<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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
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; 5,067,646 shares
outstanding at August 4, 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 4-5
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 10-19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
page 2
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1997 1996
---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 13,783 $ 13,004
Federal funds sold - 8,790
Investment securities available for sale 69,386 71,873
Loans (net of unearned income of $12,489 and
$10,677) 329,791 308,010
Less allowance for loan losses 3,376 3,234
---------- ----------
Net Loans 326,415 304,776
Premises and equipment 10,663 10,020
Accrued interest and other assets 5,261 4,395
---------- ----------
TOTAL ASSETS $ 425,508 $ 412,858
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 44,507 $ 41,959
Interest-bearing demand 35,132 33,754
Savings 33,621 33,625
Money market 57,697 60,457
Time 196,115 193,599
---------- ----------
Total deposits 367,072 363,394
Short term borrowings 19,160 7,000
Other borrowings - 4,000
Accrued interest and other liabilities 3,825 4,428
---------- ----------
TOTAL LIABILITIES 390,057 378,822
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $.835; authorized 8,000,000
shares issued 5,105,741 and 3,383,943 shares,
respectively 4,263 2,826
Additional paid in capital 3,054 2,834
Retained earnings 28,312 28,239
Treasury stock, at cost (45,149 and 20,490 shares) (592) (339)
Net unrealized gain on securities 414 476
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 35,451 34,036
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 425,508 $ 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
June 30,
----------------------
1997 1996
---------- ----------
INTEREST INCOME (In thousands)
Interest and fees on loans:
Taxable $ 6,657 $ 5,524
Tax exempt 568 429
Federal funds sold 56 33
Investment securities:
Taxable 974 1,282
Tax exempt 160 173
---------- ----------
Total interest income 8,415 7,441
---------- ----------
INTEREST EXPENSE
Deposits 3,870 3,072
Short term borrowings 161 118
Other borrowings - 50
---------- ----------
Total interest expense 4,031 3,240
---------- ----------
NET INTEREST INCOME 4,384 4,201
Provision for loan losses 195 130
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,189 4,071
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 367 369
Trust Department income 245 192
Net gain on sale of securities - 1
Other 161 105
---------- ----------
Total noninterest income 773 667
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,766 1,706
Net occupancy and equipment expense 544 490
Deposit insurance premium 12 1
Other 1,053 1,024
---------- ----------
Total noninterest expense 3,375 3,221
---------- ----------
INCOME BEFORE INCOME TAXES 1,587 1,517
Income taxes 334 389
---------- ----------
NET INCOME $ 1,253 $ 1,128
========== ==========
EARNINGS PER SHARE $ 0.25 $ 0.22
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.11 $ 0.09
AVERAGE SHARES OUTSTANDING 5,059,720 5,061,683
See accompanying unaudited notes to the consolidated financial statements.
page 4
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Six Months Ended
June 30,
----------------------
1997 1996
---------- ----------
INTEREST INCOME (In thousands)
Interest and fees on loans:
Taxable $ 12,955 $ 10,918
Tax exempt 1,102 847
Federal funds sold 195 90
Investment securities:
Taxable 1,945 2,627
Tax exempt 320 355
---------- ----------
Total interest income 16,517 14,837
---------- ----------
INTEREST EXPENSE
Deposits 7,596 6,266
Short term borrowings 281 246
Other borrowings 27 111
---------- ----------
Total interest expense 7,904 6,623
---------- ----------
NET INTEREST INCOME 8,613 8,214
Provision for loan losses 390 235
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 8,223 7,979
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 714 729
Trust Department income 490 384
Net gain on sale of securities - 1
Other 320 201
---------- ----------
Total noninterest income 1,524 1,315
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 3,489 3,306
Net occupancy and equipment expense 1,070 1,030
Deposit insurance premium 22 1
Other 1,907 1,903
---------- ----------
Total noninterest expense 6,488 6,240
---------- ----------
INCOME BEFORE INCOME TAXES 3,259 3,054
Income taxes 704 748
---------- ----------
NET INCOME $ 2,555 $ 2,306
========== ==========
EARNINGS PER SHARE $ 0.51 $ 0.45
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.21 $ 0.18
AVERAGE SHARES OUTSTANDING 5,056,762 5,061,926
See accompanying unaudited notes to the consolidated financial statements.
page 5
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Common Paid in Retained Treasury Gain (loss) Stockholders'
Stock Capital Earnings Stock on Securities Equity
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 2,826 $ 2,834 $ 28,239 $ (339) $ 476 $ 34,036
Net income 2,555 2,555
Dividends ($.21 per share) (1,066) (1,066)
Fifty percent stock dividend 1,416 (1,416) -
Stock options exercised 21 212 233
Purchase of Treasury stock (351) (351)
Sale of Treasury stock 8 98 106
Net unrealized loss on
securities (62) (62)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1997 $ 4,263 $ 3,054 $ 28,312 $ (592) $ 414 $ 35,451
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
page 6
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
1997 1996
---------- ----------
(In thousands)
OPERATING ACTIVITIES
Net income $ 2,555 $ 2,306
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 390 235
Depreciation, amortization, and accrection, net 338 279
Investment securities gains, net - 1
Decrease (increase) in accrued interest receivable (488) (116)
Increase (decrease) in accrued interest payable (236) (157)
Other, net (767) (258)
---------- ----------
Net cash provided by operating activities 1,792 2,290
---------- ----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 14,148 14,899
Purchases (11,700) (4,660)
Proceeds from the sale of securities - 2,881
Net increase in loans (18,742) (20,953)
Purchase of loans receivable (3,250) -
Purchases of premises and equipment (1,073) (1,535)
---------- ----------
Net cash used for investing activities (20,617) (9,368)
---------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,678 (33)
Increase (decrease) in short term borrowings 8,160 5,200
Increase in other borrowings - 800
Cash dividends (1,012) (877)
Proceeds from stock options exercised 233 14
Treasury stock purchase (351) (111)
Proceeds from sale of treasury stock 106 94
---------- ----------
Net cash provided by financing activities 10,814 5,087
---------- ----------
Increase (decrease) in cash and cash equivalents (8,011) (1,991)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 21,794 10,426
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,783 $ 8,435
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
page 7
<PAGE>
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Century Financial Corporation
("Corporation") includes the accounts of the Corporation and its wholly owned
subsidiary, Century National Bank and Trust Company ("Century"). Significant
intercompany items have been eliminated in consolidation.
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation have been included. The
results of operations for the three and six months ended June 30, 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 and six months ended June 30, 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 8
<PAGE>
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Standards
- ----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." This statement
re-defines the standards for computing earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
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.
Management believes that the adoption of this statement will not have a
significant impact on the Corporation's financial position or results of
operations.
In July 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income."
Statement No. 130 establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. It requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is presented with the same prominence as other financial statements.
SFAS No. 130 requires that companies (I) classify items of other
comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the statement of financial condition. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comprehensive purposes
is required.
Reclassification of Comparative Amounts
- ---------------------------------------
Certain comparative amounts for prior periods have been reclassified to
conform with current period presentations.
Common Stock Split
- ------------------
On March 20, 1997, the Board of Directors approved a three-for-two stock
split. The additional shares resulting from the split were effected in the
form of a 50% stock dividend. All references to the average number of common
shares and per share amounts for 1996 have been restated to reflect the stock
split.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended
June 30,
----------------------
1997 1996
---------- ----------
(In thousands)
Cash paid during the year for:
Interest $ 8,168 $ 6,780
Income taxes 450 630
page 9
<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 $425,508,000 at June 30, 1997, an
increase of $12,650,000 or 3.1% 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 half of 1997, with much of the
growth being funded by a combination of sources, including federal funds sold,
maturing investment securities and short term borrowings. Total consolidated
liabilities increased $11,235,000 or 3.0% when compared to total consolidated
liabilities as of December 31, 1996. The increase in total liabilities was
mostly attributable to an increase in short term borrowings and deposits. The
Corporation's total consolidated stockholders' equity increased $1,415,000 or
4.2% when compared to total stockholders' equity at December 31, 1996. This
increase was primarily a result of $2,555,000 in net income earned, less cash
dividends declared to shareholders of $1,066,000, offset by a decrease in the
net unrealized gain on investment securities available for sale and an
increase in treasury stock.
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale at June 30, 1997 decreased $2,487,000
or 3.5% when compared to December 31, 1996. This decrease was the result of
$14,148,000 in scheduled maturities, offset by purchases of $11,700,000.
Loan Portfolio
- --------------
Net loans increased $21,639,000 or 7.1% in the first half of 1997 when
compared to December 31, 1996. This increase was due to strong loan demand in
early 1997, with much of the growth occurring in commercial and real estate
mortgage loans which increased $3,944,000 or 5.0% and $19,265,000 or 15.4%,
respectively.
The following table represents the composition of the Corporation's loan
portfolio:
June 30, December 31,
1997 1996
--------- ---------
(In thousands)
Commercial, financial, and agricultural $ 82,610 $ 78,666
Real estate - construction 10,334 11,042
Real estate - mortgage 144,222 124,957
Installment loans to individuals 86,188 83,637
Tax exempt loans 18,926 20,385
--------- ---------
342,280 318,687
Less unearned income 12,489 10,677
--------- ---------
329,791 308,010
Less allowance for loan losses 3,376 3,234
--------- ---------
Net loans $ 326,415 $ 304,776
========= ==========
page 10
<PAGE>
Allowance for Loan Losses
- -------------------------
The Corporation's allowance for loan losses was $3,376,000 at June 30, 1997
compared to $3,234,000 at December 31, 1996. This represents a $142,000 or
4.4% increase for the first half 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:
Six Months Ended
June 30,
----------------------
1997 1996
---------- ----------
(Dollars in thousands)
Balance, beginning of period $ 3,234 $ 3,003
Charge-offs:
Commercial loans 7 10
Real estate mortgages - -
Installment loans to individuals 287 130
---------- ----------
Total charge-offs 294 140
---------- ----------
Recoveries:
Commercial loans 3 13
Real estate mortgages 3 2
Installment loans to individuals 40 19
---------- ----------
Total recoveries 46 34
---------- ----------
Net charge-offs 248 106
---------- ----------
Provision charged to operations 390 235
---------- ----------
Balance, end of period $ 3,376 $ 3,132
========== ==========
Net charge-offs as a percent of average loans,
net of unearned 0.07% 0.04%
========== ==========
Allowance for loan losses to total loans, net of
unearned income 1.02% 1.12%
========== ==========
The Corporation believes that the allowance for loan losses at June 30, 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 June 30, 1997.
page 11
<PAGE>
Non-performing Assets
- ---------------------
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans consists of non-accrual loans, loans 90 days or
more past due, and restructured loans. Non-accrual loans represent loans on
which interest accruals have been discontinued and any previously accrued
interest is reversed against current income. Restructured loans are loans
with respect to which a borrower has been granted a concession on the interest
rate or the original repayment terms because of financial difficulties.
The following table sets forth information regarding non-performing assets:
June 30, December 31,
1997 1996
--------- ---------
(In thousands)
Non-accrual loans $ 2,909 $ 872
Loans past due 90 days or more 274 223
Restructured loans - -
--------- ---------
Total non-performing loans 3,183 1,095
Other real estate owned - -
--------- ---------
Total non-performing assets $ 3,183 $ 1,095
========= =========
Non-performing loans as a percentage of
total loans, net of unearned income 0.97% 0.36%
Non-performing assets as a percentage
of total assets 0.75% 0.27%
Non-performing assets as a percentage
of allowance for loan losses 94.28% 33.86%
Total non-performing assets at June 30, 1997 totaled $3,183,000, an increase
of $2,088,000 compared to December 31, 1996. This increase was primarily
attributable to a $2,037,000 increase in non-accrual loans as a result of a
commercial real estate loan placed on non-accrual status due to 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.
At June 30, 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 $3,678,000 or 1.0% when compared to December 31,
1996. Money market deposits decreased $2,760,000 or 4.6% in the first half of
1997. The Corporation's growth occurred mostly in demand and time deposits.
These deposits increased $3,926,000 or 5.2% and $2,516,000 or 1.3%,
respectively.
Time deposits include certificates of deposits in denominations of $100,000 or
more. Such deposits aggregate $22,981,000 and $29,492,000 at June 30, 1997
and December 31, 1996, respectively.
page 12
<PAGE>
Borrowings
- ----------
Total borrowings of the Corporation increased $8,160,000 or 74.2% when
compared to total borrowings at December 31, 1996. This increase was mainly a
result of an increase in short term borrowings which were used in part, to
fund current loan growth. Total borrowings at June 30, 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 JUNE 30, 1997 AND 1996.
Summary of Earnings
- -------------------
The Corporation earned $1,253,000 or $0.25 per share for the three months
ended June 30, 1997. This represents an increase of $125,000 or 11.1% 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 $183,000 or 4.4% during the
three months ended June 30, 1997 when compared to the same period in 1996.
This increase is a result of a $974,000 or 13.1% increase in total interest
income, offset by an increase of $791,000 or 24.4% 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 26 basis points to 4.73% from 4.99% at June 30, 1996. (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 $1,272,000 or 21.4% for the second 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 $321,000 or 22.1% for the
second 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, offset by an increase in the average yield
earned.
Interest income on federal funds sold increased $23,000 or 69.7% for the
second 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, offset by a decrease in the average yield
earned.
Interest expense on deposits increased $798,000 or 26.0% for the second
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.
Interest expense on borrowings decreased $7,000 or 4.2% for the three months
ended June 30, 1997 compared to the same period in 1996. This decrease was
attributable to a decrease in the average rate paid on these funds, offset by
a slight increase in the average balance outstanding.
page 13
<PAGE>
Net Interest Income (Continued)
- ------------------------------
The following table illustrates information regarding the average balances,
yields and rates on interest earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------------------
1997 1996
------------------ ------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 3,962 5.66% $ 2,205 5.94%
Investment securities (2) 69,773 7.01 91,876 6.73
Loans (1) (2) 330,934 9.12 266,780 9.26
-------- -------- -------- --------
Total interest earning assets 404,669 8.73 360,861 8.59
-------- -------- -------- --------
Interest-bearing liabilities:
Deposits 331,552 4.68 291,005 4.23
Short term borrowings 11,717 5.49 7,362 6.45
Other borrowings - - 4,000 5.06
-------- -------- -------- --------
Total interest-bearing liabilities 343,269 4.71 302,367 4.30
-------- -------- -------- --------
Net earning assets $ 61,400 $ 58,494
======== ========
Net interest spread 4.01% 4.29%
======== ========
Net interest margin (3) 4.73% 4.99%
======== ========
</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 second quarter of
1997 was $195,000 compared to $130,000 charged in the same period in 1996,
representing an increase of $65,000 or 50.0%. The increase in the provision
was a result of factors such as, (1) the increase in loan portfolio during the
same period; (2) an increase in the level of net charge-offs; and (3)
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 $106,000 or
15.9% for the three months ended June 30, 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 and an increase of $56,000 or 53.3% in other income.
Trust department income increased as a result of continued growth in both the
number and value of trust accounts and the increase in other income was
attributable to an increase in ATM fees.
The Corporation's total consolidated noninterest expense increased $154,000 or
4.8% for the three months ended June 30, 1997 compared to the same period in
1996. This increase was primarily a result of a $60,000 or 3.5% increase in
salaries and employee benefits and an increase of $54,000 or 11.0% in
occupancy and equipment expense.
page 14
<PAGE>
Federal Income Taxes
- --------------------
Federal income tax expense decreased $55,000 or 14.1% for the three months
ended June 30, 1997 compared to the same period in 1996. This decrease was
the result of an increase in tax-exempt interest earned, offset by a lesser
increase in the profitability of the Corporation.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1996.
Summary of Earnings
- -------------------
The Corporation earned $2,555,000 or $0.51 per share for the first half of
1997. This represents an increase of $249,000 or 10.8% 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 $399,000 or 4.9% during the
first half of 1997 when compared to the same period in 1996. This increase is
a result of a $1,680,000 or 11.3% increase in total interest income, offset by
an increase of $1,281,000 or 19.3% 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, decreased by
16 basis points to 4.71% from 4.87% at June 30, 1996. (Reference may be made
to the table on page 16 in conjunction with the following paragraphs for
further analysis of net interest income.)
Interest income on loans increased $2,292,000 or 19.5% for the first half 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 $717,000 or 24.0% for the
first half 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, offset by an increase in the average yield
earned.
Interest income on federal funds sold increased $105,000 or 116.7% for the
first half 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 $1,330,000 or 21.2% for the first half
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.
Interest expense on borrowings decreased $49,000 or 13.7% for the six months
ended June 30, 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 a decrease in the average rate paid on these funds.
page 15
<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>
Six months ended June 30,
----------------------------------------
1997 1996
------------------ ------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 7,162 5.48% $ 3,340 5.38%
Investment securities (2) 69,753 7.03 95,084 6.66
Loans (1) (2) 323,108 9.13 262,760 9.29
-------- -------- -------- --------
Total interest earning assets 400,023 8.70 361,184 8.56
-------- -------- -------- --------
Interest-bearing liabilities:
Deposits 328,186 4.67 291,471 4.32
Short term borrowings 9,775 5.80 7,966 6.21
Other borrowings 1,585 3.46 3,288 6.81
-------- -------- -------- --------
Total interest-bearing liabilities 339,546 4.69 302,725 4.40
-------- -------- -------- --------
Net earning assets $ 60,477 $ 58,459
======== ========
Net interest spread 4.01% 4.16%
======== ========
Net interest margin (3) 4.71% 4.87%
======== ========
</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 half of 1997
was $390,000 compared to $235,000 charged in the same period in 1996,
representing an increase of $155,000 or 66.0%. The increase in the provision
was a result of factors such as; (1) the increase in loan portfolio during the
same period; (2) an increase in the level of net charge-offs; and (3)
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 $209,000 or
15.9% for the six months ended June 30, 1997 when compared to the same period
in 1996. This increase was a result of a $106,000 or 27.6% increase in trust
department income, an increase of $119,000 or 59.2% in other income, offset by
a $15,000 or 2.1% 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 of $15,000 received in early 1997 relating to physical damages
occurring at a branch facility and an increase in ATM fees.
The Corporation's total consolidated noninterest expense increased $248,000 or
4.0% for the six months ended June 30, 1997 compared to the same period in
1996. This increase was primarily a result of a $183,000 or 5.5% increase in
salaries and employee benefits, an increase of $40,000 in net occupancy and
equipment expense and an increase of $21,000 in Federal Deposit Insurance
Corporation (FDIC) premium expense.
page 16
<PAGE>
Federal Income Taxes
- --------------------
Federal income tax expense decreased $44,000 or 5.9% for the six months ended
June 30, 1997 compared to the same period in 1996. This decrease was the
result of an increase in tax-exempt interest earned, offset by a lesser
increase in the profitability of the Corporation.
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 $10,534,000 at June 30, 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 17
<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, 1997:
Within 3 3-12 1-5 Over
Months Months Years 5 Years Total
-------- -------- -------- -------- --------
(In thousands)
Federal funds sold $ - $ - $ - $ - $ -
Investment securities:
Taxable 2,497 7,302 44,458 2,831 57,088
Non-taxable 250 485 3,140 8,423 12,298
Loans 63,229 40,834 146,869 78,859 329,791
-------- -------- -------- -------- --------
Total earning assets 65,976 48,621 194,467 90,113 399,177
-------- -------- -------- -------- --------
Interest-bearing demand
deposits 7,026 - 21,196 6,910 35,132
Savings deposits 6,724 6,724 13,560 6,613 33,621
Money Market deposits 17,310 28,848 11,539 - 57,697
Time deposits 23,179 99,189 68,824 4,923 196,115
Short term borrowings 8,160 11,000 - - 19,160
-------- -------- -------- -------- --------
Total interest-bearing
liabilities 62,399 145,761 115,119 18,446 341,725
-------- -------- -------- -------- --------
Interest rate sensitivity
gap $ 3,577 $(97,140) $ 79,348 $ 71,667 $ 57,452
======== ======== ======== ======== ========
Cumulative interest rate
sensitivity gap $ 3,577 $(93,563) $(14,215) $ 57,452
======== ======== ======== ========
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets 0.90% -23.44% -3.56% 14.39%
======== ======== ======== ========
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 the 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 18
<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
- -----------------
As a bank holding company, the Corporation 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:
June 30, 1997 December 31, 1996
--------------------------------------------
Amount Percentage Amount Percentage
-------- -------- -------- --------
(Dollars in thousands)
Total Capital:
(to Risk Weighted Assets)
Actual $ 38,275 11.95% $ 36,643 11.95%
For Capital Adequacy 25,620 8.00 24,522 8.00
-------- -------- -------- --------
Excess $ 12,655 3.95% $ 12,121 3.95%
-------- -------- -------- --------
Tier I Capital:
(to Risk Weighted Assets)
Actual $ 34,899 10.90% $ 33,409 10.90%
For Capital Adequacy 12,810 4.00 12,261 4.00
-------- -------- -------- --------
Excess $ 22,089 6.90% $ 21,148 6.90%
-------- -------- -------- --------
Tier I Capital:
(to Average Assets)
Actual $ 34,899 8.19% $ 33,409 8.25%
For Capital Adequacy 17,053 4.00 16,208 4.00
-------- -------- -------- --------
Excess $ 17,846 4.19% $ 17,201 4.25%
-------- -------- -------- --------
page 19
<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 28,
1997.
(b) The following directors were elected to a three year term expiring in
2000: Robert F. Garvin, Jr., Charles I. Homan, Wayne S. Luce and Sister
Mary Thaddeus Markelewicz. The following directors' terms continued
after the annual meeting: Del E. Goedeker, Harry J. Johnston, Thomas K.
Reed, Joseph N. Tosh II, Elvin W. Batchelor, A Dean Heasley, Z. John
Kruzic and Harold V. Shank, Jr.
(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 1997 fiscal year.
The results of the votes from the annual meeting were as follows:
For Against Abstained
--------- --------- ---------
Robert F. Gavin 2,604,793 16,388 184
Charles I. Homan 2,604,793 16,388 184
Wayne S. Luce 2,597,249 23,932 184
Sr. Mary Thaddeus Markelewicz 2,597,941 23,240 184
S.R. Snodgrass, A.C. 2,612,377 3,267 5,721
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 5, 1997 announcing that the Board of Directors
approved a three-for-two stock split payable on May 30, 1997.
page 20
<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 4, 1997 By: /s/ Joseph N. Tosh, II
-------------------------------
Joseph N. Tosh, II
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 4, 1997 By: /s/ Donald A. Benziger
-------------------------------
Donald A. Benziger
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
page 21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 13,783
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,386
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 329,791
<ALLOWANCE> 3,376
<TOTAL-ASSETS> 425,508
<DEPOSITS> 367,072
<SHORT-TERM> 19,160
<LIABILITIES-OTHER> 3,825
<LONG-TERM> 0
0
0
<COMMON> 4,263
<OTHER-SE> 31,188
<TOTAL-LIABILITIES-AND-EQUITY> 425,508
<INTEREST-LOAN> 14,057
<INTEREST-INVEST> 2,265
<INTEREST-OTHER> 195
<INTEREST-TOTAL> 16,517
<INTEREST-DEPOSIT> 7,596
<INTEREST-EXPENSE> 7,904
<INTEREST-INCOME-NET> 8,613
<LOAN-LOSSES> 390
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,488
<INCOME-PRETAX> 3,259
<INCOME-PRE-EXTRAORDINARY> 3,259
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,555
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 4.71
<LOANS-NON> 2,909
<LOANS-PAST> 274
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,234
<CHARGE-OFFS> 294
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 3,376
<ALLOWANCE-DOMESTIC> 3,376
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
