-----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, KqzpCJ9v2PGj9BfhoaEr1tTsekpExV3ggTovE31D+xVrgSgqmHNimHh7KNOjzU6a YKbgPvUyKCNQkQVW0Om6bA== 0000950133-98-003121.txt : 19980818 0000950133-98-003121.hdr.sgml : 19980818 ACCESSION NUMBER: 0000950133-98-003121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980817 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY BANCSHARES INC CENTRAL INDEX KEY: 0000785813 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [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: 98693112 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 FORM 10-Q 1 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, 1998 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 13, 1998, there were 2,378,215 shares of the registrant's Common Stock, par value $1.00 per share outstanding. 2 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23
(a) The following exhibits are filed with this report:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule
(b) No Reports on Form 8-K were filed by the Company during the three months ended June 30, 1998. -i- 3 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL INFORMATION CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1998 AND DECEMBER 31, 1997
June 30, December 31, 1998 1997 (Unaudited) ================= ================= ASSETS Cash and due from banks $ 8,764,937 $ 7,069,139 Federal funds sold - 5,000,000 Interest bearing deposits in other banks 11,480,879 22,223,037 Investment securities available-for-sale, at fair value 9,482,012 15,776,517 Investment securities, at cost, fair value of $2,813,819 and $3,634,867 at June 30, 1998 and December 31, 1997, respectively 2,787,452 3,632,076 Loans, net of unearned income 101,231,394 94,171,450 Less: allowance for loan losses (1,007,993) (887,046) ----------------- ----------------- Loans, net 100,223,401 93,284,404 Leasehold improvements, furniture, and equipment, net 1,560,525 1,708,987 Accrued interest receivable 734,372 922,327 Other real estate owned - 52,000 Deposit premium 1,641,000 1,735,768 Net deferred taxes 694,016 693,360 Other assets 593,482 542,012 ----------------- ----------------- TOTAL ASSETS $ 137,962,076 $ 152,639,627 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing $ 25,049,913 $ 26,225,119 Interest-bearing 90,084,309 103,379,913 ----------------- ----------------- Total deposits 115,134,222 129,605,032 Other borrowings 7,527,289 8,198,843 Other liabilities 1,325,102 1,300,226 ----------------- ----------------- TOTAL LIABILITIES 123,986,613 139,104,101 STOCKHOLDERS' EQUITY: Common stock, $1 par value; 5,000,000 shares authorized; 2,368,810, and 2,209,229 shares issued and outstanding at June 30, 1998, and 2,368,810 2,209,229 December 31, 1997, respectively Additional paid in capital 11,560,010 10,695,480 Retained earnings 58,785 651,646 Accumulated Other Comprehensive Income: Unrealized (loss) on investment securities available-for-sale, net of tax effect (12,142) (20,829) ----------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 13,975,463 13,535,526 ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,962,076 $ 152,639,627 ================= =================
See accompanying notes to consolidated financial statements. -1- 4 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 ============= ============= ============= ============= INTEREST INCOME: Interest and fees on loans $ 2,285,711 $ 1,775,673 $ 4,619,303 $ 3,456,912 Interest on federal funds sold 51,145 14,746 124,905 83,488 Interest on deposits in other banks 150,468 211,981 408,750 315,225 Interest on securities available-for-sale 218,968 147,181 434,398 271,116 Interest on securities held-to-maturity 62,602 1,892 145,154 3,812 ------------- ------------- ------------- ------------- Total interest income 2,768,894 2,151,473 5,732,510 4,130,553 INTEREST EXPENSE: Interest on deposits: Savings accounts 203,039 13,951 395,747 28,396 NOW accounts 72,620 67,589 164,844 134,589 Money market accounts 185,488 199,726 418,708 384,646 Certificates under $100,000 303,087 300,779 663,484 478,202 Certificates $100,000 and over 228,148 165,095 450,828 353,136 ------------- ------------- ------------- ------------- Total interest on deposits 992,382 747,140 2,093,611 1,378,969 Interest on other borrowings 124,883 130,976 251,172 261,958 ------------- ------------- ------------- ------------- Total interest expense 1,117,265 878,116 2,344,783 1,640,927 ------------- ------------- ------------- ------------- NET INTEREST INCOME 1,651,629 1,273,357 3,387,727 2,489,626 Provision for loan losses 190,000 51,400 383,000 72,400 ------------- ------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,461,629 1,221,957 3,004,727 2,417,226 NONINTEREST INCOME: Service charges on deposit accounts 110,158 122,318 208,595 240,819 Other operating income 146,649 119,157 298,855 273,066 Gain on sale of available-for-sale securities 14,570 - 14,570 - Gain on liquidation of other real estate owned 15,853 - 15,853 - ------------- ------------- ------------- ------------- Total noninterest income 287,230 241,475 537,873 513,885 NONINTEREST EXPENSE: Salaries and employee benefits 482,651 528,119 1,086,230 1,016,229 Occupancy and equipment expense 205,247 156,012 411,170 294,958 Professional fees 209,740 143,958 400,429 248,874 Data processing 169,141 117,954 336,774 253,119 Depreciation and amortization 165,326 129,551 331,077 254,500 Communications 70,989 52,944 134,506 99,151 Other operating expenses 183,150 142,655 356,242 295,776 ------------- ------------- ------------- ------------- Total noninterest expense 1,486,244 1,271,193 3,056,428 2,462,607 ------------- ------------- ------------- ------------- Income before income tax expense 262,615 192,239 486,172 468,504 Income tax expense 93,078 74,023 184,745 180,384 ------------- ------------- ------------- ------------- NET INCOME $ 169,537 $ 118,216 $ 301,427 $ 288,120 ============= ============= ============= ============= Basic income per common share $ 0.07 $ 0.09 $ 0.13 $ 0.23 Diluted income per common share $ 0.07 0.08 0.12 0.20 Weighted-average common shares outstanding 2,356,151 1,275,562 2,340,524 1,272,902
See accompanying notes to consolidated financial statements. -2- 5 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Accumulated Other Comprehensive Income ------------------------ Unrealized gain (loss) on investment Common Additional securities Total stock paid in Retained available-for-sale, Stockholders' $1.00 par capital earnings net of tax effect Equity ============================================================================================= Balance, December 31, 1996 $ 1,146,028 $ 4,870,856 $ 779,057 $ (45,900) $ 6,750,041 Comprehensive Income: Net income 288,120 288,120 Unrealized loss on invest. securities available-for-sale, net of tax effect 1,565 1,565 --------------------------------------------------------------------------------------------- Total Comprehensive Income - - 288,120 1,565 289,685 Stock Dividend 57,793 shares 57,793 405,776 (463,569) - Exercise of common stock options- 13,608 shares 13,608 24,170 37,778 --------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1997 $ 1,217,429 $ 5,300,802 $ 603,608 $ (44,335.00) $ 7,077,504 ============================================================================================= Balance, December 31, 1997 $ 2,209,229 $ 10,695,480 $ 651,646 $ (20,829) $ 13,535,526 Comprehensive Income Net income 301,427 301,427 Unrealized gain on invest. securities available-for-sale, net of tax effect 8,687 8,687 --------------------------------------------------------------------------------------------- Total Comprehensive Income - - 301,427 8,687 310,114 Stock Dividend 112,665 shares 112,665 779,765 (894,288) (1,858) Exercise of common stock options- 43,099 shares 43,099 91,896 134,995 Exercise of warrants- 3,817 shares 3,817 15,727 19,544 Other (22,858) (22,858) BALANCE, JUNE 30, 1998 $ 2,368,810 $ 11,560,010 $ 58,785 $ (12,142) $ 13,975,463 =============================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -3- 6 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Six Months Six Months Ended Ended June 30, 1998 June 30, 1997 ============= ============= CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 301,427 $ 288,120 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 331,077 236,190 Provision for loan losses 383,000 72,400 Gain on sale of available-for-sale securities (14,570) - Gain on liquidation of other real estate owned (15,853) - (Increase) decrease in accrued interest receivable 187,955 (103,296) (Increase) decrease in other assets (70,219) 37,900 Increase (decrease) in other liabilities 24,876 109,449 ------------- ------------- Total adjustments 826,266 352,643 ------------- ------------- Net cash provided by operating activities 1,127,693 640,763 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in loans (7,321,997) (3,858,621) Net decrease (increase) in interest bearing deposits in other banks 10,742,158 (4,390,351) Purchases of securities available-for-sale (1,998,440) (2,059,125) Purchases of securities held-to-maturity - (9,021,377) Proceeds from sale of securities available-for-sale 6,527,985 Repayments and maturities of securities available-for-sale 1,806,310 628,371 Repayments and maturities of securities held-to-maturity 844,624 - Proceeds from sale of OREO Properties 67,853 Net purchase of leasehold improv., furn. and equipment (87,847) (214,954) ------------- ------------- Net cash provided by (used in) investing activities 10,580,646 (18,916,057) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in demand, savings, NOW and money market deposit accounts (8,120,483) (7,571,745) Net (decrease) increase in certificates of deposit (6,350,327) 11,293,984 Net decrease in other borrowings (216,617) 6,583 Repayment of long-term debt (454,937) (450,000) Net proceeds from issuance of common stock 131,681 37,778 Other (1,858) ------------- ------------- Net cash (used in) provided by financing activities (15,012,541) 3,316,600 ------------- ------------- Net increase (decrease) in cash and cash equivalents (3,304,202) (14,958,694) Cash and cash equivalents, beginning of year 12,069,139 19,799,911 ------------- ------------- Cash and cash equivalents, end of period $ 8,764,937 $ 4,841,217 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid on deposits and borrowings $ 2,379,016 $ 1,573,122 Income taxes paid 27,000 39,000
See accompanying notes to consolidated financial statements. -4- 7 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 AND 1997 (1) BASIS OF PRESENTATION The unaudited consolidated financial statements as of and for the six months ended June 30, 1998 and 1997 have not been audited but in the opinion of management, 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 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 1998 or any future periods. Certain prior period balances have been restated to conform with the current period. (2) INVESTMENT SECURITIES Investment securities available-for-sale, and their contractual maturities, at June 30, 1998 are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------------------- Obligations of U.S. treasury and government agencies: Within one year $ 2,998,317 $ 1,878 $ 1,369 $ 2,998,826 After one, but within five years 1,998,711 665 - 1,999,376 After five, but within ten years - - - - After ten years 2,366,070 1,970 8,158 2,359,882 ----------------------------------------------------------- Total 7,363,098 4,513 9,527 7,358,084 Collateralized mortgage obligations: After ten years 1,079,444 - 13,666 1,065,778 Federal Reserve Bank stock 236,350 - - 236,350 Federal Home Loan Bank stock 821,800 - - 821,800 ----------------------------------------------------------- Total investment securities available-for-sale $ 9,500,692 $ 4,513 $ 23,193 $ 9,482,012 ===========================================================
Investment securities held-to-maturity at June 30, 1998, are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------------------- Obligations of U.S. treasury, municipals, and government agencies: Within one year $ 64,991 $ 109 $ - $ 65,100 After one, but within five years 499,747 1,057 - 500,804 After ten years 222,829 - 3,412 219,417 ----------------------------------------------------------- Total 787,567 1,166 3,412 785,321 Other securities: After one, but within five years 1,000,000 26,935 - 1,026,935 After five, but within ten years 999,885 1,678 - 1,001,563 ----------------------------------------------------------- Total investment securities held-to-maturity $ 2,787,452 $ 29,779 $ 3,412 $ 2,813,819 ===========================================================
During the quarter the company sold available-for-sale securities with a book value of $6.5 million, for a pre-tax gain of approximately $15 thousand. The proceeds were used for general liquidity purposes and to fund loan growth and decline in non-interest bearing deposits. -5- 8 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 AND 1997 (3) INCOME PER COMMON 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 sum of weighted-average common shares and common stock equivalents. 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 29, 1998, the Company declared a 5 percent stock dividend to common stock shareholders of record as of May 1, 1998, resulting in the issuance of 112,807 shares. Weighted-average shares outstanding and income per common share have been restated for the effect of the stock dividends.
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- BASIC INCOME PER SHARE: Net income applicable to common stock $169,537 $118,216 $301,427 $288,120 Weighted-average common shares outstanding 2,356,151 1,275,562 2,340,524 1,272,902 Basic income per share $0.07 $0.09 $0.13 $0.23 DILUTED INCOME PER SHARE: Net income applicable to common stock $169,537 $118,216 $301,427 $288,120 Weighted-average common shares outstanding 2,356,151 1,275,562 2,340,524 1,272,902 Dilutive effect of warrants and stock options 170,495 159,502 172,214 135,311 ----------- ----------- ----------- ----------- Diluted weighted-average common shares outstanding 2,526,646 1,435,064 2,512,738 1,408,213 Diluted income per share $0.07 $0.08 $0.12 $0.20
(4) STOCK OPTION PLANS Stock option transactions for the six months ended June 30, 1998 and 1997 are summarized as follows:
1998 1997 ------------------------------------------------ Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price - -------------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 185,385 $ 4.46 162,821 $ 3.81 Granted 48,950 9.64 45,898 6.55 Exercised (43,099) 3.17 (13,617) 2.57 Forfeited (7,043) 9.56 (2,810) 5.44 ------------------------------------------------ Outstanding at end of period 184,193 $ 6.55 192,292 $ 3.90 ================================================
-6- 9 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 AND 1997 (5) NEW FINANCIAL ACCOUNTING STANDARDS In June 1997, SFAS No. 130 "Reporting Comprehensive Income," and No. 131 "Disclosures about Segments of an Enterprise and Related Information" were issued. SFAS No. 130 requires that certain financial activity normally disclosed in stockholders' equity be reported in the statement of operations as an adjustment to net income in computing comprehensive income. Items applicable to the Company would be gain/loss on investment securities and preferred stock dividends. Accumulated comprehensive income components should be reported under a separate caption in the statements of condition and stockholders' equity. SFAS No. 130 is effective January 1, 1998, including restatement of prior periods in conformity with this new presentation. The Company implemented SFAS No. 130 in January 1998, which did not have any financial impact on the Company or its operations for the six months ended June 30, 1998. The Company chose to disclose comprehensive income under an alternative presentation, thus comprehensive income is disclosed, net of taxes, in the Statements of Condition and as a separate component in the Statements of Changes in Stockholders' Equity. SFAS No. 131 requires the reporting of selected segment information in quarterly and annual financial reporting. Information from operating segments is derived from methods used by the Company's management to measure performance and allocate resources. The Company is required to disclose the basis for identifying segments and the services and products offered in each segment. Additionally, the Company should disclose the earnings, revenues and assets of each segment. SFAS No. 131 is effective January 1, 1998, including the restatement of prior periods reported consistent with SFAS No. 131, if practical. The Company does not have any reportable segments as defined in SFAS No. 131, and thus has not made any additional segment disclosures in this report. In February 1998, SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits-- an amendment of FASB Statements No. 87, 88, and 106" was issued. SFAS No. 132 revises employers' disclosures about pensions and other postretirement benefit plans. Overall, this statement does not change measurement or recognition for such plans, however, it does standardize the disclosure requirements for benefit plans to the extent practicable as well as requiring additional disclosures regarding benefit changes and the fair value of plan assets. This statement is effective for fiscal years beginning after December 15, 1997, with earlier adoption encouraged. The Company is reviewing the impact of this new pronouncement and will report additional information on its adoption in subsequent reports. On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending on weather the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. SFAS 133 becomes effective for the company on January 1, 2000. Management anticipates that the adoption of SFAS 133 will not have a significant impact on the financial position or results of operations of the company. -7- 10 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 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 medium sized businesses and consumers, through its main office located at 1875 Eye Street, N.W., Washington, D.C., a branch office located at 1275 Pennsylvania Avenue, N.W., two branch offices in Northern Virginia at 8251 Greensboro Drive and 6832 Old Dominion Drive, McLean, Virginia, and a branch office at 4625 Wisconsin Avenue, Bethesda, Maryland. The Company's principal executive offices are located at 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004. 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 "expect," "estimate," "anticipate," "predict," and similar expressions 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. The important factors that could cause actual results to differ materially from the forward looking statements include, without limitation, the factors are discussed in the Company's Form 10-K for the year ended December 31, 1997 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, D.C. metropolitan area; changes in interest rates; changes in asset quality; the effect on the Company of the extensive scheme of regulation by several federal agencies; the departure of certain key executives; the year 2000 problem; and competition from other providers of financial services. Should one or more of these risks or uncertainties materalize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. NET INCOME For the six months ended June 30, 1998, the Company's net income was $301 thousand, or $0.12 per diluted share, compared with $288 thousand for the first six months of 1997, or $0.20 per diluted share. The 4.5% increase in net income was primarily attributable to a 36.1% increase in net interest income resulting from a significant increase in the Company's earning assets. This increase in the net interest income was partially offset by a 24.1% increase in noninterest expense and a 429% increase in the provision for loan losses. The increase in the provision for loan losses resulted from a higher volume of loans outstanding, a rising trend in Company's historical loan charge-off experience, and an increasing volume of nonperforming loans. For similar reasons, net income for the three months ended June 30, 1998 increased to $169 thousand from $118 thousand, an increase of 43%. Return on average assets was 0.48% for the second quarter of 1998, compared with 0.44% for the same period in 1997. Return on average common equity was 4.89% for the quarter ended June 30, 1998, compared with 6.72% for the same period in 1997. Total stockholder's equity was 10.13% of total assets at June 30, 1998, as compared to 6.38% at June 30, 1997. -8- 11 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED NET INTEREST INCOME Net interest income before provision for loan losses was $1.7 million for the quarter ended June 30, 1998, compared with net interest income of $1.3 million for the quarter ended June 30, 1997, an increase of $379 thousand, or 31%. The increase in net interest income between the periods is attributable to an increase in average earning assets to $132.0 million during the quarter, compared to total average earning assets of $98.8 million for the same period in 1997. Additionally, average interest-bearing liabilities increased to $101.0 million during the second quarter of 1998, compared with $79.2 million in 1997. Thus, average interest-earning assets increased $33.2 million, or 33.6%, between the periods, partially offset by an increase in average interest-bearing liabilities of $21.8 million, or 27.5%. The increases in both average earning assets and interest-bearing liabilities resulted primarily from the purchase of a branch in Virginia during the fourth quarter of 1997, which increased loans and deposits by $9.0 million and $28.0 million, respectively. The additional growth was primarily the result of internal loan and deposit growth between the periods (see the "Average Balances and Interest Rates" table) . The Company's net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, while also being affected by changes in yields earned on interest-earning assets and rates paid on deposits and other interest-bearing funds. The net interest margin for the quarter ended June 30, 1998 was 5.02%, a decrease of 15 basis points from 5.17% for the second quarter of 1997. This decrease was primarily the result of lower interest yields on loans and investment securities, together with higher interest costs on savings accounts, time deposits, and other borrowings. The following table sets forth the averages of interest earned or paid by significant categories of interest earning assets and interest bearing liabilities for the three and six month periods ended June 30, 1998 and 1997. -9- 12 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------------ 1998 1997 --------------------------------------- ---------------------------------------- Interest Interest Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------- ---------------------------------------- ($ IN THOUSANDS) Interest-Earning Assets Loans, net (1) $ 97,811 $ 2,286 9.37% $ 72,096 $ 1,776 9.88% Investment securities (2) 19,403 282 5.83% 9,771 149 6.12% Federal funds sold 3,769 51 5.43% 994 15 6.06% Interest bearing deposits with banks 10,993 150 5.47% 15,981 212 5.32% ------------------------------------ ---------------------------------------- Total interest-earning assets 131,976 2,769 8.42% 98,842 2,152 8.73% Cash and due from banks 5,413 4,937 Other assets 4,025 2,675 ----------- ---------- Total Assets $ 141,414 $ 106,454 =========== ========== Interest-Bearing Liabilities Interest-Bearing Deposits: NOW accounts $ 17,178 $ 73 1.70% $ 13,399 $ 68 2.04% Savings accounts 17,708 203 4.60% 2,250 14 2.50% Money market accounts 20,658 185 3.59% 21,967 200 3.65% Time deposits 38,128 531 5.59% 33,780 466 5.53% Borrowings and notes payable 7,356 125 6.82% 7,777 131 6.76% ------------------------------------ ----------------------------------------- Total interest-bearing liabilities 101,028 1,117 4.43% 79,173 879 4.45% ------------------------------------ ----------------------------------------- Non-interest bearing deposits 25,007 19,077 Other liabilities 1,484 1,177 ----------- ---------- Total liabilities 127,519 99,427 Stockholders' equity 13,895 7,027 ----------- ---------- Total liabilities and stockholders' equity $ 141,414 $ 106,454 =========== ========== Net interest income and spread $ 1,652 3.99% $ 1,273 4.28% ==================== ========================= Net interest margin 5.02% 5.17% ============ ============
(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. -10- 13 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------------ 1998 1997 --------------------------------------- ---------------------------------------- Interest Interest Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------- ---------------------------------------- ($ IN THOUSANDS) Interest-Earning Assets Loans, net (1) $ 96,046 $ 4,619 9.70% $ 70,690 $ 3,457 9.78% Investment securities (2) 19,311 580 6.05% 9,508 275 5.80% Federal funds sold 4,589 125 5.49% 2,904 83 5.72% Interest bearing deposits with banks 14,834 409 5.56% 11,726 315 5.37% ----------------------------------- ------------------------------------ Total interest-earning assets 134,780 5,733 8.58% 94,828 4,130 8.71% Cash and due from banks 5,348 4,887 Other assets 4,408 3,134 ---------- --------- Total Assets $ 144,536 $ 102,849 ========== ========= Interest-Bearing Liabilities Interest-Bearing Deposits: NOW accounts $ 17,927 $ 165 1.86% $ 13,778 $ 135 1.96% Savings accounts 17,362 396 4.60% 2,301 28 2.43% Money market accounts 22,418 419 3.77% 21,546 385 3.57% Time deposits 40,154 1,114 5.59% 30,470 831 5.45% Borrowings and - notes payable 7,516 251 6.73% 7,882 262 6.65% ----------------------------------- ------------------------------------ Total interest-bearing liabilities 105,377 2,345 4.49% 75,977 1,641 4.32% ----------------------------------- ------------------------------------ Non-interest bearing deposits 23,974 18,979 Other liabilities 1,404 838 ---------- --------- Total liabilities 130,755 95,794 Stockholders' equity 13,781 7,055 ---------- --------- Total liabilities and stockholders' equity $ 144,536 $ 102,849 ========== ========= Net interest income and spread $ 3,388 4.09% $ 2,489 4.39% ==================== ==================== Net interest margin 5.07% 5.25% ========== ==========
(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. -11- 14 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED NONINTEREST INCOME Noninterest income totaled $287 thousand for the second quarter in 1998, a $46 thousand increase when compared with the same quarter of 1997, which totaled $241 thousand (see table below). The increase between the periods was primarily due to increases in credit card and merchant fees caused by increased volumes. Gains on sale of available-for-sale securities and liquidation of other real estate owned totaling $30 thousand also contributed to the increase. These increases were partially offset by decreases in deposit service charges, caused by decreases in transaction-based accounts between the periods.
NONINTEREST INCOME THREE MONTHS ENDED (IN THOUSANDS) JUNE 30, Change ---------------------------------------------------- 1998 1997 $ % ---------------------------------------------------- Service charges on deposit accounts $ 110,158 $ 122,318 $(12,160) -9.9% Credit card and merchant fees 109,791 80,803 28,988 35.9% Commission and other fee income 35,006 36,759 (1,753) -4.8% Other income 1,852 1,595 257 16.1% Gain on Sale of AFS Securities 14,570 -- 14,570 100.0% Gain on Sale of OREO 15,853 -- 15,853 100.0% ---------------------------------------------------- Total noninterest income $ 287,230 $ 241,475 $ 45,755 18.9% ====================================================
Noninterest income totaled $538 thousand for the first six months in 1998, a $24 thousand increase when compared with the first six months of 1997, which totaled $514 thousand (see table below). The increase between the periods resulted from factors similar to those affecting second quarter results, with increases in credit card and merchant fees caused by increased volumes, combined with gain on sale of available-for-sale securities and liquidation of other real estate owned. These increases were partially offset by decreases in deposit service charges, caused by decreases in transaction-based accounts between the periods.
NONINTEREST INCOME SIX MONTHS ENDED (IN THOUSANDS) JUNE 30, Change ---------------------------------------------------- 1998 1997 $ % ---------------------------------------------------- Service charges on deposit accounts $ 208,595 $ 240,819 $(32,224) -13.4% Credit card and merchant fees 225,266 214,544 10,722 5.0% Commission and other fee income 60,158 46,431 13,727 29.6% Other income 13,431 12,091 1,341 11.1% Gain on Sale of AFS Securities 14,570 -- 14,570 100.0% Gain on Sale of OREO 15,853 -- 15,853 100.0% ---------------------------------------------------- Total noninterest income $ 537,873 $ 513,885 $ 23,988 4.7% ====================================================
-12- 15 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED NONINTEREST EXPENSE Noninterest expense totaled $1.5 million for the second quarter of 1998, an increase of $215 thousand, or 16.9%, when compared with 1997's total noninterest expense of $1.3 million. This increase was principally the result of expenses in 1998, not incurred during the comparable period of 1997, in connection with the two new retail banking locations opened during the last six months of 1997. This significant increase in the scope of the Company's operations was accompanied by increases in most of the operating expense categories, excluding salaries and benefits, which decreased $45 thousand, or (8.6%). Professional fees, data processing and occupancy-related expenses, increased $66 thousand, $51 thousand and $49 thousand, respectively.
NONINTEREST EXPENSE THREE MONTHS ENDED (IN THOUSANDS) JUNE 30, Change ----------------------------------------------------- 1998 1997 $ % ----------------------------------------------------- Salaries and employee benefits $ 482,651 $ 528,119 $(45,468) -8.6% Occupancy and equipment expense 205,247 156,012 49,235 31.6% Professional fees 209,740 143,958 65,782 45.7% Data Processing 169,141 117,954 51,187 43.4% Depreciation and amortization 165,326 129,551 35,775 27.6% Communications 70,989 52,944 18,045 34.1% Other expenses 183,150 142,655 40,495 28.4% ----------------------------------------------------- Total noninterest expense $1,486,244 $1,271,193 $215,051 16.9% =====================================================
Noninterest expense totaled $3.1 million for the six months in 1998, an increase of $594 thousand or 24.1%, when compared with 1997's total noninterest expense of $2.5 million. This increase is comparable to the trends in the current quarter and was the result of three new retail banking locations opened during the last nine months of 1997, with increases in most of the operating expense categories. During the six month period ended June 30, 1998, salaries and benefits increased $70 thousand, or 6.9%, and professional fees and occupancy-related expenses increased $152 thousand and $116 thousand respectively, as compared to the same period in 1997.
NONINTEREST EXPENSE SIX MONTHS ENDED (IN THOUSANDS) JUNE 30, Change ----------------------------------------------------- 1998 1997 $ % ----------------------------------------------------- Salaries and employee benefits $1,086,230 $1,016,229 $ 70,001 6.9% Occupancy and equipment expense 411,170 294,958 116,212 39.4% Professional fees 400,429 248,874 151,555 60.9% Data Processing 336,774 253,119 83,655 33.0% Depreciation and amortization 331,077 254,500 76,577 30.1% Communications 134,506 99,151 35,355 35.7% Other expenses 356,242 295,776 60,466 20.4% ----------------------------------------------------- Total noninterest expense $3,056,428 $2,462,607 $593,821 24.1% =====================================================
-13- 16 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED INVESTMENTS The Company's investment portfolio of $12.3 million as of June 30, 1998 consisted mostly of U.S. Government Agency obligations. This represented a decrease of $5.5 million, or 31%, compared with the investment portfolio total of $17.8 million at June 30, 1997. This decrease was primarily due to paydowns, maturities and sales of available-for-sale securities. The company's portfolio at June 30, 1997 consisted primarily of U.S. Government agency obligations and mortgage-backed securities. (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, D.C., metropolitan area. Most of the Company's loan portfolio is collateralized by first mortgages and home equity lines of credit on residential real estate. Although residential real estate loans increased over the past twelve months as a result of the mortgage loan portfolio acquired in connection with the Virginia branch acquisition, the Company anticipates that this concentration will decline, as the Company continues its emphasis on the development of new commercial loan business, including commercial real estate loans. 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, 1998 and 1997, approximately $62 million (61.2%) and $43.2 million (58.1%) of the Company's total loan portfolio, respectively, consisted of loans secured by real estate, of which one-to-four family residential mortgage loans and home equity lines of credit represented $32.3 million (31.9%) and $26.1 million (35.1%), respectively, of the Company's total loan portfolio.
JUNE 30, ------------------------------------------------------ 1998 1997 ------------------------------------------------------ TYPE OF LOAN ( IN THOUSANDS): $ % $ % ------------------------------------------------------ 1-4 family residential mortgage $ 23,875 23.6% $ 19,063 25.6% Home equity loans 8,428 8.3% 7,052 9.5% Multifamily residential 2,121 2.1% 1,947 2.6% Construction 1,039 1.0% 490 0.7% Commercial real estate 26,543 26.2% 14,693 19.7% Commercial loans 26,793 26.5% 19,685 26.4% Installment and credit card loans 12,376 12.2% 11,125 14.9% Other loans 98 0.1% 382 0.5% ------------------------------------------------------ Gross loans 101,273 100.0% 74,437 100.0% ============ =========== Less: Unearned income 42 91 ---------- ---------- Total loans, net of unearned $ 101,231 $ 74,346 ========== ==========
-14- 17 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 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 loan losses based upon, among other things, such factors as historical experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Company's portfolios. In addition to unallocated allowances, specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans which are contractually past due and after considering the net realizable value of the collateral for the loan. Management actively monitors the Company's asset quality in a continuing effort to charge-off loans against the allowance for loan losses when appropriate and to provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowance for loan 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, 1998, the allowance for loan losses amounted to $1.0 million, or 1.0% of total loans. This represents an increase in the allowance compared to $887 thousand, or 0.94% of total loans as of December 31, 1997. The Company has increased the allowance, as a percentage of total loans outstanding, to reflect the upward trend in loan charge-offs experienced by the Company over the past two years, as well as an increase in the volume of nonperforming loans. The allowance for loan losses as a percentage of nonperforming loans was 105% at June 30, 1998, compared at 127% at December 31, 1997. Total nonperforming loans were $958 thousand, compared with $1.2 million at March 31, 1998 and $700 thousand at December 31, 1997. The increase in nonperforming assets from year-end 1997 was the result of two commercial borrowers being placed on nonaccrual status during the first quarter of 1998 totaling $472 thousand and one well secured commercial loan more than 90 days delinquent status but still accruing at June 30, 1998, for a total of $394 thousand. These increases were partially offset by a $624 thousand residential loan returning to accrual status during the second quarter. Of the $958 thousand in nonperforming loans as of June 30, 1998, approximately $394 thousand was secured by a first lien on commercial real estate and $74 thousand was guaranteed by the Small Business Administration. The remaining $490 thousand in nonperforming loans were either unsecured, secured by various business assets, or secured by junior liens on real estate. Within its analysis of the allowance for loan losses, the Company estimated loss exposure of approximately $215 thousand attributable to this latter group of loans. The commercial loans which are currently nonperforming were originated, for the most part, during or prior to 1996, and their nonperforning status reflects business and/or personal circumstances unique to each situation, rather than the result of any discernible trend or change in underwriting standards. -15- 18 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED ASSET QUALITY , CONTINUED Provisions for loan 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 loan losses during the second quarter of 1998 was $190 thousand, representing an increase of $139 thousand or 273% compared to the second quarter of 1997. This increase was the result of the 36% increase in loans outstanding during the past twelve months and the increase in nonperforming loans. These trends, taken into consideration with other factors in the Company's internal analysis of the allowance for loan loss, have led to increased reserve requirements and a resulting increase in the provision expense necessary to maintain the allowance at a level deemed appropriate by management of the Company (see the table on the following page). -16- 19 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED NONPERFORMING LOANS (IN THOUSANDS)
JUNE 30, DEC 31, ---------------------------- 1998 1997 ---------------------------- Non-accrual loans $ 472 $ 624 Accruing past due 90 days or more 486 76 ---------------------------- Total nonperforming loans 958 700 Other real estate owned - 52 ---------------------------- Total nonperforming assets $ 958 $ 752 ============================ Nonperforming to total assets 0.69% 0.49%
PROVISION AND ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ---------------------------- 1998 1997 1998 1997 ------------------------------ ---------------------------- Average net loans outstanding $ 97,811 $ 72,096 $ 96,046 $ 71,387 Loans outstanding at period-end 101,231 74,346 101,231 74,346 Total nonperforming loans 958 700 958 700 BEGINNING BALANCE OF ALLOWANCE $ 1,023 $ 620 $ 887 $ 826 LOANS CHARGED-OFF: 1-4 family residential mortgage 18 - 18 109 Home equity loans 25 - 26 24 Commercial loans 152 - 162 - Installment and credit card loans 51 - 133 118 ------------------------------ --------------------------- TOTAL LOANS CHARGED OFF 246 - 339 251 RECOVERIES OF PREVIOUS CHARGE-OFFS: 1-4 family residential mortgage - - 1 - Home equity loans 25 - 27 - Commercial loans 11 39 11 62 Installment and credit card loans 5 - 38 1 ------------------------------ ---------------------------- TOTAL RECOVERIES 41 39 77 63 ------------------------------ ---------------------------- NET LOANS CHARGED-OFF 205 (39) 262 188 PROVISION FOR LOAN LOSSES 190 51 383 72 ------------------------------ ---------------------------- BALANCE AT END OF PERIOD $ 1,008 $ 710 $ 1,008 $ 710 ============================== ============================
-17- 20 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED DEPOSITS The Company's total deposits at June 30, 1998 were $115.1 million, an increase of $20.4 million, or 21.5%, over 1997's second quarter balance. Total average deposits were $121.8 million for the six months ended June 30, 1998, an increase of $34.8 million, or 40% compared with average deposits of $87.0 million for the first six months of 1997. The increase in deposits at June 30, 1998, as compared to June 30, 1997, is primarily attributable to the purchase of the McLean, Virginia branch during the fourth quarter of 1997. 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 higher cost of funds when compared to prior year's results, in addition to lower fee income as many of these commercial customers utilize accounts with lower transaction costs as well as a lower number of transactions.
SIX MONTHS ENDED JUNE 30, 1998 1997 ---------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- VERAGE AVERAGE % OF AVERAGE AVERAGE % OF ALANCE RATE TOTAL BALANCE RATE TOTAL ---------------------------------------------------------------------------------------- (IN THOUSANDS) Noninterest-Bearing Deposits $ 23,974 0.00% 19.7% $ 18,979 0.00% 21.8% Interest-Bearing Deposits: NOW accounts $ 17,927 1.86% 14.7% $ 13,778 1.96% 15.8% Savings accounts $ 17,362 4.60% 14.3% $ 2,301 2.43% 2.6% Money market accounts $ 22,418 3.77% 18.4% $ 21,546 3.57% 24.7% Time deposits $ 40,154 5.59% 33.0% $ 30,470 5.45% 35.0% ------------------------------------------ --------------------------------------- Total $ 121,835 100.0% $ 87,074 100.0% ============ ==================================== ============= Weighted-Average Rate 3.47% 3.16% =========== =============
-18- 21 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED CAPITAL RESOURCES Total stockholders' equity at June 30, 1998 was $14.0 million, an increase of $6.9 million, almost double the balance of total stockholders' equity of $7.1 million at June 30, 1997. This significant increase was the result of the Company issuing 977,500 shares of Common Stock, at a price of $7.25 per share, in the third quarter of 1997. The net proceeds from the sale of Common Stock totaled approximately $6.3 million. Net income for the first six months of 1998 was $301 thousand. In addition to retained earnings, stockholders' equity was also augmented by a $8 thousand increase in the market value of investment securities available -for-sale, net of tax effect, and $132 thousand received from the exercise of warrants and stock options. 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 by the Federal Reserve Board. At June 30, 1998, the Bank exceeded all applicable regulatory capital requirements for classification as a "well capitalized" bank, and the Company satisfied all applicable regulatory requirements imposed on it by the Federal Reserve Board. YEAR 2000 COMPLIANCE The "Year 2000 problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The extent of the potential impact of the year 2000 problem is not yet known; however, the consequences of the year 2000 problem could have a material effect on the Company's business, results of operations, or financial condition. In December 1997, the Company adopted a year 2000 compliance plan ("Y2K Plan") for the assessment of its exposure to the year 2000 problem, completion of any required remediation, and testing of systems compliance. A specific timetable was established, and a senior officer of the Company was assigned leadership responsibility. The officer reports monthly to the Board of Directors concerning the status of the Y2K Plan, and the Company's progress is also reviewed from time to time by bank regulatory authorities. The Company believes that it is presently on schedule with respect to it Y2K Plan, and outside reviews to date have found the Company's year 2000 compliance efforts to be satisfactory. As of June 30, 1998 the Company's estimated percentage of completion on its Y2K Plan was 73%, and the estimated date for 100% completion was August 31, 1999. -19- 22 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED YEAR 2000 COMPLIANCE (CONTINUED) As part of its Y2K Plan, the Company expects to spend approximately $145,000 for the replacement of outdated computer hardware and software. Additionally, the human resources requirement will include time of regular Company employees together with its network administration consultant. Because most of the Company's data processing services are provided by outside vendors (principally EDS) on a contract basis, management does currently anticipate that the costs to address the Company's year 2000 issues will not have a significant impact on the financial position or results of operations of the Company. The Company's Y2K Plan includes certain contingency plans to be implemented in the event compliance benchmarks are not met on a timely basis and/or systems fail to perform in accordance with plans and expectations. For the most part, these contingency plans involve a reversion to manual processes for all "mission critical" business functions, which the Company believes is practical in view of the relative size and scope of its operations. -20- 23 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 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, 1998, the Company had cash and cash equivalents of $8.8 million, an increase of $4.0 million, when compared with the $4.8 million at June 30, 1997, which resulted primarily from liquidity received from the Virginia branch acquisition in 1997, partially offset by increases in the loan portfolio between the periods. 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 authorized to borrow up to $19.9 million secured by a blanket pledge of its portfolio of 1-to-4-family residential mortgage loans. The Company also has approved lines of credit from larger correspondent banks to borrow excess reserves on an overnight basis (known as "federal funds purchased") in the amount of $1.0 million and to borrow on a secured basis ("repurchase agreements") in the amount of $5.0 million. At June 30, 1998, the Company had no federal funds purchased or repurchase agreements, and was utilizing $7.4 million of its available FHLBA borrowings in the form of fixed-rate term credit advances with an average cost of 6.73%. The Company utilizes fixed rate term credit advances from the FHLBA to fund fixed rate real estate loans of comparable terms and maturities. The Company had cash on hand in the amount of $2.2 million at the holding company level at June 30, 1998. The Company anticipates using these funds as working capital available to support the future growth of the franchise as well as to pay normal operating expenses. Additionally, working capital is further augmented by dividends available from the Bank, subject to certain regulatory restrictions generally applicable to national banks. At June 30, 1998, the Company had no indebtedness outstanding at the holding company level. -21- 24 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 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 one of the principal sources of income for the Company, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The difference between the Company's interest-rate sensitive assets and interest-rate sensitive liabilities for a specified time-frame is referred to as an interest sensitive "gap." Interest rate sensitivity reflects the potential effect on net interest income of a movement in interest rates. A financial institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets maturing or repricing exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a financial institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing exceeds the amount of its interest-earning assets. During a period of rising (falling) interest rates, a positive gap would tend to increase (decrease) net interest income, while a negative gap would tend to decrease (increase) net interest income. Management seeks to maintain a balanced interest rate risk position to protect its net interest margin from market fluctuations. Toward this end, the Company maintains an Asset/Liability Committee (the "ALCO") which reviews, on a regular basis, the maturity and repricing of the assets and liabilities of the Company. The 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%. In addition, ALCO monitors potential changes in net interest income and market value of equity under various interest rate scenarios. On a consolidated basis, the Company's one year cumulative gap was a positive 9.2% of total assets at June 30, 1998. 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 and market value of equity. The ALCO 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% (plus or minus) in the Company's projected net interest income over the next twelve months, or in the Company's market value of portfolio equity. At June 30, 1998, 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 12 month period of 8.6% and (8.4%) respectively, and an increase (or decrease) in market value of portfolio equity of (7.7%) and 9.1% respectively. Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, the analysis included herein is not intended to be a forecast of the actual effect of a change in market interest rates on the Company. The analysis is based on the Company's assets and liabilities as of June 30, 1998 and does not contemplate any actions the company might undertake in response to changes in market interest rates, which could change the anticipated results. The analysis assumes repricing and /or repayment of all assets and liabilities in accordance with their contractual terms with the exception of (a) mortgage - backed securities, which are assumed to prepay at a rate based on consensus market expectations, and (b) non - maturity customer deposits, which are assumed to respond to interest rate changes on a time-lag basis consistent with the company's historical experience for various types of deposit accounts. -22- 25 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) On June 9, 1998 the Registrant held its annual meeting of stockholders to (i) elect a board of eight directors to serve until the 1999 annual meeting of stockholders, (ii) approve amendment to the 1994 Stock Option Plan, and (iii) 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 Withheld ------------------------ ------------ -------------------------- Joseph S. Bracewell 1,709,390 24,782 -0- George Contis, M.D. 1,709,390 24,782 -0- John R. Cope 1,709,390 24,782 -0- Bernard J. Cravath 1,709,390 24,782 -0- Neal R. Gross 1,709,390 24,782 -0- Joseph H. Koonz 1,709,390 24,782 -0- William S. McKee 1,709,390 24,782 -0- William C. Oldaker 1,709,390 24,782 -0-
With respect to the amendment to the 1994 Stock option Plan, the vote was: 1,135,740 for, 249,197against, and 1,106 abstentions. There were no Broker Nonvotes. (d) Not applicable ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------------- ----------------------------- 11 Statement Re: Computation of Per Share Earnings 27 Financial Data Schedule (b) No Reports on Form 8-K were filed by the Company during the three months ended June 30, 1998. -23- 26 CENTURY BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1998 AND 1997 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 17, 1998 By: JOSEPH S. BRACEWELL --------------------- ------------------------------------- Joseph S. Bracewell President and Chief Executive Officer (for the registrant and as its principal financial officer) -24- EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 CENTURY BANCSHARES, INC. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 FAS 128
Three Months Ended June 30 Six Months Ended June 30 --------------------------------- --------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- BASIC: Weighted average common shares outstanding (actual) 2,356,151 1,214,821 2,340,524 1,212,288 Adjustment for 5% stock dividend in 1998 100% 105% 100% 105% -------------- -------------- -------------- -------------- Weighted average common shares outstanding (adjusted) 2,356,151 1,275,562 2,340,524 1,272,902 ============== ============== ============== ============== Net income $ 169,537 $ 118,216 $ 301,427 $ 288,120 Preferred dividends paid - - - - -------------- -------------- -------------- -------------- Net income applicable to common stock $ 169,537 $ 118,216 $ 301,427 $ 288,120 ============== ============== ============== ============== Basic earnings per share $ 0.07 $ 0.09 $ 0.13 $ 0.23 ============== ============== ============== ============== DILUTED: Weighted average common shares outstanding (actual) 2,356,151 1,214,821 2,340,524 1,212,288 Dilutive effect of stock options 72,485 79,129 73,421 79,129 Dilutive effect of stock warrants 98,011 72,778 98,793 49,740 -------------- -------------- -------------- -------------- Diluted weighted average common shares and common stock equivalents outstanding (as originally reported) 2,526,646 1,366,728 2,512,738 1,341,156 Adjustment for 5% stock dividend in 1998 100% 105% 100% 105% -------------- -------------- -------------- -------------- Diluted weighted average common shares and common stock equivalents outstanding (adjusted) 2,526,646 1,435,064 2,512,738 1,408,213 ============== ============== ============== ============== Net income applicable to common stock $ 169,537 $ 118,216 $ 301,427 $ 288,120 ============== ============== ============== ============== Diluted earnings per share $ 0.07 $ 0.08 $ 0.12 $ 0.20 ============== ============== ============== ==============
EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 1,000 6-MOS DEC-31-1998 JUN-30-1998 8,765 11,480 0 0 9,482 2,787 2,814 101,231 1,008 137,962 115,134 1,422 1,325 6,105 0 0 2,369 11,606 137,962 4,619 580 534 5,733 2,094 2,345 3,388 383 15 3,056 486 486 0 0 301 0.13 0.12 5.07 472 486 0 0 887 339 77 1,008 1,008 0 652 -25-
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