<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-17416
CENTURY FINANCIAL CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1553790
--------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Century Place
Rochester, Pennsylvania 15074
--------------------------------
(Address of principal executive offices)(Zip code)
(412) 774-1872
---------------
(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 ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock , $0.835 par value; 3,360,198 shares outstanding at November 4,
1996
<PAGE>
CENTURY FINANCIAL CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4-5
Consolidated Statement of Changes in
Stockholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote
of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,484 $ 10,426
Investment securities available for sale 75,715 99,052
Loans (net of unearned income of $10,662
and $8,539) 299,885 257,612
Less allowance for loan losses 3,131 3,003
-------------- --------------
Net Loans 296,754 254,609
Premises and equipment 9,768 8,625
Accrued interest and other assets 5,054 4,277
-------------- --------------
TOTAL ASSETS $ 399,775 $ 376,989
============== ==============
LIABILITIES
Deposits:
Noninterest - bearing demand $ 39,949 $ 41,708
Interest - bearing demand 33,663 33,191
Savings 35,263 35,615
Money market 52,846 47,370
Time 179,133 170,441
-------------- --------------
Total deposits 340,854 328,325
Short term borrowings 17,675 10,000
Other borrowings 4,000 3,200
Accrued interest and other liabilities 4,347 3,722
-------------- --------------
TOTAL LIABILITIES 366,876 345,247
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, par value $.835;
authorized 8,000,000 shares;
issued 3,384,833 and 3,376,984
shares, respectively 2,826 2,820
Additional paid in capital 2,848 2,755
Retained earnings 27,440 25,285
Treasury stock, at cost
(24,035 and 1,259 shares) (397) (16)
Net unrealized gain on securities 182 898
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 32,899 31,742
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 399,775 $ 376,989
============== ==============
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 3
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $ 6,030 $ 5,241
Tax exempt 439 381
Federal funds sold 21 33
Investment securities:
Taxable 1,109 1,425
Tax exempt 163 174
-------------- --------------
Total interest income 7,762 7,254
-------------- --------------
INTEREST EXPENSE
Deposits 3,250 3,281
Short term borrowings 185 52
Other borrowings 51 36
-------------- --------------
Total interest expense 3,486 3,369
-------------- --------------
NET INTEREST INCOME 4,276 3,885
Provision for loan losses 180 60
-------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,096 3,825
-------------- --------------
OTHER INCOME
Service fees on deposit accounts 349 370
Trust Department income 205 180
Net gain (loss) on sale of securities - (30)
Other 109 99
-------------- --------------
Total other income 663 619
-------------- --------------
OTHER EXPENSE
Salaries and employee benefits 1,683 1,553
Net occupancy and equipment expense 509 489
Deposit insurance premium 1 15
Other 1,012 868
-------------- --------------
Total other expense 3,205 2,925
-------------- --------------
INCOME BEFORE INCOME TAXES 1,554 1,519
Income taxes 257 342
-------------- --------------
NET INCOME $ 1,297 $ 1,177
=============== ==============
EARNINGS PER SHARE $ 0.39 $ 0.35
=============== ==============
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.11
AVERAGE SHARES OUTSTANDING 3,366,045 3,374,163
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 4
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $ 16,948 $ 15,405
Tax exempt 1,286 892
Federal funds sold 111 217
Investment securities:
Taxable 3,736 3,613
Tax exempt 518 447
-------------- --------------
Total interest income 22,599 20,574
-------------- --------------
INTEREST EXPENSE
Deposits 9,516 9,004
Short term borrowings 431 104
Other borrowings 162 105
-------------- --------------
Total interest expense 10,109 9,213
-------------- --------------
NET INTEREST INCOME 12,490 11,361
Provision for loan losses 415 180
-------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 12,075 11,181
-------------- --------------
OTHER INCOME
Service fees on deposit accounts 1,077 1,125
Trust Department income 589 489
Net gain (loss) on sale of securities 1 (14)
Other 310 287
-------------- --------------
Total other income 1,977 1,887
-------------- --------------
OTHER EXPENSE
Salaries and employee benefits 4,989 4,591
Net occupancy and equipment expense 1,539 1,462
Deposit insurance premium 1 315
Other 2,915 2,589
-------------- --------------
Total other expense 9,444 8,957
-------------- --------------
INCOME BEFORE INCOME TAXES 4,608 4,111
Income taxes 1,005 1,014
-------------- --------------
NET INCOME $ 3,603 $ 3,097
============== ==============
EARNINGS PER SHARE $ 1.07 $ 0.92
============== ==============
DIVIDENDS DECLARED PER SHARE $ 0.43 $ 0.31
AVERAGE SHARES OUTSTANDING 3,371,739 3,371,812
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 5
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Common Paid in Retained Treasury Gain (loss) Stockholders'
Stock Capital Earnings Stock on Securities Equity
------- ---------- ---------- --------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 2,820 $ 2,755 $ 25,285 $ (16) $ 898 $ 31,742
Net income 3,603 3,603
Dividends ($.43 per share) (1,448) (1,448)
Stock options exercised 6 87 93
Purchase of Treasury stock (512) (512)
Reissuance of Treasury stock 6 131 137
Net unrealized loss on
securities (716) (716)
------- ------- -------- ------ ----- --------
Balance, September 30, 1996 $ 2,826 $ 2,848 $ 27,440 $ (397) $ 182 $ 32,899
======= ======= ======== ===== ===== ========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 6
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,603 $ 3,097
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for loan losses 415 180
Depreciation, amortization, and
accretion, net 118 378
Investment securities
(gains) losses, net (1) 14
Decrease (increase) in accrued
interest receivable 65 (504)
Increase in accrued interest payable 209 1,166
Other, net (91) (267)
-------------- --------------
Net cash provided by operating activities 4,318 4,064
-------------- --------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and
repayments of securities 24,464 13,133
Purchases of securities (4,660) (38,611)
Proceeds from sale of securities 2,881 5,062
Investment securities:
Proceeds from maturities and
repayments of securities - 10,595
Purchases of securities - (14,273)
Proceeds from sale of securities - 758
Net increase in loans (42,516) (15,770)
Purchases of premises and equipment (1,768) (1,176)
Other, net - 45
-------------- --------------
Net cash used for investing activities (21,599) (40,237)
-------------- --------------
FINANCING ACTIVITIES
Net increase in deposits 12,529 34,254
Net increase in short term borrowings 7,675 3,930
Increase in other borrowings 800 -
Cash dividends (1,384) (1,011)
Proceeds from stock options exercised 93 121
Treasury stock purchase (512) (73)
Proceeds from issuance of treasury stock 138 -
-------------- --------------
Net cash provided by financing activities 19,339 37,221
-------------- --------------
Increase in cash and cash equivalents 2,058 1,048
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,426 9,418
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,484 $ 10,466
============== ===============
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 7
<PAGE>
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Century Financial Corporation
("Corporation") includes the accounts of the Corporation and its wholly owned
subsidiary, Century National Bank and Trust Company ("Century"). Significant
intercompany items have been eliminated in consolidation.
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation have been included. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
Nature of Operations
- --------------------
Century Financial Corporation is a Pennsylvania corporation and is registered
under the Holding Company Act. The Corporation was organized to be the
holding company of Century National Bank. The Corporation and its subsidiary
derive substantially all their income from banking and bank - related services
which includes interest earnings on commercial, commercial mortgage,
residential real estate, and consumer loan financing as well as interest
earnings on investment securities and deposit services to its customers.
Century provides banking services to Southwestern Pennsylvania. The
Corporation is supervised by the Federal Reserve Board while Century is
subject to regulation and supervision by the Office of the Comptroller of the
Currency.
Accounting for Stock-Based Compensation
- ---------------------------------------
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation." This statement encourages, but does not require the
Corporation to recognize compensation expense for all awards of equity
instruments issued after December 31, 1995. The statement establishes a fair
value based method of accounting for stock-based compensation plans. The
standard applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities in amounts
based on the price of the entity's common stock or other equity instruments.
Statement 123 permits companies to continue to account for such transactions
under Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees", but requires disclosure in a note to the financial statements pro
forma net income and earnings per share as if the Corporation had applied the
the new method of accounting. The Corporation has elected to continue to
apply the provisions of APB Opinion No. 25 and disclose such information only
in the notes to the consolidated financial statements. The adoption of this
standard has no effect on the Corporation's financial position or results of
operations.
Page 8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
- ------------------
Earnings per share for the three and nine months ended September 30, 1996 and
1995, have been calculated based upon the weighted average number of
outstanding common shares, including common stock equivalents, if such items
have a dilutive effect. For the respective periods ended, common stock
equivalents did not have a material dilutive effect on earnings per share.
Reclassification of Comparative Amounts
- ---------------------------------------
Certain comparative amounts for prior periods have been reclassified to
conform with current period presentations.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Nine Months Ended
September 30,
-------------------
1996 1995
----------- ---------
(In thousands)
Cash paid during the year for:
Interest $ 9,900 $ 8,047
Income taxes 960 605
Page 9
<PAGE>
CENTURY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
Financial Condition Summary
- ---------------------------
The Corporation's consolidated assets were $399,775,000 at September 30, 1996,
an increase of $22,786,000 or 6.0% over assets at December 31, 1995. This
increase was attributable to an increase in net loans receivable offset by a
reduction in investment securities available for sale. The increase in net
loans receivable was the result of an increase in loan demand in the first
nine months of 1996, with much of the growth being funded by investment
securities available for sale and short term borrowings. Total consolidated
liabilities increased by $21,629,000 or 6.3% when compared to total
consolidated liabilities as of December 31, 1995. The increase in total
liabilities was mostly attributable to an increase in total deposits and short
term borrowings. The Corporation's total consolidated stockholders' equity
increased $1,157,000 or 3.6% when compared to total stockholders' equity at
December 31, 1995. This increase was primarily a result of a retention of net
income of $2,155,000, net of cash dividends declared to shareholders of
$1,448,000, offset by a decrease of $716,000 in the net unrealized gain on
investment securities available for sale and a net decrease of $375,000 from
treasury stock activity.
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale at September 30, 1996 decreased
$23,337,000 or 23.6% when compared to December 31, 1995. This decrease was
primarily a result of the Corporation improving its net interest margin by
funding current loan demand with lower earning investment securities that were
maturing during the same period in 1996. Total proceeds received from the
maturity and repayments of these securities totaled $24,464,000, offset by
purchases of $4,660,000. Also contributing to the decrease in investment
securities during the first nine months of 1996 was the sale of securities
totaling $2,881,000 and a reduction of $1,085,000 in the unrealized holding
gain.
Loan Portfolio
- --------------
Net loans increased $42,145,000 or 16.6% in the first nine months of 1996
when compared to December 31, 1995. This increase was mainly the result of
an increase in overall loan demand and to a greater extent, the hiring of
additional loan originators in the early part of 1996. The increase in loan
portfolio occured mostly in commercial and real estate loans which increased
$21,757,000 or 34.6% and $13,230,000 or 13.3%, respectively.
The following table represents the composition of the Corporation's loan
portfolio:
September 30, December 31,
1996 1995
------------ -----------
(In thousands)
Commercial, financial, and agricultural $ 84,702 $ 62,945
Real estate - construction 11,241 12,918
Real estate - mortgage 112,714 99,484
Installment loans to individuals 84,677 75,295
Tax exempt loans 16,784 15,509
Other 429 -
---------- -----------
310,547 266,151
Less unearned income 10,662 8,539
---------- -----------
299,885 257,612
Less allowance for loan losses 3,131 3,003
---------- -----------
Net loans $ 296,754 $ 254,609
========== ===========
Page 10
<PAGE>
Allowance for Loan Losses
- -------------------------
The Corporation's allowance for loan losses was $3,131,000 at September 30,
1996 compared to $3,003,000 at December 31, 1995. This represents a $128,000
or 4.3% increase for the first nine months of 1996.
The adequacy of the allowance for loan losses is determined by management
considering certain criteria such as the risk classification of loans,
delinquency trends, charge-off experience, credit concentrations, economic
conditions and other relevant factors. Specific reserves are established for
each classified credit taking into consideration the credit's delinquency
status, current operating status, pledged collateral and plan of action for
resolving any deficiencies. All credit relationships in excess of $250,000
are reviewed by management and the executive committee of Century's Board of
Directors on an annual basis. In addition, loan relationships in excess of
$250,000, rated substandard or lower are reviewed on a quarterly basis and
evaluated for the adequacy of payment histories, any changes in collateral and
exposure, if any, is specifically reserved for. All special mention loans are
pooled and a reserve is determined. All other homogeneous loan pools such as
consumer installment loans, cash reserve, 1-4 family mortgage loans and
unfunded commitments are pooled and the adequacy of the reserve is determined.
Activity in the allowance for loan losses is summarized as follows:
Nine Months Ended
September 30,
-----------------
1996 1995
-------- --------
(Dollars in thousands)
Balance, beginning of period $ 3,003 $ 3,206
Charge-offs:
Commercial loans 63 -
Real estate mortgages - 49
Installment loans to individuals 271 303
-------- --------
Total charge-offs 334 352
-------- --------
Recoveries:
Commercial loans 13 3
Real estate mortgages 2 -
Installment loans to individuals 32 16
-------- --------
Total recoveries 47 19
-------- --------
Net charge-offs 287 333
-------- --------
Provision charged to operations 415 180
-------- --------
Balance, end of period $ 3,131 $ 3,053
======== ========
Net charge-offs as a percent
of average loans, net of unearned 0.11% 0.13%
======== ========
Allowance for loan losses to total
loans, net of unearned income 1.04% 1.22%
======== ========
The Corporation believes that the allowance for loan losses at September 30,
1996 is adequate to cover losses inherent in the portfolio as of such date.
However, there can be no assurance that the Corporation will not sustain
additional losses in future periods, which could be substantial in relation to
the size of the allowance at September 30, 1996.
Page 11
<PAGE>
Non-performing Assets
- ---------------------
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans consists of non-accrual loans, loans 90 days or
more past due, and restructured loans. Non-accrual loans represent loans on
which interest accruals have been discontinued and any previously accrued
interest is reversed against current income. Restructured loans are loans
with respect to which a borrower has been granted a concession on the interest
rate or the original repayment terms because of financial difficulties.
The following table sets forth information regarding non-performing assets:
September 30, December 31,
1996 1995
------------- ------------
(In thousands)
Non-accrual loans $ 624 $ 901
Loans past due 90 days or more 207 266
Restructured loans - -
---------- -----------
Total non-performing loans 831 1,167
Other real estate owned 31 -
---------- -----------
Total non-performing assets $ 862 $ 1,167
========== ============
Non-performing loans as a percentage
of total loans, net of unearned income 0.28% 0.45%
Non-performing assets as a percentage of
total assets 0.22% 0.31%
Non-performing assets as a percentage
of allowance for loan losses 27.53% 38.86%
At September 30, 1996, the Corporation's total non-performing assets,
including any loans classified for regulatory purposes as loss, doubtful,
substandard or special mention do not represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources. Nor do they
represent material credits about which management is aware of any information
which causes management to have serious doubts as to the ability of borrowers
to comply with loan repayment terms.
At September 30, 1996 the Corporation had no impaired loans in accordance with
Statement of Financial Accounting Standard Statement No. 114 and 118 that have
a material effect on the financial position or results of operations of the
Corporation.
Deposits
- --------
Total deposits increased $12,529,000 or 3.8% when compared to December 31,
1995. Noninterest-bearing deposits decreased $1,759,000 or 4.2% in the first
nine months of 1996. The Corporation's growth occurred mostly in money market
and time deposits. These deposits increased $5,476,000 or 11.6% and
$8,692,000 or 5.1%, respectively. This increase was mainly a result of the
Corporation implementing a marketing strategy in 1995, and thereafter, to
increase deposit growth. The Corporation continues to see a strong market
demand for higher yielding deposits. This demand is in part a result of
consumers becoming more yield conscious along with an increase in market
competition.
Time deposits include certificates of deposits in denominations of $100,000 or
more. Such deposits aggregate $27,075,000 and $27,552,000 at September 30,
1996 and December 31, 1995, respectively.
Page 12
<PAGE>
Borrowings
- ----------
Total borrowings of the Corporation increased $8,475,000 or 64.2% when
compared to total borrowings at December 31, 1995. This increase was mainly a
result of an increase in short term borrowings which were used in part to fund
loan growth occurring in the same period.
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995.
Summary of Earnings
- -------------------
The Corporation earned $1,297,000 or $0.39 per share for the three months
ended September 30, 1996. This represents an increase of $120,000 or 10.2%
over net income reported for the same period in 1995. The increase in net
income is attributable to an increase in net interest income offset by an
increase in the provision for loan loss and noninterest expense.
Net Interest Income
- -------------------
The Corporation's net interest income increased $391,000 or 10.1% during the
three months ended September 30, 1996 when compared to the same period in
1995. This increase is a result of a $508,000 or 7.0% increase in total
interest income, offset by an increase of $117,000 or 3.5% in total interest
expense. Net interest income, on a fully taxable equivalent basis, as a
percentage of average earning assets, commonly referred to as the net interest
margin, increased to 4.99% from 4.74% at September 30, 1995. (Reference may
be made to the table on page 14 in conjunction with the following paragraphs
for further analysis of net interest income.)
Interest income on loans increased $847,000 or 15.1% for the third quarter of
1996 compared to the same period in 1995. This increase is attributable to an
increase in the average loan balance outstanding during the 1996 period offset
by a decrease in the average yield earned on these assets during the same
period.
Interest income on investment securities decreased $327,000 or 20.5% for the
third quarter of 1996 compared to the same period in 1995. This decrease is
attributable to a decrease in the average balance of investment securities
outstanding during the 1996 period, offset by an increase in the average yield
earned on these assets during the same period.
Interest income on federal funds sold decreased $12,000 or 36.4% for the third
quarter of 1996 compared to the same period in 1995. This decrease is a
result of a decrease in the average balance of federal funds sold outstanding
during the 1996 period as well as a decrease in the average yield earned on
these assets during the same period.
Interest expense on deposits decreased $31,000 or .9% for the third quarter of
1996 compared to the same period in 1995. This decrease is attributable to a
slight decrease in the average rate paid on these funds during the 1996
period, offset by an increase in the average balance of deposits outstanding
during the same period.
Interest expense on borrowings increased $148,000 or 268.2% for the three
months ended September 30, 1996 compared to the same period in 1995. This
increase was attributable to an increase in the average balance outstanding
during the period, offset by a decrease in the average rate paid on these
funds.
Page 13
<PAGE>
Net Interest Income (Continued)
- -------------------------------
The following table illustrates information regarding the average balances,
yields and rates on interest earning assets and interest-bearing liabilities:
Three months ended September 30,
--------------------------------------------
1996 1995
-------------------- -------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
---------- ------- --------- ------
(Dollars in thousands)
Interest earning assets:
Federal funds sold $ 1,576 5.33% $ 2,192 6.02%
Investment securities (1) (3) 78,242 6.93 103,595 6.52
Loans (2) (3) 290,280 9.23 248,569 9.36
-------- ----- -------- ------
Total interest
earning assets 370,098 8.72 354,356 8.51
-------- ----- -------- ------
Interest-bearing liabilities:
Deposits 296,008 4.36 294,306 4.42
Short term borrowings 12,316 5.97 3,315 6.22
Other borrowings 4,000 5.06 1,700 8.40
-------- ----- -------- ------
Total interest-bearing
liabilities 312,324 4.43 299,321 4.47
-------- ----- -------- ------
Net earning assets $ 57,774 $ 55,035
======== ========
Net interest spread 4.30% 4.05%
===== =====
Net interest margin (4) 4.99% 4.74%
====== =====
(1) Investment securities include securities available for sale and held
to maturity.
(2) For the purpose of these computations, non-accrual loans are included
in the daily average loan amounts outstanding.
(3) Yields are computed on a tax equivalent basis using a 34% federal
income tax rate.
(4) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest
earning assets.
Provision For Loan Losses
- -------------------------
The provision for loan losses charged to operations in the third quarter of
1996 was $180,000 compared to $60,000 charged in the same period in 1995,
representing an increase of $120,000 or 200.0%. Although total non-performing
loans remained constant during this same period, the increase in the provision
was a result of such factors as an increase in the loan portfolio for the same
period and Management's ongoing analysis of the adequacy of the allowance for
loan losses.
Noninterest Income and Expense
- ------------------------------
The Corporation's total consolidated noninterest income increased $44,000 or
7.1% for the three months ended September 30, 1996 when compared to the same
period in 1995. This increase was a result of a $25,000 or 13.4% increase in
trust department income, a decrease of $30,000 in the net realized gain/loss
on sale of investment securities, offset by a $21,000 or 5.7% decrease in
service fees on deposit accounts.
Page 14
<PAGE>
Noninterest Income and Expense (Continued)
- ------------------------------------------
The Corporation's total consolidated noninterest expense increased $280,000 or
9.6% for the three months ended September 30, 1996 compared to the same period
in 1995. This increase was primarily a result of a $144,000 or 16.6% increase
in other expenses, a $130,000 or 8.4% increase in salaries and employee
benefits, an increase of $20,000 or 4.1% in net occupancy and equipment
expenses, offset by a decrease of $14,000 or 99.4% in Federal Deposit
Insurance Corporation (FDIC) premium expense.
The increase in salaries and employee benefits is primarily attributable to:
(1) an increase of $111,000 in salaries and wages paid to employees during the
third quarter of 1996 as a result of an increase in staffing levels and annual
salary adjustments; (2) an increase of $7,000 in bonus expense due to
increased profitability of the Corporation for the same period; and (3) an
increase of $13,000 in the Corporation's employee profit sharing plan expense.
The employee profit sharing plan is based on a percentage of total pre-tax
earnings and return on equity of the Corporation.
The increase in net office occupancy and equipment expense relates in general
to increases in maintenance agreements on equipment, utility and building
maintenance expenses, and depreciation expense for building and equipment.
The increase in depreciation expense on equipment is mainly a result of the
purchase of a new computer system in April of 1995, and to a lessor extent,
the purchase of personal computers throughout 1995.
Other expense increased mainly as a result of: (1) an increase of $88,000 in
advertising costs; (2) an increase of $30,000 in professional advisory fees;
and (3) an increase of $11,000 in employee tuition reimbursement expense.
Federal Income Taxes
- --------------------
Federal income tax expense decreased $85,000 or 24.9% for the three months
ended September 30, 1996 compared to the same period in 1995. This
decrease was the result of an increase in tax exempt interest earned.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995.
Summary of Earnings
- -------------------
The Corporation earned $3,603,000 or $1.07 per share for the nine months ended
September 30, 1996. This represents an increase of $506,000 or 16.3% over net
income reported for the same period in 1995. The increase in net income is
attributable to an increase in net interest income and noninterest income
offset by an increase in provision for loan losses and noninterest expense.
Net Interest Income
- -------------------
The Corporation's net interest income increased $1,129,000 or 9.9% during the
nine months ended September 30, 1996 when compared to the same period in 1995.
This increase is a result of a $2,025,000 or 9.8% increase in total interest
income, offset by an increase of $896,000 or 9.7% in total interest expense.
Net interest income, on a fully taxable equivalent basis, as a percentage of
average earning assets, commonly referred to as the net interest margin,
increased to 4.90% from 4.75% at September 30, 1995.
Interest income on loans increased $1,937,000 or 11.9% for the first three
quarters of 1996 compared to the same period in 1995. This increase is
attributable to an increase in the average loan balance outstanding during the
1996 period as well as an increase in the average yield earned on these assets
during the same period.
Page 15
<PAGE>
Net Interest Income (Continued)
- -------------------------------
Interest income on investment securities increased $194,000 or 4.8% for the
first three quarters of 1996 compared to the same period in 1995. This
increase is attributable to an increase in the average yield earned on these
assets, offset by a slight decrease in the average balance outstanding during
the same period.
Interest income on federal funds sold decreased $106,000 or 48.8% for the
first three quarters of 1996 compared to the same period in 1995. This
decrease is attributable to a decrease in the average balance of federal funds
sold outstanding during the 1996 period as well as a decrease in the average
yield earned on these assets during the same period.
Interest expense on deposits increased $512,000 or 5.7% for the first three
quarters of 1996 compared to the same period in 1995. This increase is
attributable to an increase in the average balance of deposits outstanding
during the 1996 period as well as an increase in the average rate paid on
these funds during the same period.
Interest expense on borrowings increased $384,000 or 183.7% for the nine
months ended September 30, 1996 compared to the same period in 1995. This
increase was attributable to an increase in the average balance outstanding
during the period, offset by a decrease in the average rate paid on these
funds.
The following table illustrates information regarding the average balances,
yields and rates on interest earning assets and interest-bearing liabilities:
Nine months ended September 30,
--------------------------------------------
1996 1995
-------------------- -------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
---------- ------- --------- ------
(Dollars in thousands)
Interest earning assets:
Federal funds sold $ 2,748 5.38% $ 4,829 5.99%
Investment securities (1)(3) 89,429 6.74 90,495 6.32
Loans (2) (3) 272,289 9.25 242,894 9.20
------- ---- ------- ----
Total interest
earning assets 364,466 8.61 338,218 8.38
------- ---- ------- ----
Interest-bearing liabilities:
Deposits 292,994 4.34 282,026 4.25
Short term borrowings 9,426 6.11 2,122 6.53
Other borrowings 3,527 6.15 1,700 8.23
------- ---- ------- ----
Total interest-bearing
liabilities 305,947 4.41 285,848 4.29
------- ---- ------- ----
Net earning assets $ 58,519 $ 52,370
======== =======
Net interest spread 4.20% 4.09%
==== ====
Net interest margin (4) 4.90% 4.75%
==== ====
(1) Investment securities include securities available for sale and held to
maturity.
(2) For the purpose of these computations, non-accrual loans are included in
the daily average loan amounts outstanding.
(3) Yields are computed on a tax equivalent basis using a 34% federal income
tax rate.
(4) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest earning
assets.
Page 16
<PAGE>
Provision For Loan Losses
- -------------------------
The provision for loan losses charged to operations for the nine months ended
September 30, 1996 was $415,000 compared to $180,000 charged in the same
period in 1995, representing an increase of $235,000 or 130.6%. Although
total non-performing loans remained constant during this same period, the
increase in the provision was a result of such factors as an increase in the
loan portfolio for the same period and management's ongiong analysis of the
adequacy of the allowance for loan losses.
Noninterest Income and Expense
- ------------------------------
The Corporation's total consolidated noninterest income increased $90,000 or
4.8% for the nine months ended September 30, 1996 when compared to the same
period in 1995. This increase was a result of a $100,000 or 20.5% increase in
trust department income, a $23,000 or 8.0% increase in other income, a
decrease of $15,000 in net securities gains realized, offset by a $48,000 or
4.3% decrease in service fees on deposit accounts.
The Corporation's total consolidated noninterest expense increased $487,000 or
5.4% for the nine months ended September 30, 1996 compared to the same period
in 1995. This was primarily a result of a $398,000 or 8.7% increase in
salaries and employee benefits, a $326,000 or 12.6% increase in other
expenses, an increase of $77,000 or 5.3% in net office occupancy and equipment
expense, offset by a decrease of $314,000 or 99.7% in Federal Deposit
Insurance Corporation (FDIC) premium expense.
The increase in salaries and employee benefits is primarily attributable to:
(1) an increase of $276,000 in salaries and wages paid to employees during the
first nine months of 1996 as a result of an increase in staffing levels and
annual salary adjustments; (2) an increase of $25,000 in bonus expense due to
increased profitability of the Corporation for the same period; and (3) an
increase of $143,000 in the Corporation's employee profit sharing plan
expense. The employee profit sharing plan is based on a percentage of total
pre-tax earnings and return on equity of the Corporation. These increases
were all offset by a $43,000 decrease in the pension plan expense.
The increase in net office occupancy and equipment expense relates in general
to increases in maintenance agreements on equipment, utility and building
maintenance expenses, and depreciation expense for building and equipment.
The increase in depreciation expense on equipment is mainly a result of the
purchase of a new computer system in April of 1995, and to a lessor extent,
the purchase of personal computers throughout 1995.
Federal Deposit Insurance Corporation premium expense decreased $314,000
during the first three quarters of 1996 as a result of a reduction in the FDIC
assessment for the same period ended.
Other expense increased mainly as a result of: (1) an increase of $105,000 in
advertising costs; (2) an increase of $53,000 in professional advisory fees;
(3) an increase of $48,000 in legal related fees; (4) a $38,000 increase in
employee tuition reimbursement expense; and (5) an increase of $26,000 in ATM
related costs.
Federal Income Taxes
- --------------------
Federal income tax expense decreased $9,000 or .9% for the nine months ended
September 30, 1996 compared to the same period in 1995 as a result of an
increase in tax-exempt interest earned.
Page 17
<PAGE>
Liquidity and Interest Rate Sensitivity
- ---------------------------------------
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate possible outflows of deposits, and to
take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms
of the nature and mix of the banking institution's sources and uses of funds.
Asset liquidity is provided through loan repayments and the management of
maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining adequate levels of interest-earning assets that
mature within one year. Interest-earning deposits in banks, federal funds
sold and short-term investment securities are used for this purpose and
totaled $28,750,000 at September 30, 1996.
Closely related to the concept of liquidity is the management of
interest-earning assets and interest-bearing liabilities. The Corporation
manages its rate sensitivity position to minimize fluctuation in the net
interest margin and to minimize the risk due to changes in interest rates,
thereby attempting to achieve consistent growth of net interest income.
The difference between a financial institution's interest-sensitive assets
(i.e. assets which will mature or reprice within the same time period) and
interest-sensitive liabilities (i.e., liabilities which will mature or reprice
within the same period) is commonly referred to as its "Gap" or "Interest Rate
Gap". An institution having more interest rate sensitive assets than interest
sensitive liabilities within a given time period is said to have a "positive
gap"; an institution having more interest rate sensitive liabilities than
interest rate sensitive assets within a given time period is said to have a
"negative gap".
Page 18
<PAGE>
Liquidity and Interest Rate Sensitivity (Continued)
- ---------------------------------------------------
The following table is presented in conformity with industry practice and
reflects contractual repricing schedules as of September 30, 1996:
3 3-12 1-5 Over
Months Months Years 5 Years Total
------ ------ ----- -------- -----
(In thousands)
Investment securities:
Taxable $ 9,369 $ 18,671 $ 34,519 $ 906 $ 63,465
Non-taxable 250 460 4,976 6,564 12,250
Loans 74,616 46,152 107,836 71,281 299,885
------- ------- -------- ------- --------
Total earning assets 84,235 65,283 147,331 78,751 375,600
------- ------- -------- ------- --------
Interest-bearing demand
deposits - - 27,043 6,620 33,663
Savings deposits - - 28,328 6,934 35,262
Money Market deposits - 26,423 26,423 - 52,846
Time deposits 36,778 71,853 64,303 6,199 179,133
Short term borrowings 17,675 - - - 17,675
Other borrowings - - 4,000 - 4,000
------- ------- -------- ------- --------
Total interest-bearing
liabilities 54,453 98,276 150,097 19,753 322,579
------- ------- -------- ------- --------
Interest rate
sensitivity gap $29,782 $(32,993) $(2,766) $58,998 $ 53,021
======= ======== ======= ======= =======
Cumulative interest rate
sensitivity gap $29,782 $ (3,211) $(5,977) $53,021
======= ======== ======= =======
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets 7.93% (0.85)% (1.59)% 14.12%
======= ======== ======= =======
The above table is a static view of the balance sheet with assets and
liabilities grouped into certain defined time periods. Being measured at a
specific point in time, this analysis may not fully describe complexity of
relationships between product features and pricing, market rates, and future
management of the balance sheet mix. The primary method of measuring the
sensitivity of earnings to market interest rates is to simulate expected
earnings streams under various rate scenarios while at the same time adjusting
for the anticipated behavior of non-contractual deposit accounts. These
adjustments are influenced by the Federal Reserve Bank and other regulators'
proposed guidelines for the measurement of interest rate risk. Subject to
these qualifications, the table above reflects a cumulative gap for assets and
liabilities maturing or repricing in the next twelve months.
The Corporation's asset/liability management committee monitors the interest
rate sensitivity position of the Corporation to ultimately achieve consistent
growth of net interest income.
Page 19
<PAGE>
Liquidity and Interest Rate Sensitivity (Continued)
- ---------------------------------------------------
At this time, management is not aware of any known trends, events, or
uncertainties that would have a material effect on either the liquidity,
capital resources or operations of the Corporation. Nor is management aware
of any current recommendations by the regulatory authorities which, if
implemented, would have a material effect on the liquidity, capital resources
or operations of the Corporation.
Capital Resources
- -----------------
Century Financial Corporation, as a bank holding company, is required to meet
certain risk-based capital and leverage requirements. The risk-based capital
requirements redefine the components of capital, categorize assets into
different risk classes and include certain off-balance sheet items in the
calculation of the adequacy of capital. A financial institution's capital is
divided into two classes, Tier I and Tier II. The Corporation's Tier I and
total risk-based capital (including Tier II) consisted of the following:
September 30, 1996 December 31, 1995
------------------ -----------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
(Dollars in thousands)
Tier I:
Actual $ 32,414 10.79% $ 30,668 11.43%
Required 12,016 4.00 10,732 4.00
-------- ------ -------- ------
Excess $ 20,398 6.79% $ 19,936 7.43%
-------- ------ -------- ------
Total risk-based capital:
Actual $ 35,545 11.83% $ 33,671 12.55%
Required 24,033 8.00 21,464 8.00
-------- ------ -------- ------
Excess $ 11,512 3.83% $ 12,207 4.55%
-------- ------ -------- ------
In addition to risk-based capital requirements, a leverage ratio test must
also be met. The leverage ratio is defined as the ratio of Tier I capital to
assets (not risk adjusted). The required ratio for each financial institution
will be determined based on the financial institution's relative soundness. A
minimum ratio of Tier I capital to total assets of three percent has been
established for top rated financial institutions, with less highly rated or
those with higher levels of risk required to maintain ratios of 100 to 200
basis points above the minimum level. The Corporation's leverage ratio was
8.29% and 8.13% at September 30, 1996 and December 31, 1995, respectively.
Page 20
<PAGE>
CENTURY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
The exhibits listed below are filed herewith or incorporated
herein by reference:
27 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
None
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Century Financial Corporation
Date: November 4, 1996 By: /s/ Joseph N. Tosh, II
-------------------------
Joseph N. Tosh, II
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 4, 1996 By: /s/ Donald A. Benziger
-------------------------
Donald A. Benziger
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Page 22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 12,484
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,715
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 299,885
<ALLOWANCE> 3,131
<TOTAL-ASSETS> 399,775
<DEPOSITS> 340,854
<SHORT-TERM> 17,675
<LIABILITIES-OTHER> 4,347
<LONG-TERM> 4,000
0
0
<COMMON> 2,826
<OTHER-SE> 30,073
<TOTAL-LIABILITIES-AND-EQUITY> 399,775
<INTEREST-LOAN> 18,234
<INTEREST-INVEST> 4,254
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 22,599
<INTEREST-DEPOSIT> 9,516
<INTEREST-EXPENSE> 10,109
<INTEREST-INCOME-NET> 12,490
<LOAN-LOSSES> 415
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 9,444
<INCOME-PRETAX> 4,608
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,603
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 4.90
<LOANS-NON> 624
<LOANS-PAST> 208
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,003
<CHARGE-OFFS> 334
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 3,131
<ALLOWANCE-DOMESTIC> 3,131
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
