<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, 1997
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;
3,373,825 shares outstanding at May 2, 1997
<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)
March 31, December 31,
1997 1996
----------- -----------
(In thousands)
ASSETS
Cash and due from banks $ 13,306 $ 13,004
Federal funds sold 2,150 8,790
Investment securities available for sale 72,522 71,873
Loans (net of unearned income of $11,379 and
$10,677) 321,234 308,010
Less allowance for loan losses 3,330 3,234
----------- -----------
Net Loans 317,904 304,776
Premises and equipment 10,031 10,020
Accrued interest and other assets 5,121 4,395
----------- -----------
TOTAL ASSETS $ 421,034 $ 412,858
=========== ===========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 42,130 $ 41,959
Interest - bearing demand 34,410 33,754
Savings 33,485 33,625
Money market 57,506 60,457
Time 203,201 193,599
----------- -----------
Total deposits 370,732 363,394
Short term borrowings 11,000 7,000
Other borrowings - 4,000
Accrued interest and other liabilities 4,587 4,428
----------- -----------
TOTAL LIABILITIES 386,319 378,822
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $.835; authorized 8,000,000 shares;
issued 3,391,349 and 3,383,943 shares, respectively 2,832 2,826
Additional paid in capital 2,913 2,834
Retained earnings 29,035 28,239
Treasury stock, at cost (20,543 and 20,490 shares) (341) (339)
Net unrealized gain on securities 276 476
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 34,715 34,036
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 421,034 $ 412,858
=========== ===========
See accompanying unaudited notes to the consolidated financial statements.
page 3
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31,
1997 1996
---------- ----------
INTEREST INCOME (In thousands)
Interest and fees on loans:
Taxable $ 6,297 $ 5,396
Tax exempt 534 418
Federal funds sold 139 57
Investment securities:
Taxable 971 1,345
Tax exempt 160 181
---------- ----------
Total interest income 8,101 7,397
---------- ----------
INTEREST EXPENSE
Deposits 3,726 3,195
Short term borrowings 120 127
Other borrowings 27 61
---------- ----------
Total interest expense 3,873 3,383
---------- ----------
NET INTEREST INCOME 4,228 4,014
Provision for loan losses 195 105
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,033 3,909
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 347 359
Trust Department income 245 192
Other 160 96
---------- ----------
Total noninterest income 752 647
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,724 1,602
Net occupancy and equipment expense 527 540
Deposit insurance premium 10 1
Other 852 877
---------- ----------
Total noninterest expense 3,113 3,020
---------- ----------
INCOME BEFORE INCOME TAXES 1,672 1,536
Income taxes 370 358
---------- ----------
NET INCOME $ 1,302 $ 1,178
========== ==========
EARNINGS PER SHARE $ 0.39 $ 0.35
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.13
AVERAGE SHARES OUTSTANDING 3,367,012 3,374,779
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, 1996 $ 2,826 $ 2,834 $ 28,239 $ (339) $ 476 $ 34,036
Net income 1,302 1,302
Dividends ($.15 per share) (506) (506)
Stock options exercised 6 78 84
Purchase of Treasury stock (51) (51)
Sale of Treasury stock 1 49 50
Net unrealized loss on
securities (200) (200)
--------- --------- --------- --------- --------- ---------
Balance, March 31, 1997 $ 2,832 $ 2,913 $ 29,035 $ (341) $ 276 $ 34,715
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
page 5
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
---------- ----------
(In thousands)
OPERATING ACTIVITIES
Net income $ 1,302 $ 1,178
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 195 105
Depreciation, amortization, and accretion, net 160 248
Decrease (increase) in accrued interest receivable (281) 52
Increase in accrued interest payable 347 604
Other, net (531) (239)
---------- ----------
Net cash provided by
operating activities 1,192 1,948
---------- ----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 5,267 2,870
Purchases (6,174) (402)
Net increase in loans (13,311) (2,867)
Purchases of premises and equipment (228) (108)
---------- ----------
Net cash used for investing activities (14,446) (507)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 7,338 6,904
Decrease in short term borrowings - (4,500)
Increase in other borrowings - 800
Cash dividends (505) (439)
Proceeds from stock options exercised 84 -
Treasury stock purchase (51) (95)
Proceeds from sale of treasury stock 50 45
---------- ----------
Net cash provided by
financing activities 6,916 2,715
---------- ----------
Increase (decrease) in cash
and cash equivalents (6,338) 4,156
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 21,794 10,426
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,456 $ 14,582
========== ==========
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 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 three months ended March 31, 1997 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 Transfers and Servicing of Financial Assets and
--------------------------------------------------------------
Extinguishment of Liabilities
-----------------------------
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Statement No. 125
establishes for resolving issues relating to circumstances under which the
transfer of financial assets should be considered as sales of all or part of
the assets or as secured borrowings and about when a liability should be
considered extinguished. Management believes that the implementation of
Statement No. 125 does not have a significant effect on the financial position
or results of operations of the Corporation.
Earnings Per Share
------------------
Earnings per share for the three months ended March 31, 1997 and 1996, 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.
page 7
<PAGE>
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Standards
----------------------------
On March 3, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share." Statement
No. 128 will become effective for the Corporation beginning in 1998. This
statement re-defines the standards for computing earnings per share (EPS)
previously found in Accounting Principles Board Opinion No. 15, Earnings Per
Share. Statement No. 128 establishes new standards for computing and
presenting EPS and requires dual presentation of "basic" and "diluted" EPS on
the face of the income statement for all entities with complex capital
structures. Under Statement No. 128, basic EPS is to be computed based upon
income available to common shareholders and the weighted average number of
common shares outstanding for the period. Diluted EPS is to reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Corporation.
Statement No. 128 also requires the restatement of all prior-period EPS data
presented. The Corporation will adopt Statement No. 128 on January 1, 1998
and based on current estimates, does not believe the effect of adoption will
have a significant impact on the Corporation's financial position or results
of operations.
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
Three Months Ended
March 31,
1997 1996
---------- ----------
(In thousands)
Cash paid during the year for:
Interest $ 3,526 $ 2,779
Income taxes 15 -
page 8
<PAGE>
CENTURY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
Summary of Financial Condition
- ------------------------------
The Corporation's consolidated assets were $421,034,000 at March 31, 1997, an
increase of $8,176,000 or 2.0% over assets at December 31, 1996. This
increase was attributable to an increase in net loans receivable offset by a
reduction in Federal funds sold. The increase in net loans receivable was the
result of strong loan demand in the first quarter of 1997, with much of the
growth being funded by a combination of Federal funds sold and deposit growth
occurring during the same period. Total consolidated liabilities increased
$7,497,000 or 2.0% when compared to total consolidated liabilities as of
December 31, 1996. The increase in total liabilities was mostly attributable
to an increase in total deposits. The Corporation's total consolidated
stockholders' equity increased $679,000 or 2.0% when compared to total
stockholders' equity at December 31, 1996. This increase was primarily a
result of $1,302,000 in net income earned, less cash dividends declared to
shareholders of $506,000, offset by a decrease of $200,000 in the net
unrealized gain on investment securities available for sale.
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale at March 31, 1997 remained stable
increasing slightly to $72,522,000 from $71,873,000 at December 31, 1996.
This increase was the result of $6,174,000 in purchases, offset by maturities
of $5,267,000 and a reduction of $302,000 in the unrealized holding gain.
Loan Portfolio
- --------------
Net loans increased $13,128,000 or 4.3% in the first quarter of 1997 when
compared to December 31, 1996. This increase was mainly the result of strong
loan demand in the first quarter with much of the growth occurring in
commercial and real estate loans which increased $3,979,000 or 5.0% and
$10,520,000 or 8.4%, respectively, offset by a decrease in real estate
construction loans.
The following table represents the composition of the Corporation's loan
portfolio:
March 31, December 31,
1997 1996
---------- ----------
(In thousands)
Commercial, financial, and agricultural $ 82,645 $ 78,666
Real estate - construction 7,804 11,042
Real estate - mortgage 135,477 124,957
Installment loans to individuals 85,023 83,637
Tax exempt loans 21,664 20,385
---------- ----------
332,613 318,687
Less unearned income 11,379 10,677
---------- ----------
321,234 308,010
Less allowance for loan losses 3,330 3,234
---------- ----------
Net loans $ 317,904 $ 304,776
========== ==========
page 9
<PAGE>
Allowance for Loan Losses
- -------------------------
The Corporation's allowance for loan losses was $3,330,000 at March 31, 1997
compared to $3,234,000 at December 31, 1996. This represents a $96,000 or
3.0% increase for the first three months of 1997.
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:
Three Months Ended
March 31,
1997 1996
---------- ----------
(Dollars in thousands)
Balance, beginning of period $ 3,234 $ 3,003
Charge-offs:
Commercial loans 3 -
Real estate mortgages - -
Installment loans to individuals 134 56
---------- ----------
Total charge-offs 137 56
---------- ----------
Recoveries:
Commercial loans - 12
Real estate mortgages 3 1
Installment loans to individuals 35 6
---------- ----------
Total recoveries 38 19
---------- ----------
Net charge-offs 99 37
---------- ----------
Provision charged to operations 195 105
---------- ----------
Balance, end of period $ 3,330 $ 3,071
========== ==========
Net charge-offs as a percent of average loans,
net of unearned 0.03% 0.01%
========== ==========
Allowance for loan losses to total loans,
net of unearned income 1.04% 1.18%
========== ==========
The Corporation believes that the allowance for loan losses at March 31, 1997
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, 1997.
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:
March 31, December 31,
1997 1996
---------- ----------
(In thousands)
Non-accrual loans $ 2,562 $ 872
Loans past due 90 days or more 155 223
Restructured loans - -
---------- ----------
Total non-performing loans 2,717 1,095
Other real estate owned - -
---------- ----------
Total non-performing assets $ 2,717 $ 1,095
========== ==========
Non-performing loans as a percentage of
total loans, net of unearned income 0.85% 0.36%
Non-performing assets as a percentage of
total assets 0.65% 0.27%
Non-performing assets as a percentage of
allowance for 81.59% 33.86%
Total non-performing assets at March 31, 1997 totaled $2,717,000, an increase
of $1,622,000 compared to December 31, 1996. This increase was primarily
attributable to a $1,741,000 increase in non-accrual loans as a result of a
commercial real estate loan placed on non-accrual status due the debtor filing
for bankruptcy in March, 1997. Collateral for the commercial real estate loan
consists of two commercial properties, of which Century has a first mortgage
lien position on one of the properties, and as additional collateral, a second
mortgage lien position on the second property. In accordance with Statement
of Financial Accounting Standard No. 114 and 118, the loan is considered to be
impaired and a specific impairment reserve has been established.
At March 31, 1997, 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 $7,338,000 or 2.0% when compared to December 31,
1996. Money market deposits decreased $2,951,000 or 4.9% in the first three
months of 1997. The Corporation's growth occurred mostly in demand and time
deposits. These deposits increased $827,000 or 1.1% and $9,602,000 or 5.0%,
respectively. This increase was mainly a result of the Corporation
successfully promoting its deposit marketing strategy in 1996, and
thereafter. 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.
page 11
<PAGE>
Deposits (Continued)
- --------------------
Time deposits include certificates of deposits in denominations of $100,000 or
more. Such deposits aggregate $32,380,000 and $29,492,000 at March 31, 1997
and December 31, 1996, respectively.
Borrowings
- ----------
Total borrowings of the Corporation remained unchanged when compared to total
borrowings at December 31, 1996. Total borrowings at March 31, 1997 consisted
solely of borrowings from the Federal Home Loan Bank of Pittsburgh.
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996.
Summary of Earnings
- -------------------
The Corporation earned $1,302,000 or $0.39 per share for the three months
ended March 31, 1997. This represents an increase of $124,000 or 10.5% over
net income reported for the same period in 1996. The increase in net income
is attributable to an increase in net interest income and other income, offset
by an increase in the provision for loan losses and noninterest expense.
Net Interest Income
- -------------------
The Corporation's net interest income increased $214,000 or 5.3% during the
three months ended March 31, 1997 when compared to the same period in 1996.
This increase is a result of a $704,000 or 9.5% increase in total interest
income, offset by an increase of $490,000 or 14.5% 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,
decreased by 14 basis points to 4.63% from 4.77% at March 31, 1996.
(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 $1,017,000 or 17.5% for the first quarter
of 1997 compared to the same period in 1996. This increase is attributable to
an increase in the average loan balance outstanding during the 1997 period
offset by a decrease in the average yield earned.
Interest income on investment securities decreased $395,000 or 25.9% for the
first quarter of 1997 compared to the same period in 1996. This decrease is
attributable to a decrease in the average balance of investment securities
outstanding during the 1997 period, as well as a decrease in the average yield
earned.
Interest income on federal funds sold increased $82,000 or 143.4% for the
first quarter of 1997 compared to the same period in 1996. This increase is a
result of an increase in the average balance of federal funds sold outstanding
during the 1997 period as well as an increase in the average yield earned.
Interest expense on deposits increased $531,000 or 16.6% for the first quarter
of 1997 compared to the same period in 1996. This increase is attributable to
an increase in the average rate paid on these funds during the 1997 period as
well as an increase in the average balance of deposits outstanding during the
same period.
page 12
<PAGE>
Net Interest Income (Continued)
- -------------------------------
Interest expense on borrowings decreased $41,000 or 21.9% for the three months
ended March 31, 1997 compared to the same period in 1996. This decrease was
attributable to a decrease in the average balance outstanding during the
period as well as an increase 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>
Three months ended March 31,
-------------------------------------------------
1997 1996
-------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 10,397 5.41% $ 4,474 5.11%
Investment securities (2) 76,504 6.43 98,293 6.59
Loans (1) (2) 315,050 9.15 259,174 9.28
---------- ---------- ---------- ----------
Total interest earning assets 401,951 8.53 361,941 8.52
---------- ---------- ---------- ----------
Interest-bearing liabilities:
Deposits 325,782 4.64 291,936 4.39
Short term borrowings 8,822 5.50 8,570 5.97
Other borrowings 2,178 5.06 2,576 9.48
---------- ---------- ---------- ----------
Total interest-bearing liabilities 336,782 4.66 303,082 4.48
---------- ---------- ---------- ----------
Net earning assets $ 65,169 $ 58,859
========== ==========
Net interest spread 3.87% 4.04%
========== ==========
Net interest margin (3) 4.63% 4.77%
========== ==========
</TABLE>
(1) For the purpose of these computations, non-accrual loans are included
in the daily average loan amounts outstanding.
(2) Yields are computed on a tax equivalent basis using a 34% federal
income tax rate.
(3) 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 first quarter of
1997 was $195,000 compared to $105,000 charged in the same period in 1996,
representing an increase of $90,000 or 85.7%. The increase in the provision
was a result of factors such as the increase in loan portfolio during 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 $105,000 or
16.2% for the three months ended March 31, 1997 when compared to the same
period in 1996. This increase was a result of a $53,000 or 27.6% increase in
trust department income, an increase of $64,000 or 66.7% in other income,
offset by a $12,000 or 3.3% decrease in service fees on deposit accounts.
Trust department income increased as a result of continued growth in both the
number and value of trust accounts. The increase in other income was
attributable to recoveries received relating to physical damages occurring at
a branch facility.
page 13
<PAGE>
Noninterest Income and Expense (Continued)
- -----------------------------------------
The Corporation's total consolidated noninterest expense increased $93,000 or
3.1% for the three months ended March 31, 1997 compared to the same period in
1996. This increase was primarily a result of a $122,000 or 7.6% increase in
salaries and employee benefits, an increase of $9,000 in Federal Deposit
Insurance Corporation (FDIC) premium expense, offset by a reduction of $13,000
in net occupancy and equipment expense and a $25,000 decrease in other
expenses.
The increase in salaries and employee benefits is primarily attributable to:
(1) an increase of $65,000 in salaries and wages paid to employees during the
first quarter of 1997 as a result of an increase in staffing levels and annual
salary adjustments; (2) an increase of $26,000 in bonus and sales incentive
expense which is tied to the profitability of the Corporation; and (3) an
increase of $19,000 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.
Other expense decreased mainly as a result of decreases in advertising costs,
professional advisory fees and data processing costs.
Federal Income Taxes
- --------------------
Federal income tax expense increased $12,000 or 3.4% for the three months
ended March 31, 1997 compared to the same period in 1996. This increase was
the result of an increase in profitability of the Corporation offset by an
increase in tax-exempt interest earned.
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 $28,590,000 at March 31, 1997.
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 14
<PAGE>
Liquidity and Interest Rate Sensitivity (Continued)
- --------------------------------------------------
The following table is presented in conformity with industry practice and
reflects contractual repricing schedules as of March 31, 1997:
<TABLE>
<CAPTION>
Within 3 3-12 1-5 Over
Months Months Years 5 Years Total
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 2,150 $ - $ - $ - $ 2,150
Investment securities:
Taxable 14,310 11,670 31,685 2,827 60,492
Non-taxable - 460 6,074 5,496 12,030
Loans 58,293 35,287 129,660 97,994 321,234
---------- ---------- ---------- ---------- ----------
Total earning assets 74,753 47,417 167,419 106,317 395,906
---------- ---------- ---------- ---------- ----------
Interest-bearing demand
deposits - - 34,410 - 34,410
Savings deposits - - 33,485 - 33,485
Money Market deposits 16,428 20,538 20,540 - 57,506
Time deposits 48,583 79,052 70,073 5,493 203,201
Short term borrowings 7,000 4,000 - - 11,000
---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities 72,011 103,590 158,508 5,493 339,602
---------- ---------- ---------- ---------- ----------
Interest rate sensitivity
gap $ 2,742 $ (56,173) $ 8,911 $ 100,824 $ 56,304
========== ========== ========== ========== ==========
Cumulative interest rate
sensitivity gap $ 2,742 $ (53,431) $ (44,520) $ 56,304
========== ========== ========== ==========
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets 0.69% (13.50)% (11.25)% 14.22%
========== ========== ========== ==========
</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 15
<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.
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
average 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 average 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 Tier I, total risk-based capital and leveraged capital
ratios consisted of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
Amount Percentage Amount Percentage
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total Capital:
(to Risk Weighted Assets)
Actual $ 37,625 11.71% $ 36,643 11.95%
For Capital Adequacy 25,702 8.00 24,522 8.00
--------- --------- --------- ---------
Excess $ 11,923 3.71% $ 12,121 3.95%
--------- --------- --------- ---------
Tier I Capital:
(to Risk Weighted Assets)
Actual $ 34,295 10.67% $ 33,409 10.90%
For Capital Adequacy 12,851 4.00 12,261 4.00
--------- --------- --------- ---------
Excess $ 21,444 6.67% $ 21,148 6.90%
--------- --------- --------- ---------
Tier I Capital:
(to Average Assets)
Actual $ 34,295 8.32% $ 33,409 8.25%
For Capital Adequacy 16,483 4.00 16,208 4.00
--------- --------- --------- ---------
Excess $ 17,812 4.32% $ 17,201 4.25%
--------- --------- --------- ---------
</TABLE>
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 2, 1997 By: /s/ Joseph N. Tosh, II
-----------------------------------
Joseph N. Tosh, II
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 2, 1997 By: /s/ Donald A. Benziger
-----------------------------------
Donald A. Benziger
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
page 18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 13,306
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,522
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 321,234
<ALLOWANCE> 3,330
<TOTAL-ASSETS> 421,034
<DEPOSITS> 370,732
<SHORT-TERM> 11,000
<LIABILITIES-OTHER> 4,587
<LONG-TERM> 0
0
0
<COMMON> 2,832
<OTHER-SE> 31,883
<TOTAL-LIABILITIES-AND-EQUITY> 421,034
<INTEREST-LOAN> 6,831
<INTEREST-INVEST> 1,131
<INTEREST-OTHER> 139
<INTEREST-TOTAL> 8,101
<INTEREST-DEPOSIT> 3,726
<INTEREST-EXPENSE> 3,873
<INTEREST-INCOME-NET> 4,228
<LOAN-LOSSES> 195
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,113
<INCOME-PRETAX> 1,672
<INCOME-PRE-EXTRAORDINARY> 1,302
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,302
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 4.63
<LOANS-NON> 2,562
<LOANS-PAST> 155
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,234
<CHARGE-OFFS> 137
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 3,330
<ALLOWANCE-DOMESTIC> 3,330
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
