<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 2000.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CENTURY BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 6712 52-1489098
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
JOSEPH S. BRACEWELL
1275 PENNSYLVANIA AVENUE, N.W. 1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20004
(202) 496-4100 (202) 496-4100
(Address, Including Zip Code, and (Name, Address, Including Zip Code,
Telephone Number, Including Area Code, and Telephone Number, Including Area
of Registrant's Principal Executive Code, of Agent for Service)
Offices)
COPIES TO:
JOHN R. BRANTLEY JAMES I. LUNDY III
BRACEWELL & PATTERSON, L.L.P. NOEL M. GRUBER
711 LOUISIANA STREET, SUITE 2900 KENNEDY, BORIS & LUNDY, L.L.P.
HOUSTON, TEXAS 77002-2781 SUITE P-15
(713) 221-1301 4701 SANGAMORE ROAD
BETHESDA, MARYLAND 20816
(301) 229-3400
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
TITLE OF PROPOSED PROPOSED
EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED(1) PRICE PER OFFERING FEE
REGISTERED UNIT PRICE(2)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 1,397,430 Not Applicable $2,710,595 $716.00
$1.00
======================================================================================================================
</TABLE>
(1) Based upon the maximum number of shares of common stock expected to be
issued in connection with the transactions described herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1), based upon the market value as of December
11, 2000 of the maximum number of shares of stock to be acquired by
Century in the merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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[CENTURY LOGO] [GRANDBANC LOGO]
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
<TABLE>
<S> <C>
The Boards of Directors of Century Century's common stock is traded on
Bancshares, Inc. and GrandBanc, Inc. The Nasdaq SmallCap Market under the
have approved a merger agreement that symbol "CTRY." On December 11, 2000,
provides for the combination of the two the last reported sale price per share
companies. We believe the combined was $7.6875 per share.
company will be able to create
substantially more stockholder value We are asking stockholders of Century
than could be achieved by the companies to approve the issuance of Century
individually. stock in the merger.
The combined company will continue We are asking stockholders of
under the name Century Bancshares, GrandBanc to approve the merger
Inc., with its headquarters in agreement.
Washington, D.C.
We cannot complete the merger unless
If the merger is completed, holders of we receive the approval of the
GrandBanc common stock will receive stockholders of both companies.
0.3318 shares of Century's common stock
for each GrandBanc Share. Century The dates, times and places of
stockholders will continue to hold the meetings are:
the their existing shares after
merger. For CENTURY stockholders:
Century will issue approximately - [insert date, time and place]
1,397,430 shares of Century common
stock to GrandBanc stockholders in For GRANDBANC stockholders:
the merger, based on GrandBanc's
outstanding shares on November 30, - [insert date, time and place]
2000. These shares will represent
approximately 34% of the outstanding
Century common stock after the merger.
Century shares held by Century
stockholders will represent
approximately 66% of the outstanding
Century shares after the merger.
</TABLE>
/s/ JOSEPH S. BRACEWELL /s/ MELVYN J. ESTRIN
Joseph S. Bracewell Melvyn J. Estrin
Chairman of the Board, President, Chairman of the Board
and Chief Executive Officer GrandBanc, Inc.
Century Bancshares, Inc.
An investment in the Century common stock in connection with the merger involves
risks. See "Risk Factors" beginning on page 13.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulators have approved of the merger or the shares of Century common stock to
be issued in connection with the merger or determined if this joint proxy
statement/prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
--------------------------------------------------------------------------------
Joint proxy statement/prospectus dated December -, 2000, and first mailed
to stockholders on -.
<PAGE> 3
ADDITIONAL INFORMATION
Important business and financial information about Century and GrandBanc
is incorporated in this proxy statement/prospectus from other documents that are
not included or delivered with this proxy statement/prospectus. You may obtain
copies of these documents without charge by requesting them in writing or by
telephone from the appropriate company at the following addresses:
Century Bancshares, Inc. GrandBanc, Inc.
1275 Pennsylvania Avenue, N.W. 1800 Rockville Pike
Washington, D.C. 20004 Rockville, Maryland 20852
(202) 496-4100 (301) 770-1300
Attention: Corporate Secretary Attention: Corporate Secretary
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS, PLEASE DO SO BY -, 2001, IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
See "Where You Can Find More Information" on page 133.
<PAGE> 4
[CENTURY LOGO]
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS TO BE
HELD ON -, 2001
To the Stockholders of Century Bancshares, Inc.:
A special meeting of stockholders of Century Bancshares, Inc. will be held on
-, 2001, at 2:00 p.m. at the -, for the following purposes:
1. to consider and vote upon a proposal to approve the issuance of
approximately 1,397,430 shares of Century's common stock in
connection with a proposed merger pursuant to which GrandBanc, Inc.
will become a wholly owned subsidiary of Century; and
2. to transact any other business that may properly come before the
meeting or any adjournment or postponement.
Century's Board has unanimously approved the merger agreement and the issuance
of the shares of Century's common stock in connection with a proposed merger and
recommends that you vote "FOR" approval of the issuance of Century's shares.
Holders of record of Century common stock at the close of business on December
-, 2000, will be entitled to vote at the Century meeting or any adjournment
or postponement. A list of stockholders entitled to vote will be kept at Century
at 1275 Pennslyvania Avenue, N.W., Washington, D.C., 20004, for ten days before
the meeting.
/s/ WILLIAM C. OLDAKER
William C. Oldaker
Secretary
December -, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU
MAY VOTE EITHER IN PERSON OR BY PROXY. IF YOUR SHARES ARE NOT REGISTERED IN YOUR
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORDHOLDER IN ORDER TO
VOTE PERSONALLY AT THE MEETING.
<PAGE> 5
[GRANDBANC LOGO]
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS TO BE
HELD ON -, 2001
To the Stockholders of GrandBanc, Inc.:
A special meeting of stockholders of GrandBanc, Inc. will be held on -,
2001, at 10:00 a.m. at the -, for the following purposes:
1. to consider and vote on the proposed merger of GrandBanc into a
subsidiary of Century Bancshares, Inc. In the merger, among other
things, each share of GrandBanc common stock will be converted into
and become the right to receive 0.3318 shares of Century common
stock. Cash will be paid instead of issuing fractional shares of
Century common stock; and
2. to transact any other business that may properly come before the
meeting or any adjournment or postponement.
GrandBanc's Board has unanimously approved the merger agreement and declared it
advisable and recommends that you vote "FOR" approval and adoption of the merger
agreement. Holders of record of GrandBanc common stock at the close of business
on December -, 2000, will be entitled to vote at the GrandBanc meeting or
any adjournment or postponement.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME.
/s/ JOHN P. SHROADS, JR.
John P. Shroads, Jr.
Secretary
December -, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU
MAY VOTE EITHER IN PERSON OR BY PROXY. IF YOUR SHARES ARE NOT REGISTERED IN YOUR
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORDHOLDER IN ORDER TO
VOTE PERSONALLY AT THE MEETING.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER .................................... 1
SUMMARY ................................................................... 2
The Companies .......................................................... 2
The Merger ............................................................. 2
What GrandBanc Stockholders Will Receive in the Merger ................. 2
The Special Meetings and Required Votes ................................ 2
Reasons for Merger ..................................................... 3
Recommendations to Stockholders ........................................ 3
Summary of Risk Factors ................................................ 3
Opinions of Financial Advisors ......................................... 4
Board of Directors of Century After the Merger ......................... 4
Conditions to Completion of the Merger ................................. 4
Regulatory Approvals ................................................... 4
Termination of Merger Agreement ........................................ 5
Termination Fees ....................................................... 5
Interests of Executive Officers and Directors in the Merger ............ 5
Material Federal Income Tax Consequences of the Merger ................. 6
Resale of Century Shares Received in the Merger ........................ 6
Appraisal Rights ....................................................... 6
Comparative Stockholder Rights ......................................... 6
SELECTED HISTORICAL FINANCIAL DATA ........................................ 7
Selected Financial Data of Century ..................................... 7
Selected Financial Data of GrandBanc ................................... 9
Summary of Historical and Pro Forma Per Share Selected Financial Data .. 11
Comparative Per Share Data ............................................. 12
RISK FACTORS .............................................................. 13
FORWARD-LOOKING INFORMATION ............................................... 17
INFORMATION ABOUT THE MEETINGS AND VOTING ................................. 19
Matters Relating to the Meetings ....................................... 19
Voting and Revocation of Proxies ....................................... 21
Solicitation of Proxies; Expenses ...................................... 21
Appraisal Rights for GrandBanc Stockholders ............................ 22
THE MERGER ................................................................ 23
General ................................................................ 23
Proposals .............................................................. 23
Century's Background and Reasons for the Merger; Recommendation of the
Century Board ....................................................... 23
GrandBanc's Background and Reasons for the Merger; Recommendation of the
GrandBanc Board ..................................................... 24
Opinions of Financial Advisors ......................................... 26
Quorum and Votes Required .............................................. 33
Interest of Certain Persons in the Merger .............................. 34
Board of Directors of Century After the Merger ......................... 35
Federal Income Tax Consequences of the Merger .......................... 35
Accounting Treatment ................................................... 37
Regulatory Approvals ................................................... 37
Resales of Century Common Stock Issued in the Merger ................... 37
</TABLE>
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<TABLE>
<S> <C>
Appraisal Rights of GrandBanc Stockholders ............................. 37
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS ............... 40
THE MERGER AGREEMENT ...................................................... 48
Structure of the Merger ................................................ 48
Merger Consideration ................................................... 48
Timing of Closing ...................................................... 48
Treatment of GrandBanc Stock Options ................................... 48
Exchange of Shares ..................................................... 48
Designation of Directors ............................................... 49
Covenants Regarding Interim Operations of Century and GrandBanc ........ 49
Additional Agreements .................................................. 51
Representations and Warranties ......................................... 53
Conditions of Merger ................................................... 53
Termination, Amendment and Waiver ...................................... 54
THE VOTING AGREEMENTS ..................................................... 56
Voting of Owned Shares ................................................. 56
Termination ............................................................ 56
Restrictions on Transfer ............................................... 56
Representations and Warranties ......................................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTURY ....................................... 57
For the Three and Nine Month Periods Ended September 30, 2000 and 1999 . 57
General ............................................................. 57
Results of Operations ............................................... 57
Financial Condition ................................................. 62
For the Years Ended December 31, 1999, 1998 and 1997 ................... 70
General ............................................................. 70
Results of Operations ............................................... 70
Financial Condition ................................................. 76
INFORMATION ABOUT CENTURY................................................... 88
Business................................................................. 88
Regulation............................................................... 88
Competition.............................................................. 93
Market Prices and Dividends.............................................. 93
Employees................................................................ 94
Properties............................................................... 95
Legal Proceedings........................................................ 95
Interests of Certain Persons............................................. 95
MANAGEMENT OF CENTURY....................................................... 96
Executive Compensation................................................... 97
Board Compensation....................................................... 97
Stock Option Plans....................................................... 98
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF CENTURY..................... 99
DESCRIPTION OF CAPITAL STOCK OF CENTURY..................................... 101
Common Stock............................................................. 101
Preferred Stock.......................................................... 101
Preferred Securities of Subsidiary Trust................................. 102
</TABLE>
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<TABLE>
<S> <C>
Anti-Takeover Protections................................................ 102
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GRANDBANC....................................... 104
Financial Condition...................................................... 104
Results of Operations.................................................... 111
Loan Portfolio........................................................... 116
Investment Portfolio..................................................... 117
Deposit Activities....................................................... 118
INFORMATION ABOUT GRANDBANC................................................. 121
Information About Certain Directors of GrandBanc......................... 122
Voting Securities and Principal Holders.................................. 122
Market for the Common Equity and Related Stockholder Matters............. 124
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF GRANDBANC
STOCKHOLDERS AND RIGHTS THOSE PERSONS WILL HAVE AS STOCKHOLDERS OF
CENTURY.................................................................. 125
LEGAL MATTERS............................................................... 133
EXPERTS..................................................................... 133
WHERE YOU CAN FIND MORE INFORMATION......................................... 133
INDEX TO FINANCIAL STATEMENTS .............................................. F-1
ANNEX A: AGREEMENT AND PLAN OF MERGER...................................... A-1
ANNEX B: FRIEDMAN, BILLINGS, RAMSEY & CO., INC. FAIRNESS OPINION........... B-1
ANNEX C: HOVDE FINANCIAL LLC FAIRNESS OPINION.............................. C-1
ANNEX D: SECTIONS 3-201 THROUGH 3-213 OF THE MARYLAND GENERAL
CORPORATION LAW................................................... D-1
</TABLE>
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<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When and where are the stockholders' meetings?
A: Each company's meeting will take place on -, 2001 in -. The address of
each meeting is on page 19.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope, so that
your shares may be represented at your meeting. In order to assure that your
vote is obtained, please mail your proxy as instructed on your proxy card even
if you currently plan to attend a meeting in person. The Board of Directors of
each of Century and GrandBanc recommends that its stockholders vote in favor of
the merger.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to your company's Secretary
before your meeting; or you can attend your meeting in person and vote. If your
shares are not registered in your name, you will need additional documentation
from your recordholder in order to vote in person at your meeting. You may also
revoke your proxy by sending a notice of revocation to your company's Secretary
at the address under "The Companies" on page 2.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: No. If you do not provide your broker with instructions on how to vote
your "street name" shares, your broker will not be permitted to vote them on the
merger. You should therefore be sure to provide your broker with instructions on
how to vote your shares.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send GrandBanc stockholders
written instructions for exchanging their share certificates. Century
stockholders will keep their existing certificates.
Q: When do you expect the merger to be completed?
A: We are attempting to complete the merger as quickly as possible. In
addition to stockholder approvals, we must also obtain regulatory approvals. We
hope to complete the merger by the end of the first quarter, 2001.
Q: Whom do I call if I have questions about the meetings or the merger?
A: Century stockholders may call Dale G. Phelps at (202) 496-4100.
GrandBanc stockholders may call Steven K. Colliatie at (301) 770-1300.
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<PAGE> 10
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read this document and
the documents we have referred you to carefully. See "Where You Can Find More
Information" on page 133.
THE COMPANIES
CENTURY BANCSHARES, INC.
1275 Pennslyvania Avenue, N.W.,
Washington, D.C. 20004
(202) 496-4100
Century Bancshares, Inc. is the parent company of Century National Bank, a
community bank providing a full range of loans and financial services to
professionals, small businesses, and non-profit organizations in the Washington,
DC metropolitan area. Century operates seven full-service banking offices -- two
in downtown Washington, four in Northern Virginia, and one in Bethesda, Maryland
-- a loan production office in Rockville, Maryland, and an insurance agency. As
of September 30, 2000, Century had total assets of $284.8 million, total
deposits of $215.5 million, and stockholders' equity of $17.1 million.
GRANDBANC, INC.
1800 Rockville Pike
Rockville, Maryland 20852
(301) 770-1300
GrandBanc, Inc. is the parent holding company of GrandBank, a Maryland chartered
commercial bank headquartered in Rockville, Maryland with two branches in
Bethesda, Maryland, one in Germantown, Maryland, and one in Old Town Alexandria,
Virginia. As of September 30, 2000, GrandBanc had total assets of $114.5
million, total deposits of $100.5 million, and stockholders' equity of $6.2
million.
THE MERGER
In the merger, GrandBanc will merge into a subsidiary of Century Bancshares,
Inc. and will become Century's wholly owned subsidiary. If GrandBanc
stockholders approve the merger and Century stockholders approve the issuance of
the Century shares at the special meetings, we expect completion of the merger
in the first quarter of 2001.
The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
WHAT GRANDBANC STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 48)
If the merger is completed, GrandBanc stockholders will receive 0.3318 shares of
Century common stock for each share of GrandBanc common stock, plus cash instead
of any fractional shares.
On December 11, 2000, the last reported per share price of Century common stock
was $7.6875. Applying the 0.3318 exchange ratio to that price, each holder of
GrandBanc common stock would be entitled to receive Century common stock with a
market value of approximately $ 2.55 for each share of GrandBanc common stock.
However, the market prices for Century and GrandBanc common stock are likely to
change between now and the merger. You are urged to obtain current price quotes
for GrandBanc and Century common stock.
THE SPECIAL MEETINGS AND REQUIRED VOTES
CENTURY BANCSHARES, INC.
Century is holding a special stockholders' meeting at 2:00 p.m., local time, on
-, 2001, at -. The purpose of the meeting is for Century stockholders
to consider and vote on the issuance of Century common stock in connection with
the merger. The record date for
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<PAGE> 11
the meeting is the close of business on December -, 2000. Only stockholders of
record at the close of business on the record date will be entitled to vote at
the meeting and any adjournment.
A majority of the votes represented at the meeting and entitled to vote on the
issuance must be voted in favor of the issuance of shares in connection with the
GrandBanc merger to approve the issuance. Directors of Century owning or
controlling the right to vote 684,185 shares of Century common stock, which
represent approximately 25% of the total shares of Century stock issued and
outstanding as of the record date, have signed a voting agreement in which they
have agreed to vote their Century stock in favor of the issuance.
GRANDBANC, INC.
GrandBanc is holding a special stockholders' meeting at 10:00 a.m., local time,
on -, 2001, at -. The purpose of the meeting is for GrandBanc
stockholders to consider and vote on the merger. The record date for the meeting
is the close of business on December -, 2000. Only stockholders of record
at the close of business on the record date will be entitled to vote at the
meeting and any adjournment.
Two-thirds of the outstanding shares of GrandBanc must be voted in favor of the
merger for the merger to be approved. Directors of GrandBanc owning or otherwise
controlling the right to vote 1,420,005 shares of GrandBanc common stock, which
represent approximately 35% of the total shares of GrandBanc stock issued and
outstanding as of the record date, have signed a voting agreement in which they
have agreed to vote their GrandBanc stock in favor of the merger.
REASONS FOR MERGER
We believe the combined company can be run more efficiently and can use its
capital more profitably than either company could on its own. As a result, we
believe the merger will create long-term value for the stockholders of both
companies. Of course, the benefits depend on our ability to obtain the necessary
approvals to integrate and operate the businesses of Century and GrandBanc
successfully after the merger, and on other uncertainties described on page 17.
To review Century's reasons for the merger in greater detail, see page 23.
To review GrandBanc's reasons for the merger in greater detail, see page 24.
RECOMMENDATIONS TO STOCKHOLDERS
TO CENTURY STOCKHOLDERS:
The Century Board believes that the issuance of Century common stock in
connection with the merger is fair to you and in your best interest and
recommends that you vote FOR the issuance of shares.
TO GRANDBANC STOCKHOLDERS:
The GrandBanc Board believes that the merger is fair to you and in your best
interest and recommends that you vote FOR the approval of the merger agreement
and the merger.
SUMMARY OF RISK FACTORS (SEE PAGE 13)
The merger is subject to risks:
- Century may be unable to manage the new assets it acquires;
- GrandBanc sustained losses during 1999;
- Century will assume approximately $2.25 million of debt secured by
the stock of GrandBank;
- There is a limited market for Century's common stock and the stock
market can be volatile;
- Changes in interest rates may adversely affect Century's business;
- Century's officers and directors will own a significant number of
shares after the merger and could exert significant
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<PAGE> 12
influence on matters submitted to its stockholders;
- Loss of Century's President or other executive officers could
adversely affect its business;
- Century and Century National Bank operate in a highly regulated
environment;
- Century and Century National Bank operate in a highly competitive
market;
- Possible future dividend payments by Century National Bank to
Century and by Century to its stockholders could be restricted;
- Century's business is concentrated in the Washington DC metropolitan
area and a downturn in the local economy may adversely affect its
business; and
- There are no assurances as to the adequacy of the allowance for
credit losses.
OPINIONS OF FINANCIAL ADVISORS
Each Board has considered the opinion of its financial advisor. Century received
an opinion from Friedman, Billings, Ramsey & Co. Inc. as to the fairness from a
financial point of view of the consideration to be paid by Century in the merger
as of October 6, 2000, which was updated as of November 8, 2000. GrandBanc
received an opinion of Hovde Financial LLC as to the fairness from a financial
point of view of the exchange ratio as of October 11, 2000. These opinions are
attached as Annex B and Annex C. We encourage you to read these opinions.
BOARD OF DIRECTORS OF CENTURY AFTER THE MERGER (SEE PAGE 49)
Immediately following the merger, the board of directors of Century will have
nine members, including the seven current Century directors plus the two
directors designated by GrandBanc. For a period of three years after the merger,
two former directors of GrandBanc, or successors designated by the former
GrandBanc directors, will be nominated to serve on Century's board.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 53).
The completion of the merger depends upon meeting a number of conditions,
including the following:
- approval of the stockholders of Century and GrandBanc;
- receipt by Century of all regulatory approvals and third party
consents;
- authorization for the listing on the Nasdaq of the shares of Century
common stock to be issued in the merger;
- absence of any law or court order prohibiting the merger;
- receipt of a letter from the independent public accountants of
Century stating that the merger will qualify for "pooling of
interests" accounting treatment;
- receipt of opinions from Century's and GrandBanc's counsel that the
merger will qualify as a reorganization under the federal income tax
laws;
- material accuracy as of closing of the representations and
warranties made by the parties; and
- absence of a material adverse effect on Century or GrandBanc or
their respective subsidiaries from June 30, 2000 until the closing
of the merger.
REGULATORY APPROVALS
The merger must be approved by the Federal Reserve Bank of Richmond. Century
will file an application with the Federal Reserve Bank of Richmond to obtain
prior approval of the merger during December 2000.
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<PAGE> 13
TERMINATION OF MERGER AGREEMENT (SEE PAGE 54)
Century and GrandBanc may jointly agree to terminate the merger at any time.
Additionally:
(a) Either Century or GrandBanc may terminate the merger agreement if any of
the following occurs:
- any governmental entity denies approval of the merger or issues an
order permanently enjoining or prohibiting the consummation of the
merger;
- we do not complete the merger by June 30, 2001, unless the failure
is because the party seeking to terminate the agreement did not
perform or observe the covenants in the merger agreement, or
breached a representation or warranty in the merger agreement; or
- either party breaches any of its obligations under the merger
agreement, and does not cure the breach within 30 days.
(b) Century may terminate the merger agreement if:
- GrandBanc enters into negotiations or an agreement for the
disposition of its business or assets with another party;
- the GrandBanc Board modifies or withdraws its recommendation of the
merger;
- the GrandBanc Board fails to reaffirm its approval of the merger; or
- the GrandBanc Board approves, recommends, or enters into any letter
of intent, agreement or similar document contemplating a merger with
another party.
(c) GrandBanc may terminate the merger agreement if:
- Century enters into an agreement that does not contemplate
consummation of the merger or which does not treat GrandBanc
stockholders in the same manner as the holders of Century common
stock;
- Century breaches its obligation not to enter into any business
combination transaction that would result in the termination of the
merger agreement, or would materially delay or jeopardize any
approvals or circumstances which are necessary for the merger
agreement;
- Century's Board withdraws or modifies its recommendation of the
merger or the merger agreement; or
- the Century Board fails to reaffirm its approval of the merger.
TERMINATION FEES (SEE PAGE 55)
GrandBanc must pay Century a termination fee of $500,000 in cash plus all of
Century's out of pocket expenses if the merger agreement is terminated by
Century as described in paragraph (b) above.
Century must pay GrandBanc a termination fee of $500,000 in cash plus all of
GrandBanc's out of pocket expenses if the merger agreement is terminated by
GrandBanc as described in paragraph (c) above.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
When you consider the GrandBanc Board's recommendation that GrandBanc
stockholders vote in favor of the merger, you should be aware that a number of
GrandBanc's executive officers and directors may have interests in the merger
that may be different from, or in addition to, yours. Directors of GrandBanc
will become directors of Century Bancshares or Century National Bank at the time
of the merger. The President of GrandBanc plans to terminate his employment
immediately following the merger, and will receive certain severance benefits
upon termination (see page 34).
-5-
<PAGE> 14
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 35)
The merger has been structured as a reorganization for federal income tax
purposes. Accordingly, holders of GrandBanc common stock generally will not
recognize any gain or loss for federal income tax purposes on the exchange of
their GrandBanc stock for Century stock in the merger, except for a gain or loss
recognized in connection with the receipt of cash instead of a fractional share
of Century common stock. The companies themselves, as well as holders of Century
common stock, will not recognize gain or loss as a result of the merger. It is a
condition to the obligations of Century and GrandBanc to complete the merger
that each receive a legal opinion from its outside counsel that the merger will
be a reorganization for federal income tax purposes.
The federal income tax consequences described above may not apply to some
holders of GrandBanc common stock. Your tax consequences will depend on your
personal situation. You should consult your tax advisor for a full understanding
of the tax consequences of the merger to you.
RESALE OF CENTURY SHARES RECEIVED IN THE MERGER (SEE PAGE 37)
Century has registered under the federal securities law the shares of its common
stock to be issued in the merger. Therefore, you may sell shares without
restriction unless you are considered an "affiliate" of GrandBanc or you become
an affiliate of Century. A director, executive officer or stockholder who
beneficially owns 10% or more of the outstanding shares of a company is
generally deemed to be an affiliate of that company.
If you are considered an affiliate of GrandBanc or become an affiliate of
Century, you may resell the shares of Century common stock you receive only
after the publication of financial results of at least 30 days of post merger
combined operations of Century and GrandBanc, and pursuant to an effective
registration statement under the securities laws, or pursuant to Rule 145 of the
SEC's rules, or in transactions otherwise exempt from registration under the
securities laws. Century is not obligated and does not intend to register for
resale the shares issued to affiliates of GrandBanc.
APPRAISAL RIGHTS (SEE PAGE 37)
Under Maryland law, GrandBanc stockholders may dissent from the merger and
demand the "fair value" of their shares in cash. To properly exercise this right
and avoid a waiver of this right, you must not vote your shares in favor of the
merger and you must follow the exact procedures required by Maryland law (see
Annex D).
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 125)
Once the merger occurs, GrandBanc stockholders will become stockholders of
Century. Century is a Delaware corporation governed by Delaware law and
GrandBanc is a Maryland corporation governed by Maryland law. As a result of the
merger, GrandBanc stockholders' rights as stockholders will be governed by
Delaware law and the provisions of the Certificate of Incorporation, as amended,
and Bylaws of Century. Because of the differences between the laws of the states
of Delaware and Maryland, the Certificate of Incorporation and the Bylaws of
GrandBanc and Century, GrandBanc stockholders' rights as stockholders will
change as a result of the merger.
-6-
<PAGE> 15
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following financial information to aid you in your
financial analysis of the financial aspects of the merger. This information is
only a summary and you should read it in conjunction with the consolidated
financial statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Century" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
GrandBanc" included in this joint proxy statement/prospectus.
SELECTED HISTORICAL FINANCIAL DATA OF CENTURY
The following selected historical financial data for each of the years
ended December 31, 1995 through 1999 are derived from Century's audited
consolidated financial statements. The following selected historical financial
data for the nine months ended September 30, 2000 and September 30, 1999 are
derived from the unaudited consolidated financial statements of Century and
include, in the opinion of Century's management, all adjustments (consisting
only of normal accruals) necessary to present fairly the data of such periods.
You should not rely on the nine-month information as being indicative of results
expected for the entire year or for any future interim period.
-7-
<PAGE> 16
CENTURY BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ---------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 13,159 $ 9,519 $ 13,220 $ 11,355 $ 9,209 $ 7,690 $ 7,079
Interest expense 5,670 3,595 4,996 4,537 3,765 2,776 2,562
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net interest income 7,489 5,924 8,224 6,818 5,444 4,914 4,517
Provision for credit losses 655 435 640 620 336 160 26
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net interest income after provision 6,834 5,489 7,584 6,198 5,108 4,754 4,491
for credit losses
Noninterest income 1,605 1,247 1,669 1,103 922 720 590
Noninterest expense 6,521 5,402 7,335 6,309 5,460 4,920 4,157
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income before taxes 1,918 1,334 1,918 992 570 554 924
Income taxes 671 507 729 355 234 275 311
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net income $ 1,247 $ 827 $ 1,189 $ 637 $ 336 $ 279 $ 613
---------- ---------- ---------- ---------- ---------- ---------- -----------
COMMON SHARE DATA (1):
Net income -- basic $ 0.46 $ 0.29 $ 0.42 $ 0.24 $ 0.20 $ 0.20 $ 0.53
Net income -- diluted 0.45 0.29 0.42 0.24 0.18 0.19 0.50
Book value (2) 6.23 5.63 5.76 5.40 5.29 4.85 4.68
Common shares outstanding -- end of
period 2,742,998 2,592,090 2,721,902 2,574,219 2,209,229 1,146,028 1,046,047
Weighted average common shares 2,729,180 2,833,113 2,804,994 2,632,787 1,710,316 1,371,940 1,153,943
Diluted weighted average common shares 2,751,698 2,860,925 2,832,683 2,688,583 1,852,683 1,454,483 1,213,698
BALANCE SHEET DATA:
Total assets $ 284,784 $ 201,302 $ 204,809 $ 151,350 $ 152,640 $ 107,186 $ 101,730
Investments (3) 85,043 55,940 53,144 23,385 46,632 25,631 21,690
Total loans (4) 179,684 131,648 138,076 115,231 94,171 70,676 69,204
Allowance for credit losses 1,667 1,351 1,519 1,128 887 826 740
Total deposits 215,540 137,415 153,900 126,211 129,605 90,985 90,539
Long-term debt 29,442 11,854 11,301 5,301 6,511 6,850 --
Total stockholders' equity 17,087 15,313 15,668 15,317 13,536 6,750 6,365
PERFORMANCE DATA:
Return on average total assets (5) 0.76% 0.67% 0.70% 0.44% 0.29% 0.27% 0.68%
Return on average total equity (5) 10.14 7.11 7.65 4.49 3.83 4.20 11.49
Net interest margin (5) 4.90 5.12 5.15 5.07 5.17 5.74 5.42
Loans to deposits 83.4 95.8 89.7 91.3 72.7 77.7 76.4
ASSET QUALITY RATIOS:
Nonperforming assets to total assets 0.41% 0.38% 0.25% 1.02% 0.49% 0.30% 0.49%
Nonperforming loans to total loans 0.66 0.58 0.37 1.34 0.74 0.46 0.45
Net loan charge-offs to average loans(5) 0.45 0.23 0.21 0.38 0.36 0.10 0.04
Allowance for credit losses to total
loans 0.93 1.03 1.10 0.98 0.94 1.17 1.07
Allowance to nonperforming loans 142 178 295 73 127 257 240
CAPITAL RATIOS:
Tier I risk based capital 8.70% 10.10% 9.74% 11.60% 12.27% 8.99% 9.22%
Total risk based capital 11.05 11.07 10.79 12.56 13.19 10.13 10.34
Tier I leverage 7.29 8.57 7.64 9.46 8.83 6.35 6.80
</TABLE>
------------
(1) Per share data has been adjusted to reflect five percent common stock
dividends in 1999, 1998, 1997 and 1995, a seven percent common stock
dividend in 1996, and retroactively restated to reflect the five percent
common stock dividend 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, at
period end.
(3) Investments include federal funds sold and interest-bearing deposits in
other financial institutions.
(4) Net of unearned income.
(5) Annualized for interim periods.
-8-
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA OF GRANDBANC
The following selected historical financial data for each of the years
ended December 31, 1995 through 1999 are derived from GrandBanc's audited
consolidated financial statements. The following selected historical financial
data for the nine months ended September 30, 2000 and September 30, 1999 are
derived from the unaudited consolidated financial statements of GrandBanc and
include, in the opinion of GrandBanc's management, all adjustments (consisting
only of normal accruals) necessary to present fairly the data of such periods.
You should not rely on the nine-month information as being indicative of results
expected for the entire year or for any future interim period.
-9-
<PAGE> 18
GRANDBANC, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
-------------------------------
(Unaudited)
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 6,457 $ 6,470
Interest expense 3,499 3,414
---------- -----------
Net interest income 2,958 3,056
Provision for credit losses 60 189
---------- -----------
Net interest income after provision
for credit losses 2,898 2,867
Noninterest income 561 434
Noninterest expense 3,327 3,566
---------- -----------
Income (loss) before taxes 132 (265)
Income taxes (benefits) 53 (100)
---------- -----------
Net income (loss) $ 79 $ (165)
---------- -----------
COMMON SHARE DATA:
Net income (loss)-basic $ 0.02 $ (0.04)
Net income (loss)-diluted 0.02 0.04)
Book value (2) 1.54 1.56
Common shares outstanding-end of
Period 4,049,665 4,049,590
Weighted average common shares 4,049,590 4,049,590
Diluted weighted average common
Shares 4,223,165 4,241,000
BALANCE SHEET DATA:
Total assets $ 114,534 $ 118,465
Investments 42,405 46,221
Total loans 60,364 58,231
Allowance for loan losses 646 679
Total deposits 100,544 102,696
Long-term debt -- --
Total stockholders' equity 6,244 6,304
PERFORMANCE DATA:
Return on average total assets (3) 0.09% (0.19)%
Return on average total equity (3) 1.79 (3.10)
Net interest margin (3) 3.75 3.77
Loans to deposits 60.0 56.7
ASSET QUALITY RATIOS:
Nonperforming assets to total
assets 0.10% 0.33%
Nonperforming loans to total loans -(4) 0.47
Net loan charge-offs to average
loans (3) 0.23 1.00
Allowance for credit losses to total
loans 1.07 1.17
Allowance to nonperforming loans N/A (4) 247
BANK CAPITAL RATIOS: (5)
Tier I risk based capital 10.76% 10.24%
Total risk based capital 11.67 11.18
Tier I leverage 7.11 6.54
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 (1) 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 8,613 $ 8,209 $ 8,107 $ 4,804 $ 3,488
Interest expense 4,567 4,018 4,130 2,061 1,107
----------- ---------- ----------- ----------- -----------
Net interest income 4,046 4,191 3,977 2,743 2,381
Provision for credit losses 269 10 1,209 (35) (30)
----------- ---------- ----------- ----------- -----------
Net interest income after provision
for credit losses 3,777 4,181 2,768 2,778 2,411
Noninterest income 610 638 646 520 442
Noninterest expense 4,823 4,567 4,621 3,085 2,577
----------- ---------- ----------- ----------- -----------
Income (loss) before taxes (436) 252 (1,207) 213 276
Income taxes (benefits) (166) 153 (2,057) 5 --
----------- ---------- ----------- ----------- -----------
Net income (loss) $ (270) $ 99 $ 850 $ 208 $ 276
----------- ---------- ----------- ----------- -----------
COMMON SHARE DATA:
Net income (loss)-basic $ (0.07) $ 0.02 $ 0.21 $ 0.06 $ 0.09
Net income (loss)-diluted (0.07) 0.02 0.21 0.06 0.09
Book value (2) 1.44 1.90 1.85 1.53 1.15
Common shares outstanding-end of
Period 4,049,590 4,049,590 4,040,915 3,925,499 3,258,833
Weighted average common shares 4,049,590 4,048,829 4,026,293 3,446,961 3,242,665
Diluted weighted average common
Shares 4,049,590 4,080,063 4,058,148 3,490,115 3,262,332
BALANCE SHEET DATA:
Total assets $ 117,267 $ 109,673 $ 103,872 $ 101,125 $ 40,678
Investments 44,967 34,080 14,365 16,478 8,027
Total loans 58,993 61,300 77,446 73,724 29,812
Allowance for loan losses 690 927 1,702 1,016 748
Total deposits 101,256 96,725 88,698 91,283 36,671
Long-term debt 193 200 1,500 1,500 --
Total stockholders' equity 5,812 7,687 7,485 6,021 3,740
PERFORMANCE DATA:
Return on average total assets (3) (0.23)% 0.10% 0.84% 0.34% 0.65%
Return on average total equity (3) (3.91) 1.28 14.74 4.30 7.88
Net interest margin (3) 3.74 4.48 4.21 4.85 6.11
Loans to deposits 58.3 63.3 87.3 80.8 81.3
ASSET QUALITY RATIOS:
Nonperforming assets to total
assets 0.60% 0.83% 4.06% 2.24% 3.98%
Nonperforming loans to total loans 1.00 0.87 3.60 1.75 1.56
Net loan charge-offs to average
loans (3) 0.87 1.07 0.70 (0.19) (0.25)
Allowance for credit losses to total
loans 1.17 1.51 2.20 1.38 2.51
Allowance to nonperforming loans 117 173 75 100 161
BANK CAPITAL RATIOS: (5)
Tier I risk based capital 10.09% 10.73% 8.75% 9.00% 14.65%
Total risk based capital 11.01 12.02 10.02 10.25 15.90
Tier I leverage 6.40 7.56 7.29 6.80 9.36
</TABLE>
------------
(1) Reflects the purchase and assumption on September 30, 1996 of $36.7 million
in loans, $1.3 million in premises and equipment, and $60.0 million of deposits
associated with the Alexandria branch of First Commonwealth Savings Bank,
F.S.B.. A deposit intangible of $1.1 million and goodwill of $364 thousand were
recorded in the transaction.
(2) Based upon stockholders' equity divided by the number of common shares
outstanding at period-end.
(3) Annualized for interim periods.
(4) No loans were nonperforming at September 30, 2000.
(5) Ratios shown are for GrandBank.
-10-
<PAGE> 19
SUMMARY OF HISTORICAL AND PRO FORMA PER SHARE SELECTED FINANCIAL DATA
Set forth below are the basic earnings, diluted earnings, cash dividends
and book value per common share data for Century and GrandBanc on a historical
basis, on a pro forma combined basis, and on a pro forma combined basis per
GrandBanc equivalent share. Also included are weighted average shares
outstanding (diluted), shares outstanding at end of period, weighted average
shares outstanding (basic), net income and ending equity for Century and
GrandBanc on a historical basis and on a pro forma basis. The exchange ratio for
the merger is 0.3318 shares of Century common stock for each share of GrandBanc.
The pro forma data was derived by combining the historical consolidated
financial information of Century and GrandBanc using the pooling of interests
method of accounting for business combinations. Per share data for Century has
been adjusted to reflect five percent common stock dividends in 1999, 1998 and
1997 and retroactively restated to reflect the five percent common stock divided
declared on February 18, 2000.
The GrandBanc pro forma equivalent share information shows the effect of
the merger from the perspective of an owner of GrandBanc stock. The information
was computed by multiplying the pro forma information by an exchange ratio of
0.3318.
You should read the information below together with historical financial
statements and related notes and other information included and incorporated by
reference in this joint proxy statement/prospectus. The unaudited pro forma
combined data below is for illustrative purposes only. The companies may have
performed differently had they always been combined. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger, nor should you rely on the
nine-month information as being indicative of results expected for the entire
year or for any future interim period.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------------------------
2000 1999 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Century historical $ 0.46 $ 0.42 $ 0.24 $ 0.20
GrandBanc historical 0.02 (0.07) 0.02 0.21
Pro forma combined 0.33 0.22 0.19 0.39
Pro forma equivalent per common share of GrandBanc 0.11 0.07 0.06 0.13
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Century historical $ 0.45 $ 0.42 $ 0.24 $ 0.18
GrandBanc historical 0.02 (0.07) 0.02 0.21
Pro forma combined 0.32 0.22 0.18 0.37
Pro forma equivalent per common share of GrandBanc 0.11 0.07 0.06 0.12
CASH DIVIDENDS PER COMMON SHARE
Century historical -- -- -- --
GrandBanc historical -- -- -- --
Pro forma combined -- -- -- --
Pro forma equivalent per common share of GrandBanc -- -- -- --
BOOK VALUE PER COMMON SHARE
Century historical $ 6.23 $ 5.76 $ 5.40 $ 5.29
GrandBanc historical 1.54 1.44 1.90 1.85
Pro forma combined 5.71 5.28 5.87 5.92
Pro forma equivalent per common share of GrandBanc 1.89 1.75 1.95 1.96
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC
Century historical 2,729,180 2,804,994 2,632,787 1,710,316
</TABLE>
-11-
<PAGE> 20
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------------------------
2000 1999 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
GrandBanc historical 4,049,590 4,049,590 4,048,829 4,026,293
Pro forma combined 4,072,834 4,148,648 3,976,188 3,046,240
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED
Century historical 2,751,698 2,832,683 2.688,583 1,852,683
GrandBanc historical 4,223,165 4,049,590 4,080,063 4,058,148
Pro forma combined 4,152,944 4,176,337 4,042,348 3,199,177
COMMON SHARES OUTSTANDING AT END OF PERIOD
Century historical 2,742,998 2,721,902 2,574,219 2,209,229
GrandBanc historical 4,049,665 4,049,590 4,049,590 4,040,915
Pro forma combined 4,086,677 4,065,556 3,917,873 3,550,005
</TABLE>
COMPARATIVE PER SHARE DATA
The following table summarizes the comparative per share data of Century
common stock and GrandBanc common stock on October 10, 2000, the business day
prior to the announcement of the merger. Because the market price of Century
common stock is subject to fluctuation, the market value of the shares of
Century common stock that holders of GrandBanc common stock would receive upon
consummation of the merger may increase or decrease prior to the receipt of such
shares following the effectiveness of the merger. You should obtain current
market quotations for Century common stock.
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL PRO FORMA
-------------------------------- PER SHARE OF
CENTURY GRANDBANC GRANDBANC
----------- --------- -----------
<S> <C> <C> <C>
Market value per share $6.5312 (1) $1.125 (1) $2.167 (2)
</TABLE>
-------------
(1) Represents the closing price on October 10, 2000.
(2) Calculated by multiplying Century's per share closing price by the exchange
ratio of 0.3318.
-12-
<PAGE> 21
RISK FACTORS
An investment in Century's common stock in connection with the merger
involves certain risks. In considering the proposal to approve the merger or the
issuance of shares, you should carefully consider the following risk factors in
addition to the other information contained in this joint proxy
statement/prospectus.
CENTURY MAY BE UNABLE TO MANAGE THE NEW ASSETS IT ACQUIRES.
As a result of the merger, Century's total assets will increase by
approximately 40% or $115 million (based on September 30, 2000 balance sheet
data). Century's ability to integrate GrandBanc into Century's operations
successfully depends on its ability to
- monitor operations,
- control costs,
- maintain positive customer relations,
- maintain regulatory compliance, and
- attract, assimilate and retain qualified personnel.
If Century fails to successfully integrate GrandBanc's operations with its
own operations, Century may experience interruptions in its business which may
have a material adverse impact on its business, financial condition or results
of operations. The significant integration issues that Century must address
include
- consolidation of data processing operations,
- combination of employee benefit plans,
- creation of joint account and lending products, and
- development of unified marketing plans.
Successful integration of these operations could be more expensive than
anticipated. During the integration process, other parts of Century's operations
could be adversely affected as a result of the diversion of management's
attention. The failure to integrate GrandBanc's operations successfully may also
effect Century's ability to operate Century Bank in a manner consistent with
safe and sound banking practices.
GRANDBANC SUSTAINED LOSSES DURING 1999.
During 1999, GrandBanc sustained a net loss before income tax benefit of
$436,287, and a net loss after income tax benefit of $270,120. On a pro forma
basis for 1999, Century's net income would have been reduced from $1,189,000 to
$919,000 as a result of losses incurred by GrandBanc during that year. See
"Unaudited Pro Forma Condensed Combined Financial Statements" on page 40.
Although GrandBanc has reported profits during the first nine months of 2000, we
cannot assure you that these improving trends will continue. Should GrandBanc
operations cease to be profitable in 2001, Century's operations could be
adversely affected.
Some of the risks involved with the proposed acquisition of GrandBanc
which could result in future losses, include
- changes in results of operations or cash flows,
- unforseen liabilities related to the acquired company or arising
from the acquisition,
- adverse personnel relations,
- loss of customers due to the company's identity change, and
- deterioration in the local economic conditions.
CENTURY WILL ASSUME APPROXIMATELY $2.25 MILLION OF DEBT SECURED BY THE STOCK OF
GRANDBANK.
GrandBanc currently is indebted to a commercial bank in the amount of
$2.25 million. This loan is secured by the pledge of all of the stock of
GrandBank, and matures June 30, 2001. Upon completion of the merger, Century,
through one of its subsidiaries, will become responsible for the repayment of
the loan. The ability of the Century subsidiary to repay the
-13-
<PAGE> 22
loan will be dependent upon the ability of GrandBank and Century National Bank
to pay dividends. The regulatory requirements applicable to Century National
Bank and GrandBank place certain restrictions on their ability to pay dividends.
Century National Bank is currently able, under regulatory requirements, to
pay approximately $3.1 million in dividends without approval of the regulatory
agencies. However, we cannot assure you that Century National Bank and GrandBank
will generate sufficient earnings to repay the loan, or that ability of Century
National Bank or GrandBank to pay dividends will not be restricted. If either of
these were to occur, Century would be required to refinance the indebtedness. We
cannot assure you that additional financing would be available. A default in
payment of the indebtedness, or other default under the loan documents, could
result in foreclosure by the lender on the stock of GrandBank, which could have
a material adverse effect on the Company's operations.
THERE IS A LIMITED MARKET FOR CENTURY'S COMMON STOCK AND THE STOCK MARKET CAN BE
VOLATILE.
Although Century's common stock is listed on the Nasdaq SmallCap Market,
there is currently only a limited trading market for Century's common stock.
Century cannot assure you that a more active trading market will develop in the
future or that you will be able to sell the Century common stock you receive in
the merger without a delay or significant impact on the price of Century's
common stock.
The current market price of Century's common stock may fluctuate
significantly in response to various factors, including, but not limited to,
variations in annual or quarterly financial results, expansion of services by
Century or its competitors, acquisitions by Century or its competitors,
conditions in the economy in general or the banking industry in particular,
changes by financial research analysts in their estimates of the earnings of
Century or its competitors, or unfavorable publicity regarding Century or the
banking industry. In addition, the stock markets have, on occasion, experienced
price and volume fluctuations which have affected the market prices for the
securities of many companies whose shares are traded, although such fluctuations
may be unrelated to the operating performance of those companies. The limited
trading market for Century common stock may cause these fluctuations to be more
exaggerated than would occur in an active trading market.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT CENTURY'S BUSINESS.
Century's earnings are significantly dependent on its net interest income.
Net interest income is the difference between the interest income Century earns
on loans, investments and other interest-earning assets and the interest expense
incurred to fund these assets. Therefore, any change in general market interest
rates, such as a change in the monetary policy of the Board of Governors of the
Federal Reserve System or otherwise, can have a significant effect on net
interest income. Century's assets and liabilities may react differently to
changes in overall market rates or conditions because there may be mismatches
between the repricing or maturity characteristics of the assets and liabilities.
As a result, a rapid increase or decrease in market interest rates could have an
adverse impact on Century's net interest margin and results of operations.
CENTURY'S OFFICERS AND DIRECTORS WILL OWN A SUBSTANTIAL NUMBER OF SHARES AFTER
THE MERGER AND COULD EXERT SIGNIFICANT INFLUENCE ON MATTERS SUBMITTED TO ITS
STOCKHOLDERS.
After completion of the merger, some of GrandBanc's directors and
principal stockholders will become directors and principal stockholders at
Century and/or entities affiliated with Century. Together with Century's current
executive officers, directors and principal stockholders, they will beneficially
own approximately 28% of the outstanding shares of Century common stock. As a
result, these stockholders, if they act together, could significantly influence
the outcome of matters submitted to the stockholders for a vote, including the
election of directors, the approval of mergers and other business.
-14-
<PAGE> 23
LOSS OF CENTURY'S PRESIDENT OR OTHER EXECUTIVE OFFICERS COULD ADVERSELY AFFECT
ITS BUSINESS.
Century's success is dependent upon the continued service and skills of
its executive officers and senior management. If Century loses the services of
these key personnel, it could have a negative impact on Century's business
because of their skills, years of industry experience and the difficulty of
promptly finding qualified replacement personnel. The services of Joseph S.
Bracewell, Century's President and the President and Chief Executive Officer of
Century National Bank, would be particularly difficult to replace. Century and
Mr. Bracewell are parties to an Employment Agreement providing for his continued
employment by Century through August, 31, 2001.
CENTURY AND CENTURY NATIONAL BANK OPERATE IN A HIGHLY REGULATED ENVIRONMENT.
Century and Century National Bank operate in a highly regulated
environment and are subject to supervision and examination by various regulatory
agencies. As a bank holding company, Century is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System. Century
National Bank, as a national banking association, is subject to regulation and
supervision by the Office of the Comptroller of the Currency, and as a result of
the insurance it has on its deposits, by the Federal Deposit Insurance
Corporation.
Federal laws and regulations govern numerous matters, including:
- adequate capital and financial condition,
- permissible types, amounts and terms of extensions of credit and
investments,
- permissible non-banking activities, and
- restrictions on dividend payments.
The federal banking regulators have extensive discretion and power to
prevent or remedy unsafe or unsound practices or violations of law by banks and
bank holding companies. Century and Century National Bank undergo periodic
examinations by federal bank regulatory agencies. Following such examinations,
Century may be required, among other things, to change its asset valuations or
the amounts of required loss allowances or to restrict its operations. Such
actions would result from the regulators' judgments based on information
available to them at the time of their examination. In addition, Century is
required to serve as a source of financial strength to Century National Bank,
which could result in a decrease of available funds for dividends to Century
stockholders. Century National Bank's operations are also subject to a wide
variety of state and federal consumer protection and similar statutes and
regulations. Such federal and state regulatory restrictions limit the manner in
which Century and Century National Bank may conduct business and obtain
financing. Those laws and regulations can and do change significantly from time
to time, and any such change could adversely affect Century's business.
CENTURY OPERATES IN A HIGHLY COMPETITIVE MARKET.
There is significant competition in the Washington, DC metropolitan area
and elsewhere in the United States for banking customers and Century's profit
depends primarily upon its ability to compete in its market areas. Century
experiences competition from commercial banks, savings banks, savings and loan
associations, credit unions, finance companies, mutual funds, investment banking
firms and certain other nonfinancial entities, including retail stores which
have their own credit programs and governmental organizations which may offer
more favorable financing than it can. Many of Century's competitors have greater
financial strength, marketing capability and name recognition than it does, and
operate on a regional or nationwide basis. In addition, recent developments in
technology and mass marketing have permitted larger companies to market loans
more aggressively to Century's small business customers. Such advantages may
enable Century's competitors to realize greater economies of scale and operating
efficiencies than Century can. Century can provide no assurance that it will be
able to compete effectively against such competition.
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<PAGE> 24
DIVIDEND PAYMENTS BY CENTURY NATIONAL BANK TO CENTURY AND BY CENTURY TO ITS
STOCKHOLDERS CAN BE RESTRICTED.
Century 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,
Century's earnings, the general economic and regulatory climate, Century's
liquidity and capital requirements, and other factors deemed relevant by
Century's Board of Directors. Federal Reserve Board policy limits the payment of
cash dividends by bank holding companies and requires that a holding company
serve as a source of strength to its banking subsidiaries.
Century's principal source of funds to pay dividends on its common stock
is cash dividends from Century National Bank. The payment of these dividends by
Century National Bank is also restricted by federal banking laws and
regulations, including a prohibition on paying a dividend if, after paying the
dividend, Century National Bank would be "undercapitalized." In addition, the
approval of the Comptroller of the Currency is required if the total of all
dividends declared by Century National Bank in any calendar year would exceed
the total of its retained net profits for the current year plus the preceding
two years. As of September 30, 2000, an aggregate of approximately $3.1 million
was available for dividend payments from Century National Bank to Century
without regulatory approval.
CENTURY'S BUSINESS IS CONCENTRATED IN THE WASHINGTON DC METROPOLITAN AREA AND A
DOWNTURN IN THE LOCAL ECONOMY MAY ADVERSELY AFFECT ITS BUSINESS.
Substantially all of Century's business is located in Washington DC
metropolitan area, and as a result, its financial condition, results of
operations and cash flows are subject to changes in the economic condition of
that area. A prolonged period of economic recession or other adverse economic
conditions in the Washington DC metropolitan area could result in an increase in
nonpayment of loans, causing operating losses, impairing liquidity and eroding
capital. Century can provide no assurance that conditions in the Washington DC
metropolitan area economy will not deteriorate in the future and that such a
deterioration will not have a material adverse effect on Century.
THERE ARE NO ASSURANCES AS TO ADEQUACY OF THE ALLOWANCE FOR CREDIT LOSSES.
Century believes that its allowance for credit losses is maintained at a
level adequate to absorb any inherent losses in its loan portfolio. Management
establishes the allowance based upon historical loan loss experience, industry
diversification of the commercial loan portfolio, the effect of changes in the
local real estate market on collateral values, the amount of nonperforming loans
and related collateral security, current economic conditions that may affect the
borrower's ability to pay and value of collateral, volume, growth and
composition of the loan portfolio, the semi-annual external loan review, and
other factors management believes are relevant. These determinations are based
upon estimates that are inherently subjective and their accuracy depends on the
outcome of future events. Ultimate losses may differ from current estimates.
Depending on changes in economic, operating and other conditions, including
changes in interest rates, that are generally beyond its control, Century's
actual loan losses could increase significantly. As a result, such losses could
exceed Century's current allowance estimates. Century can provide no assurance
that its allowance is sufficient to cover actual loan losses should such losses
differ from our current estimates.
In addition, federal regulators, as an integral part of their respective
supervisory functions, periodically review Century's allowance for credit
losses. Such regulatory agencies may require Century to increase its allowance
for loan losses or to recognize further loan charge-offs, based upon judgments
different from those of management. Any increase in its allowance required by
these regulatory agencies could have a negative effect on Century.
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<PAGE> 25
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by Century contained in
this joint proxy statement/prospectus that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve a number of risks and uncertainties. The important factors that could
cause actual results to differ materially from the forward-looking statements
include, without limitation:
THE MERGER
- The ability to fully realize cost savings (including GrandBanc tax
loss carryforwards) from the merger in the expected time frame;
- Greater than expected costs of integrating GrandBanc into Century;
and
- Unexpected levels of losses of customers, deposits, or revenues.
INTEREST RATES AND ECONOMY
- Changes in interest rates and economic conditions;
- Changes in the levels of loan prepayments and the resulting effects
on the value of Century's loan portfolio;
- Changes in local economic and business conditions adversely
affecting Century's borrowers and their ability to repay their loans
according to their terms or the value of the related collateral; and
- Changes in local economic and business conditions adversely
affecting Century's customers other than borrowers and their ability
to transact profitable business with Century.
COMPETITION AND PRODUCT AVAILABILITY
- Increased competition for deposits and loans adversely affecting
rates and terms; and
- Various strategic alternatives that Century considers from time to
time, including acquisitions of other depository institutions, their
assets or their liabilities on favorable terms, and Century's
successful integration of any such acquisitions.
ASSET MANAGEMENT
- Increased credit risk in Century's assets and increased operating
risk caused by a material change in commercial, consumer and/or real
estate loans as a percentage of the total loan portfolio;
- The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses; and
- Incurrence of higher-than-anticipated loan losses at GrandBanc after
the merger.
LIQUIDITY AND CAPITAL
- Changes in the availability of funds resulting in increased costs or
reduced liquidity;
- Changes in Century's ability to pay dividends on its common stock;
and
- Increased asset levels and changes in the composition of assets and
the resulting impact on Century's capital levels and regulatory
capital ratios.
SYSTEMS
- Century's ability to acquire, operate and maintain cost effective
and efficient systems; and
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<PAGE> 26
- Unexpectedly difficult or expensive but necessary technological
changes.
PERSONNEL
- The loss of senior management or operating personnel and the
potential inability to hire qualified personnel at reasonable
compensation levels.
TAX, REGULATORY, COMPLIANCE AND LEGAL
- Changes in applicable statutes and government regulations or their
interpretations; claims of Century's noncompliance with statutory
and regulatory requirements; and changes in the status of litigation
to which Century is a party.
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<PAGE> 27
INFORMATION ABOUT THE MEETINGS AND VOTING
Century's Board is using this joint proxy statement/prospectus to solicit
proxies from the Stockholders of record as of December -, 2000 of Century common
stock for use at the Century meeting. GrandBanc's Board is also using this
document to solicit proxies from the Stockholders of record as of December -,
2000 of GrandBanc common stock for use at the GrandBanc meeting. We are first
mailing this joint proxy statement/prospectus and accompanying form of proxy to
Century and GrandBanc stockholders on or about -, 2001.
In this joint proxy statement/prospectus, we refer to the Agreement and
Plan of Merger dated as of October 11, 2000 among Century, its wholly owned
subsidiary formed for the merger, and GrandBanc as the merger agreement. Proxies
may be voted on other matters that may properly come before the Century meeting,
if any, at the discretion of the proxy holders. The Century and GrandBanc Boards
know of no such other matters except those incidental to the conduct of the
meetings. A copy of the merger agreement is attached as Annex A.
MATTERS RELATING TO THE MEETINGS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CENTURY MEETING GRANDBANC MEETING
--------------------------------------------------------------------------------
<S> <C> <C>
TIME AND PLACE: -, 2001 -, 2001
2:00 p.m., Eastern Time 10:00 a.m., Eastern Time
- [location] - [location]
--------------------------------------------------------------------------------
PURPOSE OF The approval of the issuance Approval of the merger
MEETING IS TO of approximately 1,397,430 agreement, pursuant to which
VOTE ON THE shares of Century's common GrandBanc will become a
FOLLOWING ITEMS: stock in connection with the wholly owned subsidiary of
proposed merger pursuant to Century.
which GrandBanc will become a
wholly owned subsidiary of
Century.
--------------------------------------------------------------------------------
REQUIRED VOTE: Approval of the issuance of Approval of the merger
shares in connection with the agreement requires the
merger agreement requires the affirmative vote of the
affirmative vote of a majority holders of two-thirds of the
of the shares present and outstanding shares entitled
entitled to vote on the to vote on the matter.
matter.
--------------------------------------------------------------------------------
RECORD DATE: The record date for shares The record date for shares
entitled to vote is the close entitled to vote is the
of business on December -, close of business on
2000. December -, 2000.
--------------------------------------------------------------------------------
OUTSTANDING As of December -, 2000, there As of December -, 2000,
SHARES HELD ON were - shares of Century there were - shares of
RECORD DATE: common stock outstanding. GrandBanc common stock
outstanding.
--------------------------------------------------------------------------------
SHARES ENTITLED Shares entitled to vote are Shares entitled to vote are
TO VOTE: Century common stock held at GrandBanc common stock held
the close of business on the at the close of business on
record date, December -, 2000. the record date, December -,
2000.
--------------------------------------------------------------------------------
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C> <C>
Each share of Century common Each share of GrandBanc
stock that you own entitles common stock that you own
you to one vote. entitles you to one vote.
Shares held by Century in its Shares held by GrandBanc in
treasury are not voted. its treasury are not voted.
--------------------------------------------------------------------------------
QUORUM A quorum of stockholders is A quorum of stockholders is
REQUIREMENTS: necessary to hold a valid necessary to hold a valid
meeting. meeting.
The presence in person or by The presence in person or by
proxy at the meeting of proxy at the meeting of
holders of shares representing holders of shares
a majority of the shares of representing a majority of
the Century common stock the shares of the GrandBanc
outstanding and entitled to common stock outstanding and
vote at the meeting is a entitled to vote at the
quorum. Abstentions and meeting is a quorum.
broker "non-votes" count as Abstentions and broker
present for establishing a "non-votes" count as present
quorum. Shares held by for establishing a quorum.
Century in its treasury do not Shares held by GrandBanc in
count toward a quorum. its treasury do not count
toward a quorum.
--------------------------------------------------------------------------------
BROKER-NON-VOTES: The proposal to approve the The proposal to adopt the
issuance of shares is a merger agreement is a
"nondiscretionary" item, "non-discretionary" item,
meaning that brokerage firms meaning that brokerage firms
cannot vote shares in their cannot vote shares in their
discretion on behalf of a discretion on behalf of a
client if the client has not client if the client has not
given voting instructions. given voting instructions.
Accordingly, broker non-vote Accordingly, broker non-vote
shares will not be counted as shares will not be counted
votes cast on that proposal. as votes cast on that
Shares with respect to which proposal. Shares with
proxies have been marked as respect to which proxies
abstentions also will not be have been marked as
counted as votes cast on that abstentions also will not be
proposal. counted as votes cast on
that proposal.
--------------------------------------------------------------------------------
AS OF NOVEMBER 796,833 shares of Century 1,420,005 shares of
30, 2000, common stock, excluding GrandBanc common stock,
DIRECTORS AND exercisable options. These excluding exercisable
EXECUTIVE shares represent in total options. These shares
OFFICERS approximately 29% of the represent in total
BENEFICIALLY voting power of Century's approximately 35% of the
OWN: voting securities, voting voting power of GrandBanc's
together as a single class. voting securities, voting
together as a single class.
These individuals have signed
an agreement to vote in favor These individuals have
of the issuance of the shares signed an agreement to vote
of Century's common stock in in favor of the merger, and
connection with the proposed against approval of any
merger, and against approval proposal made in opposition
of any proposal made in to or competition with such
opposition to or competition proposal.
with such proposal.
--------------------------------------------------------------------------------
</TABLE>
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<PAGE> 29
VOTING AND REVOCATION OF PROXIES
The shares of Century and GrandBanc common stock represented by properly
completed proxies received at or before the time for the meeting (or any
adjournment) will be voted as directed by the respective stockholders unless the
proxies are revoked as described below. If no instructions are given, executed
proxies will be voted "FOR" approval of the issuance of shares in connection
with the merger agreement or "FOR" the approval of the merger agreement, as the
case may be, and executed but unmarked proxies will be voted "FOR" approval of
the issuance of shares or the approval of the merger, as the case may be. If any
other matters are properly presented at the meeting and voted upon, the proxies
solicited hereby will be voted on those matters at the discretion of the proxy
holders named therein.
You may revoke any proxy given pursuant to this solicitation at any time
before it is voted. Proxies may be revoked by:
- filing with the Secretary of Century if you are a Century
stockholder, or with the Secretary of GrandBanc if you are a
GrandBanc stockholder, at or before the taking of the vote at the
special meeting, a written notice of revocation bearing a later date
than the revoked proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary before the taking of the vote at the
special meeting or submitting a later-dated proxy; or
- attending the special meeting and voting in person, although
attendance at the special meeting will not by itself constitute a
revocation of a proxy. If your shares are not registered in your
name, you will need additional documentation from your record holder
to vote the shares in person.
You should send any written notice of revocation or subsequent proxy to
the appropriate address below, Attention: Secretary, or hand deliver it to the
Secretary at or before the taking of the vote at the special meeting.
Century Bancshares, Inc. GrandBanc, Inc.
1275 Pennsylvania Ave, NW 1800 Rockville Pike
Washington, DC 20004 P.O. Box 2022
Rockville, Maryland 20852
If you have instructed a broker to vote your shares, you must follow
directions received from the broker in order to change your vote or to vote at
the special meeting.
SOLICITATION OF PROXIES; EXPENSES
In connection with the Century and GrandBanc special meetings, proxies are
being solicited by, and on behalf of, the Century and GrandBanc Boards,
respectively. Each company will bear the cost of soliciting proxies from its
stockholders. In addition to solicitation by mail, proxies may be solicited from
stockholders by directors, officers and employees of each company in person or
by telephone, facsimile or other means of communication. These directors,
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with the
solicitation. Arrangements will be made with brokerage houses, custodians,
nominees and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares and Century and GrandBanc, respectively, will
reimburse them for their reasonable expenses incurred in forwarding the
materials.
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<PAGE> 30
APPRAISAL RIGHTS FOR GRANDBANC STOCKHOLDERS
If the merger agreement is approved and adopted by the GrandBanc
stockholders, holders of GrandBanc common stock who make a written objection to
the merger at or prior to the GrandBanc special meeting, do not vote in favor of
approval and adoption of the merger agreement, and properly make a written
demand for payment following notice of the merger will be entitled to receive
the fair value of their shares in cash under the Maryland General Corporation
Law. The text of this law is attached to this joint proxy statement/prospectus
as Annex D.
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<PAGE> 31
THE MERGER
GENERAL
Century's Board is using this joint proxy statement/prospectus to
solicit proxies from the holders of Century common stock for use at the Century
meeting. GrandBanc's Board is also using this document to solicit proxies from
the holders of GrandBanc common stock for use at the GrandBanc meeting.
PROPOSALS
At the Century meeting, holders of Century common stock will be asked
to vote upon the issuance of Century common stock in connection with the
Agreement and Plan of Merger dated as of October 11, 2000 among Century,
GrandBanc and a wholly owned subsidiary or Century.
At the GrandBanc meeting, holders of GrandBanc common stock will be
asked to vote upon the approval and adoption of the merger agreement and the
merger, pursuant to which GrandBanc will become a wholly owned subsidiary of
Century.
CENTURY'S BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE CENTURY
BOARD
The strategy of the Century Board for building long-term value for
Century stockholders includes, in part, significantly increasing its overall
size in terms of loans and deposits, as well as expanding Century's branch
network to include a physical presence in each of the major commercial
sub-markets around the Washington, D.C. metropolitan area. Pursuant to this
strategy, management of Century continually explores and evaluates acquisition
opportunities, including acquisitions of loan portfolios, branch offices with
existing deposit accounts, and whole-bank acquisitions.
Century initiated contact with GrandBanc in early 1999, and entered
into a Confidentiality Agreement on April 26, 1999, to facilitate the mutual
review of certain confidential information as a basis for exploring a possible
merger of the two organizations. A due diligence process ensued which, together
with on-going negotiations regarding the terms and conditions of a possible
merger, continued through July 1999. At that time, the Century Board determined
that a continuation of negotiations along the lines then being discussed by the
parties would not be in the long-term best interest of the stockholders of
Century because of the potential for significant dilution to the book value and
projected earnings per share of Century common stock.
Approximately one year later, Century renewed its contact with
GrandBanc, in hopes that Century's own financial performance during the interim
period (including increased earnings, the Dumfries branch acquisition, and the
pending Reston branch acquisition) would cause the perceived long-term value of
Century common stock to be greater in the eyes of the GrandBanc Board, thereby
enabling an acquisition to be negotiated on terms which would be less dilutive
to existing Century stockholders. As a result of this contact, GrandBanc and
Century conducted due diligence and commenced extensive negotiations in
September, 2000. On October 11, 2000, Century and GrandBanc entered into a
merger agreement.
Century considered several factors in arriving at its decision to
approve the acquisition of GrandBanc. It did not assign any relative or specific
weights to the factors considered. Such factors included, without limitation,
(a) the fact that GrandBanc's five branches are attractive and well located
within markets previously identified as targets of expansion by Century, (b) the
fact that GrandBanc's relatively low loan to deposit ratio affords Century an
opportunity to enhance earnings through Century's loan generation capability,
(c) the potential to reduce combined operating expenses through the elimination
of redundant facilities, services, and personnel, (d) the expansion of goodwill
and market share through the addition of GrandBanc's 9,000 customers acquired
over its twenty-one year business
-23-
<PAGE> 32
history in the Washington, D.C. metropolitan area, (e) the potential business
development capability of GrandBanc's directors who will become Board members of
Century and/or Century National Bank, and (f) the financial presentation of
Friedman, Billings, Ramsey & Co, Inc., Century's financial advisor, at Century's
Board meeting on October 6, 2000 and the opinion of such advisor that, as of the
date of such opinion, the consideration to be paid by Century in the merger is
fair, from a financial point of view, to the stockholders of Century.
RECOMMENDATION OF CENTURY'S BOARD OF DIRECTORS
Century's Board of Directors unanimously recommends that its
stockholders vote "FOR" the issuance of Century shares in connection with the
merger.
GRANDBANC'S BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE
GRANDBANC BOARD
Over the last several years, the Board of Directors of GrandBanc has
periodically reviewed the future prospects for earnings and asset growth, and
the viability of continued independent operations in accordance with its
business plan, from the perspective of the long term best interests of GrandBanc
and its stockholders. In connection with such reviews, it has from time to time
engaged in discussions with other financial institutions, including Century,
regarding the potential affiliation of GrandBanc with another institution.
As a result of developments affecting bank mergers, including the
proposed imminent elimination of pooling of interests accounting in 2001, the
extended deflation in the market prices and price earnings multiples for
financial company stocks, and the increasing consolidation in the financial
services industry, and factors specifically affecting GrandBanc, including the
continuing difficulty of achieving asset growth sufficient to support overhead
expense and provide consistent profitability comparable to its peer
institutions, and the uncertainty caused by the need to refinance in late
October 2000 more than two million dollars of holding company debt incurred in
connection with a prior acquisition, the Board determined that it was
appropriate that confidential inquiries should be made with respect to the
possible sale of GrandBanc. In making this determination the Board considered
that these factors, as well as the reduced universe of potential acquirors,
created uncertainty as to the future ability of GrandBanc to be sold at an
attractive price. The Board also considered the illiquid market for GrandBanc
common stock and the adverse effect on the value of the common stock resulting
from the concentrated ownership of the common stock, as well as factors relating
to the continued ability of GrandBanc to compete effectively and efficiently in
the rapidly changing financial services marketplace.
In March, 2000, GrandBanc retained Hovde Financial LLC, a financial
advisory firm with extensive experience and expertise in valuing and advising
banking institutions on strategic issues, including sales of banking
institutions, to assist and advise it in exploring the sale of GrandBanc. With
the assistance of Hovde, GrandBanc identified and approached an aggregate of
twenty-one companies to determine if they had an interest in pursuing an
acquisition of GrandBanc. The companies to be approached were determined based
on (1) the likelihood of the acquiror to be interested in GrandBanc and to offer
to pay a fair price, (2) the desirability of the potential acquiror's stock
based on current pricing, earnings and growth prospects, (3) capacity to
consummate the acquisition successfully and without material negative impact on
share price or earnings, and (4) social issues regarding local autonomy,
employees, corporate culture and banking philosophy and reputation.
As a result of confidential discussions, thirteen companies expressed
an interest in receiving packages of information regarding GrandBanc. Five
indications of interest in acquiring GrandBanc were ultimately received,
including Century's. Century's indication had a value substantially in excess of
all but one of the other indications of interest received. Following
consideration of the indications received and discussions with the interested
companies, and discounting of the indication which Century's indication did not
exceed because of a course of discussions which indicated that the party was not
capable of promptly completing due diligence and negotiations, as well as
factors which GrandBanc
-24-
<PAGE> 33
believed made the Century offer more attractive, GrandBanc entered into
exclusive negotiations with Century. Extensive negotiations occurred during the
period of September 27, 2000 until October 11, 2000.
On October 10, 2000 the GrandBanc Board met with representatives of
Hovde and counsel to consider the proposed merger and the form of definitive
agreement and related documents which had been negotiated. Following a lengthy
discussion of the status of negotiations, the structure of the transaction, the
transaction documents and other items related to the proposed merger, the Board
of Directors determined that the merger pursuant to the definitive agreement was
in the best interests of GrandBanc and its stockholders, and unanimously
approved the proposed merger, subject to the satisfactory finalization of the
merger documents, and authorized Mr. Estrin, the Chairman of the Board, and Mr.
Colliatie, President, to execute and deliver the merger documents on behalf of
GrandBanc.
GRANDBANC'S REASONS FOR THE MERGER
In reaching the conclusion that the merger agreement and the merger are
in the best interests of and advisable for GrandBanc and its stockholders, and
in approving the merger and the merger agreement, the Board of Directors of
GrandBanc considered and reviewed with senior management, as well as its
financial and legal advisors, a number of factors, including the following:
- Information regarding the business, operations, financial
condition, demographics, technological capabilities,
management, earnings and prospects of each of GrandBanc and
Century, including the prospects of an independent GrandBanc
to achieve growth in earnings and investment value equal to or
in excess of that which a combined GrandBanc/Century is
expected to achieve.
- The current financial services industry environment,
including:
- the rapid consolidation within the industry,
- the increasing use of technology-based new product
delivery systems, such as the Internet, and the
related expense and potential advantages of scale,
- increased competition,
- decline in net interest spreads and the market's
valuation of banking organizations, and
- the apparent approaching end of pooling-of-interests
accounting in 2001 which may affect market premiums
for at least some period.
- The directors' belief that the terms of the merger and the
merger agreement are fair to and in the best interests of
GrandBanc' stockholders.
- The greater market liquidity of Century common stock, which
is traded on the Nasdaq SmallCap Market, as compared to
GrandBanc common stock, which trades infrequently in the
over the counter market.
- The earnings history of Century, and the Board's belief that
the earnings of the combined company may improve at a more
rapid rate than the earnings of GrandBanc as an independent
entity.
- The analyses prepared by management and Hovde.
- The opinion of Hovde that the exchange ratio, as set out in
the merger agreement, was fair from a financial point of view
to GrandBanc' stockholders.
- The fact that the merger is intended to be generally tax-free
for federal income tax purposes and a pooling of interests for
accounting purposes.
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<PAGE> 34
The above discussion of the information and factors considered by
GrandBanc's Board of Directors is not meant to be exhaustive, but indicates the
material matters considered by the Board. In reaching its determination to
approve the merger agreement and the transactions which they contemplate, the
Board did not assign any relative or specific weight to the foregoing factors,
and individual directors may have considered various factors differently.
RECOMMENDATION OF GRANDBANC'S BOARD OF DIRECTORS
GrandBanc's Board of Directors unanimously recommends that its
stockholders vote "FOR" the merger agreement.
OPINIONS OF FINANCIAL ADVISORS
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Friedman, Billings, Ramsey & Co., Inc. (FBR) has acted as financial
advisor to Century in connection with the merger of GrandBanc into Century. FBR
is a nationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
In connection with FBR's engagement, Century requested that FBR
evaluate the fairness, from a financial point of view, to the stockholders of
Century of the consideration to be paid by Century in connection with the
proposed Merger with GrandBanc. The consideration as set forth in the Agreement
and Plan of Merger to be paid by Century to GrandBanc is 0.3318 shares of
Century Common Stock for each share of GrandBanc Common Stock (Exchange Ratio).
At a meeting of the Century Board held on October 6, 2000, FBR made a
presentation to the Century Board in which FBR analyzed the Exchange Ratio and
rendered to the Century Board an oral opinion to the effect that, as of such
date and based upon and subject to certain matters, the Exchange Ratio was fair
to the stockholders of Century from a financial point of view. On October 11,
2000 FBR confirmed its oral opinion in writing and the Century Board unanimously
approved and authorized the execution and delivery of the Merger Agreement. In
connection with this joint proxy statement/prospectus FBR has updated certain of
the analyses and reviewed the assumptions on which such analyses were based and
the factors considered in connection therewith.
In arriving at its opinion included in this joint proxy
statement/prospectus, FBR:
1. reviewed the GrandBanc Annual Reports to Stockholders for the fiscal years
ended December 31, 1999, 1998, 1997 and 1996 and the GrandBanc Annual
Reports on Form 10-KSB filed with the SEC for the fiscal years ended
December 31, 1999, 1998, 1997 and 1996;
2. reviewed the GrandBanc Quarterly Reports on Form 10-QSB filed with the SEC
for the quarters ended June 30, 2000, March 31, 2000, September 30, 1999,
June 30, 1999 and March 31, 1999;
3. reviewed the GrandBanc Annual Proxy Statements dated April 12, 2000, April
8, 1999, and March 20, 1998;
4. reviewed the internal financial statements for GrandBanc for the eight
months ended August 31, 2000, including information relating to the credit
card and loan portfolios, deposit base and branch information;
5. reviewed GrandBanc's Call Report data filed with the Federal Deposit
Insurance Corporation (FDIC) for the fiscal quarter ended June 30, 2000,
and the fiscal year ended December 31, 1999; and GrandBanc's Annual Report
of Bank Holding Companies Form FR Y-6 filed with the Federal Deposit
Insurance Corporation for the fiscal year ended December 31, 1999;
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6. reviewed the reported market prices and trading activity for Century and
GrandBanc common stock for the period January 1, 1998 through November 8,
2000;
7. compared the results of operations and financial condition of GrandBanc
with those of certain commercial banks (or their holding companies) that
FBR deemed to be reasonably comparable to GrandBanc, as the case may be;
8. reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions that FBR deemed to be reasonably comparable to
the merger;
9. reviewed the potential pro forma impact of the merger to the stockholders
of Century;
10. reviewed a copy of the merger agreement; and
11. performed such other financial analyses and reviewed and analyzed such
other information as FBR deemed appropriate, including an assessment of
general economic, market and monetary conditions.
In connection with its review, FBR did not assume any responsibility
for independent verification of any of the information provided to or otherwise
reviewed by FBR and relied upon the information being complete and accurate in
all material respects. With respect to the financial forecasts reviewed, FBR
assumed that such forecasts were reasonably prepared on bases reflecting the
currently available estimates and judgments of Century's management team as to
the future financial performance of Century and the cost savings and other
potential synergies (including the amount, timing and achievability thereof)
anticipated to result from the merger. FBR did not review individual credit
files or make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Century or GrandBanc, including loan or
lease portfolios or the allowances for losses with respect thereto. FBR also
assumed, with the consent of the management of Century, that in the course of
obtaining the necessary regulatory and third party consents for the merger, no
restriction will be imposed that will have a material adverse effect on the
contemplated benefits of the merger or the transactions contemplated thereby.
FBR's opinion was necessarily based on information available to it and
financial, stock market and other conditions as they existed and could be
evaluated on the date of its opinion. FBR expressed no opinion as to what the
value of the Century common stock actually would be when issued to GrandBanc's
stockholders pursuant to the merger or the prices at which such Century common
stock would trade subsequent to the merger. No limitations were imposed by
Century on FBR with respect to the investigation made or procedure followed
by FBR in rendering its opinion.
THE FULL TEXT OF FBR'S WRITTEN OPINION TO THE CENTURY BOARD DATED
NOVEMBER 8, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF CENTURY
COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. FBR'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW TO THE STOCKHOLDERS OF CENTURY, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE PROPOSED MERGER OR ANY RELATED TRANSACTION, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
CENTURY STOCKHOLDERS MEETING. THE SUMMARY OF THE OPINION OF FBR SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion for the Century Board, FBR performed a variety
of financial and comparative analyses, including, but not limited to, those
described below, in connection with its presentation to the Century Board on
October 6, 2000 and subsequently updated as of November 8, 2000. The summary of
FBR's analyses set forth below does not purport to be a complete description of
the analyses underlying FBR's opinion. The preparation of a fairness opinion is
a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not
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<PAGE> 36
readily susceptible to summary description. In arriving at its opinion, FBR made
qualitative judgments as to the significance and relevance of each analysis and
factor considered by it. Accordingly, FBR believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, FBR made numerous assumptions with respect to Century, GrandBanc,
industry performance, regulatory, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Century and GrandBanc. No company, transaction or business used in such analyses
as a comparison is identical to Century, GrandBanc or the merger, nor is an
evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in such analyses and the valuations
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or reflect the prices at which businesses or securities actually may
be sold. Accordingly, because such estimates are inherently subject to
substantial uncertainty, none of Century, GrandBanc, FBR or any other person
assumes responsibility for their accuracy. As described above, FBR's opinion and
financial analyses were only one of many factors considered by the Century Board
in its evaluation of the merger and should not be viewed as determinative of the
views of Century Board or management with respect to the Exchange Ratio or the
proposed merger.
The following is a summary of the material analyses performed by FBR in
connection with its opinion and financial presentations made to the Century
Board on October 6, 2000 and updated through November 8, 2000:
Introduction. FBR calculated the implied price per share, price as a
percent of book value (price/book value) and price as a percent of tangible book
value (price/tangible book value) at August 31, 2000, and the premium over
tangible book value as a percent of deposits (deposit premium) at August 31,
2000 for GrandBanc. Using the closing stock price of $6.531 for Century common
stock on October 6, 2000 and the proposed Exchange Ratio in the merger of
0.3318, the implied price per share for GrandBanc common stock equaled $2.167, a
price/book value and price/tangible book value of 142% and 167%, respectively,
and a deposit premium of 3.53%. Using the closing stock price of $6.875 for
Century common stock on November 8, 2000, the implied price per share for
GrandBanc equaled $2.28. GrandBanc recorded a net loss for the twelve months
ended August 31, 2000.
In connection with its financial analysis, FBR also considered the
impact of the merger on Century's branch franchise. The acquisition of GrandBanc
adds four branches in the Montgomery County, Maryland market and one branch in
the Alexandria, Virginia market. This acquisition serves to benefit Century's
loan/deposit ratio as well as its market share in these attractive markets. Upon
completion of the transaction, Century should have approximately $400 million in
total assets.
Comparable Transaction & Company Analysis. FBR has analyzed comparable
transactions involving the sale of banks from October 1, 1999 through November
8, 2000. The following table shows the median and average statistics for
price/book value, price/tangible book value, price to latest twelve months (LTM)
earnings (price/LTM earnings) and deposit premium for four comparable groups.
The comparable groups (collectively, the Selected Transactions Groups) are as
follows: (i) 209 nationwide bank acquisitions (Nationwide Bank Group), (ii) 55
bank acquisitions involving sellers with total assets between $75 million to
$150 million (Asset Group), (iii) 39 bank acquisitions involving sellers with
return on average assets (ROAA) of less than 0.50% (ROAA Group), and (iv) 12
acquisitions involving banks headquartered in the District of Columbia, Maryland
or Virginia (Regional Bank Group). FBR compared the median and average
statistics associated with the Selected Transactions Groups with the price/book,
price/tangible book and deposit premium ratios in the merger of 142%, 167% and
3.53%, respectively and found that the ratios associated with the merger were
significantly lower than the median
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and/or average price/book, price/tangible book and deposit premium ratios for
the Selected Transactions Groups. Since GrandBanc recorded a net loss for the
twelve months ended August 31, 2000, FBR was not able to compare the
price/earnings ratios of the Selected Transactions Groups to the merger.
ANNOUNCED BANK M&A TRANSACTIONS 10/01/99 TO 11/08/00
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
ANNOUNCED:
---------------------------------------------------------------------------------------------------------
TANGIBLE
PRICE/BOOK PRICE/ PRICE/LTM BOOK
NUMBER OF VALUE TANGIBLE BOOK EARNINGS PREMIUM/
TRANSACTIONS VALUE DEPOSITS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATIONWIDE BANK GROUP 209
---------------------------------------------------------------------------------------------------------
Average 218% 226% 21.7 x 14.64%
---------------------------------------------------------------------------------------------------------
Median 212% 225% 21.1 x 14.32%
---------------------------------------------------------------------------------------------------------
ASSET GROUP 55
---------------------------------------------------------------------------------------------------------
Average 211% 216% 22.8 x 13.36%
---------------------------------------------------------------------------------------------------------
Median 199% 200% 20.8 x 12.97%
---------------------------------------------------------------------------------------------------------
ROAA GROUP 39
---------------------------------------------------------------------------------------------------------
Average 180% 183% 37.0 x 8.77%
---------------------------------------------------------------------------------------------------------
Median 170% 175% 54.6 x 7.47%
---------------------------------------------------------------------------------------------------------
REGIONAL BANK GROUP 12
---------------------------------------------------------------------------------------------------------
Average 208% 222% 25.6 x 15.28%
---------------------------------------------------------------------------------------------------------
Median 243% 266% 26.1 x 18.13%
---------------------------------------------------------------------------------------------------------
CENTURY/ GRANDBANC 142% 167% NM 3.53%
---------------------------------------------------------------------------------------------------------
</TABLE>
Additionally, FBR reviewed the average price/book value, and
price/tangible book value, of 668 publicly traded banks on a trading basis,
using closing stock prices at November 8, 2000. The publicly traded banks'
average price/ book value and average price/tangible book value were 153% and
162%, respectively. The price/book value and price/tangible book value implied
by the Exchange Ratio in the merger compare favorably with these trading
statistics.
No company or transaction used in the above analyses as a comparison is
identical to GrandBanc, Century, or the merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
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<PAGE> 38
Contribution Analysis. The following table sets forth in tabular form a
contribution analysis as of June 30, 2000 for Century, and August 31, 2000 for
GrandBanc.
($ in thousands, except branch data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Contribution %
---------------------------
Category Century GrandBanc Total Century GrandBanc
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets 227,720 114,831 342,551 66.5% 33.5%
Total Loans 153,947 60,188 214,135 71.9% 28.1%
Total Deposits 167,754 99,868 267,622 62.7% 37.3%
Tangible Equity 14,962 5,769 20,731 72.2% 27.8%
Net Interest Income, including synergies 10,323 4,543 14,866 69.4% 30.6%
Non Interest Income 2,145 756 2,891 74.2% 25.8%
2001 Projected Net Income 2,028 950 2,978 68.1% 31.9%
Branch Offices 7 5 12 58.3% 41.7%
-------------------------------------------------------------------------------------------------------------------------
MEAN 69.3% 30.7%
-------------------------------------------------------------------------------------------------------------------------
GIVE-GET RATIO (1) 1.063
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed by dividing the proforma ownership share of GrandBanc's
stockholders in the combined company by GrandBanc's forecasted contribution to
the combined company's net income for 2001.
FBR analyzed the contribution to total assets, total loans, total
deposits, net interest income, non-interest income, tangible equity, 2001
projected net income and number of branch offices for Century and GrandBanc as
of June 30, 2000 and August 31, 2000, respectively. Century's contribution in
terms of total assets, total loans, total deposits, tangible equity at June 30,
2000 equaled approximately 66.5%, 71.9%, 62.7% and 72.2%, respectively, while
Century's contribution in terms of branch offices equaled approximately 58.3%.
Century's contribution in terms of 2001 projected net income, net interest
income and non-interest income was approximately 68.1%, 69.4% and 74.2%. Based
upon the Exchange Ratio, and a closing stock price of $6.531 for Century Common
Stock on October 11, 2000, holders of Century Common Stock would own
approximately 66% of the combined company upon consummation of the merger.
FBR also derived a give-get ratio with respect to forecasted net income
for 2001, which is the ratio of the pro forma ownership share of Grandbanc's
stockholders in the combined company, to Grandbanc's forecasted contribution to
the combined company's net income for 2001, including cost-savings and
synergies. FBR derived a give-get ratio of 1.063.
Pro Forma Merger Analysis. FBR noted that, based upon estimates
provided by management of Century and after giving effect to net pretax cost
savings estimates resulting from synergies created from the merger, revenue
enhancements and certain assumptions, the proposed merger could, at the 0.3318
Exchange Ratio, be accretive to Century's estimated earnings per share in fiscal
year 2001 by approximately 1.00% and approximately 4.81% accretive on a cash
earnings per share basis for 2001. In this analysis, FBR assumed that both
Century and GrandBanc would perform substantially in accordance with earnings
forecasts provided to FBR by management of Century. The actual results achieved
by the combined company may vary from projected results and the variations may
be material. This analysis is based on the assumption that the merger would be
accounted for as a pooling of interests.
Pursuant to the terms of FBR's engagement, Century has agreed to pay
FBR for its services in connection with the merger an aggregate financial
advisory fee of $85,000, payable as follows: (i) $29,750 upon the signing of a
definitive agreement providing for the merger; and (ii) the balance upon the
closing of Century's acquisition of GrandBanc. Century also has agreed to
reimburse FBR for its reasonable out-of-pocket expenses, including costs of
travel, meals and lodging, photocopying, telephone, facsimile and couriers. In
addition, Century has agreed to provide indemnification to FBR and its
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<PAGE> 39
affiliates against certain liabilities to which it may become subject to as a
result of its services to Century, including liabilities under securities laws.
In the ordinary course of business, FBR and its affiliates may actively
trade the equity securities of Century or GrandBanc for their own account or for
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. FBR may provide additional financial advisory and
investment banking services to Century in the future.
HOVDE FINANCIAL LLC
The full text of the fairness opinion, which sets forth, among other
things, assumptions made, matters considered and qualifications and limitations
on the review undertaken, is attached hereto as Annex C and is incorporated
herein by reference. GrandBanc's shareholders are urged to read the fairness
opinion in its entirety. The fairness opinion, which was directed to the
GrandBanc Board of Directors, addresses only the fairness to the shareholders of
GrandBanc, from a financial point of view, of the merger consideration, and does
not constitute a recommendation to any GrandBanc shareholder as to how such
shareholder should vote with respect to the merger. The fairness opinion was
rendered to GrandBanc's Board of Directors for its consideration in determining
whether to approve the merger agreement. The following summary of the fairness
opinion is qualified in its entirety by reference to the full text of the
fairness opinion.
No limitations were imposed by GrandBanc on the scope of Hovde's
investigation or the procedures to be followed by Hovde in rendering the
fairness opinion. Hovde did not make any recommendation to GrandBanc's Board of
Directors as to the form or amount of consideration to be paid by Century to
GrandBanc in connection with the merger, both of which were determined through
arm's-length negotiations between the parties. In arriving at its opinion, Hovde
did not ascribe a specific range of value to Century or GrandBanc, but rather
made its determination as to the fairness, from a financial point of view, of
the merger consideration, on the basis of the financial and comparative analyses
described below. Hovde was not requested to opine as to, and the fairness
opinion does not address, GrandBanc's underlying business decision to proceed
with or effect the merger.
During the course of the engagement, Hovde reviewed and analyzed
material bearing upon the financial and operating condition of Century and
GrandBanc and material prepared in connection with the merger, including the
following: the merger agreement; certain publicly available information
concerning Century and GrandBanc, including, as applicable: Century' and
GrandBanc's audited consolidated financial statements for each of the three
years ended December 31, 1999, and the unaudited information for the quarters
ended March 31, 2000 and June 30, 2000; documents filed with the Securities and
Exchange Commission, the FDIC, the Federal Reserve and other state or other
regulatory agencies, as applicable and/or appropriate, for the aforementioned
yearly and quarterly periods, respectively; as applicable, recent internal
reports and/or financial projections regarding Century and GrandBanc; the nature
and terms of recent sale and merger transactions involving banks and bank
holding companies that Hovde considered relevant; and financial and other
information provided to Hovde by the managements of Century and GrandBanc.
In rendering the fairness opinion, Hovde assumed and relied upon the
accuracy and completeness of the financial and other information provided to it
by GrandBanc or Century without assuming any responsibility for independent
verification of such information and further relied upon the assurances of the
managements of Century and GrandBanc that they were not aware of any facts or
circumstances that would make such information, provided by them, inaccurate or
misleading. With respect to financial statements and/or projections to the
extent such were provided by Century and GrandBanc, Hovde assumed that such
financial statements and/or projections were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
respective managements of Century and GrandBanc. Hovde assumed that the merger
will be accounted for using the pooling method of accounting. In rendering the
fairness opinion, Hovde did not conduct a physical inspection of the
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<PAGE> 40
properties and facilities of Century or GrandBanc and did not make or obtain any
evaluations or appraisals of the assets or liabilities of Century or GrandBanc.
In addition, Hovde noted that it is not an expert in the evaluation of loan
portfolios or allowances for loan, lease or real estate owned losses, and it
assumed that the allowances for loan, lease and real estate owned losses (as
currently stated or as adjusted for in connection with the merger or otherwise)
provided to it by GrandBanc and used by it in its analysis and in rendering its
fairness opinion were in the aggregate adequate to cover all such losses. The
fairness opinion was based upon market, economic and other conditions as they
existed on, and could be evaluated as of, the date the fairness opinion.
The following is a summary of the analyses Hovde performed in rendering
its fairness opinion. In connection with the preparation and delivery of the
fairness opinion to the Board of Directors of GrandBanc, Hovde performed a
variety of financial and comparative analyses, as described below. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its opinion, Hovde did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Hovde
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Hovde. Any estimates contained
in these analyses were not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the value of
businesses did not purport to be appraisals or to reflect the prices at which
businesses may actually be sold.
Merger Value Analysis. Hovde calculated the price-to-tangible book
ratio, price-to-assets ratio, and deposit premium paid (defined as the merger
value less the tangible book value of GrandBanc, divided by GrandBanc's core
deposits), in the merger using June 30, 2000 financial data for GrandBanc and
the trading value of Century common stock as of the close of trading on October
11, 2000. Based on the exchange ratio of 0.3318, the per share and aggregate
values payable to GrandBanc shareholders equates to $2.17 and $8.8 million,
respectively. This equates to a price-to-tangible book value multiple of 178.2%,
a price-to-assets ratio of 7.7% and a deposit premium of 4.5%. The
price-to-trailing earnings multiple was not calculated as GrandBanc's trailing
twelve months earnings at June 30, 2000 was negative, thus resulting in a
non-meaningful figure.
Comparable Company Analysis - Century. Using publicly available
information, Hovde compared the financial performance and stock market valuation
of Century with the following selected banking institutions with headquarters in
Maryland, Virginia and Washington, D.C. and assets between $100 and $500 million
(Comparable Bank Group) deemed relevant by Hovde: Abigail Adams, Annapolis
National, Bank of Hampton Roads, Bank of Tidewater, Bay Banks of Virginia,
Benchmark Bankshares, BOE Financial, C&F Financial, Calvin B. Taylor Bankshares,
Cardinal Bankshares, Cardinal Financial, Carrollton Bancorp, Central Virginia
Bankshares, Chesapeake Financial, Commonwealth Bankshares, Community Bankshares,
Eagle Bancorp, Eastern Virginia Bankshares, Fauquier Bankshares, First National
Corporation, Glen Burnie Bancorp, Guaranty Financial, Harbor Bank, James River
Bankshares, National Bankshares, Old Point Financial, Pinnacle Bankshares,
Resource Bankshares, Salem Community, Shore Bancshares, Shore Financial,
Southern Financial, Valley Financial, Virginia Commerce, Virginia Commonwealth
Financial, Virginia Financial, and Virginia National. Indications of such
financial performance and stock market valuation included profitability (return
on average assets and return on average equity for the latest twelve month
period ended June 30, 2000, of 0.75% and 9.50%, respectively, for Century and
averages of 0.98% and 9.21%, respectively, for the Comparable Bank Group); the
ratio of tangible equity to tangible assets (6.62% for Century and an average of
9.76% for the Comparable Bank Group); the ratio of non-performing assets to
total assets (0.67% for Century and an
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<PAGE> 41
average of 0.51% for the Comparable Bank Group); current stock price-to-earnings
for the latest twelve month period ended June 30, 2000 (12.1x for Century and an
average of 15.0x for the Comparable Bank Group); current stock price-to-tangible
book value as of June 30, 2000 (119.4% for Century and an average of 134.0% for
the Comparable Bank Group).
Because of the inherent differences in the businesses, operations,
financial conditions and prospects of GrandBanc, Century and the companies
included in the Comparable Bank Group, Hovde believed that a purely quantitative
comparable company analysis would not be particularly meaningful in the context
of the merger. Hovde believed that the appropriate use of a comparable company
analysis in this instance would involve qualitative judgments concerning the
differences between Century and the companies included in the Comparable Bank
Group that would affect the trading values of the comparable companies.
Comparable Transaction Analysis. Using publicly available information,
Hovde reviewed certain terms and financial characteristics, including historical
price-to-tangible book ratio, price-to-assets ratio, and the deposit premium
paid in prior commercial banking institution merger or acquisition transactions.
The comparable group (Comparable Transaction Group) included nationwide bank
transactions announced since January 1, 2000 with sellers with assets less than
$250 million that earned less than 0.50% on total assets. The Comparable
Transaction Group included 13 transactions. The average price-to-tangible book
value for the Comparable Transaction Group was 182.9%, and ranged from 113.1% to
316.0%. The average price-to-assets for the Comparable Transaction Group was
15.4%, and ranged from 7.4% to 23.8%. The average deposit premium for the
Comparable Transaction Group was 9.3%, and ranged from 1.5% to 20.0%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse, and because of the inherent differences
in the businesses, operations, financial conditions and prospects of GrandBanc,
Century and the companies included in the Comparable Transaction Group, Hovde
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of rendering the fairness opinion. Hovde
believed that the appropriate use of a comparable transaction analysis in this
instance would involve qualitative judgments concerning the differences between
the characteristics of these transactions and the merger, which would affect the
acquisition values of the acquired companies and GrandBanc.
Hovde is a nationally recognized investment banking firm. Hovde, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, competitive biddings, private placements and valuations for
corporate and other purposes. Pursuant to a letter agreement dated March 16,
2000 and executed by GrandBanc on March 16, 2000, between GrandBanc and Hovde,
GrandBanc engaged Hovde to advise it with respect to a potential business
combination with a transaction partner and, in the event a transaction was
consummated with a transaction partner, agreed to pay to Hovde a fee. Based upon
the terms contained in the merger agreement and as of October 9, 2000, Hovde
will be paid a fee equal to $291,337, all of which is payable upon closing of
the merger. The Hovde agreement also provides for GrandBanc to indemnify Hovde
and its affiliates against certain liabilities to which it may become subject to
as a result of its services to GrandBanc under the Hovde agreement, including
liabilities under securities laws, as well as other specified conditions.
QUORUM AND VOTES REQUIRED
CENTURY
The rules of The Nasdaq SmallCap Market require that Century obtain the
approval of its stockholders in connection with the acquisition of the stock or
assets of another company if the number of shares of common stock to be issued
will equal or exceed 20% of the number of shares of common stock outstanding
prior to the issuance of the shares. Accordingly, under Delaware law, the
approval of the
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<PAGE> 42
issuance of Century common stock in connection with the merger will require the
affirmative vote of the holders of a majority of the shares of Century common
stock outstanding and entitled to vote on the record date. See "Information
About the Meetings and Voting--Matters Related to the Meetings" on page 19 for a
description of quorum and voting requirements.
GRANDBANC
Maryland law and GrandBanc's articles of incorporation require the
approval and adoption of the merger agreement by the affirmative vote of the
holders of at least two-thirds of all the shares of stock outstanding and
entitled to vote on the record date. See "Information About the Meetings and
Voting--Matters Related to the Meetings" on page 19 for a description of quorum
and voting requirements.
INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of GrandBanc have interests in
the merger that are in addition to their interests as stockholders and
optionholders of GrandBanc and their equity interests in Century which will
result from the conversion of their shares and options in the merger. The
GrandBanc Board was aware of these interests at the time they approved the
merger agreement.
TERMINATION BENEFITS
Shortly after the effectiveness of the merger, the employment of Steven
K. Colliatie, President and Chief Executive Officer of GrandBanc and GrandBank,
is expected to be terminated in a manner which will entitle him to receive the
termination benefits provided under his existing employment agreement with
GrandBanc. As a result of termination of his employment, Mr. Colliatie will be
entitled to receive, in addition to payment for accrued but unpaid salary,
expense reimbursement and unused vacation and sick leave, an amount equal to two
times his annual salary in effect immediately prior to termination of his
employment, or $310,000 based upon his annual salary as in effect as of the date
of this joint proxy statement/prospectus, payable in a lump sum. Mr. Colliatie
will also be entitled to continue to receive all insurance benefits in place at
the date of termination for a two year period following his termination. Under
Mr. Colliatie's employment agreement GrandBank is required to provide him and
his family with Company paid health and major medical insurance, dental
insurance, long term disability insurance, and life insurance at two and a half
times his base salary.
INDEMNIFICATION RIGHTS
Pursuant to the merger agreement, Century has agreed to indemnify the
directors, officers and employees of GrandBanc, to the fullest extent permitted
by law, against losses, claims and expenses resulting from the fact that such
individual was a director, officer or employee of GrandBanc prior to the merger
and those arising out of the merger agreement. Century has agreed to advance
expenses in advance of a final disposition of any proceeding, subject to the
indemnified person satisfying any requirements of law related to such advance.
Century has agreed to use its reasonable best efforts to cause the individuals
serving as directors and officers of GrandBanc and its subsidiaries to be
covered for a period of six years from the effective time of the merger by the
directors' and officers' liability insurance policy maintained by GrandBanc with
respect to acts or omissions occurring prior to the effective time of the merger
which were committed by such officers and directors in their capacity as such.
In the event Century combines with any other person, it is required to make
provision that Century's successor in such transaction assumes these
indemnification obligations.
DIRECTOR SERVICE
Under the merger agreement, as of the effective time of the merger,
Melvyn J. Estrin, Chairman of the Board of GrandBanc, and Abbey J. Butler, a
director of GrandBanc, are to be elected or appointed to Century's Board of
Directors, and Messrs. Estrin and Butler, together with Avis Y. Pointer and Joan
H.
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<PAGE> 43
Schonholtz, directors of GrandBanc, are to be appointed or elected to the Board
of Directors of Century National Bank. For a period of three years after the
effective time of the merger, these former directors of GrandBanc also have
rights under the merger agreement to designate successors to their places on the
Board, subject to certain limitations and requirements more fully discussed
under "The Merger Agreement - Designation of Directors" on page 49.
DIRECTOR COMPENSATION
As members of the Boards of Directors of Century and/or Century
National Bank, the former GrandBanc directors will be entitled to receive
compensation for their service on the Board of Directors in accordance with
Century's policy on director compensation. Currently, each member of the Board
of Directors of Century, and each member of the Board of Directors of Century
National Bank, receives an annual retainer of $4,200 for service on one of the
two boards, or $6,000 for service on both boards. Individual directors may elect
to defer receipt of the annual retainer and enter into a compensation agreement
instead. The compensation agreements generally provide for the payment of a
fixed monthly retirement benefit for 180 months payable to the director or his
or her designated beneficiary subsequent to the director's 65th birthday. The
retirement benefits attributable to each annual deferral vest ratably over a
five-year period and in the event that a director does not serve for five years
after any benefit is accrued for any reason other than a change in control of
Century, the director receives a benefit proportional to his or her time of
service. A reduced amount is payable in the event the director dies prior to
retirement. In the event of a change of control of Century, all benefits under
the compensation agreement are fully vested.
In recent years, Century has granted options on 3,000 shares of Century
stock to each board member on an annual basis at the time of his or her election
to the Board.
BOARD OF DIRECTORS OF CENTURY AFTER THE MERGER
Immediately following the merger, the board of directors of Century
will have nine members, including the seven current Century directors plus the
two directors designated by GrandBanc The former directors of GrandBanc, other
than Mr. Colliatie, also will have collective rights to designate successors to
the board seats filled by persons designated by GrandBanc, as described under
"The Merger Agreement - Designation of Directors" at page 49.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the opinions of Bracewell &
Patterson, L.L.P. and Kennedy, Baris & Lundy, L.L.P. as to certain federal
income tax consequences of the merger. We have filed these opinions with the SEC
as exhibits to the registration statement related to this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page 133.
The following discussion is based upon the Internal Revenue Code of
1986, as amended, the regulations promulgated under the Code, Internal Revenue
Service rulings, and judicial and administrative rulings in effect as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of federal income taxation
that may be relevant to a stockholder in light of the stockholder's particular
circumstances or to those GrandBanc stockholders subject to special rules, such
as stockholders who are not citizens or residents of the United States,
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities, stockholders who acquired their GrandBanc stock pursuant to the
exercise of options or similar derivative securities or otherwise as
compensation, or stockholders who hold their GrandBanc stock as part of a
straddle or conversion transaction. This discussion assumes that GrandBanc
stockholders hold their respective shares of GrandBanc stock as capital assets
within the meaning of Section 1221 of the Code (i.e., property held for
investment).
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<PAGE> 44
It is a condition to the obligations of Century and GrandBanc to
complete the merger that each receive a legal opinion from its counsel that the
merger constitutes a reorganization within the meaning of Section 368 of the
Code. These legal opinions will assume the absence of certain changes in the
existing facts and may rely on assumptions, representations and covenants made
by Century, GrandBanc and others, including those contained in certificates of
officers of Century and GrandBanc. If any of these factual assumptions is
inaccurate, the tax consequences of the merger could differ from those described
here. The opinions regarding the tax-free nature of the merger neither bind the
IRS nor preclude the IRS from adopting a contrary position. Neither Century nor
GrandBanc intends to obtain a ruling from the IRS with respect to the tax
consequences of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO CENTURY STOCKHOLDERS
Holders of Century stock will not recognize any gain or loss for
federal income tax purposes as a result of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO GRANDBANC STOCKHOLDERS
Except as provided below, holders of shares of GrandBanc stock will (1)
not recognize any gain or loss for federal income tax purposes as a result of
the exchange of their shares of GrandBanc stock for Century stock in the merger
except with respect to cash received instead of a fractional share of Century
stock and (2) have a tax basis in the Century stock received in the merger equal
to the tax basis of the GrandBanc stock surrendered in the merger less any tax
basis of the GrandBanc stock surrendered that is allocable to a fractional share
of Century stock for which cash is received. The holding period applicable to
the Century stock received in the merger will include the holding period of the
GrandBanc stock surrendered in the merger.
A holder of shares of GrandBanc stock who receives cash in lieu of a
fractional share interest in Century stock in the merger will be treated for
federal income tax purposes as if the fractional share of Century stock had been
received and then redeemed for cash and will recognize a capital gain or loss in
an amount equal to the difference between the cash received and the
proportionate part of the aggregate federal income tax basis of such holder's
GrandBanc stock allocable to such fractional share interest, unless such
payment, under each such holder's particular facts and circumstances, is deemed
to have the effect of a dividend distribution and not a redemption treated as an
exchange under the principles of Section 302 of the Code.
A holder of shares of GrandBanc stock who exercises the right to
dissent in connection with the merger and receives only cash in exchange for
such holder's GrandBanc stock will be treated as having received such cash as a
distribution in redemption of such holder's GrandBanc stock and will recognize a
capital gain or loss equal to the difference between the amount of cash received
and the adjusted basis of such holder's GrandBanc stock, unless such payment,
under each such holder's particular facts and circumstances, is deemed to have
the effect of a dividend distribution and not a redemption treated as an
exchange under the principles of Section 302 of the Code.
FEDERAL INCOME TAX CONSEQUENCES TO CENTURY, GRANDBANC AND THE MERGER
SUBSIDIARY
None of Century, GrandBanc or the merger subsidiary will recognize gain
or loss for federal income tax purposes as a result of the merger.
WE INTEND THIS DISCUSSION TO PROVIDE ONLY A SUMMARY OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. WE DO NOT INTEND THAT IT BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. IN ADDITION, WE DO NOT ADDRESS TAX CONSEQUENCES
WHICH MAY VARY WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. MOREOVER,
WE DO NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN STATE OR LOCAL TAX
CONSEQUENCES OF THE MERGER.
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<PAGE> 45
ACCORDINGLY, WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX
CONSEQUENCES RESULTING FROM THE MERGER, WITH RESPECT TO YOUR INDIVIDUAL
CIRCUMSTANCES.
ACCOUNTING TREATMENT
Century and GrandBanc intend for the merger to be accounted for under
the "pooling of interests" method under the requirements of Opinion No. 16
(Business Combinations) of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the Financial Accounting Standards
Board, and the rules and regulations of the SEC.
It is a condition to the obligations of both parties that Century
receive a letter regarding pooling of interests from KPMG LLP, its independent
accounting firm. It is expected that the letter will state that, as of its date,
based on certain information provided to it by Century, it concurs with
Century's conclusion that no conditions existed which would preclude Century
from accounting for the merger as a pooling of interests.
REGULATORY APPROVALS
The merger of GrandBanc with Century must be approved by the Federal
Reserve Bank of Richmond. During December 2000, Century will file an application
with the Federal Reserve Bank of Richmond to obtain prior approval of the
merger.
RESALES OF CENTURY COMMON STOCK ISSUED IN THE MERGER
Century has registered under the federal securities law the shares of
its common stock to be issued in the merger. Therefore, you may sell shares
without restriction unless you are considered an "affiliate" of GrandBanc as of
the date of the GrandBank special meeting or you become an affiliate of Century.
A director, executive officer or stockholder who beneficially owns 10% or more
of the outstanding shares of a company is generally deemed to be an affiliate of
that company.
If you are considered an affiliate of GrandBanc or become an affiliate
of Century, you may resell the shares of Century common stock you receive only
(1) after the publication of financial results of at least 30 days of post
merger combined operations of Century and GrandBanc, and (2) pursuant to an
effective registration statement under the securities laws, or pursuant to Rule
145 of the SEC's rules, or in transactions otherwise exempt from registration
under the securities laws. Century is not obligated and does not intend to
register for resale the shares issued to affiliates of GrandBanc.
APPRAISAL RIGHTS OF GRANDBANC STOCKHOLDERS
DISSENTERS' RIGHTS OF GRANDBANC STOCKHOLDERS
Any shareholder of GrandBanc who does not vote in favor of the merger
and the transactions contemplated by the merger agreement and who has given
prior written notice to GrandBanc of his or her objection to the proposed
transaction and who otherwise complies with the procedures set forth in Title 3,
Subtitle 2 of the Maryland General Corporation Law (the MGCL), will be entitled
to receive payment in cash of the fair value of his or her shares of GrandBanc
common stock instead of receiving Century common stock. A copy of Title 3,
Subtitle 2 of the MGCL is included as Annex D to this joint proxy
statement/prospectus.
If you want to demand payment of the fair value of your shares of
GrandBanc common stock, you must fully comply with the procedures set out in the
MGCL. The required procedures are summarized below. The following summary is not
intended to be a compete statement of all aspects of the procedures
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<PAGE> 46
set forth in the MGCL, and is qualified in its entirety by reference to the text
of the statute included in Annex D.
ONLY HOLDERS OF RECORD OF SHARES OF GRANDBANC COMMON STOCK CAN OBJECT
TO THE MERGER AND DEMAND TO RECEIVE THE FAIR VALUE OF THE SHARES IN CASH. IF
YOUR SHARES ARE NOT REGISTERED IN YOUR NAME, YOUR RECORD HOLDER MUST FOLLOW THE
PROCEDURES TO PERFECT YOUR RIGHT TO OBJECT TO THE MERGER AND RECEIVE CASH FOR
THE FAIR VALUE OF YOUR SHARES.
- First, you must submit a written notice to the President of GrandBanc at or
prior to the meeting, stating that you object to the proposed merger. You
should send your notice to:
GrandBanc, Inc.
1800 Rockville Pike
Rockville, Maryland 20852
Attention: Steven K. Colliatie
- You must then not vote your shares in favor of the merger. This means that
you should either (1) not return a proxy card and not vote in person in
favor of the adoption of the merger agreement, (2) return a proxy card with
the "Against" or "Abstain" box checked; (3) vote in person against the
adoption of the merger agreement; or (4) register in person an abstention
from the proposal to adopt the merger agreement. Merely voting against the
merger or abstaining from or not voting in favor of the merger will not
constitute notice of objection or dissent, and will not entitle you to
payment in cash of the fair value of your shares.
- Promptly after the effectiveness of the merger, Century, as the successor
to GrandBanc, will write to objecting shareholders of GrandBanc, notifying
them of the date on which the Articles of Merger were accepted for record.
This notice will be sent by certified mail, return receipt requested, to
the address you provide in your notice, or if no address is indicated, to
the address which appears on GrandBanc's stockholder records.
- Within twenty (20) days of the date on which the Articles of Merger were
accepted for record, an objecting shareholder must make a written demand
for payment of the fair value of his or her stock, stating the number and
class of shares for which payment is demanded. The written demand for
payment should be sent to:
Century Bancshares, Inc.
1275 Pennsylvania Avenue, NW
Washington, DC 20004
Attention: Joseph S. Bracewell
Century's notice of the date on which the Articles of Merger were
accepted may contain an offer of payment of the amount which Century believes is
the fair value of the GrandBanc common stock, and certain financial disclosures.
If you have followed all of the procedural steps required to demand payment of
fair value and have not received payment for your shares, you may, or Century
may, within fifty (50) days of the acceptance of the Articles of Merger,
petition the court of equity in Montgomery County, Maryland for appraisal of the
fair value of your shares of GrandBanc common stock as of the date of the
GrandBanc shareholder meeting, without including any appreciation or
depreciation resulting directly or indirectly from the merger or its proposal.
Any shareholder who files a notice of objection, but fails to file a
written demand for the payment of fair value in a timely manner will be bound by
the shareholder vote and will not be entitled to receive payment in cash as a
holder of dissenting shares.
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<PAGE> 47
If you demand payment for your stock as an objecting shareholder, you
have no right to receive any dividends or other distributions on such shares, or
the shares of Century common stock into which such shares would be converted,
after close of business on the date of the GrandBanc shareholder meeting at
which the merger is approved, and have no other rights, including voting rights,
with respect to such shares, except the payment of fair value.
If you demand payment for your shares, your rights as a shareholder
will be restored if the demand for payment is withdrawn, a petition of appraisal
is not filed within the time required, a court determines that you are not
entitled to relief, or the merger is abandoned or rescinded. A demand for
payment may be withdrawn only with the consent of Century.
If the court finds that a shareholder is entitled to an appraisal of
his or her stock, the court will appoint three disinterested appraisers to
determine the fair value of the stock. Within sixty (60) days after appointment,
or such longer period as the court may direct, the appraisers must file with the
court and mail to each shareholder who is a party to the proceeding their report
stating their conclusion as to the fair value of the stock. Within fifteen (15)
days after the filing of the report, any party may object to the report and
request a rehearing. The court, upon motion of any party, will enter an order
either confirming, modifying or rejecting the report and, if confirmed or
modified, enter judgment directing the time within which payment must be made.
If the report is rejected, the court may determine the fair value or remit the
proceeding to the same or other appraisers. Any judgment entered pursuant to a
court proceeding will include interest from the date of the shareholders' vote
at the meeting, unless the court finds that the shareholder's refusal to accept
a written offer to purchase the shares was arbitrary and vexatious or not in
good faith.
The costs of the appraisal proceedings, including compensation and
expenses of the appraisers, will be the responsibility of Century, except that
all or any part of such expenses may be assessed against any or all of the
objecting shareholders to whom an offer to pay for such shareholder's shares has
been made, if the court finds the failure to accept such offer was arbitrary,
vexatious or not in good faith. Costs of the proceedings will not include fees
and expenses of counsel. Costs of the proceedings may include fees and expenses
of experts only if Century did not make an offer of payment for your stock or if
the value of the stock as determined in the appraisal proceeding materially
exceeds the amount offered by Century.
THE PRECEDING IS A SUMMARY OF THE MATERIAL ASPECTS OF TITLE 3, SUBTITLE
2 OF THE MGCL, AND IS QUALIFIED BY REFERENCE TO THE TEXT OF THE STATUTE. THE
FULL TEXT OF TITLE 3, SUBTITLE 2, WHICH WE URGE YOU TO READ IN ITS ENTIRETY, IS
INCLUDED AS ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
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<PAGE> 48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements combine the historical consolidated balance sheets and statements of
operations of Century and GrandBanc giving effect to the merger using the
pooling of interests method of accounting for a business combination.
We are providing the following information to aid you in your analysis
of the financial aspects of the merger. The information for Century was derived
from Century's audited consolidated financial statements for the years 1999,
1998 and 1997 and from Century's unaudited consolidated financial statements for
the nine months ended September 30, 2000 and 1999. The information for GrandBanc
was derived from GrandBanc's audited consolidated financial statements for the
years 1999, 1998 and 1997 and from GrandBanc's unaudited consolidated financial
statements for the nine months ended September 30, 2000 and 1999. The
information is only a summary and you should read it in conjunction with our
historical financial statements and related notes contained in this joint proxy
statement/prospectus.
The unaudited pro forma condensed combined statements of operations for
the nine months ended September 30, 2000 and 1999 and for the years ended
December 31, 1999, 1998 and 1997 assume the merger was effected on January 1,
1997. The unaudited pro forma condensed combined balance sheet for September 30,
2000 gives effect to the merger as if it had occurred on September 30, 2000.
We expect that we will incur merger-related expenses of $1.5 million,
net of income taxes, as a result of combining our companies. These expenses will
be recognized upon completion of the transaction. The effect of these merger
related expenses have been included in proforma stockholders' equity. Since
these non-recurring merger-related expenses have not yet been incurred, no
adjustment for these expenses has been reflected in the proforma condensed
combined statements of operations. We also anticipate that the merger will
provide the combined company with financial benefits such as reduced operating
expenses and revenue enhancements. However, none of these anticipated expenses
or benefits has been factored into the pro forma information.
The unaudited pro forma combined financial information is for
illustrative purposes only. The companies may have performed differently had
they always been combined. You should not rely on the pro forma combined
financial information as being indicative of the historical results that would
have been achieved had the companies always been combined or the future results
that the combined company will experience after the merger.
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<PAGE> 49
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, PRO FORMA CENTURY
BANCSHARES, INC INC. ADJUSTMENTS PRO FORMA
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 7,958 $ 2,942 $ 10,900
Federal funds sold 12,500 325 12,825
Interest bearing deposits in other banks 4,166 -- 4,166
Investment securities, available-for-sale, at
fair value 47,958 42,405 90,363
Investment securities held-to-maturity, at cost 20,419 -- 20,419
Loans, net of unearned income 179,684 60,364 240,048
Less allowance for credit losses (1,667) (646) (2,313)
--------- --------- --------- -------
Loans net 178,017 59,718 237,735
Leasehold improvements, furniture, and equipment,
net 2,278 3,856 6,134
Accrued interest receivable 1,822 803 2,625
Loans held for sale 2,794 -- 2,794
Intangible assets 5,124 897 6,021
Net deferred taxes 724 2,825 3,549
Other assets 1,024 763 1,787
--------- --------- --------- -------
TOTAL ASSETS $ 284,784 $ 114,534 -- $ 399,318
========= ========= ========= =======
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest bearing $ 41,647 $ 10,989 $ 52,636
Interest bearing 173,893 89,555 263,448
--------- --------- --------- -------
Total deposits 215,540 100,544 316,084
Federal funds purchased and securities sold under
agreements to repurchase 20,096 3,812 23,908
Long term debt 29,442 -- 29,442
Other borrowings 573 3,456 4,029
Other liabilities 2,046 478 1,500(1) 4,024
--------- --------- --------- -------
TOTAL LIABILITIES $ 267,697 $ 108,290 1,500 $ 377,487
========= ========= ========= =======
STOCKHOLDERS' EQUITY:
Common stock 2,886 405 939(2) 4,230
Treasury stock (829) -- (829)
Additional paid in capital 13,803 10,963 (939)(2) 23,827
Retained earnings (deficit) 1,246 (3,839) (1,500)(1) (4,093)
Other comprehensive income (loss), net of tax
effect (19) (1,285) (1,304)
--------- --------- --------- -------
TOTAL STOCKHOLDERS' EQUITY 17,087 6,244 (1,500) 21,831
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 284,784 $ 114,534 $ -- 399,318
========= ========= ========= =======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 50
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, CENTURY
BANCSHARES, INC. INC. PRO FORMA
----------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 10,478 $ 4,283 $ 14,761
Interest on federal funds sold 517 40 557
Interest on deposits in other banks 399 - 399
Interest on securities available-for-sale 1,084 2,134 3,218
Interest on securities held-to-maturity 681 - 681
---------------------------------------------------
TOTAL INTEREST INCOME 13,159 6,457 19,616
INTEREST EXPENSE:
Interest on deposits 3,896 3,108 7,004
Interest on borrowings 1,774 391 2,165
---------------------------------------------------
TOTAL INTEREST EXPENSE 5,670 3,499 9,169
---------------------------------------------------
Net interest income 7,489 2,958 10,447
Provision for credit losses 655 60 715
---------------------------------------------------
Net interest income after provision for credit losses 6,834 2,898 9,732
---------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 692 422 1,114
Other operating income 913 139 1,052
---------------------------------------------------
Total noninterest income 1,605 561 2,166
---------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,515 1,519 4,034
Occupancy and equipment expense 1,086 644 1,730
Other operating expenses 2,920 1,164 4,084
---------------------------------------------------
Total noninterest expense 6,521 3,327 9,848
---------------------------------------------------
Income before income tax expense 1,918 132 2,050
Income tax expense 671 53 724
---------------------------------------------------
NET INCOME $ 1,247 $ 79 $ 1,326
---------------------------------------------------
Basic income per common share $ 0.46 $ 0.02 $ 0.33
Diluted income per common share $ 0.45 $ 0.02 $ 0.32
Weighted average common shares outstanding 2,729,180 4,049,590 4,072,834(3)
Diluted weighted average common shares outstanding 2,751,698 4,223,165 4,152,944(3)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 51
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, CENTURY
BANCSHARES, INC. INC. PRO FORMA
----------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 8,384 $ 4,236 $ 12,620
Interest on federal funds sold 177 86 263
Interest on deposits in other banks 442 0 442
Interest on securities available-for-sale 392 2,148 2,540
Interest on securities held- to-maturity 124 0 124
----------------------------------------------------
TOTAL INTEREST INCOME 9,519 6,470 15,989
INTEREST EXPENSE:
Interest on deposits 3,061 3,163 6,224
Interest on borrowings 534 251 785
----------------------------------------------------
TOTAL INTEREST EXPENSE 3,595 3,414 7,009
----------------------------------------------------
Net interest income 5,924 3,056 8,980
Provision for credit losses 435 189 624
----------------------------------------------------
Net interest income after provision for credit losses 5,489 2,867 8,356
----------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 491 280 771
Other operating income 756 154 910
----------------------------------------------------
Total noninterest income 1,247 434 1,681
----------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,106 1,567 3,673
Occupancy and equipment expense 955 699 1,654
Other operating expenses 2,341 1,300 3,641
----------------------------------------------------
Total noninterest expense 5,402 3,566 8,968
----------------------------------------------------
Income (loss) before income tax expense 1,334 (265) 1,069
Income tax expense (benefit) 507 (100) 407
----------------------------------------------------
NET INCOME (LOSS) $ 827 $ (165) $ 662
----------------------------------------------------
Basic income (loss) per common share $ 0.29 $ (0.04) $ 0.16
Diluted income (loss) per common share $ 0.29 $ (0.04) $ 0.16
Weighted average common shares outstanding 2,833,113 4,049,590 4,176,767(3)
Diluted weighted average common shares outstanding 2,860,925 4,241,000 4,268,089(3)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 52
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, CENTURY
BANCSHARES, INC. INC. PRO FORMA
----------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 11,543 $ 5,613 $ 17,156
Interest on federal funds sold 264 104 368
Interest on deposits in other banks 647 0 647
Interest on securities available-for-sale 575 2,896 3,471
Interest on securities held- to-maturity 191 0 191
----------------------------------------------------
TOTAL INTEREST INCOME 13,220 8,613 21,833
INTEREST EXPENSE:
Interest on deposits 4,154 4,191 8,345
Interest on borrowings 842 376 1,218
----------------------------------------------------
TOTAL INTEREST EXPENSE 4,996 4,567 9,563
----------------------------------------------------
Net interest income 8,224 4,046 12,270
Provision for credit losses 640 269 909
----------------------------------------------------
Net interest income after provision for credit losses 7,584 3,777 11,361
----------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 661 410 1,071
Other operating income 1,008 200 1,208
----------------------------------------------------
Total noninterest income 1,669 610 2,279
----------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,859 2,093 4,952
Occupancy and equipment expense 1,287 918 2,205
Other operating expenses 3,189 1,812 5,001
----------------------------------------------------
Total noninterest expense 7,335 4,823 12,158
----------------------------------------------------
Income (loss) before income tax expense 1,918 (436) 1,482
Income tax expense (benefit) 729 (166) 563
----------------------------------------------------
NET INCOME (LOSS) $ 1,189 $ (270) $ 919
----------------------------------------------------
Basic income (loss) per common share $ 0.42 $ (0.07) $ 0.22
Diluted income (loss) per common share $ 0.42 $ (0.07) $ 0.22
Weighted average common shares outstanding 2,804,994 4,049,590 4,148,648(3)
Diluted weighted average common shares outstanding 2,832,683 4,049,590 4,176,337(3)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 53
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, CENTURY
BANCSHARES, INC. INC. PRO FORMA
---------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,393 $ 7,038 $ 16,431
Interest on federal funds sold 351 214 565
Interest on deposits in other banks 708 0 708
Interest on securities available-for-sale 719 957 1,676
Interest on securities held- to-maturity 184 0 184
---------------------------------------------------
TOTAL INTEREST INCOME 11,355 8,209 19,564
INTEREST EXPENSE:
Interest on deposits 4,037 3,714 7,751
Interest on borrowings 500 304 804
---------------------------------------------------
TOTAL INTEREST EXPENSE 4,537 4,018 8,555
---------------------------------------------------
Net interest income 6,818 4,191 11,009
Provision for credit losses 620 10 630
---------------------------------------------------
Net interest income after provision for credit losses 6,198 4,181 10,379
---------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 447 320 767
Other operating income 656 318 974
---------------------------------------------------
Total noninterest income 1,103 638 1,741
---------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,076 1,800 3,876
Occupancy and equipment expense 1,298 1,022 2,320
Other operating expenses 2,935 1,745 4,680
---------------------------------------------------
Total noninterest expense 6,309 4,567 10,876
---------------------------------------------------
Income before income tax expense 992 252 1,244
Income tax expense 355 153 508
---------------------------------------------------
NET INCOME $ 637 $ 99 $ 736
---------------------------------------------------
Basic income per common share $ 0.24 $ 0.02 $ 0.19
Diluted income per common share $ 0.24 $ 0.02 $ 0.18
Weighted average common shares outstanding 2,632,787 4,048,829 4,042,348(3)
Diluted weighted average common shares outstanding 2,688,583 4,080,063 3,976,188(3)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 54
CENTURY BANCSHARES, INC. - GRANDBANC, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CENTURY GRANDBANC, CENTURY
BANCSHARES, INC. INC. PRO FORMA
---------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,555 $ 6,960 $ 14,515
Interest on federal funds sold 258 136 394
Interest on deposits in other banks 750 0 750
Interest on securities available-for-sale 530 1,011 1,541
Interest on securities held- to-maturity 116 0 116
---------------------------------------------------
TOTAL INTEREST INCOME 9,209 8,107 17,316
INTEREST EXPENSE:
Interest on deposits 3,248 3,811 7,059
Interest on borrowings 518 319 837
---------------------------------------------------
TOTAL INTEREST EXPENSE 3,766 4,130 7,896
---------------------------------------------------
Net interest income 5,443 3,977 9,420
Provision for credit losses 336 1,209 1,545
---------------------------------------------------
Net interest income after provision for credit losses 5,107 2,768 7,875
---------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 410 316 726
Other operating income 513 330 843
---------------------------------------------------
Total noninterest income 923 646 1,569
---------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,201 1,993 4,194
Occupancy and equipment expense 1,153 988 2,141
Other operating expenses 2,106 1,640 3,746
---------------------------------------------------
Total noninterest expense 5,460 4,621 10,081
---------------------------------------------------
Income (loss) before income tax expense 570 (1,207) (637)
Income tax expense (benefit) 234 (2,057) (1,823)
---------------------------------------------------
NET INCOME (LOSS) $ 336 $ 850 $ 1,186
---------------------------------------------------
Basic income (loss) per common share $ 0.20 $ 0.21 $ 0.39
Diluted income (loss) per common share $ 0.18 $ 0.21 $ 0.37
Weighted average common shares outstanding 1,710,316 4,026,293 3,046,240(3)
Diluted weighted average common shares outstanding 1,852,683 4,058,148 3,199,177(3)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 55
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) To reflect non-recurring merger related expenses of $1.5 million,
net of tax.
(2) To adjust capital accounts based on the issuance of 1,343,679 shares
of Century common stock.
(3) The pro forma combined basic and diluted earnings per share for the
respective periods presented is based on the combined weighted average number of
common and dilutive potential common shares and adjusted weighted shares of
Century and GrandBanc. The number of weighted average common shares and adjusted
weighted average shares, including all dilutive potential common shares,
reflects the exchange of 0.3318 shares of Century common stock for each share of
GrandBanc common stock.
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<PAGE> 56
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
merger agreement. A copy of the merger agreement is attached as Annex A and
forms a part of this joint proxy statement/prospectus. The summary is qualified
in its entirety by reference to the merger agreement. We urge all stockholders
to read the merger agreement in its entirety for a more complete description of
the terms and conditions of the merger.
STRUCTURE OF THE MERGER
The merger agreement provides that GrandBanc will be merged with and
into a wholly owned subsidiary of Century (Merger Sub). Merger Sub will be the
surviving corporation in the merger, and shall continue its corporate existence
under the laws of the State of Maryland. Upon consummation of the merger, the
separate corporate existence of GrandBanc will terminate.
MERGER CONSIDERATION
The merger agreement provides that each share of GrandBanc common stock
issued and outstanding immediately prior to the effective time will, at the
effective time, be converted into the right to receive 0.3318 shares of the
common stock of Century. Any shares of GrandBanc common stock held as treasury
stock or owned, directly or indirectly by GrandBanc, Century or Merger Sub or
any of their respective wholly owned subsidiaries (other than shares held in a
fiduciary capacity or held in respect of a debt previously contracted), and any
shares as to which the holders have perfected their rights as objecting
stockholders in accordance with the Maryland General Corporation Law, will be
canceled without any payment for those shares at the effective time.
TIMING OF CLOSING
The closing will occur within five business days after the day on which
the last of the conditions set forth in the merger agreement has been satisfied
or waived, unless Century and GrandBanc agree to a different date. We expect
that, immediately upon the closing of the merger, we will file a certificate of
merger with the Department of Assessments and Taxation of the State of Maryland,
and the merger will become effective as set forth in the certificate of merger.
TREATMENT OF GRANDBANC STOCK OPTIONS
At the effective time, each outstanding and unexercised option granted
by GrandBanc to purchase shares of GrandBanc common stock will be converted
automatically into an option to purchase Century common stock. The number of
shares that the new Century option will be exercisable for and the exercise
price of the new Century option will reflect the exchange ratio in the merger.
EXCHANGE OF SHARES
We will appoint Chase Mellon Shareholder Services, L.L.C., or another
bank or trust company reasonably acceptable to each of GrandBanc and Century, as
the exchange agent to handle the exchange of GrandBanc stock certificates in the
merger for Century stock and the payment of cash for fractional shares of
GrandBanc stock. No later than five business days after the effective time, the
exchange agent will send to each holder of GrandBanc stock a letter of
transmittal for use in the exchange and instructions explaining how to surrender
GrandBanc stock certificates to the exchange agent. Holders of GrandBanc stock
that surrender their certificates to the exchange agent, together with a
properly completed letter of transmittal, will receive the appropriate merger
consideration. Holders of unexchanged GrandBanc stock will not be entitled to
receive any dividends or other distributions payable by Century until their
certificates are surrendered. Century will not issue any fractional shares in
the merger. Holders of
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<PAGE> 57
GrandBanc common stock will receive a cash payment in lieu of fractional shares
of Century common stock.
DESIGNATION OF DIRECTORS
The merger agreement provides that, at the Effective Time, Century will
take actions necessary to cause Melvyn J. Estrin and Abbey J. Butler to be
elected to fill two new seats on the Century Bancshares, Inc. Board of
Directors. As a result, former GrandBanc directors will hold two of the nine
seats on the Century Board upon or shortly after the closing of the merger. The
agreement also provides that Century will include Mr. Estrin and Mr. Butler as
nominees for election to the Board of Directors for elections held during the
three years after the Effective Time, and will take actions to ensure that the
number of seats held by former GrandBanc directors or persons named by them are
at least equal to two-ninths of the total board seats during that period
excluding the seats, if any, created in connection with a merger, consolidation
or purchase of assets. The former GrandBanc directors are Mr. Estrin, Mr.
Butler, Ms. Pointer, and Ms. Schonholtz.
If Mr. Estrin or Mr. Butler (or a successor from or chosen by the
former GrandBanc directors) leaves the board during that three-year period,
Century will fill the resulting vacancy with a former GrandBanc director not
already serving on the Century Board, if possible, or otherwise with a person
named by the former GrandBanc directors, subject to the consent of Century,
which shall not be unreasonably withheld.
Century also has agreed to increase the number of positions on the
Century National Bank Board of Directors by four seats, to cause those positions
to be filled by former GrandBanc directors or their successors (chosen in a
manner substantially the same as that described above), to cause their election
at elections of directors of Century National Bank held during the three years
after the Effective Time, and, during that period, to take actions to ensure
that former GrandBanc directors or persons named by them constitute at least
two-ninths of the Century National Bank Board of Directors, excluding the seats,
if any, created in connection with a merger, consolidation or purchase of
assets.
The merger agreement requires that any of the former GrandBanc
directors, or directors named by them under the provisions described above, may
not serve if he or she is disqualified, as specified in the agreement. Under the
agreement, a former GrandBanc director would be disqualified if he or she: is
prohibited from serving by law, order, injunction, decree or otherwise; has been
convicted of a felony; shall file or be the subject of a petition in bankruptcy;
or is the subject of an order enjoining him or her from engaging in any type of
business practice, or any activity in connection with the purchase or sale of
any security, or in connection with any violation of the federal securities
laws.
COVENANTS REGARDING INTERIM OPERATIONS OF CENTURY AND GRANDBANC
The merger agreement contains reciprocal covenants made by Century and
GrandBanc to each other. Century and GrandBanc have agreed that, until the
effective time of the merger, each of them and each of their subsidiaries will:
- conduct its business in the ordinary course of business;
- use reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business
relationships and retain the services of its key officers and key
employees; and
- take no action that would adversely affect or delay the ability of
either GrandBanc or Century to obtain any necessary approvals of any
regulatory agency or other governmental authority or to perform its
covenants and agreements under the merger agreement or to consummate
the transactions contemplated by the merger agreement.
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<PAGE> 58
Century and GrandBanc have agreed that each of them and each of their
subsidiaries, without the prior written consent of the other, will not:
- other than in the ordinary course of business, incur or guarantee
indebtedness or enter into any agreement to maintain the financial
condition of any individual, corporation or other entity or make any
loans or advances to any other individual, corporation or other entity
except for the refinancing by GrandBanc of certain existing debt and
the financing of debt service through the effective time of the
merger, on terms reasonably acceptable to and approved by Century;
- adjust, split, combine or reclassify any capital stock; make, declare
or pay any dividend or make any other distribution on, or redeem,
purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into its capital stock, with
certain exceptions; grant any stock appreciation rights or any right
to acquire any shares of its capital stock, other than pursuant to the
parties' stock plans, in the ordinary course of business; or issue any
additional shares of capital stock;
- sell, transfer, encumber or dispose of any material properties or
assets or cancel, release or assign any indebtedness or any claims,
except in the ordinary course of business or pursuant to contracts or
agreements in force as of the date of the merger agreement;
- make any material investment in any other individual, corporation or
other entity other than its subsidiary, unless such transaction is in
the ordinary course of business;
- terminate or waive any material provision of any contract, or make any
change in any instrument or agreement governing the terms of any of
its securities, or material lease or contract, other than normal
renewals without material adverse changes of terms, and except for
transactions in the ordinary course of business;
- increase in any manner the compensation or fringe benefits of any of
its employees, or pay any pension or retirement allowance not required
by an existing plan or agreement, or become a party to, amend or
commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or employment agreement other than in the ordinary course
of business, or accelerate the vesting of, or the lapsing of
restrictions with respect to, any stock options or other stock-based
compensation; provided, however that GrandBanc and its subsidiaries
may offer to pay bonuses, in amounts and to a limited number of key
employees approved in advance by Century, with certain conditions;
- take action to solicit or encourage an offer for an alternative
acquisition transaction involving GrandBanc of a nature defined in the
merger agreement; restricted actions include engaging in discussions
or negotiations, or entering into an agreement, with any potential
bidder, or disclosing nonpublic information relating to GrandBanc or
its subsidiaries to a potential bidder. These actions are permitted in
response to an unsolicited offer so long as, prior to doing so, the
GrandBanc Board determines in good faith, based on the written advice
of outside legal counsel, that such unsolicited proposal constitutes a
more favorable transaction for GrandBanc stockholders than the merger
and the transactions contemplated by the merger agreement, and the
GrandBanc Board determines, based on the written advice of its outside
legal counsel and financial advisors, that responding to the
unsolicited proposal by taking such actions is necessary to comply
with its fiduciary duty to stockholders. If an unsolicited proposal is
received by GrandBanc and the required determination is made by the
Board of Directors of GrandBanc, then GrandBanc must, as soon as
possible, give Century notice of such proposal and the supporting
written advice of outside legal counsel and financial advisors;
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<PAGE> 59
- settle any material claim, action or proceeding involving money
damages, except in the ordinary course of business;
- knowingly take any action that would prevent or impede the merger from
qualifying for "pooling of interests" accounting treatment or as a
reorganization under the Internal Revenue Code;
- amend its certificate of incorporation or bylaws;
- restructure or materially change its investment securities portfolio
or its gap position, through purchases, sales or otherwise;
- take any action that is intended or expected to result in any of its
representations and warranties set forth in the merger agreement being
or becoming untrue in any material respect prior to the effective
time, or in any of the conditions to the merger not being satisfied or
in a violation of any provision of the merger agreement, except, in
every case, as may be required by applicable law;
- implement or adopt any change in its accounting principles, practices
or methods, other than as may be required by generally accepted
accounting principles or regulatory guidelines; or
- agree to take, or adopt any resolutions of its board of directors in
support of, any of the actions prohibited by the covenants in this
section.
ADDITIONAL AGREEMENTS
The merger agreement contains substantially reciprocal additional
agreements, the most significant of which are set forth below.
REGULATORY MATTERS
The parties have agreed to cooperate with each other and use their
reasonable best efforts to prepare and file promptly all necessary documentation
to obtain all approvals, authorizations and consents of all third parties and
governmental entities which are necessary or advisable to consummate the merger.
ACCESS TO INFORMATION
The parties have each agreed to afford the representatives of the other
access to all properties, books, contracts, commitments and records, and have
each also agreed to make available to the other party copies of documents filed
or received by it pursuant to the requirements of federal securities laws or
federal or state banking laws, and all other information concerning its
business, properties and personnel as such party may reasonably request. Both
parties agreed to hold all information furnished by or on behalf of the other
party in confidence.
GRANDBANC BOARD'S AGREEMENT TO RECOMMEND
The Board of Directors of GrandBanc has agreed to call a meeting of its
stockholders as soon as reasonably practicable and, in the joint proxy
statement/prospectus mailed to the GrandBanc stockholders, to unanimously
recommend to GrandBanc's stockholders that they approve the merger agreement.
However, the GrandBanc Board is permitted not to make, to withdraw or to modify
in a manner adverse to Century this recommendation if the GrandBanc Board
determines in good faith that it is necessary to do so to comply with its
fiduciary duty to stockholders under applicable law, after receiving written
advice of outside legal counsel.
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<PAGE> 60
CENTURY BOARD'S AGREEMENT TO RECOMMEND
The Board of Directors of Century has agreed to call a meeting of its
stockholders as soon as reasonably practicable and, in the joint proxy
statement/prospectus mailed to the Century stockholders, to unanimously
recommend to Century's stockholders that they approve the issuance of shares of
Century common stock pursuant to the merger agreement. However, the Century
Board is permitted not to make, to withdraw or to modify in a manner adverse to
GrandBanc this recommendation if the Century Board determines in good faith that
it is necessary to do so to comply with its fiduciary duty to stockholders under
applicable law, after receiving written advice of outside legal counsel.
NASDAQ LISTING
Century has agreed to cause the shares of Century common stock to be
issued in the merger to be approved for trading on the Nasdaq SmallCap Market,
subject to official notice of issuance, prior to effective time.
EMPLOYEE BENEFIT PLANS
The benefit plans of both Century and GrandBanc will remain in effect
until such time as Century, in accordance with applicable law and the terms of
the merger agreement, modifies its existing plans or adopts new plans. Prior to
the closing date, Century and GrandBanc shall cooperate in reviewing their plans
with a view towards modifying Century's plans or developing new plans. If
requested by Century, GrandBanc agrees to terminate its 401(k) plan and make
distributions to participants immediately prior to the effective time. In such
event, Century agrees to permit participants to rollover such distributions into
the Century 401(k) plan.
INDEMNIFICATION AND INSURANCE OF GRANDBANC DIRECTORS AND OFFICERS
Century has agreed that:
- for six years from the effective time, it will use its reasonable best
efforts to cause the officers and directors of GrandBanc to be covered
by the directors' and officers' liability insurance policy maintained
by GrandBanc with respect to acts or omissions occurring prior to the
effective time which were committed by such officers and directors in
their capacity as such; and
- after the effective time, Century shall indemnify former GrandBanc
directors, officers and employees for liabilities from their acts or
omission in those capacities occurring prior to the effective time to
the full extent permitted by law.
TRANSACTIONS INVOLVING CENTURY
Century has agreed that prior to the effective time, it will not enter
into any agreement or understanding with respect to a business combination where
the effect of such agreement or understanding would be reasonably likely to
result in the termination of the merger agreement between Century and GrandBanc,
materially delay or jeopardize the receipt of any required approval or the
filing of any application therefor, or cause the anticipated tax or accounting
treatment of the contemplated transactions to be unavailable. However, this
section does not prohibit any such transaction which contemplates the
consummation of the merger in accordance with the merger agreement and which
treats the holders of GrandBanc common stock, upon completion of the Merger and
their receipt of shares of Century common stock, in the same manner as holders
of the Century common stock.
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<PAGE> 61
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations
and warranties made by Century and GrandBanc to each other. The most significant
of these relate to corporate authorization to enter into the contemplated
transaction; governmental approvals required in connection with the contemplated
transaction; absence of any breach of organizational documents, law or certain
material agreements as a result of the contemplated transaction; capitalization;
ownership of subsidiaries; insurance; filings with the SEC; filing of required
reports; information provided by it for inclusion in this joint proxy
statement/prospectus; financial statements; absence of certain changes or
events; absence of undisclosed material liabilities; certain contracts; legal
proceedings; tax matters; employee benefits matters; compliance with laws;
finders' or advisors' fees; environmental matters; and absence of circumstances
inconsistent with the intended accounting treatment of the merger.
In addition, GrandBanc represents and warrants to Century as to certain
other matters, including the inapplicability of the Maryland anti-takeover
statute to the merger agreement, and GrandBanc's receipt of the written opinion
from Hovde Financial LLC regarding the fairness of the merger consideration to
GrandBanc stockholders from a financial point of view.
The representations and warranties in the merger agreement do not
survive the closing or termination of the merger agreement.
CONDITIONS OF MERGER
JOINT CLOSING CONDITIONS
The obligations of Century and GrandBanc to complete the merger are
subject to the satisfaction of the following conditions:
- approval of the merger agreement by the GrandBanc stockholders, and
approval of the issuance of Century common stock pursuant to the
merger agreement by the Century stockholders;
- authorization for the listing on the Nasdaq of the shares of Century
common stock to be issued in the merger;
- all regulatory approvals and third-party consents and approvals
required for the merger being obtained and remaining in full force and
effect without unreasonable conditions;
- Century's registration statement on Form S-4, which includes this
joint proxy statement/prospectus, being effective and not subject to
any stop order by the SEC;
- absence of any order, injunction, decree or other legal prohibition
preventing the consummation of the merger, and absence of any statute,
rule, regulation, order, injunction or decree having been enacted,
entered, promulgated or enforced by any governmental entity preventing
or materially restricting consummation of the merger;
- receipt by Century of a letter from its independent accountants
stating that the merger will qualify for "pooling of interests"
accounting treatment;
- absence of a change or circumstances having a material adverse effect
on either Century or GrandBanc or any of their respective subsidiaries
(other than changes in banking laws and regulations that affect the
banking industry generally or the general level of interest rates).
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<PAGE> 62
ADDITIONAL CLOSING CONDITIONS FOR CENTURY'S BENEFIT
Century's obligation to complete the merger is also subject to the
receipt of an opinion from its counsel regarding the qualification of the merger
as a reorganization under the federal income tax laws; to the accuracy as of
closing of the representations and warranties made by GrandBanc in the merger
agreement; to the performance by GrandBanc in all material respects of the
obligations required to be performed by it at or prior to the closing; and to
the receipt or waiver by Century of such releases, assignments, termination
statements, consents, approvals or other documents or instruments required to
prevent a breach or default under, or a termination or modification of or
acceleration of, any obligation under any GrandBanc contract or to release and
terminate any liens required to be released and/or to grant the liens required
to be granted in order to provide the Merger Sub with good, clear, and
marketable title to all property, free and clear of all liens.
ADDITIONAL CLOSING CONDITIONS FOR GRANDBANC'S BENEFIT
GrandBanc's obligation to complete the merger is also subject to the
receipt of an opinion from its counsel regarding the qualification of the merger
as a reorganization under the federal income tax laws, to the accuracy as of
closing of the representations and warranties made by Century in the merger
agreement, and to the performance by Century in all material respects of the
obligations required to be performed by it at or prior to the closing.
TERMINATION, AMENDMENT AND WAIVER
RIGHT TO TERMINATE
The merger agreement may be terminated at any time prior to the closing
in any of the following ways:
(a) The merger agreement may be terminated by mutual written
consent of Century and GrandBanc.
(b) The merger agreement may be terminated by either Century or
GrandBanc if:
- any governmental entity that must grant an approval
has denied approval of the merger or any governmental
entity has issued an order permanently enjoining or
otherwise prohibiting the consummation of the merger;
- the merger has not been completed on or before June
30, 2001, unless the failure of the closing to occur
is due to the failure of the party seeking to
terminate the agreement to perform or observe the
covenants in the merger agreement, or the breach by
such party of a representation or warranty in the
merger agreement; or
- there has been a breach by either party of any of its
obligations under the merger agreement which breach
would constitute failure of the closing conditions
for the benefit of the other party, and which is not
cured within 30 days following written notice to the
party committing such breach or by its nature or
timing cannot be cured prior to closing, provided
that the terminating party is not then in breach of
any of its obligations under the merger agreement.
(c) The merger agreement may be terminated by Century if the
GrandBanc Board fails to recommend the merger or withdraws or
modifies in a manner adverse to Century its approval or
recommendation of the merger, fails to reaffirm such approval
or recommendation promptly upon request by Century, solicits
or encourages a third party offer or recommends such an offer.
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<PAGE> 63
(d) The merger agreement may be terminated by GrandBanc if:
- Century enters into an agreement that does not
contemplate consummation of the merger with GrandBanc
or which does not treat holders of GrandBanc common
stock, upon completion of the merger and receipt of
shares of Century common stock, in the same manner as
the holders of Century common stock;
- Century breaches its obligation not to enter into any
business combination transaction that would be
reasonably likely to result in the termination of the
merger agreement with GrandBanc, or otherwise
materially delay or jeopardize any approvals or
circumstances which are necessary for the merger
agreement with GrandBanc; or
- Century's Board withdraws or modifies in any adverse
manner its approval or recommendation of the merger,
or fails to reaffirm such approval or recommendation
promptly upon request by GrandBanc.
EFFECT OF TERMINATION; FEES
The provisions of the merger agreement relating to expenses and
termination fees, as well as the confidentiality agreement entered into between
Century and GrandBanc, will continue in effect notwithstanding termination of
the merger agreement. If the merger agreement is validly terminated, the
agreement will become void without any liability on the part of any party
except:
- if Century terminates the merger agreement as described in paragraph
(c) above, GrandBanc will pay to Century $500,000 plus all of
Century's out of pocket costs incurred in connection with the merger;
and
- if GrandBanc terminates the merger agreement as described in paragraph
(d) above, Century will pay to GrandBanc $500,000 plus all of
GrandBanc's out of pocket costs incurred in connection with the
merger.
AMENDMENT
Any provision of the merger agreement may be amended at any time by a
writing signed on behalf of each of the parties, except that after stockholder
approval of any of the transactions contemplated by the merger agreement by the
respective stockholders of GrandBanc or Century, there may not be, without
further approval of such stockholders, an amendment that changes the amount or
the form of the consideration to be delivered to holders of GrandBanc common
stock under the merger agreement.
EXTENSION; WAIVER
Prior to the effective time, the parties may, in a writing signed on
behalf of each of the parties, extend time for the performance of obligations,
waive any inaccuracies in any representations and warranties and waive
compliance with any of agreements or conditions, except that after stockholder
approval of any transactions contemplated by the merger agreement by the
respective stockholders of GrandBanc or Century, there may not be, without
further approval of such stockholders, any extension or waiver which reduces the
amount or changes the form of the consideration to be delivered to holders of
GrandBanc common stock under the merger agreement. Any extension or waiver or
failure to insist on strict compliance with an obligation shall not operate as a
waiver of any subsequent or other failure.
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THE VOTING AGREEMENTS
As an inducement to the parties to enter into the merger agreement, the
members of the boards of directors of each party entered into separate voting
agreements with the other party. Set forth below is a summary of those
agreements.
VOTING OF OWNED SHARES
The Century directors have agreed to vote all of the Century common
stock beneficially owned by them at the time of any meeting of the Century
stockholders in favor of the issuance of the shares of Century common stock
pursuant to the merger agreement and against approval of any proposal made in
opposition to or in competition with such proposal.
The GrandBanc directors have agreed to vote all of the GrandBanc common
stock beneficially owned by them at the time of any meeting of the GrandBanc
stockholders in favor of the merger agreement and against approval of any
proposal made in opposition to or in competition with such proposal.
TERMINATION
The voting agreements will terminate upon the earlier to occur of, in
the case of Century directors, the approval by the stockholders of Century of
the issuance of the shares of Century common stock pursuant to the merger
agreement and, in the case of GrandBanc directors, the approval by the
stockholders of GrandBanc of the merger agreement; or the termination of the
merger agreement in accordance with its terms.
RESTRICTIONS ON TRANSFER
Until and unless the merger agreement has been terminated, the
directors of each party have each agreed not to tender any of their shares in
response to any tender offer that does not provide for the bidder in such offer
to comply with the terms of the merger agreement, sell or transfer any interest
in any of their shares, and/or take any action which would impair such
director's ability to vote any of his other shares in the manner required by the
merger agreement.
REPRESENTATIONS AND WARRANTIES
The directors have each made representations and warranties in the
voting agreement relating to, among other things, the right and power to perform
his or her obligations under the voting agreement, the absolute ownership of his
or her common stock free of any adverse interest, and the necessary and
sufficient right and authority to make the commitments with respect to his or
her shares contained in the voting agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTURY
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Century, which analyzes the major elements of our 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 Century include the operations of its wholly owned subsidiary, Century
National Bank (Bank), unless the context otherwise requires.
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
GENERAL
We derive substantially all of our 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 September 30, 2000,
we had total assets of $284.8 million, total loans of $178 million, total
deposits of $215.5 million, and total stockholders' equity of $17.1 million.
In the following presentations, all "per share" amounts have been
adjusted to reflect five percent Common Stock dividends in 1999, 1998, 1997 and
1995, a 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
For the three months ended September 30, 2000, Century's net income was
$425 thousand, or $0.15 per diluted share, compared with $323 thousand for the
three months ended September 30, 1999, or $0.11 per diluted share. The 32%
increase in net income was primarily attributable to a $594 thousand increase in
net interest income resulting from a 43% increase in average earning assets, and
a $146 thousand increase in noninterest income, which were partially offset by a
$519 thousand increase in noninterest expense and a $165 thousand increase in
provision for credit losses. Return on average assets was 0.68% in the third
quarter of 2000 compared with 0.74% for the same period in 1999. Return on
average stockholders' equity was 10.00% for the three months ended September 30,
2000, compared with 8.25% for the same period in 1999. The ratio of
stockholders' equity to total assets was 6.00% at September 30, 2000 compared
with 7.61% at September 30, 1999.
For the nine months ended September 30, 2000, Century's net income was
$1.247 million, or $0.45 per diluted share, compared with $827 thousand for the
nine months ended September 30, 1999, or $0.29 per diluted share. The 51%
increase in net income was primarily attributable to a $1.565 million increase
in net interest income resulting from a 33% increase in average earning assets,
and a $357 thousand increase in noninterest income, which were partially offset
by a $1.119 million increase in noninterest expense and a $220 thousand increase
in provision for credit losses. Return on average assets was 0.76% for the nine
months ended September 30, 2000 compared with 0.67% for the same period in 1999.
Return on average stockholders' equity was 10.14% for the nine months ended
September 30, 2000, compared with 7.11% for the same period in 1999. The ratio
of stockholders' equity to total assets was 6.00% at September 30, 2000 compared
with 7.61% at September 30, 1999.
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<PAGE> 66
NET INTEREST INCOME
For the quarter ended September 30, 2000, net interest income, on a
fully taxable-equivalent basis, was $2.696 million compared with $2.039 million
for the quarter ended September 30, 1999, an increase of $657 thousand, or 32%.
The increase in net interest income between the periods was primarily the result
of a 43% increase in average earning assets partially offset by a 35 basis point
reduction in the net interest margin to 4.64% for the third quarter of 2000 from
4.99% for the same period in 1999. While the yield on average earning assets
increased 59 basis points, the average rate paid on interest-bearing liabilities
increased 97 basis points. Although average earning assets increased
significantly, the increase was about equally distributed between higher
yielding loans and lower yielding earning assets. The average cost of funds
registered a steeper increase, in part due to competitive pressures, a customer
preference for higher-rate money market accounts and time deposits, and to a
greater degree, an increase in wholesale funding and the impact of the trust
preferred issuance in late March 2000.
For the nine months ended September 30, 2000, net interest income, on a
fully taxable-equivalent basis, was $7.566 million compared with $5.924 million
for the same period last year, an increase of $1.642 million, or 28%. The
increase in net interest income between the periods was primarily the result of
a 33% increase in average earning assets partially offset by a 22 basis point
reduction in the net interest margin to 4.90% for the nine months ended
September 30, 2000 from 5.12% for the same period in 1999. While the yield on
average earning assets increased 34 basis points, the average rate paid on
interest-bearing liabilities increased 60 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, in part
due to competitive pressures, a customer preference for higher-rate money market
accounts and time deposits, and to a greater degree, an increase in wholesale
funding and the impact of the trust preferred issuance in late March 2000.
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<PAGE> 67
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, and their average balances, for the three and
nine month periods ended September 30, 2000 and 1999.
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $161,847 $ 3,862 9.49% $128,388 $2,873 8.88%
Investment securities (2)(3) 54,283 969 7.10 15,380 219 5.65
Federal funds sold 8,688 143 6.55 4,714 60 5.05
Interest bearing deposits
with other banks 6,344 97 6.08 13,483 171 5.03
--------------------- -------------------
Total interest-earning assets (3) 231,162 5,071 8.73% 161,965 3,323 8.14%
Cash and due from banks 7,668 6,680
Other assets 8,741 3,600
-------- --------
Total Assets $247,571 $172,245
-------- --------
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits:
NOW accounts $ 22,920 $ 47 0.82% $ 19,368 $ 54 1.11%
Savings accounts 20,925 227 4.32 19,990 212 4.21
Money market accounts 26,989 248 3.66 19,362 150 3.07
Time deposits 68,053 1,011 5.91 51,035 649 5.05
Borrowings and
notes payable 49,403 842 6.78 15,994 219 5.43
--------------------- -------------------
Total interest-bearing
liabilities 188,290 2,375 5.02% 125,749 1,284 4.05%
Non-interest bearing deposits 40,067 29,520
Other liabilities 2,324 1,448
-------- --------
Total liabilities 230,681 156,717
Stockholders' equity 16,890 15,528
-------- --------
Total liabilities and
Stockholders' equity $247,571 $172,245
-------- --------
-------- --------
Net interest income and spread $ 2,696 3.71% $ 2,039 4.09%
-------- --------
Net interest margin (3) 4.64% 4.99%
</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) Interest and yield on obligations of state and political subdivisions
included in investment securities are computed on a taxable-equivalent basis
using a federal tax rate of 34%.
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<PAGE> 68
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $149,971 $10,478 9.33% $125,629 $8,384 8.92%
Investment securities (2)(3) 36,242 1,841 6.79 12,291 516 5.61
Federal funds sold 11,136 517 6.20 4,766 177 4.97
Interest bearing deposits
with other banks 8,974 400 5.95 11,902 442 4.97
-------------------- ----------------------
Total interest-earning assets (3) 206,323 13,236 8.57% 154,588 9,519 8.23%
Cash and due from banks 7,842 6,660
Other assets 5,703 3,593
-------- --------
Total Assets $219,868 $164,841
-------- --------
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits:
NOW accounts $ 22,489 $ 148 0.88% $ 19,314 $ 169 1.17%
Savings accounts 19,776 616 4.16 20,284 640 4.22
Money market accounts 26,505 697 3.51 20,538 478 3.11
Time deposits 59,638 2,435 5.45 46,238 1,774 5.13
Borrowings and
notes payable 34,977 1,774 6.78 12,533 534 5.70
-------------------- ----------------------
Total interest-bearing
liabilities 163,385 5,670 4.64% 118,907 3,595 4.04%
Non-interest bearing deposits 37,439 28,801
Other liabilities 2,614 1,588
-------- --------
Total liabilities 203,438 149,296
Stockholders' equity 16,430 15,545
-------- --------
Total liabilities and
Stockholders' equity $219,868 $164,841
-------- --------
------- ------
Net interest income and spread $ 7,566 3.93% $5,924 4.19%
------- ------
Net interest margin (3) 4.90% 5.12%
</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) Interest and yield on obligations of state and political subdivisions
included in investment securities are computed on a taxable-equivalent basis
using a federal tax rate of 34%.
NONINTEREST INCOME
Noninterest income was $557 thousand in the third quarter of 2000, a
$146 thousand, or 36% increase when compared with the same quarter of 1999,
which was $411 thousand (see table below). The increase between the periods was
primarily due to increases in deposit service charges (53%) resulting from
higher volumes, coupled with service charge fee increases implemented early in
the second quarter of 2000. Increased volumes also resulted in a $29 thousand,
or 15%, increase in credit card and merchant fees in the third quarter of 2000
compared with the same period last year. Mortgage loan origination fees
increased by 40% when compared with same quarter of 1999.
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<PAGE> 69
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------
2000 1999 $ Change % Change
-------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $248,846 $162,846 $ 86,000 52.8 %
Credit card and merchant fees 216,694 188,095 28,599 15.2
Mortgage loan origination fees 37,212 26,673 10,539 39.5
Commission and other fee income 50,970 31,872 19,098 59.9
Other income 3,226 1,586 1,640 103.4
-------------------------------------------------
Total noninterest income $556,948 $411,072 $145,876 35.5 %
-------------------------------------------------
</TABLE>
Noninterest income was $1.6 million in the first nine months of 2000, a
$357 thousand increase when compared with the same period of 1999, which was
$1.247 million (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.
NONINTEREST INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
2000 1999 $ Change % Change
--------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 691,502 $ 491,470 $ 200,032 40.7 %
Credit card and merchant fees 678,275 562,712 115,563 20.5
Mortgage loan origination fees 70,969 60,430 10,539 17.4
Commission and other fee income 147,717 112,056 35,661 31.8
Other income 15,849 20,410 (4,561) (22.3)
--------------------------------------------------
Total noninterest income $1,604,312 $1,247,078 $ 357,234 28.6 %
--------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
Noninterest expense was $2.3 million in the third quarter of 2000, an
increase of $519 thousand, or 29%, when compared with the same period in 1999
when total noninterest expense was $1.8 million. The increase in noninterest
expense included a $56 thousand, or 32%, increase in professional fees
principally due to higher consulting fees related to information systems
technology and noninterest income improvement initiatives. An increase in
infrastructure coinciding with the acquisition of the Reston Branch in August
2000, the Dumfries Branch 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
$195 thousand, or 27%; deposit premium expense which increased $40 thousand, or
84%; occupancy and equipment expense which increased $63 thousand, or 32%;
communications expenses which increased $25 thousand, or 28%; and other expenses
which increased $75 thousand, or 41%.
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<PAGE> 70
The following table sets forth the various categories of, and changes
in, noninterest expense for the three months ended September 30, 2000 and 1999:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------
2000 1999 $ Change % Change
-------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 917,082 $ 721,985 $195,097 27.0%
Occupancy and equipment expense 256,985 194,077 62,908 32.4
Professional fees 230,722 175,077 55,645 31.8
Data processing 342,805 295,024 47,781 16.2
Depreciation and amortization 127,013 112,735 14,278 12.7
Amortization of deposit premiums 87,182 47,385 39,797 84.0
Communications 111,399 86,859 24,540 28.3
Federal deposit insurance premiums 8,999 4,365 4,634 106.2
Other expenses 257,409 182,741 74,668 40.9
-------------------------------------------------
Total noninterest expense $2,339,596 $1,820,248 $519,348 28.5%
-------------------------------------------------
</TABLE>
Noninterest expense was $6.5 million in the first nine months of 2000,
an increase of $1.119 million, or 21%, when compared with the first nine months
of 1999 when total noninterest expense was $5.4 million. The increase in
noninterest expense included a $205 thousand, or 39%, increase in professional
fees primarily due to legal fees incurred associated with the trust preferred
issuance and higher consulting fees related to information systems technology.
An increase in infrastructure coinciding with Century's expansion activities was
accompanied by increases in several noninterest expense categories including
salaries and benefits, which increased by $408 thousand, or 19%; occupancy and
equipment which increased by $118 thousand, or 19%; data processing which
increased $195 thousand, or 23%; and communications which increased by $48
thousand, or 19%.
The following table sets forth the various categories of, and changes
in, noninterest expense for the nine months ended September 30, 2000 and 1999:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
2000 1999 $ Change % Change
--------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $2,514,659 $2,106,431 $ 408,228 19.4%
Occupancy and equipment expense 732,203 614,629 117,574 19.1
Professional fees 727,887 523,275 204,612 39.1
Data processing 1,035,666 840,510 195,156 23.2
Depreciation and amortization 353,544 340,181 13,363 3.9
Amortization of deposit premiums 202,386 142,153 60,233 42.4
Communications 305,273 256,787 48,486 18.9
Federal deposit insurance premiums 23,691 13,021 10,670 81.9
Other expenses 625,375 564,945 60,430 10.7
--------------------------------------------------
Total noninterest expense $6,520,684 $5,401,932 $1,118,752 20.7%
--------------------------------------------------
</TABLE>
FINANCIAL CONDITION
LOANS
Century 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 Century's loan
portfolio is collateralized by first mortgages on commercial or residential real
estate or home equity lines of credit on residential real estate. The loan
portfolio increased $41.6 million, or 30%, since December 31, 1999 due to strong
demand, the addition of four new loan officers, and the
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<PAGE> 71
purchase of $16.3 million in loans originated by other banks (including $3.4
million in loans acquired in connection with the Reston branch acquisition). As
of September 30, 2000 and 1999, approximately $129.5 million, or 72% and $85.8
million, or 65%, respectively, of Century's total loan portfolio consisted of
loans secured by real estate. As of September 30, 2000 and 1999, 1-to-4 family
residential mortgage loans and home equity lines of credit represented $44.2
million, or 25%, and $34.6 million, or 26%, respectively, of Century's total
loan portfolio. Given the localized nature of Century's lending activities, the
primary risk factor affecting the portfolio as a whole is the health of the
local economy and its effects on the value of local real estate. Century
endeavors to mitigate this risk by maintaining strong underwriting guidelines.
The following table sets forth the composition of Century's loan
portfolio by type of loan on the dates indicated:
LOAN PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------
2000 1999 1999
------------------------------------
<S> <C> <C> <C>
AGGREGATE PRINCIPAL AMOUNT
TYPE OF LOAN:
1-4 family residential mortgage $ 30,445 $ 25,541 $ 24,926
Home equity loans 13,803 9,074 9,724
Multifamily residential 2,202 2,441 2,635
Construction 8,856 4,559 4,425
Commercial real estate 74,185 44,153 48,242
Commercial loans 39,496 34,615 37,585
Installment and credit card loans 10,257 10,748 10,175
Other loans 468 564 437
------------------------------------
Gross loans 179,712 131,695 138,149
Less: unearned income and deferred costs 28 47 73
------------------------------------
Total loans, net of unearned $179,684 $131,648 $138,076
------------------------------------
PERCENTAGE OF LOAN PORTFOLIO
TYPE OF LOAN:
1-4 family residential mortgage 16.9% 19.4% 18.1%
Home equity loans 7.7 6.9 7.0
Multifamily residential 1.2 1.8 1.9
Construction 4.9 3.5 3.2
Commercial real estate 41.3 33.5 34.9
Commercial loans 22.0 26.3 27.2
Installment and credit card loans 5.7 8.2 7.4
Other loans 0.3 0.4 0.3
------------------------------------
Gross loans 100.0% 100.0% 100.0%
------------------------------------
</TABLE>
In originating loans, Century 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. Century maintains an allowance for
credit losses based upon, among other things, such factors as historical
experience, the volume and type of lending conducted by Century, the amount of
nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in Century'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.
-63-
<PAGE> 72
Management actively monitors Century'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 September 30,
2000, the allowance for credit losses was $1.7 million, or 0.93% of total loans,
compared with $1.4 million, or 1.03% of total loans as of September 30, 1999.
The combined effect of substantial loan growth and the utilization of specific
reserves associated with nonperfoming loan balances charged-off during the
quarter resulted in an overall decline in the ratio of allowance for credit
losses to total loans. However, management believes the allowance at September
30, 2000 is adequate to absorb estimated probable credit losses based on the
evaluation factors described above. The allowance for credit losses as a
percentage of nonperforming loans was 142% at September 30, 2000, compared to
178% at September 30, 1999.
Total nonperforming loans were $1.2 million at September 30, 2000,
compared with $760 thousand at September 30, 1999. At September 30, 2000, most
of the non-accrual loan balances ($995 thousand of $1.043 million) consisted of
two borrowing relationships. Century has accelerated collection efforts with
regard to these borrowing relationships. The remaining balances of the loans
represented by these two relationships are, in the opinion of Century, well
secured by first liens on real property within Century's market area.
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 the factors identified above. The provision for credit losses during the
first nine months of 2000 was $655 thousand compared with $435 thousand for the
same period last year, an increase of $220 thousand, or 51%. The increase in the
provision is reflective of the 30% growth in loans outstanding in the past
twelve months, coupled with an increase in net charge-offs. Net charge-offs for
the nine months ended September 30, 2000 were $507 thousand compared with $212
thousand for the same period last year. These trends, taken into consideration
with other factors in Century'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 Century.
NONPERFORMING ASSETS
The following table sets forth certain information with respect to
Century's non-accrual loans, other real estate owned and accruing loans which
are contractually past due 90 days or more as to principal or interest, for the
periods indicated:
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<PAGE> 73
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------------
2000 1999 1999
-------------------------------------
<S> <C> <C> <C>
Non-accrual loans $1,043 $693 $515
Accruing past due 90 days or more 134 67 --
-------------------------------------
Total nonperforming loans 1,177 760 515
Other real estate owned -- -- --
-------------------------------------
Total nonperforming assets $1,177 $760 $515
-------------------------------------
Nonperforming assets to total assets 0.41% 0.38% 0.37%
Nonperforming loans to total loans 0.66% 0.58% 0.25%
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
Century maintains an allowance for credit losses based upon, among
other things, such factors as historical experience, the volume and type of
lending conducted by Century, the amount of nonperforming assets, regulatory
policies, generally accepted accounting principles, general economic conditions,
and other factors related to the collectibility of loans in Century'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, Century's allowance for credit losses
was $1.7 million or, 0.93% of total loans as of September 30, 2000.
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<PAGE> 74
The following table sets forth an analysis of Century's allowance for
credit losses for the periods indicated:
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average net loans outstanding $161,847 $128,388 $149,971 $125,629
Loans outstanding at period-end 179,684 131,648 179,684 131,648
Total nonperforming loans 1,177 760 1,177 760
------------------------------------------------------------------------
Beginning balance of allowance $ 1,743 $ 1,409 $ 1,519 $ 1,128
Loans charged-off:
Commercial loans 315 119 476 156
Installment and credit card loans 39 52 61 72
------------------------------------------------------------------------
Total loans charged off 354 171 537 228
Recoveries of previous charge-offs:
1-4 family residential mortgage 1 1 3 4
Commercial loans -- -- 20 --
Installment and credit card loans 2 2 7 12
------------------------------------------------------------------------
Total recoveries 3 3 30 16
------------------------------------------------------------------------
Net loans charged-off 351 168 507 212
Provision for credit losses 275 110 655 435
------------------------------------------------------------------------
Balance at end of period $ 1,667 $ 1,351 $ 1,667 $ 1,351
------------------------------------------------------------------------
Net charge-offs to average loans (annualized) 0.86% 0.52% 0.47% 0.23%
Allowance as % of total loans 0.93% 1.03% 0.93% 1.03%
Nonperforming loans as % of total loans 0.66% 0.58% 0.66% 0.58%
Allowance as % of nonperforming loans 142% 178% 142% 178%
</TABLE>
INVESTMENT ACTIVITIES
Century's investment portfolio of $68.4 million as of September 30,
2000 consisted mostly of U.S. Government Agency obligations supplemented by
municipals and corporate bonds. This represented an increase of $45.9 million,
or 204%, compared with the investment portfolio total of $22.5 million at
December 31, 1999. The increase during the first nine months of 2000 was
reflective of the execution of $10 million in wholesale leveraging transactions,
the investment of the proceeds from the trust preferred issuance and the
investment of a portion of the proceeds from the Reston branch purchase.
DEPOSIT ACTIVITIES
Century's total deposits at September 30, 2000, were $215.5 million, an
increase of $78.1 million, or 56.8%, over the balance at September 30, 1999, and
an increase of $61.6 million, or 40.1% compared with 1999's year-end balance.
These increases include the effect of the Reston branch purchase in August 2000.
Total average deposits were $165.8 million for the nine months ended September
30, 2000, an increase of $30.7 million, or 23%, compared with the first nine
months of 1999. Century views deposit growth as a significant challenge in its
effort to increase its asset size. Thus, Century is focusing on its branching
program with increased emphasis on commercial accounts, and the offering of more
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<PAGE> 75
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 Century's categories of deposits for the periods indicated:
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 $ 37,439 0.00% 22.6% $ 28,801 0.00% 21.3%
Interest-Bearing Deposits:
NOW accounts 22,489 0.88 13.5 19,314 1.17 14.3
Savings accounts 19,776 4.16 11.9 20,284 4.22 15.0
Money market accounts 26,505 3.51 16.0 20,538 3.11 15.2
Time deposits 59,638 5.45 36.0 46,238 5.13 34.2
-------- ------ -------- -------
Total $165,847 100.0% $135,175 100.0%
-------- ------ -------- -------
Weighted Average Rate 3.14% 3.03%
----- -----
</TABLE>
PREFERRED SECURITIES OF SUBSIDIARY TRUST
Transaction Structure. During the first quarter of 2000, Century formed
a new, wholly owned statutory business trust, Century Capital Trust I (the
Trust), which issued $8.8 million of capital securities (the Capital Securities)
to a third party. The Trust invested the proceeds in an equivalent amount of
junior subordinated debt securities of Century 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 Century. Century 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 Century 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. For regulatory purposes, however, the Federal Reserve Board
treats the Capital Securities as Tier I or Tier 2 capital.
The Capital Securities pay cash distributions semiannually at an annual
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, Century 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 Capital
Securities, the assets of the Trust, and the common securities issued by the
Trust are redeemable at the option of Century 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, upon the occurrence of certain events.
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<PAGE> 76
Impact on Financial Condition and Results of Operations. The treatment
of the Capital Securities as Tier I or Tier 2 capital, in addition to the
ability to deduct the expense of the junior subordinated debt securities for
federal income tax purposes, provided Century with a cost-effective method of
raising capital to support continued expansion activities in the Washington, DC
metropolitan area through the establishment and/or acquisition of additional
branch offices and possible corporate acquisitions.
Century received net proceeds of $8.536 million from the issuance of
the Capital Securities. As of September 30, 2000, Century had invested $7.5
million of those proceeds in common stock and subordinated debt of the Bank.
Such investment increased the Bank's capital position in support of the Bank's
loan growth and its acquisition of the Reston branch. The remaining $1.036
million of net proceeds from the Capital Securities was held in cash at the
holding company level as of September 30, 2000.
Taking the underwriting discount into account, the Capital Securities
have an effective interest cost to Century of 11.1% per annum. To mitigate the
negative impact of this interest cost on Century's consolidated net income, the
Bank invested $8.465 million of its liquid assets in a diversified portfolio of
investment-grade corporate and municipal obligations with a weighted-average
taxable-equivalent yield of 9.11%. Additionally, the Bank entered into two
wholesale leveraging transactions in which it borrowed a total of $10 million at
a weighted-average cost of 6.44 % and invested the proceeds in federal agency
and municipal obligations with a weighted-average taxable-equivalent yield of
7.99%.
From a financial ratio standpoint, these transactions, incrementally,
had a negative impact on Century's return on assets and net interest margin for
the three-month and nine-month periods ended September, 2000 in comparison to
the same periods last year because the transactions reduced taxable-equivalent
net interest income while increasing the level of earning assets.
LIQUIDITY
Century's Asset/Liability Management Policy is intended to maintain
adequate liquidity for Century 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. Century accomplishes this
primarily through management of the maturities of its interest-earning assets
and interest-bearing liabilities. Century 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. Century has
defined "cash and cash equivalents" as those amounts included in cash and due
from banks and federal funds sold. At September 30, 2000, Century had cash and
cash equivalents of $20.5 million, a slight increase 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 Century's market area. As a member of
the Federal Home Loan Bank of Atlanta (FHLBA), Century is able to borrow up to
20% of its assets, 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. Century also has lines of credit from larger correspondent
banks to borrow excess reserves on an overnight basis (known as "federal funds
purchased) in the amount of $5.7 million, and to borrow on a secured basis
(repurchase agreements) in the amount of $5.0 million. At September 30, 2000,
Century had no outstanding federal funds purchased, and $20.1 million in
customer repurchase agreements. Also at September 30, 2000, Century was
utilizing $20.6 million of available FHLBA credit in the form of fixed-rate
($17.6 million) and variable-rate ($3.0 million) advances with an average cost
of 6.25%. Century
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<PAGE> 77
utilizes fixed rate term credit advances from the FHLBA to fund fixed-rate real
estate loans and investments of comparable terms and maturities.
Century had cash on hand of $1.6 million at the holding company level
at September 30, 2000. Century anticipates using these funds as working capital
available to support the future growth of the franchise as well as to pay normal
operating expenses and dividends on the Capital Securities (see "--Preferred
Securities of Subsidiary Trust"). Working capital is further augmented by
dividends available from the Bank, subject to certain regulatory restrictions
generally applicable to national banks.
CAPITAL RESOURCES
Total stockholders' equity at September 30, 2000, was $17.1 million, an
increase of $1.4 million compared with total stockholders' equity of $15.7
million at December 31, 1999. Stockholders' equity was increased during the
first nine months of 2000 by net income of $1.247 million; $129 thousand
received from the exercise of stock options; and $82 thousand in unrealized
gains on investment securities available for sale, net of the tax effect; and
was reduced by $39 thousand paid to acquire treasury stock.
The Office of the Comptroller of the Currency has established certain
minimum risk-based capital standards that apply to national banks, and Century
is subject to certain capital requirements imposed on bank holding companies by
the Federal Reserve Board. At September 30, 2000, Century National Bank exceeded
all applicable regulatory capital requirements for classification as a "well
capitalized" bank, and Century satisfied all applicable regulatory requirements
imposed on it by the Federal Reserve Board.
At September 30, 2000, Century'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 8.82%, 11.20% and 7.29%, respectively.
YEAR 2000
Century experienced 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, Century's project team will continue to
monitor Century's systems and attempt to identify any potential problems during
the course of the year. In addition, Century will continue to monitor the Year
2000 compliance of the third parties with which Century transacts business.
Century 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.
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<PAGE> 78
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GENERAL
As of December 31, 1999, Century 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. Century 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%.
In the following presentations, all "per share" amounts have been
adjusted to reflect five percent common stock dividends in 1999, 1998, 1997 and
1995, a 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. 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.
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. Century'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. Century'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.
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<PAGE> 79
Changes in interest income and interest expense can result from changes
in both volume and rate. Century 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.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME/EXPENSE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 COMPARED WITH 1998 1998 COMPARED WITH 1997
-------------------------------- --------------------------------
Due to Due to Total Incr. Due to Due to Total Incr.
Volume Rate (Decr.) Volume Rate (Decr.)
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans, including fees $ 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.
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<PAGE> 80
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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 159,613 13,220 8.28% 134,580 11,356 8.44% 105,265 9,209 8.75%
(3)
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 deposits 30,101 24,981 20,272
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:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
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 Century, the amount of nonperforming assets, regulatory policies, generally
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<PAGE> 81
accepted accounting principles, general economic conditions, and other factors
related to the collectibility of loans in Century'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 Century'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 Century 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 Century'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:
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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>
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<PAGE> 82
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.
Century's noninterest expense has been consistently higher in relation
to its asset size than the average for small community banks. Century'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:
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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
Century'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.
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<PAGE> 83
INTEREST RATE SENSITIVITY AND MANAGEMENT OF MARKET RISK
Net interest income, which constitutes one of the principal sources of
income for Century, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The difference between Century'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,
Century maintains an Asset/Liability Committee (ALCO) which reviews, on a
regular basis, the maturity and repricing of the assets and liabilities of
Century. 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, Century'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 Century's loan and investment portfolios, which can significantly
impact Century'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 Century at December 31, 1999,
which are expected to mature or are subject to repricing in each of the time
periods indicated:
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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>
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<PAGE> 84
FINANCIAL CONDITION
LOANS
Century 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 Century'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
Century'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. Century, 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 Century's existing branch locations,
Century has significant concentrations of customers and assets in the
Washington, DC metropolitan area.
The primary types of loans in Century's portfolio are residential
mortgages and home equity loans, commercial real estate loans, commercial loans,
and consumer installment and credit card loans. Generally, Century 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, Century'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 Century's commercial real estate loans consist of owner-occupied
properties financed for Century's regular commercial customers, rather than
speculative or investor-owned properties. Most of Century'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 Century'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, Century'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
Century 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 Century 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 Century 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.
The following table sets forth the composition of Century's loan
portfolio by type of loan on the dates indicated:
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<PAGE> 85
LOAN PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
AGGREGATE PRINCIPAL AMOUNT
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. Century's portfolio of adjustable rate home mortgages consists of
loans to customers in the local market area. Such loans generally have balloon
maturities within ten years or less, with two percent annual and six percent
lifetime "caps" on interest rate changes. Borrowers have the right to prepay
such loans without penalty.
MATURITIES AND RATE SENSITIVITY OF LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over 1 Year Through 5 Years Over 5 Years
--------------------------- -----------------------
One Year Fixed Floating Fixed Floating
or Less (1) Rate Rate Rate Rate Total
---------------------------------------------- --------------------------- ----------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial $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 equity 2,788 6,752 4,302 8,902 14,541 37,285
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.
NONPERFORMING ASSETS
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is Century'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
-77-
<PAGE> 86
in accordance with the terms of the obligation. Century 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 Century 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
Century's non-accrual loans, OREO, and accruing loans which are contractually
past due 90 days or more as to principal or interest, for the periods indicated:
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998 1997
----------------------------
<S> <C> <C> <C>
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 assets 0.25% 1.02% 0.49%
</TABLE>
As of December 31, 1999, non-accrual loans consisted of one borrowing
relationship. Century 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. Century received interest payments on these
nonaccrual loans amounting to $67,871, $26,686, and $48,613 for 1999, 1998 and
1997, respectively.
ALLOWANCE FOR CREDIT LOSSES
Century maintains an allowance for credit losses based upon, among
other things, such factors as historical experience, the volume and type of
lending conducted by Century, the amount of nonperforming assets, regulatory
policies, generally accepted accounting principles, general economic conditions,
and other factors related to the collectibility of loans in Century'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, Century'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
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<PAGE> 87
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 Century's allowance for
credit losses for the periods indicated:
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
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%
</TABLE>
Century 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, Century 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
Century's accounting policy for the allowance for credit losses, see Note 1 of
Notes to Consolidated Financial Statements of Century.
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
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<PAGE> 88
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.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
PERCENT OF LOANS PERCENT OF LOANS
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Balance of allowance for credit losses applicable to:
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
Century'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. Century'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 Century's overall asset
liability management strategy.
Investment securities held-to-maturity are stated at amortized cost.
Century 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.
-80-
<PAGE> 89
The following table sets forth the carrying value of Century's
investment portfolio as of the dates indicated:
INVESTMENT PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
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
---------------------------------
</TABLE>
The following table sets forth the maturity distribution and weighted
average yield of the investment portfolio of Century as of December 31, 1999:
INVESTMENT PORTFOLIO--MATURITIES AND YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over 1 Year Over 5 Years
One Year Through 5 Through 10 After
or Less Years Years 10 Years Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MATURITY DISTRIBUTION:
U.S. Treasuries and government
agencies $ 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.
DEPOSIT ACTIVITIES
Century'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. Century'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.
Century views deposit growth as a significant challenge in its effort to
increase its asset size. Thus, Century 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.
-81-
<PAGE> 90
The following table sets forth the average balances and weighted
average rates for Century's categories of deposits for the periods indicated:
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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>
Century seeks to rely primarily on regular customer relationships to
provide a stable and cost effective source of funding to support asset growth.
Century'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 Century'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 Century'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 Century'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)
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
--------------------
<S> <C> <C>
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
---------------------
</TABLE>
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<PAGE> 91
BORROWINGS
Borrowings consist of advances from the Federal Home Loan Bank of
Atlanta (FHLBA), deposits received in Century'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:
BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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 Century's fixed and variable
rate advances from the FHLBA, with original maturities in excess of one year, as
of December 31, 1999:
BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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>
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<PAGE> 92
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 Century's ROA and
ROE for the periods indicated:
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
LIQUIDITY
Century's Asset/Liability Management Policy is intended to maintain
adequate liquidity for Century 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. Century accomplishes this
primarily through management of the maturities of its interest-earning assets
and interest-bearing liabilities. Century 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. Century 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 Century's market area. As a
member of the Federal Home Loan Bank of Atlanta (FHLBA), Century 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,
Century 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. Century 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 Century
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%. Century
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.
Century'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.
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<PAGE> 93
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.
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, Century enters into commitments to
make loans and fund letters of credit, and Century 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 of Century.
Century had cash on hand in the amount of $739,944 at the holding
company level at December 31, 1999. Century 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,
Century 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 Century 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 Century satisfied all applicable regulatory
requirements imposed on it by the Federal Reserve Board. See Note 12 of the
Notes to Consolidated Financial Statements of Century.
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 Century, its vendors or its borrowers
to address these issues could have a material effect on Century's business,
results of operations, or financial condition.
State of Readiness. In December 1997, Century 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
Century was assigned leadership responsibility. The Board of Directors received
monthly reports concerning the status of the Y2K Plan, and Century's progress
was also reviewed from time to time by bank regulatory authorities.
-85-
<PAGE> 94
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. Century 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, Century's Y2K
Plan had been completed. Century continued to monitor Y2K preparedness related
to new loans and any borrowers deemed to be at high risk.
Costs of Compliance. As part of its Y2K Plan, Century 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 Century employees, a network administration consultant, and
approximately $20,000 of additional consulting expenses. The costs to address
Century's Year 2000 issues have not had a significant impact on the financial
position or results of operations of Century.
While Century does not believe that it will incur any additional
material expenses related to the Year 2000 issue, there can be no assurance that
Century 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. Century 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 Century for
data processing or related services which experienced a material failure of its
product or service due to a Year 2000 related problem. Century 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, Century's Year 2000 project team will
continue to monitor Century's IT and non-IT systems and attempt to identify any
potential problems during the course of the year. In addition, Century will
continue to monitor the Year 2000 compliance of the third parties, with which
Century transacts business, for delayed effects or future problems.
Contingency Plans. Century 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.
Century 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 Century 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
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the control of Century, 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 Century and its results of operations
are not predictable.
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INFORMATION ABOUT CENTURY
BUSINESS
Century, a Delaware corporation, and a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (BHCA), was incorporated
and organized in 1985. Century 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 branch
in Reston, Virginia, in August 2000, Century currently operates seven
full-service banking offices - two in downtown Washington, four in Northern
Virginia and one in Bethesda, Maryland - a loan production office in Rockville,
Maryland and an insurance agency at the following locations:
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 (Acquired October 1999)
Century Insurance Agency, LLC - Bank subsidiary headquartered in
Dumfries Branch (Established August 1999)
Rockville (Loan production office) - 1680 E. Gude Drive, Rockville, MD
20851 (Opened February 2000)
Reston Branch - 1498 North Point Village Center, Reston, Virginia 20194
(Acquired August 2000)
Century's principal executive offices are located at 1275 Pennsylvania
Avenue, NW, Washington, DC 20004, and the phone number at that address is (202)
496-4100.
Century derives substantially all of its revenue and income from the
operation of the Bank, which provides a full range of commercial and consumer
banking services to small and middle market businesses and individuals in the
Washington, DC metropolitan area. As of September 30, 2000, Century had total
assets of $284.8 million, total deposits of $215.5 million, and stockholders'
equity of $17.1 million. At November 30, 2000, there were approximately 1,000
stockholders of Century's common stock, par value $1.00 per share (Common
Stock).
REGULATION
In addition to the state and federal laws applicable to business and
employers generally, Century and the 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 Century
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
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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 Century.
New legislation, proposals to overhaul the bank regulatory system and
proposals to limit the investments that a depository institution may make with
insured funds are from time to time introduced in Congress. Such legislation may
change banking statutes and the operating environment of Century and its banking
subsidiaries in substantial and unpredictable ways. Century cannot determine the
effect that any new legislation and the related regulations may have upon the
financial condition or results of operations of Century or its subsidiaries. The
following discussion sets forth the material statutory and regulatory provisions
governing Century and the Bank.
REGULATION OF CENTURY
Century 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. Century 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 Century, subject to certain exemptions for certain transactions. Control
is conclusively presumed to exist if an individual or company acquires 25% or
more of any class of voting securities of the bank holding company. Control is
rebuttably presumed to exist if a person acquires 10% or more but less than 25%
of any class of voting securities and either the company has securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, or no other person will own a greater percentage of that class of
voting securities immediately after the transaction. The regulations provide a
procedure for challenge of the rebuttable control presumption.
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As a bank holding company, Century 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, Century
would directly or indirectly own or control 5% or more of the voting shares of
such bank or bank holding company.
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. Effective March 11, 2000, the act permits 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 (the 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 Century
by the Bank, and the nature and amount of Century securities that the Bank may
accept from any affiliate to secure loans extended to the affiliate. Century, 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 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
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Analysis of Financial Condition and Results of Operations of Century." The OCC
has enforcement authority over the Bank that is similar to that of the Federal
Reserve Board with respect to Century. 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.
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,
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requiring divestiture by the institution of its subsidiaries or by the holding
company of the institution itself, requiring new election of directors, and
requiring the dismissal of directors and officers.
With certain exceptions, national banks 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
assessments under the Bank Insurance Fund (the BIF) is between 0% and 0.27% of
deposits. Most of the Bank's deposits are insured by the BIF.
Under the Economic Growth and Regulatory Paperwork Reduction Act of
1996 (the Growth Act), banks insured under the BIF are required to pay a portion
of the interest due on bonds that were issued 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. For the
third quarter of 2000, both the BIF and SAIF rates are .00515 % 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
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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. This subsidiary has not
yet commenced active operations.
COMPETITION
Century 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. Century 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. Century 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. Century 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 Century and its
subsidiaries conduct business. See "--Regulation-Regulation of Century." 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.
MARKET PRICES AND DIVIDENDS
Century'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 Century 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 November 30, 2000, Century estimates that it had
approximately 1,000 stockholders.
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The following table sets forth the high and low sales prices (adjusted
to reflect 5% stock dividends in 2000, 1999 and 1998) for the common stock for
each full quarterly period during 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Common Stock Price Per Share
----------------------------
Quarter ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1998 $10.04 $ 8.53
June 30, 1998 9.61 8.16
September 30, 1998 9.52 7.48
December 31, 1998 8.16 5.44
March 31, 1999 6.80 5.39
June 30, 1999 6.46 4.76
September 30, 1999 6.07 5.24
December 31, 1999 6.19 5.60
March 31, 2000 6.67 5.48
June 30, 2000 6.50 5.75
September 30, 2000 7.00 5.56
December 31, 2000 (through December 11) 7.88 6.50
</TABLE>
Century 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, Century's earnings, the general economic and regulatory climate,
Century's liquidity and capital requirements, and other factors deemed relevant
by Century's Board of Directors. Century's ability to pay dividends depends
mostly upon the dividends received from the Bank. Dividends from the Bank to
Century 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. 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 Century's present intention to
accumulate retained earnings to support Century's future growth, it is unlikely
that Century will pay cash dividends with respect to the common stock for the
foreseeable future. Century 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 Century 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.
EMPLOYEES
At September 30, 2000, Century had 71 full-time equivalent employees,
two of whom were executive officers. Century provide medical and hospitalization
insurance to its full-time employees.
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PROPERTIES
Century's principal executive offices and all of its banking offices,
which are listed above under the caption "--Overview," are leased under
agreements expiring at various dates, including renewal options, through 2012.
See Note 11 of notes to Consolidated Financial Statements of Century for
additional information concerning Century's commitments under its lease
agreements.
LEGAL PROCEEDINGS
The nature of the business of Century causes it (and the Bank) to be
involved in routine legal proceedings from time to time. Management of Century
believes that there are no pending or threatened legal proceedings that upon
resolution would have a material adverse impact on Century.
INTERESTS OF CERTAIN PERSONS
No director or executive officer of Century has any material direct or
indirect financial interest in GrandBanc or the merger except as a director,
executive officer or stockholder of Century or its subsidiaries.
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MANAGEMENT OF CENTURY
The following is a list of the directors and executive officers of
Century, their respective positions with Century and Century National Bank
(Bank) and their ages.
<TABLE>
<CAPTION>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
<S> <C> <C>
Joseph S. Bracewell 53 Chairman of the Board, President and Chief Executive Officer of Century
since 1985; Director and Chief Executive Officer of the Bank since 1982
and Chairman thereof since 1985; President of the Bank from 1982 to 1988
and since 1996.
George Contis, M.D. 67 Director of Century since 1995; Director of the Bank since 1989.
Physician and the President of Medical Services Corporation
International, an international contract provider of medical services,
for more than the past five years.
John R. Cope 58 Director and Vice President of Century since 1985; Director of the Bank
since 1982; Vice Chairman of the Bank since 1985 and General Counsel
thereof since 1986. Partner in the law firm of Bracewell & Patterson,
L.L.P., Washington, D.C. for more than the past five years.
Bernard J. Cravath 69 Director of Century since 1987; Director of the Bank from 1984 to 1986.
President of Reality Properties, Inc., a real estate investment
corporation, since 1984. Attorney in private practice for more than the
past five years.
Neal R. Gross 57 Director of Century since 1995; Director of the Bank since 1992.
Chairman and Chief Executive Officer of Neal R. Gross and Co., Inc., a
corporation providing court reporting services to attorneys, the federal
government, and other private organizations and individuals, for more
than the past five years.
William S. McKee 57 Director of Century since 1992; Director of the Bank from 1986 to
1992. Partner in the law firm of McKee, Nelson, Ernst & Young since
February 2000. Prior to February 2000, was a partner in the law firm of
King and Spalding, Washington, D.C., for more than five years.
William C. Oldaker 59 Director of Century since 1985 and Secretary since 1992; Director of the
Bank since 1984. Partner in the law firm of Oldaker, Ryan, Phillips and
Utrecht, Washington, D.C. from 1993 to November 1998, and Oldaker &
Harris, L.L.P. from November 1998 to the present.
</TABLE>
Century has a standing Audit, Executive Compensation and Stock Option
committees of its Board of Directors. The Audit Committee consists of Messrs.
Gross (Chair) and Cravath. The Executive Compensation Committee, which also
serves as the Stock Option Committee, is composed of Messrs. Cope (Chair),
Cravath, and Contis. Century does not have a standing nominating committee or
other committee serving a similar function. Members of the Board of Directors of
Century also serve on other committees, formal and informal, with directors and
members of senior management of the Bank.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation for each of the last
three years awarded to, earned by, or paid to the Chief Executive Officer of
Century, the only executive officer of Century whose salary and bonus exceeded
$100,000 for the last completed fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------------
Annual Compensation Securities
Name and Principal ---------------------------------------------------------- Underlyng All Other
Positions Year Salary Bonus (1) Other (2)(2) Options Compensation (4)
--------- ---- ------ --------- ------------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Bracewell 1999 $205,000 $ 25,000 $ 11,000 13,500 $ 1,367
Chairman of the Board, 1998 199,325 -0- 11,000 4,250 1,517
President, and CEO of 1997 182,300 5,000 10,750 4,000 2,824
Century and the Bank
</TABLE>
1) These payments are listed in the year accrued and earned, but each was
paid in the following year.
2) Amounts in this column represent (a) matching contributions to the
executive's 401(k) plan account and (b) director fees deferred by the
executive pursuant to the deferred compensation program for directors.
Contributions to the 401(k) plan on behalf of Mr. Bracewell were $5,000,
$5,000 and $4,750 during 1999, 1998 and 1997, respectively. Mr. Bracewell
deferred $6,000 during each of 1999, 1998, and 1997 respectively, pursuant
to the deferred compensation program for directors.
3) Mr. Bracewell is provided the use of a Company car, and certain club dues
are paid by Century on his behalf. Since the aggregate value thereof does
not exceed the lesser of $50,000 or 10% of Mr. Bracewell's annual cash
compensation, such amounts are not included in the table.
4) Includes the dollar value of insurance premiums paid by Century with
respect to the term life insurance portion of split dollar policies in
which Century has the full interest in the cash surrender value. During
1999, 1998 and 1997, Century held three split dollar policies covering Mr.
Bracewell.
BOARD COMPENSATION
Each director of Century, and each director of the Bank, is entitled to
receive an annual retainer of $4,200 for service on one of the two Boards, or
$6,000 for service on both Boards. Individual directors may elect to enter into
a defined compensation agreement (Compensation Agreement) in lieu of receiving
the annual retainer in cash. All directors of Century, and all but one of the
directors of the Bank, have elected to enter into Compensation Agreements for
that purpose. The Compensation Agreements generally provide for the payment of a
fixed monthly retirement benefit for up to 180 months payable to the director or
his designated beneficiary commencing on the first day of the month following
the director's retirement. In the event of the director's death prior to
retirement, a reduced sum is payable to a beneficiary designated by the director
for up to 180 months. The retirement benefit attributable to each annual
deferral vests ratably over a five year period, and in the event that a director
does not serve for five years after any benefit is accrued for any reason other
than a change of control, the director receives a benefit proportional to his
time of service. In the event of a change of control of Century, all benefits
are fully vested.
Prior to 1998, Century administered the program informally and
satisfied its potential future obligations under these agreements by using the
amount of the deferred payments to purchase life insurance on the participating
directors. During 1998, Century and the Bank established the Century Director's
Trust (the Trust) to facilitate the efficient payment, administration and record
keeping requirements of Century and the Bank under the program. The Trust is an
irrevocable grantor trust within the meaning of the federal income tax laws
administered by an affiliate of Allfirst Trust and two
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<PAGE> 106
individual trustees. The Trust permits contributions of cash and other property
to fund the obligations of Century and the Bank under the Compensation
Agreements, and obligates Century and the Bank to fully fund the benefits due
under the Compensation Agreements upon demand of the trustees of the Trust.
Century and the Bank have transferred to the Trust all life insurance policies
purchased to fund the retirement program, which have aggregate death benefits of
$1,670,000, and aggregate cash surrender values of $375,175. During 1999, the
Trust, on behalf of Century and the Bank, paid $37,200 in premiums on life
insurance policies for directors who participated in the deferred compensation
program. As of December 31, 1999, Century and the Bank had accrued an aggregate
liability of $794,431 in deferred compensation expense related to this program.
STOCK OPTION PLANS
Century currently has two stock option plans in force, the Century
Bancshares, Inc. 1994 Stock Option Plan and the Century Bancshares, Inc. 2000
Stock Awards Plan.
The 1994 Plan reserved 350,000 shares of Century's common stock for
issuance of incentive stock option and nonqualified stock options to directors
and key employees. As of November 30, 2000, options to purchase an aggregate of
325,680 shares of common stock at exercise prices ranging from $3.48 to $9.39
were outstanding, and there were 1,511 shares are available for future grant.
The 2000 Plan reserved 500,000 shares for issuance of a variety of
types of awards, including stock options, restricted stock awards, stock
appreciation rights, performance awards, and phantom stock awards, or any
combination thereof to employees, directors and consultants of Century and its
affiliates. As of November 30, 2000, options to purchase an aggregate of 154,628
shares at exercise prices ranging from $6.06 to $6.13 are outstanding, and there
are 345,372 shares available for future grant.
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<PAGE> 107
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF CENTURY
The following table sets forth the name, address and number of shares
of common stock owned beneficially as of November 30, 2000 by (a) each person
known to Century to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock; (b) each director of Century; (c) each of
Century's executive officers named in the Summary Compensation Table; and (d)
all executive officers and directors of Century as a group. No executive officer
or director of Century has any family relationship with any other officer or
director. Unless otherwise indicated, all shares are owned directly and the
owner has sole voting and investment power with respect thereto.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
<S> <C> <C>
Joseph S. Bracewell 218,422 (1) 7.91%
George Contis, M.D. 144,859 (2) 5.25%
John R. Cope 44,584 (3) 1.61%
Bernard J. Cravath 76,025 (4) 2.76%
Neal R. Gross 181,064 (5) 6.57%
William S. McKee 93,948 (6) 3.41%
William C. Oldaker 37,931 (7) 1.37%
All directors, and executive 796,833 29.03%
officers as a group (8 persons)
Robert Fleming Inc. 289,877(8) 10.57%
320 Park Avenue, 11th Floor
New York, NY 10022
Tontine Management, L.L.C. 200,083 (9) 7.29%
200 Park Avenue
Suite 3900
New York, NY 10166-3799
</TABLE>
1) Principal address is 1275 Pennsylvania Avenue, N.W., Washington, D.C.
Includes 4,478 shares held by minor children, 50,944 shares held as
Trustee, 61,450 shares held for the benefit of Mr. Bracewell in Century's
401(k) plan, and 7,821 shares held in individual retirement accounts. Also
includes 19,953 shares issuable upon exercise of currently exercisable
options.
2) Includes 107,424 shares held by Medical Services Corporation International
Profit Sharing Plan and Trust of which Dr. Contis is Trustee, and 12,295
shares issuable upon exercise of currently exercisable options.
3) Includes 16,180 shares held in the John R. Cope Rollover IRA, and 18,119
shares issuable upon exercise of currently exercisable options. Also
includes 1,016 shares held by Mr. Cope's spouse, and 7,996 shares in trust
for Mr. Cope's child for which Mr. Cope is trustee.
4) Includes 1,501 shares held by Mr. Cravath's wife, and 10,560 shares
issuable upon exercise of currently exercisable options. Also, includes
7,499 held in trust for minor grandchildren whose mother serves as trustee
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<PAGE> 108
and holds sole voting power. Mr. Cravath disclaims beneficial ownership of
shares in trust for minor grandchildren.
5) Principal address is 1323 Rhode Island Avenue, N.W., Washington, D.C.
20005. Includes 14,119 shares issuable upon exercise of currently
exercisable options.
6) Includes 10,560 shares issuable upon exercise of currently exercisable
options.
7) Includes 18,119 shares issuable upon exercise of currently exercisable
options. Also includes 2,682 shares held by Mr. Oldaker's spouse.
8) Based solely on information filed with the SEC.
9) Based solely on information obtained from The Nasdaq Stock Market, Inc.
and the SEC.
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<PAGE> 109
DESCRIPTION OF CAPITAL STOCK OF CENTURY
The authorized capital stock of Century consists of 10,000,000 shares
of common stock, par value $1.00 per share, and 1,000,000 shares of preferred
stock, par value $1.00 per share, issuable in series. The terms of each series
of preferred stock may be fixed by the Board of Directors of Century, within
certain limits set by Century's Certificate of Incorporation, as amended. As of
November 30, 2000 there were 2,742,998 shares of Common Stock outstanding and no
shares of preferred stock outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held
on all matters with respect to which the holders of common stock are entitled to
vote. The common stock has no preemptive or conversion rights and is not subject
to redemption. Holders of common stock are not entitled to cumulative voting in
the election of directors. In the event of dissolution or liquidation, after
payment of all creditors the holders of the common stock (subject to the prior
rights of the holders of any outstanding preferred stock) will be entitled to
receive pro rata any assets distributable to stockholders in respect of the
number of shares held by them.
The holders of shares of common stock are entitled to such dividends as
the Board of Directors, in its discretion, may declare out of funds legally
available therefor. Under the Delaware General Corporation Law, dividends may
not be paid if, after the payment, Century's total assets would be less than the
sum of its total liabilities and stated capital, or if Century would be unable
to pay its debts as they become due in the usual course of its business. Century
has not paid cash dividends on shares of its common stock to date. Century does
not anticipate paying cash dividends on the common stock in the near future,
although Century's long-term plan calls for the payment of cash dividends when
circumstances permit. The payment of dividends on common stock would be subject
to the prior rights of the holders of any preferred stock. Payment of future
dividends on both the common stock and any preferred stock, will be dependent
upon, among other things, the earnings and financial condition of Century and
the Bank, Century's other cash flow requirements and the general economic and
regulatory climate.
The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, LLC.
PREFERRED STOCK
The preferred stock is available for issuance from time to time for
various purposes as determined by Century's Board of Directors, including
without limitation, making future acquisitions and raising additional equity
capital. Subject to certain limitations set forth in Century's Certificate of
Incorporation, as amended, the preferred stock may be issued on such terms and
conditions, and at such times and in such situations, as the Board of Directors
in its sole discretion determines to be appropriate, without any further
approval or action by the stockholders, unless otherwise required by laws,
rules, regulations or agreements applicable to Century.
Because the Certificate of Incorporation of Century does not prescribe
rights and preferences, the Board of Directors of Century has virtually
unlimited authority to set rights and preferences of any series established,
including voting rights. The effects of the issuance of preferred stock on the
stockholders could include, among other things, (i) reduction of the amount
otherwise available for payments of dividends on common stock if dividends are
payable on a series of preferred stock; (ii) restrictions on dividends on common
stock if dividends on the series of preferred stock are in arrears, (iii)
dilution of the equity interest of holders of common stock if the series of
preferred stock is convertible, and is converted, into common stock; and (iv)
restrictions on the rights of holders of common stock to share in Century's
assets upon liquidation until satisfaction of any liquidation preference granted
to the holders of the series of preferred stock.
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<PAGE> 110
PREFERRED SECURITIES OF SUBSIDIARY TRUST
During 2000, Century's wholly owned statutory business trust, Century
Capital Trust I (the Trust), issued $8.8 million of 10.875% capital securities
held to a third party. The Trust invested the proceeds it received from the
issuance of the capital securities in an equivalent amount of junior
subordinated debt securities of Century bearing an interest rate equal to the
rate on the Trust's capital securities. The debt securities issued by Century,
which are the only assets of the Trust, are subordinate and junior in right of
payment to all present and future senior and subordinated indebtedness and
certain other financial obligations of Century. Century has fully and
unconditionally guaranteed the Trust's obligations under the capital securities.
All of the common securities of the Trust are held by Century. For financial
reporting purposes, the Trust is treated as a subsidiary of Century and
consolidated in the corporate financial statements. The capital securities are
presented as a separate category of long term debt in Century's financial
statements entitled "preferred securities of subsidiary trust" and are not
included as a component of stockholders' equity. The capital securities are,
however, treated as Tier I capital of Century by the Federal Reserve Board to
the extent it does not exceed 25% of Century's total Tier I capital. Any excess
is treated as Tier II capital.
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 junior
subordinated debt securities issued by Century to the Trust, Century has the
right to defer payment of interest on the junior subordinated debt at any time,
for periods not exceeding five years. If interest payments on the junior
subordinated debt securities are deferred, the distributions on the capital
securities are also deferred and Century will not be permitted to make any cash
distributions on its common stock. Interest on the subordinated debt is
cumulative.
Subject to the prior approval of the Federal Reserve Board, the
securities issued by the Trust are redeemable at the option of Century 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.
ANTI-TAKEOVER PROTECTIONS
As described above, Century's Certificate of Incorporation permits the
issuance of preferred stock in series by action of the Board of Directors.
Although Century has no plans to utilize the issuance of shares of preferred
stock as a deterrent to possible takeover attempts, the power to issue shares of
preferred stock in series and to determine certain rights and preferences with
respect to each such series may have dilutive effect on the value of shares of
common stock and other ownership rights of the holders of common stock, and may
have the effect of discouraging attempts to acquire control of Century.
Century's Certificate of Incorporation and Bylaws contain certain
provisions, in addition to the authority to issue preferred stock in series,
which may have the effect of delaying or preventing a change in control of
Century. Century's Certificate of Incorporation contains provisions which
prohibit stockholder action by written consent and which require certain
extraordinary corporate transactions, including the merger of Century with
another corporation, the sale of all or substantially all of Century's assets,
and the amendment of Century's Certificate of Incorporation, to be approved by
the vote of the holders of two-thirds of the outstanding shares of capital stock
entitled to vote thereon, rather than a majority. The effect of these
provisions, when coupled with existing statutory restrictions on the purchase of
voting securities of a registered bank holding company, may be to delay or
prevent a change in control of Century.
Century is subject to Section 203 of the Delaware General Corporation
Law which, with certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (a) prior to such date,
the Board of Directors of the
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<PAGE> 111
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors and officers and
(ii) by employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer, or (c) on and after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
The Bylaws of Century also impose certain procedural requirements on
stockholders who wish (a) to make nominations in the election of directors and
(b) to present any other proposal to the stockholders for action, including any
repeal or change in the Bylaws of Century. The requirements include, among other
things, the timely delivery to Century's Secretary of notice of the nomination
or proposal and evidence of (i) the stockholder's status as such, (ii) the
number of shares the stockholder beneficially owns, (iii) a list of the persons
with whom the stockholder is acting in concert and (iv) the number of shares
such persons beneficially own. The Bylaws further provide that when nominating
directors, the stockholder must also submit such information with respect to the
nominee as would be required by a proxy statement and certain other information.
The Bylaws provide that failure to follow the required procedures renders the
nominee or proposal ineligible to be voted upon by the stockholders.
Century believes that the provisions noted above are prudent and will
reduce Century's vulnerability to takeover attempts and certain other
transactions that are not negotiated with or approved by the Board of Directors.
In the judgment of Century, its Board of Directors will be in the best position
to determine the true value of Century and negotiate effectively for what might
be in the best interests of its stockholders. Accordingly, Century believes that
it is in the best interests of Century and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors, and that
these provisions will both encourage this negotiation and discourage hostile
takeover attempts. It is also Century's view that these provisions should not
discourage persons from proposing mergers or other transactions at prices that
reflect the true value of Century and are in the best interest of all of the
stockholders.
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<PAGE> 112
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GRANDBANC
FINANCIAL CONDITION
Total assets increased 6.9% from $109.7 million at December 31, 1998 to
$117.3 million at December 31, 1999. Total assets decreased by $2.7 million or
2.3% to $114.5 million at September 30, 2000. Average earning assets for the
nine months ended September 30, 2000 were $105.4 million, a decrease of 2.7%
from the average earning assets for 1999 of $108.3 million. Average earning
assets for 1999 represented an increase of 15.7% from the 1998 average of $93.6
million.
Total loans decreased by $2.3 million to $59.0 million or 3.8% at
December 31, 1999 compared to $61.3 million at December 31, 1998. Total loans
increased by $1.4 million, or 2.3%, to $60.4 million at September 30, 2000.
Total deposits increased 4.7% from $96.7 million at December 31, 1998 to $101.3
million at December 31, 1999, and decreased 0.7% to $100.5 million at September
30, 2000. Investment securities and federal funds sold increased 14.7% from
$39.2 million as of December 31, 1998 to $45.0 million at December 31, 1999, and
decreased 5.1% to $42.7 million at September 30, 2000.
CAPITAL ADEQUACY
Stockholders' equity totaled $6.2 million at September 30, 2000,
compared to $5.8 million at December 31, 1999 and $7.7 million at December 31,
1998. The changes primarily reflect changes in the unrealized gains/(losses) on
securities available for sale, which totaled ($1.3 million) at September 30,
2000 as compared to ($1.6 million) at December 31, 1999 and ($32 thousand) at
December 31, 1998. Also reflected are the net loss of $270 thousand for 1999 and
$79 thousand of net income for the nine months ended September 30, 2000.
At September 30, 2000 GrandBanc's Tier 1 and total risk-based capital
ratios were 7.93% and 8.80%, respectively, compared to 7.35% and 8.26% at
December 31, 1999. GrandBanc's leverage ratio was 5.26% at September 30, 2000
compared to 4.79% at December 31, 1999. Tier 1 and total risk-based capital
ratios for GrandBank, GrandBanc's banking affiliate were 10.76% and 11.67%
respectively at September 30, 2000 compared to 10.10% and 11.00% at December 31,
1999, which exceeded the minimum level for capital adequacy ratio of 8%, and the
minimum level to be "well capitalized" under prompt corrective action provisions
ratio of 10%. GrandBank's leverage ratio was 7.11% at September 30, 2000
compared to 6.40% at December 31, 1999.
Asset/Liability Management
GrandBank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits. Interest rate risk arises due to fluctuations in the general level
of interest rates and such fluctuations can significantly impact GrandBank's
level of profitability. Managing interest rate risk is fundamental to banking.
The inherent maturing and re-pricing characteristics of our day-to-day lending
and deposit activities create a naturally asset-sensitivity structure. GrandBank
seeks to manage its interest rate risk through its Asset/Liability Management
Committee (ALCO) established by the Board of Directors and consisting of the
full Board and the Chief Executive Officer, Chief Accounting Officer, Senior
Credit Officer and the Senior Retail Banking Officer. The ALCO oversees the
interest rate risk management process and approves policy guidelines.
GrandBank monitors the day-to-day exposure to changes in interest rates
in response to loan and deposit flows. GrandBank's methodology for measuring
exposure to interest rate risk is intended to
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ensure that we include a sufficiently broad range of rate scenarios and pattern
of rate movements that we believe to be reasonably possible. GrandBank's
methodology measures the impact that 100, 200, and 300 basis point rate changes
would have on earnings over the subsequent twelve months. GrandBank's earnings
simulation model reflects a number of variables that we identify as being
affected by interest rates. The ALCO also establishes and monitors the volume
and mix of GrandBank's assets and funding sources to produce results which are
consistent with liquidity, capital adequacy, growth, risk, and profitability
goals.
Liquidity management enables GrandBank to maintain sufficient cash flow
to fund operations and to meet financial obligations to depositors and
borrowers. GrandBank's liquidity is enhanced by its ability to attract and
retain deposits and by principal and interest payments on loans and maturing
securities in the investment portfolio. GrandBank's core deposit base,
consisting of demand deposits, money market, and savings accounts supplemented
by other deposits of varying maturities and rates, contributes to GrandBanc's
liquidity. GrandBank's liquidity position, those assets invested in federal
funds, and obligations of the U.S. Government, its agencies and sponsored
entities available for sale, of $42.7 million at September 30, 2000, represented
a decline of $2.3 million or 5.1%, from the $45.0 million at December 31, 1999.
The 1999 level reflected an increase of $5.7 million from December 31, 1998, or
14.7%. Funds available through short-term borrowings, asset maturities, and loan
payments are considered adequate to meet all current needs. At September 30,
2000, GrandBanc had the ability to borrow against collateral consisting of
securities in its investment portfolio. Although GrandBank's liquidity position
remains adequate, potential increases in loan demand could have an adverse
impact on liquidity. GrandBank also has a $5 million borrowing line with the
Federal Home Loan Bank of Atlanta. This line may be utilized as a supplementary
source of funding growth of GrandBank. In addition, GrandBank's ALCO has
established minimum standards and key ratios of asset quality and performance.
These standards and ratios provide the framework for guidance and measurement.
Management evaluates these standards and ratios on an ongoing basis.
In October 2000, GrandBanc obtained commitments to extend until June
30, 2001 debt to unaffiliated banks due October 31, 2000, in the amount of $2.25
million at September 30, 2000.
The loan to deposit ratio at September 30, 2000 was 60.0%, compared to
58.4% at December 31, 1999 and 63.4% at December 31, 1998. The loan to total
assets ratio at September 30, 2000 was 52.7%, as compared to 50.3% at December
31, 1999 and 55.9% at December 31, 1998.
The amounts of interest-earning assets and interest-bearing liabilities
outstanding at September 30, 2000, which are anticipated by GrandBank based on
certain assumptions to re-price or mature in future time periods, are set forth
in the Interest Sensitivity Analysis below.
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<PAGE> 114
INTEREST RATE GAP ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
As of September 30, 2000
------------------------------------------------------------------------
1-90 91-180 181-365 1-5 Over 5
INTEREST-SENSITIVE ASSETS: Days Days Days Years Years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 325 $ -- $ -- $ -- $ --
Securities 494 488 942 9,867 32,707
Loans maturing 808 1,746 2,619 15,439 7,218
Loans repricing 19,985 1,654 2,714 5,029 1,569
Credit card receivables 1,638 -- -- -- --
------------------------------------------------------------------------
Total $ 23,250 $ 3,888 $ 6,275 $ 30,335 $ 41,494
------------------------------------------------------------------------
Cumulative totals $ 23,250 $ 27,138 $ 33,413 $ 63,748 $105,242
------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES:
Certificate of deposits & CD IRA's 8,498 5,665 18,440 24,781 15
Savings accounts & savings IRA's 4,452 -- -- -- --
Interest checking accounts 11,219 -- -- -- --
Money market deposit accounts 16,485 -- -- -- --
Sweep accounts 3,812 -- -- -- --
FHLB - Advances 1,000 -- -- -- --
Other 2,456 -- -- -- --
------------------------------------------------------------------------
Totals 47,922 5,665 18,440 24,781 15
------------------------------------------------------------------------
Cumulative totals 47,922 53,587 72,027 96,808 96,823
------------------------------------------------------------------------
Gap $(24,672) $ (1,777) $(12,165) $ 5,554 $ 41,479
------------------------------------------------------------------------
Cumulative Gap $(24,672) $(26,449) $(38,614) $(33,060) $ 8,419
------------------------------------------------------------------------
Adjustments:
Beta Adjustments:
Interest checking (beta factor .30) $ 7,853
Savings accounts (beta factor .30) 3,116
Money market accounts (beta factor .40) 9,891
------------------------------------------------------------------------
Cumulative Adjusted Gap ($ 3,811) ($ 5,588) ($17,753) ($12,199) $ 29,280
------------------------------------------------------------------------
As Reported Information:
Interest-sensitive assets/interest-
sensitive liabilities (cumulative) 48.52% 50.64% 46.39% 65.85% 108.70%
Cumulative Gap/Total Assets (21.54) (23.09) (33.71) (28.86) 7.35
Beta Adjusted Information:
Interest-sensitive assets/interest-
sensitive liabilities (cumulative) 85.92 82.92 65.30 83.94 138.55
Cumulative Gap/Total Assets (3.33) (4.88) (15.50) (10.65) 25.56
</TABLE>
The amount of assets and liabilities shown which re-price or mature
during a particular period were determined in accordance with the earlier of
term to re-pricing or the contractual terms of the asset or liability. GrandBanc
has assumed that its savings, interest checking, and money market accounts
re-price daily. At September 30, 2000, GrandBanc's one-year interest sensitivity
gap (the difference between the amount of interest-earning assets and
interest-earning liabilities anticipated by GrandBanc, based on certain
assumptions, to mature or re-price within one year) as a percentage to total
assets was a negative 33.71%. This negative gap position means GrandBanc had
$38.6 million more liabilities than assets re-pricing within one year. This
generally indicates that in a period of declining interest rates, GrandBanc's
net interest income may improve. Conversely, in a rising interest rate
environment, GrandBanc's net interest income may be adversely affected. However,
this approach assumes that all re-pricing assets and liabilities will re-price
the same way. Historical data indicates that certain deposit
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liabilities such as interest checking, savings, and money market deposits do not
re-price the same way as other products and interest gap analysis tend to be
more accurate when adjusted to reflect such behavior. The Beta adjusted
cumulative gap in the above table reflects a negative gap of 15.5% or $ 17.8
million.
The following table sets forth information regarding GrandBanc's
short-term borrowings from banks for the periods indicated.
SHORT TERM BORROWINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
----------------------------------------- --------------------------
2000 1999 1999 1998
------------------- -------------------- ------------- ----------
<S> <C> <C> <C> <C>
End of period balance $ 2,275 $ 2,050 $ 2,350 $ 1,900
Average balance 2,303 1,996 2,011 1,948
Maximum month-end balance 2,542 2,248 2,542 2,100
Average interest rate 9.52% 8.27% 8.55% 11.47%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
At September 30, 2000, the allowance for losses was $646 thousand, or
1.07% of total loans outstanding, compared to $690 thousand or 1.17% of loans
outstanding at December 31, 1999, and $927 thousand or 1.51% of loans
outstanding as of December 31, 1998. The $237 thousand decrease from December
31, 1998 to December 31, 1999 was attributed primarily to the reduction in the
total loans outstanding. At December 31, 1999, non-accrual loans increased by
$57 thousand or 10.7% to $592 thousand compared to $535 thousand at December 31,
1998. The allowance for loan losses coverage of non-accrual loans was 116.6% at
December 31, 1999 compared to a coverage of 173.3% at December 31, 1998. There
were no non-performing or non-accrual loans at September 30, 2000.
-107-
<PAGE> 116
The following table sets forth the activity in the allowance for loan
losses for the indicated periods.
SUMMARY OF LOAN LOSS EXPERIENCE AND
THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the nine months ended For the year ended
September 30, December 31,
------------------------- ---------------------
2000 1999 1999 1998
------------------------- ---------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 690 $ 927 $ 927 $ 1,702
Loans charged-off:
Commercial and other -- 21 43 260
Consumer 168 441 539 418
Real estate 5 -- -- 621
-------------------------- ---------------------
Total charge-offs 173 462 582 1,299
-------------------------- ---------------------
Recoveries:
Commercial and other 18 12 12 430
Consumer 12 12 28 6
Real estate 39 -- 36 78
-------------------------- ---------------------
Total recoveries 69 24 76 514
-------------------------- ---------------------
Net loans charged-off 104 438 506 785
Provision for loan losses 60 190 269 10
-------------------------- ---------------------
Balance at end of period $ 646 $ 679 $ 690 $ 927
========================== =====================
Average total loans $59,084 $58,244 $58,453 $73,176
Total loans at end of period $60,364 $58,231 $58,993 $61,300
Ratio of allowance for loan losses
to total loans outstanding: 1.07% 1.17% 1.17% 1.51%
Ratio of net charge-offs to average loans 0.23 1.00 0.87 1.07
outstanding during the period *
</TABLE>
--------
*Annualized
-108-
<PAGE> 117
The following table allocates the allowance for loan losses by loan
category. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb loss in any category.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------------------------------- ---------------------------------------------
2000 1999 1999 1998
------------------------ ----------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each Loans in Each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ------------- ------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage $246 69.00% $224 69.40% $224 69.00% $450 61.00%
Real estate construction 0 0.00 1 0.20 1 0.00 1 1.00
Commercial 70 23.40 49 22.70 49 23.00 114 28.00
Consumer 247 7.50 304 7.70 304 8.00 281 10.00
Unallocated 83 N/A 112 N/A 112 N/A 81 N/A
---- ------ ---- ------ ---- ------ ---- ------
Total allowance for loan losses $646 100.00% $690 100.00% $690 100.00% $927 100.00%
==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
NON-PERFORMING LOANS AND ASSETS
GrandBank's non-performing assets which are comprised of loans
delinquent 90 days or more, non-accrual loans, and other real estate owned
(OREO), totaled $114 thousand at September 30, 2000, as compared to $1.9 million
at December 31, 1999 and $1.0 million at December 31, 1998. The percentage of
non-performing assets to total assets declined to 0.10% at September 30, 2000 as
compared to 1.61% at December 31, 1999 and 0.91% at December 31, 1998.
Non-performing loans totaled $0 at September 30, 2000 as compared to
$1.8 million at December 31, 1999 and $662 thousand at December 31, 1998.
Non-performing loans at December 31, 1999 consisted of loans in non-accrual
status in the amount of $592 thousand and loans past-due over 90 days of $1.2
million, as compared to nonaccrual loans of $535 thousand and past due loans of
$127 thousand at December 31, 1998. Nonaccrual loans are those loans on which
the accrual of interest has been discontinued. Commercial loans are generally
placed on nonaccrual status when either principal or interest is past due 90
days or more, or when management believes the collection of principal or
interest is in doubt. Nonaccrual loans decreased to $0 at September 30, 2000
from $592 thousand at December 31, 1999. Past due loans are defined as those
loans which are 90 days or more past due as to principal and interest but are
still accruing interest because they are well secured and are in the process of
collection. GrandBanc had past due loans of $82 thousand at September 30, 2000
compared to $1.2 million at December 31, 1999 and $127 thousand at December 31,
1998.
At September 30, 2000 and December 31 1999, OREO, net of valuation
reserve, was $114 thousand, compared to $374 thousand at December 31, 1998,
representing a decrease of $260 thousand or 69.5%. Generally, GrandBank
evaluates the fair value of each property owned annually. These evaluations may
be appraisals or other market studies.
The following table details nonperforming assets, past due loans and
asset quality ratios for the periods indicated.
-109-
<PAGE> 118
NONPERFORMING ASSETS AND PAST DUE LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------- -----------------------
2000 1999 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Nonaccrual loans -- $ 275 $ 592 $ 535
Restructured loans -- -- -- --
----------------------- -----------------------
Total nonperforming loans -- 275 592 535
Other real estate 114 114 114 374
----------------------- -----------------------
Total nonperforming assets 114 389 706 909
Loans past due 90 days or more
and accruing interest 82 181 1,187 127
----------------------- -----------------------
Total nonperforming assets and past due loans $ 196 $ 570 $ 1,893 $ 1,036
======================= =======================
Total loans at period-end $ 60,364 $ 58,231 $ 58,993 $ 61,300
Allowance for loan losses 646 679 690 927
Total assets 114,534 118,465 117,267 109,673
Asset Quality Ratios:
Allowance for loan losses to
period end loans 1.07% 1.17% 1.17% 1.51%
Allowance for loan losses to
nonperforming loans (multiple) N/A 2.47x 1.17x 1.73x
Total nonperforming loans
to total loans 0.00% 0.87% 1.00% 0.87%
Total nonperforming assets to
total assets 0.10% 0.83% 0.60% 0.83%
Nonperforming assets to total
loans plus other real estate 0.19% 1.47% 1.19% 1.47%
Nonperforming assets and loans past
due 90 days or more to total loans
and other real estate 0.32% 1.68% 3.20% 1.68%
</TABLE>
In addition to the loans listed above as nonperforming or past due,
performing loans considered potential problem loans, as defined and identified
by management, amounted to $1.6 million at September 30, 2000. Although these
are loans where known information about the borrowers' possible credit problems
causes management to have doubts as to the borrows' ability to comply with the
present loan repayment terms, most are well collateralized and are not believed
to present significant risk of loss. Loans classified for regulatory purposes
not included in nonperforming loans do not, in management's opinion, represent
or result from trends or uncertainties reasonably expected to materially impact
future operating results, liquidity or capital resources or present material
credits where known information about the borrowers' possible credit problems
causes management to have doubts as to the borrowers' ability to comply with the
loan repayment terms.
-110-
<PAGE> 119
RESULTS OF OPERATIONS
NET (LOSS)/INCOME
Net income for the nine months ended September 30, 2000 increased by
$244 thousand from the same period in 1999. For the nine-month period ended
September 30, 2000, GrandBanc reported net income after taxes of $79 thousand or
$0.02 per share (basic and diluted), compared to a loss of $165 thousand or
$0.04 per share (basic and diluted) for the same period in 1999. Year-to-date
returns on average assets and average equity were 0.09% and 1.79%, respectively
for 2000, compared to (0.19%) and (3.10%), for the same period in 1999.
GrandBanc had a loss before income taxes of $436 thousand for the year ended
December 31, 1999 compared to income $252 thousand for the same period in 1998.
Net loss totaled $270 thousand for the year ended December 31, 1999, a decrease
of $369 thousand compared to net income in 1998. Basic and diluted earnings per
share were ($0.07) in 1999 compared to $0.02 in 1998. The decrease in earnings
in 1999 was attributable to higher than anticipated charges to the provision for
loan losses, higher overhead, and lower fee income.
NET INTEREST INCOME
Net interest income is the difference between interest income on
earning assets and interest expense on deposits and other borrowed funds. Net
interest income for the nine months ended September 30, 2000 totaled $2.96
million compared to $3.06 million for the same period in 1999, representing a
decrease of $98 thousand or 3.21%. The decrease in year-to-date net interest
income reflects the effects of the tightening of the spreads between interest
earned on loans, securities, federal funds, and other investments, and the rates
paid on deposits and borrowed funds. Improvements in the volume of loans were
offset by the decreases in securities. In addition, the high ratio of time
deposits to non-maturing deposits has negatively affected the overall cost of
funding earning assets. GrandBanc's net interest margin for the nine months
ended September 30, 2000 decreased slightly to 3.75% from 3.77% for the same
period in 1999. The lower volume of earning assets and the higher cost of funds
primarily offset the year-to-date gains in the rates earned in interest-earning
assets, which negatively affected the overall net interest margin.
As of September 30, 2000, year-to-date average earning assets decreased
by $2.9 million or 2.6% to $105.4 million compared to $108.3 million for the
same period in 1999. Average total loans, the largest component of earning
assets, increased slightly by $840 thousand to $59.1 million compared to $58.2
million for 1999. However, other earning assets comprised of investment
securities and money market instruments decreased by $3.7 million. Average
securities decreased by approximately $2.2 million to $45.5 million compared to
$47.7 million for first nine months of 1999. Average federal funds sold and
money market instruments declined by $1.5 million to $879 thousand as of
September 30, 2000 compared to $2.4 million for the same period in 1999.
As of September 30, 2000, average interest bearing deposits decreased
by $5.9 million or 6.3% to $87.8 million compared to $93.7 million as of the
same period in 1999. The decrease was primarily attributable to declines in
certificates of deposit volume and limited growth in the other deposit
categories. Average interest bearing liabilities totaled $96.5 million at
September 30, 2000 compared to $100.1 million for the same period in 1999.
Average demand deposits, which are paramount to controlling cost of funds,
increased by only $922 thousand to $11.3 million as of September 30, 2000
compared to $10.4 million for the same period in 1999.
Net interest income for the year ended December 31, 1999 totaled $4.05
million compared to $4.19 million in 1998, reflecting a decrease of $145
thousand or 3.5%. Total interest income totaled $8.6 million in 1999 compared to
$8.2 million in 1998. This increase was the result of $1.9 million improvement
in interest income from securities which helped offset a decreased in interest
and fees on loans of $1.4 million. The decrease in interest and fee revenue from
loans was the result of the continuing decrease in loan volume experienced
during 1999. Interest expense increased by $549 thousand to $4.6
-111-
<PAGE> 120
million in 1999, compared to $4.0 million in 1998. The increase in interest
expense was attributable to increases in deposits and other borrowed funds.
Deposits and other borrowed funds increased by $9.5 million or 9.4%; and the
cost of funding deposit and other borrowings decreased to 4.56% in 1999 from
4.79% in 1998. The loss in loan volume negatively affected the overall net
interest margin.
The average yield on earning assets for the year ended December 31,
1999, was 7.95% compared to 8.77% in 1998. The average interest rate paid on
interest bearing deposits in 1999 was 4.50% compared to 4.69% in 1998. The
average interest rate paid on other borrowed funds in 1999 was 5.32% compared to
6.30% in 1998. Net interest margin is the ratio of net interest income to
average earning assets. For the year ended 1999, net interest margin was 3.74%
compared to 4.48% for the year ended December 31, 1998.
The following table sets forth certain information relating to
GrandBanc's average consolidated statements of financial condition and reflects
the interest income on interest earning assets and interest expense on interest
bearing liabilities for the periods indicated and the average yields earned and
rates paid for the periods indicated. These yields and costs are derived by
dividing income or expense by the average daily balance of the related assets or
liabilities, respectively, for the periods presented. Non-accrual loans have
been included in the average balances of loans.
-112-
<PAGE> 121
AVERAGE BALANCES, RATES AND YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable $ 59,084 $ 4,283 9.69% $ 58,244 $ 4,236 9.72%
Investment securities 45,450 2,134 6.28 47,635 2,148 6.03
Other interest-earning assets 879 40 6.08 2,390 86 4.81
-------- -------- --------- --------
Total interest-earning assets 105,413 6,457 8.19 108,269 6,470 7.99
Noninterest-earning assets:
Other assets 8,871 9,828
-------- --------
Total assets $114,284 $118,097
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest checking $ 15,514 $ 262 2.25% $ 15,058 $ 245 2.17%
Money market accounts 14,800 452 4.07 11,120 267 3.21
Time deposits 57,510 2,393 5.55 67,506 2,651 5.24
-------- -------- --------- --------
Total interest-bearing deposits 87,824 3,107 4.73 93,684 3,163 4.51
Other 8,681 392 6.04 6,385 251 5.26
-------- -------- --------- --------
Total interest-bearing liabilities 96,505 3,499 4.85 100,069 3,414 4.56
-------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand 11,364 10,442
Other noninterest-bearing liabilities 520 493
Shareholders' equity 5,895 7,093
-------- ---------
Total liabilities and
shareholders' equity $114,284 $118,097
======== ========
Net interest income $ 2,958 $ 3,056
======== ========
Interest rate spread 3.35% 3.44%
====== =======
Net interest margin 3.75% 3.77%
====== =======
Ratio of average interest-earning
assets to average
interest-bearing liabilities 109.23% 108.19%
====== =======
</TABLE>
-113-
<PAGE> 122
AVERAGE BALANCES, RATES AND YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable $ 58,453 $ 5,613 9.60% $ 73,176 $ 7,038 9.62%
Investment securities 47,718 2,896 6.07 16,768 957 5.71
Other interest-earning assets 2,133 104 4.88 3,662 214 5.84
-------- -------- -------- --------
Total interest-earning assets 108,304 8,613 7.95 93,606 8,209 8.77
Noninterest-earning assets:
Other assets 9,922 8,980
-------- --------
Total assets $118,226 $102,586
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest checking $ 14,710 $ 318 2.16% $ 12,856 $ 297 2.31%
Money market accounts 11,291 371 3.29 11,158 360 3.23
Time deposits 67,115 3,502 5.22 55,107 3,057 5.55
-------- -------- -------- --------
Total interest-bearing deposits 93,116 4,191 4.50 79,121 3,714 4.69
Other 7,066 376 5.32 4,828 304 6.30
-------- -------- -------- --------
Total interest-bearing liabilities 100,182 4,567 4.56 83,949 4,018 4.79
-------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand 10,650 10,221
Other noninterest-bearing liabilities 494 677
Shareholders' equity 6,900 7,739
-------- --------
Total liabilities and
shareholders' equity $118,226 $102,586
======== ========
Net interest income $ 4,046 $ 4,191
======== ========
Interest rate spread 3.39% 3.98%
====== ======
Net interest margin 3.74% 4.48%
====== ======
Ratio of average interest-earning
assets to average
interest-bearing liabilities 108.11% 111.50%
====== ======
</TABLE>
-114-
<PAGE> 123
The following table presents GrandBanc's analysis of changes in interest
income and interest expense relating to volume and rate for the periods
indicated.
RATE / VOLUME ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
Compared to Compared to
September 30, 1999 September 30, 1998
-----------------------------------------------------------------------------
Increase (decrease) attributable to change in:
-----------------------------------------------------------------------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable $ 47 $ (14) $ 61 $(1,103) $ 57 $(1,160)
Investment securities (14) 85 (99) 1,552 174 1,378
Other interest earning assets (46) 8 (54) (107) (18) (89)
------------------------------------- ------------------------------------
Total interest income (13) 79 (92) 342 213 129
------------------------------------- ------------------------------------
Interest paid on:
Savings and interest checking 17 11 6 15 (17) 32
Money market accounts 185 97 88 (4) 2 (6)
Time deposits (258) 139 (397) 388 (180) 568
Other borrowed funds 141 100 41 16 (53) 69
------------------------------------- ------------------------------------
Total interest expense 85 347 (262) 415 (248) 663
------------------------------------- ------------------------------------
Net interest income $ (98) $ (268) $ 170 $ (73) $ 461 $ (534)
===================================== ====================================
</TABLE>
-115-
<PAGE> 124
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
Compared to Compared to
December 31,1998 December 31, 1997
-----------------------------------------------------------------------------
Increase (decrease) attributable to change in:
-----------------------------------------------------------------------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable $(1,425) $ (9) $(1,416) $ 78 $ 231 $ (153)
Investment securities 1,939 173 1,766 (54) (30) (24)
Other interest earning assets (110) (21) (89) 78 21 57
------------------------------------- ------------------------------------
Total interest income 404 143 261 102 222 (120)
------------------------------------- ------------------------------------
Interest paid on:
Savings and interest checking 21 (22) 43 6 6 0
Money market accounts 11 7 4 (104) (13) (91)
Time deposits 445 (221) 666 1 (23) 24
Other borrowed funds 72 (69) 141 (16) (98) 82
------------------------------------- ------------------------------------
Total interest expense 549 (305) 854 (113) (128) 15
------------------------------------- ------------------------------------
Net interest income $ (145) $ 448 $ (593) $ 215 $ 350 $ (135)
===================================== ====================================
</TABLE>
LOAN PORTFOLIO
GrandBank's lending activities are broken into three broad types of
loan categories consisting of commercial, real estate and consumer loans. The
overall size and composition of the loan portfolio depends upon the market
demand for credit and management's requirements for liquidity, asset quality and
profitability. The composition of GrandBank's loan portfolio is shown on the
following table.
LOANS OUTSTANDING BY TYPE
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------------------------------ -------------------------------------------------
2000 1999 1999 1998
----------------------- ----------------------- ----------------------- -----------------------
Percent of Percent of Percent of Percent of
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------- ------ ------- ------ ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage $41,705 69.00% $40,995 69.40% $40,988 69.00% $37,659 61.00%
Real estate construction 0 0.00 94 0.20 94 0.00 210 1.00
Commercial 14,165 23.40 13,429 22.70 13,381 23.00 17,477 28.00
Consumer & credit card 4,549 7.50 4,529 7.70 4,530 8.00 5,954 10.00
------- ------ ------- ------ ------- ------ ------- ------
Total $60,419 100.00% $59,047 100.00% $58,993 100.00% $61,300 100.00%
------- ------ ------- ------ ------- ------ ------- ------
</TABLE>
-116-
<PAGE> 125
The following tables set forth a maturity schedule of selected loans in
the portfolio. Actual maturities may differ from those shown as loans are often
refinanced or repaid prior to maturity. A significant portion of GrandBank's
loans due after one year have a variable rate feature which allows rates to
change as the prime rate changes, thus reducing GrandBank's interest rate risk.
LOAN MATURITIES AND SENSITIVITY TO INTEREST RATES
As of December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Due in One Due After Due After
Year or Less One-Five Years Five Years
------------ -------------- ----------
<S> <C> <C> <C>
Real estate mortgage $22,925 $14,055 $ 4,009
Real estate construction 94 0 0
Commercial 7,194 3,307 2,880
Consumer and credit card 2,680 1,597 252
------- ------- -------
Total $32,893 $18,959 $ 7,141
======= ======= =======
</TABLE>
LOANS WITH MATURITIES OF ONE YEAR OR GREATER
As of December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fixed Variable
Rate Rate
------- -------
<S> <C> <C>
Real estate mortgage $16,840 $ 1,224
Real estate construction 0 0
Commercial 1,532 4,655
Consumer and credit card 1,718 131
------- -------
Total $20,090 $ 6,010
======= =======
</TABLE>
INVESTMENT PORTFOLIO
Securities in the investment portfolio are classified into two
categories, held to maturity (HTM) and available for sale (AFS). The AFS
investment portfolio is managed from an interest income and total return
perspective. As such, securities will at times be sold out of the AFS portfolio
when management deems that a greater return can be earned in another type of
security (including cash) or that the interest rate risk in the balance sheet is
not appropriate for the prevailing micro and macro-economic climate. The AFS
portfolio is marked-to-market on a monthly basis. Changes in the fair value of
the AFS portfolio are excluded from earnings and reported as a separate
component of equity, net of income taxes. The investment portfolio is primarily
comprised of three basis types of securities: U.S. Treasury and U.S. Government
agencies, mortgage-backed obligations (MBSs), and collateralized mortgage
obligations (CMOs). The investments are chosen primarily to provide and maintain
adequate liquidity and to generate a positive return on investments without
undue interest or credit risk. GrandBanc utilizes the Federal Funds market to
invest available short term funding. At September 30, 2000 and December 31,
1999, GrandBanc's investments portfolio totaled $42.4 million and $45.0 million,
respectively. Refer to Note 4 of the Notes to GrandBanc's Consolidated Financial
Statements for the year ended December 31, 1999 and Note 4 to GrandBanc's
Consolidated Financial Statements for the nine months ended September 30, 2000
for the carrying and fair values of the investment securities portfolio. The
investment portfolio is accounted for in accordance with FAS 115. The following
tables depict the maturities and weighted average yields of the investment
securities portfolio by category. Amounts represent stated maturities adjusted
for estimated calls.
-117-
<PAGE> 126
INVESTMENT SECURITIES AVAILABLE FOR SALE
AT FAIR VALUE
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------- -----------------------
2000 1999 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations $24,622 $24,839 $24,839 $17,518
Mortgage-backed securities 17,300 19,650 19,650 16,105
Other securities 483 478 478 457
------- ------- ------- -------
Total $42,405 $44,967 $44,967 $34,080
------- ------- ------- -------
</TABLE>
INVESTMENT PORTFOLIO MATURITY
AS OF SEPTEMBER 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Fair Average
Cost Value Yield
--------- ---------- --------
<S> <C> <C> <C>
U.S. Government Agency:
Due in one year or less -- -- --
Due after one year through five years $ 4,599 $ 4,480 6.07%
Due after five years through ten years 21,406 20,142 6.29
------- ------
Total U.S. Agency 26,005 24,622 6.25
Mortgage-backed securities 18,068 17,300 6.49
Other investments 425 483 1.58
------- ------
Total $44,498 42,405 6.30
======= ======
</TABLE>
DEPOSIT ACTIVITIES
GrandBank offers a wide range of deposit products with varying rates
and terms to meet GrandBanking needs of both individuals and business customers
in the community. GrandBank offers checking, interest checking, money market
accounts, savings, and individual retirement accounts (IRAs). GrandBank also
offers a variety of certificates of deposit with maturities of three months to
five years.
The average balance of deposits and average interest paid during the
nine months ended September 30, 2000 and 1999 and years 1999, 1998, and 1997 can
be found in the average consolidated balance sheet at pages 113 to 114. The
following table sets forth information regarding GrandBanc's certificates of
deposit.
-118-
<PAGE> 127
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
AS OF SEPTEMBER 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- ------
<S> <C>
Three months or less(1) $ 1,385
Over three through six months(1) 1,337
Over six through 12 months(1) 6,009
Over 12 months 5,177
-------
Total $13,908
=======
</TABLE>
(1) The amount of certificates of deposit above that mature within 12 months is
$8.7 million. The Company does not have any liquidity concerns as a result of
the volume of these maturities.
PROVISION FOR LOAN LOSSES
For the nine-month period ended September 30, 2000, the provision for
loan losses totaled $60 thousand compared to $189 thousand for the same period
in 1999. The reduction in the level of the provisions principally related to the
decline the levels of loans and nonperforming assets.
The provision for loan losses added $269 thousand to the allowance for
loan losses in 1999 compared to $10 thousand in 1998. This increase was
primarily attributed to higher than anticipated write-off of credit card
receivables. Other than the credit cards, the quality of the loan portfolio
remained strong. Loans other than credit cards reflected a significant
improvement in 1999 as compared to 1998. This portfolio experienced a net
recovery of $7 thousand for 1999 compared to net charge-offs of $394 thousand in
1998. Total charge-offs net of recoveries totaled $506 thousand in 1999 compared
to $785 thousand in 1998. Total charge-offs net of recoveries related to credit
card receivables totaled $513 thousand in 1999 compared to $391 thousand in
1998.
NON-INTEREST INCOME
For the nine-month period ended September 30, 2000, noninterest income
totaled $561 thousand compared to $434 thousand for the same period in 1999,
representing an increase of $127 thousand or 29.3%. Non-interest income for the
year ended December 31, 1999 was $610 thousand compared to $638 thousand in
1998, a decrease of $28 thousand or approximately 4.4%. This change was
primarily due to decreases in miscellaneous fee income related to the loan
portfolio. Service charges on deposit accounts for 1999 actually increased by
28.1% to $410 thousand, compared to $320 thousand in 1998.
NON-INTEREST EXPENSE
Total noninterest expense for the nine months ended September 30, 2000
totaled $3.33 million compared to $3.57 million for the same period in 1999,
representing a decrease of $239 thousand or 6.7%. For the nine months ended
September 30, 2000, salaries and employee benefits totaled $1.52 million
compared to $1.57 million for the same period in 1999. This represents a
decrease of $48 thousand, or 3.1%. For the nine-month period ended September 30,
2000, occupancy and equipment expense totaled $644 thousand compared to $699
thousand for the same period in 1999. This represents a decrease of $55 thousand
or 7.9%. The decrease in occupancy and equipment cost is partially attributable
to the savings gained from the purchase in early 1999 of the GrandBank building
located at 7535 Old Georgetown Road, Bethesda, Maryland as well as GrandBanc's
efforts to control overhead. Other operating expenses for the nine months ended
September 30, 2000 decreased by $136 thousand or 10.5 %
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when compared to the same period in 1999. For the nine-month period ended
September 30, 2000, other operating expenses totaled $1.16 million compared to
$1.3 million for the same period in 1999.
Total non-interest expense for the year ended December 31, 1999 of
$4.82 million reflected an increase of approximately $256 thousand or 5.6%
primarily as a result of increases in personnel costs and other operating
expenses. The 1999 salaries and benefits expense increased by $293 thousand or
16.3% to $2.09 million compared to $1.80 million in 1998. However, occupancy and
equipment expense decreased by $103 thousand to $918 thousand. The improvement
in occupancy cost resulted from the efficiencies gained as a result of the
purchase of the Old Georgetown Road, Bethesda bank building early in 1999.
INCOME TAXES
Income tax expense totaled $53 thousand for the nine months ended
September 30, 2000, compared to income tax benefit of $100 thousand for the nine
months ended September 30, 1999, income tax benefit of $166 thousand for 1999
and income tax expense of $153 thousand in 1998. In 1997, GrandBanc recorded a
deferred tax benefit of $1.3 million from the recognition of $3.3 million in tax
loss carry-forwards. Although realization is not assured, management believes it
is more likely than not that all of the deferred tax assets will be realized.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto have been
prepared in accordance with Generally Accepted Accounting Principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of GrandBanc's operations. Unlike most industrial
companies, nearly all assets and liabilities of GrandBanc are monetary in
nature. As a result, interest rates have a greater impact on GrandBanc's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods or services.
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INFORMATION ABOUT GRANDBANC
GrandBanc, headquartered in Rockville, Maryland, was incorporated under
Maryland law in 1983 to be the registered bank holding company for its wholly
owned subsidiary bank, GrandBank. Substantially all of GrandBanc's activities
relate to the ownership and management of GrandBank and the bank premises
holding company for GrandBank.
GrandBank, organized in 1979, is a Maryland chartered commercial bank
which is not a member of the Federal Reserve System. GrandBank operates out of
four offices located in Montgomery County, Maryland and the city of Alexandria,
Virginia. GrandBank is subject to the regulation and supervision of the Maryland
State Commissioner of Financial Regulation (the Maryland Commissioner), the
Virginia Commissioner of Financial Institutions (the Virginia Commissioner), and
the Federal Deposit Insurance Corporation (the FDIC).
As of September 30, 2000, GrandBank had forty-two employees, all of
which were full time. GrandBanc has no employees who are not employees of
GrandBank. The executive offices of GrandBank and GrandBank are located at 1800
Rockville Pike, Rockville, Maryland 20852 and its telephone number is (301)
770-1300.
GrandBank, in addition to its headquarters in Rockville, has branch
offices in Bethesda and Germantown, Maryland and Alexandria, Virginia. GrandBank
is a full-service, community-oriented commercial bank serving small-to-medium
sized businesses, professionals, and individuals in the Washington, DC
metropolitan area. GrandBank established its Alexandria, Virginia office in
connection with the acquisition of a portfolio of loans, certain other assets,
and certain deposits, from First Commonwealth Financial Corp. and its
subsidiary, First Commonwealth Federal Savings Bank FSB. GrandBank offers a full
range of commercial and retail banking services, including commercial and
consumer loan and deposit products suited to businesses and professional and
consumer customers. GrandBanc's mission is to provide a high level of personal
service to the local community and also to participate in community service
within the Montgomery County, Alexandria, Virginia, and the Washington, D.C.
metropolitan area. GrandBank competes with local and regional commercial banks,
savings associations, mutual savings banks, credit unions, money market brokers,
and other financial institutions that provide loan and deposit relationships.
GrandBanc competes with these other institutions for customers by offering
competitive products and services, interest rates, and delivery of quality
service and expertise.
GrandBanc derives substantially all of its revenue and income from the
activities of GrandBank. At September 30, 2000, GrandBanc had consolidated
assets of $114.5 million, deposits of $100.5 million, loans, net of allowance
for loan losses of $59.7 million, and stockholder's equity of $6.2 million. At
September 30, 2000, GrandBank was a "well capitalized" institution under Section
38 of the Federal Deposit Insurance Act, and its : Tier 1 and total capital
ratios were 10.76% and 11.67%, respectively, and its leverage ratio was 7.11%.
You can find additional information about GrandBanc in its Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2000, June 30, 2000 and
September 30, 2000, and Current Report on Form 8-K dated October 11, 2000, all
of which are incorporated by reference in this joint proxy statement/prospectus.
See "Where You Can Find More Information" on page 133.
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INFORMATION ABOUT CERTAIN DIRECTORS OF GRANDBANC
Set forth below is certain information relating to those current
directors of GrandBanc who will become directors of Century immediately
following the effective time of the merger, or who are eligible to be designated
as directors of Century in accordance with the merger agreement. See "The Merger
Agreement - Designation of Directors" on page 49. Management of GrandBanc is not
currently aware of any other person who may be designated as a director of
Century following the effective time of the merger. No executive officer of
GrandBanc will become an executive officer or director of Century following the
effective time.
Abbey J. Butler, 63, is Co-Chairman and Co-Chief Executive Officer of
Avatex Corporation, a position, he has held since 1997. From 1991 to 1996, he
was Co-Chairman and Co-Chief Executive Officer of FoxMeyer Health Corporation.
During 1996, FoxMeyer Drug Company, a subsidiary of FoxMeyer Health Corporation,
filed a petition under Chapter 11 of the federal bankruptcy laws. Mr. Butler is
also President and Director of C.B. Equities, Corp., a private investment
company.
Melvyn J. Estrin, 58, is Chairman of the Board of GrandBanc and
GrandBank. He is Co-Chairman and Co-Chief Executive Officer of Avatex
Corporation, a position, he has held since 1997. From 1991 to 1996, he was
Co-Chairman and Co-Chief Executive Officer of FoxMeyer Health Corporation.
During 1996, FoxMeyer Drug Company, a subsidiary of FoxMeyer Health Corporation,
filed a petition under Chapter 11 of the federal bankruptcy laws. Mr. Estrin is
also Chairman of the Board of University Research Corporation, a government
contracting company.
Avis Y. Pointer, 63, has been President of Quantum Leap, Inc. since
April 1, 1995. Prior to that, she was Vice President of The National Medical
Association from 1983 to July 1, 1995, and from 1980 to 1993, she served as
Associate Vice President of Howard University.
Joan H. Schonholtz, 67, was Secretary/Treasurer of Schonholtz & Magee,
M.D., Orthopedics P.A. from 1977 to June 15, 1995, at which time she retired
from that position.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth certain information as of December 12,
2000 concerning the number and percentage of shares of the GrandBanc common
stock beneficially owned by its directors, Chief Executive Officer, and by its
directors and all executive officers as a group, as well as information
regarding each other person known by GrandBanc to own in excess of 5% of the
outstanding GrandBanc common stock. Except as otherwise indicated, all shares
are owned directly, and the named person has sole voting and sole investment
power with respect to all shares. Except as set forth below, GrandBanc knows of
no other person or persons who beneficially own in excess of five percent of the
GrandBanc Common Stock. Further, except for the merger agreement with Century,
GrandBanc is not aware of any arrangement which at a subsequent date may result
in a change of control of GrandBanc.
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<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT OF CLASS(1)
---- ---------------- -------------------
<S> <C> <C>
Directors
Abbey J. Butler 370,000(2)(3) 9.09%
13804 LeHavre Drive
Palm Beach
Gardens, FL 33410
Steven K. Colliatie 61,349(2) 1.41%
Melvyn J. Estrin 729,497(2)(4) 17.93%
6508 Kenhill Road
Bethesda, MD 20817
Avis Y. Pointer 23,478(2) *
Joan H. Schonholtz 375,681(2)(5) 9.23%
32 Bemon Woods Court
Potomac, MD 20854
All Directors and Executive 1,560,005(2) 37.41%
Officers as a group (five
persons)
Other 5% Shareholders
Abod Enterprises 254,428 6.28%
15756 Cherry Blossom Lane
North Potomac, MD 20878
Joel Comiteau 250,000 6.17%
30 Stone Drive
West Orange, NJ 07052
* Less than one percent
</TABLE>
(1) Based on 4,049,590 shares outstanding as of September 30, 2000, except
with respect to individuals holding options to acquire Common Stock
exercisable within sixty days of September 30, 2000, in which event
represents the percentage of shares issued and outstanding as of
September 30, 2000 plus the number of such options or warrants held by
such person, and all directors and officers as a group, which
represents percentage of shares outstanding as of September 30, 2000
plus the number of such options or warrants held by all such persons as
a group.
(2) Includes 20,000, 60,000, 20,000, 20,000, 20,000, and 140,000 shares
which Directors Butler, Colliatie, Estrin, Pointer and Schonholtz and
all directors and executive officers as a group, respectively, have the
right to acquire upon the exercise of options exercisable within sixty
days of the Record Date.
(3) Includes 150,000 shares owned by C.B. Equities Retirement Trust, of
which Mr. Butler is co-trustee.
(4) Includes 60,000 shares owned by the Sidney Goldstein Family Trust, of
which Mr. Estrin is trustee, 77,332 shares owned by the Estrin
Grandchildren Trust, 35,000 shares owned by the Lemer Grandchildren
Trust of which Mr. Estrin is co-trustee, and 125,370 shares owned by
the Estrin Family Limited Partnership which Mr. Estrin controls.
(5) Includes 281,555 shares owned by the Joan H. Schonholtz Revocable Trust
and 74,126 shares owned by the George J. Schonholtz Revocable Trust.
Ms. Schonholtz and her spouse are trustees of each of these trusts.
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MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is limited public trading in GrandBanc's common stock. Other than
options for 162,000 shares of common stock under GrandBanc's option plans, there
are presently no other outstanding securities convertible into common equity of
GrandBanc. Bid prices for the common stock in the over-the-counter market for
each quarterly period within the two most recent fiscal years are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------- ------------------- ------------------
High/Ask Low/Bid High/Ask Low/Bid High/Ask Low/Bid
Quarter Ended Price Price Price Price Price Price
------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
March 31 1.38 1.25 $2.00 $2.00 $4.50 $3.50
June 30 1.75 1.69 2.13 2.13 4.50 3.50
September 30 1.65 1.38 2.25 1.85 4.50 3.00
December 31 NA NA 2.00 2.00 2.63 2.00
</TABLE>
The quotation were obtained from the Washington Post at each time
period shown and reflect inter-dealer prices, without retail mark-up, mark-down,
or commission and may not represent actual transactions.
At September 30, 2000 there were 393 holders of record. There have been
no dividends paid in the past two years.
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SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF
GRANDBANC STOCKHOLDERS AND RIGHTS THOSE
PERSONS WILL HAVE AS STOCKHOLDERS OF CENTURY
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
CORPORATE GOVERNANCE: The rights of GrandBanc stockholders The rights of Century stockholders are
are currently governed by Maryland law governed by Delaware corporate law and the
and the Articles of Incorporation and Certificate of Incorporation and Bylaws of
Bylaws of GrandBanc Following the Century.
completion of the merger, rights of
GrandBanc stockholders who become
Century stockholders will be governed
by Delaware corporate law and the
Certificate of Incorporation and
Bylaws of Century.
BOARD OF DIRECTORS: The GrandBanc Board consists of five The Century Board currently consists of
persons, all of whom are elected seven directors and, immediately following
annually. completion of the merger, will consist of
nine directors, all of whom are elected
annually.
ELECTION OF DIRECTORS: GrandBanc stockholders are allowed to Under Delaware law and the provisions of
cumulate their votes in the election Century's Certificate of Incorporation,
of directors. Each share of GrandBanc stockholders are not entitled to cumulate
stock may be voted for as many votes in the election of directors. Each
individuals as there are directors to share of Century has one vote for each
be elected. Directors are elected by nominee for director. The directors of
a plurality of the votes cast by the Century are elected by a plurality of the
holders entitled to vote at the votes cast by the holders entitled to vote
meeting. at the meeting, though they are not
required to be elected by written ballot.
REMOVAL OF DIRECTORS: Under Maryland law and the Articles of Delaware law and the Bylaws of Century
Incorporation and Bylaws of GrandBanc permit the removal, with or without cause,
any member of the board may be of any director or the entire board of
removed, with or without cause, by the directors by the holders of a majority of
affirmative vote of a majority of all shares then entitled to vote at an
the votes entitled to be cast for the election of directors.
election of directors.
MERGER: Under Maryland law, a merger may Under Delaware law, a merger may become
become effective without the approval effective without the approval of the
of the surviving corporation's surviving corporation's stockholders in
stockholders in certain certain circumstances. Where stockholder
circumstances. Where stockholder approval is required, the merger must be
approval is required, the merger must approved by the holders of a majority of
be approved by the stockholders of the the outstanding shares entitled to vote
corporation by the affirmative vote of unless the Certificate of Incorporation
at least two-thirds of all the votes provides for a higher number. The
entitled to be cast on the matter Certificate of Incorporation of Century
unless a different number, not less provides that in the event of a merger
than a majority, is specified in the requiring stockholder approval, the
Articles of Incorporation. The affirmative vote or consent of the holders
GrandBanc Articles of Incorporation do of at least two-thirds, rather than a
not provide for a different number. majority, of the outstanding shares of
</TABLE>
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<PAGE> 134
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
capital stock of the corporation entitled to vote
shall be required to take such action.
VOTE REQUIRED FOR Maryland law provides that on matters Delaware law provides that in all matters
CERTAIN STOCKHOLDER other than the election of directors other than the election of directors, the
ACTIONS: and certain extraordinary corporate affirmative vote of the majority of the
actions, the affirmative vote of a shares present or represented by proxy at
majority of all votes cast at a the meeting and entitled to vote on the
stockholders' meeting at which a subject matter shall be the act of the
quorum is present shall be the act of stockholders, unless the vote of a greater
the stockholders, unless the vote of a number is required by law or the
greater number is required by law or Certificate of Incorporation or Bylaws.
the Articles of Incorporation. The
Articles of Incorporation of GrandBanc The Certificate of Incorporation of
do not require a greater number. An Century provides that an amendment of the
abstention is not considered a "vote Certificate of Incorporation, a merger or
cast" for purposes of the voting consolidation of the corporation, a sale,
requirement, but a stockholder who lease or exchange of all or substantially
abstains in person or by proxy is all of the assets of the corporation, the
considered present for purposes of the adoption of a plan of dissolution or
quorum requirement. liquidation or revocation of a dissolution
must be approved by the affirmative vote or
consent of the holders of at least two-
Under Maryland law, a consolidation, thirds, rather than a majority, of the
merger, share exchange or transfer must outstanding shares of capital stock of the
be approved by the stockholders of the corporation or such class or series thereof
corporation by the affirmative vote of entitled to vote.
two-thirds of all the votes entitled to
be cast on the matter. The Articles of
Incorporation of GrandBanc do not provide
for a different number.
AMENDMENT OF CHARTER Under Maryland law, the GrandBanc Under Delaware law, the Certificate of
AND BYLAWS: Articles of Incorporation may be Incorporation of Century may be amended
amended by the affirmative vote of by the affirmative vote of a majority of
two-thirds of all the votes of the outstanding stock entitled to vote on
stockholders entitled to be cast on the amendment at a stockholders' meeting
the matter, unless a different number, and a majority of the outstanding stock of
not less than a majority, is specified each class entitled to vote on the
in the Articles of Incorporation. amendment as a class, unless the vote of a
Notwithstanding the above, a majority greater number is required. Century's
of the entire board of directors may Certificate of Incorporation provides that
amend the corporation's Articles of where Delaware law requires stockholder
Incorporation to change the name of approval to amend the Certificate of
the corporation or change the name or Incorporation, the affirmative vote of the
other designation or par value of any holders of at least two-thirds, rather
class or series of the corporation's than a majority, of the outstanding shares
stock and the aggregate par value of of capital stock of the corporation or
the corporation's stock. The such class or series thereof entitled to
GrandBanc Articles of Incorporation vote shall be required.
provide that the corporation may make
amendments to the Articles of Under Delaware law, the power to amend
Incorporation, but any such amendment Bylaws resides in the stockholders
which changes the terms or contract entitled to vote, provided that a
rights of any of its corporation may, in its Certificate of
</TABLE>
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<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
outstanding stock
shall be invalid unless such amendment Incorporation, confer the power to amend
shall have been authorized by not less the Bylaws upon the directors. The fact
than a majority of the aggregate that such power has been conferred on the
number of the votes entitled to be directors does not divest nor limit the
cast thereon. power of the stockholders to amend the
Bylaws. Century's Certificate of
Under Maryland law and GrandBanc's Incorporation provides that the board of
Bylaws, both the board of directors and directors is authorized to amend the Bylaws.
stockholders have the power to amend
the Bylaws.
STOCKHOLDER ACTIONS Under Maryland law, common Under Delaware law, unless otherwise
WITHOUT A MEETING: stockholders may act without a meeting provided in a corporation's Certificate of
if a written consent which describes Incorporation, stockholders may act by
the action is signed by all the written consent signed by the holders of
stockholders entitled to vote on the outstanding shares having not less than
matter and is filed with the records the minimum number of votes necessary to
of stockholders meetings. In take such action at a meeting. Century's
contrast, unless the Articles of Certificate of Incorporation provides that
Incorporation require otherwise, the any action required to be taken or that
holders of any other class of stock may be taken at any annual or special
that is entitled to vote in the meeting of stockholders of the corporation
election of directors may act by the may not be taken by written consent
written consent of the holders of the without a meeting, prior notice and a vote.
shares necessary to approve the action
if the corporation gives notice of the
action to all stockholders within 10
days after the effective date of the
action. GrandBanc's Articles of
Incorporation do not require a
different number for approval by
written consent.
SPECIAL MEETINGS OF A special meeting of stockholders of a Stockholders of a Delaware corporation do
STOCKHOLDERS: Maryland corporation may be called by not have a right to call a special meeting
the president, the board of directors, of stockholders unless such a right is
or any person designated in the provided for in the corporation's
Articles of Incorporation or Bylaws. Certificate of Incorporation or Bylaws.
With three exceptions, special Century's Certificate of Incorporation and
meetings of stockholders shall be Bylaws provide that special meetings may
called by the corporation's secretary be called by (a) the president, (b) the
upon the written request of board of directors, or (c) the president
stockholders entitled to cast at least or secretary at the request in writing of
25 percent of all the votes entitled (i) a majority of the board of directors,
to be cast at the meeting. First, the or (ii) stockholders owning a majority in
secretary need not call a special amount of the entire capital stock of the
meeting to consider any matter that is corporation issued and outstanding and
substantially the same as a matter entitled to vote.
considered at any special meeting
during the preceding 12 months.
Second, the Articles of Incorporation or
Bylaws may increase or decrease the
percentage of votes that stockholders must
hold in order to have the power to require
the secretary to call a special meeting.
</TABLE>
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<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
Third, corporations that have elected to be
governed by the unsolicited takeover statute
are subject to special rules regarding
special meetings of stockholders. The
Articles of Incorporation and Bylaws of
GrandBanc do not modify the percentage of
votes needed for stockholders to require the
secretary to call a special meeting.
GrandBanc has not elected to be governed by
the unsolicited takeover statute.
DIVIDENDS: A Maryland corporation generally may A Delaware corporation may pay dividends
make distributions to its stockholders out of surplus. If there is no surplus,
unless, after giving effect to the dividends may be declared out of net
distribution, the corporation would profits for the current or preceding
not be able to pay its debts as they fiscal year unless the capital of the
come due in the ordinary course of corporation has been decreased to an
business, or the corporation's total amount less than the aggregate amount of
assets would be less than its total the capital represented by the issued and
liabilities. outstanding stock having a preference on
the distribution of assets.
APPRAISAL RIGHTS: Under Maryland law, stockholders are Under Delaware law, the rights of
generally entitled to object and stockholders to dissent and obtain the
receive payment of the fair value of fair value of their shares in an appraisal
their stock in the event that the proceeding may be available in connection
corporation enters into a with a statutory merger or consolidation
consolidation, merger, transfer of all in certain specific situations. Appraisal
or substantially all of the rights are not available to a
corporation's assets, or participation corporation's stockholders when the
in a share exchange as the corporation corporation will be the surviving
the stock of which is to be acquired. corporation and no stockholder vote is
Appraisal rights are also granted if required to approve the merger.
the corporation amends its charter in
a way which alters the contract rights A Delaware corporation's Certificate of
of any outstanding stock and Incorporation may provide that appraisal
substantially adversely affects the rights shall be available to stockholders
stockholders' rights, unless the right in the event of an amendment to its
to do so is reserved by the Articles Certificate of Incorporation, any merger
of Incorporation, or the corporation or consolidation in which the corporation
engages in a business combination is a constituent corporation or the sale
pursuant to the Maryland Business of all or substantially all of the assets
Combination Act. Unless the of the corporation. Century's Certificate
transaction is subject to the Maryland of Incorporation does not provide for such
Business Combination Act, a rights.
stockholder may not object and receive
payment of the fair value of their Stockholders of a Delaware corporation
stock if the stock is listed on a also do not have appraisal rights in
national securities exchange or traded connection with a merger where, on the
on Nasdaq on the record date for record date fixed to determine the
determining stockholders entitled to stockholders entitled to vote on the
vote on the transaction, the stock is merger, the corporation's stock is listed
that of the successor in the merger on a national securities exchange, listed
on the Nasdaq or held of record by more
</TABLE>
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<PAGE> 137
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
(unless the merger alters the contract than 2,000 stockholders, unless the
rights of the stock as set forth in stockholder is required to accept any
the Articles of Incorporation or the consideration other than shares of stock
stock is to be converted into or depository receipts of the surviving
something other than stock in the corporation or any other corporation,
successor or cash, etc. as a result of which at the effective date of the merger,
provisions for the treatment of will be listed on a national securities
fractional shares), the stock is not exchange or the Nasdaq or held of record
entitled to vote on the transaction or by more than 2,000 stockholders, cash in
the stockholder did not own the stock lieu of fractional shares or fractional
on the record date, or the Articles of depository receipts of a corporation
Incorporation provide that described above or any combination of the
stockholders are not entitled to two.
appraisal rights.
GrandBanc's Articles of Incorporation
reserve the right of the corporation to
amend its Articles of Incorporation in such
a way as to change the contract rights of
outstanding stock, subject to the condition
that such amendment is invalid unless
authorized by a majority of the aggregate
number of votes entitled to be cast thereon.
GrandBanc's Articles of Incorporation are
silent regarding stockholders' appraisal
rights. This transaction is not subject to
the Maryland Business Combination Act.
RESTRICTIONS ON The Maryland Business Combination Act Delaware General Corporation LawSection 203
BUSINESS COMBINATIONS: prohibits a business combination prohibits transactions between a
between a corporation and any corporation and an interested stockholder
interested stockholder for a period of for a three-year period following the time
five years following the most recent the interested stockholder became such
date on which the interested unless certain conditions are met.
stockholder became an interested Generally, an interested stockholder is
stockholder unless the transaction is anyone who owns 15% or more of a
approved in advance by the board of corporation and the affiliates and the
directors or otherwise exempted by the associates of such person. If the
statute. Generally, an interested interested stockholder does not get prior
stockholder is anyone who owns 10% or board approval of the business combination
more of a corporation and the or obtain 85 percent of the voting stock
affiliates of such person. A merger of the corporation in the transaction in
of a corporation with any interested which it becomes interested, the
stockholder or any other corporation stockholder cannot engage in a business
(whether or not itself an interested combination for three years unless the
stockholder) which is, or after the business combination is approved both by
merger would be, an affiliate of an the directors and by the affirmative vote
interested stockholder that was an of two-thirds of the outstanding voting
interested stockholder prior to the stock not owned by the interested
transaction is considered a "business stockholder.
combination" unless it does not alter
the contract rights of the stock as
expressly set forth in the Articles of
Incorporation, or change or convert in
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
whole or in part the outstanding
shares of stock of the corporation.
CONTROL SHARE Under Maryland's control share There is no comparable provision under
ACQUISITIONS: acquisition statute, voting rights of Delaware law or the Certificate of
shares of stock of a Maryland Incorporation of Century.
corporation acquired by an acquiring
person at ownership levels of 20%,
33-1/3% and 50% of the outstanding shares
are denied unless conferred by a special
stockholder vote of two-thirds of the
outstanding shares held by persons other
than the acquiring person and officers and
directors of the corporation or, among other
exceptions, such acquisition of shares is
made pursuant to a merger agreement with the
corporation or the corporation's charter or
bylaws permit the acquisition of such shares
prior to the acquiring person's acquisition
thereof. Unless a corporation's charter or
bylaws provide otherwise, the statute
permits such corporation to redeem the
acquired shares at "fair value" if the
voting rights are not approved or if the
acquiring person does not deliver a "control
share acquisition statement" to the
corporation on or before the tenth day after
the control share acquisition. The acquiring
person may call a stockholder's meeting to
consider authorizing voting rights for
control shares subject to certain disclosure
obligations and payment of certain costs. If
voting rights are approved for more than 50%
of the outstanding stock, objecting
stockholders may have their shares appraised
and repurchased by the corporation for cash.
As the merger is pursuant to the merger
agreement, the control share acquisition law
is not applicable to the merger.
DISCHARGE OF DUTIES; Maryland law requires that a director Delaware law states that directors owe
EXCULPATION AND of a Maryland corporation discharge fiduciary duties to their corporation and
INDEMNIFICATION: duties as a director in good faith, in its stockholders to act in the best interests
a manner reasonably believed to be in of the corporation with undivided and unselfish
the best interest of the corporation and loyalty and with the care in the management of
with the care that an ordinarily the corporation's business that ordinary and
prudent person in a like position would use careful and prudent persons would use in
under similar similar circumstances in the handling of their
</TABLE>
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<PAGE> 139
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
circumstances. own affairs.
GrandBanc's Articles of Incorporation
and Bylaws provide that GrandBanc
shall indemnify and advance expenses Delaware law and Century's Bylaws provide
to a director or officer of GrandBanc that Century may indemnify a director,
to the full extent provided by officer, agent or employee if he acted in
Maryland law. GrandBanc may indemnify good faith an in a manner he reasonably
and advance expenses to other believed to be in or not opposed to the
employees or agents in an amount best interests of Century, and, with
determined by and in the discretion of respect to any criminal action or
the Board consistent with law. In proceeding, had no reasonable cause to
accordance with Maryland law and the believe his conduct was unlawful.
Articles of Incorporation and Bylaws, Additionally, Century may advance expenses
GrandBanc may indemnify any director incurred by such person in any proceeding
or officer made a party to any upon receipt of an undertaking by or on
proceeding unless it is established behalf of the director, officer, employee
that (a) the director's or officer's or agent to repay such amount if it is
act or omission was material to the ultimately determined that he is not
cause of action and was committed in entitled to indemnification by Century.
bad faith or resulted from active and Century's Certificate of Incorporation
deliberate dishonesty, (b) the also provides that no director shall be
director or officer actually received personally liable for breach of fiduciary
an improper personal benefit in money, duty as a director, except for any
property, or services, or (c) in the liability of a director (a) for any breach
case of criminal proceedings, the of the director's duty of loyalty to
director or officer had reasonable Century or its stockholders, (b) for acts
cause to believe the act or omission or omissions not in good faith or which
was unlawful. A director or officer involve intentional misconduct or a
who is successful, on the merits or knowing violation of the law, (c) under
otherwise, in any proceeding must be Section 174 of the Delaware General
indemnified by GrandBanc for Corporation Law, relating to unlawful
reasonable expenses, including payment of dividends or unlawful stock
attorneys' fees. GrandBanc's Articles purchases or redemptions, or (d) for any
of Incorporation provide that, to the transaction from which the director
fullest extent permitted by Maryland derived an improper personal benefit. In
law, no director or officer of accordance with Delaware law and the
GrandBanc will be liable to GrandBanc certificate of incorporation and bylaws,
for money damages. Maryland law Century may indemnify any director,
requires directors and officers to be officer, agent or employee made a party to
liable (a) to the extent that it is any derivative proceeding if he acted in
proved that the person actually good faith and in a manner he reasonably
received an improper benefit or profit believed to be in or not opposed to the
in money, property or services, for best interest of Century, except that no
the amount of such benefit or profit indemnification shall be made where such
actually received, or (b) to the person is adjudged liable for negligence
extent that a court finds that the or misconduct in the performance of his
person's action, or failure to act, duty to Century unless the court
was the result of active and determines that such person is fairly and
deliberate dishonesty which was reasonably entitled to indemnity. Under
material to the cause of action Delaware law, a director, officer,
adjudicated in the proceeding. employee or agent of Century who is
successful, on the merits or otherwise, in
any proceeding shall be indemnified by
Century for reasonably incurred expenses,
including attorneys'
</TABLE>
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<PAGE> 140
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
fees.
CONSIDERATION OF GrandBanc's Articles of Incorporation Century's Certificate of Incorporation and
BUSINESS COMBINATIONS: provide that where the Board of Bylaws do not set forth specific factors
Directors evaluates a business to be considered in the evaluation of a
combination, the Board of Directors business combination.
shall, in connection with the exercise
of its business judgement consider,
among other things, the effect of the
business combination on GrandBanc and
its subsidiaries and their respective
stockholders, employees, customers and
the communities which they serve; the
timing of the proposed business
combination, the risk that the
proposed business combination will not
be consummated; the reputation,
management capability and performance
history of the person proposing the
business combination; the current
market price of GrandBanc's capital
stock; the relation of the price
offered to the current value of
GrandBanc in a freely negotiated
transaction and in relation to the
directors' estimate of the future
value of GrandBanc and its
subsidiaries as an independent entity;
tax consequences of the business
combination to GrandBanc and the
stockholders, and such other factors
as the directors deem relevant. These
factors are not a definitive list of
factors to be considered by the
directors in the exercise of their
fiduciary duty, but a guide to their
consideration and an authorization to
consider non-economic factors.
STOCKHOLDER BUSINESS GrandBanc's Articles of Incorporation Century's Bylaws provide that a
AND NOMINATIONS: provide that any stockholder entitled stockholder who desires to bring up any
to vote at a meeting of stockholders new business (including nomination of any
who desires to nominate any person for person for election as director) at an
election as director or who desires to annual meeting must give notice of such
bring up any new business at the new business to Century not less than
meeting, but who does not seek to have sixty days in advance of the date of
such nomination or proposal included Century's notice of annual meeting given
in the proxy materials prepared by in connection with the previous year's
GrandBanc, must give notice to annual meeting. In the case of a special
GrandBanc at least 90 days before the meeting, the stockholder's notice must be
first anniversary of the prior year's received by Century a reasonable time
annual meeting of such nomination or prior to the date of the meeting to allow
business (or where the annual meeting sufficient time for the dissemination of
is advanced by more than thirty days information to stockholders; provided,
however, that if at least thirty calendar
</TABLE>
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<PAGE> 141
<TABLE>
<CAPTION>
GRANDBANC CENTURY
--------- -------
<S> <C> <C>
from the anniversary of the prior days notice of the meeting has been given
year's meeting, by the later of sixty to stockholders, a stockholders' notice
days before the anniversary or ten must be received by Century no later than
days after the date on which notice of ten days prior to the date of the
the meeting is first given to meeting. Business timely submitted by a
stockholders). If notice by the stockholder in accordance with the
stockholder is not given in proper procedures set forth in Century's bylaws
form, including all required or and including all required information
requested information, and in a timely will be considered at the meeting of
manner, the matter may be laid over stockholders, unless the Board of
until the next meeting of stockholders Directors determines that the proposed
held more than 30 days following the business should not be conducted at such
meeting at which the nomination or meeting.
proposal, was made.
</TABLE>
LEGAL MATTERS
Bracewell & Patterson, L.L.P., Houston, Texas, counsel to Century, will
pass upon the validity of the shares of Century common stock to be issued in
connection with the merger, and has passed and will pass on the material federal
income tax consequences of the merger to the stockholders of Century. Mr. John
R. Cope, a director and officer of Century as well as Century National Bank, is
a partner in the law firm of Bracewell & Patterson, L.L.P. Mr. Cope and other
partners of Bracewell & Patterson, L.L.P. own in the aggregate approximately
four percent of the shares of Century's common stock outstanding. Kennedy, Baris
& Lundy, L.L.P., counsel to GrandBanc, has passed and will pass on the material
federal income tax consequences of the merger to the stockholders of GrandBanc.
EXPERTS
The consolidated financial statements of Century and subsidiaries as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999, have been included in this joint proxy
statement/prospectus in reliance upon the report of KPMG LLP, independent
certified public accountants, included and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of GrandBanc and subsidiaries as
of December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999, have been included in this joint proxy
statement/prospectus in reliance upon the report of Stegman & Company,
independent certified public accountants, included and upon the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Century has filed with the Securities and Exchange Commission a
registration statement on Form S-4 to register the Century common stock to be
issued in the merger. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits thereto. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about Century and the Century common stock. This joint proxy
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<PAGE> 142
statement/prospectus is a part of the registration statement and is a prospectus
of Century in addition to being a proxy statement for the special meeting.
In addition to filing this registration statement with the SEC, Century
files reports, proxy statements and other information with the SEC under the
Securities Exchange Act of 1934. You may read and copy this information at the
following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains and Internet
world wide web site that contains reports, proxy statements and other
information about issuers, like Century and GrandBanc, who file electronically
with the SEC. The address of that site is http://www.sec.gov. You may access
additional information about Century at our Web site at
http://www.centurybank.com.
The SEC allows GrandBanc and Century to "incorporate by reference"
information into this joint proxy statement/prospectus, which means that the
companies can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is considered part of this joint proxy statement/prospectus, except
for any information superseded by information contained directly in this joint
proxy statement/prospectus or in later filed documents incorporated by reference
in this joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference the
documents set forth below that Century and GrandBank have previously filed with
the SEC. These documents contain important information about Century and
GrandBanc and their businesses.
Century SEC Filings (SEC File No. 0-16234)
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000; and
- Current Reports on Form 8-K filed on May 31, September 8 and October
12, 2000.
GrandBanc Filings (SEC File No. 0-16187)
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000; and
- Current Report on Form 8-K dated October 11, 2000.
GrandBanc and Century also incorporate by reference additional
documents that may be filed under Sections 13(a) and 15(d) of the Securities
Exchange Act with the SEC between the date of this joint proxy
statement/prospectus and the completion of the merger or the termination of the
merger agreement. These include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Upon your written or oral request, Century and GrandBanc will provide
you without charge a copy of this joint proxy statement/prospectus and a copy of
any or all of the documents incorporated by
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<PAGE> 143
reference herein, other than the exhibits to those documents, unless the
exhibits are specifically incorporated by reference into the information that
this joint proxy statement/prospectus incorporates. Your written or oral
requests for copies of this joint proxy statement/prospectus and documents
Century or GrandBanc have incorporated by reference should be directed to:
<TABLE>
<S> <C>
Century Bancshares, Inc. GrandBanc, Inc.
Attn: Investor Relations Attn: Shareholder Relations
1275 Pennsylvania Avenue, NW 1800 Rockville Pike
Washington, DC 20004 Rockville, Maryland 20852
Telephone: (202) 496-4100 Telephone: (301) 770-1300
</TABLE>
TO OBTAIN TIMELY DELIVERY, YOU MUST MAKE A WRITTEN OR ORAL REQUEST FOR
A COPY OF SUCH INFORMATION BY -, 2001.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES, NOR SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED. THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED TO YOU AFTER
THE JOINT PROXY STATEMENT/PROSPECTUS DATE.
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<PAGE> 144
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
CENTURY BANCSHARES, INC.
<S> <C>
Audited Annual Financial Statements:
Independent Auditors' Report...................................................... F-2
Consolidated Statements of Financial Condition as of December 31, 1999 and 1998... F-3
Consolidated Statements of Operations for Years Ended
December 31, 1999, 1998 and 1997............................................. F-4
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 1999, 1998 and 1997............................................. F-5
Consolidated Statements of Cash Flows for Years Ended
December 31, 1999, 1998 and 1997............................................. F-6
Notes to Consolidated Financial Statements........................................ F-7
Unaudited Interim Financial Statements:
Consolidated Statements of Financial Condition as of September 30, 2000
and December 31, 1999........................................................ F-30
Consolidated Statements of Operations for Three and Nine Months Ended
September 30, 2000 and 1999.................................................. F-31
Consolidated Statements of Stockholders' Equity for Nine Months Ended
September 30, 2000 and 1999.................................................. F-32
Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 2000 and 1999.................................................. F-33
Notes to Consolidated Financial Statements (unaudited)............................ F-34
GRANDBANC, INC.
Audited Annual Financial Statements:
Independent Auditors' Report...................................................... F-38
Consolidated Balance Sheets as of December 31, 1999 and 1998...................... F-39
Consolidated Statements of Operations for Years Ended
December 31, 1999, 1998 and 1997............................................. F-40
Consolidated Statements of Changes in Stockholders' Equity for Years Ended
December 31, 1999, 1998 and 1997............................................. F-41
Consolidated Statements of Cash Flows for Years Ended
December 31, 1999, 1998 and 1997............................................. F-42
Notes to Consolidated Financial Statements for Years Ended
December 31, 1999, 1998 and 1997............................................. F-44
Unaudited Interim Financial Statements:
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999........................................................ F-62
Consolidated Statements of Income for Three and Nine Months Ended
September 30, 2000 and 1999.................................................. F-63
Consolidated Statements of Shareholders' Equity for Year Ended
December 31, 1998 and 1999 and Nine Months Ended
September 30, 2000 and 1999.................................................. F-64
Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 2000 and 1999.................................................. F-65
Notes to Condensed Consolidated Financial Statements (unaudited).................. F-66
</TABLE>
F-1
<PAGE> 145
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
F-2
<PAGE> 146
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
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
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 147
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
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
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 148
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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> <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
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 149
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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 274,875 3,196,421 1,034,208
available-for-sale
Repayments and maturities of securities 474,196 5,358,436 944,471
held-to-maturity
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
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 150
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.
F-7
<PAGE> 151
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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
F-8
<PAGE> 152
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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.
F-9
<PAGE> 153
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
NEW FINANCIAL ACCOUNTING STANDARDS
The reclassification entries for the three years ended December 31,
1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
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."
F-10
<PAGE> 154
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(2) INVESTMENT SECURITIES
Investment securities available-for-sale, and their contractual
maturities, 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. 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>
<TABLE>
<CAPTION>
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.
F-11
<PAGE> 155
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(2) INVESTMENT SECURITIES, CONTINUED
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
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Amortized Gross unrealized Gross unrealized
December 31, 1998 cost gains losses Fair value
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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>
(3) LOANS RECEIVABLE
The loan portfolio consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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.
F-12
<PAGE> 156
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(3) LOANS RECEIVABLE, CONTINUED
Analysis of the activity in the allowance for credit losses is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts
represent potential credit risk:
Commitments to extend credit $31,873,000 $27,246,000
Standby letters of credit 2,818,000 2,251,000
</TABLE>
F-13
<PAGE> 157
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(3) LOANS RECEIVABLE, CONTINUED
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.
(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:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
In the opinion of management, all transactions entered into between
the Company and such related parties have been and are in the ordinary course
of business and made on the same terms and conditions as similar transactions
with unaffiliated persons. Unfunded commitments to related parties totaled
approximately $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.
F-14
<PAGE> 158
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(5) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT
Leasehold improvements, furniture, and equipment consist of the
following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
Depreciation and amortization expense for leasehold improvements,
furniture and equipment was $445,381, $471,591, and $502,556 for 1999, 1998,
and 1997, respectively.
(6) DEPOSITS
Major classifications of deposits consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ending December 31,
--------------------------
<S> <C>
2001 $ 8,967,899
2002 1,015,513
2003 147,986
2004 100,486
Thereafter --
------------
Total $ 10,231,884
============
</TABLE>
F-15
<PAGE> 159
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
----------- ----------- -----------
<S> <C> <C> <C>
Federal Home Loan Bank:
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:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
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
----------- -----------
</TABLE>
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.
F-16
<PAGE> 160
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:
F-17
<PAGE> 161
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(8) STOCKHOLDERS' EQUITY, CONTINUED
INCOME PER COMMON SHARE, CONTINUED
<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>
(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.
F-18
<PAGE> 162
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
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.
Stock option transactions for the years ended December 31, 1999, 1998,
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
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>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------ -------------------------
Weighted
average Weighted Weighted
Number remaining average average
of options contractual exercise Number exercise
Range of exercise prices outstanding (years) price exercisable price
------------------------ ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$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>
F-19
<PAGE> 163
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
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.
F-20
<PAGE> 164
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>
The difference between the statutory federal income tax rates and the
effective income tax rates for 1999, 1998, and 1997, are as follows:
<TABLE>
<CAPTION>
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:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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.
F-21
<PAGE> 165
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:
<TABLE>
<CAPTION>
Year Ending December 31,
---------------------------
<S> <C>
2000 $ 721,000
2001 728,000
2002 426,000
2003 199,000
2004 136,000
Thereafter 130,000
----------
Total $2,340,000
==========
</TABLE>
F-22
<PAGE> 166
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.
F-23
<PAGE> 167
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(12) CAPITAL AND LIQUIDITY, CONTINUED
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
---------------------------------------------- ------------ ------------ ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to Risk Weighted Assets):
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%
AS OF DECEMBER 31, 1998
Total Capital (to Risk Weighted Assets):
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>
F-24
<PAGE> 168
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
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>
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
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>
F-25
<PAGE> 169
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(13) PARENT COMPANY-ONLY FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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>
F-26
<PAGE> 170
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.
F-27
<PAGE> 171
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
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>
(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.
F-28
<PAGE> 172
CENTURY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(15) ACQUISITIONS AND INTANGIBLES, CONTINUED
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.
(16) QUARTERLY FINANCIAL INFORMATION (Unaudited - in thousands, except per
share data):
<TABLE>
<CAPTION>
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 1999 Sep. 30, 1999 Jun. 30, 1999 Mar. 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 1998 Sep. 30, 1998 Jun. 30, 1998 Mar. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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>
F-29
<PAGE> 173
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000, AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,958,113 $ 9,222,005
Federal funds sold 12,500,487 11,015,000
Interest bearing deposits in other banks 4,165,989 19,667,075
Investment securities available-for-sale, at fair value 47,958,312 16,495,049
Investment securities held-to-maturity, at amortized cost,
fair value of $20,687,770 and $5,837,867 at September
30, 2000 and December 31, 1999, respectively 20,419,135 5,966,403
Loans, net of unearned income 179,683,842 138,076,486
Less: allowance for credit losses (1,666,665) (1,518,911)
------------- -------------
Loans, net 178,017,177 136,557,575
Leasehold improvements, furniture, and equipment, net 2,278,314 1,372,267
Accrued interest receivable 1,821,615 1,034,270
Loans held for sale 2,793,750 439,600
Deposit premium, net 5,123,980 1,675,813
Net deferred taxes 723,617 767,893
Other assets 1,023,671 595,948
------------- -------------
Total Assets $ 284,784,160 $ 204,808,898
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 41,647,060 $ 36,571,508
Interest-bearing 173,893,043 117,328,222
------------- -------------
Total deposits 215,540,103 153,899,730
Federal funds purchased and securities sold under
Agreements to repurchase 20,095,605 6,358,654
Long term debt:
Federal Home Loan Bank Advances 20,642,261 11,301,355
Preferred securities of subsidiary trust 8,800,000 --
Other borrowings 573,217 15,598,868
Other liabilities 2,045,786 1,982,184
------------- -------------
Total Liabilities 267,696,972 189,140,791
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized;
2,885,998 and 2,858,402 shares issued at September
30, 2000 and December 31, 1999, respectively 2,885,998 2,858,402
Additional paid in capital 13,802,686 13,700,452
Retained earnings 1,245,968 --
Treasury stock, at cost, 143,000 and 136,500 shares at
September 30, 2000 and December 31, 1999, respectively (828,806) (789,863)
Other comprehensive income (loss), net of tax effect (18,658) (100,884)
------------- -------------
Total Stockholders' Equity 17,087,188 15,668,107
Commitments and contingencies
------------- -------------
Total Liabilities and Stockholders' Equity $ 284,784,160 $ 204,808,898
============= =============
</TABLE>
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-30
<PAGE> 174
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,862,071 $2,872,897 $10,477,855 $8,383,654
Interest on federal funds sold 142,831 60,611 516,731 177,200
Interest on deposits in other banks 97,055 171,048 399,560 442,539
Interest on securities available-for-sale 552,327 166,590 1,083,734 392,023
Interest on securities held-to-maturity 354,218 52,138 680,966 123,800
---------- ---------- ----------- ----------
Total interest income 5,008,502 3,323,284 13,158,846 9,519,216
INTEREST EXPENSE:
Interest on deposits:
Savings accounts 226,607 212,386 615,490 639,513
NOW accounts 46,739 53,936 147,987 169,158
Money market accounts 248,221 150,291 696,631 478,312
Certificates under $100,000 509,554 383,924 1,203,921 1,047,254
Certificates $100,000 and over 501,706 264,614 1,231,426 726,511
---------- ---------- ----------- ----------
Total interest on deposits 1,532,827 1,065,151 3,895,455 3,060,748
---------- ---------- ----------- ----------
Interest on borrowings 842,493 218,695 1,774,365 534,034
---------- ---------- ----------- ----------
Total interest expense 2,375,320 1,283,846 5,669,820 3,594,782
---------- ---------- ----------- ----------
Net interest income 2,633,182 2,039,438 7,489,026 5,924,434
Provision for credit losses 275,000 110,000 655,000 435,000
---------- ---------- ----------- ----------
Net interest income after provision for credit losses 2,358,182 1,929,438 6,834,026 5,489,434
NONINTEREST INCOME:
Service charges on deposit accounts 248,846 162,846 691,502 491,470
Other operating income 308,102 248,226 912,810 755,608
---------- ---------- ----------- ----------
Total noninterest income 556,948 411,072 1,604,312 1,247,078
---------- ---------- ----------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 917,082 721,985 2,514,659 2,106,431
Occupancy and equipment expense 256,985 194,077 732,203 614,629
Professional fees 230,722 175,077 727,887 523,275
Depreciation and amortization 127,013 112,735 353,544 340,181
Amortization of deposit premiums 87,182 47,385 202,386 142,153
Data processing 342,805 295,024 1,035,666 840,510
Communications 111,399 86,859 305,273 256,787
Federal deposit insurance premiums 8,999 4,365 23,691 13,021
Other operating expenses 257,409 182,741 625,375 564,945
---------- ---------- ----------- ----------
Total noninterest expense 2,339,596 1,820,248 6,520,684 5,401,932
---------- ---------- ----------- ----------
Income before income tax expense 575,534 520,262 1,917,654 1,334,580
Income tax expense 150,927 197,699 670,725 507,576
---------- ---------- ----------- ----------
NET INCOME $ 424,607 $ 322,563 $ 1,246,929 $ 827,004
========== ========== =========== ==========
Basic income per common share $ 0.16 $ 0.11 $ 0.46 $ 0.29
Diluted income per common share 0.15 0.11 0.45 0.29
Weighted average common shares outstanding 2,737,705 2,804,679 2,729,180 2,833,113
Diluted weighted average common shares outstanding 2,766,314 2,832,251 2,751,698 2,860,925
</TABLE>
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-31
<PAGE> 175
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<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> <C>
Balance, December 31, 1999 $ 2,858,402 $ 13,700,452 $ -- $ (789,863) $ (100,884) $ 15,668,107
Comprehensive income:
Net income 1,246,929 1,246,929
Unrealized gain on
investment securities,
net of tax effect 82,226 82,226
----------- ------------ ---------- ---------- ---------- ------------
Comprehensive income 1,246,929 82,226 1,329,155
Purchase of treasury stock,
at cost, 6,500 shares (38,943) (38,943)
Exercise of common stock
options - 27,596 shares 27,596 102,234 (961) 128,869
----------- ------------ ---------- ---------- ---------- ------------
Balance, September 30, 2000 $ 2,885,998 $ 13,802,686 $1,245,968 $ (828,806) $ (18,658) $ 17,087,188
----------- ------------ ---------- ---------- ---------- ------------
</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> <C>
Balance, December 31, 1998 $ 2,574,219 $ 12,343,631 $ 392,384 $ -- $ 6,440 $ 15,316,674
Comprehensive income:
Net income 827,004 827,004
Unrealized loss on
investment securities,
net of tax effect (100,521) (100,521)
----------- ------------ ---------- ---------- ---------- ------------
Comprehensive income 827,004 (100,521) 726,483
Stock dividend,129,173 shares 129,173 645,865 (775,800) (762)
Purchase of treasury stock, at
cost, 130,000 shares (789,863) (789,863)
Exercise of common stock
options - 18,698 shares 18,698 42,062 60,760
----------- ------------ ---------- ---------- ---------- ------------
Balance, September 30, 1999 $ 2,722,090 $ 13,031,558 $ 443,588 $ (789,863) $ (94,081) $ 15,313,292
----------- ------------ ---------- ---------- ---------- ------------
</TABLE>
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-32
<PAGE> 176
CENTURY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,246,929 $ 827,004
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 353,544 340,181
Amortization of deposit premiums 202,386 142,153
Provision for credit losses 655,000 435,000
Increase in accrued interest receivable (787,345) (184,249)
Increase in other assets (206,163) (328,915)
Decrease in other liabilities 63,602 9,813
------------ ------------
Total adjustments 281,024 413,983
------------ ------------
Net cash provided by operating activities 1,527,953 1,240,987
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (38,729,605) (16,416,372)
Net increase in loans held for sale (2,354,150) --
Net decrease (increase) in interest bearing deposits
in other banks 15,501,086 (23,480,704)
Purchases of securities available-for-sale (42,615,076) (8,291,000)
Purchases of securities held-to-maturity (14,578,971) (2,000,000)
Repayments and maturities of securities available-for-sale 6,377,809 735,981
Repayments and maturities of securities held-to-maturity 126,239 441,693
Proceeds from sales of securities available-for-sale 4,900,506 --
Net purchase of leasehold improvements, furniture
and equipment (259,241) (196,523)
Acquisition of deposits, net of assets acquired 45,034,156 --
------------ ------------
Net cash used in investing activities (26,597,247) (49,206,925)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, savings, NOW and
money market deposit accounts (149,485) (1,651,234)
Net increase in certificates of deposit 8,762,242 12,855,087
Net increase in customer repurchase accounts 13,736,951 6,436,750
Net decrease in other borrowings (15,025,651) (36,760)
Net proceeds from issuance of long-term debt 10,000,000 33,000,000
Net proceeds from issuance of preferred securities of
Subsidiary trust 8,536,000 --
Repayment of long-term debt (659,094) (658,257)
Purchase of treasury stock (38,943) (789,863)
Net proceeds from issuance of common stock 128,869 59,998
------------ ------------
Net cash provided by financing activities 25,290,889 49,215,721
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 221,595 1,249,783
Cash and cash equivalents, beginning of period 20,237,005 13,235,733
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,458,600 $ 14,485,516
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowings $ 5,389,178 $ 3,487,632
Income taxes paid 780,066 600,000
</TABLE>
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-33
<PAGE> 177
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF CENTURY BANCSHARES, INC. (UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management the unaudited consolidated financial
statements as of September 30, 2000, and for the three and nine months ended
September 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 Century Bancshares, Inc. (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 nine months ended September 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) ACQUISITION ACTIVITIES
In October 1999, the Company completed the purchase and assumption of
the deposits and certain other liabilities of the branch of One Valley Bancorp
located at 18116 Triangle Shopping Plaza, Dumfries, Virginia (the Dumfries
Branch). As part of the transaction, the Company assumed approximately $9.4
million of deposit liabilities of the Dumfries Branch, purchased approximately
$6.0 million of mortgage loans, $300 thousand of equipment and other assets and
recorded $328 thousand of intangible assets.
On August 25, 2000, the Company assumed $51.8 million of deposit
liabilities, purchased $3.4 million of mortgage loans and $1.0 million of fixed
ASSETS, and recorded $3.5 million of intangible assets related to the purchase
of the Reston Branch of Resource Bank located in Fairfax County, Virginia (the
Reston Branch). In connection with the transaction, the Company also assumed
the lease for the branch location at 1498 North Point Village Center in Reston,
Virginia. The Reston Branch premises consist of approximately 2,600 square
feet, which are under lease through 2013, with additional options to renew for
two successive terms of five years each.
On October 11, 2000, the Company announced it had reached a definitive
agreement to acquire all the outstanding stock of GrandBanc, Inc., (OTC: GDBC)
in a stock-for-stock exchange. The exchange ratio is fixed at 0.3318 shares of
the Company's common stock for EACH share of GrandBanc, Inc. common stock,
making the overall value of the transaction approximately $8.8 million. The
transaction, which is expected to accounted for as a pooling of interests, is
subject to regulatory and shareholder approvals and is projected to close in
the first quarter of 2001. GrandBanc, Inc., which had $114 million in total
assets at June 30, 2000, is the parent holding company of GrandBank, a Maryland
chartered commercial bank headquartered in Rockville, Maryland; which operates
four banking offices in Montgomery County, Maryland and one banking office in
Arlington County, Virginia.
(3) INVESTMENT SECURITIES
Investment securities available-for-sale, and their contractual
maturities, at September 30, 2000 and December 31, 1999 are summarized as
follows:
F-34
<PAGE> 178
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF CENTURY BANCSHARES, INC. (UNAUDITED)
(3) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
Amortized Gross Unrealized Gross Unrealized
September 30, 2000 Cost Gains Losses Fair Value
---------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
Within one year $ 15,743,265 $ -- $ 55,344 $ 15,687,921
After one, but within five years 24,318,932 138,135 124,836 24,332,231
After five, but within ten years 4,589,790 38,900 -- 4,628,690
After ten years 383,296 -- 9,208 374,088
---------------- ---------------- ---------------- ----------------
Total obligations of U.S. government agencies 45,035,283 177,035 189,388 45,022,930
---------------- ---------------- ---------------- ----------------
Collateralized mortgage obligations 415,472 -- 16,351 399,121
Federal Reserve Bank stock 387,200 -- -- 387,200
Federal Home Loan Bank stock 1,044,900 -- -- 1,044,900
Atlantic Central Bankers Bank stock 30,000 -- -- 30,000
Other 1,074,161 -- -- 1,074,161
---------------- ---------------- ---------------- ----------------
Total investment securities available-for-sale 47,987,016 $ 177,035 $ 205,739 $ 47,958,312
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
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 obligations of U.S. government agencies 13,669,399 301 143,537 13,526,163
---------------- ---------------- ---------------- ----------------
Collateral 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
================ ================ ================ ================
</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. 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 $37,481,973 and $10,401,128 at
September 30, 2000 and 1999, respectively, were pledged to secure FHLBA
borrowings, public deposits, customer repurchase accounts, and other
borrowings. Investment securities available for sale were sold for gross
proceeds of $4.9 million in 2000 resulting in no gain or loss. No investment
securities were sold during 1999.
F-35
<PAGE> 179
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF CENTURY BANCSHARES, INC. (UNAUDITED)
(3) INVESTMENT SECURITIES, CONTINUED
Investment securities held-to-maturity at September 30, 2000 and
December 31,1999 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
September 30, 2000 Cost Gains Losses Fair Value
------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies:
After one, but within five years $ 5,999,278 $ -- $ 77,750 $ 5,921,528
After ten years 1,828,346 -- 79,352 1,748,994
----------- ----------- ----------- -----------
Total obligations of U.S. government agencies 7,827,624 -- 157,102 7,670,522
----------- ----------- ----------- -----------
Obligations of states and political subdivisions:
After five but within ten years 845,850 47,711 -- 893,561
After ten years 7,425,682 347,393 29,435 7,743,640
----------- ----------- ----------- -----------
Total obligations of states and political 8,271,532 395,104 29,435 8,637,201
subdivisions
----------- ----------- ----------- -----------
Corporate bonds 4,319,979 67,740 7,672 4,380,047
----------- ----------- ----------- -----------
Total investment securities held-to-maturity $20,419,135 $ 462,844 $ 194,209 $20,687,770
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
December 31, 1999 Cost Gains Losses Fair Value
------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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>
(4) 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 potentially dilutive common shares. On February 18, 2000, the
Company declared a 5% 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 proportionate 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. On April 14, 1999, the Company declared a 5%
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
proportionate increase in the number of shares of common stock issuable upon
the exercise of stock options outstanding. Weighted-average shares outstanding
and all share and per share data have been restated for the effect of these
stock dividends.
F-36
<PAGE> 180
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF CENTURY BANCSHARES, INC. (UNAUDITED)
(4) INCOME PER COMMON SHARE, CONTINUED
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>
Three Months Ended Nine Months Ended
----------------------- -----------------------
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC INCOME PER COMMON SHARE:
Net income $ 424,607 $ 322,563 $1,246,929 $ 827,004
Weighted average common shares outstanding 2,737,705 2,804,679 2,729,180 2,833,113
---------- ---------- ---------- ----------
Basic income per common share $ 0.16 $ 0.11 $ 0.46 $ 0.29
---------- ---------- ---------- ----------
DILUTED INCOME PER COMMON SHARE:
Net income $ 424,607 $ 322,563 $1,246,929 $ 827,004
Weighted average common shares outstanding 2,737,705 2,804,679 2,729,180 2,833,113
Dilutive effect of stock options 28,609 27,572 22,518 27,812
---------- ---------- ---------- ----------
Diluted weighted average
Common shares outstanding 2,766,314 2,832,251 2,751,698 2,860,925
---------- ---------- ---------- ----------
Diluted income per common share $ 0.15 $ 0.11 $ 0.45 $ 0.29
---------- ---------- ---------- ----------
</TABLE>
(5) 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. In June 2000, SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," was issued to
amend SFAS No. 133 to address a limited number of issues related to
implementation of SFAS 133. The implementation of SFAS No. 133, as amended, is
not expected to have a material impact on the Company's consolidated financial
statements.
F-37
<PAGE> 181
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
GrandBanc, Inc.
We have audited the accompanying consolidated balance sheets of
GrandBanc, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of GrandBanc, Inc. as of December 31, 1999 and 1998, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Stegman & Company
Baltimore, Maryland
January 28, 2000
F-38
<PAGE> 182
GRANDBANC, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,299,075 $ 3,224,516
Federal funds sold 8,769 5,131,629
Investment securities:
Available for sale - at fair value 44,967,011 34,080,428
Loans 58,992,986 61,300,297
Less allowance for loan losses (690,364) (926,749)
------------- -------------
Loans - net 58,302,622 60,373,548
Bank premises and equipment 3,891,768 1,824,766
Foreclosed real estate 114,223 374,223
Accrued interest receivable 868,486 668,952
Intangible assets 1,017,291 1,178,753
Deferred income taxes 3,100,116 1,923,647
Prepaid expenses and other assets 697,597 892,566
------------- -------------
TOTAL ASSETS $ 117,266,958 $ 109,673,028
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits $ 10,637,342 $ 10,069,575
Interest-bearing deposits 90,618,858 86,655,753
------------- -------------
Total deposits 101,256,200 96,725,328
Short-term borrowings 9,556,919 4,564,371
Long-term debt 192,500 200,000
Accrued expenses and other liabilities 448,953 496,004
------------- -------------
Total liabilities 111,454,572 101,985,703
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock - $.10 par value; 20,000,000 shares authorized; 4,049,590 and
4,049,590 shares outstanding in 1999 and 1998, respectively 404,959 404,959
Additional paid-in capital 10,962,879 10,962,879
Accumulated deficit (3,918,210) (3,648,090)
Accumulated other comprehensive loss (1,637,242) (32,423)
------------- -------------
Total stockholders' equity 5,812,386 7,687,325
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 117,266,958 $ 109,673,028
============= =============
</TABLE>
See accompanying notes.
F-39
<PAGE> 183
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,613,215 $ 7,037,460 $ 6,960,287
Interest on investment securities - U.S. Government,
its agencies, and sponsored entities 2,896,016 957,360 903,867
Interest on other investment securities -- -- 107,362
Interest on federal funds sold 103,968 214,203 136,082
----------- ----------- -----------
Total interest income 8,613,199 8,209,023 8,107,598
----------- ----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit of
$100,000 or more 877,985 811,234 766,752
Interest on other deposits 3,312,749 2,902,410 3,044,216
----------- ----------- -----------
Total interest on deposits 4,190,734 3,713,644 3,810,968
Interest on short-term borrowings 359,008 257,966 162,778
Interest on long-term debt 17,139 45,865 156,569
----------- ----------- -----------
Total interest expense 4,566,881 4,017,475 4,130,315
----------- ----------- -----------
NET INTEREST INCOME 4,046,318 4,191,548 3,977,283
PROVISION FOR LOAN LOSSES 269,330 10,000 1,209,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,776,988 4,181,548 2,768,283
----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 410,255 320,219 315,778
Net realized gain on sales of securities 6,022 5,799 1,274
Other income 193,732 312,093 328,416
----------- ----------- -----------
Total non-interest income 610,009 638,111 645,468
----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,093,337 1,799,906 1,993,005
Occupancy and equipment expense 918,425 1,021,654 987,545
Data processing services 564,575 469,919 487,403
FDIC insurance 71,045 52,901 43,430
Insurance 65,155 77,009 70,817
Legal fees 93,877 108,184 54,068
Foreclosed real estate expenses 423 46,661 81,449
Other expenses 1,016,447 991,245 903,237
----------- ----------- -----------
Total non-interest expense 4,823,284 4,567,479 4,620,954
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (436,287) 252,180 (1,207,203)
INCOME TAX EXPENSE (BENEFIT) (166,167) 152,938 (2,056,713)
----------- ----------- -----------
NET INCOME (LOSS) $ (270,120) $ 99,242 $ 849,510
=========== =========== ===========
NET EARNINGS PER COMMON SHARE:
Basic $ (.07) $ .02 $ .21
Diluted $ (.07) $ .02 $ 21
</TABLE>
See accompanying notes.
F-40
<PAGE> 184
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other Total Stock-
Common Paid-in Accumulated Comprehensive holders'
Stock Capital (Deficit) (Loss) Income Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 392,550 $ 10,405,003 $ (4,596,842) $ (179,723) $ 6,020,988
Comprehensive income:
Net income -- -- 849,510 -- 849,510
Other comprehensive income net of tax:
Unrealized gain on investment securities -- -- -- 79,547 79,547
------------
Total comprehensive income 929,057
------------
Issuance of common stock at $4.00 per share 875 34,123 -- -- 34,998
Issuance of common stock at $4.69 per share 10,666 489,334 -- -- 500,000
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 404,091 10,928,460 (3,747,332) (100,176) 7,485,043
Comprehensive income:
Net income -- -- 99,242 -- 99,242
Other comprehensive income net of tax:
Unrealized gain on investment securities -- -- -- 67,753 67,753
------------
Total comprehensive income 166,995
------------
Issuance of common stock at $4.06 per share 868 34,419 -- -- 35,287
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 404,959 10,962,879 (3,648,090) (32,423) 7,687,325
Comprehensive income:
Net loss -- -- (270,120) -- (270,120)
Other comprehensive income net of tax:
Unrealized loss on investment securities -- -- -- (1,604,819) (1,604,819)
------------
Total comprehensive loss (1,874,939)
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 $ 404,959 $ 10,962,879 $ (3,918,210) $ (1,637,242) $ 5,812,386
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-41
<PAGE> 185
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (270,120) $ 99,242 $ 849,510
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 282,127 254,848 230,175
Accretion and amortization of securities 116,792 59,126 87,719
Amortization of intangibles 161,462 159,133 160,818
Provision for loan losses 269,330 10,000 1,209,000
Net realized gain from sales of assets (6,022) (72,176) (1,274)
Foreclosed real estate - valuation adjustments -- -- 57,000
Deferred income taxes (166,167) 133,066 (2,056,713)
Net changes in:
Accrued interest receivable (199,534) (66,182) (14,822)
Prepaid expenses and other assets 194,969 169,382 (415,804)
Accrued expenses and other liabilities (47,051) 40,817 204,132
Other - net 75,994 226,109 62,714
------------ ------------ ------------
Net cash provided by operating activities 411,780 1,013,365 402,099
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in time deposits with banks -- -- 3,300,000
Net decreases (increases) in federal funds sold 5,122,860 (2,294,629) (2,213,000)
Purchases of available for sale securities (22,464,716) (34,965,701) (3,188,050)
Proceeds from sales and maturities of
available for sale securities 8,852,242 8,047,947 3,440,981
Purchases of held to maturity securities -- -- (5,099,766)
Proceeds from sales and maturities of
held-to maturity securities 7,216,490 6,953,222
Net decrease (increase) in loans 1,725,602 15,134,330 (5,121,165)
Proceeds from sale of participation loans -- -- 1,490,000
Purchases of loans -- -- (1,273,652)
Purchase of property and equipment (2,349,129) (108,041) (378,944)
Proceeds from sale of foreclosed real estate and other assets 260,000 1,126,895 79,650
------------ ------------ ------------
Net cash used by investing activities (8,853,141) (5,842,709) (2,010,724)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 4,530,872 8,027,304 (2,584,812)
Net increase (decrease) in short-term borrowings 4,992,548 (1,133,666) 3,698,037
Proceeds from issuance of common stock -- -- 500,000
Repayment of long-term borrowings (7,500) (1,300,000) --
------------ ------------ ------------
Net cash provided by financing activities 9,515,920 5,593,638 1,613,225
------------ ------------ ------------
NET INCREASE IN CASH 1,074,559 764,294 4,600
CASH AT BEGINNING OF YEAR 3,224,516 2,460,222 2,455,622
------------ ------------ ------------
CASH AT END OF YEAR $ 4,299,075 $ 3,224,516 $ 2,460,222
============ ============ ============
</TABLE>
F-42
<PAGE> 186
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosures:
Interest payments $ 4,636,875 $ 4,181,945 $ 4,089,718
Income tax payments -- -- --
Non-cash investing and financing activities:
Unrealized gain on investment securities
available for sale $(1,604,819) $ 67,753 $ 79,547
Stock issued in consideration
of professional services $ -- $ 35,287 $ 34,998
</TABLE>
See accompanying notes.
F-43
<PAGE> 187
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of GrandBanc, Inc. (the
Corporation), including its wholly owned subsidiaries, GrandBank (the Bank) and
Facility Holdings, Inc, conform to generally accepted accounting principles and
to prevailing practices within the banking industry. Certain reclassifications
have been made to amounts previously reported to conform with the
classifications made in 1999.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the
Corporation, the Bank, and Facility Holdings, Inc., with all significant
intercompany transactions eliminated. The financial statements of the
Corporation include the Bank under the equity method of accounting.
NATURE OF OPERATIONS
The Corporation provides commercial banking services from its four
locations in Montgomery County, Maryland and one branch in Alexandria,
Virginia. Its primary source of revenue is from providing commercial and real
estate loans to customers who are predominately small businesses, professionals
and middle income individuals located in Montgomery County, suburban
Washington, D.C. and northern Virginia.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale, are stated at estimated fair
value based on quoted market prices. They represent those securities which
management may sell as part of its asset/liability strategy or which may be
sold in response to changing interest rates, changes in prepayment risk or
other similar factors. The cost of securities sold is determined by the
specific identification method. Net unrealized holding gains and losses on
these securities are reported as accumulated other comprehensive income, a
separate component of stockholders' equity, net of related income taxes.
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts. The Corporation intends
and has the ability to hold such securities until maturity. When securities are
transferred into the held to maturity category from available for sale, they
are accounted for at estimated fair value with any unrealized holding gain or
loss at the date of the transfer, reported as accumulated other comprehensive
income, a separate component of stockholders' equity, and amortized over the
remaining life of the security as an adjustment of yield.
F-44
<PAGE> 188
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
LOANS
Loans are stated at their principal amount outstanding net of any
deferred fees and costs. Interest income is accrued and credited to income at
the contractual rate based on the principal amount outstanding. Loans are
placed on non-accrual when a loan is specifically determined to be impaired or
when principal or interest is delinquent for 90 days or more. Any unpaid
interest previously accrued on those loans is reversed from income. Interest
income generally is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received on such loans
are applied as a reduction of the loan principal balance. Interest income on
other non-accrual loans is recognized only to the extent of interest payments
received.
Loans are considered impaired when, based on current information, it
is probable that the Bank will not collect all principal and interest payments
according to the loans' contractual terms. Generally, loans are considered
impaired once principal or interest payments become 90 days or more past due
and they are placed on non-accrual. Management also considers the financial
condition of the borrower, cash flows of the loan and the value of the related
collateral. Impaired loans do not include large groups of smaller balance
homogeneous loans such as residential real estate and consumer installment
loans which are evaluated collectively for impairment. Loans specifically
reviewed for impairment are not considered impaired during periods of "minimum
delay" in payment (90 days or less) provided eventual collection of all amounts
due is expected. The impairment of the loan is measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or the fair value of the collateral if repayment is expected to be
provided by the collateral. The majority of the Bank's impaired loans are
measured by reference to the fair value of the collateral. Interest income on
impaired loans is recognized on the cash basis.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's current estimate
of the amount, which adequately provides for possible losses in the portfolio.
The adequacy of the allowance is determined by regular review of the loan
portfolio considering such factors as current economic conditions and their
effect on the creditworthiness of borrowers, changes in the character of the
portfolio and historical loan loss experience. The allowance is increased by
provisions charged to operating expense and reduced by loans charged-off, net
of recoveries of amounts previously charged-off and by reversals of previous
years' provisions. Allowances for impaired loans are generally determined based
on collateral values or the present value of estimated cash flows.
LONG-LIVED ASSETS
Bank premises and equipment are stated at cost and are being
depreciated principally on a straight-line basis over the estimated useful
lives of the assets. Repair and maintenance costs are charged against income
while betterments are capitalized as additions to the related assets. Upon
retirement or other disposition of properties, the carrying value and the
related accumulated depreciation are removed from the accounts.
Intangible assets consisting of goodwill and a premium on purchased
deposits are being amortized on the straight-line method over 12 years and 9
years, respectively.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired and the
write-down would be material, an assessment of recoverability is performed
prior to any write-down of the asset.
F-45
<PAGE> 189
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
FORECLOSED REAL ESTATE
Foreclosed real estate represents assets acquired in satisfaction of
loans either by foreclosure or deeds taken in lieu of foreclosure. Properties
acquired are recorded at the lower of cost or fair value less estimated selling
costs at the time of acquisition with any deficiency charged to the allowance
for loan losses. Thereafter, costs incurred to operate or carry the properties
as well as reductions in value as determined by periodic appraisals or other
market studies are charged to operating expense. Gains and losses resulting
from the final disposition of the properties are included in non-interest
expense.
INCOME TAXES
Under the asset and liability method, deferred income taxes reflect
the future tax consequences of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts. Deferred tax
assets and liabilities are measured using 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. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carryforwards if their realization is "more
than likely."
2. FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133,"
which delayed the effective date of SFAS No. 133 to January 1, 2001 for
calendar year companies such as the Corporation. This statement requires
derivative instruments be carried at fair value on the balance sheet. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used in determining when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of the hedge
are required to be recognized in earnings and cannot be deferred. For
derivative instruments not accounted for as hedges, changes in fair value are
required to be recognized in earnings.
The Corporation plans to adopt the provisions of this statement, as
amended, for its quarterly and annual reporting beginning January 1, 2001, the
statement's effective date. The impact of adopting the provisions of this
statement on the Corporation's financial position, results of operations and
cash flows subsequent to the effective date is not currently estimable and will
depend on the financial position of the Corporation and the nature and purpose
of any derivative instrument in use at that time.
F-46
<PAGE> 190
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available for Sale - 1999 Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of U.S. government, its
agencies and sponsored entities $26,505,063 $ -- $ 1,665,812 $24,839,251
Mortgage-backed securities 20,709,235 1,463 1,061,038 19,649,660
Other investments 420,100 58,000 -- 478,100
----------- ----------- ----------- -----------
Total $47,634,398 $ 59,463 $ 2,726,850 $44,967,011
=========== =========== =========== ===========
Available for Sale - 1998
Obligations of U.S. government, its
agencies and sponsored entities $17,600,889 $ 28,158 $ 111,198 $17,517,849
Mortgage-backed securities 16,132,534 51,732 78,987 16,105,279
Other investments 399,300 58,000 -- 457,300
----------- ----------- ----------- -----------
Total $34,132,723 $ 137,890 $ 190,185 $34,080,428
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of investment securities
at December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available for Sale
-------------------------
Estimated
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 500,000 $ 488,925
Due after one year through five years 3,599,684 3,483,008
Due after five years through ten years 22,405,379 20,867,318
Due after ten years -- --
----------- -----------
26,505,063 24,839,251
Mortgage-backed securities 20,709,235 19,649,660
Other investments 420,100 478,100
----------- -----------
Total $47,634,398 $44,967,011
=========== ===========
</TABLE>
F-47
<PAGE> 191
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
At December 31, securities pledged as collateral for public deposits
and for other purposes as required or permitted by law were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available for sale $11,676,829 $11,080,291 $11,368,931 $11,355,272
=========== =========== =========== ===========
</TABLE>
Proceeds from sales together with gross gains and losses realized on
sales of securities were as follows:
<TABLE>
<CAPTION>
Available for Sale
--------------------------------------------------
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Proceeds from sale $ 2,788,977 $ 477,500 $ 550,516
Gross realized gains 6,022 5,799 1,274
</TABLE>
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate - mortgage $40,988,523 $37,658,527
Real estate - construction 93,500 210,500
Commercial 13,381,261 17,477,183
Consumer 2,430,209 2,889,176
Credit card receivable 2,099,493 3,064,911
----------- -----------
Total loans $58,992,986 $61,300,297
=========== ===========
</TABLE>
Certain senior officers, directors and companies in which officers and
directors are partners and principal stockholders have had loan transactions
with the Bank. Such extensions of credit have been made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
outsiders, and at the time did not involve more than the normal risk of
collectibility or present other unfavorable circumstances. The following
summarizes changes in amounts outstanding, both direct and indirect, to such
persons during 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Balance at January 1 $ 2,259,000 $ 2,260,000
Amounts borrowed 754,564 713,000
Amounts paid 1,560,000 (714,000)
----------- -----------
Balance at December 31 $ 1,453,564 $ 2,259,000
=========== ===========
</TABLE>
F-48
<PAGE> 192
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Activity in the allowance for loan losses for the three years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 926,749 $ 1,701,702 $ 1,016,478
Provision for loan losses 269,330 10,000 1,209,000
Loans charged-off (581,710) (1,299,250) (586,491)
Recoveries 75,995 514,297 62,715
----------- ----------- -----------
Balance at December 31 $ 690,364 $ 926,749 $ 1,701,702
=========== =========== ===========
</TABLE>
At December 31, 1999, 1998 and 1997, the total recorded investment in
impaired loans amounted to $591,997, $535,292 and $2,272,052, respectively. The
average balances of these loans were $416,948, $797,148 and $326,268 for the
years ended December 1999, 1998 and 1997, respectively. Following is a summary
of cash receipts on impaired loans and how they were applied:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash receipts applied to principal
balance $ 109,178 $ 87,588 $ --
=========== =========== ===========
</TABLE>
The allowance for loan losses related to impaired loans amounted to
approximately $59,000, $2,000 and $639,000 at December 31, 1999, 1998 and 1997,
respectively. If interest had been recognized on impaired loans at the original
interest rate, interest income would have increased approximately $48,000,
$91,000 and $133,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 1,847,288 $ 360,000
Building 1,638,068 840,000
Leasehold improvements 765,256 769,924
Equipment 895,777 1,135,225
Furniture and fixtures 196,322 192,434
----------- -----------
5,342,711 3,297,583
Less accumulated depreciation (1,450,943) (1,472,817)
----------- -----------
$ 3,891,768 $ 1,824,766
=========== ===========
</TABLE>
On February 12, 1999, the corporation purchased the banking building
located at 7535 Old Georgetown Road, Bethesda, Maryland. The cost of the
building and land was $2,227,146. The cost was allocated on a prorated basis
using appraised values. The assigned costs were $1,487,288 and 739,858 to land
and building, respectively.
F-49
<PAGE> 193
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The Bank leases office space under various lease agreements. Rental
expense for 1999, 1998 and 1997 totaled $393,046, $563,128 and $581,044.
Future, minimum annual lease payments for operating leases are as follows:
<TABLE>
<S> <C>
2000 $ 361,646
2001 370,867
2002 376,596
2003 342,475
2004 346,787
Thereafter 1,366,699
----------
Total $3,165,070
==========
</TABLE>
6. INTANGIBLE ASSETS
Following is a summary of intangible assets, net of accumulated
amortization, included in the consolidated balance sheets:
<TABLE>
<CAPTION>
Premium on
Purchased
Goodwill Deposits Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1998 $ 318,076 $ 1,019,810 $ 1,337,886
Amortization (27,901) (131,232) (159,133)
----------- ----------- -----------
Balance, December 31, 1998 290,175 888,578 1,178,753
Amortization (30,224) (131,238) (161,462)
----------- ----------- -----------
Balance, December 31, 1999 $ 259,951 $ 757,340 $ 1,017,291
=========== =========== ===========
</TABLE>
7. DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Non-interest-bearing $ 10,637,342 $ 10,069,575
------------ ------------
Interest-bearing:
Savings and interest checking 15,600,802 13,825,599
Money market 12,358,120 10,691,252
Certificates of deposit of $100,000 or more 14,690,520 17,250,883
Other 47,969,416 44,888,019
------------ ------------
Total interest-bearing 90,618,858 86,655,753
------------ ------------
Total $101,256,200 $ 96,725,328
============ ============
</TABLE>
8. SHORT-TERM BORROWINGS
At December 31, 1999, the Corporation is indebted to an unaffiliated
bank in the amount of $1,800,000. The note bears interest at the prime rate (as
defined) plus 1/4% and is adjusted annually. Interest is payable monthly and it
requires quarterly principal payments of $25,000 and the remaining balance due
November 1, 2000. The common stock of the Corporation's wholly owned subsidiary
bank is pledged as collateral for this debt.
F-50
<PAGE> 194
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Short-term borrowings at December 31, 1999 also consisted of overnight
federal funds borrowed, short-term Federal Home Loan Bank advances, securities
sold under agreement to repurchase, which are securities sold to the Bank's
customers, at the customer's request, under a continuing "roll-over" contract
that matures in one business day. The underlying securities sold are U.S.
Treasury notes or Federal agencies which are segregated in the Bank's Federal
Reserve Bank account from the Company's other investment securities. The
following table presents certain information for short-term borrowings:
<TABLE>
<S> <C>
Average amount outstanding during the year $ 4,856,188
Weighted average interest rate during the year 4.78%
Amount outstanding at year end $ 7,206,919
Weighted average interest rate at year end 4.23%
Maximum amount at any month end $ 7,432,698
</TABLE>
9. LONG-TERM DEBT
At December 31, 1999, the Corporation is also indebted to the same
unaffiliated bank in the amount of $192,500. The note bears interest at the
prime rate (as defined) plus 1/4% and is adjusted annually. Interest is payable
monthly and the principal is due September 30, 2001. The common stock of the
Corporation's wholly owned subsidiary bank is pledged as collateral for this
debt.
10. STOCK OPTION PLAN
The Corporation maintains a stock option plan for outside directors
and an incentive stock option plan for key employees. The plans provide that
100,000 and 200,000 shares of common stock of the Corporation be reserved for
each Plan, respectively. The option price shall be the fair market value of the
common stock on the date the option is granted, and the option must be
exercised within ten years and five years from the date granted for director
and incentive stock option plans, respectively.
The following is a summary of changes in shares under option for each
of the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 160,500 $ 2.88 121,500 $ 2.40 133,500 $ 2.31
Granted 45,000 2.48 49,000 4.00 12,500 2.88
Exercised -- .00 -- -- .00
Expired (16,000) 4.00 (10,000) 2.50 (24,500) 2.17
---------- ---------- ----------
Outstanding at end of year 189,500 2.69 160,500 2.88 121,500 2.40
========== ========== ==========
Weighted average fair value of
options granted during the year $ 1.36 $ 2.22 $ 1.68
========== ========== ==========
</TABLE>
F-51
<PAGE> 195
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Prices Number Life Exercise Price Number Exercise Price
--------------- -------- -------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$1.75 - $4.00 189,500 6.65 years $2.69 179,500 $2.73
</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 during the three years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yield .00 .00 .00
Expected volatility 30.00% 30.00% 30.00%
Risk-free interest rate 5.93% 5.86% 6.82%
Expected lives 10 years 10 years 10 years
</TABLE>
The Corporation has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), but applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its Plans. No compensation
expense related to the Plans was recorded during the three years ended December
31, 1998. If the Corporation had elected to recognize compensation cost based
on the fair value at the grant dates for awards under the Plans consistent with
the method of prescribed by SFAS 123, net income and earnings per share would
have been changed to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net (loss) income $ (320,520) $ 13,052 $ 849,510
Net (loss) income per share:
Basic $ (.08) $ -- $ .21
Diluted $ (.08) $ -- $ .21
</TABLE>
11. NET EARNINGS PER COMMON SHARE
Basic net earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding during the year. Diluted net earnings per common share is
computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding during the year including
any potential dilutive common shares outstanding, such as options and warrants.
There is no adjustment for stock options in the calculation of diluted earnings
per share for 1999 because the effect would have been antidilutable.
F-52
<PAGE> 196
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The calculation of net earnings per common share follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic:
Net income (loss) (applicable to common stock) $ (270,120) $ 99,242 $ 849,510
Average common shares outstanding 4,049,590 4,048,829 4,026,293
Basic net earnings per share $ (.07) $ .02 $ .21
Diluted:
Net income (loss) (applicable to common stock) $ (270,120) $ 99,242 $ 849,510
Average common shares outstanding 4,049,590 4,048,829 4,026,293
Stock option adjustment -- 86,190 --
Average common shares outstanding - diluted 4,049,590 4,080,063 4,058,148
Diluted net earnings per share $ (.07) $ .00 $ .21
</TABLE>
12. INCOME TAXES
Federal and state income tax expense (benefit) consists of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current federal income tax expense $ -- $ -- $ --
Deferred federal income tax expense
(benefit) (136,043) 125,217 (1,669,336)
Deferred state income tax expense
(benefit) (30,124) 27,721 (387,377)
----------- ----------- -----------
$ (166,167) $ 152,938 $(2,056,713)
=========== =========== ===========
</TABLE>
A reconciliation of the differences between the maximum federal
statutory income tax rate and the Corporation's effective tax rate for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- ---------------------------
Percent Percent
Percent of of
of Pretax Pretax
Pretax Income Income
Amount Income Amount (Loss) Amount (Loss)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at statutory rate $ (148,338) (34.0)% $ 85,741 34.0% $ (410,449) (34.0)%
State income taxes net of federal
income tax benefit (19,882) (4.6) 13,057 5.2 (60,360) (5.0)
Nondeductible expenses 1,553 0.4 10,230 4.0 11,735 1.0
Elimination of valuation allowance
on deferred tax assets -- .0 -- .0 (1,597,639) (132.3)
Net operating loss -- .0 43,910 17.4 -- .0
----------- ----------- ----------- ----------- ----------- -----------
$ (166,167) (38.2)% $ 152,938 60.6% $(2,056,713) (170.3)%
=========== =========== =========== =========== =========== ===========
</TABLE>
F-53
<PAGE> 197
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
At December 31 net deferred tax assets consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $1,764,262 $1,519,223
Allowance for loan losses 181,473 272,765
Foreclosed real estate - valuation allowance 1,932 23,172
Depreciation 29,284 12,572
Intangible assets 62,169 43,346
Loan fees and costs 3,893 32,372
Unrealized holding losses on investment
securities available for sale 1,030,145 20,197
Other 26,958 --
---------- ----------
Total deferred tax assets $3,100,116 $1,923,647
========== ==========
</TABLE>
The Company has recorded a deferred tax asset of $3,100,116, which
includes the benefit of $4,520,000 in tax loss carryforwards, which expire in
varying amounts between 2007 and 2014. Realization depends on generating
sufficient taxable income before the expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized. The amount of the
deferred tax assets considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced. The amount of loss carryforward available for any one year may be
limited if the Company is subject to the alternative minimum tax.
13. REGULATORY MATTERS
CAPITAL
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. 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 Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The
Corporation's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
The Corporation is required to maintain risk-based and leverage
capital as defined by federal banking agencies. The measurement of risk-based
capital takes into account the risk of both the balance sheet assets and
off-balance sheet exposures. The regulatory guidelines require minimum
risk-based capital ratios of 4% for Tier 1 capital and 8% for total capital. In
addition a minimum leverage ratio of Tier 1 capital to quarterly average assets
of 3% is required for strong banking organizations. A bank is considered "well
capitalized", the highest regulatory category, if it has the following minimum
ratios: Tier 1 capital of 6%, total risk-based capital of 10%, and Tier 1
leverage ratio of 5%.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and its bank affiliate to maintain at least
the minimum amounts of ratios of total Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined). Management believes, as of
December 31, 1999, that the Corporation and its bank affiliate met all capital
adequacy requirements to which they are subject.
F-54
<PAGE> 198
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
As of December 31, 1999, the most recent notification from the primary
regulators for the Corporation's affiliate banking institution categorized the
bank as well capitalized under the prompt corrective action regulations. To be
categorized as well capitalized a bank must maintain minimum total risk-based,
Tier 1 risk-based and Tier 1 leverage ratios as set forth in the tables below.
There are no conditions or events since the last notifications that management
believes have changed the affiliate bank's category.
As of December 31, 1999, the capital ratios of the Corporation were as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Capital:
Tier 1 capital $ 5,591,337 $ 5,844,000
Tier 2 capital 690,364 921,000
------------ ------------
Total capital $ 6,281,401 $ 6,765,000
============ ============
Assets:
Risk-weighted assets $ 76,054,676 $ 73,676,000
Average assets (fourth quarter) 118,581,380 104,484,000
</TABLE>
<TABLE>
<CAPTION>
Well
Capitalized
Regulatory
Actual Rates Minimums
------------------------ -------------
<S> <C> <C> <C>
Ratios:
Tier 1 capital to risk-weighted assets 7.4% 7.9% 6.0%
Total capital to risk-weighted assets 8.3% 9.2% 10.0%
Tier 1 leverage to average assets 4.7% 5.6% 5.0%
</TABLE>
The capital ratios of GrandBank, the Corporation's banking subsidiary,
were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Capital:
Tier 1 capital $ 7,558,793 $ 7,735,000
Tier 2 capital 690,364 927,000
------------ ------------
Total capital $ 8,249,157 $ 8,662,000
============ ============
Assets:
Risk-weighted assets $ 74,927,000 $ 72,062,000
Average assets (fourth quarter) 118,135,470 102,336,000
</TABLE>
F-55
<PAGE> 199
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Well
Capitalized
Regulatory
Actual Rates Minimums
------------------- ------------
<S> <C> <C> <C>
Ratios:
Tier 1 capital to risk-weighted assets 10.1% 10.7% 6.0%
Total capital to risk-weighted assets 11.0% 12.0% 10.0%
Tier 1 leverage to average assets 6.4% 7.6% 5.0%
</TABLE>
DIVIDENDS
Dividends payable by the Corporation are unrestricted, although the
ability of the Corporation to pay dividends depends upon dividends received by
it from the Bank. The Board of Directors adopted a resolution specifying that
no dividends will be paid by the Bank to the Corporation, except from the
undivided profits of the Bank, or with the prior approval of the Bank
Commissioner of the State of Maryland and the Regional Director of the FDIC,
from the Bank's surplus in excess of 100% of its required capital stock. In
addition, restrictions are also imposed upon the ability of the Bank to make
loans to the Corporation, purchase stock in the Corporation, or use the
Corporation's securities as collateral for indebtedness of the Bank.
CASH AND DUE FROM BANKS
The Federal Reserve System requires that banks maintain reserve
balances based on the type and amount of deposits. At December 31, 1999 and
1998, the Bank was required to maintain reserves of $495,000 and $518,000
respectively.
14. LITIGATION
At December 31, 1999, the Corporation was involved in litigation
arising from normal banking, financial, and other activities of the Bank.
Management, after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of these matters will have a material
effect on the Corporation's financial condition.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is 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 involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement of
financial position. The contract amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments as well as its exposure to credit loss in the event of
nonperformance by the other party. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. At December 31, 1999 and 1998, the Bank's
total unfunded commitments to extend credit were $12,248,000 and $30,556,000,
respectively. These commitments included unused credit card lines of credit of
$6,364,000 and $29,755,000 for 1999 and 1998 respectively. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of credit is
based on
F-56
<PAGE> 200
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
management's credit evaluation of the counterparty. Collateral held varies but
may include loans, property, equipment, commercial properties, and other
business assets as may be deemed appropriate.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party and totaled
$234,000 and $173,000 at December 31, 1999 and 1998, respectively. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral held varies but
may include accounts receivable, inventory, equipment, marketable securities,
property, and other business assets as may be deemed appropriate. Since most of
the letters of credit are expected to expire without being drawn upon, they do
not necessarily represent future cash requirements.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosure About
Fair Value of Financial Instruments, requires the disclosure of estimated fair
values of financial instruments. Quoted market prices, where available, are
shown as estimates of fair market values. Because no quoted market prices are
available for a significant part of the Corporation's financial instruments,
the fair values of such instruments have been derived based on the amount and
timing of future cash flows and estimated discount rates.
Present value techniques used in estimating the fair value of many of
the Corporation's financial instruments are significantly affected by the
assumptions used. The fair values derived from using present value techniques
are not substantiated by comparisons to independent markets, and in many cases,
could not be realized in immediate settlement of the instruments. Statement No.
107 excludes certain financial instruments and all non-financial instruments
from its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
The estimated fair values of the Corporation's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 4,299,075 $ 4,299,075 $ 3,224,516 $ 3,224,516
Federal funds sold 8,769 8,769 5,131,629 5,131,629
Investment securities available for sale 44,967,011 44,967,011 34,080,428 34,080,428
Loans, net of allowance 58,302,622 58,177,783 60,373,548 61,279,151
Accrued interest receivable 868,486 868,486 668,952 668,952
Financial liabilities:
Deposits 101,256,200 103,395,106 96,725,328 96,765,618
Short-term borrowings 9,556,919 9,556,919 4,564,371 4,564,371
Long-term borrowings 192,500 192,500 200,000 200,000
Accrued interest payable 137,064 137,064 207,058 207,058
Off-balance sheet items:
Commitments to extend credit 5,884,000 5,884,000 801,000 801,000
Unused credit card lines of credit 6,364,000 6,364,000 29,755,000 29,755,000
Standby letters of credit 234,000 234,000 173,000 173,000
</TABLE>
F-57
<PAGE> 201
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
o Cash and due from banks, federal funds sold and time
deposits: The carrying amounts reported in the balance sheet
for these assets are considered to approximate their fair
values.
o Investment securities: Fair values for investment securities
are based on quoted market prices, where available. If
quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
o Loans: For variable-rate loans that re-price frequently and
with no significant change in credit risk, fair values are
based on carrying amounts. The fair values for other loans
(for example, fixed rate real estate, consumer and
commercial and industrial loans) are estimated using
discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
o Deposits: The fair values disclosed for demand deposits (for
example, interest-bearing checking and savings accounts)
are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts.) The
fair values for certificates of deposit are estimated using
a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule
of aggregated contractual maturities on such time deposits.
The carrying amount of accrued interest payable approximates
fair value.
o Federal funds purchased and other short-term borrowings: The
carrying amounts approximate their fair values.
o Long-term borrowings: The fair value is estimated based on
interest rates currently available for borrowings with
similar terms and remaining maturities.
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed balance sheets, statements of income and statements of cash
flows for GrandBanc, Inc. (parent only) are presented below:
F-58
<PAGE> 202
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GRANDBANC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Cash $ 259,558 $ 2,448
Investments in subsidiary 7,806,310 9,553,597
Intangible assets 163,369 181,675
Deferred income taxes 400,846 320,515
------------ ------------
TOTAL ASSETS $ 8,630,083 $ 10,058,235
============ ============
LIABILITIES:
Notes payable $ 1,992,500 $ 2,100,000
Accrued expenses and other liabilities 825,197 270,910
------------ ------------
Total liabilities 2,817,697 2,370,910
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 404,959 404,959
Additional paid-in capital 10,962,879 10,962,879
Accumulated deficit (3,918,210) (3,648,090)
Accumulated other comprehensive income (1,637,242) (32,423)
------------ ------------
Total stockholders' equity 5,812,386 7,687,325
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,630,083 $ 10,058,235
============ ============
</TABLE>
F-59
<PAGE> 203
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GRANDBANC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Rental income $ -- $ -- $ 120,000
Interest income 971 4,046 11,096
Other income -- 30,000 193
----------- ----------- -----------
Total income 971 34,046 131,289
----------- ----------- -----------
EXPENSES:
Interest expense 170,945 215,342 306,250
Professional fees -- 28,775 62,758
Other expenses 38,011 39,776 75,130
----------- ----------- -----------
Total expenses 208,956 283,893 444,138
----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND
EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY (207,985) (249,847) (312,849)
INCOME TAX BENEFIT (80,332) (122,952) (197,563)
----------- ----------- -----------
LOSS BEFORE EQUITY IN UN-
DISTRIBUTED INCOME OF
SUBSIDIARY (127,653) (126,895) (115,286)
EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY (142,467) 226,137 964,796
----------- ----------- -----------
NET INCOME (LOSS) $ (270,120) $ 99,242 $ 849,510
=========== =========== ===========
</TABLE>
F-60
<PAGE> 204
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GRANDBANC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (270,120) $ 99,242 $ 849,510
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiary 142,467 (416,213) (964,796)
Depreciation and amortization -- 26,450 8,621
Deferred income taxes (80,332) (122,952) (197,563)
Net changes in:
Other assets 18,307 1,494 16,926
Accrued expenses and other liabilities 554,288 19,697 (28,512)
----------- ----------- -----------
Net cash provided (used) in operating activities 364,610 (392,282) (263,440)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of fixed assets -- 1,489,784 --
----------- ----------- -----------
Net cash provided by
investing activities -- 1,489,784 --
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings 1,800,000 -- --
Principal payments on borrowings (1,907,500) (1,400,000) --
Proceeds from issuance of common stock -- -- 500,000
----------- ----------- -----------
Net cash (used) provided by
financing activities (107,500) (1,400,000) 500,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 257,110 (302,498) 236,560
CASH AT BEGINNING OF YEAR 2,448 304,946 68,386
----------- ----------- -----------
CASH AT END OF YEAR $ 259,558 $ 2,448 $ 304,946
=========== =========== ===========
Supplemental disclosures:
Interest payments $ 170,398 $ 200,918 $ 331,868
=========== =========== ===========
</TABLE>
F-61
<PAGE> 205
GRANDBANC, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and Due from banks $ 2,942 $ 4,299
Federal funds sold 325 9
--------------- ---------------
Total cash and cash equivalents 3,267 4,308
Securities available-for-sale 42,405 44,967
Loans, net of unearned discount and loan fees 60,364 58,993
Less: Allowance for loan losses (646) (690)
--------------- ---------------
Loans, net 59,718 58,303
Bank premises and equipment, net 3,856 3,892
Accrued income receivable 803 868
Prepaid expenses and other assets 649 698
Deferred income taxes 2,825 3,100
Intangible assets 897 1,017
Other real estate owned 114 114
--------------- ---------------
TOTAL ASSETS $ 114,534 $ 117,267
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 10,989 $ 10,637
Interest checking 11,219 11,532
Savings 20,622 16,427
Time 57,714 62,660
--------------- ---------------
Total Deposits 100,544 101,256
Securities sold under agreement to repurchase
and other borrowed funds 7,268 9,749
Other liabilities 478 449
--------------- ---------------
TOTAL LIABILITIES 108,290 111,454
--------------- ---------------
SHAREHOLDERS' EQUITY
Common stock 405 405
Surplus 10,963 10,963
Retained earnings (3,839) (3,918)
Accumulated comprehensive income:
Unrealized holding loss on securities available-for-sale (1,285) (1,637)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 6,244 5,813
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,534 $ 117,267
--------------- ---------------
BOOK VALUE PER SHARE $ 1.54 $ 1.44
--------------- ---------------
ACTUAL SHARES OUTSTANDING 4,050 4,050
--------------- ---------------
</TABLE>
See notes to consolidated financial statements.
F-62
<PAGE> 206
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,480 $ 1,353 $ 4,283 $ 4,236
Interest on federal funds sold and repurchase agreement 8 13 40 86
Interest on Securities 707 783 2,134 2,148
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 2,195 2,149 6,457 6,470
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,122 1,058 3,108 3,163
Interest on securities sold under agreements to
repurchase and other borrowed funds 142 87 391 251
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,264 1,145 3,499 3,414
---------- ---------- ---------- ----------
NET INTEREST INCOME 931 1,004 2,958 3,056
PROVISION FOR LOAN LOSSES -- -- 60 189
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 931 1,004 2,898 2,867
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges 130 105 422 280
Other 51 57 139 154
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 181 162 561 434
---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 476 499 1,519 1,567
Occupancy 145 153 434 474
Equipment 73 76 210 225
Other operating expenses 402 441 1,164 1,300
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 1,096 1,169 3,327 3,566
---------- ---------- ---------- ----------
INCOME BEFORE APPLICABLE INCOME TAXES 16 (3) 132 (265)
INCOME TAXES 8 -- 53 (100)
---------- ---------- ---------- ----------
NET INCOME $ 8 $ (3) $ 79 $ (165)
========== ========== ========== ==========
PER COMMON SHARE DATA
BASIC EARNINGS $ 0.00 $ (0.00) $ 0.02 $ (0.04)
DILUTED EARNINGS $ 0.00 $ (0.00) $ 0.02 $ (0.04)
AVERAGE COMMON SHARES
BASIC 4,050 4,050 4,050 4,050
DILUTED 4,218 4,241 4,218 4,227
</TABLE>
See notes to consolidated financial statements.
F-63
<PAGE> 207
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK OTHER
SHARES COMMON RETAINED COMPREHENSIVE
OUTSTANDING STOCK SURPLUS EARNINGS INCOME, NET TOTAL
----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 4,050 $ 405 $ 10,963 $ (3,648) $ (32) $ 7,688
Comprehensive income:
Net income for the nine months
ended September 30, 1999 -- -- -- (165) -- (165)
Other comprehensive income net of tax:
Change in unrealized holding gain
(loss) on securities available for sale -- -- -- -- (1,219) (1,219)
-----------
Total comprehensive loss (1,384)
----------- ----------- ----------- ----------- ------------- -----------
BALANCE AT SEPTEMBER 30, 1999 4,050 $ 405 $ 10,963 $ (3,813) $ (1,251) $ 6,304
----------- ----------- ----------- ----------- ------------- -----------
BALANCE AT DECEMBER 31, 1999 4,050 $ 405 $ 10,963 $ (3,918) $ (1,637) $ 5,813
Comprehensive income:
Net income for the nine months
ended September 30, 2000 -- -- -- 79 -- 79
Other comprehensive income net of tax:
Change in unrealized holding gain
(loss) on securities available for sale -- -- -- -- 352 352
-----------
Total comprehensive Income 431
----------- ----------- ----------- ----------- ------------- -----------
BALANCE AT SEPTEMBER 30, 2000 4,050 $ 405 $ 10,963 $ (3,839) $ (1,285) $ 6,244
----------- ----------- ----------- ----------- ------------- -----------
</TABLE>
See notes to consolidated financial statements.
F-64
<PAGE> 208
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 79 $ (165)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 196 215
Net amortization of securities 100 100
Amortization of intangibles 121 121
Provision for loan losses 60 189
Net realized gain on sale of securities -- (6)
Provision (benefit) for deferred income taxes 53 (100)
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 114 339
Other liabilities 29 (77)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 752 616
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (316) 2,343
Proceeds from sales and maturities of
available for sale securities 3,041 8,266
Purchases of available for sale securities (5) (22,465)
Net (increase) decrease in loans (1,476) 2,489
Purchases of bank premises and equipment (160) (2,299)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,084 (11,666)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (712) 5,971
Net (decrease) increase in federal funds purchased and
other short-term borrowings (2,394) 4,282
Repayment of long term debt (87) --
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (3,193) 10,253
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,357) (797)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,299 3,225
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,942 $ 2,428
----------- -----------
CASH PAID FOR INTEREST $ 3,402 $ 3,374
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-65
<PAGE> 209
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 - ORGANIZATION
GrandBanc, Inc. (the Corporation), is a Maryland bank holding company.
The Corporation's operations primarily consist of managing the operations of
GrandBank, its wholly owned subsidiary. GrandBank (the Bank) is a
community-oriented commercial bank. It provides a broad range of banking
services to small-to-medium sized businesses, professionals, and individuals in
its primary market that encompasses the metropolitan Washington D.C. area
including suburban Maryland and northern Virginia. The Bank, in addition to its
headquarters in Rockville, has branch offices in Bethesda and Germantown,
Maryland and Alexandria, Virginia. The Corporation's other wholly owned
subsidiary, Facility Holdings, Inc., a Virginia corporation, was established in
the first quarter of 1998 and owns the real property of the Corporation located
in Alexandria, Virginia. The Corporation and Bank are subject to the
regulations of certain Federal and State agencies and undergo periodic
examinations by those regulatory agencies.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 9 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
and nine-month periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
NOTE 3 - FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133,"
which delayed the effective date of SFAS No. 133 to January 1, 2001 for
calendar year companies such as the Corporation. This statement requires
derivative instruments be carried at fair value on the balance sheet. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used in determining when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of the hedge
are required to be recognized in earnings and cannot be deferred. For
derivative instruments not accounted for as hedges, changes in fair value are
required to be recognized in earnings.
The Corporation plans to adopt the provisions of this statement, as
amended, for its quarterly and annual reporting beginning January 1, 2001, the
statements effective date. The impact of adopting the provisions of this
statement on the Corporation's financial position, results of operations and
cash flows subsequent to the effective date is not currently estimable and will
depend on the financial position of the Corporation and the nature and purpose
of any derivative instrument in use at that time.
F-66
<PAGE> 210
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 4. SECURITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government Agencies and Corporations $ 26,005 $ -- $ (1,383) $ 24,622
Mortgage-Backed Securities 18,068 1 (769) 17,300
Other Securities 425 58 -- 483
---------- ---------- ---------- ----------
TOTAL $ 44,498 $ 59 $ (2,152) $ 42,405
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government Agencies and Corporations $ 26,505 $ -- $ (1,666) $ 24,839
Mortgage-Backed Securities 20,709 2 (1,061) 19,650
Other Securities 420 58 -- 478
---------- ---------- ---------- ----------
TOTAL $ 47,634 $ 60 $ (2,727) $ 44,967
========== ========== ========== ==========
</TABLE>
F-67
<PAGE> 211
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 5. LOANS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
FOR THE PERIODS ENDED 2000 1999
------------- -------------
<S> <C> <C>
Real Estate-Mortgage $ 41,705 $ 40,995
Real Estate-Construction -- 94
Commercial 14,165 13,429
Consumer 2,911 2,430
Credit Card Receivable 1,638 2,099
------------- -------------
GROSS LOANS 60,419 59,047
------------- -------------
Less: Deferred loan fees and
unearned discount (55) (54)
------------- -------------
LOANS, NET OF UNEARNED DISCOUNT AND
DEFERRED LOAN FEES 60,364 58,993
------------- -------------
Allowance for loan losses (646) (690)
------------- -------------
LOANS, NET $ 59,718 $ 58,303
------------- -------------
</TABLE>
F-68
<PAGE> 212
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 6. ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
FOR THE PERIODS ENDED 2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 668 $ 777 $ 690 $ 927
Provision charged to expense -- -- 60 190
Charge-offs:
Commercial and other -- -- -- 21
Consumer 70 100 168 441
Real Estate -- -- 5 --
---------- ---------- ---------- ----------
Total Charge-offs 70 100 173 462
Recoveries:
Commercial and other 7 -- 18 12
Consumer 2 2 12 12
Real Estate 39 -- 39 --
---------- ---------- ---------- ----------
Total Recoveries 48 2 69 24
Net Charge-Offs (Recoveries) 22 98 104 438
---------- ---------- ---------- ----------
BALANCE AT END OF PERIOD $ 646 $ 679 $ 646 $ 679
---------- ---------- ---------- ----------
AVERAGE TOTAL LOANS (1) $ 59,948 $ 56,785 $ 59,034 $ 58,162
TOTAL LOANS AT PERIOD END (1) $ 60,364 $ 58,231 $ 60,364 $ 58,231
RATIO OF NET CHARGE-OFFS (RECOVERIES)
TO AVERAGE TOTAL LOANS 0.04% 0.17% 0.18% 0.75%
RATIO OF ALLOWANCE FOR
LOAN LOSSES TO TOTAL
LOANS AT PERIOD END 1.07% 1.17% 1.07% 1.17%
</TABLE>
(1) Total Loans are reported net of unearned income.
F-69
<PAGE> 213
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 6A. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
SEPTEMBER 30, TOTAL DECEMBER 31, TOTAL
2000 LOANS 1999 LOANS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Real Estate-Mortgage $ 246 69.0% $ 224 69.4%
Real Estate-Construction 0 0.0% 1 0.2%
Commercial 70 23.4% 49 22.7%
Consumer 247 7.5% 304 7.7%
Unallocated 83 N/A 112 N/A
--------------- --------------- --------------- ---------------
TOTAL $ 646 100.0% $ 690 100.0%
=============== =============== =============== ===============
</TABLE>
F-70
<PAGE> 214
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 7. EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income (loss) $ 8 $ (3) $ 79 $ (165)
----------- ----------- ----------- -----------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050 4,050 4,050
Stock options -- -- -- --
----------- ----------- ----------- -----------
Total stock and stock equivalents 4,050 4,050 4,050 4,050
----------- ----------- ----------- -----------
BASIC NET INCOME PER COMMON SHARE $ 0.00 $ (0.00) $ 0.02 $ (0.04)
----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE:
Net income (loss) $ 8 $ (3) $ 79 $ (165)
----------- ----------- ----------- -----------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050 4,050 4,050
Stock options 174 161 178 191
----------- ----------- ----------- -----------
Total stock and stock equivalents 4,224 4,211 4,228 4,241
----------- ----------- ----------- -----------
DILUTED NET INCOME PER COMMON SHARE $ 0.00 $ (0.00) $ 0.02 $ (0.04)
----------- ----------- ----------- -----------
</TABLE>
F-71
<PAGE> 215
ANNEX A
===============================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GRANDBANC, INC.
CENTURY BANCSHARES, INC.
AND
CBI HOLDINGS CORPORATION
A WHOLLY-OWNED SUBSIDIARY OF CENTURY BANCSHARES, INC.
DATED AS OF OCTOBER 11, 2000
===============================================================================
Annex A-1
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. THE MERGER.................................................................5
1.1 The Merger.......................................................5
1.2 Effective Time...................................................5
1.3 Effects of the Merger............................................6
1.4 Conversion of GrandBanc Common Stock.............................6
1.5 Merger Sub Capital Stock.........................................7
1.6 Options..........................................................7
1.7 Certificate of Incorporation.....................................8
1.8 By-Laws..........................................................8
1.9 Tax and Accounting Consequences..................................8
1.10 Management.......................................................8
1.11 Board of Directors...............................................8
1.12 Headquarters of Century and the Surviving Corporation...........11
ARTICLE II. EXCHANGE OF SHARES.......................................................11
2.1 Century to Make Shares Available................................11
2.2 Exchange of Shares..............................................11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CENTURY...............................13
3.1 Corporate Organization..........................................13
3.2 Capitalization..................................................14
3.3 Authority; No Violation.........................................15
3.4 Consents and Approvals..........................................16
3.5 Reports.........................................................16
3.6 Financial Statements............................................17
3.7 Broker's Fees...................................................17
3.8 Absence of Certain Changes or Events............................17
3.9 Legal Proceedings...............................................18
3.10 Taxes and Tax Returns...........................................18
3.11 Employees.......................................................19
3.12 SEC Reports.....................................................20
3.13 Compliance with Applicable Law..................................21
3.14 Certain Contracts...............................................21
3.15 Agreements with Regulatory Agencies.............................22
3.16 Undisclosed Liabilities.........................................22
3.17 Insurance.......................................................22
3.18 Environmental Liability.........................................23
3.19 State Takeover Laws.............................................23
3.20 Reorganization; Pooling of Interests............................23
</TABLE>
Annex A-2
<PAGE> 217
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF GRANDBANC..............................23
4.1 Corporate Organization..........................................23
4.2 Capitalization..................................................24
4.3 Authority; No Violation.........................................25
4.4 Consents and Approvals..........................................25
4.5 Reports.........................................................26
4.6 Financial Statements............................................26
4.7 Broker's Fees...................................................27
4.8 Absence of Certain Changes or Events............................27
4.9 Legal Proceedings...............................................27
4.10 Taxes and Tax Returns...........................................27
4.11 Employees.......................................................28
4.12 SEC Reports.....................................................30
4.13 Compliance with Applicable Law..................................30
4.14 Certain Contracts...............................................30
4.15 Agreements with Regulatory Agencies.............................31
4.16 Undisclosed Liabilities.........................................32
4.17 Insurance.......................................................32
4.18 Environmental Liability.........................................32
4.19 State Takeover Laws.............................................32
4.20 Reorganization; Pooling of Interests............................32
4.21 Joint Proxy Statement...........................................32
4.22 Opinion of Financial Advisor....................................33
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS.................................33
5.1 Conduct of Businesses Prior to the Effective Time...............33
5.2 Forbearances....................................................33
5.3 Voting Agreements...............................................36
ARTICLE VI. ADDITIONAL AGREEMENTS....................................................36
6.1 Regulatory Matters..............................................36
6.2 Access to Information...........................................37
6.3 Stockholders' Approvals.........................................38
6.4 Legal Conditions to Merger......................................38
6.5 Affiliates; Publication of Combined Financial Results...........38
6.6 NASDAQ Listing..................................................39
6.7 Employee Benefit Plans..........................................39
6.8 Indemnification; Directors' and Officers' Insurance.............40
6.9 Additional Agreements...........................................41
6.10 Advice of Changes...............................................41
6.11 Current Public Information......................................41
6.12 Transactions Involving Century..................................41
</TABLE>
Annex A-3
<PAGE> 218
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VII. CONDITIONS PRECEDENT....................................................42
7.1 Conditions to Each Party's Obligation to Effect the Merger......42
7.2 Conditions to Obligations of GrandBanc..........................42
7.3 Conditions to Obligations of Century............................44
ARTICLE VIII. TERMINATION AND AMENDMENT..............................................45
8.1 Termination.....................................................45
8.2 Effect of Termination...........................................46
8.3 Amendment.......................................................46
8.4 Extension; Waiver...............................................47
ARTICLE IX. GENERAL PROVISIONS.......................................................47
9.1 Closing.........................................................47
9.2 Nonsurvival of Representations, Warranties and Agreements.......47
9.3 Expenses........................................................47
9.4 Notices.........................................................47
9.5 Interpretation..................................................48
9.6 Counterparts....................................................48
9.7 Entire Agreement................................................49
9.8 Governing Law...................................................49
9.9 Publicity.......................................................49
9.10 Assignment; Third Party Beneficiaries...........................49
Exhibit 5.3 -- Form of Voting Agreement - GrandBanc Directors
Exhibit 5.3 -- Form of Voting Agreement - Century Directors
Exhibit 6.5(a)(1) -- GrandBanc Affiliate Letter
Exhibit 6.5(a)(2) -- Century Affiliate Letter
</TABLE>
Annex A-4
<PAGE> 219
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 11, 2000 (this
"Agreement"), by and among GRANDBANC, INC., a Maryland corporation
("GrandBanc"), CENTURY BANCSHARES, INC., a Delaware corporation ("Century"),
and CBI Holdings Corporation, a Maryland corporation and a wholly-owned
subsidiary of Century ("Merger Sub").
WITNESSETH:
WHEREAS, the Boards of Directors of Century, Merger Sub and GrandBanc
have determined that it is in the best interests of their respective companies
and their stockholders to consummate the strategic business combination
transaction provided for herein in which Grand Banc will, subject to the terms
and conditions set forth herein, merge with and into Merger Sub (the "Merger"),
so that Merger Sub is the surviving corporation (hereinafter sometimes referred
to in such capacity as the "Surviving Corporation") in the Merger; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE I. THE MERGER
1.1 The Merger. (a) Subject to the terms and conditions of this
Agreement and in accordance with General Corporation Law of the State of
Maryland (the "MGCL"), at the Effective Time GrandBanc shall merge with and
into Merger Sub. Merger Sub shall be the Surviving Corporation in the Merger,
and shall continue its corporate existence under the laws of the State of
Maryland. Upon consummation of the Merger, the separate corporate existence of
GrandBanc shall terminate.
(b) Century and GrandBanc may at any time change the method
of effecting the combination of GrandBanc and Century (including without
limitation the provisions of this Article I) if and to the extent they deem
such change to be desirable, including without limitation to provide for a
merger of GrandBanc with Century or another wholly-owned Subsidiary of Century;
provided, however, that no such change shall (A) alter or change the amount or
type of consideration to be provided to holders of GrandBanc Common Stock as
provided for in this Agreement (the "Merger Consideration"), (B) adversely
affect the tax treatment of stockholders as a result of receiving the Merger
Consideration or (C) materially impede or delay consummation of the
transactions contemplated by this Agreement.
1.2 Effective Time. The Merger shall become effective as set forth in
the certificate of merger (the "Certificate of Merger") which shall be filed
with the Department of Assessments and
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Taxation of the State of Maryland (the "SDAT") on the Closing Date. The term
"Effective Time" shall be the date and time when the Merger becomes effective,
as set forth in the Certificate of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 3-114 of the MGCL.
1.4 Conversion of GrandBanc Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of GrandBanc, Century
or the holder of any of the following securities:
(a) Subject to Section 2.2(e), each share of the common
stock, par value $.10 per share, of GrandBanc (the "GrandBanc Common Stock")
issued and outstanding immediately prior to the Effective Time, except for (i)
shares of GrandBanc Common Stock owned by GrandBanc as treasury stock or owned,
directly or indirectly, by GrandBanc, Century or Merger Sub or any of their
respective wholly-owned subsidiaries (other than shares of GrandBanc Common
Stock held, directly or indirectly, in trust accounts, managed accounts or
otherwise held in a fiduciary capacity, that are beneficially owned by third
parties (any such shares, whether held directly or indirectly by GrandBanc or
Century or any of their respective wholly-owned subsidiaries, as the case may
be, being referred to herein as "Trust Account Shares") and other than any
shares of GrandBanc Common Stock held by GrandBanc or Century or any of their
respective Subsidiaries in respect of a debt previously contracted (any such
shares of GrandBanc Common Stock, and shares of Century Common Stock which are
similarly held, whether held directly or indirectly by GrandBanc or Century or
any of their respective wholly-owned subsidiaries, being referred to herein as
"DPC Shares")) and (ii) shares of Grand Banc Common Stock as to which the
holders have perfected their rights as objecting shareholders in accordance
with the provisions of Title 3, Subtitle 2 of the MGCL (the "Objecting Shares")
shall be converted into the right to receive 0.3318 shares (the "Exchange
Ratio") of the common stock, par value $1.00 per share, of Century.
(b) All of the shares of GrandBanc Common Stock converted
into the right to receive Century Common Stock pursuant to this Article I shall
no longer be outstanding and shall automatically be cancelled and shall cease
to exist as of the Effective Time, and each certificate (each a "Certificate")
previously representing any such shares of GrandBanc Common Stock shall
thereafter represent only the right to receive (i) a certificate representing
the number of whole shares of Century Common Stock and (ii) cash in lieu of
fractional shares into which the shares of GrandBanc Common Stock represented
by such Certificate have been converted pursuant to this Section 1.4 and
Section 2.2(e). Certificates previously representing shares of GrandBanc Common
Stock shall be exchanged for certificates representing whole shares of Century
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section
2.2, without any interest thereon. If, prior to the Effective Time, the
outstanding shares of Century Common Stock or GrandBanc Common Stock shall have
been increased, decreased, changed into or exchanged for a different number or
kind of shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization (or a record date for such change has been
established, which record date is prior to the Effective Time and the payment
date for which
Annex A-6
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is after the Effective Time), an appropriate and proportionate adjustment shall
be made to the Exchange Ratio.
(c) At the Effective Time, all shares of GrandBanc Common
Stock that are owned, directly or indirectly, by GrandBanc or Century or any of
their respective wholly owned Subsidiaries (other than Trust Account Shares and
DPC Shares) shall be cancelled and shall cease to exist and no stock of Century
or other consideration shall be delivered in exchange therefor.
1.5 Merger Sub Capital Stock. At and after the Effective Time, each
share of common stock, par value $1.00 per share, of Merger Sub ("Merger Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall remain an issued and outstanding share of common stock of the Surviving
Corporation and shall not be affected by the Merger.
1.6 Options. (a) At the Effective Time, each option granted by
GrandBanc to purchase shares of GrandBanc Common Stock which is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of GrandBanc Common Stock and shall be converted automatically
into an option to purchase shares of Century Common Stock in an amount and at
an exercise price determined as provided below (and otherwise subject to the
terms of the GrandBanc Stock Plans and the agreements evidencing grants
thereunder):
(i) The number of shares of Century Common Stock to
be subject to the new option shall be equal to the product of
the number of shares of GrandBanc Common Stock subject to the
original option and the Exchange Ratio; provided, that any
fractional shares of Century Common Stock resulting from such
multiplication shall be rounded to the nearest whole share;
and
(ii) The exercise price per share of Century Common
Stock under the new option shall be equal to the exercise
price per share of GrandBanc Common Stock under the original
option divided by the Exchange Ratio; provided, that such
exercise price shall be rounded to the nearest whole cent.
(b) The adjustment provided herein with respect to any
options which are "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")), shall be and is
intended to be effected in a manner which is consistent with Section 424(a) of
the Code. The duration and other terms of the new option shall be the same as
the original option except that all references to GrandBanc shall be deemed to
be references to Century.
(c) As soon as reasonably practical after the Effective Time,
Century shall deliver to holders of GrandBanc options which have been converted
into options to acquire Century Common Stock in accordance with this Section
1.6 a notice setting forth a statement of the modified terms thereof. As soon
as reasonably practicable after the Effective Time, Century shall file a
registration statement on Form S-8, or on such other form as may be
appropriate, with respect to shares of Century Common Stock subject to such
options, and shall use its reasonable efforts to maintain the effectiveness of
such registration statement of statements for so long as such options remain
outstanding; provided, that if such options to acquire Century Common Stock are
issued
Annex A-7
<PAGE> 222
pursuant to the terms of one of Century's existing stock option plans with
respect to which a registration statement on Form S-8 has been previously
filed, no registration statement need be filed pursuant hereto. The provisions
of this section 1.6(c) shall survive the Effective Time and are intended to be
for the benefit of, and shall be enforceable by, the holders of such options.
1.7 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.8 By-Laws. At the Effective Time, the By-Laws of Merger Sub shall be
the By-Laws of the Surviving Corporation until thereafter amended in accordance
with applicable law.
1.9 Tax and Accounting Consequences. It is intended that the Merger
shall constitute a "reorganization" within the meaning of Section 368(a) of the
Code, that this Agreement shall constitute a "plan of reorganization" for the
purposes of Sections 354 and 361 of the Code and that the Merger shall be
accounted for as a "pooling of interests" under generally accepted accounting
principles ("GAAP").
1.10 Management. (a) At the Effective Time, the officers of Century
immediately prior to the Effective Time shall be the officers of Century and
shall hold office until their respective successors are duly elected or
appointed and qualified in the manner provided by the Certificate of
Incorporation of Century, or as otherwise provided by the DGCL.
(b) At the Effective Time, the officers of Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation and shall hold office until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by the MGCL.
1.11 Board of Directors. (a) Century agrees, at the Effective Time, to
take all actions necessary to (i) increase by two (2) the number of positions
on the Board of Directors of Century and (ii) cause Messrs. Melvyn J. Estrin
and Abbey J. Butler (together, with their successors and replacements named in
accordance with Section 1.11(b) and any additional persons named in accordance
with Section 1.11(c), the "GrandBanc Nominees") to be elected or appointed to
fill the positions so created. Thereafter, Century agrees to include the
GrandBanc Nominees in its recommended slate of nominees for election to
Century's Board of Directors at the annual meetings of stockholders (or special
meetings or actions in writing in lieu thereof) held during the Subject Period
(as hereinafter defined); provided, that if during the Subject Period any
GrandBanc Nominee shall be subject to a Disqualification Event (as hereinafter
defined), Century's obligations under this section to nominate the GrandBanc
Nominee subject to such Disqualifying Event shall terminate.
(b) In the event that, during the Subject Period, any
GrandBanc Nominee shall be subject to a Disqualification Event, or shall die,
become disabled, resign, or for any other reason refuse to or cease to serve as
a member of the Board of Directors of Century, then Century agrees to take the
actions necessary to (i) fill the vacancy in the Board of Directors so created
with (A) any
Annex A-8
<PAGE> 223
of the Former GrandBanc Directors (as hereinafter defined) not already serving
on the Board of Directors of Century, if any of such individuals shall be
available and shall consent to serve on the Board of Directors of Century, or
(B) if there are no Former GrandBanc Directors not already serving on the Board
of Directors of Century, or the Former GrandBanc Directors who are available
shall be subject to a Disqualification Event or shall otherwise not consent to
serve as a director of Century, any other person named by the remaining Former
GrandBanc Directors, provided that the person so named is not subject to a
Disqualification Event and the Board of Directors of Century shall consent to
the nomination of such person, such consent to not be unreasonably withheld,
and (ii) include the successor qualified under the preceding clause hereof in
its recommended slate of nominees for election to Century's Board of Directors
at the remaining annual meetings of stockholders (or special meetings or
actions in writing in lieu thereof) during the Subject Period.
(c) Century agrees that, after the Effective Time and prior
to the expiration of the Subject Period, the GrandBanc Nominees shall
constitute not less than two-ninths (2/9ths) of the total members of Century's
Board of Directors (excluding for purposes of this calculation any directors
elected or appointed in connection with an increase in the number of directors
related to a merger, consolidation or purchase of assets to which Century or
one of its Subsidiaries shall be a party). In the event that, after the
Effective Time and prior to the expiration of the Subject Period, the number of
positions on the Board of Directors of Century shall be increased to more than
nine (9) positions (other than in connection with an increase related to a
merger, consolidation or purchase of assets to which Century or one of its
Subsidiaries shall be a party), Century agrees also to take the actions
necessary to (i) increase the number of positions on the Board of Directors of
Century by a number sufficient to permit it to comply with the covenant
contained in the first sentence of this Section 1.11(c), (ii) fill the vacancy
or vacancies in the Board of Directors so created with (A) any of the Former
GrandBanc Directors not already serving on the Board of Directors of Century,
if any of such individuals shall be available, shall consent to serve on the
Board of Directors of Century and shall not be subject to a Disqualification
Event, or (B) if there are no Former GrandBanc Directors not already serving on
the Board of Directors of Century, or the Former GrandBanc Directors who are
available shall be subject to a Disqualification Event or shall otherwise not
consent to serve as a director of Century, any other person named by the
remaining Former GrandBanc Directors, provided that the person so named is not
subject to a Disqualification Event and the Board of Directors of Century shall
consent to the nomination of such person, such consent to not be unreasonably
withheld, and (iii) include the additional person or persons qualified under
the preceding clause hereof in its recommended slate of nominees for election
to Century's Board of Directors at the remaining annual meetings of
stockholders (or special meetings or actions in writing in lieu thereof) during
the Subject Period.
(d) Century agrees, at the Effective Time, to take all
actions necessary to (i) increase by four (4) the number of positions on the
Board of Directors of Century National Bank, a national banking association and
a wholly-owned subsidiary of Century ("CNB"), and (ii) cause the Former
GrandBanc Directors (together, with their successors and replacements named in
accordance with Section 1.11(e) and any additional persons named in accordance
with Section 1.11(f), the "CNB Nominees") to be elected or appointed to fill
the positions so created. Thereafter, Century agrees to continue to cause the
election of the CNB Nominees to the CNB Board of Directors at the annual
meetings of stockholders (or special meetings or actions in writing in lieu
Annex A-9
<PAGE> 224
thereof) held during the Subject Period, provided, that if during the Subject
Period any CNB Nominee shall be subject to a Disqualification Event, Century's
obligations under this section to nominate the CNB Nominee subject to such
Disqualification Event shall terminate.
(e) In the event that, during the Subject Period, any CNB
Nominee shall be subject to a Disqualification Event, or shall die, become
disabled, resign, or for any other reason refuse to or cease to serve as a
member of the Board of Directors of CNB, then Century agrees to take the
actions necessary to (i) fill the vacancy in the Board of Directors of CNB so
created with another person named by the Former GrandBanc Directors, provided
that the person so named shall not be subject to a Disqualification Event and
the Board of Directors of Century shall consent to the nomination of such
person, such consent to not be unreasonably withheld, and (ii) include the
successor qualified under the preceding clause hereof in its recommended slate
of nominees for election to CNB's Board of Directors at the remaining annual
meetings of stockholders (or special meetings or actions in writing in lieu
thereof) during the Subject Period.
(f) Century agrees that, after the Effective Time and prior
to the expiration of the Subject Period, the CNB Nominees shall constitute not
less than two-ninths (2/9ths) of the total members of CNB's Board of Directors
(excluding for purposes of this calculation any directors elected or appointed
in connection with an increase in the number of directors related to a merger,
consolidation or purchase of assets to which Century or one of its Subsidiaries
shall be a party). In the event that, after the Effective Time and prior to the
expiration of the Subject Period, the number of positions on the Board of
Directors of CNB shall be increased to more than 18 members (other than in
connection with an increase related to a merger, consolidation or purchase of
assets to which Century or one of its Subsidiaries shall be a party), Century
agrees also to take the actions necessary to (i) increase the number of
positions on the Board of Directors of CNB by a number sufficient to permit it
to comply with the covenant contained in the first sentence of this Section
1.11(f), (ii) fill the vacancy or vacancies in the CNB Board of Directors so
created with another person named by the Former GrandBanc Directors, provided
that the person so named shall not be subject to a Disqualification Event and
the Board of Directors of Century shall consent to the nomination of such
person, such consent to not be unreasonably withheld, and (iii) include the
additional person or persons qualified under the preceding clause hereof in its
recommended slate of nominees for election to CNB's Board of Directors at the
remaining annual meetings of stockholders (or special meetings or actions in
writing in lieu thereof) during the Subject Period.
(g) The following terms shall have the meanings ascribed to
them below:
(i) "Disqualification Event," when used in reference
to any director or nominee for director of Century or CNB
pursuant to this Section 1.11, shall mean the occurrence of
any of the following events (A) the director or nominee shall
be prohibited by law, order, injunction, decree or otherwise
from serving on the Board of Directors of either CNB or
Century, (B) the director or nominee shall have been
convicted of any felony, (C) the director or nominee shall
file (or any entity indebted to CNB or Century of which such
director or nominee shall have been an executive officer or
controlling person within the two years prior to filing shall
file) a voluntary petition under any federal or state
bankruptcy or insolvency law, or the director or
Annex A-10
<PAGE> 225
nominee shall become (or any entity indebted to CNB or
Century of which the director or nominee shall have been an
executive officer or controlling person within two years
prior to filing shall become) the subject of an involuntary
petition filed under any such law that is not dismissed
within 30 days, or (D) the director or nominee shall be
involved in any of the events or circumstances enumerated in
Item 401(f)(2)-(6) of Regulation S-K (or any successor or
substitute provision of similar import) promulgated by the
SEC, or similar provisions of state "blue sky" laws.
(ii) "Former GrandBanc Directors" shall mean Melvyn
J. Estrin, Abbey J. Butler, Avis Y. Pointer and Joan H.
Schonholtz.
(iii) "Subject Period" shall mean the period of time
commencing on the Effective Time and expiring three years
after the Effective Time.
(h) From and after the Effective Time, until duly changed in
compliance with applicable law and the Certificate of Incorporation and By-Laws
of the Surviving Corporation, the Board of Directors of the Surviving
Corporation shall consist of the directors of Merger Sub immediately prior to
the Effective Time.
1.12 Headquarters of Century and the Surviving Corporation. From and
after the Effective Time, the location of the headquarters and principal
executive offices of Century and the Surviving Corporation shall each be that
of the headquarters and principal executive offices of Century as of the date
of this Agreement.
ARTICLE II. EXCHANGE OF SHARES
2.1 Century to Make Shares Available. At or prior to the Effective
Time, Century shall deposit, or shall cause to be deposited, with Chase Mellon
Shareholder Services, L.L.C., or another bank or trust company reasonably
acceptable to each of GrandBanc and Century (the "Exchange Agent"), for the
benefit of the holders of Certificates, for exchange in accordance with this
Article II, certificates representing the shares of Century Common Stock, and
cash in lieu of any fractional shares (such cash and certificates for shares of
Century Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"), to be issued
pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in exchange for
outstanding shares of GrandBanc Common Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event later than five business days thereafter, the Exchange
Agent shall mail to each holder of record of one or more Certificates a letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing the
shares of Century Common Stock and any cash in lieu of fractional shares into
which the shares of GrandBanc Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. Upon proper
surrender of a
Annex A-11
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Certificate or Certificates for exchange and cancellation to the Exchange
Agent, together with such properly completed letter of transmittal, duly
executed, the holder of such Certificate or Certificates shall be entitled to
receive in exchange therefor (i) a certificate representing that number of
whole shares of Century Common Stock to which such holder of GrandBanc Common
Stock shall have become entitled pursuant to the provisions of Article I and
(ii) a check representing the amount of any cash in lieu of fractional shares
which such holder has the right to receive in respect of the Certificate or
Certificates surrendered pursuant to the provisions of this Article II, and the
Certificate or Certificates so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any cash in lieu of fractional shares or on
any unpaid dividends and distributions payable to holders of Certificates.
(b) No dividends or other distributions declared with respect
to Century Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Article II. Pending such surrender, any dividend or
distribution payable in respect of such shares shall be delivered to the
Exchange Agent to be held as part of the Exchange Fund. After the surrender of
a Certificate in accordance with this Article II, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to
shares of Century Common Stock represented by such Certificate.
(c) If any certificate representing shares of Century Common
Stock is to be issued in a name other than that in which the Certificate or
Certificates surrendered in exchange therefor is or are registered, it shall be
a condition of the issuance thereof that the Certificate or Certificates so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of Century Common Stock in any name other than that of the
registered holder of the Certificate or Certificates surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on
the stock transfer books of GrandBanc of the shares of GrandBanc Common Stock
that were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Century Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained
herein, no certificates or scrip representing fractional shares of Century
Common Stock shall be issued upon the surrender for exchange of Certificates,
no dividend or distribution with respect to Century Common Stock shall be
payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of Century. In lieu of the issuance of any such fractional share,
Century shall pay to each former stockholder of GrandBanc who otherwise would
be entitled to receive such fractional share an amount in cash determined by
multiplying (i) the average of the closing-sale prices of Century Common Stock
in The NASDAQ Stock Market (the "NASDAQ") as reported by The Wall Street
Journal for the five trading days
Annex A-12
<PAGE> 227
immediately preceding the date of the Effective Time by (ii) the fraction of a
share (rounded to the nearest thousandth when expressed in decimal form) of
Century Common Stock to which such holder would otherwise be entitled to
receive pursuant to Section 1.4. In the event that there shall be no trade on
any trading day during such five day period, or if Nasdaq shall fail to report
a closing price on any such day, the closing price for such day shall be deemed
to be the average of the closing bid price and the closing asked price as
reported by Nasdaq.
(f) Any portion of the Exchange Fund that remains unclaimed
by the stockholders of GrandBanc for 12 months after the Effective Time shall
be paid to Century. Any former stockholders of GrandBanc who have not
theretofore complied with this Article II shall thereafter look only to Century
for payment of the shares of Century Common Stock, cash in lieu of any
fractional shares and any unpaid dividends and distributions on the Century
Common Stock deliverable in respect of each share of GrandBanc Common Stock, as
the case may be, such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon. Notwithstanding the
foregoing, none of GrandBanc, Century, the Exchange Agent or any other person
shall be liable to any former holder of shares of GrandBanc Common Stock for
any amount delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, and the posting by
such person of a bond in such amount as Century may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Century Common Stock and
any cash in lieu of fractional shares or cash or other property representing
dividends or distributions deliverable in respect thereof pursuant to this
Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CENTURY
Except as disclosed in the Century disclosure schedule delivered to
GrandBanc concurrently herewith (the "Century Disclosure Schedule"), Century
hereby represents and warrants to GrandBanc as follows:
3.1 Corporate Organization. (a) Century is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Century has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not, either individually or in the aggregate, have
a Material Adverse Effect on Century. As used in this Agreement, the term
"Material Adverse Effect" means, with respect to GrandBanc, Century or the
Surviving Corporation, as the case may be, a material adverse effect on (i) the
business, operations, results of operations or financial condition of such
party and its Subsidiaries taken as a whole or (ii) the ability of such party
to timely consummate the
Annex A-13
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transactions contemplated hereby. As used in this Agreement, the word
"Subsidiary" when used with respect to any party, means any bank, corporation,
partnership, limited liability company, or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes and shall include, in the case of Century, Merger
Sub. Century is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). True and complete
copies of the Restated Certificate of Incorporation of Century, as amended (the
"Century Certificate") and By-Laws of Century, as in effect as of the date of
this Agreement, have previously been made available by Century to GrandBanc.
(b) Each Century Subsidiary (i) is duly organized and validly
existing under the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on Century and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
3.2 Capitalization. (a) The authorized capital stock of Century
consists of (i) 10,000,000 shares of Century Common Stock, of which, as of June
30, 2000, 2,875,188 shares were issued and outstanding and 141,500 shares were
held in treasury, (ii) 1,000,000 shares of preferred stock, $1.00 par value
("Century Preferred Stock"), none of which were issued and outstanding or held
in treasury as of the date hereof. All of the issued and outstanding shares of
Century Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. When issued in accordance with the
provisions of this Agreement, the shares of Century Common Stock to be issued
in exchange for shares of GrandBanc Common Stock or upon the exercise of
options to purchase GrandBanc Common Stock, as converted hereunder, will be,
duly authorized and validly issued shares of Century Common Stock, which shares
are fully paid and nonassessable under the DGCL, with no personal liability
attaching to the ownership thereof, and which will not have been issued in
violation of the preemptive rights of any person. As of the date of this
Agreement, except pursuant to the terms of options and stock issued pursuant to
employee and director stock plans of Century in effect as of the date hereof
(the "Century Stock Plans"), Century does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of Century
Common Stock or any other equity securities of Century or any of its
Subsidiaries or any securities representing the right to purchase or otherwise
receive any shares of Century Common Stock or other equity securities of
Century or any of its Subsidiaries (collectively, the "Century Rights"). As of
June 30, 2000, no shares of Century Common Stock were reserved for issuance,
except for 838,368 shares of Century Common Stock reserved for issuance upon
the exercise of stock options pursuant to the Century Stock Plans. Since June
30, 2000, Century has not issued any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock,
other than as permitted by Section 5.2(b). Century has previously provided
GrandBanc with a list of the option holders, the date of each option to
purchase Century Common Stock granted, the number of shares subject to each
such option, the expiration date of each such option, and the price at which
each such option may be exercised under an applicable Century Stock Plan. In no
event will the aggregate number of shares of Century Common Stock outstanding
at the Effective Time
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(including all shares of Century Common Stock subject to Century Rights) exceed
the number specified in Section 3.2(a) of the Century Disclosure Schedule. The
authorized capital stock of Merger Sub consists of 1,000 shares of Merger Sub
Common Stock, all of which are validly issued, fully paid and nonassessable,
and are owned by Century free and clear of any Lien (as hereinafter defined).
(b) Century owns, directly or indirectly, all of the issued
and outstanding shares of capital stock or other equity ownership interests of
each of the Century Subsidiaries, free and clear of any liens, pledges,
charges, encumbrances and security interests whatsoever ("Liens"), and all of
such shares or equity ownership interests are duly authorized and validly
issued and are fully paid, nonassessable (subject to 12 U.S.C. Section 55) and
free of preemptive rights, with no personal liability attaching to the
ownership thereof. No Century Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock
or any other equity security of such Subsidiary or any securities representing
the right to purchase or otherwise receive any shares of capital stock or any
other equity security of such Subsidiary. Section 3.2(b) of the Century
Disclosure Schedule sets forth a list of the material investments of Century in
corporations, joint ventures, partnerships, limited liability companies and
other entities other than its Subsidiaries. Merger Sub does not have any
subsidiaries or material investments of any kind in any entity. Merger Sub has
been incorporated on behalf of Century solely for purposes of accomplishing the
Merger, has not engaged in any other business activity and has conducted its
operations only as contemplated hereby.
3.3 Authority; No Violation. (a) Each of Century and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly approved by the Board of Directors of each of
Century and Merger Sub. Century, as sole stockholder of Merger Sub, has
approved this Agreement and the transactions contemplated hereby. The Board of
Directors of Century has directed that the issuance of Century Common Stock in
the Merger be submitted to Century's stockholders for adoption at a meeting of
such stockholders and, except for the approval of the issuance of Century
Common Stock in the Merger by the affirmative vote of the holders of a majority
of the shares of Century Common Stock voting at such meeting, no other
corporate proceedings on the part of Century are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Century and
Merger Sub and (assuming due authorization, execution and delivery by
GrandBanc) constitutes a valid and binding obligation of Century and Merger
Sub, enforceable against Century and Merger Sub in accordance with its terms
(except as may be limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting the rights of creditors generally and the
availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement by
Century or Merger Sub nor the consummation by Century or Merger Sub of the
transactions contemplated hereby, nor compliance by Century or Merger Sub with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or By-Laws of Century or Merger Sub or (ii)
assuming that the consents and approvals referred to in Section 3.4 are duly
obtained, (x) violate any statute,
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code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Century or any of its Subsidiaries or any of their respective
properties or assets or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
Lien upon any of the respective properties or assets of Century or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Century, any of its Subsidiaries or its
Non-Subsidiary Affiliates is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case
of clause (y) above) for such violations, conflicts, breaches or defaults
which, either individually or in the aggregate, will not have a Material
Adverse Effect on Century.
3.4 Consents and Approvals. Except for (i) the filing of applications
and notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and the Federal Reserve
Act, as amended, and approval of such applications and notices, (ii) the filing
of any required applications or notices with any state agencies and approval of
such applications and notices (the "State Approvals"), (iii) the filing with
the Securities and Exchange Commission (the "SEC") of a joint proxy statement
in definitive form relating to the meetings of GrandBanc's and Century's
stockholders to be held in connection with this Agreement and the transactions
contemplated hereby (the "Joint Proxy Statement"), and of the registration
statement on Form S-4 (the "S-4") in which the Joint Proxy Statement will be
included as a prospectus, (iv) the filing of the Certificate of Merger with the
Maryland Secretary pursuant to the MGCL, and (v) such filings and approvals as
are required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of Century Common
Stock pursuant to this Agreement, no consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") are
necessary in connection with (A) the execution and delivery by Century and
Merger Sub of this Agreement and (B) the consummation by Century and Merger Sub
of the Merger and the other transactions contemplated hereby.
3.5 Reports. Century and each of its Subsidiaries have timely filed
all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
January 1, 1997 with (i) the Federal Reserve Board, (ii) the Federal Deposit
Insurance Corporation, (iii) any state regulatory authority (each a "State
Regulator"), (iv) the Office of the Comptroller of the Currency (the "OCC"),
(v) the SEC and (vi) any SRO (collectively "Regulatory Agencies"), and all
other reports and statements required to be filed by them since January 1,
1997, including, without limitation, any report or statement required to be
filed pursuant to the laws, rules or regulations of the United States, any
state, or any Regulatory Agency, and have paid all fees and assessments due and
payable in connection therewith, except where the failure to file such report,
registration or statement or to pay such fees and assessments, either
individually or in the aggregate, will not have a Material Adverse Effect on
Century. Except for normal examinations conducted by a Regulatory Agency in the
ordinary course of the business of Century and its Subsidiaries, no Regulatory
Agency has initiated any proceeding or, to the best knowledge of Century,
investigation into the business or operations of Century or any of its
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Subsidiaries since January 1, 1997, except where such proceedings or
investigation will not, either individually or in the aggregate, have a
Material Adverse Effect on Century. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Century or any of its Subsidiaries
which, in the reasonable judgment of Century, will, either individually or in
the aggregate, have a Material Adverse Effect on Century.
3.6 Financial Statements. Century has previously made available to
GrandBanc copies of (i) the consolidated balance sheets of Century and its
Subsidiaries as of December 31, for the fiscal years 1998 and 1999, and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for the fiscal years 1997 through 1999,
inclusive, as reported in Century's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (the "Century 10-K") filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case
accompanied by the audit report of KPMG LLP, independent public accountants
with respect to Century; and (ii) the consolidated balance sheets of Century
and its Subsidiaries as of June 30, 2000 and the related consolidated
statements of comprehensive income, changes in stockholders' equity and cash
flows for the six months ended June 30, 2000, as reported in Century's
Quarterly Report on Form 10-Q for the six months ended June 30, 2000 filed with
the SEC under the Exchange Act. The June 30, 2000 consolidated balance sheet of
Century (including the related notes, where applicable) fairly presents in all
material respects the consolidated financial position of Century and its
Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 3.6 (including the related notes, where applicable)
fairly present in all material respects the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Century and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth, subject to normal adjustments in
the case of unaudited statements; each of such statements (including the
related notes, where applicable) complies in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; and each of such statements (including the
related notes, where applicable) has been prepared in all material respects in
accordance with GAAP consistently applied during the periods involved, except,
in each case, as indicated in such statements or in the notes thereto. The
books and records of Century and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
3.7 Broker's Fees. Neither Century nor any Century Subsidiary nor any
of their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement, other than the financial advisory fee due to FBR described in the
Century Disclosure Schedule.
3.8 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in Century Reports filed prior to the date hereof, since December 31,
1999, no event or events have occurred that have had, either individually or in
the aggregate, a Material Adverse Effect on Century.
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(b) Except as publicly disclosed in Century Reports filed
prior to the date hereof, since December 31, 1999, Century and its Subsidiaries
have carried on their respective businesses in all material respects in the
ordinary course.
(c) Since December 31, 1999, neither Century nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary course of
business or except as required by applicable law, (A) increased the wages,
salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer, employee, or director from the amount thereof
in effect as of December 31, 1999, or (B) granted any severance or termination
pay, entered into any contract to make or grant any severance or termination
pay, or paid any bonuses, other than customary year-end bonuses for fiscal 1999
or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which will, either individually or in the aggregate, have a
Material Adverse Effect on Century.
3.9 Legal Proceedings. (a) Neither Century nor any of its Subsidiaries
is a party to any, and there are no pending or, to the best of Century's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against Century or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by this Agreement as to which, in
any such case, there is a reasonable probability of an adverse determination
and which, if adversely determined, will, either individually or in the
aggregate, have a Material Adverse Effect on Century.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than those that apply generally to similarly
situated bank holding companies or banks) imposed upon Century, any of its
Subsidiaries or the assets of Century or any of its Subsidiaries that has had,
or will have, either individually or in the aggregate, a Material Adverse
Effect on Century or the Surviving Corporation.
3.10 Taxes and Tax Returns. (a) Each of Century and its Subsidiaries
has duly filed all federal, state and local information returns and tax returns
required to be filed by it on or prior to the date hereof (all such returns
being accurate and complete in all material respects) and has duly paid or made
provisions for the payment of all Taxes and other governmental charges which
have been incurred or are due or claimed to be due from it by federal, state or
local taxing authorities on or prior to the date of this Agreement (including,
without limitation, if and to the extent applicable, those due in respect of
its properties, income, business, capital stock, deposits, franchises,
licenses, sales and payrolls) other than (i) Taxes or other charges which are
not yet delinquent or are being contested in good faith and have not been
finally determined, or (ii) information returns, tax returns, Taxes or other
governmental charges as to which the failure to file, pay or make provision for
will not, either individually or in the aggregate, have a Material Adverse
Effect on Century. The federal income tax returns of Century and its
Subsidiaries, for the fiscal year ended December 31, 1996, and for all years
prior thereto, are for purposes of routine audit by the Internal Revenue
Service (the "IRS") closed because of the statute of limitations, and no claims
for additional taxes for such fiscal years are pending. To the best of
Century's knowledge, there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Century or any of its Subsidiaries for which
Century does not have adequate reserves. In addition, (A) proper and accurate
amounts have been withheld by
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Century and its Subsidiaries from their employees for all prior periods in
compliance in all material respects with the tax withholding provisions of
applicable federal, state and local laws, except where failure to do so will
not, either individually or in the aggregate, have a Material Adverse Effect on
Century, (B) federal, state, and local returns which are accurate and complete
in all material respects have been filed by Century and its Subsidiaries for
all periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes, except where failure to do so will not,
either individually or in the aggregate, have a Material Adverse Effect on
Century, (C) the amounts shown on such federal, state or local returns to be
due and payable have been paid in full or adequate provision therefor has been
included by Century in its consolidated financial statements, except where
failure to do so will not, either individually or in the aggregate, have a
Material Adverse Effect on Century and (D) there are no Tax liens upon any
property or assets of Century or its Subsidiaries except liens for current
taxes not yet due or liens that will not, either individually or in the
aggregate, have a Material Adverse Effect on Century. Neither Century nor any
of its Subsidiaries has been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by Century or any of its Subsidiaries, and the IRS
has not initiated or proposed any such adjustment or change in accounting
method, in either case which has had or will have, either individually or in
the aggregate, a Material Adverse Effect on Century. Except as set forth in the
financial statements described in Section 3.6, neither Century nor any of its
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code, which will have, either
individually or in the aggregate, a Material Adverse Effect on Century.
(b) As used in this Agreement, the term "Tax" or "Taxes"
means all federal, state and local income, excise, gross receipts, gross
income, ad valorem, profits, gains, property, capital, sales, transfer, use,
payroll, employment, severance, withholding, duties, intangibles, franchise,
backup withholding, and other taxes, charges, levies or like assessments
together with all penalties and additions to tax and interest thereon.
(c) No disallowance of a deduction under Section 162(m) of
the Code for employee remuneration of any amount paid or payable by Century or
any Subsidiary of Century under any contract, plan, program, arrangement or
understanding will have, either individually or in the aggregate, a Material
Adverse Effect on Century.
3.11 Employees. (a) The Century Disclosure Schedule sets forth a true
and complete list of each material employee or director benefit plan,
arrangement or agreement that is maintained, or contributed to, as of the date
of this Agreement (the "Century Benefit Plans") by Century, any of its
Subsidiaries or by any trade or business, whether or not incorporated (a
"Century ERISA Affiliate"), all of which together with Century would be deemed
a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Century has heretofore made available to GrandBanc true
and complete copies of each of the Century Benefit Plans and certain related
documents, including, but not limited to, (i) the actuarial report for such
Century Benefit Plan (if applicable) for each of the last two years and (ii)
the most recent determination letter from the IRS (if applicable) for such
Century Benefit Plan.
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(c) (i) Each of the Century Benefit Plans has been operated
and administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Century
Benefit Plans intended to be "qualified" within the meaning of Section 401(a)
of the Code is so qualified, and there are no existing circumstances or any
events that have occurred that will adversely affect the qualified status of
any such Century Benefit Plan, (iii) with respect to each Century Benefit Plan
that is subject to Title IV of ERISA, the present value of accrued benefits
under such Century Benefit Plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such Century
Benefit Plan's actuary with respect to such Century Benefit Plan, did not, as
of its latest valuation date, exceed the then current value of the assets of
such Century Benefit Plan allocable to such accrued benefits, (iv) no Century
Benefit Plan provides benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current or former employees
or directors of Century or its Subsidiaries beyond their retirement or other
termination of service, other than (A) coverage mandated by applicable law, (B)
death benefits or retirement benefits under any "employee pension plan" (as
such term is defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of Century or its Subsidiaries or
(D) benefits the full cost of which is borne by the current or former employee
or director (or his beneficiary), (v) no material liability under Title IV of
ERISA has been incurred by Century, its Subsidiaries or any Century ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Century, its Subsidiaries or any Century ERISA
Affiliate of incurring a material liability thereunder, (vi) no Century Benefit
Plan is a "multiemployer pension plan" (as such term is defined in Section
3(37) of ERISA), (vii) all contributions or other amounts payable by Century or
its Subsidiaries as of the Effective Time with respect to each Century Benefit
Plan in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) none of Century, its
Subsidiaries or any other person, including any fiduciary, has engaged in a
transaction in connection with which Century, its Subsidiaries or any Century
Benefit Plan will be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant
to Section 4975 or 4976 of the Code, and (ix) to the best knowledge of Century
there are no pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Century Benefit
Plans or any trusts related thereto that will have, either individually or in
the aggregate, a Material Adverse Effect on Century.
(d) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event) (i) result (either alone or upon the
occurrence of any additional acts or events) in any payment (including, without
limitation, severance, unemployment compensation, "excess parachute payment"
(within the meaning of Section 280G of the Code), forgiveness of indebtedness
or otherwise) becoming due to any director or any employee of Century or any of
its affiliates from Century or any of its affiliates under any Century Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any
Century Benefit Plan or (iii) result in any acceleration of the time of payment
or vesting of any such benefits which will, either individually or in the
aggregate, have a Material Adverse Effect on Century.
3.12 SEC Reports. Century has previously made available to GrandBanc
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive
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proxy statement filed since January 1, 1997 by Century with the SEC pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act (the "Century Reports") and prior to the date hereof and (b) communication
(other than product advertisements) mailed by Century to its stockholders since
January 1, 1997 and prior to the date hereof, and no such Century Report or
communication, as of the date thereof, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date (but before the date hereof) shall be deemed to modify
information as of an earlier date. Since January 1, 1997, as of their
respective dates, all Century Reports filed under the Securities Act and the
Exchange Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 Compliance with Applicable Law. (a) Century and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses as presently
conducted and have complied in all material respects with and are not in
default in any material respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating
to Century or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
will not, either individually or in the aggregate, have a Material Adverse
Effect on Century.
(b) Except as will not have, either individually or in the
aggregate, a Material Adverse Effect on Century, Century and each Century
Subsidiary have properly administered all accounts for which it acts as a
fiduciary, including accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents, applicable
state and federal law and regulation and common law. None of Century, any
Century Subsidiary, or any director, officer or employee of Century or of any
Century Subsidiary, has committed any breach of trust with respect to any such
fiduciary account that will have a Material Adverse Effect on Century, and the
accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
3.14 Certain Contracts. (a) Neither Century nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) with respect to the employment of
any directors, officers or employees, other than Joseph S. Bracewell, (ii)
which, upon the consummation or stockholder approval of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from GrandBanc, Century, the Surviving Corporation, or
any of their respective Subsidiaries to any officer or employee thereof, (iii)
which is a "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the Century Reports,
(iv) which materially restricts the conduct of any line of business by Century
or upon consummation of the Merger will materially restrict the ability of the
Surviving Corporation to engage in any line of business in which a bank holding
company may lawfully engage, (v) with or to a labor union or guild (including
any collective bargaining agreement) or (vi) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock
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purchase plan) any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any
stockholder approval or the consummation of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement, other than as set forth in the Century Disclosure Letter. Century
has previously made available to GrandBanc true and correct copies of all
employment and deferred compensation agreements which are in writing and to
which Century is a party. Each contract, arrangement, commitment or
understanding of the type described in this Section 3.14(a), whether or not set
forth in the Century Disclosure Schedule, is referred to herein as a "Century
Contract", and neither Century nor any of its Subsidiaries knows of, or has
received notice of, any violation of the above by any of the other parties
thereto which, either individually or in the aggregate, will have a Material
Adverse Effect on Century.
(b) (i) Each Century Contract is valid and binding on Century
or any of its Subsidiaries, as applicable, and in full force and effect, (ii)
Century and each of its Subsidiaries has in all material respects performed all
obligations required to be performed by it to date under each Century Contract,
except where such noncompliance, either individually or in the aggregate, will
not have a Material Adverse Effect on Century, and (iii) no event or condition
exists which constitutes or, after notice or lapse of time or both, will
constitute, a material default on the part of Century or any of its
Subsidiaries under any such Century Contract, except where such default, either
individually or in the aggregate, will not have a Material Adverse Effect on
Century.
3.15 Agreements with Regulatory Agencies. Neither Century nor any of
its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1997, a recipient of any supervisory letter from, or since January
1, 1997, has adopted any board resolutions at the request of any Regulatory
Agency or other Governmental Entity that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its credit policies, its management or its business
(each, whether or not set forth in the Century Disclosure Schedule, a "Century
Regulatory Agreement"), nor has Century or any of its Subsidiaries been advised
since January 1, 1997, by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any such Regulatory Agreement.
3.16 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of
Century included in the Century June 30, 2000 Form 10-Q and for liabilities
incurred in the ordinary course of business consistent with past practice,
since June 30, 2000, neither Century nor any of its Subsidiaries has incurred
any liability of any nature whatsoever (whether absolute, accrued, contingent
or otherwise and whether due or to become due) that, either individually or in
the aggregate, has had or will have a Material Adverse Effect on Century.
3.17 Insurance. Century and its Subsidiaries have in effect insurance
coverage with reputable insurers or are self-insured, which in respect of
amounts, premiums, types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by
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bank holding companies and their subsidiaries comparable in size and operations
to Century and its Subsidiaries.
3.18 Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that could reasonably result
in the imposition, on Century of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), pending or threatened against Century, which liability or
obligation will, either individually or in the aggregate, have a Material
Adverse Effect on Century. To the knowledge of Century, there is no reasonable
basis for any such proceeding, claim, action or governmental investigation that
would impose any liability or obligation that will, individually or in the
aggregate, have a Material Adverse Effect on Century. Century is not subject to
any agreement, order, judgment, decree, letter or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
liability or obligation with respect to the foregoing that will have, either
individually or in the aggregate, a Material Adverse Effect on Century.
3.19 State Takeover Laws. The Board of Directors of Century has
approved the transactions contemplated by this Agreement for purposes of
Section 203(a)(1) of the DGCL such that the provisions of Section 203 of the
DGCL will not apply to this Agreement or any of the transactions contemplated
hereby.
3.20 Reorganization; Pooling of Interests. As of the date of this
Agreement, Century has no reason to believe that the Merger will not qualify as
a "reorganization" within the meaning of Section 368(a) of the Code and as a
"pooling of interests" for accounting purposes.
3.21 Joint Proxy Statement. None of the information relating to
Century to be included or incorporated by reference in the Joint Proxy
Statement or the S-4 will, in the case of the S-4, at the time it becomes
effective and, in the case of the Joint Proxy Statement, when mailed, be false
or misleading as to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF GRANDBANC
Except as disclosed in the GrandBanc disclosure schedule delivered to
Century concurrently herewith (the "GrandBanc Disclosure Schedule") GrandBanc
hereby represents and warrants to Century as follows:
4.1 Corporate Organization. (a) GrandBanc is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. GrandBanc has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to
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be so licensed or qualified would not, either individually or in the aggregate,
have a Material Adverse Effect on GrandBanc. GrandBanc is duly registered as a
bank holding company under the BHC Act. True and complete copies of the
Restated Certificate of Incorporation (the "GrandBanc Certificate") and By-Laws
of GrandBanc, as in effect as of the date of this Agreement, have previously
been made available by GrandBanc to Century.
(b) Each GrandBanc Subsidiary (i) is duly organized and
validly existing under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions
(whether Federal, state, local or foreign) where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and in
which the failure to be so qualified would have a Material Adverse Effect on
GrandBanc, and (iii) has all requisite corporate power and authority to own or
lease its properties and assets and to carry on its business as now conducted.
4.2 Capitalization. (a) The authorized capital stock of GrandBanc
consists of 20,000,000 shares of GrandBanc Common Stock, of which, as of June
30, 2000, 4,049,665 shares were issued and outstanding and no shares were held
in treasury. All of the issued and outstanding shares of GrandBanc Common Stock
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, except for the GrandBanc
Stock Plans, GrandBanc does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of GrandBanc
Common Stock or any other equity securities of GrandBanc or any GrandBanc
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of GrandBanc Common Stock or any equity security of any
GrandBanc Subsidiary (collectively, "GrandBanc Rights"). As of the date hereof,
no shares of GrandBanc Common Stock were reserved for issuance, except for
177,000 shares reserved for issuance pursuant to the employee and director
stock plans of GrandBanc in effect as of the date hereof (the "GrandBanc Stock
Plans"). Since June 30, 2000, GrandBanc has not issued any shares of its
capital stock or any securities convertible into or exercisable for any shares
of its capital stock, other than as permitted by Section 5.2(b). GrandBanc has
previously provided Century with a list of the option holders, the date of each
option to purchase GrandBanc Common Stock granted, the number of shares subject
to each such option, the expiation date of each such option and the price at
which each such option may be exercised under an applicable GrandBanc Stock
Plan. In no event will the aggregate number of shares of GrandBanc Common Stock
outstanding at the Effective Time (including all shares of GrandBanc Common
Stock subject to then-outstanding GrandBanc Rights exceed the number specified
in Section 4.2(a) of the GrandBanc Disclosure Schedule.
(b) GrandBanc owns, directly or indirectly, all of the issued
and outstanding shares of capital stock or other equity ownership interests of
each of the GrandBanc Subsidiaries, free and clear of any Liens, and all of
such shares or equity ownership interests are duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. No GrandBanc Subsidiary
has or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of such
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Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of such
Subsidiary. Section 4.2(b) of the GrandBanc Disclosure Schedule sets forth a
list of the material investments of GrandBanc in corporations, joint ventures,
partnerships, limited liability companies or other entities other than its
Subsidiaries.
4.3 Authority; No Violation. (a) GrandBanc has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of GrandBanc. The Board of Directors
of GrandBanc has directed that this Agreement and the transactions contemplated
hereby be submitted to GrandBanc's stockholders for adoption at a meeting of
such stockholders and, except for the adoption of this Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
GrandBanc Common Stock, no other corporate proceedings on the part of GrandBanc
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by GrandBanc and (assuming due authorization, execution and delivery
by Century) constitutes a valid and binding obligation of GrandBanc,
enforceable against GrandBanc in accordance with its terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies).
(b) Neither the execution and delivery of this Agreement by
GrandBanc, nor the consummation by GrandBanc of the transactions contemplated
hereby, nor compliance by GrandBanc with any of the terms or provisions hereof,
will (i) violate any provision of the GrandBanc Certificate or By-Laws, or (ii)
assuming that the consents and approvals referred to in Section 4.4 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to GrandBanc, any of its
Subsidiaries or any of their respective properties or assets or (y) violate,
conflict with, result in a breach of any provision of or the loss of any
benefit under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of
or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the respective
properties or assets of GrandBanc or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
GrandBanc or any of its Subsidiaries is a party, or by which they or any of
their respective properties or assets may be bound or affected, except (in the
case of clause (y) above) for such violations, conflicts, breaches or defaults
which either individually or in the aggregate will not have a Material Adverse
Effect on GrandBanc.
4.4 Consents and Approvals. Except for (i) the filing of applications
and notices, as applicable, with the Federal Reserve Board under the BHC Act
and the Federal Reserve Act, as amended, and approval of such applications and
notices, (ii) the State Approvals, (iii) the filing with the SEC of the Joint
Proxy Statement and the S-4, (iv) the filing of the Certificate of Merger with
the SDAT pursuant to the MGCL, and (v) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of these shares of Century
Capital Stock pursuant to this Agreement, no consents or approvals of or
filings or registrations with any Governmental Entity are necessary in
connection with (A) the
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execution and delivery by GrandBanc of this Agreement and (B) the consummation
by GrandBanc of the Merger and the other transactions contemplated hereby.
4.5 Reports. GrandBanc and each of its Subsidiaries have timely filed
all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
January 1, 1997 with the Regulatory Agencies, and all other reports and
statements required to be filed by them since January 1, 1997, including,
without limitation, any report or statement required to be filed pursuant to
the laws, rules or regulations of the United States, any state, or any
Regulatory Agency, and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report,
registration or statement or to pay such fees and assessments, either
individually or in the aggregate, will not have a Material Adverse Effect on
GrandBanc. Except for normal examinations conducted by a Regulatory Agency in
the ordinary course of the business of GrandBanc and its Subsidiaries, no
Regulatory Agency has initiated any proceeding or, to the best knowledge of
GrandBanc, investigation into the business or operations of GrandBanc or any of
its Subsidiaries since January 1, 1997, except where such proceedings or
investigation will not have, either individually or in the aggregate, a
Material Adverse Effect on GrandBanc. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of GrandBanc or any of its Subsidiaries
which, in the reasonable judgment of GrandBanc, will have, either individually
or in the aggregate, a Material Adverse Effect on GrandBanc.
4.6 Financial Statements. GrandBanc has previously made available to
Century copies (i) of the consolidated balance sheets of GrandBanc and its
Subsidiaries as of December 31, for the fiscal years 1998 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1997 through 1999, inclusive, as reported in
GrandBanc's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 filed with the SEC under the Exchange Act (the "GrandBanc 10-K"), in each
case accompanied by the audit report of Stegman & Company, independent public
accountants with respect to GrandBanc; and (ii) the consolidated balance sheets
of GrandBanc and its Subsidiaries as of June 30, 2000 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the six months ended June 30, 2000, as reported in GrandBanc's
Quarterly Report on Form 10-Q for the six months ended June 30, 2000 filed with
the SEC under the Exchange Act. The June 30, 2000 consolidated balance sheet of
GrandBanc (including the related notes, where applicable) fairly presents in
all material respects the consolidated financial position of GrandBanc and its
Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 4.6 (including the related notes, where applicable)
fairly present in all material respects the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of GrandBanc and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth, subject to normal year- end audit
adjustments in the case of unaudited statements; each of such statements
(including the related notes, where applicable) complies in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been prepared in all
material respects in accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such statements or in the
notes thereto. The books and records of GrandBanc and
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its Subsidiaries have been, and are being, maintained in all material respects
in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
4.7 Broker's Fees. Neither GrandBanc nor any GrandBanc Subsidiary nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any broker's fees, commissions or finder's fees
in connection with the Merger or related transactions contemplated by this
Agreement, other than the financial advisory fee due to Hovde Financial L.L.C.
described in the GrandBanc Disclosure Schedule.
4.8 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in GrandBanc Reports filed prior to the date hereof, since December
31, 1999, no event or events have occurred which has had, individually or in
the aggregate, a Material Adverse Effect on GrandBanc.
(b) Except as publicly disclosed in GrandBanc Reports filed
prior to the date hereof, since December 31, 1999, GrandBanc and its
Subsidiaries have carried on their respective businesses in all material
respects in the ordinary course.
(c) Since December 31, 1999, neither GrandBanc nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary course of
business or except as required by applicable law, (A) increased the wages,
salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer, employee, or director from the amount thereof
in effect as of December 31, 1999, or (B) granted any severance or termination
pay, entered into any contract to make or grant any severance or termination
pay, or paid any bonuses, other than customary year- end bonuses for fiscal
1999 or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which will have, either individually or in the aggregate, a
Material Adverse Effect on GrandBanc.
4.9 Legal Proceedings. (a) Neither GrandBanc nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of
GrandBanc's knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of
any nature against GrandBanc or any of its Subsidiaries or challenging the
validity or propriety of the transactions contemplated by this Agreement as to
which, in any such case, there is a reasonable probability of an adverse
determination and which, if adversely determined, will have, either
individually or in the aggregate, a Material Adverse Effect on GrandBanc.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than those that apply to generally similarly
situated bank holding companies or banks) imposed upon GrandBanc, any of its
Subsidiaries or the assets of GrandBanc or any of its Subsidiaries that has
had, or will have, either individually or in the aggregate, a Material Adverse
Effect on GrandBanc or the Surviving Corporation.
4.10 Taxes and Tax Returns. (a) Each of GrandBanc and its Subsidiaries
has duly filed all federal, state and local information returns and tax returns
required to be filed by it on or prior to the date hereof (all such returns
being accurate and complete in all material respects) and has duly
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paid or made provisions for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent applicable,
those due in respect of its properties, income, business, capital stock,
deposits, franchises, licenses, sales and payrolls) other than (i) Taxes or
other charges which are not yet delinquent or are being contested in good faith
and have not been finally determined, or (ii) information returns, tax returns,
Taxes or other governmental charges as to which the failure to file, pay or
make provision for will not have, either individually or in the aggregate, a
Material Adverse Effect on GrandBanc. The federal income tax returns of
GrandBanc and its Subsidiaries, for the fiscal year ended December 31, 1996,
and for all years prior thereto, are for purposes of routine audit by the
Internal Revenue Service (the "IRS") closed because of the statute of
limitations, and no claims for additional taxes for such fiscal years are
pending. To the best of GrandBanc's knowledge, there are no material disputes
pending, or claims asserted for, Taxes or assessments upon GrandBanc or any of
its Subsidiaries for which GrandBanc does not have adequate reserves. In
addition, (A) proper and accurate amounts have been withheld by GrandBanc and
its Subsidiaries from their employees for all prior periods in compliance in
all material respects with the tax withholding provisions of applicable
federal, state and local laws, except where failure to do so will not, either
individually or in the aggregate, have a Material Adverse Effect on GrandBanc,
(B) federal, state and local returns which are accurate and complete in all
material respects have been filed by GrandBanc and its Subsidiaries for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes, except where failure to do so will not,
either individually or in the aggregate, have a Material Adverse Effect on
GrandBanc, (C) the amounts shown on such federal, state or local returns to be
due and payable have been paid in full or adequate provision therefor has been
included by GrandBanc in its consolidated financial statements, except where
failure to do so will not, individually or in the aggregate, have a Material
Adverse Effect on GrandBanc and (D) there are no Tax liens upon any property or
assets of GrandBanc or its Subsidiaries except liens for current taxes not yet
due or liens that will not have, either individually or in the aggregate, a
Material Adverse Effect on GrandBanc. Neither GrandBanc nor any of its
Subsidiaries has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting method
initiated by GrandBanc or any of its Subsidiaries, and the IRS has not
initiated or proposed any such adjustment or change in accounting method, in
either case, which has had or will have, either individually or in the
aggregate, a Material Adverse Effect on GrandBanc. Except as set forth in the
financial statements described in Section 4.6, neither GrandBanc nor any of its
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code, which will have, either
individually or in the aggregate, a Material Adverse Effect on GrandBanc.
(b) No disallowance of a deduction under Section 162(m) of
the Code for employee remuneration of any amount paid or payable by GrandBanc
or any Subsidiary of GrandBanc under any contract, plan, program, arrangement
or understanding will have, either individually or in the aggregate, a Material
Adverse Effect on GrandBanc.
4.11 Employees. (a) The GrandBanc Disclosure Schedule sets forth a
true and complete list of each material employee benefit plan, arrangement or
agreement that is maintained, or contributed to, as of the date of this
Agreement (the "GrandBanc Benefit Plans") by GrandBanc, any
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of its Subsidiaries or by any trade or business, whether or not incorporated (a
"GrandBanc ERISA Affiliate"), all of which together with GrandBanc would be
deemed a "single employer" within the meaning of Section 4001 of ERISA.
(b) GrandBanc has heretofore made available to Century true
and complete copies of each of the GrandBanc Benefit Plans and certain related
documents, including, but not limited to, (i) the actuarial report for such
GrandBanc Benefit Plan (if applicable) for each of the last two years, and (ii)
the most recent determination letter from the IRS (if applicable) for such
GrandBanc Benefit Plan.
(c) (i) Each of the GrandBanc Benefit Plans has been operated
and administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the GrandBanc
Benefit Plans intended to be "qualified" within the meaning of Section 401(a)
of the Code is so qualified, and there are no existing circumstances or any
events that have occurred that will adversely affect the qualified status of
any such GrandBanc Benefit Plan, (iii) with respect to each GrandBanc Benefit
Plan which is subject to Title IV of ERISA, the present value of accrued
benefits under such GrandBanc Benefit Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such GrandBanc Benefit Plan's actuary with respect to such
GrandBanc Benefit Plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such GrandBanc Benefit Plan allocable to
such accrued benefits, (iv) no GrandBanc Benefit Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees or directors of GrandBanc
or its Subsidiaries beyond their retirement or other termination of service,
other than (A) coverage mandated by applicable law, (B) death benefits or
retirement benefits under any "employee pension plan" (as such term is defined
in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as
liabilities on the books of GrandBanc or its Subsidiaries or (D) benefits the
full cost of which is borne by the current or former employee or director (or
his beneficiary), (v) no material liability under Title IV of ERISA has been
incurred by GrandBanc, its Subsidiaries or any GrandBanc ERISA Affiliate that
has not been satisfied in full, and no condition exists that presents a
material risk to GrandBanc, its Subsidiaries or any GrandBanc ERISA Affiliate
of incurring a material liability thereunder, (vi) no GrandBanc Benefit Plan is
a "multiemployer pension plan" (as such term is defined in Section 3(37) of
ERISA), (vii) all contributions or other amounts payable by GrandBanc or its
Subsidiaries as of the Effective Time with respect to each GrandBanc Benefit
Plan in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) none of GrandBanc, its
Subsidiaries or any other person, including any fiduciary, has engaged in a
transaction in connection with which GrandBanc, its Subsidiaries or any
GrandBanc Benefit Plan will be subject to either a material civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed
pursuant to Section 4975 or 4976 of the Code, and (ix) to the best knowledge of
GrandBanc there are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the GrandBanc
Benefit Plans or any trusts related thereto which will have, either
individually or in the aggregate, a Material Adverse Effect on GrandBanc.
(d) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event)
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(i) result (either alone or upon the occurrence of any additional acts or
events) in any payment (including, without limitation, severance, unemployment
compensation, "excess parachute payment" (within the meaning of Section 280G of
the Code), forgiveness of indebtedness or otherwise) becoming due to any
director or any employee of GrandBanc or any of its affiliates from GrandBanc
or any of its affiliates under any GrandBanc Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any GrandBanc Benefit Plan or
(iii) result in any acceleration of the time of payment or vesting of any such
benefits that will have, either individually or in the aggregate, a Material
Adverse Effect on GrandBanc.
4.12 SEC Reports. GrandBanc has previously made available to Century
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1997 by GrandBanc with the SEC pursuant to the Securities Act or the
Exchange Act (the "GrandBanc Reports") and prior to the date hereof and (b)
communication (other than product advertisements) mailed by GrandBanc to its
stockholders since January 1, 1997 and prior to the date hereof, and no such
GrandBanc Report or communication, as of the date thereof, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, except that
information as of a later date (but before the date hereof) shall be deemed to
modify information as of an earlier date. Since January 1, 1997, as of their
respective dates, all GrandBanc Reports filed under the Securities Act and the
Exchange Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.13 Compliance with Applicable Law. (a) GrandBanc and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses as presently
conducted, and have complied in all material respects with and are not in
default in any material respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating
to GrandBanc or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
will not, either individually or in the aggregate, have a Material Adverse
Effect on GrandBanc.
(b) Except as will not have, either individually or in the
aggregate, a Material Adverse Effect on GrandBanc, GrandBanc and each GrandBanc
Subsidiary have properly administered all accounts for which it acts as a
fiduciary, including accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents, applicable
state and federal law and regulation and common law. None of GrandBanc, any
GrandBanc Subsidiary, or any director, officer or employee of GrandBanc or of
any GrandBanc Subsidiary, has committed any breach of trust with respect to any
such fiduciary account that will have a Material Adverse Effect on GrandBanc,
and the accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
4.14 Certain Contracts. (a) Neither GrandBanc nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral)
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(i) with respect to the employment of any directors, officers or employees
other than Steven K. Colliatie, (ii) which, upon the consummation or
stockholder approval of the transactions contemplated by this Agreement will
(either alone or upon the occurrence of any additional acts or events) result
in any payment (whether of severance pay or otherwise) becoming due from
GrandBanc, Century, the Surviving Corporation, or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement that has not been filed
or incorporated by reference in the GrandBanc Reports, (iv) which materially
restricts the conduct of any line of business by GrandBanc or upon consummation
of the Merger will materially restrict the ability of the Surviving Corporation
to engage in any line of business in which a bank holding company may lawfully
engage, (v) with or to a labor union or guild (including any collective
bargaining agreement) or (vi) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan) any of
the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any stockholder approval or the
consummation of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement, other than as disclosed in the
GrandBanc Disclosure Schedule. GrandBanc has previously made available to
Century true and correct copies of all employment and deferred compensation
agreements which are in writing and to which GrandBanc is a party. Each
contract, arrangement, commitment or understanding of the type described in
this Section 4.14(a), whether or not set forth in the GrandBanc Disclosure
Schedule, is referred to herein as a "GrandBanc Contract", and neither
GrandBanc nor any of its Subsidiaries knows of, or has received notice of, any
violation of the above by any of the other parties thereto which will have,
individually or in the aggregate, a Material Adverse Effect on GrandBanc.
(b) (i) Each GrandBanc Contract is valid and binding on
GrandBanc or any of its Subsidiaries, as applicable, and in full force and
effect, (ii) GrandBanc and each of its Subsidiaries has in all material
respects performed all obligations required to be performed by it to date under
each GrandBanc Contract, except where such noncompliance, either individually
or in the aggregate, will not have a Material Adverse Effect on GrandBanc, and
(iii) no event or condition exists which constitutes or, after notice or lapse
of time or both, will constitute, a material default on the part of GrandBanc
or any of its Subsidiaries under any such GrandBanc Contract, except where such
default, either individually or in the aggregate, will not have a Material
Adverse Effect on GrandBanc.
4.15 Agreements with Regulatory Agencies. Neither GrandBanc nor any of
its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1997, a recipient of any supervisory letter from, or since January
1, 1997, has adopted any board resolutions at the request of any Regulatory
Agency or other Governmental Entity that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its credit policies, its management or its business
(each, whether or not set forth in the GrandBanc Disclosure Schedule, a
"GrandBanc Regulatory Agreement"), nor has GrandBanc or any of its Subsidiaries
been advised since January 1, 1997, by
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any Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any such Regulatory Agreement.
4.16 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of
GrandBanc included in the GrandBanc June 30, 2000 Form 10-Q and for liabilities
incurred in the ordinary course of business consistent with past practice,
since June 30, 2000, neither GrandBanc nor any of its Subsidiaries has incurred
any liability of any nature whatsoever (whether absolute, accrued, contingent
or otherwise and whether due or to become due) that, either individually or in
the aggregate, has had or will have, a Material Adverse Effect on GrandBanc.
4.17 Insurance. GrandBanc and its Subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, which in
respect of amounts, premiums, types and risks insured, constitutes reasonably
adequate coverage against all risks customarily insured against by bank holding
companies and their subsidiaries comparable in size and operations to GrandBanc
and its Subsidiaries.
4.18 Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could result
in the imposition, on GrandBanc of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, CERCLA, pending or
threatened against GrandBanc, which liability or obligation will have, either
individually or in the aggregate, a Material Adverse Effect on GrandBanc. To
the knowledge of GrandBanc, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
liability or obligation that will have, either individually or in the
aggregate, a Material Adverse Effect on GrandBanc. GrandBanc is not subject to
any agreement, order, judgment, decree, letter or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
liability or obligation with respect to the foregoing that will have, either
individually or in the aggregate, a Material Adverse Effect on GrandBanc.
4.19 State Takeover Laws. The Board of Directors of GrandBanc has
approved the transactions contemplated by this Agreement for purposes of
Section 3-603 (c) of the MGCL such that the provisions of Section 3-602 of the
MGCL will not apply to this Agreement or any of the transactions contemplated
hereby.
4.20 Reorganization; Pooling of Interests. As of the date of this
Agreement, GrandBanc has no reason to believe that the Merger will not qualify
as a "reorganization" within the meaning of Section 368(a) of the Code and as a
"pooling of interests" for accounting purposes.
4.21 Joint Proxy Statement. None of the information relating to the
GrandBanc to be included or incorporated by reference in the Joint Proxy
Statement or the S-4 will, in the case of the S-4, at the time it becomes
effective and, in the case of the Joint Proxy Statement, when mailed, be false
or misleading as to any material fact, or omit to state any material fact
necessary in order to
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make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 Opinion of Financial Advisor. GrandBanc has received the written
opinion from Hovde Financial, L.L.C. dated October 11, 2000, to the effect
that, as of such date, the Merger Consideration to be received by the holders
of GrandBanc Common Stock in connection with the Merger is fair to such holders
from a financial point of view. GrandBanc has delivered or made available to
Century a copy of such opinion.
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement (including the Century
Disclosure Schedule and the GrandBanc Disclosure Schedule), each of GrandBanc
and Century shall, and shall cause each of their respective Subsidiaries to,
(a) conduct its business in the ordinary course, (b) use reasonable best
efforts to maintain and preserve intact its business organization, employees
and advantageous business relationships and retain the services of its key
officers and key employees and (c) take no action which would adversely affect
or delay the ability of either GrandBanc or Century to obtain any necessary
approvals of any Regulatory Agency or other governmental authority required for
the transactions contemplated hereby or to perform its covenants and agreements
under this Agreement or to consummate the transactions contemplated hereby or
thereby.
5.2 Forbearances. During the period from the date of this Agreement to
the Effective Time, except as set forth in the GrandBanc Disclosure Schedule or
the Century Disclosure Schedule, as the case may be, and, except as expressly
contemplated or permitted by this Agreement, neither GrandBanc nor Century
shall, and neither GrandBanc nor Century shall permit any of their respective
Subsidiaries to, without the prior written consent of the other party to this
Agreement:
(a) other than in the ordinary course of business, incur any
indebtedness for borrowed money (other than short-term indebtedness incurred to
refinance short-term indebtedness and indebtedness of Century or any of its
wholly-owned Subsidiaries to Century or any of its Subsidiaries, on the one
hand, or of GrandBanc or any of its Subsidiaries to GrandBanc or any of its
wholly-owned Subsidiaries, on the other hand), assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity, or make any loan or advance (it
being understood and agreed that incurrence of indebtedness in the ordinary
course of business shall include, without limitation, the creation of deposit
liabilities, purchases of Federal funds, sales of certificates of deposit and
entering into repurchase agreements and draws under (but not increases in the
total availability under) lines of credit existing on and as of the date of
this Agreement ); provided, however, that GrandBanc and the GrandBanc
Subsidiaries may incur indebtedness in an amount sufficient, but not in excess
of the amount necessary, to refinance GrandBanc's existing loan from the
Atlantic Central Banker's Bank, its revolving line of credit presently existing
with The Business Bank, and the debt service expense on such loans through
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the Effective Time; provided further, however, that in such case any
refinancing shall be on terms reasonably acceptable to, and approved by,
Century.
(b) (i) adjust, split, combine or reclassify any capital
stock; (ii) make, declare or pay any dividend, or make any other distribution
on, or directly or indirectly redeem, purchase or otherwise acquire, any shares
of its capital stock or any securities or obligations convertible (whether
currently convertible or convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for any shares of its
capital stock (except dividends paid by any of the Subsidiaries of each of
GrandBanc and Century to GrandBanc or Century or any of their Subsidiaries,
respectively; (iii) grant any stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any shares of its
capital stock, other than pursuant to the Century Stock Plans or the GrandBanc
Stock Plans, as the case may be, in the ordinary course of business, or (iv)
issue any additional shares of capital stock except for the issuance by Merger
Sub of shares of Merger Sub Common Stock to Century in connection with the
organization of Merger Sub and pursuant to the exercise of stock options
outstanding as of the date hereof or issued in compliance with Section
5.2(b)(iii);
(c) sell, transfer, mortgage, encumber or otherwise dispose
of any of its material properties or assets to any individual, corporation or
other entity other than a Subsidiary, or cancel, release or assign any
indebtedness to any such person or any claims held by any such person, except
in the ordinary course of business or pursuant to contracts or agreements in
force at the date of this Agreement;
(d) except for transactions in the ordinary course of
business or pursuant to contracts or agreements in force at the date of or
permitted by this Agreement, make any material investment either by purchase of
stock or securities, contributions to capital, property transfers, or purchase
of any property or assets of any other individual, corporation or other entity
other than a Subsidiary thereof;
(e) except for transactions in the ordinary course of
business, terminate, or waive any material provision of, any Century Contract
or GrandBanc Contract, as the case may be, or make any change in any instrument
or agreement governing the terms of any of its securities, or material lease or
contract, other than normal renewals of contracts and leases without material
adverse changes of terms;
(f) increase in any manner the compensation or fringe
benefits of any of its employees or pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees or become a
party to, amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee other than in the ordinary course of business, or
accelerate the vesting of, or the lapsing of restrictions with respect to, any
stock options or other stock-based compensation; provided, however, that
GrandBanc and the GrandBanc Subsidiaries may offer to pay bonuses, in amounts
approved in advance by Century, to a limited number of key employees approved
in advance by Century, contingent upon such employee's continued employment
until the first to occur of 180 days after the Effective Time of the Merger or
the completion of the process of
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integrating GrandBanc's data processing, accounting, payroll, personnel and
other information technology functions with those of Century ("conversion"),
with the occurrence of conversion to be conclusively evidenced by Century's
internal announcement of the completion thereof;
(g) solicit or encourage from any third party or enter into
any negotiations, discussions or agreement in respect of, or authorize any
individual, corporation or other entity to solicit or encourage from any third
party or enter into any negotiations, discussions or agreement in respect of,
or provide or cause to be provided any confidential information in connection
with, any inquiries or proposals relating to the disposition of all or
substantially all of its business or assets, or the acquisition of its voting
securities, or the merger of it or any of its Subsidiaries with any corporation
or other entity, other than as provided by this Agreement (and each party shall
promptly notify the other of all of the relevant details relating to all
inquiries and proposals which it may receive relating to any of such matters);
provided, however, that if (i) GrandBanc shall receive from any third party an
unsolicited proposal relating to the disposition of all or substantially all of
GrandBanc's business or assets, or the acquisition of its voting securities, or
the merger of it or any of its Subsidiaries with any corporation or other
entity which the Board of Directors of GrandBanc determines in good faith,
based on the written advice of its outside legal counsel and financial
advisors, constitutes a more favorable transaction for the GrandBanc
shareholders than the Merger and the transactions contemplated herein, taking
into account all relevant factors (a "Superior Proposal"), and (ii) the Board
of Directors of GrandBanc determines, based on the written advice of its
outside legal counsel and financial advisors, that responding to such Superior
Proposal by providing the confidential information and engaging in the
discussions and negotiations referred to above is required in order to prevent
the Board of Directors of GrandBanc from breaching its fiduciary duties to
GrandBanc's shareholders under applicable law, then and in only such case may
GrandBanc, in response to such unsolicited Superior Proposal, provide the third
party making such Superior Proposal the confidential information and engage in
the discussions and negotiations, otherwise prohibited by this section;
provided further, that in the event that an unsolicited Superior Proposal is
received by GrandBanc and the determination required by subsection (ii) above
is made by the Board of Directors of GrandBanc, then in each such case
GrandBanc shall as soon as possible (and in any event prior to providing any
confidential information or engaging in any discussions or negotiations)
provide to Century notice of such Superior Proposal and the supporting written
advice from GrandBanc's outside legal counsel and financial advisors (the
"Superior Proposal Notice");
(h) settle any material claim, action or proceeding involving
money damages, except in the ordinary course of business;
(i) knowingly take any action that would prevent or impede
the Merger from qualifying for "pooling of interests" accounting treatment or
as a reorganization within the meaning of Section 368 of the Code;
(j) amend its certificate of incorporation or its bylaws;
(k) other than in prior consultation with the other party to
this Agreement or in the ordinary course of business, restructure or materially
change its investment securities portfolio
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or its gap position, through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported;
(l) take any action that is intended or expected to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Effective
Time, or in any of the conditions to the Merger set forth in Article VII not
being satisfied or in a violation of any provision of this Agreement, except,
in every case, as may be required by applicable law;
(m) implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by GAAP or
regulatory guidelines; or
(n) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.2.
5.3 Voting Agreements. Prior to or concurrently with the execution of
this Agreement, the directors of Century and the directors of GrandBanc shall
have entered into the form of Voting Agreement attached hereto as Exhibit 5.3.
ARTICLE VI. ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) GrandBanc and Century shall promptly, and
in any event not later than 75 days after the date hereof, prepare and file
with the SEC the Joint Proxy Statement and Century shall promptly prepare and
file with the SEC the S-4, in which the Joint Proxy Statement will be included
as a prospectus. Each of GrandBanc and Century shall use their reasonable best
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and GrandBanc and Century shall thereafter
mail or deliver the Joint Proxy Statement to their respective stockholders.
Century shall also use its reasonable best efforts to obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and GrandBanc shall furnish
all information concerning GrandBanc and the holders of GrandBanc Common Stock
as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and
use their reasonable best efforts to promptly, and in any event not more than
75 days after the date hereof, prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, to obtain as promptly
as practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including, without
limitation, the Merger), and to comply with the terms and conditions of all
such permits, consents, approvals and authorizations of all such Governmental
Entities. GrandBanc and Century shall have the right to review in advance, and,
to the extent practicable, each will consult the other on, in each case subject
to applicable laws relating
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to the exchange of information, all the information relating to Century or
GrandBanc, as the case may be, and any of their respective Subsidiaries, which
appear in any filing made with, or written materials submitted to, any third
party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprized of the status of matters relating to completion of the transactions
contemplated herein.
(c) GrandBanc and Century shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Joint Proxy Statement,
the S-4 or any other statement, filing, notice or application made by or on
behalf of GrandBanc, Century or any of their respective Subsidiaries to any
Governmental Entity in connection with the Merger and the other transactions
contemplated by this Agreement.
(d) GrandBanc and Century shall promptly advise each other
upon receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement that causes such party to believe that there is a reasonable
likelihood that any Requisite Approval will not be obtained or that the receipt
of any such approval will be materially delayed.
6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of GrandBanc and
Century, for the purposes of verifying the representations and warranties of
the other and preparing for the Merger and the other matters contemplated by
this Agreement, shall, and shall cause each of their respective Subsidiaries
to, afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and, during such period, each of GrandBanc
and Century shall, and shall cause their respective Subsidiaries to, make
available to the other party (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal securities laws or federal or state
banking laws (other than reports or documents which GrandBanc or Century, as
the case may be, is not permitted to disclose under applicable law) and (ii)
all other information concerning its business, properties and personnel as such
party may reasonably request. Neither GrandBanc nor Century nor any of their
respective Subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of GrandBanc's or Century's, as the case may be, customers, jeopardize
the attorney-client privilege of the institution in possession or control of
such information or contravene any law, rule, regulation, order, judgment,
decree, fiduciary duty or binding agreement entered into prior to the date of
this Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
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(b) Each of GrandBanc and Century shall hold all information
furnished by or on behalf of the other party or any of such party's
Subsidiaries or representatives pursuant to Section 6.2(a) in confidence to the
extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated April 26, 1999, between GrandBanc and Century
(the "Confidentiality Agreement").
(c) No investigation by either of the parties or their
respective representatives shall affect the representations and warranties of
the other set forth herein.
6.3 Stockholders' Approvals. (a) Each of GrandBanc and Century shall
call a meeting of its stockholders to be held as soon as reasonably practicable
for the purpose of voting upon the requisite stockholder approvals required in
connection with this Agreement and the Merger, and each shall use its
reasonable best efforts to cause such meetings to occur as soon as reasonably
practicable and on the same date. The Board of Directors of each of Century and
GrandBanc shall use its reasonable best efforts to obtain from the stockholders
of Century and GrandBanc, as the case may be, the vote in favor of the adoption
of this Agreement required by the MGCL (in the case of GrandBanc) and the votes
in favor of the issuance of shares of Century Common Stock pursuant hereto
required by the rules of the NASDAQ (in the case of Century), in each case
required to consummate the transactions contemplated hereby.
(b) The Board of Directors of Century shall, in the joint
proxy statement/prospectus forming a part of the Registration Statement on Form
S-4, unanimously recommend to Century's stockholders that they approve the
issuance of shares of Century Common Stock pursuant to the Agreement. The Board
of Directors of GrandBanc, in the joint proxy statement/prospectus forming a
part of the Registration Statement on Form S-4, shall unanimously recommend to
GrandBanc's shareholders that they approve the Agreement and Merger.
6.4 Legal Conditions to Merger. Each of GrandBanc and Century shall,
and shall cause its Subsidiaries to, use their reasonable best efforts (a) to
take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements that may be imposed on such party
or its Subsidiaries with respect to the Merger and, subject to the conditions
set forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement, and (b) to obtain (and to cooperate with the other party to
obtain) any material consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party that is
required to be obtained by Century or GrandBanc or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement.
6.5 Affiliates; Publication of Combined Financial Results. (a) Each of
GrandBanc and Century shall use its reasonable best efforts to cause each
director, executive officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act and for purposes of qualifying
the Merger for "pooling of interests" accounting treatment) of such party to
deliver to the other party hereto, as soon as practicable after the date of
this Agreement, and prior to the date of the stockholders' meetings called by
GrandBanc and Century to approve this Agreement, a written agreement, in the
form of Exhibit 6.5(a)(1) or (2), as applicable, hereto, providing that such
person will not sell, pledge, transfer or otherwise dispose of any shares of
GrandBanc Capital Stock, or
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Century Capital Stock held by such "affiliate" and, in the case of the
"affiliates" of GrandBanc, the shares of Century Capital Stock to be received
by such "affiliate" in the Merger.
(b) Century shall use its best efforts to publish as promptly
as reasonably practical combined sales and net income figures as contemplated
by and in accordance with the terms of SEC Accounting Series Release No. 135;
provided, however, that (i) Century shall not be required to publish such
combined results of operations prior to the date on which Century's next
periodic filing under the Exchange Act shall be due and (ii) Century shall have
had at least 45 days since the Effective Time to prepare such combined sales
and net income figures.
6.6 NASDAQ Listing. Century shall cause the shares of Century Common
Stock to be issued in the Merger to be approved for trading on the NASDAQ
SmallCap Market, subject to official notice of issuance, prior to the Effective
Time.
6.7 Employee Benefit Plans. (a) From and after the Effective Time,
unless otherwise mutually determined, the Century Benefit Plans and GrandBanc
Benefit Plans in effect as of the date of this Agreement shall remain in effect
with respect to employees of Century or GrandBanc (or their Subsidiaries),
respectively, covered by such plans at the Effective Time until such time as
Century shall, subject to applicable law, the terms of this Agreement and the
terms of such plans, modify its existing benefit plans, or adopt new benefit
plans, with respect to employees of Century and its Subsidiaries which permit
the participation of the GrandBanc employees (the "New Benefit Plans"). Prior
to the Closing Date, Century and GrandBanc shall cooperate in reviewing,
evaluating and analyzing the GrandBanc Benefit Plans and Century Benefit Plans
with a view towards modifying Century's benefit plans or developing appropriate
New Benefit Plans for the employees covered thereby. If requested by Century,
GrandBanc agrees, immediately prior to the Effective Time, to terminate its
401(k) plan and distribute the account balances to the participants. In such
event, Century agrees to permit participants to rollover such distribution into
the Century 401(k) plan.
(b) The foregoing notwithstanding, Century agrees to honor in
accordance with their terms all benefits vested as of the date hereof under the
GrandBanc Benefit Plans or the Century Benefit Plans or under other contracts,
arrangements, commitments, or understandings described in the GrandBanc
Disclosure Schedule and the Century Disclosure Schedule.
(c) Nothing in this Section 6.7 shall be interpreted as
preventing Century from amending, modifying or terminating any GrandBanc
Benefit Plans, Century Benefit Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
(d) After the Effective Time of the Merger, Century agrees to
provide to each person employed by GrandBanc or the GrandBanc Subsidiaries on
the date of this Agreement who is still so employed at the Effective Time of
the Merger (other than any person who is a party to an employment contract with
GrandBanc or a GrandBanc Subsidiary) and whose employment is terminated during
the six months immediately following the Effective Time of the Merger, in
addition to any other benefits to which such person may be entitled, a cash
payment in an amount equal to the product of (i) the base salary of such person
for one week, multiplied by (ii) the number
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of years such person has been employed by GrandBanc, the GrandBanc Subsidiaries
and the Surviving Corporation, subject to such withholding as may be required
by law; provided, however, that the amount of such payment for each such
employee shall be not less than an amount equal to four week's base salary, and
shall not exceed an amount equal to ten weeks' base salary.
6.8 Indemnification; Directors' and Officers' Insurance. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of GrandBanc or any of its Subsidiaries, including any entity
specified in the GrandBanc Disclosure Schedule (the "Indemnified Parties"), is,
or is threatened to be, made a party based in whole or in part on, or arising
in whole or in part out of, or pertaining to (i) the fact that he is or was a
director, officer or employee of GrandBanc or any of its Subsidiaries or any
entity specified in the GrandBanc Disclosure Schedule or any of their
respective predecessors or such Indemnified Party's service as such, or (ii)
this Agreement or any of the transactions contemplated hereby, whether in any
case asserted or arising before or after the Effective Time, the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto. It is understood and agreed that after the Effective Time, Century
shall indemnify and hold harmless, as and to the fullest extent permitted by
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation.
(b) Century shall use its reasonable best efforts to cause
the individuals serving as officers and directors of GrandBanc, its
Subsidiaries or any entity specified in the GrandBanc Disclosure Schedule
immediately prior to the Effective Time to be covered for a period of six (6)
years from the Effective Time (or the period of the applicable statute of
limitations, if longer) by the directors' and officers' liability insurance
policy maintained by GrandBanc (provided that Century may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) with respect to
acts or omissions occurring prior to the Effective Time which were committed by
such officers and directors in their capacity as such.
(c) In the event Century or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Century
assume the obligations set forth in this Section 6.8.
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(d) The provisions of this Section 6.8 shall survive the
Effective Time and are intended to be for the benefit of, and shall be
enforceable by, each Indemnified Party and his or her heirs and
representatives.
(e) Not in limitation of rights of the Indemnified Parties
hereunder or under applicable law, in any case in which corporate approval or a
determination of the Board of Directors may be required to effectuate, or to
determine the appropriateness of, any indemnification, Century shall direct, if
the party to be indemnified elects, that the determination of permissibility of
indemnification shall be made by independent counsel mutually acceptable to
Century and the Indemnified Party.
6.9 Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement (including, without limitation, any merger between a Subsidiary
of Century, on the one hand, and a Subsidiary of GrandBanc, on the other) or to
vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of any of the parties to the
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Century.
6.10 Advice of Changes. GrandBanc and Century shall each promptly
advise the other party of any change or event (i) having a Material Adverse
Effect on it or (ii) which it believes would or would be reasonably likely to
cause or constitute a material breach of any of its representations, warranties
or covenants contained herein.
6.11 Current Public Information. Century agrees that it shall, for a
period of three (3) years following the Effective Time, use its best efforts to
meet the current public information requirements as set forth in paragraph (c)
of Rule 144 promulgated under the Securities Act, and will provide those
persons providing affiliate letters pursuant to Section 6.5 with such other
information as they may reasonably require and to otherwise cooperate with such
persons to facilitate any sales of Century Common Stock issued to such persons
pursuant to this Agreement in compliance with the provisions of Rule 144 and/or
Rule 145 promulgated under the Securities Act. The provisions of this Section
6.11 shall survive the Effective Time and are intended to be for the benefit
of, and shall be enforceable by, such affiliates of GrandBanc.
6.12 Transactions Involving Century. Century agrees that prior to the
Effective Time it shall not, and shall not permit any Century Subsidiary to
enter into any agreement, arrangement or understanding with respect to the
merger, acquisition, consolidation, consolidation, share exchange or similar
business combination transaction involving Century and/or any Century
Subsidiary, where the effect of such agreement or understanding, or the
consummation or effectuation thereof, would be reasonably likely to result in
the termination of this Agreement, materially delay or jeopardize the receipt
of any Requisite Approval or the filing of any application therefor, or cause
the anticipated tax or accounting treatment of the transactions contemplated
hereby to be unavailable; provided, however, that nothing in this section shall
prohibit any such transaction which contemplates the consummation of the Merger
in accordance with the provisions of this Agreement, and which treats
Annex A-41
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the holders of GrandBanc Common Stock, upon completion of the Merger and their
receipt of shares of Century Common Stock, in the same manner as holders of the
Century Common Stock.
ARTICLE VII. CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
adopted by the requisite affirmative vote of the holders of GrandBanc Common
Stock entitled to vote thereon and the issuance of Century Common Stock
pursuant hereto shall have been approved by the requisite affirmative vote of
holders of Century Common Stock required under the regulations of the Nasdaq
Small Cap Market.
(b) NASDAQ Listing. The shares of Century Common Stock which
shall be issued to the stockholders of GrandBanc upon consummation of the
Merger shall have been authorized for trading in the NASDAQ, subject to
official notice of issuance.
(c) Regulatory and Other Approvals. All regulatory approvals,
and all other third-party consents and approvals, required to consummate the
transactions contemplated hereby shall have been obtained without condition
(other than such conditions as are ordinarily imposed in connection with
transactions of the type contemplated hereby and which are not, in the
reasonable opinion of Century, unduly burdensome) and shall remain in full
force and effect and all statutory waiting periods in respect of such
regulatory approvals shall have expired (all such approvals and the expiration
of all such waiting periods being referred to herein as the "Requisite
Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or enforced
by any Governmental Entity which prohibits, materially restricts or makes
illegal consummation of the Merger.
(f) Pooling of Interests. Century shall have received a
letter from its independent accountants to the effect that the Merger will
qualify for "pooling of interests" accounting treatment.
7.2 Conditions to Obligations of GrandBanc. The obligation of
GrandBanc to effect the Merger is also subject to the satisfaction, or waiver
by GrandBanc, at or prior to the Effective Time, of the following conditions:
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(a) Representations and Warranties. The representations and
warranties of Century set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of this paragraph, such representations and
warranties (other than the representation set forth in the sentence immediately
preceding the last sentence of Section 3.2(a)) shall be deemed to be true and
correct unless the failure or failures of such representations and warranties
to be so true and correct, either individually or in the aggregate, and without
giving effect to any qualification as to materiality set forth in such
representations or warranties, will have a Material Adverse Effect on Century
or the Surviving Corporation. GrandBanc shall have received a certificate
signed on behalf of Century by the Chief Executive Officer and the Chief
Financial Officer of Century to the foregoing effect.
(b) Performance of Obligations of Century. Century shall have
performed in all material respects each of the obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
GrandBanc shall have received a certificate signed on behalf of Century by the
Chief Executive Officer and the Chief Financial Officer of Century to such
effect.
(c) Federal Tax Opinion. GrandBanc shall have received the
opinion of Kennedy, Baris & Lundy, L.L.P., in form and substance reasonably
satisfactory to GrandBanc, dated the Closing Date, substantially to the effect
that, on the basis of facts, representations and assumptions set forth in each
such opinion which are consistent with the state of facts existing at the
Effective Time:
(i) The Merger will constitute a reorganization
under Section 368(a) of the Code and GrandBanc, Century and Merger Sub
will each be a party to the reorganization;
(ii) No gain or loss will be recognized by
GrandBanc, Century or Merger Sub as a result of the Merger; and
(iii) No gain or loss will be recognized by
stockholders of GrandBanc who exchange their GrandBanc Common Stock
solely for Century Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
Century Common Stock).
In rendering such opinions, counsel may require and rely upon
representations contained in certificates of officers of GrandBanc,
Century, Merger Sub and others.
(d) Material Adverse Change. Since June 30, 2000, no change
shall have occurred and no circumstances shall exist which has had or might
reasonably be expected to have a Material Adverse Effect on Century and the
Century Subsidiaries taken as a whole (other than changes in banking laws or
regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
Annex A-43
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7.3 Conditions to Obligations of Century. The obligation of Century to
effect the Merger is also subject to the satisfaction or waiver by Century at
or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of GrandBanc set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date, provided,
however, that for purposes of this paragraph, such representations and
warranties (other than the representation set forth in the last sentence of
Section 4.2(a)) shall be deemed to be true and correct unless the failure or
failures of such representations and warranties to be so true and correct,
either individually or in the aggregate, and without giving effect to any
qualification as to materiality set forth in such representations or
warranties, will have a Material Adverse Effect on GrandBanc. Century shall
have received a certificate signed on behalf of GrandBanc by the Chief
Executive Officer and the Chief Financial Officer of GrandBanc to the foregoing
effect.
(b) Performance of Obligations of GrandBanc. GrandBanc shall
have performed in all material respects each of the obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Century shall have received a certificate signed on behalf of GrandBanc by the
Chief Executive Officer and the Chief Financial Officer of GrandBanc to such
effect.
(c) Federal Tax Opinion. The parties hereto shall have
received the opinion of Bracewell & Patterson, L.L.P., in form and substance
reasonably satisfactory to Century, dated the Closing Date, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in each such opinion which are consistent with the state of facts
existing at the Effective Time:
(i) The Merger will constitute a reorganization
under Section 368(a) of the Code and GrandBanc, Century and Merger Sub
will each be a party to the reorganization;
(ii) No gain or loss will be recognized by
GrandBanc, Century or Merger Sub as a result of the Merger; and
(iii) No gain or loss will be recognized by
stockholders of GrandBanc who exchange their GrandBanc Common Stock
solely for Century Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
Century Common Stock).
In rendering such opinions, counsel may require and rely upon representations
contained in certificates of officers of GrandBanc, Century, Merger Sub and
others.
(d) Material Adverse Change. Since June 30, 2000, no change
shall have occurred and no circumstances shall exist which has had or might
reasonably be expected to have a Material Adverse Effect on GrandBanc and the
GrandBanc Subsidiaries taken as a whole (other
Annex A-44
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than changes in banking laws or regulations, or interpretations thereof, that
affect the banking industry generally or changes in the general level of
interest rates).
(e) Consents, Approvals and Certificates. Century shall have
received such releases, assignments, termination statements, estoppel
certificates, consents, approvals or other documents or instruments required,
in the reasonable judgment of Century, (i) to prevent a breach or a default
under or a termination or modification of or acceleration of any obligation
under any GrandBanc Contract, or (ii) to release and terminate any Liens
required to be released and/or to grant the Liens required to be granted in
order to provide the Surviving Corporation with good, clear, and marketable
title to all property, free and clear of all Liens.
ARTICLE VIII. TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of GrandBanc or Century:
(a) by mutual consent of GrandBanc and Century in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either the Board of Directors of GrandBanc or the
Board of Directors of Century if any Governmental Entity that must grant a
Requisite Approval has denied approval of the Merger and such denial has become
final and nonappealable or any Governmental Entity of competent jurisdiction
shall have issued a final nonappealable order permanently enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement;
(c) by either the Board of Directors of GrandBanc or the
Board of Directors of Century if the Merger shall not have been consummated on
or before June 30, 2001, unless the failure of the Closing to occur by such
date shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein or the breach by such party of a representation or warranty of
such party set forth in this Agreement;
(d) by either the Board of Directors of GrandBanc or the
Board of Directors of Century (provided that the terminating party is not then
in breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a breach of any of the covenants or
agreements or any of the representations or warranties set forth in this
Agreement on the part of Century, in the case of a termination by GrandBanc, or
GrandBanc, in the case of a termination by Century, which breach, either
individually or in the aggregate, would constitute, if occurring or continuing
on the Closing Date, the failure of the conditions set forth in Section 7.2 or
7.3, as the case may be, and which is not cured within 30 days following
written notice to the party committing such breach or by its nature or timing
cannot be cured prior to the Closing Date;
(e) by the Board of Directors of Century at any time after
(i) the breach by GrandBanc of the provisions of Section 5.2(g) of this
Agreement, (ii) the Board of Directors of
Annex A-45
<PAGE> 260
GrandBanc withdraws or modifies in any adverse manner its approval or
recommendation of this Agreement or the Merger, (iii) the Board of Directors of
GrandBanc shall fail to reaffirm such approval or recommendation promptly upon
request by Century, or (iv) the Board of Directors of GrandBanc shall approve
or recommend, or shall sign any letter of intent, agreement or similar document
contemplating, any of the transactions contemplated by Section 5.2(g) of this
Agreement; or
(f) by the Board of Directors of GrandBanc in the event that
Century (i) enters into any agreement, letter of intent or agreement in
principle with the intent to pursue a transaction that does not contemplate the
consummation of the Agreement and the Merger in accordance with its terms or
which does not treat holders of GrandBanc Common Stock, upon completion of the
Merger and their receipt of shares of Century Common Stock, in the same manner
as the holders of the Century Common Stock, (ii) shall have breached its
obligations contained in Section 6.12 of this Agreement, (iii) the Board of
Directors of Century withdraws or modifies in any adverse manner its approval
or recommendation of this Agreement or the Merger, or (iv) the Board of
Directors of Century shall fail to reaffirm such approval or recommendation
promptly upon request by GrandBanc.
8.2 Effect of Termination. In the event of termination of this
Agreement by either GrandBanc or Century as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, and none of
GrandBanc, Century, any of their respective Subsidiaries or any of the officers
or directors of any of them shall have any liability of any nature whatsoever
hereunder, or in connection with the transactions contemplated hereby, except
that (i) upon any termination by Century pursuant to Section 8.1(e), GrandBanc
shall pay to Century, within 30 days of receiving notice of termination from
Century, an amount equal to the sum $500,000 plus all of Century's out of
pocket costs incurred in connection with this Agreement and the Merger, (ii)
upon any termination by GrandBanc pursuant to Section 8.1(f). Century shall pay
to GrandBanc, within 30 days of receiving notice of termination from GrandBanc,
an amount equal to the sum of $500,000 plus all of GrandBanc's out of pocket
costs incurred in connection with this Agreement and the Merger, (iii) Sections
6.2(b), 8.2, 9.2 and 9.3 shall survive any termination of this Agreement, and
(iv) notwithstanding anything to the contrary contained in this Agreement,
termination of this Agreement under Section 8.1 shall not release or relieve
either GrandBanc or Century from any liabilities or damages arising out of any
breach of the representations and warranties made by it, or its failure to
perform any of the covenants, agreements, duties or obligations arising
hereunder.
8.3 Amendment. Subject to compliance with applicable law and Section
1.1(b), this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
stockholders of GrandBanc and Century; provided, however, that after any
approval of the transactions contemplated by this Agreement by the respective
stockholders of GrandBanc or Century, there may not be, without further
approval of such stockholders, any amendment of this Agreement that changes the
amount or the form of the consideration to be delivered hereunder to the
holders of GrandBanc Common Stock, other than as contemplated by this
Agreement. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Annex A-46
<PAGE> 261
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, that after any approval of the transactions contemplated by this
Agreement by the respective stockholders of GrandBanc or Century, there may not
be, without further approval of such stockholders, any extension or waiver of
this Agreement or any portion thereof which reduces the amount or changes the
form of the consideration to be delivered to the holders of GrandBanc Common
Stock hereunder, other than as contemplated by this Agreement. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX. GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a
date and at a place to be specified by the parties, which shall be no later
than five business days after the satisfaction or waiver (subject to applicable
law) of the latest to occur of the conditions set forth in Article VII hereof,
unless extended by mutual agreement of the parties (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than the
Confidentiality Agreement, which shall terminate in accordance with its terms)
shall survive the Effective Time, except for Sections 1.6(c), 1.11(c) and 6.8
for those other covenants and agreements contained herein and therein which by
their terms apply in whole or in part after the Effective Time.
9.3 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the SEC in connection with the Merger, shall be borne equally by
GrandBanc and Century.
9.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
Annex A-47
<PAGE> 262
(a) if to GrandBanc, to:
GrandBanc, Inc.
1800 Rockville Pike
Rockville, Maryland 20852
Attention: Melvyn J. Estrin, Chairman
Telecopier: (301) 941-8650
with a copy to:
Kennedy, Baris & Lundy, L.L.P.
4701 Sangamore Road
Suite P-15
Bethesda, Maryland 20816
Attention: James I. Lundy, III
Telecopier: (301) 229-2443
and
(b) if to Century or Merger Sub, to:
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Joseph S. Bracewell, Chairman
Telecopier: (202) 496-4006
with a copy to:
Bracewell & Patterson, L.L.P.
2900 South Tower Pennzoil Place
Houston, Texas 77002
Attention: John R. Brantley
Telecopier: (713) 221-2112
9.5 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". Unless otherwise expressly indicated, the phrases "the date of
this Agreement" or "the date hereof" or words of similar import shall mean
October 11, 2000.
9.6 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
Annex A-48
<PAGE> 263
9.7 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the
Confidentiality Agreement.
9.8 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law principles.
9.9 Publicity. Except as otherwise required by applicable law or the
rules of the NASDAQ, neither GrandBanc or Century shall, or shall permit any of
its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of Century, in the case of a proposed announcement or statement by
GrandBanc, or GrandBanc, in the case of a proposed announcement or statement by
Century, which consent shall not be unreasonably withheld.
9.10 Assignment; Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as otherwise
specifically provided in Sections 1.6(c), 1.11, 6.8 and 6.11, this Agreement
(including the documents and instruments referred to herein) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
[Intentionally Left Blank]
Annex A-49
<PAGE> 264
IN WITNESS WHEREOF, GrandBanc, Century and Merger Sub have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of October 11, 2000.
CENTURY BANCSHARES, INC.
By: /s/ JOSEPH S. BRACEWELL
----------------------------------------
Name: Joseph S. Bracewell
Title: Chairman and Chief Executive Officer
CBI HOLDINGS CORPORATION
By: /s/ JOSEPH S. BRACEWELL
----------------------------------------
Name: Joseph S. Bracewell
Title: President
GRANDBANC, INC.
By: /s/ MELVYN J. ESTRIN
----------------------------------------
Name: Melvyn J. Estrin
Title: Chairman of the Board of Directors
Annex A-50
<PAGE> 265
EXHIBIT 5.3-GrandBanc Directors
FORM OF
VOTING AGREEMENT
This Voting Agreement (this "Agreement") has been made as of October
11, 2000 by Century Bancshares, Inc., a Delaware corporation ("Century"), and
the undersigned director ("Stockholder") of GrandBanc, Inc., a Maryland
corporation ("GrandBanc") with respect to certain shares of the common stock,
par value $.10 per share, of GrandBanc.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Century, CBI Holdings Corporation, a wholly owned subsidiary of
Century ("Merger Subsidiary"), and GrandBanc are entering into an Agreement and
Plan of Merger of even date herewith (which as constituted from time to time is
herein called the "Merger Agreement"), which provides, among other things, that
GrandBanc be merged with and into Merger Subsidiary, with Merger Subsidiary to
be the surviving corporation. The Merger Agreement also provides that upon
consummation of the Merger, each share of GrandBanc's Common Stock outstanding
immediately prior to consummation of the Merger will be converted into a
fraction of a share of Common Stock issuable by Century.
WHEREAS, the undersigned Stockholder is the record and beneficial owner
of the number of shares of GrandBanc common stock set forth adjacent to the
Stockholder's signature to this Agreement. The term "Stockholder's GrandBanc
Shares" means the shares of Common Stock listed adjacent to the Stockholder's
signature and any other shares of capital stock of GrandBanc that the
Stockholder may acquire after the date hereof.
WHEREAS, the Merger Agreement shall be submitted to the stockholders of
GrandBanc for approval under the terms and conditions as specified in the Merger
Agreement.
WHEREAS, each Stockholder who is a Director of GrandBanc has agreed to
vote his or her shares of GrandBanc in favor of the Merger Agreement.
WHEREAS, the Stockholder has entered into this Agreement to induce
Century to enter into the Merger Agreement.
NOW, THEREFORE, for the consideration specified in the Merger
Agreement, the receipt and sufficiency of which is hereby acknowledged, and
other good and valuable consideration, the undersigned Stockholder of GrandBanc
hereby agrees as follows:
1. Representations and Warranties. The Stockholder hereby warrants to
Century that the Stockholder has the capacity to enter into this Agreement and
the right and power to perform his obligations under this Agreement. The
Stockholder's GrandBanc Shares listed adjacent to the Stockholder's signature to
this Agreement constitute all of the shares of GrandBanc Common Stock
Annex A-51
<PAGE> 266
over which the Stockholder possesses beneficial ownership or voting power on the
date of this Agreement. The Stockholder has absolute ownership of the
Stockholder's GrandBanc Common Stock free of any adverse interest and has
necessary and sufficient right and authority to make the commitments with
respect to the Stockholder's GrandBanc Shares contained in this Agreement.
2. Voting. The undersigned Stockholder agrees during the term of this
Agreement to vote the Stockholder's GrandBanc Shares, and any other voting stock
that such Stockholder may have in GrandBanc, (i) in favor of the Merger
Agreement and the transactions contemplated thereby and (ii) against approval of
any proposal made in opposition to or competition with consummation of the
Merger and against any merger, consolidation, sale of assets, reorganization or
recapitalization with any party other than with Century and its affiliates and
against any reorganization, recapitalization, liquidation or winding up of
GrandBanc (each of the events cited in clause (ii) is hereinafter referred to as
an "Opposing Proposal").
3. No Support for Opposing Proposals. The Stockholder shall not invite
or seek any Opposing Proposal, support (or suggest that anyone else should
support) any Opposing Proposal that may be made, or ask GrandBanc's Board to
consider, support or seek any Opposing Proposal, or otherwise take any action
designed to make any Opposing Proposal more likely. The Stockholder shall not
meet or otherwise communicate with any person that makes or is considering
making an Opposing Proposal or any representative of a person after becoming
aware that the person has made or is considering making a Opposing Proposal. The
Stockholder shall promptly advise Century of each contact the Stockholder or any
of the Stockholder's representatives may receive from any person relating to any
Opposing Proposal or otherwise indicating that any person may wish to
precipitate or engage in any transaction arising out of any Opposing Proposal
and will provide Century with all information Century requests available to the
Stockholder regarding any Opposing Proposal or possible Opposing Proposal. The
Stockholder will not make any claim or join in any litigation alleging that
GrandBanc's Board is required to consider, endorse or support any Opposing
Proposal or to invite or seek any Opposing Proposal. The Stockholder shall not
take any other action that is reasonably likely to make consummation of the
Merger less likely or to impair Century's ability to exercise any of the rights
granted by this Agreement or the value of any such exercise.
4. Term. The undersigned Stockholder agrees that this Agreement shall
continue in effect until the earlier of (i) the approval by the Stockholders of
GrandBanc of the Merger Agreement under the terms and conditions as provided in
the Merger Agreement or (ii) the termination of the Merger Agreement in
accordance with its terms ("Term").
5. Transfer Restrictions. Until and unless the Merger Agreement has
been terminated (i) none of the Stockholder's GrandBanc Shares shall be tendered
in response to any tender offer, (ii) no interest in any of the Stockholder's
GrandBanc Shares shall be sold or otherwise transferred, (iii) the Stockholder
will not take any other action which would impair Stockholder's ability to vote
any of Stockholder's GrandBanc Shares in the manner required by this Agreement
and (iv) the Stockholder's commitments in Sections 2 though 5 shall be
irrevocable.
Annex A-52
<PAGE> 267
6. No Constraints on Actions As a Director. Nothing in this Agreement
shall be deemed to restrict the Stockholder from taking any action in the
capacity of a director of GrandBanc that such Stockholder shall believe is
necessary to fulfill the Stockholder's duties as a director. The Stockholder
however confirms that the Stockholder will be able to make the representations
set forth in Section 1 and to take all of the actions required by Sections 2
through 5 (inclusive) of this Agreement without any conflict with the
Stockholder's obligations as a director and that accordingly nothing in the
preceding sentence shall be deemed to limit or impair the Stockholder's
agreements in Sections 1 through 5.
7. Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Delaware.
8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
9. Separability. If a court of competent jurisdiction shall declare
invalid any clause, sentence or paragraph or this Agreement, such judgment or
decree shall not affect, impair, invalidate or nullify the remainder of this
Agreement but the effect thereof shall be confined to the clause, sentence or
paragraph so declared to be invalid.
10. Reformation of Agreement. In the event that the provisions of
Section 4 should ever be deemed to exceed the time limitations permitted by
applicable law, then such provisions shall be and are hereby reformed to the
maximum time limitations permitted by such applicable law.
11. Execution of Other Instruments. The undersigned Stockholder shall
execute and deliver such other agreements, proxies and instruments as may be
necessary, advisable or appropriate to effectuate the intent and purpose of this
Agreement.
12. Amendment of Agreement. This Agreement may be changed, modified or
amended only by a written instrument signed by the parties hereto.
13. Execution of Other Instruments. The undersigned Stockholder
covenants and agrees to execute and deliver such other agreements and
instruments as may be necessary, advisable or appropriate to effectuate the
intent and purpose of this Agreement.
14. Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Numbers and Gender. When required by the context, each number
(singular or plural) shall include all numbers and each gender shall include all
genders.
Annex A-53
<PAGE> 268
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STOCKHOLDER
-----------------------------------
Printed Name:
----------------------
CENTURY BANCSHARES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Number and Description of GrandBanc Shares of Capital Stock:
--------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Annex A-54
<PAGE> 269
EXHIBIT 5.3-Century Directors
FORM OF
VOTING AGREEMENT
This Voting Agreement (this "Agreement") has been made as of October
11, 2000 by GrandBanc, Inc., a Maryland corporation ("GrandBanc"), and the
undersigned director of Century Bancshares, Inc., a Delaware corporation
("Century")("Stockholder") of with respect to certain shares of the common
stock, par value $1.00 per share, of Century.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Century, CBI Holdings Corporation, a wholly owned subsidiary of
Century ("Merger Subsidiary"), and GrandBanc are entering into an Agreement and
Plan of Merger of even date herewith (which as constituted from time to time is
herein called the "Merger Agreement"), which provides, among other things, that
GrandBanc be merged with and into Merger Subsidiary, with Merger Subsidiary to
be the surviving corporation. The Merger Agreement also provides that upon
consummation of the Merger, each share of GrandBanc's Common Stock outstanding
immediately prior to consummation of the Merger will be converted into a
fraction of a share of Common Stock issuable by Century.
WHEREAS, the undersigned Stockholder is the record and beneficial owner
of the number of shares of Century common stock set forth adjacent to the
Stockholder's signature to this Agreement. The term "Stockholder's Century
Shares" means the shares of Common Stock listed adjacent to the Stockholder's
signature and any other shares of capital stock of Century that the Stockholder
may acquire after the date hereof.
WHEREAS, under the rules of the Nasdaq Stock Market, Inc., the
stockholders of Century are required to approve the issuance of the shares of
Century Common Stock pursuant to the Merger Agreement.
WHEREAS, each of the Directors of Century has agreed to vote his or her
shares of Century in favor of the issuance of the shares of Century Common Stock
pursuant to the Merger Agreement.
WHEREAS, the Stockholder has entered into this Agreement to induce
GrandBanc to enter into the Merger Agreement.
NOW, THEREFORE, for the consideration specified in the Merger
Agreement, the receipt and sufficiency of which is hereby acknowledged, and
other good and valuable consideration, the undersigned Stockholder of Century
hereby agrees as follows:
1. Representations and Warranties. The Stockholder hereby warrants to
GrandBanc that the Stockholder has the capacity to enter into this Agreement and
the right and power to perform his obligations under this Agreement. The
Stockholder's Century Shares listed on Schedule A to this Agreement constitute
all of the shares of Century Common Stock over which the Stockholder
Annex A-55
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possesses beneficial ownership or voting power on the date of this Agreement.
The Stockholder has absolute ownership of the Stockholder's Century Common Stock
free of any adverse interest and has necessary and sufficient right and
authority to make the commitments with respect to the Stockholder's Century
Shares contained in this Agreement.
2. Voting. The undersigned Stockholder agrees during the term of this
Agreement to vote the Stockholder's Century Shares, and any other voting stock
that such Stockholder may have in Century, (i) in favor of the issuance of the
shares of Century Common Stock pursuant to the Merger Agreement and (ii) against
approval of any proposal made in opposition to or competition with such proposal
(an "Opposing Proposal").
3. No Support for Opposing Proposals. The Stockholder shall not invite
or seek any Opposing Proposal, support (or suggest that anyone else should
support) any Opposing Proposal that may be made, or ask Century's Board to
consider, support or seek any Opposing Proposal, or otherwise take any action
designed to make any Opposing Proposal more likely. The Stockholder shall not
meet or otherwise communicate with any person that makes or is considering
making an Opposing Proposal or any representative of a person after becoming
aware that the person has made or is considering making a Opposing Proposal. The
Stockholder shall promptly advise Century of each contact the Stockholder or any
of the Stockholder's representatives may receive from any person relating to any
Opposing Proposal or otherwise indicating that any person may wish to
precipitate or engage in any transaction arising out of any Opposing Proposal
and will provide Century with all information GrandBanc requests available to
the Stockholder regarding any Opposing Proposal or possible Opposing Proposal.
The Stockholder will not make any claim or join in any litigation alleging that
Centurys Board is required to consider, endorse or support any Opposing Proposal
or to invite or seek any Opposing Proposal. The Stockholder shall not take any
other action that is reasonably likely to make consummation of the Merger less
likely or to impair GrandBanc's ability to exercise any of the rights granted by
this Agreement or the value of any such exercise.
4. Term. The undersigned Stockholder agrees that this Agreement shall
continue in effect until the earlier of (i) the approval by the Stockholders of
Century of the issuance of the shares of Century Common Stock pursuant to the
Merger Agreement or (ii) the termination of the Merger Agreement in accordance
with its terms ("Term").
5. Transfer Restrictions. Until and unless the Merger Agreement has
been terminated (i) none of the Stockholder's Century Shares shall be tendered
in response to any tender offer that does not provide for the bidder in such
offer to comply with the terms of this Agreement, (ii) no interest in any of the
Stockholder's Shares shall be sold or otherwise transferred, (iii) the
Stockholder will not take any other action which would impair Stockholder's
ability to vote any of Stockholder's Century Shares in the manner required by
this Agreement and (iv) the Stockholder's commitments in Sections 2 though 5
shall be irrevocable.
Annex A-56
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6. No Constraints on Actions As a Director. Nothing in this Agreement
shall be deemed to restrict the Stockholder from taking any action in the
capacity of a director of Century that such Stockholder shall believe is
necessary to fulfill the Stockholder's duties as a director. The Stockholder
however confirms that the Stockholder will be able to make the representations
set forth in Section 1 and to take all of the actions required by Sections 2
through 5 (inclusive) of this Agreement without any conflict with the
Stockholder's obligations as a director and that accordingly nothing in the
preceding sentence shall be deemed to limit or impair the Stockholder's
agreements in Sections 1 through 5.
7. Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Delaware.
8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
9. Separability. If a court of competent jurisdiction shall declare
invalid any clause, sentence or paragraph or this Agreement, such judgment or
decree shall not affect, impair, invalidate or nullify the remainder of this
Agreement but the effect thereof shall be confined to the clause, sentence or
paragraph so declared to be invalid.
10. Reformation of Agreement. In the event that the provisions of
Section 4 should ever be deemed to exceed the time limitations permitted by
applicable law, then such provisions shall be and are hereby reformed to the
maximum time limitations permitted by such applicable law.
11. Execution of Other Instruments. The undersigned Stockholder shall
execute and deliver such other agreements, proxies and instruments as may be
necessary, advisable or appropriate to effectuate the intent and purpose of this
Agreement.
12. Amendment of Agreement. This Agreement may be changed, modified or
amended only by a written instrument signed by the parties hereto.
13. Execution of Other Instruments. The undersigned Stockholder
covenants and agrees to execute and deliver such other agreements and
instruments as may be necessary, advisable or appropriate to effectuate the
intent and purpose of this Agreement.
14. Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Numbers and Gender. When required by the context, each number
(singular or plural) shall include all numbers and each gender shall include all
genders.
Annex A-57
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STOCKHOLDER
-----------------------------------
Printed Name:
----------------------
GRANDBANC, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Annex A-58
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SCHEDULE A
Number and Description of Century Shares of Capital Stock: _______ shares of
common stock, par value $1.00 per share.
Annex A-59
<PAGE> 274
EXHIBIT 6.5(a)(1)
GrandBanc Affiliate Letter
________________, 2001
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attn: President
Ladies and Gentlemen:
I have been advised that I might be considered to be an "affiliate," as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), of
GrandBanc, Inc., a Maryland corporation (the "Company").
Pursuant to an Agreement and Plan of Merger, dated as of October 11,
2000 (the "Merger Agreement") between the Company and Century Bancshares, Inc.,
a Delaware corporation ("Century"), it is contemplated that a wholly-owned
subsidiary of Century will merge with and into the Company (the "Merger"). As a
result of the Merger, I will receive in exchange for each share of Common Stock,
par value $0.10 per share, of the Company (the "Company Common Stock") owned by
me immediately prior to the Effective Date (as defined in the Merger Agreement),
a number of shares of Common Stock, par value $1.00 per share, of Century
("Century Common Stock"), as more specifically set forth in the Merger
Agreement.
I hereby agree as follows:
1. I will not offer to sell, sell, transfer or otherwise dispose of any
of the shares of Century Common Stock issued to me pursuant to the Merger (the
"Stock") until such time as financial results covering at least 30 days of
post-Merger combined operations of Century have been published and I have been
so notified by Century, and then only (a) in compliance with the applicable
provisions of Rule 145, (b) in a transaction that is otherwise exempt from the
registration requirements of the Securities Act, or (c) in an offering
registered under the Securities Act.
2. I consent to the endorsement of the Stock issued to me pursuant to
the Merger with a restrictive legend that will read substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), applies and may be sold or otherwise
transferred only in compliance with the limitations of such
Annex A-60
<PAGE> 275
Century Bancshares, Inc.
____________________, 2001
Page 2
Rule 145, or upon receipt by Century Bancshares, Inc. of an opinion of
counsel reasonably satisfactory to it that some other exemption from
registration under the Act is available, or pursuant to a registration
statement under the Act."
3. Century's transfer agent for the Century Common Stock shall be given
an appropriate stop transfer order and shall not be required to register any
attempted transfer of the shares of the Century Common Stock, unless the
transfer has been effected in compliance with the terms of this letter
agreement.
4. It is understood and agreed that this letter agreement shall
terminate and be of no further force and effect and the restrictive legend set
forth above shall be removed by delivery of substitute certificates without such
legend, and the related stop transfer restrictions shall be lifted forthwith, if
(i) any such shares of Stock shall have been registered under the Securities Act
for sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time an
affiliate of Century and have been the beneficial owner of the Stock for at
least one year (or such other period as may be prescribed thereunder) and
Century has filed with the Commission all of the reports it is required to file
under the Securities Exchange Act of 1934, as amended, during the preceding
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Century and have been the beneficial owner of the Stock for at
least two years (or such other period as may be prescribed by the Securities
Act, and the rules and regulations promulgated thereunder), or (v) Century shall
have received an opinion of counsel acceptable to Century to the effect that the
stock transfer restrictions and the legend are not required.
I have carefully read this letter agreement and the Merger Agreement
and have discussed their requirements and other applicable limitations upon my
ability to offer to sell, transfer or otherwise dispose of shares of the Stock,
to the extent I felt necessary, with my counsel or counsel for the Company.
Sincerely,
---------------------------
Name:
----------------------
Annex A-61
<PAGE> 276
EXHIBIT 6.5(a)(1)
Century Affiliate Letter
________________, 2001
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attn: President
Ladies and Gentlemen:
I have been advised that I might be considered to be an "affiliate," as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), of Century
Bancshares, Inc., a Delaware corporation ("Century").
Pursuant to an Agreement and Plan of Merger, dated as of October 11,
2000 (the "Merger Agreement") between Century and GrandBanc, Inc., a Maryland
corporation (the "Company"), it is contemplated that a wholly-owned subsidiary
of Century will merge with and into the Company (the "Merger"). As a result of
the Merger, shareholders of the Company will receive in exchange for each share
of Common Stock, par value $0.10 per share, of the Company (the "Company Common
Stock") owned by me immediately prior to the Effective Date (as defined in the
Merger Agreement), a number of shares of Common Stock, par value $1.00 per
share, of Century ("Century Common Stock"), as more specifically set forth in
the Merger Agreement. The Merger is to be accounted for under the "pooling of
interests" method of accounting, which imposes certain restrictions on the
disposition of sales of the Century Common Stock by affiliates of Century during
the period of time immediately after the closing of the Merger.
I hereby agree that I will not offer to sell, sell, transfer or
otherwise dispose of any of the shares of Century Common Stock issued to me
pursuant to the Merger (the "Stock") until such time as financial results
covering at least 30 days of post-Merger combined operations of Century have
been published and I have been so notified by Century.
I have carefully read this letter agreement and have discussed their
requirements and other applicable limitations upon my ability to offer to sell,
transfer or otherwise dispose of shares of the Stock, to the extent I felt
necessary, with my counsel or counsel for the Century.
Sincerely,
---------------------------
Name:
----------------------
Annex A-62
<PAGE> 277
ANNEX B
[FRIEDMAN, BILLINGS, RAMSEY & CO., INC. LETTERHEAD]
November 8, 2000
Board of Directors
Century Bancshares, Inc.
1275 Pennsylvania Avenue
Washington, DC 20004
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. (FBR) provide you
with its opinion as to the fairness, from a financial point of view, to the
holders of common stock (Stockholders) of Century Bancshares, Inc. (Century or
the Company) of the Consideration (as hereinafter defined) to be paid pursuant
to the Agreement and Plan of Merger by and between Century and GrandBanc, Inc.
(GrandBanc) and its wholly owned subsidiary GrandBank (GrandBank) (collectively
referred to as "GrandBanc), dated October 11, 2000 (the Merger Agreement),
pursuant to which Century will acquire GrandBanc (the Merger). The Merger
Agreement provides, among other things, that each issued and outstanding share
of common stock of GrandBanc shall be converted into the right to receive from
Century 0.3318 shares of Century common stock (the Consideration), subject to
certain terms and conditions. The Merger Agreement will be considered at a
meeting of the Stockholders of Century. The terms of the Merger are more fully
set forth in the Merger Agreement.
In delivering this opinion, FBR has completed the following tasks:
1. reviewed the GrandBanc Annual Report to Stockholders for the fiscal years
ended December 31, 1999, 1998, 1997 and 1996 and the GrandBanc Annual
Report on Form 10-KSB40 filed with the SEC for the fiscal years ended
December 31, 1999, 1998, 1997 and 1996;
2. reviewed the GrandBanc Quarterly Report on Form 10-QSB filed with the SEC
for the quarters ended June 30, 2000, March 31, 2000, September 30, 1999,
June 30, 1999 and March 31, 1999;
3. reviewed the GrandBanc Annual Proxy Statement dated April 12, 2000, April
8, 1999, and March 20, 1998;
4. reviewed the internal financial statements for GrandBanc for the eight
months ended August 31, 2000, including the credit card portfolio, loan,
deposit and branch information;
5. reviewed GrandBank's Call Report data filed with the Federal Deposit
Insurance Corporation (FDIC) for the fiscal quarter ended June 30, 2000,
and the fiscal years ended December 31, 1999; and GrandBanc's Annual Report
of Bank Holding Companies Form FR Y-6 filed with the Federal Deposit
Insurance Corporation for the fiscal year ended December 31, 1999;
6. reviewed the reported market prices and trading activity for Century and
GrandBanc common stock for the period January 1, 1998 through November 8,
2000;
7. compared the results of operations and financial condition of GrandBanc
with those of certain commercial banks (or their holding companies) that
FBR deemed to be reasonably comparable to GrandBanc, as the case may be;
Annex B-1
<PAGE> 278
8. reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions that FBR deemed to be reasonably comparable to the
Merger;
9. reviewed the potential pro forma impact of the Merger to the Stockholders
of Century;
10. reviewed a copy of the Merger Agreement; and
11. performed such other financial analyses and reviewed and analyzed such
other information as FBR deemed appropriate, including an assessment of
general economic, market and monetary conditions.
In rendering this opinion, FBR did not assume responsibility for independently
verifying, and did not independently verify, any financial or other information
concerning Century and/or GrandBanc furnished to it by Century or GrandBanc, or
the publicly-available financial and other information regarding Century,
GrandBanc and other financial services organizations (or their holding
companies). FBR has assumed that all such information is accurate and complete
and has no reason to believe otherwise. FBR has further relied on the assurances
of management of Century and GrandBanc that they are not aware of any facts that
would make such financial or other information relating to such entities
inaccurate or misleading. With respect to financial forecasts for Century
provided to FBR by Century's management, FBR has assumed, for purposes of this
opinion, that the forecasts have been reasonably prepared on bases reflecting
the best available estimates and judgments of such management at the time of
preparation as to the future financial performance of Century and GrandBanc. FBR
has assumed that there has been no undisclosed material change in GrandBanc's
assets, financial condition, results of operations, business or prospects since
June 30, 2000. FBR did not undertake an independent appraisal of the assets or
liabilities of GrandBanc. FBR is not an expert in the evaluation of allowances
for loan losses, was not requested to and did not independently review such
allowances, and was not requested to and did not independently review any
individual credit files of GrandBanc. FBR's conclusions and opinion are
necessarily based upon economic, market and other conditions and the information
made available to FBR as of the date of this opinion. FBR expresses no opinion
on matters of a legal, regulatory, tax or accounting nature related to the
Merger. GrandBanc was marketed for sale in a competitive bid process.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with mergers and acquisitions of commercial banks,
savings institutions and financial services holding companies, specialty finance
companies, initial and secondary offerings and mutual-to-stock conversions of
savings institutions, as well as business valuations for other corporate
purposes for financial services organizations and real estate related companies.
FBR has experience in, and knowledge of, the valuation of banks and thrifts in
Maryland, Washington DC and the rest of the United States.
FBR has acted as a financial advisor to Century in connection with the Merger
and will receive a fee for services rendered which is contingent upon the
consummation of the Merger. In the ordinary course of FBR's business, it may
effect transactions in the securities of Century or GrandBanc for its own
account and/or for the accounts of its customers and, accordingly, may at any
time hold long or short positions in such securities. From time to time,
principals and/or employees of FBR may also have positions in such securities.
Based upon and subject to the foregoing, as well as any such other matters as we
consider relevant, it is FBR's opinion, as of the date hereof, that the
Consideration is fair, from a financial point of view, to the Stockholders of
Century.
Annex B-2
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This letter is solely for the information of the Board of Directors, and
Stockholders of Century and may not be relied upon by any other person or used
for any other purpose, reproduced, disseminated, quoted from or referred to
without FBR's prior written consent; provided, however, this letter may be
referred to and reproduced in its entirety in proxy materials sent to the
Stockholders in connection with the solicitation of approval for the Merger.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Annex B-3
<PAGE> 280
ANNEX C
HOVDE FINANCIAL LLC
INVESTMENT BANKERS & FINANCIAL ADVISORS
October 6, 2000
Board of Directors
GrandBanc, Inc.
1800 Rockville Pike
Rockville, Maryland 20852
Members of the Board:
We have reviewed the Agreement and Plan of Merger (the "Agreement") and
related exhibits and schedules dated as of the date hereof by and among Century
Bancshares, Inc. ("CTRY") and GrandBanc, Inc. ("GrandBanc"), pursuant to which,
among other things, GrandBanc will be merged with and into CTRY (the "Merger").
As is set forth in the Agreement, all of the issued and outstanding shares of
GrandBanc Common Stock shall be converted into the right to receive shares of
CTRY Common Stock at an exchange ratio of 0.3318 shares of CTRY common stock for
every share of GrandBanc common stock and all options to purchase GrandBanc
Common Stock shall be converted into the right to receive options to purchase
CTRY Common Stock at the same exchange ratio, subject to adjustment as provided
for in the Agreement (the "Merger Consideration"). Capitalized terms used herein
shall have the same meaning as in the Agreement, unless specifically stated
otherwise.
Hovde Financial LLC ("Hovde") specializes in providing investment
banking and financial advisory services to commercial bank and thrift
institutions. Our principals are experienced in the independent valuation of
securities in connection with negotiated underwritings, subscription and
community offerings, private placements, merger and acquisition transactions and
recapitalizations. Pursuant to a Consulting Agreement dated March 16, 2000, and
signed March 16, 2000, Hovde was engaged by GrandBanc as its exclusive financial
advisor in connection with the potential sale of an interest in GrandBanc to, or
affiliation with, another entity or financial institution.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of GrandBanc and CTRY and
material prepared in connection with the proposed transaction, including the
following: the Agreement; certain publicly available information concerning
GrandBanc and CTRY, including consolidated financial statements for each of the
three years ended December 31, 1999, 1998 and 1997, respectively, as well as
subsequent quarterly statements for the periods ended June 30, 2000 and March
31, 2000 for GrandBanc and CTRY, respectively; the nature and terms of recent
sale and merger transactions involving banks and bank holding companies that we
consider relevant; historical and current market data for the common stock of
CTRY; and financial and other publicly available information provided to us by
the managements of GrandBanc and CTRY.
In addition, we have conducted meetings with members of the senior
management of GrandBanc for the purpose of reviewing the future prospects of the
companies. We also took into account our assessment of general economic, market
and financial conditions and our experience in other similar transactions, as
well as our overall knowledge of the banking industry and our general experience
in securities valuations.
We have acted as financial advisor to GrandBanc with respect to the
proposed Merger and have received a fee from GrandBanc for our services. Please
be advised that we have no other financial advisory or other relationships with
GrandBanc. In the ordinary course of their businesses, affiliates of Hovde may
actively trade the debt and equity securities of GrandBanc and/or CTRY for their
own
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account or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the publicly available materials
provided to us by GrandBanc and CTRY, and in the discussions with management of
GrandBanc.
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the Merger Consideration to be
received by the shareholders of GrandBanc in connection with the Merger as
described in the Agreement is fair to such shareholders from a financial point
of view.
Sincerely,
/s/ HOVDE FINANCIAL LLC
HOVDE FINANCIAL LLC
Annex C-2
<PAGE> 282
ANNEX D
ANNOTATED CODE OF MARYLAND
CORPORATIONS AND ASSOCIATIONS.
TITLE 3. CORPORATIONS IN GENERAL -- EXTRAORDINARY ACTIONS.
Subtitle 2. Rights of Objecting Stockholders.
SECTION 3-201 "SUCCESSOR" DEFINED.
(a) Corporation amending charter. -- In this subtitle, except as
provided in subsection (b) of this section, "successor" includes a corporation
which amends its charter in a way which alters the contract rights, as expressly
set forth in the charter, of any outstanding stock, unless the right to do so is
reserved by the charter of the corporation.
(b) Corporation whose stock is acquired. -- When used with reference to
a share exchange, "successor" means the corporation the stock of which was
acquired in the share exchange.
SECTION 3-202 RIGHT TO FAIR VALUE OF STOCK.
(a) General rule. -- Except as provided in subsection (c) of this
section, a stockholder of a Maryland corporation has the right to demand and
receive payment of the fair value of the stockholder's stock from the successor
if:
(1) The corporation consolidates or merges with another
corporation;
(2) The stockholder's stock is to be acquired in a share
exchange;
(3) The corporation transfers its assets in a manner requiring
corporate action under Section 3-105 of this title;
(4) The corporation amends its charter in a way which alters
the contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, unless the
right to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by Section 3-602 of this title
or exempted by Section 3-603 (b) of this title.
(b) Basis of fair value. -- (1) Fair value is determined as of the
close of business:
(i) With respect to a merger under Section 3-106 of
this title of a 90 percent or more Owned subsidiary into its parent, on the day
notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, on the
day the stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection,
fair value may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by Section 3-602 of this title
or exempted by Section 3-603(b) of this title, fair value shall be value
determined in accordance with the requirements of Section 3-603(b) of this
title.
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(c) When right to fair value does not apply. -- Unless the transaction
is governed by Section 3-602 of this title or is exempted by Section 3-603(b) of
this title, a stockholder may not demand the fair value of the stockholder's
stock and is bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange, is
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or is designated
for trading on the Nasdaq small cap market:
(i) With respect to a merger under Section 3-106 of
this title of a 90 percent or more Owned subsidiary into its parent, on the date
notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, on the
record date for determining stockholders entitled to vote on the transaction
objected to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the
stock as expressly set forth in the charter, and the charter does not reserve
the right to do so; or
(ii) The stock is to be changed or converted in whole
or in part in the merger into something other than either stock in the successor
or cash, scrip, or other rights or interests arising out of provisions for the
treatment of fractional shares of stock in the successor;
(3) The stock is not entitled to be voted on the transaction
or the stockholder did not own the shares of stock on the record date for
determining stockholders entitled to vote on the transaction;
(4) The charter provides that the holders of the stock are not
entitled to exercise the rights of an objecting stockholder under this subtitle;
or
(5) The stock is that of an open-end investment company
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the value placed on the stock in the transaction is its
net asset value.
SECTION 3-203 PROCEDURE BY STOCKHOLDER.
(a) Specific duties. -- A stockholder of a corporation who desires to
receive payment of the fair value of the stockholder's stock under this
subtitle:
(1) Shall file with the corporation a written objection to the
proposed transaction:
(i) With respect to a merger under Section 3-106 of
this title of a 90 percent or more Owned subsidiary into its parent, within 30
days after notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, at or
before the stockholders' meeting at which the transaction will be considered or,
in the case of an action taken under Section 2-505(b) of this article, within 10
days after the corporation gives the notice required by Section 2-505(b) of this
article;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles
for record, shall make a written demand on the successor for payment for the
stockholder's stock, stating the number and class of shares for which the
stockholder demands payment.
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<PAGE> 284
(b) Failure to comply with section. -- A stockholder who fails to
comply with this section is bound by the terms of the consolidation, merger,
share exchange, transfer of assets, or charter amendment.
SECTION 3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions
payable to holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under Section
3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to
that stock, except the right to receive payment of its fair value.
SECTION 3-205 WITHDRAWAL OF DEMAND.
A demand for payment may be withdrawn only with the consent of the
successor.
SECTION 3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS.
(a) When rights restored. -- The rights of a stockholder who demands
payment are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time
required by this subtitle;
(3) A court determines that the stockholder is not entitled to
relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration. -- The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
SECTION 3-207 NOTICE AND OFFER TO STOCKHOLDERS.
(a) Duty of successor. -- (1) The successor promptly shall notify each
objecting stockholder in writing of the date the articles are accepted for
record by the Department.
(2) The successor also may send a written offer to pay the
objecting stockholder what it considers to be the fair value of his stock. Each
offer shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six
months before the date of the offer;
(ii) A profit and loss statement for the 12 months
ending on the date of the balance sheet; and
(iii) Any other information the successor considers
pertinent.
Annex D-3
<PAGE> 285
(b) Manner of sending notice. -- The successor shall deliver the notice
and offer to each objecting stockholder personally or mail them to him by
certified mail, return receipt requested, bearing a postmark from the United
States Postal Service, at the address he gives the successor in writing, or, if
none, at his address as it appears on the records of the corporation which
issued the stock.
SECTION 3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS.
(a) Petition for appraisal. -- Within 50 days after the Department
accepts the articles for record, the successor or an objecting stockholder who
has not received payment for his stock may petition a court of equity in the
county where the principal office of the successor is located or, if it does not
have a principal office in this State, where the resident agent of the successor
is located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors. -- (1) If more than
one appraisal proceeding is instituted, the court shall direct the consolidation
of all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined
in an appraisal proceeding.
SECTION 3-209 NOTATION ON STOCK CERTIFICATE.
(a) Submission of certificate. -- At any time after a petition for
appraisal is filed, the court may require the objecting stockholders parties to
the proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) Transfer of stock bearing notation. -- If any stock represented by
a certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
SECTION 3-210 APPRAISAL OF FAIR VALUE.
(a) Court to appoint appraisers. -- If the court finds that the
objecting stockholder is entitled to an appraisal of his stock, it shall appoint
three disinterested appraisers to determine the fair value of the stock on terms
and conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Report of appraisers -- Filing. -- Within 60 days after their
appointment, unless the court sets a longer time, the appraisers shall determine
the fair value of the stock as of the appropriate date and file a report stating
the conclusion of the majority as to the fair value of the stock.
(c) Same -- Contents. -- The report shall state the reasons for the
conclusion and shall include a transcript of all testimony and exhibits offered.
(d) Same -- Service; objection. -- (1) On the same day that the report
is filed, the appraisers shall mail a copy of it to each party to the
proceedings.
(2) Within 15 days after the report is filed, any party may
object to it and request a hearing.
Annex D-4
<PAGE> 286
SECTION 3-211 ACTION BY COURT ON APPRAISERS' REPORT.
(a) Order of court. -- The court shall consider the report and, on
motion of any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the
stockholder.
(b) Procedure after order. -- (1) If the appraisers' report is
confirmed or modified by the order, judgment shall be entered against the
successor and in favor of each objecting stockholder party to the proceeding for
the appraised fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter
judgment for the stockholder; or
(ii) Remit the proceedings to the same or other
appraisers on terms and conditions it considers proper.
(c) Judgment includes interest. -- (1) Except as provided in paragraph
(2) of this subsection, a judgment for the stockholder shall award the value of
the stock and interest from the date as at which fair value is to be determined
under Section 3-202 of this subtitle.
(2) The court may not allow interest if it finds that the
failure of the stockholder to accept an offer for the stock made under Section
3-207 of this subtitle was arbitrary and vexatious or not in good faith. In
making this finding, the court shall consider:
(i) The price which the successor offered for the
stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings. -- (1) The costs of the proceedings,
including reasonable compensation and expenses of the appraisers, shall be set
by the court and assessed against the successor. However, the court may direct
the costs to be apportioned and assessed against any objecting stockholder if
the court finds that the failure of the stockholder to accept an offer for the
stock made under Section 3-207 of this subtitle was arbitrary and vexatious or
not in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the
stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The
reasonable fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock
under Section 3-207 of this subtitle; or
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(ii) The value of the stock determined in the
proceeding materially exceeds the amount offered by the successor.
(e) Effect of judgment. -- The judgment is final and conclusive on all
parties and has the same force and effect as other decrees in equity. The
judgment constitutes a lien on the assets of the successor with priority over
any mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
SECTION 3-212 SURRENDER OF STOCK.
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to
it, indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the
certificates and sufficient indemnity bond are furnished.
SECTION 3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(a) General rule. -- A successor which acquires the stock of an
objecting stockholder is entitled to any dividends or distributions payable to
holders of record of that stock on a record date after the close of business on
the day as at which fair value is to be determined under Section 3-202 of this
subtitle.
(b) Successor in transfer of assets. -- After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange. -- Unless
the articles provide otherwise, stock in the successor of a consolidation,
merger, or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
Annex D-6
<PAGE> 288
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Delaware General Corporation Law
Section 145 of the Delaware General Corporation Law provides generally
that a person sued as a director, officer, employee or agent of a corporation
may be indemnified by the corporation for reasonable expenses, including
attorneys' fees, if in the case of other than derivative suits, such person has
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation (and, in the case of a
criminal proceeding, had no reasonable cause to believe that such person's
conduct was unlawful). In the case of a derivative suit, an officer, employee or
agent of the corporation may be indemnified by the corporation for reasonable
expenses, including attorneys' fees, if such person has acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
the case of a derivative suit in respect of any claim as to which an officer,
employee or agent has been adjudged to be liable to the corporation unless that
person is fairly and reasonably entitled to indemnity for proper expenses.
Indemnification is mandatory in the case of a director, officer, employee, or
agent who is successful on the merits in defense of a suit against such person.
Certificate of Incorporation, as Amended
Consistent with applicable law, the Company's Certificate of
Incorporation, as amended, limits a director's monetary liability to the Company
or its stockholders for breach of fiduciary duty, except for breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, unlawful dividend payments
or acts from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation does not limit the availability of
equitable remedies based on breach of fiduciary duty and does not limit a
director's liability for violations of the federal securities laws. The Company
believes that the foregoing provisions of its Certificate of Incorporation may
assist it in attracting and retaining qualified individuals to serve on its
Board of Directors.
Bylaws
The bylaws of the Company provide that the Company may indemnify any
person who was or is a party of is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, against expenses (including attorney's fees), judgments, fines and
settlements incurred by him in connection with any such suit or proceeding, if
he acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, so long as in a derivative suit brought on behalf of the
corporation he was not adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation.
Indemnification Agreements
The Company has entered into indemnification agreements with its
officers and directors. The indemnification agreements require the Company to
indemnify each of such persons to the full extent permitted by Delaware law and
provide for the advancement of expenses to them on receipt of an undertaking to
repay any advances to which such persons are later determined not to be
entitled.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
2.1 Agreement and Plan of Merger by and among GrandBanc, Inc., Century
Bancshares, Inc. and CBI Holdings Corporation, dated as of October 11,
2000 (included in this joint proxy statement/prospectus as Annex A).
2.2 Purchase and Assumption Agreement dated July 24, 1997 by and between
Century Bancshares, Inc. and Eastern American Bank, FSB (Incorporated
by reference from Exhibit 10.12 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-34057)).
2.3 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 from Exhibit
10.13 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-34057)).
2.4 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 from Exhibit 2.3
of the Company's Current Report on Form 8-K dated October 10, 1997).
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. (Incorporated by reference from
Exhibit 3.4 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
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)).
4.2 Indenture dated as of March 23, 2000 from Century Bancshares, Inc., as
issuer, to The Bank of New York, as Trustee, with respect to the Junior
Subordinated Debt Securities of Century Bancshares, Inc. (Incorporated
by reference from Exhibit 4.1 of the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2000).
4.3 Amended and Restated Declaration of Trust dated as of March 23, 2000 of
century Capital Trust I. (Incorporated by reference from Exhibit 4.2 of
the Company's Quarterly Report on Form 10-Q for the period ended March
31, 2000).
4.4 Guarantee Agreement dated as of March 23, 2000 by and between Century
Bancshares, Inc. and The Bank of New York. (Incorporated by reference
from Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 2000).
5.1 Opinion and Consent of Bracewell & Patterson, L.L.P., as to the
legality of the common stock registered hereunder.
8.1 Opinion and Consent of Bracewell & Patterson, L.L.P., as to certain
federal income tax matters.
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<PAGE> 290
8.2* Opinion and Consent of Kennedy, Baris & Lundy, L.L.P., with respect to
certain federal income tax matters.
10.1 Century Bancshares, Inc. 1994 Stock Option Plan. (Incorporated by
reference from Exhibit 10.1 of the Registrant's Registration Statement
on Form S-1 (Registration No. 333-14417)).
10.2 Incentive Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.2 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14417)).
10.3 Nonqualified Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14417)).
10.4 Nonqualified Stock Option Plan for Directors, as amended. (Incorporated
by reference from Exhibit 10.4 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-14417)).
10.5 Form of Director Compensation Agreement between the Company and its
directors. (Incorporated by reference from Exhibit 10.5 of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-14417)).
10.6 Form of Indemnity Agreement between Company and the persons named
therein. (Incorporated by reference from Exhibit 10.6 of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-14417)).
10.7 Employment Agreement dated September 1, 1996, between the Company and
Mr. Joseph S. Bracewell. (Incorporated by reference from Exhibit 10.7
of the Registrant's Registration Statement on Form S-1 (Registration
No. 333-14417)).
10.8 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 from Exhibit 10.16 of the
Company's Annual Report on Form 10-K for the year 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 from Exhibit 10.17 of the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1999).
10.10 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. (Incorporated by reference from Exhibit 10.19 of the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
2000).
10.11 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)).
10.12 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)).
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<PAGE> 291
10.13 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)).
10.14 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)).
10.15 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 from the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.16 Lease Agreement dated July 23, 1993, by and between McLean Poplar
Partners and Eastern American Bank, FSB which was assumed by Century
National Bank under the Purchase and Assumption Agreement (dated July
24, 1997 and noted in 2.1 above).
10.17 Lease Agreement dated September 30, 1997, by and between The Life
Underwriter Training Council and Century National Bank. (Incorporated
by reference from Exhibit 10.14 of the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.18 Lease Agreement between Reston North Point Village Limited Partnership,
Lessor, and Eastern American Bank, F.S.B., assumed by Century National
Bank, August 25, 2000 (Incorporated by reference from Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.19 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 from Exhibit 10.15 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors of Century.
23.2 Consent of Bracewell & Patterson, L.L.P. (included in the opinion filed
as Exhibit 5 hereto).
23.3 Consent of Stegman & Company, independent auditors for GrandBanc.
23.4 Consent of Kennedy, Baris & Lundy, L.L.P. (included in Exhibit 8.2).
24 Powers of Attorney (included on the signature page of this Registration
Statement).
99.1 Consent of Friedman, Billings, Ramsey & Co., Inc.
99.2 Consent of Hovde Financial LLC.
99.3 Consent of Melvyn J. Estrin.
99.4 Consent of Abbey J. Butler.
99.5 Form of Proxy for Century.
99.6 Form of Proxy for GrandBanc.
----------
* To be provided by post-effective amendment.
(b) FINANCIAL STATEMENTS AND SCHEDULES
Either not applicable or shown in the financial statements or notes thereto.
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<PAGE> 292
(c) OPINION OF FINANCIAL ADVISOR
Copies of the fairness opinion of Friedman, Billings, Ramsey & Co., Inc. dated
November 8, 2000, and of the fairness opinion of Hovde Financial LLC dated
October 6, 2000, are included in the joint proxy statement/prospectus as Annex B
and Annex C, respectively.
ITEM 22. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned registrant hereby
undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar
value of securities offered would not exceed
that which was registered) and any deviation
from the low or high end of the estimated
maximum offering range may be reflected in
the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and
price represent no more than a 20 percent
change in the maximum aggregate offering
price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(e) INCORPORATED ANNUAL AND QUARTERLY REPORTS. The undersigned
registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report, to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial information
required to be presented by Article 3 of Regulation S-X is not
set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is
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<PAGE> 293
specifically incorporated by reference in the prospectus to
provide such interim financial information.
(g) REGISTRATION ON FORM S-4 OF SECURITIES OFFERED FOR RESALE
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating tot he securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as
indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
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<PAGE> 294
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the District of
Columbia on the 13th day of December, 2000.
CENTURY BANCSHARES INC.
(Registrant)
By: /s/ JOSEPH S. BRACEWELL
--------------------------------
Joseph S. Bracewell
Chairman of the Board, President and
Chief Executive Officer
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Joseph S. Bracewell and Bernard J.
Cravath, each with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing he might do or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, as amended, this Registration Statement has been signed
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOSEPH S. BRACEWELL Chairman of the Board, President and Chief
------------------------- Executive Officer December 13, 2000
Joseph S. Bracewell (Principal Financial and Accounting Officer)
/s/ GEORGE CONTIS Director December 13, 2000
-------------------------
George Contis
/s/ JOHN R. COPE Director and Vice President December 13, 2000
-------------------------
John R. Cope
/s/ BERNARD J. CRAVATH Director December 13, 2000
-------------------------
Bernard J. Cravath
/s/ NEAL R. GROSS Director December 13, 2000
-------------------------
Neal R. Gross
/s/ WILLIAM McKEE Director December 13, 2000
-------------------------
William McKee
/s/ WILLIAM C. OLDAKER Director and Secretary December 13, 2000
-------------------------
William C. Oldaker
</TABLE>
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<PAGE> 295
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among GrandBanc, Inc., Century
Bancshares, Inc. and CBI Holdings Corporation, dated as of October
11, 2000 (included in this joint proxy statement/prospectus as Annex
A).
2.2 Purchase and Assumption Agreement dated July 24, 1997 by and between
Century Bancshares, Inc. and Eastern American Bank, FSB
(Incorporated by reference from Exhibit 10.12 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-34057)).
2.3 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 from Exhibit
10.13 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-34057)).
2.4 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 from Exhibit
2.3 of the Company's Current Report on Form 8-K dated October 10,
1997).
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. (Incorporated by reference
from Exhibit 3.4 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1999).
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)).
4.2 Indenture dated as of March 23, 2000 from Century Bancshares, Inc.,
as issuer, to The Bank of New York, as Trustee, with respect to the
Junior Subordinated Debt Securities of Century Bancshares, Inc.
(Incorporated by reference from Exhibit 4.1 of the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2000).
4.3 Amended and Restated Declaration of Trust dated as of March 23, 2000
of century Capital Trust I. (Incorporated by reference from Exhibit
4.2 of the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 2000).
4.4 Guarantee Agreement dated as of March 23, 2000 by and between
Century Bancshares, Inc. and The Bank of New York. (Incorporated by
reference from Exhibit 4.3 of the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2000).
5.1 Opinion and Consent of Bracewell & Patterson, L.L.P., as to the
legality of the common stock registered hereunder.
8.1 Opinion and Consent of Bracewell & Patterson, L.L.P., as to certain
federal income tax matters.
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8.2* Opinion and Consent of Kennedy, Baris & Lundy, L.L.P., with respect
to certain federal income tax matters.
10.1 Century Bancshares, Inc. 1994 Stock Option Plan. (Incorporated by
reference from Exhibit 10.1 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-14417)).
10.2 Incentive Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.2 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14417)).
10.3 Nonqualified Stock Option Plan for Key Employees, as amended.
(Incorporated by reference from Exhibit 10.3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14417)).
10.4 Nonqualified Stock Option Plan for Directors, as amended.
(Incorporated by reference from Exhibit 10.4 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14417)).
10.5 Form of Director Compensation Agreement between the Company and its
directors. (Incorporated by reference from Exhibit 10.5 of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-14417)).
10.6 Form of Indemnity Agreement between Company and the persons named
therein. (Incorporated by reference from Exhibit 10.6 of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-14417)).
10.7 Employment Agreement dated September 1, 1996, between the Company
and Mr. Joseph S. Bracewell. (Incorporated by reference from Exhibit
10.7 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-14417)).
10.8 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 from Exhibit 10.16 of the
Company's Annual Report on Form 10-K for the year 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 from Exhibit 10.17 of the
Company's Quarterly Report on Form 10-Q for the period ended June
30, 1999).
10.10 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. (Incorporated by reference from Exhibit 10.19
of the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2000).
10.11 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)).
10.12 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)).
10.13 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
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June 1, 1996. (Incorporated by reference from Exhibit 10.10 of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-14417)).
10.14 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)).
10.15 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 from the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.16 Lease Agreement dated July 23, 1993, by and between McLean Poplar
Partners and Eastern American Bank, FSB which was assumed by Century
National Bank under the Purchase and Assumption Agreement (dated
July 24, 1997 and noted in 2.1 above).
10.19 Lease Agreement dated September 30, 1997, by and between The Life
Underwriter Training Council and Century National Bank.
(Incorporated by reference from Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
10.20 Lease Agreement between Reston North Point Village Limited
Partnership, Lessor, and Eastern American Bank, F.S.B., assumed by
Century National Bank, August 25, 2000 (Incorporated by reference
from Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000).
10.19 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 from Exhibit 10.15 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors of Century.
23.2 Consent of Bracewell & Patterson, L.L.P. (included in the opinion
filed as Exhibit 5 hereto).
23.3 Consent of Stegman & Company, independent auditors for GrandBanc.
23.4 Consent of Kennedy, Baris & Lundy, L.L.P. (included in Exhibit 8.2).
24 Powers of Attorney (included on the signature page of this
Registration Statement).
99.1 Consent of Friedman, Billings, Ramsey & Co., Inc.
99.2 Consent of Hovde Financial LLC.
99.3 Consent of Melvyn J. Estrin.
99.4 Consent of Abbey J. Butler.
99.5 Form of Proxy for Century.
99.6 Form of Proxy for GrandBanc.
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* To be provided by post-effective amendment.
