FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________ TO ____________.
COMMISSION FILE NUMBER: 0-16234
CENTURY BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-1489098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D. C. 20004
(Address of Principal Executive Offices)
(Zip Code)
(202) 496-4100
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
At August 1, 2000, there were 2,732,188 shares of the registrant's Common Stock,
par value $1.00 per share, outstanding.
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
For The Quarter Ended June 30, 2000
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Information
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
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<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 2000, and December 31, 1999
June 30,
2000 December 31,
(Unaudited) 1999
Assets:
<S> <C> <C>
Cash and due from banks $ 8,104,150 $ 9,222,005
Federal funds sold 10,205,537 11,015,000
Interest bearing deposits in other banks 5,250,650 19,667,075
Investment securities available-for-sale, at fair value 24,919,726 16,495,049
Investment securities held-to-maturity, at amortized cost,
fair value of $20,463,896 and $5,837,867 at June 30,
2000 and December 31, 1999, respectively 20,461,073 5,966,403
Loans, net of unearned income 153,947,331 138,076,486
Less: allowance for credit losses (1,743,332) (1,518,911)
Loans, net 152,203,999 136,557,575
Leasehold improvements, furniture, and equipment, net 1,336,500 1,372,267
Accrued interest receivable 1,382,348 1,034,270
Loans held for sale 649,600 439,600
Deposit premium, net 1,560,608 1,675,813
Net deferred taxes 772,707 767,893
Other assets 873,497 595,948
Total Assets $227,720,395 $204,808,898
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 38,978,437 $ 36,571,508
Interest-bearing 128,775,932 117,328,222
Total deposits 167,754,369 153,899,730
Federal funds purchased and securities sold under
agreements to repurchase 11,277,842 6,358,654
Long term debt:
Federal Home Loan Bank Advances 20,845,361 11,301,355
Preferred securities of subsidiary trust 8,800,000 -
Other borrowings 586,643 15,598,868
Other liabilities 1,933,022 1,982,184
Total Liabilities 211,197,237 189,140,791
Stockholders' Equity:
Common stock, $1 par value; 10,000,000 shares authorized;
2,875,188 and 2,858,402 shares issued at
June 30, 2000 and December 31, 1999, respectively 2,875,188 2,858,402
Additional paid in capital 13,756,298 13,700,452
Retained earnings 821,361 -
Treasury stock, at cost, 141,500 and 136,500 shares at
June 30, 2000 and December 31, 1999, respectively (819,863) (789,863)
Other comprehensive income (loss), net of tax effect (109,826) (100,884)
Total Stockholders' Equity 16,523,158 15,668,107
Commitments and contingencies
Total Liabilities and Stockholders' Equity $227,720,395 $204,808,898
See accompanying condensed notes to consolidated financial statements(unaudited).
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1
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
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<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2000 and 1999
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans $3,411,168 $2,860,807 $6,615,784 $5,510,757
Interest on federal funds sold 241,609 69,119 373,900 116,589
Interest on deposits in other banks 194,357 147,562 302,505 271,490
Interest on securities available-for-sale 325,363 125,324 531,407 225,433
Interest on securities held-to-maturity 199,538 34,079 326,748 71,662
Total interest income 4,372,035 3,236,891 8,150,344 6,195,931
Interest expense:
Interest on deposits:
Savings accounts 181,911 212,006 388,883 427,127
NOW accounts 46,363 54,835 101,248 115,222
Money market accounts 279,795 163,881 448,410 328,021
Certificates under $100,000 334,745 376,962 694,367 663,330
Certificates $100,000 and over 394,658 252,908 729,720 461,896
Total interest on deposits 1,237,472 1,060,592 2,362,628 1,995,596
Interest on borrowings 627,783 186,676 931,872 315,339
Total interest expense 1,865,255 1,247,268 3,294,500 2,310,935
Net interest income 2,506,780 1,989,623 4,855,844 3,884,996
Provision for credit losses 200,000 145,000 380,000 325,000
Net interest income after provision for credit losses 2,306,780 1,844,623 4,475,844 3,559,996
Noninterest income:
Service charges on deposit accounts 238,666 175,049 442,656 328,624
Other operating income 278,825 270,977 604,708 507,383
Total noninterest income 517,491 446,026 1,047,364 836,007
Noninterest expense:
Salaries and employee benefits 784,986 719,486 1,597,577 1,384,446
Occupancy and equipment expense 241,767 214,177 475,218 420,552
Professional fees 318,942 183,966 497,165 348,198
Depreciation and amortization 115,060 110,031 226,531 227,446
Amortization of deposit premiums 57,602 47,384 115,204 94,768
Data processing 307,410 284,317 692,861 545,486
Communications 104,759 90,936 193,874 169,928
Federal deposit insurance premiums 7,677 4,305 14,692 8,656
Other operating expenses 213,491 163,392 367,966 382,204
Total noninterest expense 2,151,694 1,817,994 4,181,088 3,581,684
Income before income tax expense 672,577 472,655 1,342,120 814,319
Income tax expense 257,799 179,560 519,798 309,877
Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442
Basic income per common share $ 0.15 $ 0.10 $ 0.30 $ 0.18
Diluted income per common share 0.15 0.10 0.30 0.18
Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408
Diluted weighted average common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342
See accompanying condensed notes to consolidated financial statements(unaudited).
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2
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
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<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2000 and 1999
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, 1998 $ 2,574,219 $ 12,343,631 $ 392,384 $ - $ 6,440 $ 15,316,674
Comprehensive income:
Net income 504,442 504,442
Unrealized loss on
Investment securities,
Net of tax effect (60,393) (60,393)
Comprehensive income (53,953) 15,760,723
Stock dividend 129,173 shares 129,173 645,865 (775,800) (762)
Purchase of treasury stock, at
cost, 5,000 shares (30,303) (30,303)
Exercise of common stock
Options - 17,564 shares 17,564 41,217 58,781
Balance, June 30, 1999 $ 2,720,956 $ 13,030,713 $ 121,026 $ (30,303) $ (53,953) $ 15,788,439
</TABLE>
<TABLE>
<CAPTION>
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>
Balance, December 31, 1999 $ 2,858,402 $ 13,700,452 $ - $ (789,863) $ (100,884) $ 15,668,107
Comprehensive income:
Net income 822,322 822,322
Unrealized loss on
Investment securities,
net of tax effect (8,942) (8,942)
Comprehensive income (109,826) 16,481,487
Purchase of treasury stock, at
cost, 5,000 shares (30,000) (30,000)
Exercise of common stock
options - 16,786 shares 16,786 55,846 (961) 71,671
Balance, June 30, 2000 $ 2,875,188 $ 13,756,298 $ 821,361 $ (819,863) $ (109,826) $ 16,523,158
See accompanying condensed notes to consolidated financial statements (unaudited).
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3
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
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<CAPTION>
CENTURY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 822,322 $ 504,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 226,531 227,446
Amortization of deposit premiums 115,204 94,768
Provision for credit losses 380,000 325,000
Increase in accrued interest receivable (348,078) (197,482)
(Increase) decrease in other assets (13,548) 4,636
Decrease in other liabilities (49,162) (39,976)
Total adjustments 310,947 414,392
Net cash provided by operating activities 1,133,269 918,834
Cash flows from investing activities:
Net increase in loans (16,026,424) (14,965,908)
Net increase in loans held for sale (210,000) (180,000)
Net decrease (increase) in interest bearing deposits
in other banks 14,416,425 (8,532,164)
Purchases of securities available-for-sale (10,858,995) (3,170,000)
Purchases of securities held-to-maturity (14,578,971) -
Repayments and maturities of securities available-for-sale 2,420,562 841,320
Repayments and maturities of securities held-to-maturity 84,301 386,755
Net purchase of leasehold improvements, furniture
and equipment (190,764) (67,239)
Net cash used in investing activities (24,943,866) (25,687,236)
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposit accounts 10,421,852 5,091,227
Net increase in certificates of deposit 3,432,787 14,497,193
Net increase in customer repurchase accounts 4,919,188 1,528,757
Net decrease in other borrowings (15,012,225) (5,829)
Net proceeds from issuance of long-term debt 10,000,000 6,000,000
Net proceeds from issuance of preferred securities of
subsidiary trust 8,536,000 -
Repayment of long-term debt (455,994) (454,759)
Purchase of treasury stock (30,000) (30,303)
Net proceeds from issuance of common stock 71,671 58,019
Other - (93,381)
Net cash provided by financing activities 21,883,279 26,590,924
Net increase (decrease) in cash and cash equivalents (1,927,318) 1,822,522
Cash and cash equivalents, beginning of period 20,237,005 13,235,733
Cash and cash equivalents, end of period $18,309,687 $15,058,255
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $3,040,224 $2,198,477
Income taxes paid 780,066 375,000
See accompanying condensed notes to consolidated financial statements (unaudited).
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4
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
In the opinion of management the unaudited consolidated financial
statements as of June 30, 2000, and for the three and six months ended June 30,
2000 and 1999 contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations of the Company as of such dates and for such periods. The unaudited
consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto appearing
in the Company's 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the six months ended June 30,
2000 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 2000 or any future periods. Certain
prior period balances have been reclassified to conform with the current period.
(2) Investment Securities
<TABLE>
<CAPTION>
Investment securities available-for-sale, and their contractual
maturities, at June 30, 2000 and December 31, 1999 are summarized as follows:
Amortized Gross unrealized Gross unrealized
June 30, 2000 Cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
Within one year $ 996,561 $ - $ 6,240 $ 990,321
After one, but within five years 14,561,315 43,906 219,441 14,385,780
After five, but within ten years 6,439,094 46,136 - 6,485,230
After ten years 394,926 81 15,136 379,871
Total obligations of U.S. government agencies 22,391,896 90,123 240,817 22,241,202
Collateralized mortgage obligations:
After five, but within ten years 265,955 - 7,068 258,887
After ten years 170,426 - 11,201 159,225
Total collateralized mortgage obligations 436,381 - 18,269 418,112
Federal Reserve Bank stock 311,350 - - 311,350
Federal Home Loan Bank stock 1,044,900 - - 1,044,900
Atlantic Central Bankers Bank stock 30,000 - - 30,000
Other 874,162 - - 874,162
Total investment securities available-for-sale $ 25,088,689 $90,123 $ 259,086 $ 24,919,726
Amortized Gross unrealized Gross unrealized
December 31, 1999 Cost Gains Losses Fair value
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 obligations of U.S. government agencies 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
Total collateralized mortgage obligations 477,644 - 11,970 465,674
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
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5
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) Investment Securities, continued
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. In March 2000,
Century National Bank became a member of the Atlantic Central Bankers Bank and
purchased $30,000 of its stock. Those shares, which have no stated maturity, are
carried at cost since no active trading market exists.
Investment securities totaling $30,245,127 and $7,216,768 at June 30,
2000 and 1999, respectively, were pledged to secure FHLBA borrowings, public
deposits, customer repurchase accounts, and other borrowings. No investment
securities were sold during 2000 or 1999.
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<CAPTION>
Investment securities held-to-maturity at June 30, 2000 and December
31,1999 are summarized as follows:
Amortized Gross unrealized Gross unrealized
June 30, 2000 Cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
After one, but within five years $ 5,999,232 $ - $117,782 $ 5,881,450
After ten years 988,199 70 49,360 938,909
Total obligations of U.S. government agencies 6,987,431 70 167,142 6,820,359
Obligations of states and political subdivisions:
After one, but within five years 455,354 - 143 455,211
After ten years 8,704,809 31 46,753 8,658,087
Total obligations of states and political 9,160,163 31 46,896 9,113,298
Corporate bonds 4,313,479 216,760 - 4,530,239
Total investment securities held-to-maturity $20,461,073 $ 216,861 $214,038 $20,463,896
Amortized Gross unrealized Gross unrealized
December 31, 1999 Cost Gains Losses Fair value
Obligations of U.S. 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
</TABLE>
6
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) Income per Common Share
Basic income per common share is calculated by dividing net income by
the weighted-average common shares outstanding. Diluted income per common share
is calculated by dividing net income by the sum of weighted-average common
shares and potential dilutive common shares. On February 18, 2000, the Company
declared a 5 percent stock dividend payable on April 17, 2000, to common stock
shareholders of record as of March 15, 2000, resulting in the issuance of
136,152 shares and a corresponding increase in the number of shares of common
stock issuable upon the exercise of stock options outstanding. The effect of the
April 17, 2000, stock dividend was 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. On April 14, 1999, the
Company declared a 5 percent stock dividend payable on May 28, 1999, to common
stock shareholders of record as of April 28, 1999, resulting in the issuance of
129,173 shares and a corresponding increase in stock options outstanding.
Weighted-average shares outstanding and income per common share have been
restated for the effect of the stock dividends.
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<CAPTION>
In accordance with SFAS No. 128, the calculation of basic income per
common share and diluted income per common share is detailed below:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic Income Per Common Share:
Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442
Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408
Basic income per common share $0.15 $0.10 $0.30 $0.18
Diluted Income Per Common Share:
Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442
Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408
Dilutive effect of stock options 16,216 28,763 16,216 27,934
Diluted weighted average
common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342
Diluted income per common share $0.15 $0.10 $0.30 $0.18
</TABLE>
(4) New Financial Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. In certain circumstances a
derivative may be specifically designed as a hedge of the exposure to changes in
the fair values of a recognized asset or liability or an unrecognized firm
commitment, the exposure to variable cash flows of a forecasted transaction, or
the exposure to fluctuations in foreign currency. SFAS No. 133 will be effective
for all periods beginning after June 15, 2000. Earlier application is permitted,
but the statement shall not be applied retroactively to financial statements of
prior periods. The Company does not anticipate any material impact from the
implementation of SFAS No. 133.
7
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Century Bancshares, Inc., a Delaware corporation ("Company"), and a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended ("BHCA"), was incorporated and organized in 1985. The Company began
active operations in 1986 with the acquisition of its subsidiary, Century
National Bank ("Bank"), a full service bank which opened for business in 1982.
The Bank provides a broad line of financial products and services to small and
middle market businesses and individuals in the greater Washington, DC
metropolitan area. With the addition of a new Prince William County branch
office in Dumfries, Virginia, in October 1999, and the establishment of a new
loan production office in Rockville, Maryland in February 2000, the Company
operates six full service banking offices and one loan production office, as
follows:
International Square Branch (Main office of bank)
- 1875 Eye Street, NW, Washington, DC 20006
Pennsylvania Avenue Branch (Executive offices of Company)
-1275 Pennsylvania Avenue, NW, Washington, DC 20004
McLean Branch- 6832 Old Dominion Drive, McLean, Virginia 22101
Tysons Corner Branch- 8251 Greensboro Drive, McLean, Virginia 22102
Bethesda Branch- 7625 Wisconsin Avenue, Bethesda, Maryland 20814
Dumfries Branch- 18116 Triangle Shopping Plaza, Dumfries, Virginia 22026
Rockville (Loan production office)- 1680 E. Gude Drive, Rockville, MD 20851
The Company's principal executive offices are located at 1275
Pennsylvania Avenue, NW, Washington, DC 20004, and its phone number at that
address is (202) 496-4100.
The Company derives substantially all of its revenue and income from
the operation of the Bank, which provides a full range of commercial and
consumer banking services to small and middle market businesses and individuals
in the Washington, DC metropolitan area. As of June 30, 2000, the Company had
total assets of $227.7 million, total deposits of $167.8 million, and
stockholders' equity of $16.5 million. At June 30, 2000, there were
approximately 1,000 shareholders of the Company's common stock, par value $1.00
per share ("Common Stock").
Items 2 and 3 of this report contain certain forward-looking statements
regarding future financial condition and results of operations and the Company's
business operations. The words "may," "intend," "will," "believe," "expect,"
"estimate," "anticipate," "predict" and similar expressions, the negatives of
those words and other variations on those words or comparable terminology, are
intended to identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions and, although the Company believes that such
assumptions are reasonable, it can give no assurance that its expectations
regarding these matters will be achieved. Our actual results may differ
materially from what we expect. The important factors that could cause actual
results to differ materially from the forward-looking statements include,
without limitation, the factors discussed in the Company's Form 10-K for the
year ended December 31, 1999 under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as the
following factors: general economic conditions in the Washington, DC
metropolitan area; changes in interest rates; changes in asset quality; the
effect on the Company of the extensive scheme of regulation by several federal
agencies; the departure of certain key executives; delayed effects of the year
2000 problem; and competition from other providers of financial services. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, such actual outcomes may vary materially from those
indicated.
8
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CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net Income
For the three months ended June 30, 2000, the Company's net income was
$415 thousand, or $0.15 per diluted share, compared with $293 thousand for the
three months ended June 30, 1999, or $0.10 per diluted share. The 42 percent
increase in net income was primarily attributable to a $517 thousand increase in
net interest income resulting from a 31 percent increase in average earning
assets, and a $71 thousand increase in noninterest income, which were partially
offset by a $334 thousand increase in noninterest expense and a $55 thousand
increase in provision for credit losses. Service charges on deposit accounts
increased 36 percent to $239 thousand. Increases in noninterest expenses
included a 73 percent increase in professional fees, a 9 percent increase in
salaries and benefits, and a 31 percent increase in other expenses. Return on
average assets was 0.76 percent in the second quarter of 2000 compared with 0.70
percent for the same period in 1999. Return on average stockholders' equity was
10.25 percent for the three months ended June 30, 2000, compared with 7.50
percent for the same period in 1999. The ratio of stockholders' equity to total
assets was 7.26 percent at June 30, 2000 compared with 8.85 percent at June 30,
1999.
For the six months ended June 30, 2000, the Company's net income was
$822 thousand, or $0.30 per diluted share, compared with $504 thousand for the
six months ended June 30, 1999, or $0.18 per diluted share. The 63 percent
increase in net income was primarily attributable to a $971 thousand increase in
net interest income resulting from a 28 percent increase in average earning
assets, and a $211 thousand increase in noninterest income, which were partially
offset by a $599 thousand increase in noninterest expense and a $55 thousand
increase in provision for credit losses. Service charges on deposit accounts
increased 35 percent to $443 thousand. Increases in noninterest expenses
included a 43 percent increase in professional fees, a 15 percent increase in
salaries and benefits, and a 27 percent increase in data processing costs.
Return on average assets was 0.80 percent for the six months ended June 30, 2000
compared with 0.63 percent for the same period in 1999. Return on average
stockholders' equity was 10.21 percent for the six months ended June 30, 2000,
compared with 6.54 percent for the same period in 1999. The ratio of
stockholders' equity to total assets was 7.26 percent at June 30, 2000 compared
with 8.85 percent at June 30, 1999.
Net Interest Income
For the quarter ended June 30, 2000, net interest income was $2.507
million compared with $1.990 million for the quarter ended June 30, 1999, an
increase of $517 thousand, or 26 percent. The increase in net interest income
between the periods was primarily the result of a 31 percent increase in average
earning assets partially offset by an 18 basis point reduction in the net
interest margin to 4.84 percent for the second quarter of 2000 from 5.02 percent
for the same period in 1999. While the yield on average earning assets increased
28 basis points, the average rate paid on interest-bearing liabilities increased
47 basis points. Although average earning assets increased significantly, the
increase was more heavily concentrated in lower yielding investment securities
and federal funds sold. The average cost of funds increased, reflective of a
customer preference for higher-rate money market accounts and time deposits, an
increase in wholesale funding and the impact of the trust preferred issuance in
late March 2000.
For the six months ended June 30, 2000, net interest income was $4.856
million compared with $3.885 million for the same period last year, an increase
of $971 thousand, or 25 percent. The increase in net interest income between the
periods was primarily the result of a 28 percent increase in average earning
assets partially offset by a 15 basis point reduction in the net interest margin
to 5.04 percent for the six month ended June 30, 2000 from 5.19 percent for the
same period in 1999. While the yield on average earning assets increased 18
basis points, the average rate paid on interest-bearing liabilities increased 35
basis points. Average earning assets increased significantly, but the increase
was about equally distributed between higher yielding loans and lower yielding
investment securities and federal funds sold. The average cost of funds however,
reflected a steeper increase reflective of a customer preference for higher-rate
money market accounts and time deposits, an increase in wholesale funding and
the impact of the trust preferred issuance in late March 2000.
The following tables set forth the average yields and rates for
interest earned and paid for significant categories of interest earning assets
and interest bearing liabilities for the three and six month periods ended June
30, 2000 and 1999.
9
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net Interest Income, continued
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(Dollars in Thousands)
Three Months Ended June 30,
2000 1999
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans, net (1) $147,802 $3,411 9.28% $129,537 $2,861 8.86%
Investment securities (2)(3) 32,109 525 6.58 11,410 159 5.59
Federal funds sold 15,474 242 6.29 5,762 69 4.80
Interest bearing deposits
with other banks 12,797 194 6.10 12,236 148 4.85
Total interest-earning assets 208,182 4,372 8.45% 158,945 3,237 8.17%
Cash and due from banks 8,169 6,461
Other assets 4,265 3,412
Total Assets $220,616 $168,818
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 22,839 $ 46 0.81% $ 19,357 $ 55 1.14%
Savings accounts 18,141 182 4.04 20,188 212 4.21
Money market accounts 32,042 280 3.51 21,081 164 3.12
Time deposits 56,900 729 5.15 49,137 630 5.14
Borrowings and
notes payable 35,382 628 7.14 13,059 186 5.71
Total interest-bearing
Liabilities 165,304 1,865 4.54% 122,822 1,247 4.07%
Non-interest bearing 36,805 28,739
Other liabilities 2,237 1,573
Total liabilities 204,346 153,134
Stockholders' equity 16,270 15,684
Total liabilities and
stockholders' equity $220,616 $168,818
Net interest income and spread $2,507 3.91% $1,990 4.10%
Net interest margin (3) 4.84% 5.02%
</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 amortized cost basis of
securities available-for-sale.
(3) Including fully taxable equivalent adjustments in 2000, the average rates
for investment securities, total interest-earning assets and net interest margin
were 6.75%, 8.47% and 4.87%, respectively.
10
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net Interest Income, continued
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(Dollars in Thousands)
Six Months Ended June 30,
2000 1999
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans, net (1) $143,968 $6,616 9.24% $124,227 $5,511 8.95%
Investment securities (2)(3) 27,122 858 6.36 10,721 297 5.59
Federal funds sold 12,373 374 6.08 4,792 117 4.92
Interest bearing deposits
with other banks 10,305 302 5.89 11,099 271 4.92
Total interest-earning assets 193,768 8,150 8.46% 150,839 6,196 8.28%
Cash and due from banks 7,930 6,650
Other assets 4,166 3,589
Total Assets $205,864 $161,078
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 22,271 $ 101 0.91% $ 19,287 $ 115 1.20%
Savings accounts 19,195 389 4.08 20,433 427 4.21
Money market accounts 26,261 448 3.43 21,136 328 3.13
Time deposits 55,385 1,424 5.17 43,800 1,126 5.18
Borrowings and
Notes payable 27,684 932 6.77 10,774 315 5.90
Total interest-bearing
Liabilities 150,796 3,294 4.39% 115,430 2,311 4.04%
Non-interest bearing 36,111 28,436
Other liabilities 2,760 1,658
Total liabilities 189,667 145,524
Stockholders' equity 16,197 15,554
Total liabilities and
stockholders' equity $205,864 $161,078
Net interest income and spread $4,856 4.07% $3,885 4.25%
Net interest margin (3) 5.04% 5.19%
</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 amortized cost basis of
securities available-for-sale.
(3) Including fully taxable equivalent adjustments in 2000, the average rates on
investment securities, total interest-earning assets and net interest margin
were 6.47%, 8.47% and 5.05%, respectively.
11
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Noninterest Income
Noninterest income was $517 thousand in the second quarter of 2000, a
$71 thousand, or 16 percent increase when compared with the same quarter of
1999, which was $446 thousand (see table below). The increase between the
periods was primarily due to increases in deposit service charges due to higher
volumes coupled with revisions in service charge pricing policy implemented
early in the second quarter of 2000. Increased volumes also resulted in a $19
thousand, or 10 percent, increase in credit card and merchant fees in the second
quarter of 2000 compared with the same period last year. Mortgage loan
origination fees declined between the periods as the rising rate environment
resulted in reduced originations.
<TABLE>
<CAPTION>
NONINTEREST INCOME
(Dollars in Thousands)
Three Months Ended June 30,
2000 1999 $ Change % Change
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 238,666 $ 175,049 $ 63,617 36.3 %
Credit card and merchant fees 204,607 184,981 19,626 10.6
Mortgage loan origination fees 23,774 42,855 (19,081) (44.5)
Commission and other fee income 48,789 38,102 10,687 28.0
Other income 1,655 5,039 (3,384) (67.2)
Total noninterest income $ 517,491 $ 446,026 $ 71,465 16.0 %
Noninterest income was $1.1 million in the first six months of 2000, a
$211 thousand increase when compared with the same period of 1999, which was
$836 thousand (see table below). The increase between the periods was primarily
due to increases in deposit service charges, credit card and merchant fees, and
ATM fees (included in commission and other fee income) caused by increased
volumes. The growth in service charges on deposit accounts was also influenced
by service charge fee increases implemented in April 2000.
</TABLE>
<TABLE>
<CAPTION>
NONINTEREST INCOME
(Dollars in Thousands)
Six Months Ended June 30,
2000 1999 $ Change % Change
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 442,656 $ 328,624 $ 114,032 34.7 %
Credit card and merchant fees 461,581 374,616 86,965 23.2
Mortgage loan origination fees 33,757 42,855 (9,098) (21.2)
Commission and other fee income 96,747 71,086 25,661 36.1
Other income 12,623 18,826 (6,203) (32.9)
Total noninterest income $ 1,047,364 $ 836,007 $ 211,357 25.3 %
</TABLE>
Noninterest Expense
Noninterest expense was $2.2 million in the second quarter of 2000, an increase
of $334 thousand, or 18 percent, when compared with the same period in 1999 when
total noninterest expense was $1.8 million. The increase in noninterest expense
included a $135 thousand, or 73 percent, increase in professional fees
principally due to legal fees incurred associated with the trust preferred
issuance and higher consulting fees related to information systems technology.
An increase in the scope of the Company's operations coinciding with the
acquisition of a branch office in October 1999, and the establishment of a loan
production office in February 2000 was accompanied by increases in several
noninterest expense categories including, salaries and benefits which increased
$66 thousand, or 9 percent, occupancy and equipment which increased by $28
thousand, or 13 percent, communications which increased by $14 thousand, or 15
percent and other expenses which increased $50 thousand, or 31 percent.
12
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
The following table sets forth the various categories of, and changes
in, noninterest expense for the three months ended June 30, 2000 and 1999:
NONINTEREST EXPENSE
(Dollars in Thousands)
Three Months Ended June 30,
2000 1999 $ Change % Change
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 784,986 $ 719,486 $ 65,500 9.1 %
Occupancy and equipment expense 241,767 214,177 27,590 12.9
Professional fees 318,942 183,966 134,976 73.4
Data processing 307,410 284,317 23,093 8.1
Depreciation and amortization 115,060 110,031 5,029 4.6
Amortization of deposit premiums 57,602 47,384 10,218 21.6
Communications 104,759 90,936 13,823 15.2
Federal deposit insurance premiums 7,677 4,305 3,372 78.3
Other expenses 213,491 163,392 50,099 30.7
Total noninterest expense $2,151,694 $1,817,994 $333,700 18.4 %
</TABLE>
Noninterest expense was $4.2 million in the first six months of 2000,
an increase of $599 thousand, or 17 percent, when compared with the first six
months of 1999 when total noninterest expense was $3.6 million. The increase in
noninterest expense included a $149 thousand, or 43 percent, increase in
professional fees principally due to legal fees incurred associated with the
trust preferred issuance and higher consulting fees related to information
systems technology. An increase in the scope of the Company's operations was
accompanied by increases in several noninterest expense categories, including
salaries and benefits which increased by $213 thousand, or 15.4 percent,
occupancy and equipment which increased by $55 thousand, or 13 percent, and
communications which increased by $24 thousand, or 15 percent. The decrease in
other expenses by $14 thousand is due primarily to the refund of 1998 and 1999
Delaware franchise taxes.
<TABLE>
<CAPTION>
The following table sets forth the various categories of, and changes
in, noninterest expense for the six months ended June 30, 2000 and 1999:
NONINTEREST EXPENSE
(Dollars in Thousands)
Six Months Ended June 30,
2000 1999 $ Change % Change
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,597,577 $1,384,446 $213,131 15.4 %
Occupancy and equipment expense 475,218 420,552 54,666 13.0
Professional fees 497,165 348,198 148,967 42.8
Data processing 692,861 545,486 147,375 27.0
Depreciation and amortization 226,531 227,446 (915) (0.4)
Amortization of deposit premiums 115,204 94,768 20,436 21.6
Communications 193,874 169,928 23,946 14.1
Federal deposit insurance premiums 14,692 8,656 6,036 69.7
Other expenses 367,966 382,204 (14,238) (3.7)
Total noninterest expense $4,181,088 $3,581,684 $599,404 16.7 %
</TABLE>
13
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Investments
The Company's investment portfolio of $45.4 million as of June 30, 2000
consisted mostly of U.S. Government Agency obligations supplemented by
municipals and corporate bonds. This represented an increase of $22.9 million,
or 102 percent, compared with the investment portfolio total of $22.5 million at
December 31, 1999. The increase during the first six months of 2000 was
reflective of the execution of two leveraging transactions coupled with the
investment of the proceeds from the trust preferred issuance. (see Note 2--
"Investment Securities").
Investment securities held-to-maturity are stated at cost, adjusted for
amortization of premium and accretion of discount. Investment securities
available-for-sale are stated at fair value.
Loans
The Company presently is, and in the future expects to remain, a middle
market banking organization serving professionals and businesses with interests
in and around the Washington, DC metropolitan area. Most of the Company's loan
portfolio is collateralized by first mortgages on commercial and residential
real estate and home equity lines of credit on residential real estate. Most of
the Company's commercial real estate loans are secured by owner-occupied
properties with borrowers that are also banking customers of the Company. As of
June 30, 2000 and 1999, approximately $104.8 million, or 68 percent and $87.1
million, or 67 percent, of the Company's total loan portfolio, respectively,
consisted of loans secured by real estate. As of June 30, 2000 and 1999,
one-to-four family residential mortgage loans and home equity lines of credit
represented $34.3 million, or 22 percent, and $34.8 million, or 27 percent,
respectively, of the Company's total loan portfolio.
The following table sets forth the composition of the Company's loan
portfolio by type of loan on the dates indicated:
LOAN PORTFOLIO ANALYSIS
(Dollars in Thousands)
June 30
2000 1999
Aggregate Principal Amount
Type of loan:
1-4 family residential mortgage $ 25,629 $ 27,509
Home equity loans 8,684 7,260
Multifamily residential 2,214 2,712
Construction 5,208 5,088
Commercial real estate 63,057 44,499
Commercial loans 38,448 31,955
Installment and credit card loans 9,920 10,848
Other loans 823 378
Gross loans 153,983 130,249
Unearned income and deferred costs 36 52
Total loans, net of unearned $153,947 $130,197
Percentage of Loan Portfolio
Type of loan:
1-4 family residential mortgage 16.6% 21.1%
Home equity loans 5.6 5.6
Multifamily residential 1.4 2.1
Construction 3.4 3.9
Commercial real estate 41.0 34.2
Commercial loans 25.0 24.5
Installment and credit card loans 6.5 8.3
Other loans 0.5 0.3
Gross loans 100.0% 100.0%
14
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Asset Quality
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The Company maintains an allowance
for credit losses based upon, among other things, such factors as historical
experience, the volume and type of lending conducted by the Company, the amount
of nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in the Company's portfolios. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current
status of loans that are contractually past due and after considering the net
realizable value of the collateral for the loan.
Management actively monitors the Company's asset quality in a
continuing effort to charge off loans against the allowance for credit losses
when appropriate and to provide specific loss allowances when necessary.
Although management believes it uses the best information available to make
determinations with respect to the allowance for credit losses, future
adjustments may be necessary if actual economic conditions and other assumptions
differ from those used in making the initial determinations. At June 30, 2000,
the allowance for credit losses was $1.7 million, or 1.13 percent of total
loans. This represents an increase in the allowance compared to $1.4 million, or
1.08 percent of total loans as of June 30, 1999. The Company has increased the
allowance, as a percentage of total loans outstanding principally to reflect the
$23.7 million, or 18 percent, growth in loans outstanding in the past twelve
months. The allowance for credit losses as a percentage of nonperforming loans
was 115 percent at June 30, 2000, compared to 157 percent at June 30, 1999.
Total nonperforming loans were $1.4 million at June 30, 2000, compared
with $675 thousand at June 30, 1999. At June 30, 2000, most of the non-accrual
loan balances ($1.326 million of $1.437 million) consisted of two borrowing
relationships. The Company has real property collateral at acceptable margins
and has maintained a good working relationship with the borrowers. Where
appropriate, the Company has established specific loss allowances which
management believes are sufficient to absorb future losses.
Provisions for credit losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management, based on
the factors identified above. The provision for credit losses during the first
six months of 2000 was $380 thousand compared with $325 thousand for the same
period last year, an increase of $55 thousand, or 17 percent. The increase in
the provision is reflective of the 18 percent loan growth referred to above,
coupled with an increase in net charge-offs. Net charge-offs for the six months
ended June 20, 2000 were $156 thousand compared with $44 thousand for the same
period last year. These trends, taken into consideration with other factors in
the Company's internal analysis of the valuation allowance for credit loss, have
led to increased reserve requirements and a resulting provision expense to
maintain the allowance at a level deemed appropriate by management of the
Company (see table on the following page).
15
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
ANDRESULTS OF OPERATIONS, CONTINUED
Nonperforming Loans
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)
June 30,
2000 1999
Non-accrual loans $1,437 $675
Accruing past due 90 days or more 81 223
Total nonperforming loans 1,518 898
Other real estate owned - -
Total nonperforming assets $1,518 $898
Nonperforming assets to total assets 0.67% 0.50%
Nonperforming loans to total loans 0.99% 0.69%
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 $1.7 million or, 1.13 percent of total loans as of June 30, 2000.
16
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Allowance for Credit Losses, continued
The following table sets forth an analysis of the Company's allowance
for credit losses for the periods indicated:
<TABLE>
<CAPTION>
ALLOWANCE FOR CREDIT LOSSES
(Dollars in Thousands)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Average net loans outstanding $147,802 $129,537 $143,968 $124,227
Loans outstanding at period-end 153,947 130,197 153,947 130,197
Total nonperforming loans 1,518 898 1,518 898
Beginning balance of allowance $1,552 $1,310 $1,519 $1,128
Loans charged-off:
Commercial loans 11 14 161 20
Installment and credit card loans 1 36 22 37
Total loans charged off 12 50 183 57
Recoveries of previous charge-offs:
1-4 family residential mortgage 1 2 2 3
Commercial loans - - 20 -
Installment and credit card loans 2 2 5 10
Total recoveries 3 4 27 13
Net loans charged-off 9 46 156 44
Provision for credit losses 200 145 380 325
Balance at end of period $1,743 $1,409 $1,743 $1,409
Net charge-offs to average loans (annualized) 0.02% 0.14% 0.22% 0.14%
Allowance as % of total loans 1.13% 1.08% 1.13% 1.08%
Nonperforming loans as % of total loans 0.99% 0.69% 0.99% 0.69%
Allowance as % of nonperforming loans 115% 157% 115% 157%
</TABLE>
17
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Deposits
The Company's total deposits at June 30, 2000, were $167.8 million, an
increase of $22.0 million, or 15 percent, over the balance at June 30, 1999, and
an increase of $13.9 million, or 9.0 percent compared with 1999's year-end
balance. Total average deposits were $159.2 million for the six months ended
June 30, 2000, an increase of $26.1 million, or 20 percent, compared with the
first six months of 1999. The Company views deposit growth as a significant
challenge in its effort to increase its asset size. Thus, the Company is
focusing on its branching program with increased emphasis on commercial
accounts, and the offering of more competitive interest rates and products to
stimulate deposit growth. This strategy has and will continue to result in a
relatively higher cost of funds in addition to lower fee income as many of these
commercial customers may utilize accounts with lower transaction costs and have
a lower number of transactions than retail customers.
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)
Six Months Ended June 30,
2000 1999
Weighted Weighted
Average Average % of Average Average % of
Balance Rate Total Balance Rate Total
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Deposits $36,111 0.00% 22.7% $28,436 0.00% 21.4%
Interest-Bearing Deposits:
NOW accounts 22,271 0.91 14.0 19,287 1.20 14.5
Savings accounts 19,195 4.08 12.0 20,433 4.21 15.3
Money market accounts 26,261 3.44 16.5 21,136 3.13 15.9
Time deposits 55,385 5.17 34.8 43,800 5.18 32.9
Total $159,223 100.0% $133,092 100.0%
Weighted Average Rate 3.01% 3.02%
</TABLE>
Preferred Securities of Subsidiary Trust
During the first quarter of 2000, the Company formed a new, wholly
owned statutory business trust, Century Capital Trust I (the "Trust"), which
issued $8.8 million of 10.875% capital securities to a third party. The Trust
invested the proceeds in an equivalent amount of junior subordinated debt
securities of the Company bearing an interest rate equal to the rate on the
capital securities. These debt securities, which are the only assets of the
Trust, are subordinate and junior in right of payment to all present and future
senior indebtedness (as defined in the indenture) and certain other financial
obligations of the Company. The Company has fully and unconditionally guaranteed
the Trust's obligations under the capital securities. For financial reporting
purposes, the Trust is treated as a subsidiary of the Company and consolidated
in the corporate financial statements. The capital securities are presented as a
separate category of long term debt on the Condensed Consolidated Statement of
Financial Condition entitled " Preferred Securities of Subsidiary Trust." The
capital securities are not included as a component of stockholders' equity in
the Condensed Consolidated Statement of Financial Condition. The capital
securities are, however, treated as Tier I capital by the Federal Reserve Board.
The treatment of the capital securities as Tier I capital, in addition to the
ability to deduct the expense of the junior subordinated debt securities for
federal income tax purposes, provided the Company with a cost-effective method
of raising capital. The Company received net proceeds of $8,536,000, which will
be used for the general corporate purposes of the Company and the Bank,
including supporting continued expansion activities in the Washington, DC
metropolitan area through the establishment and/or acquisition of additional
branch offices and possible corporate acquisitions.
18
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Preferred Securities of Subsidiary Trust, continued
The capital securities pay cash distributions semiannually at a rate
of 10.875% of the liquidation preference. Distributions to the holders of the
capital securities are included in interest expense, within the category
entitled "Interest on borrowings." Under the provisions of the subordinated
debt, the Corporation has the right to defer payment of interest on the
subordinated debt at any time, or from time to time, for periods not exceeding
five years. If interest payments on the subordinated debt are deferred, the
distributions on the capital securities are also deferred. Interest on the
subordinated debt is cumulative.
Subject to the prior approval of the Federal Reserve Board, the
securities, the assets of the Trust and the common securities issued by the
Trust are redeemable at the option of the Company in whole or in part on or
after March 8, 2010, or at any time, in whole but not in part, from the date of
issuance, on the occurrence of certain events.
Capital Resources
Total stockholders' equity at June 30, 2000, was $16.5 million, an
increase of $855 thousand compared with total stockholders' equity of $15.7
million at December 31, 1999. Stockholders' equity was increased during the
first six months of 2000 by net income of $822 thousand and by $72 thousand
received from the exercise of stock options, and was reduced by $9 thousand
attributable to the decline in the market value of investment securities
available for sale net of the tax effect.
The Office of the Comptroller of the Currency has established certain
minimum risk-based capital standards that apply to national banks, and the
Company is subject to certain capital requirements imposed on bank holding
companies by the Federal Reserve Board. At June 30, 2000, Century National Bank
exceeded all applicable regulatory capital requirements for classification as a
"well capitalized" bank, and the Company satisfied all applicable regulatory
requirements imposed on it by the Federal Reserve Board.
At June 30, 2000, the Company's risk based capital ratios for Tier I
Capital to risk weighted assets, Total Capital to risk weighted assets, and Tier
1 Capital to average assets were 12.21 percent, 15.17 percent and 9.41 percent,
respectively.
19
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Year 2000 Compliance
Transition and Ongoing Plans. The Company suffered no failures in any
system or product upon the date change from December 31, 1999 to January 1,
2000. Although many of the critical dates have passed, some experts predict that
Year 2000 related failures could occur throughout the year. Accordingly, the
Company's project team will continue to monitor the Company's 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. 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 temporarily convert to a
manual systems for mission critical business functions.
20
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Liquidity
The Company's Asset/Liability Management Policy is intended to maintain
adequate liquidity for the Company and thereby enhance its ability to raise
funds to support asset growth, meet deposit withdrawals and lending needs,
maintain reserve requirements and otherwise sustain operations. The Company
accomplishes this primarily through management of the maturities of its
interest-earning assets and interest-bearing liabilities. The Company believes
that its present liquidity position is adequate to meet its current and future
needs.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
The asset liquidity of the Bank is maintained in the form of vault cash, demand
deposits with commercial banks, federal funds sold, interest-bearing deposits
with other financial institutions, short-term investment securities, other
investment securities available-for-sale, and short-term loans. The Company has
defined "cash and cash equivalents" as those amounts included in cash and due
from banks and federal funds sold. At June 30, 2000, the Company had cash and
cash equivalents of $18.3 million, a slight decrease of $1.9 million, when
compared with the $20.2 million at December 31, 1999.
Liability liquidity is provided by access to core funding sources,
principally customers' deposit accounts in the Company's market area. As a
member of the Federal Home Loan Bank of Atlanta ("FHLBA"), the Company is able
to borrow on a short-term or long-term basis secured by a blanket pledge of its
1-to-4-family residential mortgage loans, investment securities, and other
collateral. The Company also has lines of credit from larger correspondent banks
to borrow excess reserves on an overnight basis (known as "federal funds
purchased") in the amount of $5.7 million, and to borrow on a secured basis
("repurchase agreements") in the amount of $5.0 million. At June 30, 2000, the
Company had no outstanding federal funds purchased, and $11.2 million in
customer repurchase agreements. Also at June 30, 2000, the Company was utilizing
$20.8 million of available FHLBA credit in the form of fixed-rate ($17.8
million) and variable-rate ($3.0 million) advances with an average cost of 6.25
percent. The Company utilizes fixed rate term credit advances from the FHLBA to
fund fixed-rate real estate loans and investments of comparable terms and
maturities.
The Company had cash on hand of $6.9 million at the holding company
level at June 30, 2000. The Company anticipates using these funds as working
capital available to support the future growth of the franchise as well as to
pay normal operating expenses. Working capital is further augmented by dividends
available from the Bank, subject to certain regulatory restrictions generally
applicable to national banks. In March 2000, a subsidiary trust of the Company
issued $8.8 million of preferred securities (Trust Preferred Stock), which are
classified as long-term debt in the consolidated financial statements. Such
Trust Preferred Stock is treated as regulatory capital. At June 30, 2000, the
Company had no other indebtedness outstanding at the holding company level.
21
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk exposure is to interest rates.
Net interest income, which constitutes the principal source of income
for the Company, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The difference between the Company's interest-rate sensitive assets and
interest-rate sensitive liabilities for a specified time frame is referred to as
an interest sensitive "gap." Interest rate sensitivity reflects the potential
effect on net interest income of a movement in interest rates. A financial
institution is considered to be asset sensitive, or having a positive gap, when
the amount of its interest-earning assets maturing or repricing exceeds the
amount of its interest-bearing liabilities also maturing or repricing within
that time period. Conversely, a financial institution is considered to be
liability sensitive, or having a negative gap, when the amount of its
interest-bearing liabilities maturing or repricing exceeds the amount of its
interest-earning assets within the same time period. During a period of rising
(falling) interest rates, a positive gap would tend to increase (decrease) net
interest income, while a negative gap would tend to decrease (increase) net
interest income.
Management seeks to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. Toward this end, the
Company has a Finance Committee which reviews, on a regular basis, the maturity
and repricing of the assets and liabilities of the Company. The Finance
Committee has adopted the objective of achieving and maintaining a one-year
cumulative GAP, as a percent of total assets, of between plus 10 percent and
minus 10 percent. In addition, potential changes in net interest income under
various interest rate scenarios are monitored. On a consolidated basis, the
Company's one-year cumulative gap was a negative 2.5 percent of total assets at
June 30, 2000.
Market risk is the risk of loss from adverse changes in market prices
and rates, arising primarily from interest rate risk in the Company's
portfolios, which can significantly impact the Company's profitability. The
Finance Committee has adopted the objective that an immediate increase or
decrease of 200 basis points in market interest rates should not result in a
change of more than 10 percent (plus or minus) in the Company's projected net
interest income over the next twelve months, and not more than 20 percent (plus
or minus) in projected net income. At June 30, 2000, the forecasted impact of an
immediate increase (or decrease) of 200 basis points would have resulted in an
increase (or decrease) in net interest income over a twelve month period of 2.35
percent and (3.82 percent), respectively, and an increase (or decrease) in net
income over a twelve month period of 7.39 percent and (12.02 percent),
respectively. Due to the impact of certain assets and liabilities acquired since
late March, including some with embedded options, and revisions to the model
associated with the timing of repricing for deposits with no stated maturity,
some shift in the magnitude and direction of forecasted net interest income
changes has been noted in comparison to the forecasted results as of March 31,
2000 however, all forecasted simulations are well within policy guidelines.
Since there are limitations inherent in any methodology used to
estimate the exposure to changes in market interest rates, the analysis included
herein is not intended to be a forecast of the actual effect of a change in
market interest rates on the Company. The analysis is based on the Company's
assets and liabilities as of June 30, 2000, and does not contemplate any actions
the company might undertake in response to changes in market interest rates,
which could change the anticipated results.
22
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
PART II - OTHER INFORMATION
Items 1 through 3
No events have occurred during the reporting period which require
disclosure under any of these items.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 2, 2000 the Company held its annual meeting of
stockholders to (i) elect a Board of seven directors to serve
until the 2001 annual meeting of stockholders, (ii) approve an
amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of common stock
from five million to ten million shares, (iii) approve the
Company's 2000 Stock Awards Plan, (iv) transact such other
business as may properly come before the meeting.
(b),(c) With respect to the election of directors, the voting was
as follows:
Nominee For Against
-------------------------------------------------------------
Joseph S. Bracewell 1,583,101 317,825
George Contis 1,582,113 318,813
John R. Cope 1,581,745 319,181
Bernard J. Cravath 1,582,113 318,813
Neal R. Gross 1,582,771 318,155
William S. McKee 1,583,101 317,825
William C. Oldaker 1,581,194 319,732
With respect to the amendment to the Company's Certificate of
Incorporation, the vote was:
For Against Abstain
-------------------------------------------------------------
1,857,430 37,415 6,081
With respect to the 2000 Stock Awards Plans the vote was:
For Against Abstain
-------------------------------------------------------------
1,021,661 361,392 31,288
(d) Not applicable
Item 5
No events have occurred during the reporting period which require
disclosure under this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
Exhibit 10.19 Amendment No. 2 dated April 3, 2000, of the
employment agreement dated September 1, 1996,
between the Company and the Bank and
Mr. Joseph S. Bracewell.
Exhibit 11 Computation of Earnings Per Share for the
three and six month periods ended June 30,
2000.
Exhibit 27 Financial Data Schedule, June 30, 2000.
(b) Reports on Form 8-K.
A current report on Form 8-K was filed on May 30, 2000, regarding the
agreement to acquire the Reston (VA) Branch of Resource Bankshares
Corporation.
23
<PAGE>
CENTURY BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
For Quarter Ended June 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY BANCSHARES, INC.
Date: August 14, 2000 By: /s/ JOSEPH S. BRACEWELL
-----------------------
Joseph S. Bracewell
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 2000 By: /s/ DALE G. PHELPS
------------------------
Dale G. Phelps
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<PAGE>
CENTURY BANCSHARES, INC.
EXHIBIT INDEX
June 30, 2000
The following exhibits are filed within this report.
Exhibit
Number Description
10.19 Amendment No. 2 dated April 3, 2000, of the employment agreement
dated September 1, 1996, between the Company and the Bank and
Mr. Joseph S. Bracewell.
11 Computation of Earnings Per Share for the three and six month periods
ended June 30, 2000
27 Financial Data Schedule, June 30, 2000
25
<PAGE>
Exhibit 10.19
AMENDMENT NO. 2 TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 2 ("Amendment No. 2") made this 3rd day of April 2000
by and between CENTURY BANCSHARES, INC., a Delaware corporation ("Employer"),
and JOSEPH S. BRACEWELL, a District of Columbia resident ("Employee")
(collectively, the "Parties").
RECITALS
WHEREAS, Employer and Employee have entered into an Executive
Employment Agreement, dated as of September 1, 1996 (the "EEA");
WHEREAS, Employer and Employee, in March of 1998 entered into Amendment
No.1 to Executive Employment Agreement, a written agreement amending the EEA
under the procedures of Paragraph 11 of the EEA by increasing Employee's
compensation and extending the term of the EEA through to August 31, 1999;
WHEREAS, in February and March of 1999, Employer and Employee extended
the term of the EEA through to August 31, 2000 under the procedures of Paragraph
2 of the EEA;
WHEREAS, the Parties now wish to modify the EEA under the procedures of
Paragraph 11 of the EEA by increasing the Employee's compensation, granting the
Employee a cash bonus for 1999 performance, and extending the term of the EEA;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements recited in this Amendment No. 2 and for other good and
valuable consideration, the receipt and sufficiency of which each party
acknowledges, the Parties agree as follows:
1. Amendments to EEA.
26
<PAGE>
1.1 Renewal of EEA. Employer and Employee waive the
notice provisions in Paragraph 2 of the EEA regarding renewal of the EEA and
agree to extend the EEA for an additional one (1) year term commencing
September 1, 2000, and ending August 31, 2001. The notice provisions in
Paragraph 2 of the EEA shall apply to any subsequent renewal of the EEA, unless
the Parties agree, under the procedures of Paragraph 11 of the EEA, to waive
those provisions.
1.2 Salary Increase Effective April 1, 2000. In consideration
for Employee's agreement to extend the EEA for an additional one (1) year term,
Employee's current yearly salary shall increase from Two Hundred and Five
Thousand Dollars and No Cents (U.S. $205,000.00) to Two Hundred and Twenty-Five
Thousand Dollars and No Cents (U.S. $225,000.00), effective April 1, 2000.
1.3 Bonus for 1999 Performance. In recognition of Employee's
performance in 1999, and under Paragraph 3.3 of the EEA, Employer shall pay
Employee a cash bonus of Twenty-Five Thousand Dollars ($25,000.00).
2. Covenants, Representations and Warranties of the Parties.
2.1 As of the date of this Amendment No. 2, Employer and
Employee reaffirm all covenants, representations, and warranties made by them in
the EEA (except for any such representations and warranties which are stated to
be made as of a specific date), and all such covenants, representations, and
warranties shall be deemed to have been re-made as of the date of this Amendment
No. 2.
2.2 Employer represents and warrants that this Amendment No. 2
constitutes a legal, valid, and binding obligation of Employer, enforceable
against it under its terms.
3. Reference to and Effect on EEA.
27
<PAGE>
3.1 Upon the execution of this Amendment No. 2, each reference in the
EEA to "this Agreement", "hereunder", "herein", or words of like import shall
mean and be a reference to the EEA, as amended by this Amendment No. 2, and each
reference to the EEA in any other document, instrument, or agreement executed
and/or delivered under the EEA shall mean and be a reference to the EEA, as
amended by this Amendment No. 2.
3.2 Except as specifically waived or amended above, the EEA
shall remain in full force and effect and is ratified and confirmed.
3.3 The execution and delivery of this Amendment No. 2 shall
not operate as a waiver of any right, power, or remedy of Employer or Employee
under the EEA, nor constitute a waiver of any provision contained in the EEA,
except as provided in this Amendment No. 2, or absolve Employer or Employee from
the timely performance of their respective obligations under the EEA.
4. Execution in Counterparts. This Amendment No. 2 may be
executed in any number of counterparts and by the different parties to this
Amendment No. 2 in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
5. Choice of Law. All disputes concerning the validity, interpretation,
or performance of this Amendment No. 2 and any of its terms or conditions, or of
any rights or obligations of the Parties, shall be governed by the internal laws
of the District of Columbia, except its conflict of laws.
6. Headings. Headings in this Amendment No. 2 are included for
informational purposes only and shall not constitute a part of this Amendment
No. 2 for any other purpose.
28
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date
first above written.
CENTURY BANCSHARES, INC.
/s/ F. Kathryn Roberts /s/ John R. Cope
------------------------ ------------------------
Attest: By: John R. Cope
Title: Vice Chairman
/s/ F. Kathryn Roberts /s/ Joseph S. Bracewell
------------------------ -----------------------
Witness: JOSEPH S. BRACEWELL
29
<PAGE>
Exhibit 11
CENTURY BANCSHARES, Inc.
Computation of Earnings Per Common Share
June 30, 2000
CENTURY BANCSHARES, INC.
Computation of Earnings Per Common Share
Three and Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic Income Per Common Share:
Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442
Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408
Basic income per common share $0.15 $0.10 $0.30 $0.18
Diluted Income Per Common Share:
Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442
Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408
Dilutive effect of stock options 16,216 28,763 16,216 27,934
Diluted weighted average
common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342
Diluted income per common share $0.15 $0.10 $0.30 $0.18
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit 27
CENTURY BANCSHARES, Inc.
Financial Data Schedule
June 30, 2000
<S> <C>
[ARTICLE] 9
[CIK] 785813
[NAME] CENTURY BANCSHARES, INC.
[MULTIPLIER] 1000
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-END] JUN-30-2000
[CASH] 8,104
[INT-BEARING-DEPOSITS] 5,251
[FED-FUNDS-SOLD] 10,206
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 24,920
[INVESTMENTS-CARRYING] 20,461
[INVESTMENTS-MARKET] 20,464
[LOANS] 153,947
[ALLOWANCE] 1,743
[TOTAL-ASSETS] 227,720
[DEPOSITS] 167,754
[SHORT-TERM] 11,865
[LIABILITIES-OTHER] 1,933
[LONG-TERM] 29,645
[COMMON] 2,875
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 13,648
[TOTAL-LIABILITIES-AND-EQUITY] 227,720
[INTEREST-LOAN] 6,616
[INTEREST-INVEST] 858
[INTEREST-OTHER] 676
[INTEREST-TOTAL] 8,150
[INTEREST-DEPOSIT] 2,363
[INTEREST-EXPENSE] 932
[INTEREST-INCOME-NET] 4,856
[LOAN-LOSSES] 380
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 4,181
[INCOME-PRETAX] 1,342
[INCOME-PRE-EXTRAORDINARY] 1,342
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 822
[EPS-BASIC] 0.30
[EPS-DILUTED] 0.30
[YIELD-ACTUAL] 5.04
[LOANS-NON] 1,437
[LOANS-PAST] 81
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1,518
[CHARGE-OFFS] 183
[RECOVERIES] 27
[ALLOWANCE-CLOSE] 1,743
[ALLOWANCE-DOMESTIC] 1,743
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 1,156
</TABLE>
31
