-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cyod7eqjWlc4hqtqjdPLXfKAGjRME2pp3wKKYnQNOGT2XAeRwAPOSEh2bdvbFU+m qhdZHIFDHJl1SWTrlIeg2Q== /in/edgar/work/20000814/0000785813-00-000021/0000785813-00-000021.txt : 20000921 0000785813-00-000021.hdr.sgml : 20000921 ACCESSION NUMBER: 0000785813-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY BANCSHARES INC CENTRAL INDEX KEY: 0000785813 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 521489098 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16234 FILM NUMBER: 696475 BUSINESS ADDRESS: STREET 1: 1275 PENNSYLVANIA AVE., N.W. CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 202-496-40 MAIL ADDRESS: STREET 1: 1275 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM____________ TO ____________. COMMISSION FILE NUMBER: 0-16234 CENTURY BANCSHARES, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 52-1489098 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1275 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D. C. 20004 (Address of Principal Executive Offices) (Zip Code) (202) 496-4100 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ At August 1, 2000, there were 2,732,188 shares of the registrant's Common Stock, par value $1.00 per share, outstanding. CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q For The Quarter Ended June 30, 2000 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risks 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 Signatures 24 Exhibit Index 25 PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Information CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q
CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition June 30, 2000, and December 31, 1999 June 30, 2000 December 31, (Unaudited) 1999 Assets: Cash and due from banks $ 8,104,150 $ 9,222,005 Federal funds sold 10,205,537 11,015,000 Interest bearing deposits in other banks 5,250,650 19,667,075 Investment securities available-for-sale, at fair value 24,919,726 16,495,049 Investment securities held-to-maturity, at amortized cost, fair value of $20,463,896 and $5,837,867 at June 30, 2000 and December 31, 1999, respectively 20,461,073 5,966,403 Loans, net of unearned income 153,947,331 138,076,486 Less: allowance for credit losses (1,743,332) (1,518,911) Loans, net 152,203,999 136,557,575 Leasehold improvements, furniture, and equipment, net 1,336,500 1,372,267 Accrued interest receivable 1,382,348 1,034,270 Loans held for sale 649,600 439,600 Deposit premium, net 1,560,608 1,675,813 Net deferred taxes 772,707 767,893 Other assets 873,497 595,948 Total Assets $227,720,395 $204,808,898 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 38,978,437 $ 36,571,508 Interest-bearing 128,775,932 117,328,222 Total deposits 167,754,369 153,899,730 Federal funds purchased and securities sold under agreements to repurchase 11,277,842 6,358,654 Long term debt: Federal Home Loan Bank Advances 20,845,361 11,301,355 Preferred securities of subsidiary trust 8,800,000 - Other borrowings 586,643 15,598,868 Other liabilities 1,933,022 1,982,184 Total Liabilities 211,197,237 189,140,791 Stockholders' Equity: Common stock, $1 par value; 10,000,000 shares authorized; 2,875,188 and 2,858,402 shares issued at June 30, 2000 and December 31, 1999, respectively 2,875,188 2,858,402 Additional paid in capital 13,756,298 13,700,452 Retained earnings 821,361 - Treasury stock, at cost, 141,500 and 136,500 shares at June 30, 2000 and December 31, 1999, respectively (819,863) (789,863) Other comprehensive income (loss), net of tax effect (109,826) (100,884) Total Stockholders' Equity 16,523,158 15,668,107 Commitments and contingencies Total Liabilities and Stockholders' Equity $227,720,395 $204,808,898 See accompanying condensed notes to consolidated financial statements(unaudited).
1 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q
CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) Three and Six Months Ended June 30, 2000 and 1999 Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Interest income: Interest and fees on loans $3,411,168 $2,860,807 $6,615,784 $5,510,757 Interest on federal funds sold 241,609 69,119 373,900 116,589 Interest on deposits in other banks 194,357 147,562 302,505 271,490 Interest on securities available-for-sale 325,363 125,324 531,407 225,433 Interest on securities held-to-maturity 199,538 34,079 326,748 71,662 Total interest income 4,372,035 3,236,891 8,150,344 6,195,931 Interest expense: Interest on deposits: Savings accounts 181,911 212,006 388,883 427,127 NOW accounts 46,363 54,835 101,248 115,222 Money market accounts 279,795 163,881 448,410 328,021 Certificates under $100,000 334,745 376,962 694,367 663,330 Certificates $100,000 and over 394,658 252,908 729,720 461,896 Total interest on deposits 1,237,472 1,060,592 2,362,628 1,995,596 Interest on borrowings 627,783 186,676 931,872 315,339 Total interest expense 1,865,255 1,247,268 3,294,500 2,310,935 Net interest income 2,506,780 1,989,623 4,855,844 3,884,996 Provision for credit losses 200,000 145,000 380,000 325,000 Net interest income after provision for credit losses 2,306,780 1,844,623 4,475,844 3,559,996 Noninterest income: Service charges on deposit accounts 238,666 175,049 442,656 328,624 Other operating income 278,825 270,977 604,708 507,383 Total noninterest income 517,491 446,026 1,047,364 836,007 Noninterest expense: Salaries and employee benefits 784,986 719,486 1,597,577 1,384,446 Occupancy and equipment expense 241,767 214,177 475,218 420,552 Professional fees 318,942 183,966 497,165 348,198 Depreciation and amortization 115,060 110,031 226,531 227,446 Amortization of deposit premiums 57,602 47,384 115,204 94,768 Data processing 307,410 284,317 692,861 545,486 Communications 104,759 90,936 193,874 169,928 Federal deposit insurance premiums 7,677 4,305 14,692 8,656 Other operating expenses 213,491 163,392 367,966 382,204 Total noninterest expense 2,151,694 1,817,994 4,181,088 3,581,684 Income before income tax expense 672,577 472,655 1,342,120 814,319 Income tax expense 257,799 179,560 519,798 309,877 Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442 Basic income per common share $ 0.15 $ 0.10 $ 0.30 $ 0.18 Diluted income per common share 0.15 0.10 0.30 0.18 Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408 Diluted weighted average common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342 See accompanying condensed notes to consolidated financial statements(unaudited).
2 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q
CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity (Unaudited) Six Months Ended June 30, 2000 and 1999 Other Common Additional Treasury Comprehensive Total Stock Paid in Retained Stock, Income (Loss), Stockholders' $1.00 par Capital Earnings at cost net of tax effect Equity Balance, December 31, 1998 $ 2,574,219 $ 12,343,631 $ 392,384 $ - $ 6,440 $ 15,316,674 Comprehensive income: Net income 504,442 504,442 Unrealized loss on Investment securities, Net of tax effect (60,393) (60,393) Comprehensive income (53,953) 15,760,723 Stock dividend 129,173 shares 129,173 645,865 (775,800) (762) Purchase of treasury stock, at cost, 5,000 shares (30,303) (30,303) Exercise of common stock Options - 17,564 shares 17,564 41,217 58,781 Balance, June 30, 1999 $ 2,720,956 $ 13,030,713 $ 121,026 $ (30,303) $ (53,953) $ 15,788,439
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 Balance, December 31, 1999 $ 2,858,402 $ 13,700,452 $ - $ (789,863) $ (100,884) $ 15,668,107 Comprehensive income: Net income 822,322 822,322 Unrealized loss on Investment securities, net of tax effect (8,942) (8,942) Comprehensive income (109,826) 16,481,487 Purchase of treasury stock, at cost, 5,000 shares (30,000) (30,000) Exercise of common stock options - 16,786 shares 16,786 55,846 (961) 71,671 Balance, June 30, 2000 $ 2,875,188 $ 13,756,298 $ 821,361 $ (819,863) $ (109,826) $ 16,523,158 See accompanying condensed notes to consolidated financial statements (unaudited).
3 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q
CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2000 and 1999 2000 1999 Cash flows from operating activities: Net income $ 822,322 $ 504,442 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 226,531 227,446 Amortization of deposit premiums 115,204 94,768 Provision for credit losses 380,000 325,000 Increase in accrued interest receivable (348,078) (197,482) (Increase) decrease in other assets (13,548) 4,636 Decrease in other liabilities (49,162) (39,976) Total adjustments 310,947 414,392 Net cash provided by operating activities 1,133,269 918,834 Cash flows from investing activities: Net increase in loans (16,026,424) (14,965,908) Net increase in loans held for sale (210,000) (180,000) Net decrease (increase) in interest bearing deposits in other banks 14,416,425 (8,532,164) Purchases of securities available-for-sale (10,858,995) (3,170,000) Purchases of securities held-to-maturity (14,578,971) - Repayments and maturities of securities available-for-sale 2,420,562 841,320 Repayments and maturities of securities held-to-maturity 84,301 386,755 Net purchase of leasehold improvements, furniture and equipment (190,764) (67,239) Net cash used in investing activities (24,943,866) (25,687,236) Cash flows from financing activities: Net increase in demand, savings, NOW and money market deposit accounts 10,421,852 5,091,227 Net increase in certificates of deposit 3,432,787 14,497,193 Net increase in customer repurchase accounts 4,919,188 1,528,757 Net decrease in other borrowings (15,012,225) (5,829) Net proceeds from issuance of long-term debt 10,000,000 6,000,000 Net proceeds from issuance of preferred securities of subsidiary trust 8,536,000 - Repayment of long-term debt (455,994) (454,759) Purchase of treasury stock (30,000) (30,303) Net proceeds from issuance of common stock 71,671 58,019 Other - (93,381) Net cash provided by financing activities 21,883,279 26,590,924 Net increase (decrease) in cash and cash equivalents (1,927,318) 1,822,522 Cash and cash equivalents, beginning of period 20,237,005 13,235,733 Cash and cash equivalents, end of period $18,309,687 $15,058,255 Supplemental disclosures of cash flow information: Interest paid on deposits and borrowings $3,040,224 $2,198,477 Income taxes paid 780,066 375,000 See accompanying condensed notes to consolidated financial statements (unaudited).
4 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation In the opinion of management the unaudited consolidated financial statements as of June 30, 2000, and for the three and six months ended June 30, 2000 and 1999 contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company as of such dates and for such periods. The unaudited consolidated financial statements should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto appearing in the Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2000 or any future periods. Certain prior period balances have been reclassified to conform with the current period. (2) Investment Securities
Investment securities available-for-sale, and their contractual maturities, at June 30, 2000 and December 31, 1999 are summarized as follows: Amortized Gross unrealized Gross unrealized June 30, 2000 Cost Gains Losses Fair value Obligations of U.S. government agencies: Within one year $ 996,561 $ - $ 6,240 $ 990,321 After one, but within five years 14,561,315 43,906 219,441 14,385,780 After five, but within ten years 6,439,094 46,136 - 6,485,230 After ten years 394,926 81 15,136 379,871 Total obligations of U.S. government agencies 22,391,896 90,123 240,817 22,241,202 Collateralized mortgage obligations: After five, but within ten years 265,955 - 7,068 258,887 After ten years 170,426 - 11,201 159,225 Total collateralized mortgage obligations 436,381 - 18,269 418,112 Federal Reserve Bank stock 311,350 - - 311,350 Federal Home Loan Bank stock 1,044,900 - - 1,044,900 Atlantic Central Bankers Bank stock 30,000 - - 30,000 Other 874,162 - - 874,162 Total investment securities available-for-sale $ 25,088,689 $90,123 $ 259,086 $ 24,919,726 Amortized Gross unrealized Gross unrealized December 31, 1999 Cost Gains Losses Fair value Obligations of U.S. government agencies: Within one year $ 1,999,974 $ - $ 612 $ 1,999,362 After one, but within five years 11,241,574 - 129,979 11,111,595 After ten years 427,851 301 12,946 415,206 Total obligations of U.S. government agencies 13,669,399 301 143,537 13,526,163 Collateralized mortgage obligations: After five, but within ten years 294,482 - 6,068 288,414 After ten years 183,162 - 5,902 177,260 Total collateralized mortgage obligations 477,644 - 11,970 465,674 Federal Reserve Bank stock 311,350 - - 311,350 Federal Home Loan Bank stock 1,317,700 - - 1,317,700 Other 874,162 - - 874,162 Total investment securities available-for-sale $ 16,650,255 $ 301 $ 155,507 $ 16,495,049
5 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (2) Investment Securities, continued Expected maturities may differ from contractual maturities of mortgage-backed securities and collateralized mortgage obligations because borrowers have the right to prepay their obligations at any time. As a member of the Federal Reserve and Federal Home Loan Bank systems, Century National Bank is required to hold shares of stock in the Federal Reserve Bank of Richmond and the Federal Home Loan Bank of Atlanta. In March 2000, Century National Bank became a member of the Atlantic Central Bankers Bank and purchased $30,000 of its stock. Those shares, which have no stated maturity, are carried at cost since no active trading market exists. Investment securities totaling $30,245,127 and $7,216,768 at June 30, 2000 and 1999, respectively, were pledged to secure FHLBA borrowings, public deposits, customer repurchase accounts, and other borrowings. No investment securities were sold during 2000 or 1999.
Investment securities held-to-maturity at June 30, 2000 and December 31,1999 are summarized as follows: Amortized Gross unrealized Gross unrealized June 30, 2000 Cost Gains Losses Fair value Obligations of U.S. government agencies: After one, but within five years $ 5,999,232 $ - $117,782 $ 5,881,450 After ten years 988,199 70 49,360 938,909 Total obligations of U.S. government agencies 6,987,431 70 167,142 6,820,359 Obligations of states and political subdivisions: After one, but within five years 455,354 - 143 455,211 After ten years 8,704,809 31 46,753 8,658,087 Total obligations of states and political 9,160,163 31 46,896 9,113,298 Corporate bonds 4,313,479 216,760 - 4,530,239 Total investment securities held-to-maturity $20,461,073 $ 216,861 $214,038 $20,463,896 Amortized Gross unrealized Gross unrealized December 31, 1999 Cost Gains Losses Fair value Obligations of U.S. government agencies: Within one year $ 3,999,138 $ - $ 37,572 $3,961,566 After ten years 1,967,265 260 91,224 1,876,301 Total investment securities held-to-maturity $ 5,966,403 $ 260 $128,796 $5,837,867
6 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (3) Income per Common Share Basic income per common share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted income per common share is calculated by dividing net income by the sum of weighted-average common shares and potential dilutive common shares. On February 18, 2000, the Company declared a 5 percent stock dividend payable on April 17, 2000, to common stock shareholders of record as of March 15, 2000, resulting in the issuance of 136,152 shares and a corresponding increase in the number of shares of common stock issuable upon the exercise of stock options outstanding. The effect of the April 17, 2000, stock dividend was recognized retroactively in the stockholders' equity accounts in the consolidated statements of financial condition as of December 31, 1999, and in all share and per share data. On April 14, 1999, the Company declared a 5 percent stock dividend payable on May 28, 1999, to common stock shareholders of record as of April 28, 1999, resulting in the issuance of 129,173 shares and a corresponding increase in stock options outstanding. Weighted-average shares outstanding and income per common share have been restated for the effect of the stock dividends.
In accordance with SFAS No. 128, the calculation of basic income per common share and diluted income per common share is detailed below: Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Basic Income Per Common Share: Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442 Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408 Basic income per common share $0.15 $0.10 $0.30 $0.18 Diluted Income Per Common Share: Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442 Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408 Dilutive effect of stock options 16,216 28,763 16,216 27,934 Diluted weighted average common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342 Diluted income per common share $0.15 $0.10 $0.30 $0.18
(4) New Financial Accounting Standards In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair value. In certain circumstances a derivative may be specifically designed as a hedge of the exposure to changes in the fair values of a recognized asset or liability or an unrecognized firm commitment, the exposure to variable cash flows of a forecasted transaction, or the exposure to fluctuations in foreign currency. SFAS No. 133 will be effective for all periods beginning after June 15, 2000. Earlier application is permitted, but the statement shall not be applied retroactively to financial statements of prior periods. The Company does not anticipate any material impact from the implementation of SFAS No. 133. 7 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Century Bancshares, Inc., a Delaware corporation ("Company"), and a registered bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA"), was incorporated and organized in 1985. The Company began active operations in 1986 with the acquisition of its subsidiary, Century National Bank ("Bank"), a full service bank which opened for business in 1982. The Bank provides a broad line of financial products and services to small and middle market businesses and individuals in the greater Washington, DC metropolitan area. With the addition of a new Prince William County branch office in Dumfries, Virginia, in October 1999, and the establishment of a new loan production office in Rockville, Maryland in February 2000, the Company operates six full service banking offices and one loan production office, as follows: International Square Branch (Main office of bank) - 1875 Eye Street, NW, Washington, DC 20006 Pennsylvania Avenue Branch (Executive offices of Company) -1275 Pennsylvania Avenue, NW, Washington, DC 20004 McLean Branch- 6832 Old Dominion Drive, McLean, Virginia 22101 Tysons Corner Branch- 8251 Greensboro Drive, McLean, Virginia 22102 Bethesda Branch- 7625 Wisconsin Avenue, Bethesda, Maryland 20814 Dumfries Branch- 18116 Triangle Shopping Plaza, Dumfries, Virginia 22026 Rockville (Loan production office)- 1680 E. Gude Drive, Rockville, MD 20851 The Company's principal executive offices are located at 1275 Pennsylvania Avenue, NW, Washington, DC 20004, and its phone number at that address is (202) 496-4100. The Company derives substantially all of its revenue and income from the operation of the Bank, which provides a full range of commercial and consumer banking services to small and middle market businesses and individuals in the Washington, DC metropolitan area. As of June 30, 2000, the Company had total assets of $227.7 million, total deposits of $167.8 million, and stockholders' equity of $16.5 million. At June 30, 2000, there were approximately 1,000 shareholders of the Company's common stock, par value $1.00 per share ("Common Stock"). Items 2 and 3 of this report contain certain forward-looking statements regarding future financial condition and results of operations and the Company's business operations. The words "may," "intend," "will," "believe," "expect," "estimate," "anticipate," "predict" and similar expressions, the negatives of those words and other variations on those words or comparable terminology, are intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions and, although the Company believes that such assumptions are reasonable, it can give no assurance that its expectations regarding these matters will be achieved. Our actual results may differ materially from what we expect. The important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, the factors discussed in the Company's Form 10-K for the year ended December 31, 1999 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as the following factors: general economic conditions in the Washington, DC metropolitan area; changes in interest rates; changes in asset quality; the effect on the Company of the extensive scheme of regulation by several federal agencies; the departure of certain key executives; delayed effects of the year 2000 problem; and competition from other providers of financial services. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, such actual outcomes may vary materially from those indicated. 8 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Net Income For the three months ended June 30, 2000, the Company's net income was $415 thousand, or $0.15 per diluted share, compared with $293 thousand for the three months ended June 30, 1999, or $0.10 per diluted share. The 42 percent increase in net income was primarily attributable to a $517 thousand increase in net interest income resulting from a 31 percent increase in average earning assets, and a $71 thousand increase in noninterest income, which were partially offset by a $334 thousand increase in noninterest expense and a $55 thousand increase in provision for credit losses. Service charges on deposit accounts increased 36 percent to $239 thousand. Increases in noninterest expenses included a 73 percent increase in professional fees, a 9 percent increase in salaries and benefits, and a 31 percent increase in other expenses. Return on average assets was 0.76 percent in the second quarter of 2000 compared with 0.70 percent for the same period in 1999. Return on average stockholders' equity was 10.25 percent for the three months ended June 30, 2000, compared with 7.50 percent for the same period in 1999. The ratio of stockholders' equity to total assets was 7.26 percent at June 30, 2000 compared with 8.85 percent at June 30, 1999. For the six months ended June 30, 2000, the Company's net income was $822 thousand, or $0.30 per diluted share, compared with $504 thousand for the six months ended June 30, 1999, or $0.18 per diluted share. The 63 percent increase in net income was primarily attributable to a $971 thousand increase in net interest income resulting from a 28 percent increase in average earning assets, and a $211 thousand increase in noninterest income, which were partially offset by a $599 thousand increase in noninterest expense and a $55 thousand increase in provision for credit losses. Service charges on deposit accounts increased 35 percent to $443 thousand. Increases in noninterest expenses included a 43 percent increase in professional fees, a 15 percent increase in salaries and benefits, and a 27 percent increase in data processing costs. Return on average assets was 0.80 percent for the six months ended June 30, 2000 compared with 0.63 percent for the same period in 1999. Return on average stockholders' equity was 10.21 percent for the six months ended June 30, 2000, compared with 6.54 percent for the same period in 1999. The ratio of stockholders' equity to total assets was 7.26 percent at June 30, 2000 compared with 8.85 percent at June 30, 1999. Net Interest Income For the quarter ended June 30, 2000, net interest income was $2.507 million compared with $1.990 million for the quarter ended June 30, 1999, an increase of $517 thousand, or 26 percent. The increase in net interest income between the periods was primarily the result of a 31 percent increase in average earning assets partially offset by an 18 basis point reduction in the net interest margin to 4.84 percent for the second quarter of 2000 from 5.02 percent for the same period in 1999. While the yield on average earning assets increased 28 basis points, the average rate paid on interest-bearing liabilities increased 47 basis points. Although average earning assets increased significantly, the increase was more heavily concentrated in lower yielding investment securities and federal funds sold. The average cost of funds increased, reflective of a customer preference for higher-rate money market accounts and time deposits, an increase in wholesale funding and the impact of the trust preferred issuance in late March 2000. For the six months ended June 30, 2000, net interest income was $4.856 million compared with $3.885 million for the same period last year, an increase of $971 thousand, or 25 percent. The increase in net interest income between the periods was primarily the result of a 28 percent increase in average earning assets partially offset by a 15 basis point reduction in the net interest margin to 5.04 percent for the six month ended June 30, 2000 from 5.19 percent for the same period in 1999. While the yield on average earning assets increased 18 basis points, the average rate paid on interest-bearing liabilities increased 35 basis points. Average earning assets increased significantly, but the increase was about equally distributed between higher yielding loans and lower yielding investment securities and federal funds sold. The average cost of funds however, reflected a steeper increase reflective of a customer preference for higher-rate money market accounts and time deposits, an increase in wholesale funding and the impact of the trust preferred issuance in late March 2000. The following tables set forth the average yields and rates for interest earned and paid for significant categories of interest earning assets and interest bearing liabilities for the three and six month periods ended June 30, 2000 and 1999. 9 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Net Interest Income, continued
AVERAGE BALANCES AND INTEREST YIELDS/RATES (Dollars in Thousands) Three Months Ended June 30, 2000 1999 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Interest-Earning Assets Loans, net (1) $147,802 $3,411 9.28% $129,537 $2,861 8.86% Investment securities (2)(3) 32,109 525 6.58 11,410 159 5.59 Federal funds sold 15,474 242 6.29 5,762 69 4.80 Interest bearing deposits with other banks 12,797 194 6.10 12,236 148 4.85 Total interest-earning assets 208,182 4,372 8.45% 158,945 3,237 8.17% Cash and due from banks 8,169 6,461 Other assets 4,265 3,412 Total Assets $220,616 $168,818 Interest-Bearing Liabilities Interest-Bearing Deposits: NOW accounts $ 22,839 $ 46 0.81% $ 19,357 $ 55 1.14% Savings accounts 18,141 182 4.04 20,188 212 4.21 Money market accounts 32,042 280 3.51 21,081 164 3.12 Time deposits 56,900 729 5.15 49,137 630 5.14 Borrowings and notes payable 35,382 628 7.14 13,059 186 5.71 Total interest-bearing Liabilities 165,304 1,865 4.54% 122,822 1,247 4.07% Non-interest bearing 36,805 28,739 Other liabilities 2,237 1,573 Total liabilities 204,346 153,134 Stockholders' equity 16,270 15,684 Total liabilities and stockholders' equity $220,616 $168,818 Net interest income and spread $2,507 3.91% $1,990 4.10% Net interest margin (3) 4.84% 5.02%
(1) Non-accrual loan balances are included in the calculation of Average Balances - Loans, Net. Interest income on non-accrual loan balances is included in interest income to the extent that it has been collected. (2) Average balance and average rate for investment securities are computed based on book value of securities held-to-maturity and amortized cost basis of securities available-for-sale. (3) Including fully taxable equivalent adjustments in 2000, the average rates for investment securities, total interest-earning assets and net interest margin were 6.75%, 8.47% and 4.87%, respectively. 10 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Net Interest Income, continued
AVERAGE BALANCES AND INTEREST YIELDS/RATES (Dollars in Thousands) Six Months Ended June 30, 2000 1999 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Interest-Earning Assets Loans, net (1) $143,968 $6,616 9.24% $124,227 $5,511 8.95% Investment securities (2)(3) 27,122 858 6.36 10,721 297 5.59 Federal funds sold 12,373 374 6.08 4,792 117 4.92 Interest bearing deposits with other banks 10,305 302 5.89 11,099 271 4.92 Total interest-earning assets 193,768 8,150 8.46% 150,839 6,196 8.28% Cash and due from banks 7,930 6,650 Other assets 4,166 3,589 Total Assets $205,864 $161,078 Interest-Bearing Liabilities Interest-Bearing Deposits: NOW accounts $ 22,271 $ 101 0.91% $ 19,287 $ 115 1.20% Savings accounts 19,195 389 4.08 20,433 427 4.21 Money market accounts 26,261 448 3.43 21,136 328 3.13 Time deposits 55,385 1,424 5.17 43,800 1,126 5.18 Borrowings and Notes payable 27,684 932 6.77 10,774 315 5.90 Total interest-bearing Liabilities 150,796 3,294 4.39% 115,430 2,311 4.04% Non-interest bearing 36,111 28,436 Other liabilities 2,760 1,658 Total liabilities 189,667 145,524 Stockholders' equity 16,197 15,554 Total liabilities and stockholders' equity $205,864 $161,078 Net interest income and spread $4,856 4.07% $3,885 4.25% Net interest margin (3) 5.04% 5.19%
(1) Non-accrual loan balances are included in the calculation of Average Balances - Loans, Net. Interest income on non-accrual loan balances is included in interest income to the extent that it has been collected. (2) Average balance and average rate for investment securities are computed based on book value of securities held-to-maturity and amortized cost basis of securities available-for-sale. (3) Including fully taxable equivalent adjustments in 2000, the average rates on investment securities, total interest-earning assets and net interest margin were 6.47%, 8.47% and 5.05%, respectively. 11 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Noninterest Income Noninterest income was $517 thousand in the second quarter of 2000, a $71 thousand, or 16 percent increase when compared with the same quarter of 1999, which was $446 thousand (see table below). The increase between the periods was primarily due to increases in deposit service charges due to higher volumes coupled with revisions in service charge pricing policy implemented early in the second quarter of 2000. Increased volumes also resulted in a $19 thousand, or 10 percent, increase in credit card and merchant fees in the second quarter of 2000 compared with the same period last year. Mortgage loan origination fees declined between the periods as the rising rate environment resulted in reduced originations.
NONINTEREST INCOME (Dollars in Thousands) Three Months Ended June 30, 2000 1999 $ Change % Change Service charges on deposit accounts $ 238,666 $ 175,049 $ 63,617 36.3 % Credit card and merchant fees 204,607 184,981 19,626 10.6 Mortgage loan origination fees 23,774 42,855 (19,081) (44.5) Commission and other fee income 48,789 38,102 10,687 28.0 Other income 1,655 5,039 (3,384) (67.2) Total noninterest income $ 517,491 $ 446,026 $ 71,465 16.0 % Noninterest income was $1.1 million in the first six months of 2000, a $211 thousand increase when compared with the same period of 1999, which was $836 thousand (see table below). The increase between the periods was primarily due to increases in deposit service charges, credit card and merchant fees, and ATM fees (included in commission and other fee income) caused by increased volumes. The growth in service charges on deposit accounts was also influenced by service charge fee increases implemented in April 2000.
NONINTEREST INCOME (Dollars in Thousands) Six Months Ended June 30, 2000 1999 $ Change % Change Service charges on deposit accounts $ 442,656 $ 328,624 $ 114,032 34.7 % Credit card and merchant fees 461,581 374,616 86,965 23.2 Mortgage loan origination fees 33,757 42,855 (9,098) (21.2) Commission and other fee income 96,747 71,086 25,661 36.1 Other income 12,623 18,826 (6,203) (32.9) Total noninterest income $ 1,047,364 $ 836,007 $ 211,357 25.3 %
Noninterest Expense Noninterest expense was $2.2 million in the second quarter of 2000, an increase of $334 thousand, or 18 percent, when compared with the same period in 1999 when total noninterest expense was $1.8 million. The increase in noninterest expense included a $135 thousand, or 73 percent, increase in professional fees principally due to legal fees incurred associated with the trust preferred issuance and higher consulting fees related to information systems technology. An increase in the scope of the Company's operations coinciding with the acquisition of a branch office in October 1999, and the establishment of a loan production office in February 2000 was accompanied by increases in several noninterest expense categories including, salaries and benefits which increased $66 thousand, or 9 percent, occupancy and equipment which increased by $28 thousand, or 13 percent, communications which increased by $14 thousand, or 15 percent and other expenses which increased $50 thousand, or 31 percent. 12 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The following table sets forth the various categories of, and changes in, noninterest expense for the three months ended June 30, 2000 and 1999: NONINTEREST EXPENSE (Dollars in Thousands) Three Months Ended June 30, 2000 1999 $ Change % Change Salaries and employee benefits $ 784,986 $ 719,486 $ 65,500 9.1 % Occupancy and equipment expense 241,767 214,177 27,590 12.9 Professional fees 318,942 183,966 134,976 73.4 Data processing 307,410 284,317 23,093 8.1 Depreciation and amortization 115,060 110,031 5,029 4.6 Amortization of deposit premiums 57,602 47,384 10,218 21.6 Communications 104,759 90,936 13,823 15.2 Federal deposit insurance premiums 7,677 4,305 3,372 78.3 Other expenses 213,491 163,392 50,099 30.7 Total noninterest expense $2,151,694 $1,817,994 $333,700 18.4 %
Noninterest expense was $4.2 million in the first six months of 2000, an increase of $599 thousand, or 17 percent, when compared with the first six months of 1999 when total noninterest expense was $3.6 million. The increase in noninterest expense included a $149 thousand, or 43 percent, increase in professional fees principally due to legal fees incurred associated with the trust preferred issuance and higher consulting fees related to information systems technology. An increase in the scope of the Company's operations was accompanied by increases in several noninterest expense categories, including salaries and benefits which increased by $213 thousand, or 15.4 percent, occupancy and equipment which increased by $55 thousand, or 13 percent, and communications which increased by $24 thousand, or 15 percent. The decrease in other expenses by $14 thousand is due primarily to the refund of 1998 and 1999 Delaware franchise taxes.
The following table sets forth the various categories of, and changes in, noninterest expense for the six months ended June 30, 2000 and 1999: NONINTEREST EXPENSE (Dollars in Thousands) Six Months Ended June 30, 2000 1999 $ Change % Change Salaries and employee benefits $1,597,577 $1,384,446 $213,131 15.4 % Occupancy and equipment expense 475,218 420,552 54,666 13.0 Professional fees 497,165 348,198 148,967 42.8 Data processing 692,861 545,486 147,375 27.0 Depreciation and amortization 226,531 227,446 (915) (0.4) Amortization of deposit premiums 115,204 94,768 20,436 21.6 Communications 193,874 169,928 23,946 14.1 Federal deposit insurance premiums 14,692 8,656 6,036 69.7 Other expenses 367,966 382,204 (14,238) (3.7) Total noninterest expense $4,181,088 $3,581,684 $599,404 16.7 %
13 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Investments The Company's investment portfolio of $45.4 million as of June 30, 2000 consisted mostly of U.S. Government Agency obligations supplemented by municipals and corporate bonds. This represented an increase of $22.9 million, or 102 percent, compared with the investment portfolio total of $22.5 million at December 31, 1999. The increase during the first six months of 2000 was reflective of the execution of two leveraging transactions coupled with the investment of the proceeds from the trust preferred issuance. (see Note 2-- "Investment Securities"). Investment securities held-to-maturity are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities available-for-sale are stated at fair value. Loans The Company presently is, and in the future expects to remain, a middle market banking organization serving professionals and businesses with interests in and around the Washington, DC metropolitan area. Most of the Company's loan portfolio is collateralized by first mortgages on commercial and residential real estate and home equity lines of credit on residential real estate. Most of the Company's commercial real estate loans are secured by owner-occupied properties with borrowers that are also banking customers of the Company. As of June 30, 2000 and 1999, approximately $104.8 million, or 68 percent and $87.1 million, or 67 percent, of the Company's total loan portfolio, respectively, consisted of loans secured by real estate. As of June 30, 2000 and 1999, one-to-four family residential mortgage loans and home equity lines of credit represented $34.3 million, or 22 percent, and $34.8 million, or 27 percent, respectively, of the Company's total loan portfolio. The following table sets forth the composition of the Company's loan portfolio by type of loan on the dates indicated: LOAN PORTFOLIO ANALYSIS (Dollars in Thousands) June 30 2000 1999 Aggregate Principal Amount Type of loan: 1-4 family residential mortgage $ 25,629 $ 27,509 Home equity loans 8,684 7,260 Multifamily residential 2,214 2,712 Construction 5,208 5,088 Commercial real estate 63,057 44,499 Commercial loans 38,448 31,955 Installment and credit card loans 9,920 10,848 Other loans 823 378 Gross loans 153,983 130,249 Unearned income and deferred costs 36 52 Total loans, net of unearned $153,947 $130,197 Percentage of Loan Portfolio Type of loan: 1-4 family residential mortgage 16.6% 21.1% Home equity loans 5.6 5.6 Multifamily residential 1.4 2.1 Construction 3.4 3.9 Commercial real estate 41.0 34.2 Commercial loans 25.0 24.5 Installment and credit card loans 6.5 8.3 Other loans 0.5 0.3 Gross loans 100.0% 100.0% 14 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Asset Quality In originating loans, the Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. The Company maintains an allowance for credit losses based upon, among other things, such factors as historical experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Company's portfolios. In addition to unallocated allowances, specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans that are contractually past due and after considering the net realizable value of the collateral for the loan. Management actively monitors the Company's asset quality in a continuing effort to charge off loans against the allowance for credit losses when appropriate and to provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if actual economic conditions and other assumptions differ from those used in making the initial determinations. At June 30, 2000, the allowance for credit losses was $1.7 million, or 1.13 percent of total loans. This represents an increase in the allowance compared to $1.4 million, or 1.08 percent of total loans as of June 30, 1999. The Company has increased the allowance, as a percentage of total loans outstanding principally to reflect the $23.7 million, or 18 percent, growth in loans outstanding in the past twelve months. The allowance for credit losses as a percentage of nonperforming loans was 115 percent at June 30, 2000, compared to 157 percent at June 30, 1999. Total nonperforming loans were $1.4 million at June 30, 2000, compared with $675 thousand at June 30, 1999. At June 30, 2000, most of the non-accrual loan balances ($1.326 million of $1.437 million) consisted of two borrowing relationships. The Company has real property collateral at acceptable margins and has maintained a good working relationship with the borrowers. Where appropriate, the Company has established specific loss allowances which management believes are sufficient to absorb future losses. Provisions for credit losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management, based on the factors identified above. The provision for credit losses during the first six months of 2000 was $380 thousand compared with $325 thousand for the same period last year, an increase of $55 thousand, or 17 percent. The increase in the provision is reflective of the 18 percent loan growth referred to above, coupled with an increase in net charge-offs. Net charge-offs for the six months ended June 20, 2000 were $156 thousand compared with $44 thousand for the same period last year. These trends, taken into consideration with other factors in the Company's internal analysis of the valuation allowance for credit loss, have led to increased reserve requirements and a resulting provision expense to maintain the allowance at a level deemed appropriate by management of the Company (see table on the following page). 15 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS, CONTINUED Nonperforming Loans The following table sets forth certain information with respect to the Company's non-accrual loans, OREO, and accruing loans which are contractually past due 90 days or more as to principal or interest, for the periods indicated: NONPERFORMING ASSETS (Dollars in Thousands) June 30, 2000 1999 Non-accrual loans $1,437 $675 Accruing past due 90 days or more 81 223 Total nonperforming loans 1,518 898 Other real estate owned - - Total nonperforming assets $1,518 $898 Nonperforming assets to total assets 0.67% 0.50% Nonperforming loans to total loans 0.99% 0.69% Allowance for Credit Losses The Company maintains an allowance for credit losses based upon, among other things, such factors as historical experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Company's portfolio. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if such factors and conditions differ from the assumptions used in making the initial determinations. Based upon criteria consistently applied during the periods, the Company's allowance for credit losses was $1.7 million or, 1.13 percent of total loans as of June 30, 2000. 16 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Allowance for Credit Losses, continued The following table sets forth an analysis of the Company's allowance for credit losses for the periods indicated:
ALLOWANCE FOR CREDIT LOSSES (Dollars in Thousands) Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 Average net loans outstanding $147,802 $129,537 $143,968 $124,227 Loans outstanding at period-end 153,947 130,197 153,947 130,197 Total nonperforming loans 1,518 898 1,518 898 Beginning balance of allowance $1,552 $1,310 $1,519 $1,128 Loans charged-off: Commercial loans 11 14 161 20 Installment and credit card loans 1 36 22 37 Total loans charged off 12 50 183 57 Recoveries of previous charge-offs: 1-4 family residential mortgage 1 2 2 3 Commercial loans - - 20 - Installment and credit card loans 2 2 5 10 Total recoveries 3 4 27 13 Net loans charged-off 9 46 156 44 Provision for credit losses 200 145 380 325 Balance at end of period $1,743 $1,409 $1,743 $1,409 Net charge-offs to average loans (annualized) 0.02% 0.14% 0.22% 0.14% Allowance as % of total loans 1.13% 1.08% 1.13% 1.08% Nonperforming loans as % of total loans 0.99% 0.69% 0.99% 0.69% Allowance as % of nonperforming loans 115% 157% 115% 157%
17 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Deposits The Company's total deposits at June 30, 2000, were $167.8 million, an increase of $22.0 million, or 15 percent, over the balance at June 30, 1999, and an increase of $13.9 million, or 9.0 percent compared with 1999's year-end balance. Total average deposits were $159.2 million for the six months ended June 30, 2000, an increase of $26.1 million, or 20 percent, compared with the first six months of 1999. The Company views deposit growth as a significant challenge in its effort to increase its asset size. Thus, the Company is focusing on its branching program with increased emphasis on commercial accounts, and the offering of more competitive interest rates and products to stimulate deposit growth. This strategy has and will continue to result in a relatively higher cost of funds in addition to lower fee income as many of these commercial customers may utilize accounts with lower transaction costs and have a lower number of transactions than retail customers. The following table sets forth the average balances and weighted average rates for the Company's categories of deposits for the periods indicated:
AVERAGE DEPOSITS (Dollars In Thousands) Six Months Ended June 30, 2000 1999 Weighted Weighted Average Average % of Average Average % of Balance Rate Total Balance Rate Total Noninterest-Bearing Deposits $36,111 0.00% 22.7% $28,436 0.00% 21.4% Interest-Bearing Deposits: NOW accounts 22,271 0.91 14.0 19,287 1.20 14.5 Savings accounts 19,195 4.08 12.0 20,433 4.21 15.3 Money market accounts 26,261 3.44 16.5 21,136 3.13 15.9 Time deposits 55,385 5.17 34.8 43,800 5.18 32.9 Total $159,223 100.0% $133,092 100.0% Weighted Average Rate 3.01% 3.02%
Preferred Securities of Subsidiary Trust During the first quarter of 2000, the Company formed a new, wholly owned statutory business trust, Century Capital Trust I (the "Trust"), which issued $8.8 million of 10.875% capital securities to a third party. The Trust invested the proceeds in an equivalent amount of junior subordinated debt securities of the Company bearing an interest rate equal to the rate on the capital securities. These debt securities, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the indenture) and certain other financial obligations of the Company. The Company has fully and unconditionally guaranteed the Trust's obligations under the capital securities. For financial reporting purposes, the Trust is treated as a subsidiary of the Company and consolidated in the corporate financial statements. The capital securities are presented as a separate category of long term debt on the Condensed Consolidated Statement of Financial Condition entitled " Preferred Securities of Subsidiary Trust." The capital securities are not included as a component of stockholders' equity in the Condensed Consolidated Statement of Financial Condition. The capital securities are, however, treated as Tier I capital by the Federal Reserve Board. The treatment of the capital securities as Tier I capital, in addition to the ability to deduct the expense of the junior subordinated debt securities for federal income tax purposes, provided the Company with a cost-effective method of raising capital. The Company received net proceeds of $8,536,000, which will be used for the general corporate purposes of the Company and the Bank, including supporting continued expansion activities in the Washington, DC metropolitan area through the establishment and/or acquisition of additional branch offices and possible corporate acquisitions. 18 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Preferred Securities of Subsidiary Trust, continued The capital securities pay cash distributions semiannually at a rate of 10.875% of the liquidation preference. Distributions to the holders of the capital securities are included in interest expense, within the category entitled "Interest on borrowings." Under the provisions of the subordinated debt, the Corporation has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the distributions on the capital securities are also deferred. Interest on the subordinated debt is cumulative. Subject to the prior approval of the Federal Reserve Board, the securities, the assets of the Trust and the common securities issued by the Trust are redeemable at the option of the Company in whole or in part on or after March 8, 2010, or at any time, in whole but not in part, from the date of issuance, on the occurrence of certain events. Capital Resources Total stockholders' equity at June 30, 2000, was $16.5 million, an increase of $855 thousand compared with total stockholders' equity of $15.7 million at December 31, 1999. Stockholders' equity was increased during the first six months of 2000 by net income of $822 thousand and by $72 thousand received from the exercise of stock options, and was reduced by $9 thousand attributable to the decline in the market value of investment securities available for sale net of the tax effect. The Office of the Comptroller of the Currency has established certain minimum risk-based capital standards that apply to national banks, and the Company is subject to certain capital requirements imposed on bank holding companies by the Federal Reserve Board. At June 30, 2000, Century National Bank exceeded all applicable regulatory capital requirements for classification as a "well capitalized" bank, and the Company satisfied all applicable regulatory requirements imposed on it by the Federal Reserve Board. At June 30, 2000, the Company's risk based capital ratios for Tier I Capital to risk weighted assets, Total Capital to risk weighted assets, and Tier 1 Capital to average assets were 12.21 percent, 15.17 percent and 9.41 percent, respectively. 19 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Year 2000 Compliance Transition and Ongoing Plans. The Company suffered no failures in any system or product upon the date change from December 31, 1999 to January 1, 2000. Although many of the critical dates have passed, some experts predict that Year 2000 related failures could occur throughout the year. Accordingly, the Company's project team will continue to monitor the Company's systems and attempt to identify any potential problems during the course of the year. In addition, the Company will continue to monitor the Year 2000 compliance of the third parties with which the Company transacts business. The Company continues to maintain its contingency plans with respect to Year 2000 related issues and believes that if its own systems should fail, it could temporarily convert to a manual systems for mission critical business functions. 20 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Liquidity The Company's Asset/Liability Management Policy is intended to maintain adequate liquidity for the Company and thereby enhance its ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements and otherwise sustain operations. The Company accomplishes this primarily through management of the maturities of its interest-earning assets and interest-bearing liabilities. The Company believes that its present liquidity position is adequate to meet its current and future needs. Asset liquidity is provided by cash and assets which are readily marketable, or which can be pledged, or which will mature in the near future. The asset liquidity of the Bank is maintained in the form of vault cash, demand deposits with commercial banks, federal funds sold, interest-bearing deposits with other financial institutions, short-term investment securities, other investment securities available-for-sale, and short-term loans. The Company has defined "cash and cash equivalents" as those amounts included in cash and due from banks and federal funds sold. At June 30, 2000, the Company had cash and cash equivalents of $18.3 million, a slight decrease of $1.9 million, when compared with the $20.2 million at December 31, 1999. Liability liquidity is provided by access to core funding sources, principally customers' deposit accounts in the Company's market area. As a member of the Federal Home Loan Bank of Atlanta ("FHLBA"), the Company is able to borrow on a short-term or long-term basis secured by a blanket pledge of its 1-to-4-family residential mortgage loans, investment securities, and other collateral. The Company also has lines of credit from larger correspondent banks to borrow excess reserves on an overnight basis (known as "federal funds purchased") in the amount of $5.7 million, and to borrow on a secured basis ("repurchase agreements") in the amount of $5.0 million. At June 30, 2000, the Company had no outstanding federal funds purchased, and $11.2 million in customer repurchase agreements. Also at June 30, 2000, the Company was utilizing $20.8 million of available FHLBA credit in the form of fixed-rate ($17.8 million) and variable-rate ($3.0 million) advances with an average cost of 6.25 percent. The Company utilizes fixed rate term credit advances from the FHLBA to fund fixed-rate real estate loans and investments of comparable terms and maturities. The Company had cash on hand of $6.9 million at the holding company level at June 30, 2000. The Company anticipates using these funds as working capital available to support the future growth of the franchise as well as to pay normal operating expenses. Working capital is further augmented by dividends available from the Bank, subject to certain regulatory restrictions generally applicable to national banks. In March 2000, a subsidiary trust of the Company issued $8.8 million of preferred securities (Trust Preferred Stock), which are classified as long-term debt in the consolidated financial statements. Such Trust Preferred Stock is treated as regulatory capital. At June 30, 2000, the Company had no other indebtedness outstanding at the holding company level. 21 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's principal market risk exposure is to interest rates. Net interest income, which constitutes the principal source of income for the Company, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The difference between the Company's interest-rate sensitive assets and interest-rate sensitive liabilities for a specified time frame is referred to as an interest sensitive "gap." Interest rate sensitivity reflects the potential effect on net interest income of a movement in interest rates. A financial institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets maturing or repricing exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a financial institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing exceeds the amount of its interest-earning assets within the same time period. During a period of rising (falling) interest rates, a positive gap would tend to increase (decrease) net interest income, while a negative gap would tend to decrease (increase) net interest income. Management seeks to maintain a balanced interest rate risk position to protect its net interest margin from market fluctuations. Toward this end, the Company has a Finance Committee which reviews, on a regular basis, the maturity and repricing of the assets and liabilities of the Company. The Finance Committee has adopted the objective of achieving and maintaining a one-year cumulative GAP, as a percent of total assets, of between plus 10 percent and minus 10 percent. In addition, potential changes in net interest income under various interest rate scenarios are monitored. On a consolidated basis, the Company's one-year cumulative gap was a negative 2.5 percent of total assets at June 30, 2000. Market risk is the risk of loss from adverse changes in market prices and rates, arising primarily from interest rate risk in the Company's portfolios, which can significantly impact the Company's profitability. The Finance Committee has adopted the objective that an immediate increase or decrease of 200 basis points in market interest rates should not result in a change of more than 10 percent (plus or minus) in the Company's projected net interest income over the next twelve months, and not more than 20 percent (plus or minus) in projected net income. At June 30, 2000, the forecasted impact of an immediate increase (or decrease) of 200 basis points would have resulted in an increase (or decrease) in net interest income over a twelve month period of 2.35 percent and (3.82 percent), respectively, and an increase (or decrease) in net income over a twelve month period of 7.39 percent and (12.02 percent), respectively. Due to the impact of certain assets and liabilities acquired since late March, including some with embedded options, and revisions to the model associated with the timing of repricing for deposits with no stated maturity, some shift in the magnitude and direction of forecasted net interest income changes has been noted in comparison to the forecasted results as of March 31, 2000 however, all forecasted simulations are well within policy guidelines. Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, the analysis included herein is not intended to be a forecast of the actual effect of a change in market interest rates on the Company. The analysis is based on the Company's assets and liabilities as of June 30, 2000, and does not contemplate any actions the company might undertake in response to changes in market interest rates, which could change the anticipated results. 22 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q PART II - OTHER INFORMATION Items 1 through 3 No events have occurred during the reporting period which require disclosure under any of these items. Item 4. Submission of Matters to a Vote of Security Holders (a) On June 2, 2000 the Company held its annual meeting of stockholders to (i) elect a Board of seven directors to serve until the 2001 annual meeting of stockholders, (ii) approve an amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock from five million to ten million shares, (iii) approve the Company's 2000 Stock Awards Plan, (iv) transact such other business as may properly come before the meeting. (b),(c) With respect to the election of directors, the voting was as follows: Nominee For Against ------------------------------------------------------------- Joseph S. Bracewell 1,583,101 317,825 George Contis 1,582,113 318,813 John R. Cope 1,581,745 319,181 Bernard J. Cravath 1,582,113 318,813 Neal R. Gross 1,582,771 318,155 William S. McKee 1,583,101 317,825 William C. Oldaker 1,581,194 319,732 With respect to the amendment to the Company's Certificate of Incorporation, the vote was: For Against Abstain ------------------------------------------------------------- 1,857,430 37,415 6,081 With respect to the 2000 Stock Awards Plans the vote was: For Against Abstain ------------------------------------------------------------- 1,021,661 361,392 31,288 (d) Not applicable Item 5 No events have occurred during the reporting period which require disclosure under this item. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed with this report: Exhibit 10.19 Amendment No. 2 dated April 3, 2000, of the employment agreement dated September 1, 1996, between the Company and the Bank and Mr. Joseph S. Bracewell. Exhibit 11 Computation of Earnings Per Share for the three and six month periods ended June 30, 2000. Exhibit 27 Financial Data Schedule, June 30, 2000. (b) Reports on Form 8-K. A current report on Form 8-K was filed on May 30, 2000, regarding the agreement to acquire the Reston (VA) Branch of Resource Bankshares Corporation. 23 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q For Quarter Ended June 30, 2000 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURY BANCSHARES, INC. Date: August 14, 2000 By: /s/ JOSEPH S. BRACEWELL ----------------------- Joseph S. Bracewell Chairman of the Board, President and Chief Executive Officer Date: August 14, 2000 By: /s/ DALE G. PHELPS ------------------------ Dale G. Phelps Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 24 CENTURY BANCSHARES, INC. EXHIBIT INDEX June 30, 2000 The following exhibits are filed within this report. Exhibit Number Description 10.19 Amendment No. 2 dated April 3, 2000, of the employment agreement dated September 1, 1996, between the Company and the Bank and Mr. Joseph S. Bracewell. 11 Computation of Earnings Per Share for the three and six month periods ended June 30, 2000 27 Financial Data Schedule, June 30, 2000 25 Exhibit 10.19 AMENDMENT NO. 2 TO EXECUTIVE EMPLOYMENT AGREEMENT This Amendment No. 2 ("Amendment No. 2") made this 3rd day of April 2000 by and between CENTURY BANCSHARES, INC., a Delaware corporation ("Employer"), and JOSEPH S. BRACEWELL, a District of Columbia resident ("Employee") (collectively, the "Parties"). RECITALS WHEREAS, Employer and Employee have entered into an Executive Employment Agreement, dated as of September 1, 1996 (the "EEA"); WHEREAS, Employer and Employee, in March of 1998 entered into Amendment No.1 to Executive Employment Agreement, a written agreement amending the EEA under the procedures of Paragraph 11 of the EEA by increasing Employee's compensation and extending the term of the EEA through to August 31, 1999; WHEREAS, in February and March of 1999, Employer and Employee extended the term of the EEA through to August 31, 2000 under the procedures of Paragraph 2 of the EEA; WHEREAS, the Parties now wish to modify the EEA under the procedures of Paragraph 11 of the EEA by increasing the Employee's compensation, granting the Employee a cash bonus for 1999 performance, and extending the term of the EEA; NOW, THEREFORE, in consideration of the foregoing premises and the covenants and agreements recited in this Amendment No. 2 and for other good and valuable consideration, the receipt and sufficiency of which each party acknowledges, the Parties agree as follows: 1. Amendments to EEA. 26 1.1 Renewal of EEA. Employer and Employee waive the notice provisions in Paragraph 2 of the EEA regarding renewal of the EEA and agree to extend the EEA for an additional one (1) year term commencing September 1, 2000, and ending August 31, 2001. The notice provisions in Paragraph 2 of the EEA shall apply to any subsequent renewal of the EEA, unless the Parties agree, under the procedures of Paragraph 11 of the EEA, to waive those provisions. 1.2 Salary Increase Effective April 1, 2000. In consideration for Employee's agreement to extend the EEA for an additional one (1) year term, Employee's current yearly salary shall increase from Two Hundred and Five Thousand Dollars and No Cents (U.S. $205,000.00) to Two Hundred and Twenty-Five Thousand Dollars and No Cents (U.S. $225,000.00), effective April 1, 2000. 1.3 Bonus for 1999 Performance. In recognition of Employee's performance in 1999, and under Paragraph 3.3 of the EEA, Employer shall pay Employee a cash bonus of Twenty-Five Thousand Dollars ($25,000.00). 2. Covenants, Representations and Warranties of the Parties. 2.1 As of the date of this Amendment No. 2, Employer and Employee reaffirm all covenants, representations, and warranties made by them in the EEA (except for any such representations and warranties which are stated to be made as of a specific date), and all such covenants, representations, and warranties shall be deemed to have been re-made as of the date of this Amendment No. 2. 2.2 Employer represents and warrants that this Amendment No. 2 constitutes a legal, valid, and binding obligation of Employer, enforceable against it under its terms. 3. Reference to and Effect on EEA. 27 3.1 Upon the execution of this Amendment No. 2, each reference in the EEA to "this Agreement", "hereunder", "herein", or words of like import shall mean and be a reference to the EEA, as amended by this Amendment No. 2, and each reference to the EEA in any other document, instrument, or agreement executed and/or delivered under the EEA shall mean and be a reference to the EEA, as amended by this Amendment No. 2. 3.2 Except as specifically waived or amended above, the EEA shall remain in full force and effect and is ratified and confirmed. 3.3 The execution and delivery of this Amendment No. 2 shall not operate as a waiver of any right, power, or remedy of Employer or Employee under the EEA, nor constitute a waiver of any provision contained in the EEA, except as provided in this Amendment No. 2, or absolve Employer or Employee from the timely performance of their respective obligations under the EEA. 4. Execution in Counterparts. This Amendment No. 2 may be executed in any number of counterparts and by the different parties to this Amendment No. 2 in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 5. Choice of Law. All disputes concerning the validity, interpretation, or performance of this Amendment No. 2 and any of its terms or conditions, or of any rights or obligations of the Parties, shall be governed by the internal laws of the District of Columbia, except its conflict of laws. 6. Headings. Headings in this Amendment No. 2 are included for informational purposes only and shall not constitute a part of this Amendment No. 2 for any other purpose. 28 IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first above written. CENTURY BANCSHARES, INC. /s/ F. Kathryn Roberts /s/ John R. Cope - ------------------------ ------------------------ Attest: By: John R. Cope Title: Vice Chairman /s/ F. Kathryn Roberts /s/ Joseph S. Bracewell - ------------------------ ----------------------- Witness: JOSEPH S. BRACEWELL 29 Exhibit 11 CENTURY BANCSHARES, Inc. Computation of Earnings Per Common Share June 30, 2000 CENTURY BANCSHARES, INC. Computation of Earnings Per Common Share Three and Six Months Ended June 30, 2000
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Basic Income Per Common Share: Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442 Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408 Basic income per common share $0.15 $0.10 $0.30 $0.18 Diluted Income Per Common Share: Net income $ 414,778 $ 293,095 $ 822,322 $ 504,442 Weighted average common shares outstanding 2,727,323 2,850,542 2,754,782 2,847,408 Dilutive effect of stock options 16,216 28,763 16,216 27,934 Diluted weighted average common shares outstanding 2,743,539 2,879,305 2,770,998 2,875,342 Diluted income per common share $0.15 $0.10 $0.30 $0.18
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Exhibit 27 CENTURY BANCSHARES, Inc. Financial Data Schedule June 30, 2000 [ARTICLE] 9 [CIK] 785813 [NAME] CENTURY BANCSHARES, INC. [MULTIPLIER] 1000 [PERIOD-TYPE] 6-MOS [FISCAL-YEAR-END] DEC-31-2000 [PERIOD-END] JUN-30-2000 [CASH] 8,104 [INT-BEARING-DEPOSITS] 5,251 [FED-FUNDS-SOLD] 10,206 [TRADING-ASSETS] 0 [INVESTMENTS-HELD-FOR-SALE] 24,920 [INVESTMENTS-CARRYING] 20,461 [INVESTMENTS-MARKET] 20,464 [LOANS] 153,947 [ALLOWANCE] 1,743 [TOTAL-ASSETS] 227,720 [DEPOSITS] 167,754 [SHORT-TERM] 11,865 [LIABILITIES-OTHER] 1,933 [LONG-TERM] 29,645 [COMMON] 2,875 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [OTHER-SE] 13,648 [TOTAL-LIABILITIES-AND-EQUITY] 227,720 [INTEREST-LOAN] 6,616 [INTEREST-INVEST] 858 [INTEREST-OTHER] 676 [INTEREST-TOTAL] 8,150 [INTEREST-DEPOSIT] 2,363 [INTEREST-EXPENSE] 932 [INTEREST-INCOME-NET] 4,856 [LOAN-LOSSES] 380 [SECURITIES-GAINS] 0 [EXPENSE-OTHER] 4,181 [INCOME-PRETAX] 1,342 [INCOME-PRE-EXTRAORDINARY] 1,342 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 822 [EPS-BASIC] 0.30 [EPS-DILUTED] 0.30 [YIELD-ACTUAL] 5.04 [LOANS-NON] 1,437 [LOANS-PAST] 81 [LOANS-TROUBLED] 0 [LOANS-PROBLEM] 0 [ALLOWANCE-OPEN] 1,518 [CHARGE-OFFS] 183 [RECOVERIES] 27 [ALLOWANCE-CLOSE] 1,743 [ALLOWANCE-DOMESTIC] 1,743 [ALLOWANCE-FOREIGN] 0 [ALLOWANCE-UNALLOCATED] 1,156
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