income 129 - -
-------------------- --------------------- --------------------
Total Income 49,668 96,846 35,421
Expense:
Other expenses 41,487 26,657 22,414
-------------------- --------------------- --------------------
Total Expense 41,487 26,657 22,414
-------------------- --------------------- --------------------
Net income before income tax expense (benefit) and
equity in undistributed earnings of bank subsidiary 8,181 70,189 13,007
Income tax expense 3,109 26,670 5,333
-------------------- --------------------- --------------------
Net income before equity in undistributed
earnings of bank subsidiary 5,072 43,519 7,674
Equity in undistributed earnings of Century Bank 1,183,550 593,365 328,484
-------------------- --------------------- --------------------
Net income $1,188,622 $636,884 $336,158
-------------------- --------------------- --------------------
</TABLE>
-52-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(13) PARENT COMPANY-ONLY FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
-------------------- --------------------- --------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,188,622 $ 636,884 $ 336,158
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of subsidiary (1,183,550) (593,365) (328,484)
Decrease in other assets - - 21,203
Increase (decrease) in other liabilities 6,336 (243,526) 59,159
-------------------- --------------------- --------------------
Net cash provided by (used in) operating activities 11,408 (200,007) 88,036
Cash flows from investing activities:
Capital contributions to subsidiary bank (500,000) (2,000,000) (3,500,000)
-------------------- --------------------- --------------------
Net cash used in investing activities (500,000) (2,000,000) (3,500,000)
Cash flows from financing activities:
Issuance of common stock 59,998 1,139,853 6,424,256
Purchases of treasury stock (789,863) - -
Other - (22,858) -
-------------------- --------------------- --------------------
Net cash provided (used) by financing activities (729,865) 1,116,995 6,424,256
-------------------- --------------------- --------------------
Net increase (decrease) in cash and cash equivalents (1,218,457) (1,083,012) 3,012,292
Cash and cash equivalents, beginning of year 1,958,401 3,041,413 29,121
-------------------- --------------------- --------------------
Cash and cash equivalents, end of year $ 739,944 $ 1,958,401 $ 3,041,413
-------------------- --------------------- --------------------
Supplemental disclosures of cash flow information:
Interest paid $ - $ - $ -
Income taxes paid - - -
</TABLE>
-53-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(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.
The estimated fair values of the Company's financial instruments at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------- ----------------- ----------------- ----------------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 9,222,005 $ 9,222,005 $ 8,950,733 $ 8,950,733
Federal funds sold 11,015,000 11,015,000 4,285,000 4,285,000
Interest bearing deposits with other banks 19,667,075 19,667,075 9,847,315 9,847,315
Investment securities 22,461,452 22,332,916 9,252,893 9,261,036
Loans, net of unearned income 138,076,486 137,971,456 115,231,298 115,919,000
Financial Liabilities:
Noninterest-bearing deposits $ 36,571,508 $ 36,571,508 $ 31,676,194 $ 31,676,194
Interest-bearing deposits 117,328,222 116,960,892 94,535,082 94,865,082
Other borrowings 33,258,877 33,283,547 8,461,241 8,864,000
</TABLE>
-54-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(15) ACQUISITIONS AND INTANGIBLES
In October 1997, the Company completed the 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.
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 is being amortized
over the estimated 10 year life of the deposit account relationship on a
straight-line basis.
In October 1999, the Company completed the purchase and assumption of
the deposits and certain other liabilities of the branch of One Valley Bancorp
("One Valley") located at 18116 Triangle Shopping Plaza, Dumfries, Virginia (the
"Dumfries Branch"). As part of the transaction, the Bank assumed approximately
$9.4 million in deposits at the Dumfries Branch, and also assumed the
obligations under the related lease and acquired approximately $6.0 million in
mortgage loans from One Valley's portfolio, in addition to $0.3 million in
equipment and other assets.
In consideration of the assumption of the deposits and liabilities, One
Valley made a cash transfer to the Bank on the closing date of approximately
$2.9 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 Dumfries
Branch, (ii) the net book value of the leasehold improvements and the personal
property located at the Dumfries Branch, (iii) the unpaid balance of the
designated mortgage loans and certain overdraft protection loans, (iv) certain
proration items, and (v) a deposit premium of $127,633, based on certain
percentages of the deposit liabilities assumed and loans acquired as of the
closing date. The total acquisition premium intangible recorded amounted to
$327,633 (including $127,633 paid and $200,000 deemed to be a fair value
adjustment of the lease obligation assumed) and is being amortized over the
estimated 8 year life of the deposit account relationship on a straight-line
basis.
-55-
<PAGE>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(16) QUARTERLY FINANCIAL INFORMATION (Unaudited - in thousands, except per share data):
<S> <C> <C> <C> <C>
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 1999 Sep. 30, 1999 Jun. 30, 1999 Mar. 31, 1999
- ------------------------------------------- ----------------- ------------------ ------------------- -----------------
Interest income $ 3,701 $ 3,323 $ 3,237 $ 2,959
Net interest income 2,300 2,039 1,990 1,895
Provision for credit losses 205 110 145 180
Total other income 422 411 446 390
Total other expense 1,933 1,820 1,818 1,764
Income before income tax expense 584 520 473 341
Net income 362 323 293 211
Earnings per share:
Basic $ 0.13 $ 0.12 $ 0.10 $ 0.07
Diluted 0.13 0.11 0.10 0.07
Weighted average shares outstanding:
Basic 2,721,863 2,804,679 2,850,542 2,844,239
Diluted 2,749,551 2,832,251 2,879,305 2,871,334
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 1998 Sep. 30, 1998 Jun. 30, 1998 Mar. 31, 1998
- ------------------------------------------- ----------------- ------------------ ------------------- -----------------
Interest income $ 2,804 $ 2,819 $ 2,769 $ 2,964
Net interest income 1,732 1,698 1,652 1,736
Provision for credit losses 83 154 190 193
Total other income 296 270 287 251
Total other expense 1,679 1,574 1,486 1,570
Income before income tax expense 266 239 263 224
Net income 165 170 170 132
Earnings per share:
Basic $ 0.06 $ 0.07 $ 0.07 $ 0.05
Diluted 0.06 0.06 0.06 0.05
Weighted average shares outstanding:
Basic 2,748,738 2,619,845 2,597,657 2,563,007
Diluted 2,786,735 2,768,538 2,785,627 2,777,738
</TABLE>
-56-
<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 1999 with the
Company's independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors and executive officers of the
Company contained under the captions "Election of Directors," Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance"
contained in the Company's definitive Proxy Statement relating to the 2000
Annual Meeting of Stockholders, prepared pursuant to Regulation 14A of the
Securities Exchange Act of 1934 and to be filed not later than 120 days after
the close of the Company's fiscal year, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation contained under the
captions "Compensation," and "Stock Performance Graph" contained in the
Company's definitive Proxy Statement relating to the 2000 Annual Meeting of
Stockholders, prepared pursuant to Regulation 14A of the Securities Exchange Act
of 1934 and to be filed not later than 120 days after the close of the Company's
fiscal year, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning the beneficial ownership of the Company's
voting securities by each director and all officers as a group, and by any
person known to the Company to be the beneficial owner of more than 5% of the
voting securities of the Company contained under the caption "Voting Securities
and Principal Holders Thereof" contained in the Company's definitive Proxy
Statement relating to the 2000 Annual Meeting of Stockholders, prepared pursuant
to Regulation 14A of the Securities Exchange Act of 1934 and to be filed not
later than 120 days after the close of the Company's fiscal year, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related
transactions contained under the caption "Certain Relationships and
Transactions" contained in the Company's definitive Proxy Statement relating to
the 2000 Annual Meeting of Stockholders, prepared pursuant to Regulation 14A of
the Securities Exchange Act of 1934 and to be filed not later than 120 days
after the close of the Company's fiscal year, 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 30
Consolidated Statements of Financial Condition 31
Consolidated Statements of Operations 32
Consolidated Statements of Stockholders' Equity 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35
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.
-57-
<PAGE>
3. Exhibits
2.1 Purchase and Assumption Agreement dated July 24, 1997 by and
between Century Bancshares, Inc. and Eastern American Bank,
FSB (incorporated by reference to Exhibit No. 10.12 filed as
part of the Registration Statement on Form S-1 (Registration
No. 333-34057) of Century Bancshares, Inc.)
2.2 Amendment No. 1 dated August 14, 1997 to Purchase and
Assumption Agreement dated July 24, 1997 between Century
Bancshares, Inc. and Eastern American Bank, FSB (incorporated
by reference to Exhibit No. 10.13 filed as part of the
Registration Statement on Form S-1 (Registration No.
333-34057) of Century Bancshares, Inc.)
2.3 Amendment No. 2 dated October 10, 1997 to Purchase and
Assumption Agreement dated July 24, 1997 between Century
Bancshares, Inc. and Eastern American Bank, FSB (incorporated
by reference to Exhibit No. 2.3 filed as part of the Current
Report on Form 8-K dated October 10, 1997 of Century
Bancshares, Inc.)
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)).
3.4* Certificate of Amendment of Certificate of Incorporation of
Century Bancshares, Inc. dated July 24, 1997.
4.1 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)).
-58-
<PAGE>
10.8 Amendment dated March 1, 1998, of the employment agreement
dated September 1, 1996, between the Company and the Bank and
Mr. Joseph S. Bracewell. (Incorporated by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1998.)
10.9 Amendment dated March 31, 1999, of the employment agreement
dated September 1, 1996, between the Company and the Bank and
Mr. Joseph S. Bracewell. (Incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1999.)
10.10 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)).
10.11 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)).
10.12 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)).
10.13 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)).
10.14 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).
10.15 Lease Agreement dated July 23, 1993, by and between McLean
Poplar Partners and Eastern American Bank, F.S.B which was
assumed by Century National Bank under the Purchase and
Assumption Agreement (dated July 24, 1997 and noted in 2.1
above).
10.16 Lease Agreement dated September 30, 1997, by and between The
Life Underwriter Training Council and Century National Bank.
(Incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the period ended December 31,
1998.)
10.17 Century Directors' Trust established June 24, 1998, by the
Company and the Bank for the benefit of the directors of the
Company and the Bank. (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1998.)
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, 1999.
27* Financial Data Schedule.
- ------------------
* Filed herewith.
Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter of 1999.
-59-
<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/ CHARLES V. JOYCE III
--------------------------------
Charles V. Joyce III
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 27, 2000
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 29th day of March, 2000.
/s/ JOSEPH S. BRACEWELL Chairman of the Board,
President and Chief Executive
- ---------------------------------------------
Joseph S. Bracewell Chief Executive Officer
* Director
- ---------------------------------------------
*George Contis
* Director
- ---------------------------------------------
*John R. Cope
* Director
- ---------------------------------------------
*Bernard J. Cravath
* Director
- ---------------------------------------------
*Neal R. Gross
Director
- ---------------------------------------------
William McKee
* Director
- ---------------------------------------------
*William C. Oldaker
*By: /s/ JOSEPH S. BRACEWELL
- ---------------------------------------------
Attorney-in-Fact
-60-
<PAGE>
Index to Exhibits
Exhibit No. Description
- --------------------------------------------------------------------------------
2.1 Purchase and Assumption Agreement dated July 24, 1997 by and
between Century Bancshares, Inc. and Eastern American Bank,
FSB (incorporated by reference to Exhibit No. 10.12 filed as
part of the Registration Statement on Form S-1 (Registration
No. 333-34057) of Century Bancshares, Inc.)
2.2 Amendment No. 1 dated August 14, 1997 to Purchase and
Assumption Agreement dated July 24, 1997 between Century
Bancshares, Inc. and Eastern American Bank, FSB (incorporated
by reference to Exhibit No. 10.13 filed as part of the
Registration Statement on Form S-1 (Registration No.
333-34057) of Century Bancshares, Inc.)
2.3 Amendment No. 2 dated October 10, 1997 to Purchase and
Assumption Agreement dated July 24, 1997 between Century
Bancshares, Inc. and Eastern American Bank, FSB (incorporated
by reference to Exhibit No. 2.3 filed as part of the Current
Report on Form 8-K dated October 10, 1997 of Century
Bancshares, Inc.)
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)).
3.4* Certificate of Amendment of Certificate of Incorporation of
Century Bancshares, Inc. dated July 24, 1997.
4.1 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)).
-61-
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 Amendment dated March 1, 1998, of the employment agreement
dated September 1, 1996, between the Company and the Bank and
Mr. Joseph S. Bracewell. (Incorporated by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1998.)
10.9 Amendment dated March 31, 1999, of the employment agreement
dated September 1, 1996, between the Company and the Bank and
Mr. Joseph S. Bracewell. (Incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1999.)
10.10 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)).
10.11 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)).
10.12 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)).
10.13 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)).
10.14 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).
10.15 Lease Agreement dated July 23, 1993, by and between McLean
Poplar Partners and Eastern American Bank, F.S.B which was
assumed by Century National Bank under the Purchase and
Assumption Agreement (dated July 24, 1997 and noted in 2.1
above).
10.16 Lease Agreement dated September 30, 1997, by and between The
Life Underwriter Training Council and Century National Bank.
(Incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the period ended December 31,
1998.)
10.17 Century Directors' Trust established June 24, 1998, by the
Company and the Bank for the benefit of the directors of the
Company and the Bank. (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1998.)
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, 1999.
27* Financial Data Schedule.
- -----------------
* Filed herewith.
-62-
<PAGE>
EXHIBIT 3.4 Certificate of Amendment of Certificate of Incorporation of
Century Bancshares, Inc. dated July 24, 1997.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTURY BANCSHARES, INC.
Century Bancshares, Inc., a corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), does hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting duly
called and held on April 15, 1997, at which meeting a quorum was present and
acting throughout (the "Board Meeting"), adopted a resolution proposing and
declaring advisable and in the best interests of the Company that the Company's
Certificate of Incorporation be amended by amending the first sentence of
Article IV to read in its entirety as follows:
"The total number of shares of stock which the corporation
shall have authority to issue is 6,000,000 shares, of which 5,000,000
shares of the par value $1.00 each shall be shares of common stock,
1,000,000 shares of the par value of $1.00 each shall be shares of
preferred stock."
SECOND: That at that Board Meeting, the Board directed that the
preceding proposed amendment to the Certificate of Incorporation be presented to
the stockholders of the Company entitled to vote thereon for their consideration
and recommended the adoption of such amendment by the stockholders of the
Company.
THIRD: That thereafter, at the annual meeting of the company's
stockholders duly called and, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, held on June 6, 1997 the
holders of a majority of the outstanding shares of capital stock of the company
entitled to vote thereon approved the aforesaid amendment to the Certificate of
Incorporation.
FOURTH: That the aforesaid amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation law of the State
of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Amendment to be signed by Joseph S. Bracewell III, as President of the Company
this 24th day of July, 1997.
CENTURY BANCSHARES, INC.
By: /s/b/ JOSEPH S. BRACEWELL III
Joseph S. Bracewell III, President
-63-
<PAGE>
<TABLE>
<CAPTION>
CENTURY BANCSHARES, INC. Exhibit 11
Computation of Per Share Earnings
Three Years Ended December 31, 1999
Year Ended
December 31,
----------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Basic Earnings Per Share:
Net income $1,188,622 $ 636,884 $ 336,158
Weighted-average common
shares outstanding 2,804,994 2,632,787 1,710,316
----------------------------------------
Basic earnings per share $0.42 $0.24 $0.20
Diluted Earnings Per Share:
Net income $1,188,622 $ 636,884 $ 336,158
Weighted-average common
shares outstanding 2,804,994 2,632,787 1,710,316
Dilutive effect of warrants
and stock options 27,689 55,796 142,367
------------------------------------------
Diluted weighted-average
common shares outstanding 2,832,683 2,688,583 1,852,683
------------------------------------------
Diluted earnings per share $0.42 $0.24 $0.18
</TABLE>
-64-
<PAGE>
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Century National Bank, incorporated under the laws of the United States (a 100%
owned subsidiary of Century Bancshares, Inc.)
Century Insurance Agency, LLC, a Virginia limited liability corporation (a 100%
owned subsidiary of Century National Bank)
-65-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 14th day of March, 2000.
/s/b GEORGE CONTIS, M.D., M.P.H.
[Signature of Director Here]
George Contis, M.D., M.P.H.
[Name of Director Here]
-66-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 15th day of March, 2000.
___/s/b/ JOHN R. COPE___
[Signature of Director Here]
John R. Cope
[Name of Director Here]
-67-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 13th day of March, 2000.
/s/b/ BERNARD J. CRAVATH
[Signature of Director Here]
Bernard J. Cravath
[Name of Director Here]
-68-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 13th day of March, 2000.
/s/b/ WILLIAM S. MCKEE
[Signature of Director Here]
William S. McKee
[Name of Director Here]
-69-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 13th day of March, 2000.
/s/b/ WILLIAM C. OLDAKER
[Signature of Director Here]
William C. Oldaker
[Name of Director Here]
-70-
<PAGE>
EXHIBIT 24 POWERS OF ATTORNEY
Page 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or
director of Century Bancshares, Inc., a Delaware corporation (the "Company"),
hereby makes, 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, 1999, 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 9th day of March, 2000.
/s/b/ NEAL R. GROSS
[Signature of Director Here]
Neal R. Gross
[Name of Director Here]
-71-
<PAGE>
EXHIBIT 27 FINANCIAL DATA SCHEDULE
CENTURY BANCSHARES, Inc.
Financial Data Schedule
[ARTICLE] 9
[CIK] 785813
[NAME] CENTURY BANCSHARES, INC.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] DEC-31-1999
[CASH] 9,222
[INT-BEARING-DEPOSITS] 19,667
[FED-FUNDS-SOLD] 11,015
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 16,495
[INVESTMENTS-CARRYING] 5,966
[INVESTMENTS-MARKET] 5,838
[LOANS] 138,076
[ALLOWANCE] 1,519
[TOTAL-ASSETS] 204,809
[DEPOSITS] 153,900
[SHORT-TERM] 21,958
[LIABILITIES-OTHER] 1,982
[LONG-TERM] 11,301
[COMMON] 2,858
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 12,810
[TOTAL-LIABILITIES-AND-EQUITY] 204,809
[INTEREST-LOAN] 11,543
[INTEREST-INVEST] 766
[INTEREST-OTHER] 911
[INTEREST-TOTAL] 13,220
[INTEREST-DEPOSIT] 4,154
[INTEREST-EXPENSE] 4,996
[INTEREST-INCOME-NET] 8,224
[LOAN-LOSSES] 640
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 7,335
[INCOME-PRETAX] 1,918
[INCOME-PRE-EXTRAORDINARY] 1,918
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,189
[EPS-BASIC] 0.42
[EPS-DILUTED] 0.42
[YIELD-ACTUAL] 5.15
[LOANS-NON] 515
[LOANS-PAST] 0
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1,128
[CHARGE-OFFS] 270
[RECOVERIES] 21
[ALLOWANCE-CLOSE] 1,519
[ALLOWANCE-DOMESTIC] 1,519
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 992
-72-
