-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RR3Xdn8f3FbZscMLD1d6bQCBo9VjlWRIi1LKvM9SMZImA+JJ5Sjhb1E2UZTTD+Nn gU5mesq7J9sg+RVziI5eWA== 0001018712-96-000003.txt : 19960813 0001018712-96-000003.hdr.sgml : 19960813 ACCESSION NUMBER: 0001018712-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY FINANCIAL CORP CENTRAL INDEX KEY: 0000820414 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251553790 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17416 FILM NUMBER: 96608967 BUSINESS ADDRESS: STREET 1: ONE CENTURY PL CITY: ROCHESTER STATE: PA ZIP: 15074 BUSINESS PHONE: 4127741872 10-Q 1 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)
June 30, December 31, 1996 1995 --------------------- (In thousands) 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.
[PAGE] CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended June 30, ------------------ 1996 1995 ------------------ (In thousands) 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.
[PAGE] CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Six Months Ended June 30, ---------------- 1996 1995 ---------------- (In thousands) 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.
[PAGE] CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Net Additional Unrealized Total Common Paid in Retained Treasury Gain (loss) Stockholders' Stock Capital Earnings Stock on Securities Equity ------- --------- -------- -------- ------------- ------------ (In thousands) 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.
[PAGE] CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------- 1996 1995 ---------------- (In thousands) 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.
[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. 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. 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. NET INTEREST INCOME (Continued) The following table illustrates information regarding the average balances, yields and rates on interest earning assets and interest-bearing liabilities:
Three months ended June 30, 1996 1995 ----------------- ------------------ Average Yield/ Average Yield/ Balance Rate Balance Rate -------- ------ -------- ------ (Dollars in thousands) 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% ===== =====
(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. 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. 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:
Six months ended June 30, 1996 1995 -------------------- ------------------- Average Yield/ Average Yield/ Balance Rate Balance Rate --------- ------- -------- ------ (Dollars in thousands) 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% ===== =====
(1) Investment securities include securities available for sale and held to maturity. (2) For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding. (3) Yields are computed on a tax equivalent basis using a 34% federal income tax rate. (4) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets. PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses charged to operations in the first 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. 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". 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:
3 3-12 1-5 Over Months Months Years 5 Years Total ------- -------- ------- ------- -------- (In thousands) 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% ======== ======== ======== ========
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. 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. 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". 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) EX-27 2
9 6-MOS DEC-31-1995 JUN-30-1996 8,435 0 0 0 84,754 0 0 278,491 3,132 383,446 328,292 15,200 3,678 4,000 0 0 2,821 29,455 383,446 11,765 2,982 90 14,837 6,266 6,623 8,214 235 1 6,240 3,054 3,054 0 0 2,306 .68 .68 4.87 907 267 0 0 3,003 140 34 3,132 3,132 0 0
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