<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 March 31, 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; 3,375,400 shares outstanding at May 8, 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
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Page 2
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,082 $ 10,426
Federal funds sold 6,500 -
Investment securities available for sale 95,983 99,052
Loans (net of unearned income of $8,713 and
$8,539) 260,464 257,612
Less allowance for loan losses 3,071 3,003
---------- ----------
Net Loans 257,393 254,609
Premises and equipment 8,528 8,625
Accrued interest and other assets 4,845 4,277
---------- ----------
TOTAL ASSETS $ 381,331 $ 376,989
========== ==========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 41,692 $ 41,708
Interest - bearing demand 33,838 33,191
Savings 35,693 35,615
Money market 51,822 47,370
Time 172,184 170,441
---------- ----------
Total deposits 335,229 328,325
Short term borrowings 5,500 10,000
Other borrowings 4,000 3,200
Accrued interest and other liabilities 4,522 3,722
---------- ----------
TOTAL LIABILITIES 349,251 345,247
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $.835; authorized
8,000,000 shares; issued 3,376,984 shares 2,820 2,820
Additional paid in capital 2,756 2,755
Retained earnings 26,024 25,285
Treasury stock, at cost (4,644 and 1,259 shares) (65) (16)
Net unrealized gain on securities 545 898
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 32,080 31,742
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 381,331 $ 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
March 31,
-----------------------
1996 1995
---------- -----------
INTEREST INCOME (In thousands)
<S> <C> <C>
Interest and fees on loans:
Taxable $ 5,396 $ 4,975
Tax exempt 418 249
Federal funds sold 57 59
Investment securities:
Taxable 1,345 937
Tax exempt 181 144
---------- ----------
Total interest income 7,397 6,364
---------- ----------
INTEREST EXPENSE
Deposits 3,195 2,675
Short term borrowings 127 26
Other borrowings 61 35
---------- ----------
Total interest expense 3,383 2,736
---------- ----------
NET INTEREST INCOME 4,014 3,628
Provision for loan losses 105 60
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,909 3,568
---------- ----------
OTHER INCOME
Service fees on deposit accounts 359 370
Trust Department income 192 150
Other 96 85
---------- ----------
Total other income 647 605
---------- ----------
OTHER EXPENSE
Salaries and employee benefits 1,602 1,513
Net occupancy and equipment expense 540 482
Deposit insurance premium 1 165
Other 877 764
---------- ----------
Total other expense 3,020 2,924
---------- ----------
INCOME BEFORE INCOME TAXES 1,536 1,249
Income taxes 358 314
---------- ----------
NET INCOME $ 1,178 $ 935
========== ==========
EARNINGS PER SHARE $ 0.35 $ 0.28
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.13 $ 0.10
AVERAGE SHARES OUTSTANDING 3,374,779 3,365,681
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 4
<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 1,178 1,178
Dividends ($.13 per share) (439) (439)
Purchase of Treasury stock (95) (95)
Reissuance of Treasury stock 1 46 47
Net unrealized loss on
securities (353) (353)
------ ------ ------- ------ ------ ---------
Balance, March 31, 1996 $ 2,820 $2,756 $26,024 $ (65) $ 545 $ 32,080
======= ====== ======= ====== ====== =========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 5
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
----------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,178 $ 935
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 105 60
Depreciation, amortization, and accretion, net 248 164
Decrease (increase) in accrued interest receivable 52 (46)
Increase in accrued interest payable 604 671
Other, net (239) (6)
---------- ----------
Net cash provided by operating activities 1,948 1,778
---------- ----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments of securities 2,870 3,486
Purchases of securities (402) (9,045)
Investment securities:
Proceeds from maturities and repayments of securities - 3,143
Purchases of securities - (4,505)
Net increase in loans (2,867) (4,055)
Purchases of premises and equipment (108) (209)
Other, net - 26
---------- ----------
Net cash used for investing activities (507) (11,159)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 6,904 12,921
Net decrease in short term borrowings (4,500) (470)
Net increase in other borrowings 800 -
Cash dividends (439) (337)
Treasury stock purchase (95) -
Proceeds from issuance of treasury stock 45 -
---------- ----------
Net cash provided by financing activities 2,715 12,114
---------- ----------
Increase in cash and cash equivalents 4,156 2,733
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 10,426 9,418
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,582 $ 12,151
========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
Page 6
<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 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 three months ended March 31, 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 Opinion 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 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 7
<PAGE>
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
------------------
Earnings per share for the three months ended March 31, 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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Cash paid during the year for:
Interest $ 2,779 $ 2,066
Income taxes - -
</TABLE>
Page 8
<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 $381,331,000 at March 31, 1996, an
increase of $4,342,000 or 1.2% over assets at December 31, 1995. This increase
was attributable to an increase in federal funds sold and net loans receivable,
offset by a reduction in investment securities available for sale and cash and
due from banks.
Total consolidated liabilities increased by $4,004,000 or 1.2% when compared to
total consolidated liabilities as of December 31, 1995. This increase was
primarily a result of an increase of $6,904,000 or 2.1% in total deposits, an
increase of $800,000 or 25.0% in other borrowings, offset by a decrease of
$4,500,000 or 45.0% in short term borrowings.
Total consolidated stockholders' equity increased $338,000 or 1.1% when
compared to total stockholders' equity at December 31, 1995. This increase was
primarily a result of a retention of net income of $739,000, net of cash
dividends declared to shareholders of $439,000, offset by a decrease of
$353,000 in the net unrealized gain on investment securities available for sale
and a net decrease of $48,000 or .2% from treasury stock activity.
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale at March 31, 1996 remained relatively
stable decreasing $3,069,000 or 3.1% when compared to December 31, 1995. This
decrease was primarily a result of $2,870,000 in proceeds received from the
maturity and repayments of securities, and to a lessor extent, a reduction of
$535,000 in the unrealized holdings gains, offset by an increase of $402,000
from the purchase of securities available for sale during the first quarter of
1996.
Loan Portfolio
- --------------
Net loans increased $2,784,000 or 1.1% in the first quarter of 1996 when
compared to December 31, 1995. This increase was mainly attributable to an
increase in commercial loans and installment loans to individuals, offset by a
decrease in real estate loans.
The following table represents the composition of the Corporation's loan
portfolio:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ----------
(In thousands)
<S> <C> <C>
Commercial, financial, and agricultural $ 66,058 $ 62,945
Real estate - construction 11,030 12,918
Real estate - mortgage 98,058 99,484
Installment loans to individuals 77,402 75,295
Tax exempt loans 16,352 15,509
Other 277 -
---------- ----------
269,177 266,151
Less unearned income 8,713 8,539
---------- ----------
260,464 257,612
Less allowance for loan losses 3,071 3,003
---------- ----------
Net loans $ 257,393 $ 254,609
========== ==========
</TABLE>
Page 9
<PAGE>
Allowance for Possible Loan Losses
- ----------------------------------
The Corporation's allowance for possible loan losses was $3,071,000 at March
31, 1996 compared to $3,003,000 at December 31, 1995. This represents a
$68,000 or 2.3% increase for the first quarter of 1996.
The adequacy of the allowance for possible 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 possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1995
------------- --------------
(Dollars in thousands)
<S> <C> <C>
Balance, beginning of period $ 3,003 $ 3,206
Charge-offs:
Installment loans to individuals 56 80
---------- ----------
Total charge-offs 56 80
---------- ----------
Recoveries:
Commercial loans 12 1
Real estate mortgages 1 -
Installment loans to individuals 6 4
---------- ----------
Total recoveries 19 5
---------- ----------
Net charge-offs 37 75
---------- ----------
Provision charged to operations 105 60
---------- ----------
Balance, end of period $ 3,071 $ 3,191
========== ==========
Net charge-offs as a percent of average
loans, net of unearned 0.01% 0.03%
========== ==========
Allowance for loan losses to total loans,
net of unearned income 1.18% 1.33%
========== ==========
</TABLE>
The Corporation believes that the allowance for possible loan losses at March
31, 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 March 31, 1996.
Page 10
<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:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(In thousands)
<S> <C> <C>
Non-accrual loans $ 1,028 $ 901
Loans past due 90 days or more 124 266
Restructured loans - -
-------- --------
Total non-performing loans 1,152 1,167
Other real estate owned - -
-------- --------
Total non-performing assets $ 1,152 $ 1,167
======== ========
Non-performing loans as a percentage of total
loans, net of unearned income 0.44% 0.45%
Non-performing assets as a percentage of total
assets 0.30% 0.31%
Non-performing assets as a percentage of
Allowance for possible loan losses 37.51% 38.86%
</TABLE>
At March 31, 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.
At March 31, 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.
Deposits
- --------
Total deposits increased $6,904,000 or 2.1% when compared to total deposits at
December 31, 1995. Noninterest-bearing deposits decreased 16,000 or .04% in
the first quarter of 1996. The Corporation's growth occurred mostly in Money
Market and Time deposits. These deposits increased $4,452,000 or 9.4% and
$1,743,000 or 1.0%, 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 experience a shifting of
deposits from lower cost core deposits to Time deposits, which are at higher
rates. This shifting is partially a result of consumers becoming more yield
conscious and creating greater competition in Time deposits.
Time deposits include certificates of deposits in denominations of $100,000 or
more. Such deposits aggregate $27,885,000 and $27,552,000 at March 31, 1996
and December 31, 1995, respectively.
Page 11
<PAGE>
Borrowings
- ----------
Total borrowings of the Corporation decreased $3,700,000 or 28.0% when compared
to total borrowings at December 31, 1995. This decrease was mainly a result of
a $4,000,000 short term advance with the Federal Home Loan Bank of Pittsburgh
(FHLB) maturing during the first quarter of 1996, offset by a slight increase
in other borrowings for the same period. The maturity of the FHLB advance was
funded by proceeds received from the maturity of investment securities and
deposit growth occurring during the same quarter.
RESULTS OF OPERATIONS
---------------------
Comparison of the Results of Operations for the Three Months Ended March 31,
1996 and 1995.
Summary of Earnings
- -------------------
The Corporation earned $1,178,000 or $0.35 per share for the three months ended
March 31, 1996. This represents an increase of $243,000 or 26.0% 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 noninterest expense and federal income tax expense.
Net Interest Income
- -------------------
The Corporation's net interest income increased $386,000 or 10.6% during the
three months ended March 31, 1996 when compared to the same period in 1995.
This increase is a result of a $1,033,000 or 16.2% increase in total interest
income, offset by an increase of $647,000 or 23.6% 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 4.77% from 4.73% at March 31, 1995. (Reference may be made to the
table on page 13 in conjunction with the following paragraphs for further
analysis of net interest income.)
Interest income on loans increased $590,000 or 11.3% for the first 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 as well
as an increase in the average yield earned on these assets during the same
period.
Interest income on investment securities increased $445,000 or 41.1% for the
first quarter of 1996 compared to the same period in 1995. This increase is
attributable to an increase in the average balance of investment securities
outstanding during the 1996 period as well as an increase in the average yield
earned on these assets during the same period.
Interest expense on deposits increased $519,000 or 19.4% for the first quarter
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 $128,000 or 209.8% for the three
months ended March 31, 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 12
<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:
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------
1996 1995
----------------- --------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 4,474 5.11% $ 4,073 5.77%
Investment securities (1)(3) 98,293 6.59 77,654 5.95
Loans (2)(3) 259,174 9.28 236,927 9.00
-------- ---- -------- ----
Total interest earning
assets 361,941 8.52 318,654 8.21
-------- ---- -------- ----
Interest-bearing liabilities:
Deposits 291,936 4.39 264,682 4.10
Short term borrowings 8,570 5.97 30 8.22
Other borrowings 2,576 9.48 3,200 7.62
-------- ---- -------- ----
Total interest-bearing
liabilities 303,082 4.48% 267,912 4.14%
-------- ---- -------- ----
Net earning assets $ 58,859 $ 50,742
======== ========
Net interest spread 4.04% 4.07%
==== ====
Net interest margin (4) 4.77% 4.73%
==== ====
</TABLE>
(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 Possible Loan Losses
- ----------------------------------
The provision for possible loan losses charged to operations in the first
quarter of 1996 was $105,000 compared to $60,000 charged in the same period in
1995, representing an increase of $45,000 or 75.0%. 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 possible loan losses.
Noninterest Income and Expense
- ------------------------------
The Corporation's total consolidated noninterest income increased $42,000 or
6.9% for the three months ended March 31, 1996 when compared to the same period
in 1995. This increase was a result of a $42,000 or 28.0% increase in trust
department income, an $11,000 or 12.9% increase in other income, offset by a
$11,000 or 3.0% decrease in service fees on deposit accounts. The increase in
trust department income was primarily due to new accounts and increased trust
assets during the first quarter of 1996.
Page 13
<PAGE>
Noninterest Income and Expense (Continued)
- ------------------------------------------
The Corporation's total consolidated noninterest expense increased $96,000 or
3.3% for the three months ended March 31, 1996 compared to the same period in
1995. This increase was primarily a result of a $113,000 or 14.8% increase in
other expenses, an $89,000 or 5.9% increase in salaries and employee benefits,
an increase of $58,000 or 12.0% in net office occupancy and equipment expense,
offset by a decrease of $164,000 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 $37,000 in salaries and wages paid to employees during the
first quarter of 1996 as a result of an increase in staffing levels and annual
salary adjustments; (2) an increase of $9,000 in bonus expense due to increased
profitability of the Corporation for the same period; and (3) an increase of
$60,000 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
$20,000 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 $164,000 during
the first quarter 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 $24,000 in
stationary and supplies expense, (2) an $18,000 increase in employee tuition
reimbursement expense, (3) an increase of $15,000 in professional advisory
fees, and (4) an increase of $14,000 in ATM fees and supplies.
Federal Income Taxes
- --------------------
Federal income tax expense increased $243,000 or 26.0% for the three months
ended March 31, 1996 compared to the same period ended in 1995 as a result of
an increase in pre-tax earnings. The effective tax rates were 23.3% and 25.1%
for the 1996 and 1995 period, respectively.
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 continous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types 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
$45,083,000 at March 31, 1996.
Page 14
<PAGE>
Liquidity and Interest Rate Sensitivity (Continued)
- ---------------------------------------------------
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".
The following table is presented in conformity with industry practice and
reflects contractual repricing schedules as of March 31, 1996:
<TABLE>
<CAPTION>
3 3-12 1-5 Over
Months Months Years 5 Years Total
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Investment securities:
Taxable $ 17,797 $ 18,801 $ 43,026 $ 2,990 $ 82,614
Non-taxable 1,335 650 2,736 8,648 13,369
Loans 89,426 34,742 86,867 49,429 260,464
Federal funds sold 6,500 - - - 6,500
-------- -------- -------- -------- --------
Total earning
assets 115,058 54,193 132,629 61,067 362,947
-------- -------- -------- -------- --------
Interest-bearing demand
deposits - - 27,408 6,430 33,838
Savings deposits - - 28,911 6,782 35,693
Money Market deposits - 25,911 25,911 - 51,822
Time deposits 52,959 60,679 28,198 30,348 172,184
Short term borrowings 4,000 1,500 - - 5,500
Other borrowings - - 4,000 - 4,000
-------- -------- -------- -------- --------
Total interest-bearing
liabilities 56,959 88,090 114,428 43,560 303,037
-------- -------- -------- -------- --------
Interest rate sensitivity
Gap $ 58,099 $(33,897) $ 18,201 $ 17,507 $ 59,910
======== ======== ======== ======== ========
Cumulative interest rate
sensitivity gap $ 58,099 $ 24,202 $ 42,403 $ 59,910
======== ======== ======== ========
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets 16.01% 6.67% 11.68% 16.51%
======== ======== ======== ========
</TABLE>
Page 15
<PAGE>
Liquidity and Interest Rate Sensitivity (Continued)
- ---------------------------------------------------
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.
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:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------- -----------------------
Amount Percentage Amount Percentage
--------- ---------- -------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Tier I:
Actual $31,250 11.47% $30,668 11.43%
Required 10,893 4.00 10,732 4.00
------- ----- ------- -----
Excess $20,357 7.47% $19,936 7.43%
------- ----- ------- -----
Total risk-based capital:
Actual $34,321 12.60% $33,671 12.55%
Required 21,787 8.00 21,464 8.00
------- ----- ------- -----
Excess $12,534 4.60% $12,207 4.55%
------- ----- ------- -----
</TABLE>
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 8.25% and 8.13%
at March 31, 1996 and December 31, 1995, respectively.
Page 16
<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 17
<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: May 08, 1996 By /s/ Joseph N. Tosh, II
-------------------------------------
Joseph N. Tosh, II
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 08, 1996 By /s/ Donald A. Benziger
-------------------------------------
Donald A. Benziger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Page 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,082
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,983
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 260,464
<ALLOWANCE> 3,071
<TOTAL-ASSETS> 381,331
<DEPOSITS> 335,229
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 4,522
<LONG-TERM> 4,000
0
0
<COMMON> 2,820
<OTHER-SE> 29,260
<TOTAL-LIABILITIES-AND-EQUITY> 381,331
<INTEREST-LOAN> 5,814
<INTEREST-INVEST> 1,526
<INTEREST-OTHER> 57
<INTEREST-TOTAL> 7,397
<INTEREST-DEPOSIT> 3,195
<INTEREST-EXPENSE> 3,383
<INTEREST-INCOME-NET> 4,014
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,020
<INCOME-PRETAX> 1,536
<INCOME-PRE-EXTRAORDINARY> 1,536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,178
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.77
<LOANS-NON> 1,028
<LOANS-PAST> 124
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,152
<ALLOWANCE-OPEN> 3,003
<CHARGE-OFFS> 56
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 3,071
<ALLOWANCE-DOMESTIC> 3,071
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
