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 JUNE 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; 3,374,660 shares outstanding at
August 5, 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>
June 30, December 31,
1996 1995
---------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,435 $ 10,426
Investment securities available for sale 84,754 99,052
Loans (net of unearned income of $9,752 and $8,539) 278,491 257,612
Less allowance for loan losses 3,132 3,003
-------- --------
Net Loans 275,359 254,609
Premises and equipment 9,747 8,625
Accrued interest and other assets 5,151 4,277
-------- --------
TOTAL ASSETS $383,446 $376,989
======== ========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 39,946 $ 41,708
Interest - bearing demand 34,704 33,191
Savings 35,243 35,615
Money market 49,714 47,370
Time 168,685 170,441
-------- --------
Total deposits 328,292 328,325
Short term borrowings 15,200 10,000
Other borrowings 4,000 3,200
Accrued interest and other liabilities 3,678 3,722
-------- --------
TOTAL LIABILITIES 351,170 345,247
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.835;
authorized 8,000,000 shares;
issued 3,378,119 and 3,376,984 shares,
respectively 2,821 2,820
Additional paid in capital 2,773 2,755
Retained earnings 26,646 25,285
Treasury stock, at cost (2,584 and 1,259 shares) (38) (16)
Net unrealized gain on securities 74 898
-------- --------
TOTAL STOCKHOLDERS' EQUITY 32,276 31,742
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $383,446 $376,989
======== ========
See accompanying unaudited notes to the consolidated financial statements.
</TABLE>
[PAGE]
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1996 1995
------------------
(In thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $5,524 $5,189
Tax exempt 429 262
Federal funds sold 33 125
Investment securities:
Taxable 1,282 1,251
Tax exempt 173 129
------ ------
Total interest income 7,441 6,956
------ ------
INTEREST EXPENSE
Deposits 3,072 3,048
Short term borrowings 118 26
Other borrowings 50 34
------ ------
Total interest expense 3,240 3,108
------ ------
NET INTEREST INCOME 4,201 3,848
Provision for loan losses 130 60
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,071 3,788
------ ------
OTHER INCOME
Service fees on deposit accounts 369 385
Trust Department income 192 159
Net gain on sale of securities 1 16
Other 105 103
------ ------
Total other income 667 663
------ ------
OTHER EXPENSE
Salaries and employee benefits 1,706 1,524
Net occupancy and equipment expense 490 490
Deposit insurance premium 1 165
Other 1,024 929
------ ------
Total other expense 3,221 3,108
------ ------
INCOME BEFORE INCOME TAXES 1,517 1,343
Income taxes 389 358
------ ------
NET INCOME $1,128 $ 985
====== ======
EARNINGS PER SHARE $ 0.33 $ 0.29
====== ======
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.10
AVERAGE SHARES OUTSTANDING 3,374,455 3,376,273
See accompanying unaudited notes to the consolidated financial statements.
</TABLE>
[PAGE]
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1996 1995
----------------
(In thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $10,918 $10,164
Tax exempt 847 511
Federal funds sold 90 184
Investment securities:
Taxable 2,627 2,188
Tax exempt 355 273
------- -------
Total interest income 14,837 13,320
------- -------
INTEREST EXPENSE
Deposits 6,266 5,723
Short term borrowings 246 52
Other borrowings 111 69
------- -------
Total interest expense 6,623 5,844
------- -------
NET INTEREST INCOME 8,214 7,476
Provision for loan losses 235 120
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,979 7,356
------- -------
OTHER INCOME
Service fees on deposit accounts 729 755
Trust Department income 384 309
Net gain on sale of securities 1 16
Other 201 188
------- -------
Total other income 1,315 1,268
------- -------
OTHER EXPENSE
Salaries and employee benefits 3,306 3,037
Net occupancy and equipment expense 1,030 973
Deposit insurance premium 1 330
Other 1,903 1,692
------- -------
Total other expense 6,240 6,032
------- -------
INCOME BEFORE INCOME TAXES 3,054 2,592
Income taxes 748 672
------- -------
NET INCOME $ 2,306 $ 1,920
======= =======
EARNINGS PER SHARE $ 0.68 $ 0.57
======= =======
DIVIDENDS DECLARED PER SHARE $ 0.28 $ 0.20
AVERAGE SHARES OUTSTANDING 3,374,617 3,373,577
See accompanying unaudited notes to the consolidated financial statements.
</TABLE>
[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 $31,742
Net income 2,306 2,306
Dividends ($.28 per share) (945) (945)
Stock options exercised 1 13 14
Purchase of Treasury stock (111) (111)
Reissuance of Treasury stock 5 89 94
Net unrealized loss on
securities (824) (824)
------ ------ ------- ----- ----- -------
Balance, June 30, 1996 $2,821 $2,773 $26,646 $ (38) $ 74 $32,276
====== ====== ======= ===== ===== =======
See accompanying unaudited notes to the consolidated financial statements.
</TABLE>
[PAGE]
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1996 1995
----------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,306 $ 1,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 235 120
Depreciation, amortization, and accretion, net 279 525
Investment securities gains, net 1 16
Increase in accrued interest receivable (116) (261)
Increase (decrease) in accrued interest payable (157) 243
Other, net (258) 511
------- -------
Net cash provided by operating activities 2,290 3,074
------- -------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments of
securities 14,899 7,184
Purchases of securities (4,660) (23,330)
Proceeds from sale of securities 2,881 -
Investment securities:
Proceeds from maturities and repayments of securities - 5,572
Purchases of securities - (9,052)
Proceeds from sale of securities - 758
Net increase in loans (20,953) (3,882)
Purchases of premises and equipment (1,535) (797)
Other, net - 36
------- --------
Net cash used for investing activities (9,368) (23,511)
------- --------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (33) 23,279
Net increase (decrease) in short term borrowings 5,200 (470)
Net increase in other borrowings 800 -
Cash dividends (877) (675)
Proceeds from stock options exercised 14 121
Treasury stock purchase (111) -
Proceeds from issuance of treasury stock 94 -
------- --------
Net cash provided by financing activities 5,087 22,255
------- --------
Increase (decrease) in cash and cash
equivalents (1,991) 1,818
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,426 9,418
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,435 $11,236
======= =======
See accompanying unaudited notes to the consolidated financial statements.
</TABLE>
[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 six months ended June 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 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]
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 and six months ended June 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
Six Months Ended
June 30,
------------------
1996 1995
------------------
(In thousands)
Cash paid during the year for:
Interest $ 6,780 $ 5,602
Income taxes 630 275
[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 $383,446,000 at June 30,
1996, an increase of $6,457,000 or 1.7% 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 and cash
and due from banks. The increase in net loans receivable was the result of
an increase in loan demand in the first half of 1996, with much of the
growth being funded by investment securities available for sale and short
term borrowings. Total consolidated liabilities increased by $5,923,000 or
1.7% when compared to total consolidated liabilities as of December 31,
1995. While deposits remained relatively stable, the increase in total
liabilities was mostly attributable to an increase in short term
borrowings. The Corporation's total consolidated stockholders' equity
increased $534,000 or 1.7% when compared to total stockholders' equity at
December 31, 1995. This increase was primarily a result of a retention of
net income of $1,361,000, net of cash dividends declared to shareholders of
$945,000, offset by a decrease of $824,000 in the net unrealized gain on
investment securities available for sale and a net decrease of $22,000 from
treasury stock activity.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale at June 30, 1996 decreased
$14,298,000 or 14.4% 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 $14,899,000, offset
by purchases of $4,660,000. Also contributing to the decrease in
investment securities during the first half of 1996 was the sale of
securities totaling $2,881,000 and a reduction of $1,249,000 in the
unrealized holding gain.
LOAN PORTFOLIO
Net loans increased $20,750,000 or 8.2% in the first half of 1996 when
compared to December 31, 1995. This increase was mainly attributable to
an overall increase in loan demand, particularly in commercial and real
estate loans which increased $10,102,000 or 16.0% and $6,287,000 or 6.3%,
respectively.
The following table represents the composition of the Corporation's loan
portfolio:
June 30, December 31,
1996 1995
-------- -----------
(In thousands)
Commercial, financial,
and agricultural $ 73,047 $ 62,945
Real estate - construction 12,038 12,918
Real estate - mortgage 105,771 99,484
Installment loans to individuals 81,462 75,295
Tax exempt loans 15,173 15,509
Other 752 -
-------- --------
288,243 266,151
Less unearned income 9,752 8,539
-------- --------
278,491 257,612
Less allowance for loan losses 3,132 3,003
-------- --------
Net loans $275,359 $254,609
======== ========
[PAGE]
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation's allowance for possible loan losses was $3,132,000 at
June 30, 1996 compared to $3,003,000 at December 31, 1995. This represents
a $129,000 or 4.3% increase for the first half 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:
Six months ended June 30,
1996 1995
------- -------
(Dollars in thousands)
Balance, beginning of period $ 3,003 $ 3,206
Charge-offs:
Commercial loans 10 -
Real estate mortgages - 14
Installment loans to individuals 130 154
------- -------
Total charge-offs 140 168
------- -------
Recoveries:
Commercial loans 13 2
Real estate mortgages 2 -
Installment loans to individuals 19 10
------- -------
Total recoveries 34 12
------- -------
Net charge-offs 106 156
------- -------
Provision charged to operations 235 120
------- -------
Balance, end of period $ 3,132 $ 3,170
======= =======
Net charge-offs as a percent of
average loans, net of unearned 0.04% 0.06%
======= =======
Allowance for loan losses to total loans,
net of unearned income 1.12% 1.33%
======= =======
The Corporation believes that the allowance for possible loan losses at
June 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 June 30, 1996.
<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:
June 30, December 31,
1996 1995
------- -------
(In thousands)
Non-accrual loans $ 907 $ 901
Loans past due 90 days or more 267 266
Restructured loans - -
------- -------
Total non-performing loans 1,174 1,167
Other real estate owned 31 -
------- -------
Total non-performing assets $ 1,205 $ 1,167
======= =======
Non-performing loans as a percentage of
total loans, net of earned income 0.42% 0.45%
Non-performing assets as a percentage of
total assets 0.31% 0.31%
Non-performing assets as a percentage of
Allowance for possible loan loss 38.47% 38.86%
At June 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 June 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 remained relatively stable, decreasing $33,000 or .01%
when compared to December 31, 1995 Noninterest-bearing deposits and time
deposits decreased $1,762,000 or 4.2% and $1,756,000 or 1.0%, respectively.
The Corporation's growth occurred mostly in money market accounts,
increasing by $2,344,000 or 4.9%. The Corporation has implemented an
aggressive marketing strategy in the later part of the first half of 1996
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 $24,978,000 and
$27,552,000 at June 30, 1996 and December 31, 1995, respectively.
<PAGE>
BORROWINGS
Total borrowings of the Corporation increased $6,000,000 or 45.5% when
compared to total borrowings at December 31, 1995. This increase was
mainly a result of an increase in short term borrowings attributable to
minimal deposit growth occurring during the first half of 1996. The
proceeds received from these borrowings were used to fund loan growth
occurring in the same period.
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 1996 AND 1995.
SUMMARY OF EARNINGS
The Corporation earned $1,128,000 or $0.33 per share for the three
months ended June 30, 1996. This represents an increase of $143,000 or
14.5% 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 $353,000 or 9.2% during
the three months ended June 30, 1996 when compared to the same period in
1995. This increase is a result of a $485,000 or 7.0% increase in total
interest income, offset by an increase of $132,000 or 4.2% 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 4.72% at June 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 $502,000 or 9.2% 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 $75,000 or 5.4% for
the second quarter of 1996 compared to the same period in 1995. This
increase is attributable to a slight 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 income on federal funds sold decreased $92,000 or 73.6% for the
second 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 slight decrease in the
average yield earned on these assets during the same period.
Interest expense on deposits increased $24,000 or .8% for the second
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 offset by a slight decrease in the average rate paid
on these funds during the same period.
Interest expense on borrowings increased $108,000 or 180.0% for the
three months ended June 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>
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 June 30,
1996 1995
----------------- ------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
-------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 2,205 5.94% $ 8,241 6.07%
Investment securities (1) (3) 91,876 6.73 91,100 6.35
Loans (2) (3) 266,780 9.26 242,943 9.20
-------- ----- -------- -----
Total interest earning assets 360,861 8.59 342,284 8.36
-------- ----- -------- -----
Interest-bearing liabilities:
Deposits 291,005 4.23 286,763 4.26
Short term borrowings 7,362 6.45 1,700 6.13
Other borrowings 4,000 5.06 1,500 9.09
-------- ----- -------- -----
Total interest-bearing liabilities 302,367 4.30 289,963 4.30
-------- ----- -------- -----
Net earning assets $ 58,494 $ 52,321
========= ========
Net interest spread 4.29% 4.06%
===== =====
Net interest margin (4) 4.99% 4.72%
===== =====
</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
second quarter of 1996 was $130,000 compared to $60,000 charged in the same
period in 1995, representing an increase of $70,000 or 116.7%. 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 $4,000
or .6% for the three months ended June 30, 1996 when compared to the same
period in 1995. This increase was a result of a $33,000 or 20.8% increase
in trust department income, offset by a $16,000 or 4.1% decrease in service
fees on deposit accounts and a decrease of $15,000 in the net realized gain
on the sale of investment securities available for sale. The increase in
trust department income was primarily due to new accounts and increased
trust assets during the second quarter of 1996.
<PAGE>
NONINTEREST INCOME AND EXPENSE (Continued)
The Corporation's total consolidated noninterest expense increased
$113,000 or 3.6% for the three months ended June 30, 1996 compared to the
same period in 1995. This increase was primarily a result of a $95,000 or
10.2% increase in other expenses, a $182,000 or 11.9% increase in salaries
and employee benefits, 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 $92,000 in salaries and wages paid to employees
during the second 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 $70,000 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 $21,000 decrease in the
pension plan expense.
Federal Deposit Insurance Corporation premium expense decreased $164,000
during the second 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
$44,000 in legal fees; (2) an increase of $12,000 in ATM related costs; (3)
a total increase of $11,000 in telephone, postage and stationary expenses;
(4) a $9,000 increase in employee tuition reimbursement expense; and (5) an
increase of $8,000 in professional advisory fees.
FEDERAL INCOME TAXES
Federal income tax expense increased $31,000 or 8.7% for the three
months ended June 30, 1996 compared to the same period ended in 1995 as a
result of an increase in pre-tax earnings. The effective tax rates
were 25.6% and 26.7% for the 1996 and 1995 period, respectively.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1995.
SUMMARY OF EARNINGS
The Corporation earned $2,306,000 or $0.68 per share for the six months
ended June 30, 1996. This represents an increase of $386,000 or 20.1% 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 $738,000 or 9.9% during
the six months ended June 30, 1996 when compared to the same period in
1995. This increase is a result of a $1,517,000 or 11.4% increase in total
interest income, offset by an increase of $779,000 or 13.3% 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 4.87% from 4.74% at June 30, 1995.
Interest income on loans increased $1,090,000 or 10.2% for the first
half 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>
NET INTEREST INCOME (Continued)
Interest income on investment securities increased $521,000 or 21.1% for
the first half 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 income on federal funds sold decreased $94,000 or 51.1% for the
first half 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 $543,000 or 9.5% for the first
half 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 $236,000 or 195.0% for the six
months ended June 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:
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
-------------------- -------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
--------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 3,340 5.38% $ 6,169 5.97%
Investment securities (1) (3) 95,084 6.66 84,547 6.15
Loans (2) (3) 262,760 9.29 240,011 9.11
--------- ----- -------- -----
Total interest earning assets 361,184 8.56 330,727 8.30
--------- ----- -------- -----
Interest-bearing liabilities:
Deposits 291,471 4.32 275,783 4.18
Short term borrowings 7,966 6.21 1,715 6.11
Other borrowings 3,288 6.81 1,500 9.28
--------- ----- -------- -----
Total interest-bearing
liabilities 302,725 4.40 278,998 4.22
--------- ----- -------- -----
Net earning assets $ 58,459 $ 51,729
========= ========
Net interest spread 4.16% 4.08%
===== =====
Net interest margin (4) 4.87% 4.74%
===== =====
</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.
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to operations in the
first half of 1996 was $235,000 compared to $120,000 charged in the same
period in 1995, representing an increase of $115,000 or 95.8%. 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
$47,000 or 3.7% for the six months ended June 30, 1996 when compared to the
same period in 1995. This increase was a result of a $75,000 or 24.3%
increase in trust department income, a $13,000 or 6.9% increase in other
income, offset by a $26,000 or 3.4% decrease in service fees on deposit
accounts and a decrease of $15,000 in net securities gains realized.
The Corporation's total consolidated noninterest expense increased
$208,000 or 3.4% for the six months ended June 30, 1996 compared to the
same period in 1995. This was primarily a result of a $269,000 or 8.9%
increase in salaries and employee benefits, a $211,000 or 12.5% increase in
other expenses, an increase of $57,000 or 5.9% in net office occupancy and
equipment expense, offset by a decrease of $329,000 or 99.6% in Federal
Deposit Insurance Corporation (FDIC) premium expense.
The increase in salaries and employee benefits is primarily attributable
to: (1) an increase of $165,000 in salaries and wages paid to employees
during the first half of 1996 as a result of an increase in staffing
levels and annual salary adjustments; (2) an increase of $18,000 in bonus
expense due to increased profitability of the Corporation for the same
period; and (3) an increase of $130,000 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 $42,000 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 $329,000
during the first half 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
$56,000 in legal fees; (2) a total increase of $41,000 in telephone,
postage and stationary expenses; (3) a $26,000 increase in employee tuition
reimbursement expense; (4) an increase of $26,000 in ATM related costs; (5)
an increase of $23,000 in professional advisory fees; and (6) an increase
of $17,000 in advertising expense.
FEDERAL INCOME TAXES
Federal income tax expense increased $76,000 or 11.3% for the six months
ended June 30, 1996 compared to the same period ended in 1995 as a result
of an increase in pre-tax earnings. The effective tax rates were 24.5% and
25.9% for the 1996 and 1995 period, respectively.
<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 continuos 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 $32,429,000 at June 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>
LIQUIDITY AND INTEREST RATE SENSITIVITY (Continued)
The following table is presented in conformity with industry practice and
reflects contractual repricing schedules as of June 30, 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 $ 13,164 $ 18,615 $ 38,547 $ 2,243 $ 72,569
Non-taxable 190 460 3,113 8,422 12,185
Loans 58,556 33,558 112,504 73,873 278,491
-------- -------- -------- ------- --------
Total earning assets 71,910 52,633 154,164 84,538 363,245
-------- -------- -------- ------- --------
Interest-bearing demand
deposits - - 27,879 6,825 34,704
Savings deposits - - 28,312 6,931 35,243
Money Market deposits - 24,857 24,857 - 49,714
Time deposits 24,517 83,267 53,431 7,470 168,685
Short term borrowings 13,700 1,500 - - 15,200
Other borrowings - - 4,000 - 4,000
-------- -------- -------- ------- --------
Total interest-bearing
liabilities 38,217 109,624 138,479 21,226 307,546
-------- -------- -------- ------- --------
Interest rate sensitivity
gap $ 33,693 $(56,991) $ 15,685 $63,312 $ 55,699
======== ======== ======== ======= ========
Cumulative interest rate
sensitivity gap $ 33,693 $(23,298) $ (7,613) $ 55,699
======== ======== ======== ========
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets 9.28% -6.41% -2.10% 15.33%
======== ======== ======== ========
</TABLE>
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>
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:
June 30, 1996 December 31, 1995
----------------- ------------------
Amount Percentage Amount Percentage
------- ---------- ------- ----------
(Dollars in thousands)
[S] [C] [C] [C] [C]
Tier I:
Actual $31,880 11.17% $30,668 11.43%
Required 11,417 4.00 10,732 4.00
------- ------ ------- ------
Excess $20,463 7.17% $19,936 7.43%
------- ------ ------- ------
Total risk-based capital:
Actual $35,012 12.27% $33,671 12.55%
Required 22,833 8.00 21,464 8.00
------- ------ ------- ------
Excess $12,179 4.27% $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 8.39% and 8.13% at June 30,
1996 and December 31, 1995, respectively.
<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
(a) The Corporation's annual meeting of shareholders was held on April 29,
1996.
(b) The following directors were elected to a three year term expiring in
1999: Del E. Goedeker, Harry J. Johnston, Thomas K. Reed and
Joseph N. Tosh II.
The following directors' terms continued after the annual meeting:
Robert F. Garvin, Jr., Charles I. Homan, Wayne S. Luce, Sister
Mary Thaddeus Markelewicz, Gino E. Martinetti, Elvin W. Batchelor,
Daniel Dalle Molle, A. Dean Heasley, Z. John Kruzic and
Harold V. Shank.
(c) Shareholders ratified the appointment of S.R. Snodgrass, A.C. as
independent certified public accountants to audit the
consolidated financial statements of the Corporation for the
1996 fiscal year.
The results of the votes from the annual meeting were as follows:
For Against Withheld
Del E. Goedeker 2,424,186 1,152 120
Harry J. Johnston 2,424,306 1,152 -
Thomas K. Reed 2,424,306 1,152 -
Joseph N. Tosh II 2,424,306 1,152 -
S.R. Snodgrass, A.C. 2,424,274 943 241
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
An 8-K was filed on May 29, 1996 announcing that the corporation
received approval for a listing on the NASDAQ National Market.
The Corporation's common stock commenced trading on June 3, 1996
under the symbol "CYFN".
<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: August 5, 1996 By /s/ Joseph N. Tosh, II
Joseph N. Tosh, II
President and Chief Executive
Officer
(Principal Executive Officer)
Date: August 5, 1996 By /s/ Donald A. Benziger
Donald A. Benziger
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,435
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,754
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 278,491
<ALLOWANCE> 3,132
<TOTAL-ASSETS> 383,446
<DEPOSITS> 328,292
<SHORT-TERM> 15,200
<LIABILITIES-OTHER> 3,678
<LONG-TERM> 4,000
0
0
<COMMON> 2,821
<OTHER-SE> 29,455
<TOTAL-LIABILITIES-AND-EQUITY> 383,446
<INTEREST-LOAN> 11,765
<INTEREST-INVEST> 2,982
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 14,837
<INTEREST-DEPOSIT> 6,266
<INTEREST-EXPENSE> 6,623
<INTEREST-INCOME-NET> 8,214
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 6,240
<INCOME-PRETAX> 3,054
<INCOME-PRE-EXTRAORDINARY> 3,054
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,306
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.87
<LOANS-NON> 907
<LOANS-PAST> 267
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,003
<CHARGE-OFFS> 140
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 3,132
<ALLOWANCE-DOMESTIC> 3,132
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
