-----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, FqEC4bYce81Q0tqBt5laAVtdHlX1oHHvQf0nVCziJjdfj1zcbj7FAPunAeA96XY1 Ryp30MvYK9ejoZSjmwnAVw== 0001018712-97-000004.txt : 19970327 0001018712-97-000004.hdr.sgml : 19970327 ACCESSION NUMBER: 0001018712-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY FINANCIAL CORP CENTRAL INDEX KEY: 0000820414 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 251553790 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17416 FILM NUMBER: 97561006 BUSINESS ADDRESS: STREET 1: ONE CENTURY PL CITY: ROCHESTER STATE: PA ZIP: 15074 BUSINESS PHONE: 4127741872 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-17416 CENTURY FINANCIAL CORPORATION ----------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1553790 - - ------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Century Place Rochester, Pennsylvania 15074 ------------------------------------ (Address of principal executive offices)(Zip code) (412) 774-1872 ----------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.835 per share --------------------------------------------- (Title of each class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____ The aggregate market value of Common Stock held by nonaffiliates (based upon the closing sale price on the NASDAQ National Market System on March 20, 1997), was approximately $58,146,000. Number of shares of Registrant's common stock outstanding at March 20, 1997: 3,370,806. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1996 are incorporated by reference into parts I and II, and portions of the Proxy Statement for the annual shareholders meeting to be held April 28, 1997 are incorporated by reference into part III. Page 1 CENTURY FINANCIAL CORPORATION FORM 10-K TABLE OF CONTENTS PAGE NUMBER -------- PART I ITEM 1. Business 1-12 ITEM 2. Properties 13 ITEM 3. Legal Proceedings 13 ITEM 4. Submission of Matters to a Vote of Security Holders 13 PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters 13 ITEM 6. Selected Financial Data 13 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 ITEM 8. Financial Statements and Supplementary Data 13 ITEM 9. Disagreements on Accounting and Financial Disclosure 13 PART III ITEM 10. Directors and Executive Officers of the Registrant 14 ITEM 11. Executive Compensation 14 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 14 ITEM 13. Certain Relationships and Related Transactions 14 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15 Exhibit Index 15 Signatures 16-17 Page 2 PART I ITEM 1. BUSINESS - - ---------------- General - - ------- Century Financial Corporation (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 and Trust Company (Century). 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. In 1989, the Corporation acquired the Independent Bankers Computer Services (IBCS), a data processing center. Effective April 1, 1995, Independent Bankers Computer Services was dissolved and its operations integrated with Century National Bank and Trust Company. IBCS was not a significant segment of the Corporation's business. 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. Century National Bank and Trust Company was formed in 1973 as a result of the consolidation of the Union National Bank of New Brighton, New Brighton, Pennsylvania, and the Freedom National Bank, Freedom, Pennsylvania. In 1985, The National Bank of Beaver County, Monaca, Pennsylvania, and The First National Bank of Midland, Midland, Pennsylvania, were merged into Century. Each of these business combinations were accounted for as a pooling of interests. Century engages in full service commercial and consumer banking and trust services. Century provides services to its customers through its network of thirteen full service community branches which includes drive-in facilities. Century's services include accepting time, demand and savings deposits including NOW accounts, regular savings accounts, Money Market accounts, fixed rate certificates of deposit, and club accounts. Its services also include commercial transactions either directly or through regional industrial development corporations, making construction and mortgage loans, and the renting of safe deposit facilities. Additional services include making residential mortgage loans, revolving credit loans with overdraft protection, small business loans, etc. Century's business loans include seasonal credit collateral loans, and term loans. During the five year period beginning in 1992 and ending in 1996, the Corporation's combined total assets have grown from approximately $306 million in 1992 to approximately $413 in 1996. Net income for each of the years in this period has increased also. Trust services provided by Century include services as executor and trustee under will and deeds, as guardian and custodian and as trustee and agent for pension, profit sharing and employee benefit trusts as well as various investment, pension and estate planning services. Trust services also include service as transfer agent and registrar of stock and bond issues and escrow agent. As of December 31, 1996, Century had a total of 164 full-time employees and 45 who were part-time. Supervision and Regulation - - -------------------------- The Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended (the Act),and the Securities and Exchange Commission. Century is subject to regulation and periodic examination by the Office of the Comptroller of the Currency. It is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. Page 3 Supervision and Regulation (Continued) - - -------------------------------------- The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was enacted on August 9, 1989. FIRREA has significantly affected the financial industry in several ways, including higher deposit insurance premiums, more stringent capital requirements and new investment limitations and restrictions. The Federal Deposit Insurance Corporation Act of 1991 ("The FDIC Improvement Act") covers a wide area of Banking regulatory issues. The FDIC Improvement Act deals with the capitalization of the Bank Insurance Fund (BIF), with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. The FDIC refunded $193,000 to the Corporation in September, 1995 as a result of the FDIC lowering the insurance premium for bank institutions meeting certain capital requirements. In addition, the FDIC eliminated the premium for 1996, and for 1997, the Corporation expects the premium assessment to be approximately 1.29 cents per $100 of insured deposits. The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of the Corporation cannot be predicted. Management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. Competition - - ----------- All phases of Century's business are considered to be highly competitive. Century competes with other commercial banks and financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, credit companies and insurance companies. Century also competes with non-financial institutions such as retail stores that maintain their own credit programs and government agencies that make available low cost guaranteed loans to certain borrowers. Century competes in its market areas with a number of much larger financial institutions with greater resources and larger lending limits. Century's market area includes all of Beaver County, Pennsylvania, in addition to various communities in neighboring Butler County (Cranberry Township area). Century competes with local financial institutions with branches in the immediate area. Century considers its major competition to be Mellon Bank, N.A. and National City Bank of Pennsylvania, both headquartered in Pittsburgh, Pennsylvania along with First Western Bank, N.A., headquartered in New Castle, Pennsylvania. Century is generally competitive with all financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates and fees charged on loans. Century has a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors (including federal, state and local governments). Century has not experienced any significant seasonal fluctuations in the amount of its deposits. None of Century's deposits are from outside of the United States. Market Area - - ----------- Century has twelve community branches in Beaver County, Pennsylvania and one branch in Butler County, bordering Beaver County. The Corporation is headquartered in Rochester, Pennsylvania. Beaver County is approximately 25 miles northwest of Pittsburgh. Page 4 Market Area (Continued) - - ----------------------- The Beaver County area was once largely dependent on heavy industry manufacturing, primarily steel. Due to the nationwide recession in the early 1980's and competition from imported steel, the county experienced reduced employment which caused a severe recession. Beaver County has now moved to a more diversified economic base consisting of light industrial, high technology, educational and health related industries. Beaver County's largest employer is US Airways which operates its hub from the Pittsburgh International Airport. Other major employers include The Medical Center, Beaver County government, state government and Duquesne Light Company. Statistical Disclosures by Bank Holding Companies - - ------------------------------------------------- I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential Information required by this section is presented on pages XXI through XXII of the 1996 Annual report and is incorporated herein by reference. II. Investment Portfolio A. Book Value of Investment Portfolio The following table sets forth the carrying value of investments as of the dates indicated.
December 31, ----------------------------------- 1996 1995 1994 ------- ------ ------ Available For Sale U.S. Treasury securities $ 7,231 $ 9,217 $ 7,231 U.S. Government agency securities 18,224 25,271 21,773 Obligations of states and political subdivisions 14,829 20,847 - Mortgage-backed securities and collateralized mortgage obligations 21,029 28,224 10,733 Other securities 8,540 12,925 - Equity securities 1,299 1,207 - -------- --------- --------- Total $ 71,152 $ 97,691 $ 39,737 ======== ========= ========= December 31, ----------------------------------- 1996 1995 1994 ------- ------ ------ Held to Maturity U.S. Government agency securities $ - $ - $ 2,043 Obligations of states and political subdivisions - - 18,830 Mortgage-backed securities - - 2,583 Other securities - - 13,578 Equity securities - - 1,121 -------- --------- --------- Total $ - $ - $ 38,155 ======== ========= =========
Page 5 II. Investment Portfolio (Continued) - - ------------------------------------ B. Maturity and Yield Information The following table sets forth the maturity of investments at December 31, 1996, and the weighted average yields of such investments. The yields reflected are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each investment.
1 Year 5 Years Within 1 Through Through Over Amount Year 5 Years 10 Years 10 Years Total - - ------------------------- --------- -------- --------- --------- --------- (Amounts in thousands) U.S. Treasury securities $ 4,271 $ 3,006 $ - $ - $ 7,277 U.S. Government agency securities 4,535 13,783 - - 18,318 Obligations of states and political subdivisions 1,139 3,621 4,205 6,334 15,299 Mortgage-backed securities and collateralized mortgage obligations 1,495 7,611 1,759 10,202 21,067 Other securities 4,201 4,412 - - 8,613 Equity securities - - - 1,299 1,299 --------- --------- --------- --------- --------- Total $ 15,641 $ 32,433 $ 5,964 $ 17,835 $ 71,873 ========= ========= ========= ========= ========= Weighted Average Yield - - ------------------ U.S. Treasury securities 6.50% 5.96% - - U.S. Government agency securities 6.85% 6.38% - - Obligations of states and political subdivisions 6.68% 6.55% 6.56% 6.06% Mortgage-backed securities and collateralized mortgage obligations 5.82% 6.72% 5.47% 7.39% Other securities 6.33% 7.31% - - Equity securities - - - 6.33% --------- --------- --------- --------- Total 6.50% 6.57% 6.24% 6.84% ========= ========= ========= ========= Weighted average yields are computed on a tax equivalent basis using a federal tax rate of 34% based on cost, adjusted for amortization of premium or accretion discounted. C. Aggregate Book Value of Securities Exceeding 10% of Stockholders' Equity Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies and corporations of the U.S. Government, there are no investments of any one issuer which exceeds 10% of the Corporation's shareholders' equity at December 31, 1996. Page 6 III. Loan Portfolio - - ------------------- A. Types of Loans The following table presents the Corporation's loan classifications at the end of each of the last five years.
December 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (In thousands) Commercial, financial and agricultural $ 78,666 $ 62,945 $ 44,514 $ 40,523 $ 25,857 Real estate - construction 11,042 12,918 7,957 6,556 6,018 Real estate - mortgage 124,957 99,484 103,089 96,247 111,317 Installment loans to individuals 83,637 75,295 77,109 51,157 44,458 Term federal funds - - - - 2,000 Tax exempt loans 20,385 15,509 10,456 13,963 13,832 --------- --------- --------- --------- --------- 318,687 266,151 243,125 208,446 203,482 Less unearned income 10,677 8,539 7,859 5,389 5,580 --------- --------- --------- --------- --------- Total $ 308,010 $ 257,612 $ 235,266 $ 203,057 $ 197,902 ========= ========= ========= ========= =========
Century maintains a written lending policy requiring certain underwriting standards be met prior to funding any loan, including requirements for credit analysis, collateral value coverage, documentation and terms. The principal factor used to determine potential borrower's creditworthiness is business cash flows or consumer income available to service debt payments. Secondary sources of repayment, including collateral or guarantees, are frequently obtained. The Bank generally lends within the market areas served by the Bank's branches. Commercial loans are granted generally to small and middle market customers for operating, expansion or asset acquisition purposes. Operating cash flows of the business enterprise are identified as the principal source of repayment, with business assets held as collateral. Collateral margins and loan terms are based upon the purpose and structure of the transaction as set forth in the loan policy. Commercial real estate loans are granted for the acquisition or improvement of real property. Generally, commercial real estate loans do not exceed 80% of the appraised value of the property pledged to secure the transaction. Repayment of such loans are expected from the operations of the subject real estate and are carefully analyzed prior to approval. Real estate construction loans are granted for the purpose of construction improvements to real property, both commercial and residential. Real estate loans secured by 1-4 family residential housing properties are granted subject to statutory limits regarding the maximum percentage of appraised value of the mortgaged property. Residential loan terms are normally established in compliance with regulatory requirements. Residential mortgage portfolio interest rates are established based upon factors such as interest rates in general, the supply of money available to the bank and the demand for such loans. Page 7 III. Loan Portfolio (Continued) - - ------------------------------- A. Types of Loans (Continued) Loans to individuals represent financing extended to customers for personal or household purposes, including automobile financing, education, home improvement and personal expenditures. These loans are granted in the form of installment, indirect automobile loans, credit cards or revolving transactions. Consumer credit-worthiness is evaluated on the basis of ability to repay, stability of income sources and past credit history. B. Maturities and Sensitivities of Loans to Changes in Interest Rates The following table shows the maturity of commercial and real estate-construction loans outstanding as of December 31, 1996 and the amounts due after one year classified according to the sensitivity to changes in interest rates.
December 31, 1996 ---------------------------------------------- Maturing ---------------------------------------------- 1 Year Within Through After 1 Year 5 Years 5 Years Total --------- --------- --------- --------- (In thousands) Commercial, financial and agricultural $ 26,185 $ 30,513 $ 21,968 $ 78,666 Real estate-construction 8,713 731 1,598 11,042 --------- --------- --------- --------- Total $ 34,898 $ 31,244 $ 23,566 $ 89,708 ========= ========= ========= ========= Sensitivity of loans to interest rates Predetermined interest rates $ 26,332 $ 20,420 $ 46,752 Floating interest rates 4,912 3,146 8,058 --------- --------- --------- Total $ 31,244 $ 23,566 $ 54,810 ========= ========= ========= C. Risk Elements 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 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. Page 8 III. Loan Portfolio (Continued) - - ------------------------------- C. Risk Elements (Continued) The following table sets forth information regarding non-performing assets:
December 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (In thousands) Non-accrual loans $ 872 $ 901 $ 1,317 $ 425 $ 969 Loans past due 90 days or more 223 266 539 167 313 Restructured loans - - - - - --------- --------- --------- --------- --------- Total non-performing loans 1,095 1,167 1,856 592 1,282 --------- --------- --------- --------- --------- Other real estate owned - - 18 402 195 --------- --------- --------- --------- --------- Total non-performing assets $ 1,095 $ 1,167 $ 1,874 $ 994 $ 1,477 ========= ========= ========= ========= ========= Non-performing loans to total loans 0.36% 0.38% 0.60% 0.19% 0.42% Non-performing assets to total assets 0.27% 0.28% 0.45% 0.24% 0.36% Non-performing assets to allowance for loan loss 35.05% 37.36% 59.99% 31.82% 47.28%
The gross amount of interest which would have been recorded for 1996 for nonaccrual loans outstanding as of December 31, 1996, as though the loans had been current in accordance with their original terms was approximately $58. There was no interest income actual recorded on these loans in 1996. While it is impossible to predict what 1997 loan losses will be, there are no potential problem loans outstanding at the end of any period presented for which there was serious doubt as to the ability of the borrower to comply with present loan repayment terms except as discussed above. At December 31, 1996, the Corporation had no impaired loans in accordance with Statement of Financial Accounting Standard Statement Nos. 114 and 118 that have a material effect on the financial position or results of operations of the Corporation. At December 31, 1996, the Corporation did not have any concentrations of loans to borrowers engaged in similar activities exceeding 10% of total loans, net of unearned income. Page 9 IV. Summary of Loan Loss Experience - - ------------------------------------ A. Analysis of Loan Loss Experience The following table summarizes the Corporations loan loss experience for each of the five years presented.
December 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (Dollars in thousands) Balance at January 1, $ 3,003 $ 3,206 $ 3,070 $ 2,472 $ 1,824 Charge-offs: Commercial loans 68 - 1 26 21 Real estate mortgages - 49 - 3 23 Installment loans 399 426 175 129 148 --------- --------- --------- --------- --------- Total charge-offs 467 475 176 158 192 --------- --------- --------- ---------- --------- Recoveries: Commercial loans 20 4 10 98 43 Real estate mortgages 2 7 - - - Installment loans 51 21 32 33 50 --------- --------- --------- --------- --------- Total recoveries 73 32 42 131 93 --------- --------- --------- --------- --------- Net charge-offs 394 443 134 27 99 --------- --------- --------- --------- --------- Provision charged to operations 625 240 270 625 747 --------- --------- --------- --------- --------- Balance at December 31, $ 3,234 $ 3,003 $ 3,206 $ 3,070 $ 2,472 ========= ========= ========= ========== ========== Net charge-offs as a percent of average loans, net of unearned 0.14% 0.18% 0.06% 0.01% 0.05% ========= ========= ========= ========== ==========
The Corporation believes that the allowance for loan losses at December 31, 1996 is adequate to cover losses inherent in the portfolio as of such date. However, there can be no assurance that the Corporation will not sustain additional losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 1996. B. Allocation of the Allowance for Possible Loan Losses The allocation of the allowance for possible loan losses is based upon Management's periodic and systematic review and evaluation of individual loans, overall risk characteristics of potential credit concentrations, past experience with losses, the impact of economic conditions on borrowers, and risk elements associated with particular loan categories. The allowance for loan loss is available to absorb credit losses arising from individual or portfolio segments. When losses on specific loans are identified, Management charges off the portion deemed uncollectible. Page 10 IV. Summary of Loan Loss Experience (Continued) - - ------------------------------------------------ B. Allocation of the Allowance for Possible Loan Losses Century monitors its loan portfolio on a monthly basis and assesses a detailed analysis of delinquencies, non-performing assets and potential problem loans. The adequacy of the allowance for loan losses is determined by management considering such factors 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. The following table shows the allocation of the allowance for possible loan losses for each of the last five years: December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- -------- -------- -------- (In thousands) Commercial, financial and agricultural $ 1,010 $ 720 $ 859 $ 813 $ 764 Real estate - construction - - - - - Real estate - mortgage 641 521 582 507 616 Installment loans to individuals 815 733 751 502 487 Unallocated 768 1,029 1,014 1,248 605 ------- -------- -------- -------- -------- Total $ 3,234 $ 3,003 $ 3,206 $ 3,070 $ 2,472 ======= ======== ======== ======== ======== The following table shows the percentage of loans in each category to total loans for each of the last five years: December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- -------- -------- -------- Commercial, financial and agricultural 31.1% 29.5% 22.6% 26.1% 20.5% Real estate - construction 3.5% 4.9% 3.3% 3.1% 3.0% Real estate - mortgage 39.2% 37.4% 42.4% 46.2% 54.7% Installment loans to individuals 26.2% 28.2% 31.7% 24.6% 21.8% -------- -------- -------- -------- -------- Total 100.0% 100.0% 100.0% 100.0% 100.0% ======== ======== ======== ======== ======== Page 11 V. Deposits - - ------------ A. Average Deposits and Rates Paid by Type The following tables summarize the daily average amount of deposits and rates paid on such deposits for the periods indicated. Year Ended December 31, ------------------------------------ 1996 1995 1994 -------- --------- --------- (Amounts in thousands) Amount - - ---------------------------------- Noninterest-bearing demand deposits $ 41,157 $ 40,079 $ 37,244 Interest-bearing demand deposits 34,567 31,518 31,747 Savings deposits 34,972 37,483 41,883 Money market 49,304 49,178 47,964 Time deposits 178,167 165,474 129,824 ---------- ---------- ---------- Total $ 338,167 $ 323,732 $ 288,662 ========== ========== ========== Rate - - ---------------------------------- Noninterest-bearing demand deposits - - - Interest-bearing demand deposits 0.97% 0.96% 0.97% Savings deposits 2.02% 2.05% 2.09% Money market 2.28% 2.29% 2.30% Time deposits 6.11% 6.06% 5.31% B. Maturities of Time Deposits of $100,000 or More The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 1996. December 31, 1996 ------------ (In thousands) 3 months or less $ 2,484 Over 3 through 6 months 14,415 Over 6 through 12 months 4,795 Over 12 months 7,798 ------------ Total $ 29,492 ============ VI. Return on Equity and Assets - - ------------------------------- The required information is incorporated by reference to page XVIII of the 1996 Annual Report. VII. Short-Term Borrowings - - ---------------------------- The required information is incorporated by reference to page IX of the 1996 Annual Report. Page 12 ITEM 2. Properties - - ------------------- The Corporation's executive offices are located at One Century Place, Rochester, Pennsylvania, in a building owned by Century and which also contains Century's main office. In addition, Century owns eight other properties in Beaver County, Pennsylvania, and two properties in Butler County, Pennsylvania at the following locations: 2522 Darlington Road, Beaver Falls; Third Avenue Freedom; Seventh Street and Midland Avenue, Midland; 1001 Pennsylvania Avenue, Monaca; Third Avenue, New Brighton; 800 Brodhead Road, Aliquippa; 700 Merchant Street, Ambridge; 716 Fourteenth Street, Beaver Falls; Rt 19 and Cranberry Square, Mars; and Freedom and Haines School Road, Mars. Century leases three additional properties located at: 613 Beaver Valley Mall, Monaca; Northern Lights Shoppers City, Baden; and Third Avenue and Buffalo Street, Beaver. All facilities and equipment are periodically appraised for insurance purposes and Management asserts that all properties are adequately insured. ITEM 3. Legal Proceedings - - -------------------------- The required information is incorporated by reference to page XII of the 1996 Annual Report. ITEM 4. Submission of Matters to a Vote of Security Holders - - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the fourth quarter of 1996. PART II - - -------- ITEM 5. Market for Registrant's Common Equity and Related Matters - - ------------------------------------------------------------------ The required information is incorporated by reference to page XXVII of the 1996 Annual Report. ITEM 6. Selected Financial Data - - -------------------------------- The required information is incorporated by reference to page XVIII of the 1996 Annual Report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - - ------------------------------------------------------------------------ The required information is incorporated by reference to page XIX through XXVI of the 1996 Annual Report. ITEM 8. Financial Statements and Supplementary Data - - ---------------------------------------------------- The required information is incorporated by reference to page I through XVIII of the 1996 Annual Report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - - ------------------------------------------------------------------------- None Page 13 PART III - - -------- ITEM 10. Directors and Executive Officers of the Registrant - - ------------------------------------------------------------ The required information with respect to the directors is incorporated by reference to page 4 through 6 of the 1997 Annual Proxy Statement to Shareholders (the 1997 Proxy Statement). The required information with respect to Executive Officers of the Registrant is as follows: Principal Occupation, Business Experience Executive Officers Age during the past 5 Years - - ---------------------- ----- ----------------------------------------- Joseph N. Tosh, II 55 President/Chief Executive Officer of Century Financial Corporation since 1988, President and Chief Executive Officer of Century National Bank and Trust Company since 1985. Donald A. Benziger 43 Senior Vice President, Chief Financial Officer and Corporate Secretary of Century Financial Corporation and Century National Bank and Trust Company since 1995, Vice President, Chief Financial Officer since 1990. ITEM 11. Executive Compensation - - -------------------------------- The required information is incorporated by reference to page 7 through 9 of the 1997 Proxy Statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management - - ------------------------------------------------------------------------- The required information is incorporated by reference to page 2 through 3 of the 1997 Proxy Statement. ITEM 13. Certain Relationship and Related Transactions - - -------------------------------------------------------- The required information is incorporated by reference to page 12 of the 1997 Proxy Statement. Page 14 PART IV - - -------- ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K - - ----------------------------------------------------------------- (a) The following documents are filed as part of this report, except as may be indicated: (1) Financial Statements: The following Consolidated Financial Statements of Century Financial Corporation together with the Independent Auditor's Report dated February 7, 1997 are included in the 1996 Annual Report of the registrant which is referenced in Part II, Item 8 - Financial Statements and Supplementary Data and are incorporated herein: Page Reference ---------------- Report of Independent Certified Public Accountants. XVII Consolidated Balance Sheet, December 31, 1996 and 1995. I Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994. II Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. III Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994. IV Notes to Consolidated Financial Statements V-XVI (2) Financial Statement Schedules: Not applicable. (3) Exhibits: (a) Exhibits filed herewith or incorporated by reference are set forth in the following table prepared in accordance with Item 601 of Regulation S-K. EXHIBIT TABLE - - --------------------------------------------------------------------------- (3.1) Articles of Incorporation of the registrant are incorporated herein by reference to the registrant's Form S-4 Registration Statement, File No. 0-17413. (3.2) By-Laws of the registrant are incorporated herein by reference to the registrants Form S-4 Registration Statement, File No. 0-17413. (4) Instruments defining the rights of security holders, including indentures are incorporated herein by reference to the registrant's Form S-4 Registration Statement, File No. 0-17413. (13) Annual Report to Security Holders for the year ended December 31, 1996, filed herewith as exhibit 13. (21) Subsidiary of the registrant; Century National Bank and Trust Company, Incorporated in Pennsylvania, incorporated herewith by reference. (27) Financial Data Schedule for the year ended December 31, 1996, filed herewith as Exhibit 27. (b) Reports on Form 8-K No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report. Page 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Century Financial Corporation Date: March 20, 1997 By: /s/ Joseph N. Tosh, II -------------------------- Joseph N. Tosh, II President and Chief Executive Officer (Principal Executive Officer) Date: March 20, 1997 By: /s/ Donald A. Benziger -------------------------- Donald A. Benziger Senior Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date - - ----------------------------- -------------------- --------------- /s/ Joseph N. Tosh, II President March 20, 1997 - - ----------------------------- Joseph N. Tosh, II /s/ Del E. Goedeker Chairman March 20, 1997 - - ----------------------------- Del E. Goedeker /s/ Elvin W. Batchelor Director March 20, 1997 - - ----------------------------- Elvin W. Batchelor /s/ A. Dean Heasley Director March 20, 1997 - - ----------------------------- A. Dean Heasley Page 16 SIGNATURES (Continued) Name Title Date - - ----------------------------- -------------------- --------------- /s/ Harry J. Johnston Director March 20, 1997 - - ----------------------------- Harry J. Johnston /s/ Z. John Kruzic Director March 20, 1997 - - ----------------------------- Z. John Kruzic /s/ Wayne S. Luce Director March 20, 1997 - - ----------------------------- Wayne S. Luce /s/ Gino F. Martinetti Director March 20, 1997 - - ----------------------------- Gino F. Martinetti /s/ Thomas K. Reed Vice Chairman March 20, 1997 - - ----------------------------- Thomas K. Reed /s/ Harold V. Shank, Jr. Director March 20, 1997 - - ----------------------------- Harold V. Shank, Jr. /s/ Charles I. Homan Director March 20, 1997 - - ----------------------------- Charles I. Homan /s/ Sister M. T. Markelewicz Director March 20, 1997 - - ----------------------------- Sister M.T. Markelewicz /s/ Robert F. Garvin, Jr. Director March 20, 1997 - - ----------------------------- Robert F. Garvin, Jr. Page 17 EX-13 2 ANNUAL REPORT CENTURY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET - - -----------------------------
December 31, 1996 1995 ----------- ----------- (In thousands) ASSETS Cash and due from banks $ 13,004 $ 10,426 Federal funds sold 8,790 - Investment securities available for sale 71,873 99,052 Loans (net of unearned income of $10,677 and $8,539) 308,010 257,612 Less allowance for loan losses 3,234 3,003 ----------- ----------- Net Loans 304,776 254,609 Premises and equipment 10,020 8,625 Accrued interest and other assets 4,395 4,277 ----------- ----------- TOTAL ASSETS $ 412,858 $ 376,989 =========== =========== LIABILITIES Deposits: Noninterest-bearing demand $ 41,959 $ 41,708 Interest-bearing demand 33,754 33,191 Savings 33,625 35,615 Money market 60,457 47,370 Time 193,599 170,441 ----------- ----------- Total deposits 363,394 328,325 Short term borrowings 7,000 10,000 Other borrowings 4,000 3,200 Accrued interest and other liabilities 4,428 3,722 ----------- ----------- TOTAL LIABILITIES 378,822 345,247 ----------- ----------- STOCKHOLDERS' EQUITY Common stock, par value $.835; authorized 8,000,000 shares; issued 3,383,943 and 3,376,984 shares 2,826 2,820 Additional paid in capital 2,834 2,755 Retained earnings 28,239 25,285 Net unrealized gain on securities 476 898 Treasury stock, at cost (20,490 and 1,259 shares) (339) (16) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 34,036 31,742 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 412,858 $ 376,989 =========== ===========
See accompanying notes to the consolidated financial statements. I CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME - - --------------------------------
Year Ended December 31, 1996 1995 1994 ----------- ----------- ----------- (In thousands) INTEREST INCOME Interest and fees on loans: Taxable $ 23,025 $ 20,462 $ 18,100 Tax exempt 1,908 1,344 1,160 Federal funds sold 165 234 240 Investment securities: Taxable 4,785 5,012 3,255 Tax exempt 681 633 547 ----------- ----------- ----------- Total interest income 30,564 27,685 23,302 ----------- ----------- ----------- INTEREST EXPENSE Deposits 13,054 12,234 9,184 Short term borrowings 494 148 40 Other borrowings 318 243 230 ----------- ----------- ----------- Total interest expense 13,866 12,625 9,454 ----------- ----------- ----------- NET INTEREST INCOME 16,698 15,060 13,848 Provision for loan losses 625 240 270 ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,073 14,820 13,578 ----------- ----------- ----------- OTHER INCOME Service fees on deposit accounts 1,448 1,496 1,432 Trust Department income 801 673 572 Investment securities gains (losses), net 1 (14) 11 Gain on sale of branch office - - 309 Other 466 419 415 ----------- ----------- ----------- Total other income 2,716 2,574 2,739 ----------- ----------- ----------- OTHER EXPENSE Salaries and employee benefits 6,708 5,950 5,994 Net occupancy expense 1,065 1,027 1,072 Equipment expense 1,025 920 802 Deposit insurance premium 2 347 631 Other 3,813 3,496 3,017 ----------- ----------- ----------- Total other expense 12,613 11,740 11,516 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 6,176 5,654 4,801 Income taxes 1,270 1,386 1,120 ----------- ----------- ----------- NET INCOME $ 4,906 $ 4,268 $ 3,681 =========== =========== =========== EARNINGS PER SHARE $ 1.46 $ 1.27 $ 1.09 AVERAGE SHARES OUTSTANDING 3,369,380 3,373,322 3,364,439
See accompanying notes to the consolidated financial statements. II CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - - ---------------------------------------------------------
Net Unrealized Additional Gain Total Common Paid in Retained Treasury (Loss) on Stockholders' Stock Capital Earnings Stock Securities Equity -------- ---------- --------- -------- ----------- ------------ (In thousands) Balance, December 31, 1993 $ 2,340 $ 2,606 $ 21,016 $ - $ - $ 25,962 Initial net unrealized gain on securities 54 54 Net income 3,681 3,681 Dividends ($.38 per share) (1,318) (1,318) Twenty percent stock dividend 468 (468) - Stock options exercised 2 32 34 Net unrealized loss on securities (757) (757) -------- -------- -------- ------- -------- --------- Balance, December 31, 1994 2,810 2,638 22,911 - (703) 27,656 Net income 4,268 4,268 Dividends ($.56 per share) (1,892) (1,892) Stock options exercised 10 117 127 Purchase of Treasury stock (125) (125) Reissuance of Treasury stock (2) 109 107 Net unrealized gain on securities 1,601 1,601 -------- -------- -------- ------- -------- --------- Balance, December 31, 1995 2,820 2,755 25,285 (16) 898 31,742 Net income 4,906 4,906 Dividends ($.58 per share) (1,952) (1,952) Stock options exercised 6 73 79 Purchase of Treasury stock (522) (522) Reissuance of Treasury stock 6 199 205 Net unrealized loss on securities (422) (422) -------- -------- -------- ------- -------- --------- Balance, December 31, 1996 $ 2,826 $ 2,834 $ 28,239 $ (339) $ 476 $ 34,036 ======== ======== ========= ======== ======== =========
See accompanying notes to the consolidated financial statements. III CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS - - ------------------------------------
Year Ended December 31, 1996 1995 1994 --------- --------- --------- (In thousands) OPERATING ACTIVITIES Net income $ 4,906 $ 4,268 $ 3,681 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 625 240 270 Depreciation, amortization, and accretion, net 271 1,403 825 Deferred income taxes 60 209 330 Investment securities (gains) losses, net (1) 14 (11) Decrease (increase) in accrued interest receivable 330 (382) 55 Increase in accrued interest payable 216 747 264 Gain on the sale of branch office - - ( 309) Other, net 138 138 (11) --------- --------- --------- Net cash provided by operating activities 6,545 6,637 5,094 --------- --------- --------- INVESTING ACTIVITIES Investment securities available for sale: Proceeds from the sale of securities 2,781 4,984 5,801 Proceeds from maturities and repayments of securities 29,952 14,502 10,549 Purchases of securities (5,696) (39,222) (17,483) Investment securities: Proceeds from the sale of securities - 775 - Proceeds from maturities and repayments of securities - 12,951 26,302 Purchases of securities - (14,273) (21,917) Purchase of loans receivable (3,604) - - Net increase in loans (47,135) (22,638) (32,103) Purchases of premises and equipment (2,246) (843) (621) Sale of branch office - - (13,552) Other, net 27 - (23) --------- --------- --------- Net cash used for investing activities (25,921) (43,764) (43,047) --------- --------- --------- FINANCING ACTIVITIES Net increase in deposits 35,069 30,286 26,516 Net increase (decrease) in short term borrowings (3,000) 9,530 (2,530) Net increase in other borrowings 800 - 1,700 Cash dividends (1,887) (1,790) (1,290) Proceeds from exercise of stock options 79 127 34 Treasury stock purchase (522) (125) - Proceeds from issuance of treasury stock 205 107 - --------- --------- --------- Net cash provided by financing activities 30,744 38,135 24,430 --------- --------- --------- Increase (decrease) in cash and cash equivalents 11,368 1,008 (13,523) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,426 9,418 22,941 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 21,794 $ 10,426 $ 9,418 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 13,650 $ 11,878 $ 9,190 Income taxes 1,140 945 1,085
See accompanying notes to the consolidated financial statements. IV CENTURY FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except shares and per share data) - - ------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - - ---------------------------------------------- The accounting and reporting policies of Century Financial Corporation (Corporation), a bank holding Company, and its subsidiaries, the Century National Bank and Trust Company (Century), and the Independent Bankers' Computer Services, Inc. (IBCS), conform with generally accepted accounting principles and with general practice within the banking industry. A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows: Nature of Operations and Basis of Presentation - - ---------------------------------------------- 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, which provides banking and related services to Southwestern Pennsylvania. The Corporation and its subsidiary derive substantially all their income from interest earnings on commercial, commercial mortgage, residential real estate, consumer loan financing, and investment securities, as well as a variety of deposit services to its customers. 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. The consolidated financial statements of the Corporation include its wholly-owned subsidiary, Century. Significant intercompany items have been eliminated in consolidation. Independent Bankers' Computer Services, previously a wholly-owned subsidiary of the Corporation, was dissolved on March 31, 1995. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Investment Securities - - --------------------- Investment securities are classified, at the time of purchase, based on management's intention, as securities held to maturity or securities available for sale. The Corporation has currently classified all investment securities as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available for sale securities are reported as a separate component of stockholders' equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned. Loans - - ----- Interest from installment loans is recognized in income over the life of the loans using a method which approximates a level yield. Interest on all other loans is recognized as interest income on the accrual method. For commercial and real estate mortgage loans on which interest is 90 days past due, accrual of income is discontinued, and any previously accrued interest is reversed against current income. Installment and credit card loans are generally charged off between 90 and 180 days past due or when deemed uncollectible in the opinion of management. Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment to the related loan's yield. These amounts are being amortized over the contractual life of the related loans. Allowance for Loan Losses - - ------------------------- Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement No. 118. Under this Standard, the Corporation estimates credit losses on impaired loans based on the present value of expected cash flows or fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Prior to 1995, the credit losses related to these loans were estimated based on undiscounted cash flows or the fair value of the underlying collateral. Statement No.118 amends Statement No.114 to permit a creditor to use existing methods for recognizing interest income on impaired loans eliminating the income recognition provisions of Statement No. 114. The adoption of these statements did not have a material effect on the Corporation's financial position or results of operations. V 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - - ---------------------------------------------------------- Allowance for Loan Losses (Continued) - - ------------------------------------- Impaired loans are commercial and commercial real estate loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Corporation individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of "impaired loans" is not the same as the definition of "nonaccrual loans," although the two categories overlap. The Corporation may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral. Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the borrower's prior payment record, and the amount of shortfall in relation to the principal and interest owed. The allowance for loan losses represents the amount which management estimates is adequate to provide for potential losses in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on management's periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term. Premises and Equipment - - ---------------------- Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized. Real Estate Owned - - ----------------- Real estate owned acquired in settlement of foreclosed loans is carried as a component of other assets at the lower of cost or fair value minus estimated cost to sell. Direct costs incurred in the foreclosure process and subsequent holding costs incurred on such properties are recorded as expenses of current operations. Any subsequent write downs, and gains or losses on property dispositions, are charged to other income and expense. Intangible Assets - - ----------------- Core deposit intangibles are amortized using the straight-line method over a ten year period. Trust Department - - ---------------- Trust Department assets (other than cash deposits) held by Century in fiduciary or agency capacities for its customers are not included in the accompanying balance sheet since such items are not assets of Century. Commissions and fees for services performed by Century in a fiduciary capacity are reported on a cash basis. The annual results would not be materially different if such income was accrued. Pension and Profit Sharing Plans - - -------------------------------- Pension and employee benefits include contributions, determined actuarially, to a retirement plan covering the eligible employees of the subsidiaries. Contributions to the profit sharing plan are made based on the achievement of certain operating levels and performance ratios. Income Taxes - - ------------ The Corporation and its subsidiary file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period. VI 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - - ---------------------------------------------------------- Cash Flow Information - - --------------------- The Corporation has defined cash and cash equivalents as those amounts included in the balance sheet caption Cash and due from banks and Federal funds sold. Earnings Per Share - - ------------------ Earnings per share for the years ended December 31, 1996, 1995, and 1994, 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 years ended, common stock equivalents did not have a material dilutive effect on earnings per share. Reclassification of Comparative Amounts - - --------------------------------------- Certain comparative amounts for prior years have been reclassified to conform with current year presentations. 2. COMMON STOCK SPLIT - - ---------------------- On December 15, 1994, the Board of Directors approved a six for five stock split. The additional shares resulting from the split were effected in the form of a 20% stock dividend. 3. INVESTMENT SECURITIES - - ------------------------- Upon the adoption of Statement 115, Century initially transferred from the investment securities portfolio to the available for sale classification investment securities with an amortized cost of $38,781 and an estimated market value of $38,862. The net appreciation of these securities, at adoption, was recorded net of federal income taxes to an unrealized securities gain (loss) account which is a component of stockholders' equity. During 1995, in accordance with the Financial Accounting Standards Board Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," Century reclassified all of its investments securities from held to maturity classification to the available for sale classification with an amortized cost of $38,404 and an estimated market value of $39,103. The amortized cost and estimated market values of investment securities are as follows:
1996 -------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ---------- ---------- --------- U. S. Treasury securities $ 7,231 $ 46 $ - $ 7,277 U. S. Government agency securities 18,224 100 (6) 18,318 Obligations of states and political subdivisions 14,829 483 (13) 15,299 Mortgage-backed securities and collateralized mortgage obligations 21,029 129 (91) 21,067 Other securities 8,540 84 (11) 8,613 ---------- ---------- ---------- --------- Total debt securities 69,853 842 (121) 70,574 Equity securities 1,299 - - 1,299 ---------- ---------- ---------- --------- Total $ 71,152 $ 842 $ (121) $ 71,873 ========== ========== ========== =========
1995 -------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ---------- ---------- --------- U. S. Treasury securities $ 9,217 $ 142 $ - $ 9,359 U. S. Government agency securities 25,271 376 (13) 25,634 Obligations of states and political subdivisions 20,847 538 (18) 21,367 Mortgage-backed securities and collateralized mortgage obligations 28,224 381 (172) 28,433 Other securities 12,925 152 (25) 13,052 ---------- ---------- ---------- --------- Total debt securities 96,484 1,589 (228) 97,845 Equity securities 1,207 - - 1,207 ---------- ---------- ---------- --------- Total $ 97,691 $ 1,589 $ (228) $ 99,052 ========== ========== =========== =========
VII 3. INVESTMENT SECURITIES (Continued) - - ------------------------------------- The amortized cost and estimated market value of debt securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized Market Cost Value ---------- ---------- Due in one year or less $ 14,071 $ 14,146 Due after one year through five years 24,564 24,822 Due after five years through ten years 4,006 4,205 Due after ten years 6,183 6,334 ---------- ---------- 48,824 49,507 Mortgage-backed securities and collateralized mortgage obligations 21,029 21,067 ---------- ---------- Total $ 69,853 $ 70,574 =========== ========== Investment securities with a carrying value of $38,719 and $37,101 at December 31, 1996 and 1995, respectively, were pledged to secure deposits and other purposes as required by law. Proceeds from the sales of investment securities available for sale were $2,781, $4,984, and $5,801 in 1996, 1995, and 1994. Gross gains and gross losses resulting from these sales as follows: 1996 1995 1994 ------- ------- ------- Gross gains $ 3 $ - $ 17 Gross losses 2 31 6 On April 17, 1995, the Bank sold two municipal securities that were, at the time, classified as held to maturity. Proceeds from the sales of these investment securities were $775, and a gain of $17 was recognized on these sales. These sales resulted from the Bank determining subsequent to acquisition that the investment securities did not meet the criteria as established by Bank policy. 4. NET LOANS - - ------------- Major classifications of net loans are summarized as follows: 1996 1995 ---------- ---------- Commercial, financial, and agricultural $ 78,666 $ 62,945 Real estate - construction 11,042 12,918 Real estate - mortgage 124,957 99,484 Installment loans to individuals 83,637 75,295 Tax exempt loans 20,385 15,509 ---------- ---------- 318,687 266,151 Less unearned income 10,677 8,539 ---------- ---------- 308,010 257,612 Less allowance for loan losses 3,234 3,003 ---------- ---------- Net loans $ 304,776 $ 254,609 ========== ========== In the normal course of business, loans are extended to executive officers, directors, and their associates. In management's opinion, all of these loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. A summary of loan activity for those executive officers, directors, and their associates with aggregate loan balances in excess of $60 for the year ended December 31, 1996, is as follows: December 31, Amounts December 31, 1995 Additions Collected 1996 ------------ --------- --------- ------------ $ 1,098 $ 65 $ 948 $ 215 During 1996, a member of the Board of Directors retired, and the director and related business affiliates had loans outstanding at December 31, 1995 totaling $793, which are included in amounts collected in the preceding summary. Century's primary business activity is with customers located within its local trade area. Commercial, residential, personal, and agricultural loans are granted. Century also selectively funds residential loans originated outside of its trade area provided such loans meet Century's credit policy guidelines. Although Century has a diversified loan portfolio, at December 31, 1996 and 1995, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area. VIII 5. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses for the years ended December 31, 1996, 1995, and 1994, are as follows: 1996 1995 1994 -------- -------- --------- Balance, January 1 $ 3,003 $ 3,206 $ 3,070 Add: Provisions charged to operations 625 240 270 Recoveries 73 32 42 Less loans charged off 467 475 176 -------- -------- --------- Balance, December 31 $ 3,234 $ 3,003 $ 3,206 ======== ======== ========= 6. PREMISES AND EQUIPMENT - - -------------------------- Major classifications of premises and equipment are summarized as follows: 1996 1995 -------- --------- Land and land improvements $ 2,526 $ 1,098 Buildings 7,389 7,175 Furniture and equipment 4,869 4,473 Leasehold improvements 523 518 -------- --------- 15,307 13,264 Less accumulated depreciation 5,287 4,639 -------- --------- Total $ 10,020 $ 8,625 ======== ========= Depreciation expense amounted to $852 in 1996, $767 in 1995, and $787 in 1994. 7. DEPOSITS - - ------------ Time deposits include certificates of deposit in denominations of $100 or more. Such deposits aggregated $29,492 and $27,552 at December 31, 1996 and 1995, respectively. Interest expense on certificates of deposit over $100 amounted to $2,495 in 1996, $1,863 in 1995, and $1,360 in 1994. 8. SHORT TERM BORROWINGS - - ------------------------- The outstanding balances and related information for short term borrowings are summarized as follows: 1996 1995 ---------------- ---------------- Amount Rate Amount Rate -------- ------ -------- ------ Balance at year end $ 7,000 5.71% $ 10,000 5.54% Average balance outstanding during the year 8,965 5.51 2,510 5.91 Maximum amount outstanding at any month end 16,175 12,000 Short term borrowings consist of advances from the Federal Home Loan Bank of Pittsburgh under a RepoPlus borrowing arrangement and Federal funds purchased. Average amounts outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance. Century maintains a revolving line of credit (flexline advance) with the FHLB. The amount available on this line of credit as of December 31, 1996, is approximately $8.8 million. Century has pledged, as collateral for advances from the FHLB of Pittsburgh, all stock in the Federal Home Loan Bank and certain other qualifying collateral. There were no outstanding balances on this credit line at December 31, 1996 and 1995. 9. OTHER BORROWINGS - - -------------------- Other borrowings as of December 31, 1996 and 1995, are summarized as follows: Description Interest Rate 1996 1995 - - ------------------------------ -------------- -------- ------- Federal Home Loan Bank advance 5.07% $ 4,000 $ - Federal Home Loan Bank advance 6.13% - 1,700 Subordinated capital notes 9.25% - 1,500 -------- -------- Total $ 4,000 $ 3,200 ======== ======== The subordinated capital notes consisted of ten year subordinated notes which matured on October 1, 1996. Interest on the notes was paid semi-annually on April 1 and October 1 of each year. The notes were subordinate in right of payments to the depositors and all claims of creditors and were not redeemable prior to maturity without the prior written approval of the Comptroller of the Currency. Century has pledged, as collateral for borrowings from the FHLB of Pittsburgh, all stock in the Federal Home Loan Bank and certain other qualifying collateral. IX 10. INCOME TAXES - - ----------------- The provision for income taxes consists of: 1996 1995 1994 -------- -------- -------- Currently payable $ 1,210 $ 1,177 $ 790 Deferred 60 209 330 -------- -------- -------- Total $ 1,270 $ 1,386 $ 1,120 ======== ======== ======== The components of the net deferred tax assets are as follows: 1996 1995 -------- -------- Deferred Tax Assets Allowance for loan losses $ 838 $ 759 Deferred loan origination fees, net - 59 Other 104 65 -------- -------- Total deferred tax assets 942 883 -------- -------- Deferred Tax Liabilities Premises and equipment 153 128 Net unrealized gain on securities 245 463 Accrued pension costs 173 124 Deferred loan origination fees, net 20 - Other 57 32 -------- -------- Total deferred tax liabilities 648 747 -------- -------- Net deferred tax assets $ 294 $ 136 ======== ======== No valuation allowance was established at December 31, 1996, in view of the Corporation's tax strategies and anticipated future taxable income as evidenced by the Corporation's earnings potential. The reconciliation of the federal statutory rate and the Corporation's effective income tax rate is as follows:
1996 1995 1994 ----------------- ----------------- ----------------- % of % of % of Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income -------- ------- ------- ------- -------- ------- Provision at statutory rate $ 2,100 34.0 % $ 1,922 34.0 % $ 1,632 34.0 % Effect of tax free income (880) (14.3) (672) (11.9) (580) (12.1) Non-deductible interest expense 74 1.2 61 1.1 47 1.0 Other, net (24) (0.3) 75 1.3 21 .4 -------- ------- ------- ------- -------- ------- Actual provision and effective rate $ 1,270 20.6 % $ 1,386 24.5 % $ 1,120 23.3 % ======== ======= ======== ======= ======== =======
11. PENSION AND PROFIT SHARING PLANS - - ------------------------------------- Century sponsors a trusteed, non-contributory defined benefit pension plan covering substantially all employees and officers of Century. The plan calls for benefits to be paid to eligible employees at retirement based primarily on years of service and compensation rates near retirement. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The following presents the components of the net periodic pension cost: 1996 1995 1994 -------- -------- -------- Service costs of the current period $ 247 $ 225 $ 264 Interest cost on projected benefit obligations 341 281 298 Actual return on plan assets (677) (940) 78 Net amortization and deferral 228 583 (424) -------- -------- -------- Total $ 139 $ 149 $ 216 ======== ======== ======== The actuarial present value of the accumulated benefit obligation at December 31, 1996 and 1995, was $3,728 and $3,327 including vested benefit obligations of $3,666 and $3,287. The following sets forth the funded status of the plan and the amounts recognized in the accompanying consolidated balance sheet: 1996 1995 -------- -------- Plan assets at fair value $ 6,111 $ 5,291 Actuarial present value of projected benefit obligation (5,071) (4,622) -------- -------- Funded status 1,040 669 Unrecognized transition amount (291) (348) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (266) 14 -------- -------- Pension asset $ 483 $ 335 ======== ======== X 11. PENSION AND PROFIT SHARING PLANS (Continued) - - ------------------------------------------------- The plan assets are primarily invested in corporate equity securities and corporate notes under the control of the plan's trustees as of December 31, 1996. Assumptions used in determining net periodic pension cost are as follows: 1996 1995 1994 -------- -------- -------- Discount rate 7.50% 7.50% 7.50% Expected long-term rate of return on assets 7.50 7.50 7.50 Rate of increase in compensation levels 4.00 4.00 5.00 Century makes payments to a qualified profit sharing plan covering substantially all employees and officers of Century. Contributions to the plan are made at the discretion of the Board of Directors and are determined annually based on the achievement of pre-determined performance goals. The plan contributions for the years 1996, 1995, and 1994 amounted to $482, $386, and $263, respectively. 12. DIVIDEND REINVESTMENT PLAN - - ------------------------------- On May 18, 1995, the Corporation established a Dividend Reinvestment Plan (the "Plan"). Under the Plan, up to 300,000 authorized but unissued shares were allocated for dividend reinvestment. Participation in the Plan is available to all common stockholders who may elect to reinvest dividends on all or part of their shares to acquire additional common stock of the Corporation. Plan participants are able to withdraw from the Plan at any time. At December 31, 1996 and 1995, there were 20,490 and 1,259 shares held in treasury to be used in conjunction with the Plan. During 1996 and 1995, there were 13,028 and 8,820 shares issued under the Plan. 13. COMMITMENTS AND CONTINGENT LIABILITIES - - ------------------------------------------- Commitments - - ----------- In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. These commitments and contingent liabilities represent financial instruments with off-balance-sheet risk. The contract or notional amounts of those instruments reflect the extent of involvement in particular types of financial instruments which were comprised of the following: 1996 1995 --------- --------- Commitments to extend credit $ 32,115 $ 29,124 Standby letters of credit 341 183 --------- --------- Total $ 32,456 $ 29,307 ========= ========= The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance-sheet instruments. Generally, collateral is required to support financial instruments with credit risk. The terms are typically for a one year period with an annual renewal option subject to prior approval by management. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are comprised primarily of available commercial and personal lines of credit. Standby letters of credit written are conditional commitments issued to guarantee the performance of a customer to a third party. The exposure to loss under these commitments are limited by subjecting them to credit approval and monitoring procedures. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future funding requirements. At December 31, 1996, the minimum rental commitments for all non-cancelable leases are as follows: 1997 $ 130 1998 118 1999 116 2000 116 2001 109 2002 and thereafter 618 --------- Total $ 1,207 ========= Occupancy and equipment expenses include rental expenditures of $133 for 1996, $134 for 1995, and $153 for 1994. XI 13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) - - ------------------------------------------------------- Contingent Liabilities - - ---------------------- The Corporation and its subsidiary are involved in legal actions from normal business activities which includes a lawsuit initiated by a former employee alleging wrongful discharge. Management believes that the liability, if any, arising from such actions will not have a material adverse effect on the Corporation's financial position. 14. STOCK OPTION PLAN - - ---------------------- The Corporation maintains an incentive stock option plan under which 336,204 shares of common stock can be issued. The plan provides for the grant of incentive stock options to certain executive officers, senior management personnel, and directors of the Corporation. Under the plan, a holder may elect to exercise options to purchase common stock at fixed prices equal to the fair value at the date of grant. The period for exercising options is fixed at the date of the grant and will not exceed ten years. 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. Under APB Opinion 25, no compensation expense has been recognized with respect to the options granted under the stock option plan. Had compensation expense been determined on the basis of fair value pursuant to SFAS No. 123, net income and earnings per share would have been reduced as follows: 1996 1995 --------- --------- Net Income: As reported $ 4,906 $ 4,268 ========= ========= Pro forma $ 4,749 $ 4,162 ========= ========= Earnings Per Share: As reported $ 1.46 $ 1.27 ========= ========= Pro forma $ 1.41 $ 1.23 ========= ========= The following table presents share data related to the stock option plan: Shares Under Option --------------------- 1996 1995 --------- --------- Outstanding, January 1 129,632 100,110 Granted 42,565 49,080 Exercised (6,955) (11,941) Forfeited (1,034) (7,617) --------- --------- Outstanding, December 31 (at prices ranging from $10.59 - $12.60) 164,208 129,632 ========= ========= 15. REGULATORY MATTERS - - ----------------------- The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits as defined for that year combined with its retained net profits for the two preceding calendar years less any required transfers to surplus. Under this formula, the amount available for payment of dividends by Century to the Corporation in 1997, without the approval of the Comptroller, is $5,037 plus 1997 profits retained up to the date of the dividend declaration. Included in cash and due from banks are required federal reserves of $3,159 and $3,215 at December 31, 1996 and 1995, respectively, for facilitating the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of cash on hand and/or balances maintained directly with the Federal Reserve Bank. XII 16. SALE OF BRANCH OFFICE - - -------------------------- On January 31, 1994, Century sold certain deposit liabilities and assets of a branch located in Moon Township, Pennsylvania. Deposit liabilities totaling $14,411 and assets totaling $367 were sold. The amount by which the sales proceeds exceeded the net book value of the deposit liabilities sold, net of an unamortized core deposit intangible asset realized from a previous branch acquisition, amounted to $309 which is reflected on the consolidated statement of income as a gain on sale of branch deposits. 17. REGULATORY CAPITAL REQUIREMENTS - - ------------------------------------ Capital Requirements - - -------------------- The Corporation (on a consolidated basis) and Century are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Corporation's and Century's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and Century must meet specific capital guidelines that involve quantitative measures of the Corporation's and Century's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by the regulation to ensure capital adequacy require the Corporation and Century to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 1996, that the Corporation and Century meet all capital adequacy requirements to which they are subject. As of December 31, 1996, the most recent notification from the Federal Reserve Board and the Office of the Comptroller of the Currency have categorized Century as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, they must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios at least 100 to 200 basis points above those ratios set forth in the table. There have been no conditions or events since that notification that management believes have changed the Corporation's and Century's category. The following table reflects the Corporation's capital ratios and minimum requirements at December 31. Century's capital ratios are substantially the same as the Corporation's.
1996 1995 ------------------- -------------------- Amount Ratio Amount Ratio ---------- ------- ---------- ------- Total Capital (to Risk Weighted Assets) Actual $ 36,643 11.95% $ 33,671 12.56% For Capital Adequacy 24,522 8.00% 21,450 8.00% Tier I Capital (to Risk Weighted Assets) Actual $ 33,409 10.90% $ 30,668 11.44% For Capital Adequacy 12,261 4.00% 10,725 4.00% Tier I Capital (to Average Assets) Actual $ 33,409 8.25% $ 30,668 8.09% For Capital Adequacy 16,208 4.00% 15,156 4.00%
18. FAIR VALUE DISCLOSURE - - -------------------------- The estimated fair values at December 31, 1996 and 1995, of the Corporation's financial instruments are as follows:
1996 1995 ------------------------ ------------------------ Carrying Fair Carrying Fair Value Value Value Value ---------- ---------- ---------- ---------- Financial assets: Cash and due from banks $ 13,004 $ 13,004 $ 10,426 $ 10,426 Federal funds sold 8,790 8,790 - - Investment securities available for sale 71,873 71,873 99,052 99,052 Net loans 304,776 298,264 254,609 252,273 Accrued interest receivable 2,276 2,276 2,606 2,606 ---------- --------- ---------- ---------- Total $ 400,719 $ 394,207 $ 366,693 $ 364,357 ========== ========== ========== ========== Financial liabilities: Deposits $ 363,394 $ 364,615 $ 328,325 $ 331,204 Short term borrowings 7,000 7,000 10,000 10,000 Other borrowings 4,000 3,957 3,200 3,351 Accrued interest payable 1,971 1,971 1,755 1,755 ---------- --------- ---------- ---------- Total $ 376,365 $ 377,543 $ 343,280 $ 346,310 ========== ========== ========== ==========
XIII 18. FAIR VALUE DISCLOSURE (Continued) - - -------------------------------------- Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms. Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument. If no readily available market exists, the fair value estimates for financial instruments should be based upon management's judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Corporation. The Corporation employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions: Cash and Due From Banks, Federal Funds Sold, Accrued Interest Receivable, Short Term Borrowings, and Accrued Interest Payable - - --------------------------------------------------- The fair value is equal to the current carrying value. Investment Securities Available for Sale - - ---------------------------------------- The fair value of securities available for sale is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Loans, Deposits, and Other Borrowings - - ------------------------------------- The fair value of loans is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, noninterest income, credit quality, and prepayment risk. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year end. Fair values for time deposits and other borrowings are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits and borrowings of similar remaining maturities. Commitments to Extend Credit and Standby Letters of Credit - - ---------------------------------------------------------- These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 13. 19. SELECTED QUARTERLY FINANCIAL DATA - - -------------------------------------- The unaudited quarterly results for 1996 and 1995 are summarized as follows:
1996 ---------------------------------------------------- Three Months Ended ---------------------------------------------------- March 31, June 30, September 30, December 31, ---------- --------- ---------- ---------- Total interest income $ 7,397 $ 7,441 $ 7,762 $ 7,964 Total interest expense 3,383 3,240 3,486 3,757 ---------- --------- ---------- ---------- Net interest income 4,014 4,201 4,276 4,207 Provision for loan losses 105 130 180 210 ---------- --------- ---------- ---------- Net interest income after provision for loan losses 3,909 4,071 4,096 3,997 ---------- --------- ---------- ---------- Other income 647 667 663 739 Other expense 3,020 3,221 3,205 3,167 ---------- --------- ---------- ---------- Income before income taxes 1,536 1,517 1,554 1,569 Income taxes 358 389 257 266 ---------- --------- ---------- ---------- Net income $ 1,178 $ 1,128 $ 1,297 $ 1,303 ========== ========= ========== ========== Earnings per share $ 0.35 $ 0.33 $ 0.39 $ 0.39
XIV 19. SELECTED QUARTERLY FINANCIAL DATA (Continued) - - --------------------------------------------------
1995 ---------------------------------------------------- Three Months Ended ---------------------------------------------------- March 31, June 30, September 30, December 31, ---------- --------- ---------- ---------- Total interest income $ 6,364 $ 6,956 $ 7,254 $ 7,111 Total interest expense 2,736 3,108 3,369 3,412 ---------- --------- ---------- ---------- Net interest income 3,628 3,848 3,885 3,699 Provision for loan losses 60 60 60 60 ---------- --------- ---------- ---------- Net interest income after provision for loan losses 3,568 3,788 3,825 3,639 ---------- --------- ---------- ---------- Other income 605 663 619 687 Other expense 2,924 3,108 2,925 2,783 ---------- --------- ---------- ---------- Income before income taxes 1,249 1,343 1,519 1,543 Income taxes 314 358 342 372 ---------- --------- ---------- ---------- Net income $ 935 $ 985 $ 1,177 $ 1,171 ========== ========= ========== ========== Earnings per share $ 0.28 $ 0.29 $ 0.35 $ 0.35
20. PARENT COMPANY - - ------------------- Following are condensed financial statements for the Corporation. CONDENSED BALANCE SHEET
December 31, 1996 1995 ---------- ---------- ASSETS Cash $ 159 $ 144 Investment in bank subsidiary 33,831 31,588 Other 568 466 ---------- ---------- TOTAL ASSETS $ 34,558 $ 32,198 ========== ========= LIABILITIES Dividends payable $ 504 $ 439 Other 18 17 STOCKHOLDERS' EQUITY 34,036 31,742 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,558 $ 32,198 ========== ==========
CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1996 1995 1994 ---------- ---------- ---------- INCOME Dividends from bank subsidiary $ 2,290 $ 1,905 $ 1,318 Other 6 205 3 EXPENSES Other 80 219 7 ---------- ---------- ---------- Income before income taxes 2,216 1,891 1,314 Income tax benefit (25) (5) (2) ---------- ---------- ---------- Income before equity in undistributed net income of subsidiaries 2,241 1,896 1,316 Equity in undistributed net income of subsidiaries 2,665 2,372 2,365 ---------- ---------- ---------- NET INCOME $ 4,906 $ 4,268 $ 3,681 ========== ========== ==========
XV 20. PARENT COMPANY (CONTINUED) Following are condensed financial statements for the Corporation. CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 ---------- ---------- ---------- OPERATING ACTIVITIES Net income $ 4,906 $ 4,268 $ 3,681 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (2,665) (2,372) (2,365) Other, net (101) (126) (22) ---------- ---------- ---------- Net cash provided by operating activities 2,140 1,770 1,294 ---------- ---------- ---------- FINANCING ACTIVITIES Cash dividends (1,887) (1,790) (1,290) Proceeds from exercise of stock options 79 127 34 Treasury stock purchase (522) (125) - Proceeds from issuance of treasury stock 205 107 - ---------- ---------- ---------- Net cash used for financing activities (2,125) (1,681) (1,256) ---------- ---------- ---------- Increase in cash 15 89 38 CASH AT BEGINNING OF YEAR 144 55 17 ---------- ---------- ---------- CASH AT END OF YEAR $ 159 $ 144 $ 55 ========== ========== ==========
XVI REPORT OF INDEPENDENT AUDITORS - - ------------------------------ SNODGRASS Certified Public Accountants Board of Directors and Stockholders Century Financial Corporation We have audited the accompanying consolidated balance sheet of Century Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Century Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As explained in the notes to the consolidated financial statements, the Corporation changed its method of accounting for the impairment of loans and related allowance for loan losses effective January 1, 1995, and accounting for investment securities, effective January 1, 1994. /s/ S. R. Snodgrass A.C. Wexford, PA February 7, 1997 S.R. Snodgrass, A.C. 101 Bradford Road Wexford, PA 15090-6909 Phone: 412-934-0344 Facsimile: 412-934-0345 XVII CENTURY FINANCIAL CORPORATION SELECTED FINANCIAL DATA - - -----------------------------
Year Ended December 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- SUMMARY OF EARNINGS Interest income $ 30,564 $ 27,685 $ 23,302 $ 22,368 $ 23,515 Interest expense 13,866 12,625 9,454 9,331 10,746 ---------- ---------- ---------- ---------- ---------- Net interest income 16,698 15,060 13,848 13,037 12,769 Provision for loan losses 625 240 270 625 747 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 16,073 14,820 13,578 12,412 12,022 Other income 2,716 2,574 2,739 2,293 2,076 Other expenses 12,613 11,740 11,516 10,819 10,047 ---------- ---------- ---------- ---------- ---------- Income before income taxes 6,176 5,654 4,801 3,886 4,051 Income taxes 1,270 1,386 1,120 539 827 ---------- ---------- ---------- ---------- ---------- Net income $ 4,906 $ 4,268 $ 3,681 $ 3,347 $ 3,224 ========== ========== ========== ========== ========== PER SHARE DATA (1) Earnings per share $ 1.46 $ 1.27 $ 1.09 $ 1.00 $ 0.96 Dividends paid 0.56 0.53 0.38 0.35 0.32 Book value per share at period end 10.12 9.40 8.22 7.73 7.17 Average shares outstanding 3,369,380 3,373,322 3,364,439 3,362,283 3,362,180 BALANCE SHEET DATA (at end of period) Assets $ 412,858 $ 376,989 $ 331,780 $ 317,936 $ 305,951 Deposits 363,394 328,325 298,039 285,395 274,957 Loans, net of unearned income 308,010 257,612 235,266 203,057 197,902 Allowance for loan losses 3,234 3,003 3,206 3,070 2,472 Investment securities - - 38,213 80,989 81,639 Investment securities available for sale 71,873 99,052 38,672 - - Stockholders' equity 34,036 31,742 27,656 25,962 24,098 SIGNIFICANT RATIOS Return on average assets 1.26% 1.18% 1.14% 1.09% 1.10% Return on average equity 15.00 14.48 13.67 13.37 14.14 Loans as a percentage of deposits 84.76 78.46 78.94 71.15 71.98 Average equity to average assets 8.41 8.13 8.36 8.14 7.79 Dividends paid as a percentage of net income 38.47 41.94 35.04 35.23 33.31
(1) Per share amounts have been restated, giving effect for a six-for-five stock split declared April 21, 1993, and a six-for-five stock split declared December 15, 1994. XVIII CENTURY FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except shares and per share data) - - ------------------------------------------------ General - - ------- Century Financial Corporation (Corporation) is a Pennsylvania business corporation which was organized July 27, 1987, at the direction of the Century National Bank and Trust Company (Century) for the purpose of engaging in the business of a bank holding company and of owning all of the common stock of the Bank. The Corporation is engaged principally in commercial banking activities through its banking subsidiary. Century became a wholly-owned subsidiary of the Corporation and the shareholders of Century became shareholders of the Corporation on June 1, 1988. The Corporation owns all of the issued and outstanding common stock of Century. In 1989, the Corporation acquired the Independent Bankers Computer Service (IBCS), a data processing center. Effective April 1,1995, Independent Bankers Computer Service, Incorporated was dissolved and its operations integrated with Century National Bank and Trust Company. IBCS was not a significant segment of the Corporation's business. Century, the wholly-owned banking subsidiary of the Corporation, operates thirteen banking offices. Twelve offices are located in Beaver County, Century's primary market area. One office is located in Butler County, which is adjacent to Beaver County. Summary of Financial Condition - - ------------------------------ The consolidated assets of Century Financial Corporation were $412,858 at December 31, 1996, an increase of $35,869 or 9.5% over assets at December 31, 1995. Contributing to 1996's asset growth was an increase in net loans receivable offset by a reduction in investment securities available for sale. The increase in net loans receivable was a result of a strong increase in loan demand during 1996, with much of the growth being funded by a combination of liability sources consisting of maturing investment securities, deposits and Federal Home Loan Bank borrowings. Total earning assets which principally include loans, investment securities and federal funds sold equaled $388,673 at December 31, 1996 and represented an increase of $32,009 or 9.0% over total earning assets at December 31, 1995. Average earning assets equaled 95.1% of total average assets at year-end for 1996 compared to 94.8% at year-end 1995. The composition of earning assets changed moderately from 1995 to 1996, with loans and securities comprising 76.0% and 23.2% of average earning assets, respectively, in 1996 compared to 71.7% and 27.2%, respectively, at year-end 1995. Total consolidated liabilities increased by $33,575 or 9.7% when compared to total consolidated liabilities as of December 31, 1995. The increase in total liabilities is attributable to an increase in total deposits, offset by a decrease in total borrowings. Investment Securities Available for Sale - - ---------------------------------------- The investment securities available for sale portfolio serves a primary role in the overall context of balance sheet management by the Corporation. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment and other on and off-balance sheet positions. The portfolio's scheduled maturities and the expected cash flows from the mortgage-backed securities represent an additional source of liquidity for the Corporation. The investment portfolio consists primarily of U.S. Treasury and Agency securities, various types of mortgage-backed securities and collateralized mortgage obligations. At December 31, 1996 the Corporation's investment portfolio was $71,873 versus $99,052 at December 31, 1995, a $27,179 or 27.4% decrease. During 1996, scheduled maturities and principal repayments totaled $29,952 and were used primarily to fund higher earning loan growth occurring during the same period. Also contributing to the decrease in the investment portfolio during 1996 was the sale of $2,781 in U. S. government agency securities at a slight net gain, offset by nominal purchases totaling $5,696. Loans - - ----- Loans, net of unearned income, grew considerably in 1996, increasing by $50,398 or 19.6%. At December 31, 1996, loans represented 79.3% of total earning assets compared to 72.2% at December 31, 1995. The increase in the loan portfolio occurred mostly in commercial and real estate loans which increased $15,721 or 25.0% and $25,473 or 25.6%, respectively. The result of this growth was due to an overall increase in loan demand, which relates in part to an improving local economy, and to a greater extent, a result of Management's on-going emphasis to increase the net interest margin by generating higher yielding assets, particularly high-quality commercial loans. To support this effort, in 1996 Century hired two additional Business Development Officers whose primary role is to focus on generating lending activity in conjunction with developing other new business in southwestern Pennsylvania. Deposits - - -------- Deposits continue to be Century's primary source for funding its earning assets. Century offers a wide variety of products designed to attract and retain its customers, with a primary focus on core deposits. Total deposits increased $35,069 or 10.7% when compared to total deposits at December 31, 1995. Noninterest and interest-bearing demand deposits increased $251 or .6% and $563 or 1.7%, respectively. Savings decreased $1,990 or 5.6%. The Corporation's growth occurred mostly in money market and time deposits which increased $13,087 or 27.6% and $23,158 or 13.6%, respectively. The growth in time and money market deposits is a result of Century conducting several deposit promotions during 1996 of specific terms to support its asset-liability and growth goals. Additionally, this was indicative of trends throughout the industry which saw consumers becoming more yield conscious, along with more competition from non-banking entities. XIX Borrowings - - ---------- Century from time to time uses various funding sources other than deposits to provide the funds necessary for the loan and investment securities portfolios. Total borrowings at December 31, 1996 remained relatively stable, decreasing $2,200 or 16.7% when compared to December 31, 1995. Short term and other borrowings at December 31, 1996 consisted solely of borrowings from the Federal Home Loan Bank of Pittsburgh which were used primarily as sources of funds for 1996 loan growth. Also contributing to 1996's decrease in total borrowings was the maturity of the Corporation's ten year subordinated capital notes which matured on October 1, 1996. Summary of Earnings - - ------------------- The Corporation's 1996 net income was a record $4,906, increasing $638, or 15.0%, from 1995's net income of $4,268. Earnings per share in 1996 were $1.46, increasing 15.0% from $1.27 per share in 1995, based on average shares outstanding of 3,369,380 and 3,373,322, respectively. Net income was $3,681, or $1.09 per share in 1994 based on 3,364,439 average shares outstanding. The increase in net income for these periods was achieved through strong increases in net interest income, offset by slight increases in noninterest expenses. Key industry performance ratios increased in 1996 over the previous two years. The Corporation's return on average equity was 15.00%, for 1996, compared to 14.48% and 13.67% for 1995 and 1994, respectively. The Corporation's return on average assets was 1.26%, 1.18% and 1.14% for 1996, 1995, and 1994, respectively. Interest Income - - --------------- Total interest income for 1996 increased $2,879 or 10.4% when compared to fiscal 1995. This increase was due to average earning assets increasing $26,505 or 7.7% over 1995's balance, as well as the yield earned on these assets increasing 27 basis points to 8.62%. Total interest income for 1995 increased $4,383 or 18.8% over 1994 as a result of an increase in both the total balance of outstanding earning assets and the yield earned on these assets. Interest income on loans increased $3,127 or 14.3% during 1996 when compared to 1995. This increase was a result of a $35,019 or 14.2% increase in the average loan balance outstanding during the 1996 period as well as an increase on the yield earned. Interest income on loans for 1995 increased $2,546 or 13.2% which was a result of increases in the average balance outstanding and the yield earned. Interest income earned on investment securities decreased in 1996 by $179 or 3.2% from 1995. This decrease was a result of a decrease of $7,709 or 8.3% in the average balance outstanding, offset by an increase in the yield earned on the investment portfolio. The decrease in the portfolio balance during 1996 was attributable to Century increasing it's net interest margin by funding higher earning loan growth with maturing investment securities. Interest income on investment securities for 1995 increased $1,843 or 48.5% over 1994 and was a result of both an increase in the average investment portfolio outstanding and the yield earned on the portfolio. Interest Expense - - ---------------- Total interest expense increased $1,241 or 9.8% in 1996 compared to 1995. The increase in total interest expense was due to a $21,408 or 7.4% increase in the average balance of total interest- bearing liabilities outstanding during 1996, and to a lessor extent, an increase of 10 basis points on the average rate paid on these funds. Total interest expense for 1995 increased $3,171 or 33.5% as a result of an increase of $33,878 in the average balance outstanding in 1995 over 1994 as well as an increase in the rate paid during the same period. Interest expense on deposits for 1996 increased $820 or 6.7% over 1995's interest expense due to a $13,357 or 4.7% increase in total average interest- bearing deposits outstanding in 1996 as well as an increase on the rate paid on these deposits during the same period. Interest expense on deposits for 1995 increased $3,050 or 33.2% when compared to fiscal 1994 and was due to increases in both the average balance of deposits outstanding and the rate paid on these balances. Interest expense on total borrowings increased $421 or 107.7% in 1996 when compared to 1995. This increase was due to an increase of $8,051 or 141.5% in the average balance of borrowed funds outstanding, offset by a decrease in the rate paid on these funds. While the 1996 year-end actual balance of total borrowed funds decreased, a significant increase in the average balance of these funds occurred during the first half of 1996 and was attributable to stagnant deposit growth occurring during the same period. Also contributing to the increase, was the strong loan growth Century experienced throughout the year. The decrease in the 1996 average rate paid on total borrowings was due, in part, to $1,500 of subordinated capital notes paying 9.25% that matured in October, 1996. Interest expense on total borrowings for 1995 increased $121 or 44.8% over 1994 and was due to an increase in the average balance outstanding offset by a decrease in the rate paid on these funds. Net Interest Income - - ------------------- Net interest income is the amount that interest income generated by earning assets, including securities and loans, exceeds interest expense associated with interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Corporations' earnings. Interest rate fluctuations, as well as changes in the amounts and type of earning assets and interest-bearing liabilities combine to effect net interest income. Net interest income for 1996 totaled $16,698, an increase of $1,638, or 10.9%, over 1995. Net interest income for 1995 was $15,060, or 8.8%, over 1994's level. The increase in net interest income for both 1996 and 1995 was the result of an increase in both Century's average earnings assets and the yield earned on these assets, offset by lessor increases in the average balance and rates paid on interest bearing-liabilities. Interest on loans to and investments in securities of states and political subdivisions are not fully subject to federal income tax. As such, the pretax yields stated on these assets are lower than taxable assets of similar risk and maturity. Therefore, it is also meaningful to analyze net interest income on a tax equivalent basis. The tax equivalent adjustment is based on the federal corporate income tax rate of 34%. Net interest income on a tax equivalent basis increased $1,954, or 12.2%, in 1996 and $1,351, or 9.2%, in 1995. XX Net Interest Income (Continued) - - ------------------------------ The following table illustrates the increases over the last three years in actual and tax equivalent net interest income: Year Ended December 31, 1996 1995 1994 --------- --------- --------- Net interest income, actual $ 16,698 $ 15,060 $ 13,848 Tax equivalent adjustment 1,334 1,018 879 --------- --------- --------- Tax equivalent net interest income $ 18,032 $ 16,078 $ 14,727 ========= ========= ========= Increase in actual net interest income $ 1,638 $ 1,212 $ 811 Percentage increase 10.9% 8.8% 6.2% Increase in tax equivalent net interest income $ 1,954 $ 1,351 $ 567 Percentage increase 12.2% 9.2% 4.0% Net interest margin is equal to net interest income on a tax equivalent basis divided by average earning assets. It is affected by changes in the level of earning assets, the proportion of earning assets funded by noninterest-bearing liabilities and interest rate spread. The table that follows illustrates that the net interest margin was 4.87% in 1996 compared to 4.68% in 1995 and 4.87% in 1994. The increase in the margin in 1996 was due to an increase of 27 basis points on the yield earned on earning assets offset by an increase of 10 basis points on the rate paid on interest-bearing liabilities. The decline in the margin during 1995 was due to the yield on average earning assets increasing only 42 basis points while the rate on interest-paying liabilities increased 66 basis points. The mix of earning assets changed in 1996 as higher yielding average loans outstanding increased and investment securities decreased. Average Balances and Average Yields - - ----------------------------------- The following table sets forth certain information relating to the Corporation's average balance sheet for December, 1996 and the average balance sheets and statements of income for the years ended December 31, 1996, 1995 and 1994, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods shown.
December For the year ended 1996 1996 ---------------------- ---------------------------------- Average Average Average Average Balance Yield/Rate Balance Interest Yield/Rate --------- ---------- --------- --------- ---------- Interest-earning assets: Federal funds sold $ 2,868 5.14% $ 3,115 $ 165 5.30% Taxable investment securities 61,492 6.84% 73,215 4,785 6.54% Non taxable investment securities (2) 11,659 8.38% 12,510 1,032 8.25% Loans (1) (2) 308,617 9.12% 281,398 25,916 9.21% --------- ------ --------- --------- ------ Total interest-earning assets 384,636 8.70% 370,238 31,898 8.62% --------- Non interest-earning assets 20,361 18,921 --------- --------- Total assets $ 404,997 $ 389,159 ========= ========= Interest-bearing liabilities: NOW accounts $ 34,116 0.98% $ 34,567 334 0.97% Money Market accounts 46,155 2.59% 49,304 1,122 2.28% Savings deposits 33,824 2.05% 34,972 708 2.02% Time deposits 198,753 6.23% 178,167 10,890 6.11% Short term borrowings 616 5.56% 9,388 494 5.26% Other borrowings 11,000 5.37% 4,354 318 7.30% --------- ------ --------- --------- ------ Total interest-bearing liabilities 324,464 4.70% 310,752 13,866 4.46% --------- Non interest-bearing liabilities 46,642 45,698 Stockholders' equity 33,891 32,709 --------- --------- Total liabilities and stockholders' equity $ 404,997 $ 389,159 ========= ========= Net earning assets $ 60,172 $ 59,486 ========= ========= Net interest income $ 18,032 ========= Net interest spread (3) 4.00% 4.16% ====== ====== Net interest margin (4) 4.74% 4.87% ====== ======
(1) For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding and interest on loans includes fee income. (2) Yields are computed on a tax equivalent basis using a 34% federal income tax rate. (3) Net interest rate spread represents the difference between the average yield on interest-earning assets, and the average cost of interest-bearing liabilities. (4) Net interest margin is calculated by dividing the difference between total interest earned and total paid by total interest earning assets. XXI Average Balances and Average Yields (Continued) - - -----------------------------------------------
For the year ended ----------------------------------------------------------------- 1995 1994 -------------------------------- ------------------------------ Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate --------- -------- ---------- --------- -------- ---------- Interest-earning assets: Federal funds sold $ 3,923 $ 234 5.96% $ 6,352 $ 232 3.65% Taxable investment securities 81,445 5,012 6.15% 61,765 3,263 5.28% Non taxable investment securities (2) 11,985 959 8.00% 11,421 829 7.26% Loans (1) (2) 246,379 22,498 9.13% 222,946 19,857 8.91% --------- -------- ------ --------- -------- ------ Total interest-earning assets 343,732 28,703 8.35% 302,484 24,181 7.99% -------- -------- Non interest-earning assets 18,979 19,370 --------- --------- Total assets $ 362,711 $ 321,854 ========= ========= Interest-bearing liabilities: NOW accounts $ 31,518 303 0.96% $ 31,747 306 0.96% Money Market accounts 49,178 1,127 2.29% 47,964 1,104 2.30% Savings deposits 37,483 770 2.05% 41,883 874 2.09% Time deposits 165,474 10,034 6.06% 129,824 6,900 5.31% Short term borrowings 2,491 148 5.94% 1,067 40 3.75% Other borrowings 3,200 243 7.59% 2,981 230 7.72% --------- -------- ------ --------- -------- ------ Total interest-bearing liabilities 289,344 12,625 4.36% 255,466 9,454 3.70% -------- -------- Non interest-bearing liabilities 43,889 39,510 Stockholders' equity 29,478 26,878 --------- --------- Total liabilities and stockholders' equity $ 362,711 $ 321,854 ========= ========= Net earning assets $ 54,388 $ 47,018 ========= ========= Net interest income $ 16,078 $ 14,727 ======== ======== Net interest spread (3) 3.99% 4.29% ====== ====== Net interest margin (4) 4.68% 4.87% ====== ======
Rate/Volume Analysis - - -------------------- The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Corporation's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) the changes attributable to the combined impact of volume and rate. The change in interest rate due to both rate and volume in the rate/volume analysis table have been allocated to changes due to rate and volume in proportion to the absolute amounts of the changes in each.
For the year ended December 31, For the year ended December 31, 1996 vs. 1995 1995 vs. 1994 ------------------------------ ------------------------------ Increase (Decrease) due to: Increase (Decrease) due to: ------------------------------ ------------------------------ Total Total Increase Increase Volume Rate (Decrease) Volume Rate (Decrease) -------- -------- -------- -------- -------- -------- Interest-earning assets: Federal funds sold $ (44) $ (25) $ (69) $ (89) $ 83 $ (6) Taxable investment securities (580) 353 (227) 1,040 717 1,757 Non taxable investment securities (1) 43 30 73 41 89 130 Loans (1) 3,223 195 3,418 2,099 542 2,641 -------- -------- -------- -------- -------- -------- Total interest-earning assets 2,642 553 3,195 3,091 1,431 4,522 -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: NOW accounts 30 3 33 (1) (2) (3) Money Market accounts 3 (5) (2) 28 (5) 23 Savings deposits (51) (11) (62) (89) (15) (104) Time deposits 775 76 851 1,893 1,241 3,134 Short term borrowings 354 (8) 346 53 55 108 Other borrowings 84 (9) 75 17 (4) 13 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 1,195 46 1,241 1,901 1,270 3,171 -------- -------- -------- -------- -------- -------- Net change in net interest income $ 1,447 $ 507 $ 1,954 $ 1,190 $ 161 $ 1,351 ======== ======== ======== ======== ======== ========
(1) Computed on a tax equivalent basis using a 34% federal income tax rate. XXII Provision and Allowance for Loan Losses - - --------------------------------------- The current expense reflecting expected credit losses is called the provision for loan losses on the Consolidated Statements of Income. Actual losses on loans are charged against the allowance for loan losses, which is a reserve built up on the Consolidated Balance Sheets. These losses are referred to as charge-offs and, after netting out recoveries on previously charged-off assets, become net charge-offs. The Corporation's policy is to charge off loans when, in Management's opinion, the collection of loan principal is in doubt. All loans charged off are subject to continuous review and concerted efforts are made to maximize the recovery of charged-off loans. In order to determine the adequacy of the allowance for loan losses, Management considers 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, and any loans rated substandard or lower are reviewed on a quarterly basis and evaluated for the adequacy of payment histories, any changes in collateral and loss exposure, if any, is specifically reserved for. All special mention loans are pooled and a reserve is determined. All homogeneous loans 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. The allowance is maintained at a level determined according to this methodology by charging the provision to operations. The provision for loan losses charged to operations in 1996 was $625 compared to $240 and $270 charged in the 1995 and 1994 periods, respectively. Actual losses, net of recoveries, were $394 in 1996, $443 in 1995 and $134 in 1994. Net charge-offs as a percentage of the balance of the allowance for loan losses at the beginning of the year was 13.1% in 1996, 13.8% in 1995 and 4.4% in 1994. Although actual losses for 1996 decreased and total non-performing loans for the three year period ended December 31, 1996 remained relatively stable, the increase in the provision was due to factors such as the considerable increase in the balance of the loan portfolio outstanding and Management's ongoing analysis of the adequacy of the allowance for loan losses. Century's allowance for loan losses increased at year-end 1996 to $3,234 from $3,003 at December 31,1995. At December 31,1996, the allowance represented 1.05% of loans, net of unearned income and 295% of total non-performing assets. This compares to 1.17% of loans, net of unearned income, and 257% of total non-performing assets at the end of 1995. The Corporation believes that the allowance for loan losses at December 31, 1996 of $3,234 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 losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 1996. Noninterest Income - - ------------------ Total noninterest income increased $142 or 5.5% in 1996 compared to 1995. It decreased $165, or 6.0%, in 1995 compared to 1994. The increase in 1996 was mainly due to increases in income from Trust Department operations and other income, offset by a decrease in service charges on deposit accounts. While service charges on deposit accounts decreased $48 or 3.2% in 1996, they continue to be a significant portion of noninterest income and represented 53.3%, 58.1% and 52.3% of total noninterest income for 1996, 1995 and 1994, respectively. Net security gains for 1996 equaled $1 compared to a net loss of $14 in 1995 and a net gain of $11 in 1994. Trust income increased $128, or 19.0%, in 1996, after increasing $101, or 17.7%, in 1995. This increased income was attributable to both new accounts and increased values in existing accounts during 1996, 1995 and 1994. Other noninterest income increased $47, or 11.2%, in 1996, compared to a $4 increase in 1995. The increase in 1996 was mostly due to an increase in ATM related fees, particularly interchange fees from Century's MasterMoney debit cards, which increased $43, and to a lessor extent, fees assessed on ATM transactions for non-customers, which was implemented in the fourth quarter of 1996. These increases were offset by a gain recognized in 1995 from the sale of other real estate owned. In the first quarter of 1994, Century completed the sale of certain assets and deposit liabilities of its Moon Township Office. Deposits totaled $14,411 and assets sold amounted to $367. Century recognized a gain on the sale of $309, net of $188 in unamortized core deposit intangible related to that office. Noninterest Expense - - ------------------- Total noninterest expense increased $873, or 7.4%, in 1996, $224, or 1.9%, in 1995 and $697 or 6.4% in 1994. The major components of 1996's increase were in salaries and employee benefits and other noninterest expenses. These increases were offset by a decrease in the FDIC insurance premium expense. While total noninterest expense for 1996 increased 7.4%, Century's net income grew at a rate of 15.0%, and the efficiency ratio, which measures the portion of net interest income plus noninterest revenue consumed by noninterest expense, improved from 63.3% in 1995 to 60.7% in 1996. Major components of 1995's increase in total noninterest expense were equipment expenses and other noninterest expenses, offset by a decrease in the FDIC insurance premium expense. XXIII Noninterest Expense (Continued) - - ------------------------------- Total employee compensation, including salaries, wages and benefits increased 12.5% in 1996. Salaries and wages increased $333 or 7.5% when compared to 1995. On a per employee basis, salaries and wages increased 4.4% due to merit increases, with the remaining portion of the increase attributable to increases in 1996 staffing levels. The major portion of 1996's increase in compensation expense occurred in profit sharing, bonus and the related payroll taxes on these plans. These plans are all derived directly from the profitability of the Corporation. Profit sharing is paid to all eligible employees of the Corporation and is based on total pretax earnings and return on average equity. Also increasing in 1996 was health insurance costs. Total compensation expense for 1995 declined .7%. This decrease was due to a substantial decrease in the pension plan expense for the same period, as well as a decrease in health insurance costs, all offset by increases in salaries and wages and profit sharing expense. Net occupancy expense in 1996 increased $38 or 3.7% compared to a decrease of $45, or 4.2%, in 1995. The increase in net occupancy expense during 1996 was due to overall general increases in building maintenance agreements and related building expenses. The decrease in 1995's expenses were due to lower utility and maintenance costs incurred in 1995 compared to 1994. Equipment expense increased $105, or 11.4%, and $118 or 14.7%, for both 1996 and 1995, respectively. These increases are a direct correlation to Century's commitment to providing exceptional customer sales and services through the utilization of advanced technologies. During 1996 and 1995, equipment upgrades included the implementation of a wide area PC network, the addition of new personal computers, and the purchase of a new mainframe computer system. The FDIC deposit insurance premium expense for 1996 and 1995 decreased $345 and $284 when compared to previous years, respectively. These decreases are due to the elimination of the premium rate paid on those funds insured by the Bank Insurance Fund (BIF), which was attributable to Century's strong capital level, supervisory ratings and the overcapitalization of the BIF fund. For 1997, the deposit insurance premium is expected to be approximately 1.29 cents per $100 of deposits insured under BIF, which management estimates will increase 1997 FDIC insurance expense by approximately $50,000. Other expenses increased $317, or 9.0%, in 1996 after increasing $479, or 15.9%, in 1995. The increase in 1996 was due to: (1) the initial setup fee and annual service fees thereafter, associated with the Corporation becoming a member of the NASDAQ stock market exchange; (2) an increase in advertising costs relating to deposit and loan promotions throughout 1996; (3) a general increase in stationary, supplies and telephone expenses; and (4) an increase in employee tuition reimbursement expense. 1995's increase was due in large part to higher professional fees associated with the introduction of the Corporations' Dividend Reinvestment Plan as well as strategic, process and technological planning performed by the Corporation. In addition, marketing expenses were higher due to deposit and loan promotions as well as the introduction of Century's debit card program in the second half of 1995. Income Taxes - - ------------ The provision for income tax was $1,270 in 1996 compared to $1,386 in 1995. This represents a decrease of $116 in 1996, and a $266 increase in 1995. The decrease in 1996 is due to a increase in tax exempt income, offset by an overall increase in taxable income. The increase in 1995 over 1994 is the result of higher taxable income, offset by an increase in tax exempt income. 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 in 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. In addition, the classification of all investments as available for sale also greatly enhances liquidity. An important aspect of liquidity lies in maintaining adequate levels of interest-earning assets that mature within one year. Interest-bearing deposits in banks, federal funds sold and short-term investment securities are used for this purpose and totaled $37,433 at December 31, 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 rate sensitive assets, i.e. assets which will mature or reprice within the same time period, and interest rate liabilities, i.e. liabilities which will mature or reprice within the same time period, is commonly referred to as its "gap." An institution having more interest rate sensitive assets than interest rate 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." XXIV Liquidity and Interest Rate Sensitivity (Continued) - - --------------------------------------------------- The table below is presented in conformity with industry practice and reflects the effective maturity of various liability products with an indeterminate maturity as of December 31, 1996:
3 3-12 1-5 Over Months Months Years 5 Years Total --------- --------- --------- --------- --------- Federal Funds Sold $ 8,790 $ - $ - $ - $ 8,790 Taxable investment securities 10,491 17,482 31,867 - 59,840 Nontaxable investment securities 210 460 7,313 4,050 12,033 Loans 80,521 57,429 94,557 75,503 308,010 --------- --------- --------- --------- --------- Total earning assets 100,012 75,371 133,737 79,553 388,673 --------- --------- --------- --------- --------- Interest bearing demand deposits - - 33,754 - 33,754 Savings deposits - - 33,625 - 33,625 Money market deposits 18,690 - 41,767 - 60,457 Time Deposits 28,241 92,729 66,582 6,047 193,599 Short term borrowings 7,000 - - - 7,000 Other borrowings - - 4,000 - 4,000 --------- --------- --------- --------- --------- Total interest-bearing liabilities 53,931 92,729 179,728 6,047 332,435 --------- --------- --------- --------- --------- Interest rate sensitivity gap $ 46,081 $ (17,358) $ (45,991) $ 73,506 $ 56,238 ========= ========= ========= ========= ========= Cumulative interest rate sensitivity gap $ 46,081 $ 28,723 $ (17,268) $ 56,238 ========= ========= ========= ========= Cumulative interest rate sensitivity gap as a percentage of total earning assets 11.86% 7.39% (4.44%) 14.47% ========= ========= ========= =========
The above table is a static view of the balance sheet with assets and liabilities grouped into certain 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 changing market interest rates is to simulate expected earnings streams under various rate scenarios while at the same time adjusting for the anticipated behavior of contractual deposit accounts. For this reason, interest-bearing demand deposits and savings deposits are placed in the 1-to-5 year category. That portion of money market deposits considered most volatile in the 3-month time frame with the remainder 1-to-5 year time frame. Subject to these qualifications, the table above reflects a cumulative positive gap for assets and liabilities maturing or repricing in 1997. This cumulative positive gap of $28,723, represents 7.39% of earning assets at December 31, 1996. Management's Asset/Liability Management Committee monitors the Corporation's interest rate sensitivity position to ultimately achieve consistent growth of net interest income. At this time, Management is not aware of any known trends, events or uncertainties that would have a material effect on either the liquidity, capital resources or operations of the Corporation. Capital Resources - - ----------------- The Corporation's total consolidated stockholders' equity increased $2,294 or 7.2% when compared to total stockholders' equity at December 31, 1995. The increase is primarily a result of a retention of net income of $2,954, net of cash dividends declared to shareholders of $1,952, offset by a decrease of $422 in the net unrealized gain on investment securities available for sale and a net decrease from treasury stock activity. Total cash dividends of $.56 per share were paid to stockholders in 1996 compared to $.53 per share in 1995 The resulting dividend payout ratio was 38.5% in 1996 and 41.9% in 1995. The total cash dividend of $.53 paid to shareholders in 1995 included a one-time special dividend of $.10 per share paid in December of 1995. This approximated the amount of rebate that Century received from the FDIC plus the reduced FDIC premium expense experienced in the fourth quarter of 1995. XXV Capital Resources (Continued) - - ----------------------------- 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 Tier II capital consisted of the following at December 31, 1996, and 1995: 1996 1995 --------- --------- Tier I: Common shareholders' equity $ 34,036 $ 31,742 Less: Non-exempt intangible assets (151) (176) Unrealized depreciation (appreciation) in securities available-for-sale (476) (898) --------- --------- Total Tier I 33,409 30,668 --------- --------- Tier II: Qualifying allowance for loan losses 3,234 3,003 --------- --------- Total Tier II 3,234 3,003 --------- --------- Total Capital $ 36,643 $ 33,671 ========= ========= Risk weighted assets $ 306,528 $ 268,131 Tier I capital ratio 10.90% 11.44% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 11.95% 12.56% Required total capital ratio 8.00% 8.00% In addition to risk-based requirements, a leverage ratio test must also be met. The leverage ratio is defined as the ratio of Tier I capital to assets (not risk adjusted). The required ratio for each financial institution will be determined based on the financial institution's relative soundness. A minimum ratio of Tier I capital to total assets of three percent has been established for top rated financial institutions, with less highly rated or those with higher levels of risk required to maintain ratios of 100 to 200 basis points above the minimum level. The Corporation's leverage ratio was 8.25% at December 13, 1996. Inflation and Changing Prices - - ----------------------------- Management is aware of the impact inflation has on interest rates and, therefore, the impact it can have on the Corporation's performance. The ability of a financial institution to cope with inflation can be determined by analysis and monitoring of its asset and liability structure. The Corporation monitors its asset and liability position with particular emphasis on the mix of interest rate sensitive assets and liabilities in order to reduce the effect of inflation upon its performance. However, it must be remembered that the asset and liability structure of a financial institution is substantially differenct from that of industrial corporations in that virtually all assets and liabilities are monetary in nature, meaning that they have been or will be converted into a fixed number of dollars regardless of changes in prices. Examples of monetary items include cash, loans and deposits. Nonmonetary items are those assets and liabilities which do not gain or lose purchasing power solely as a result of general price level changes. Examples of nonmonetary items are premises and equipment. Inflation can have a more direct impact on categories of noninterest expenses such as salaries and wages, supplies and employee benefit costs. These expenses normally fluctuate more in line with changes in the general price level and are very closely monitored by Management for both the effects of inflation and increases related to such items as staffing levels, usage of supplies and occupancy costs. XXVI CENTURY FINANCIAL CORPORATION MARKET AND DIVIDEND INFORMATION - - ------------------------------- Century Financial Corporation's common stock is traded in the over-the-counter market and, on June 3, 1996 commenced trading through the National Association of Securities Dealer Automated Quotation "NASDAQ" System under the symbol "CYFN." Prior to June 3, 1996, the Corporation's stock was not listed on an organized exchange. At December 31, 1996, the Corporation had approximately 980 shareholders of record. The following tables set forth the high and low market prices for the periods indicated: STOCK PRICES 1996 ---- HIGH LOW ------ ------ First Quarter $14.38 $13.50 Second Quarter 18.00 15.75 Third Quarter 17.50 16.00 Fourth Quarter 17.00 15.38 1995 ---- First Quarter $13.25 $12.25 Second Quarter 12.63 11.50 Third Quarter 12.50 12.00 Fourth Quarter 13.75 13.00 DIVIDENDS The table below sets forth information regarding cash dividends per share paid by the Corporation during 1996 and 1995. 1996 ---- First Quarter $0.13 per share Second Quarter 0.13 per share Third Quarter 0.15 per share Fourth Quarter 0.15 per share ----- Total for 1996 $0.56 ===== 1995 ---- First Quarter $0.10 per share Second Quarter 0.10 per share Third Quarter 0.11 per share Fourth Quarter 0.22 per share ----- Total for 1995 $0.53 ===== All stock prices and dividends have been restated to reflect the six-for-five stock split paid in January of 1995. XXVII EX-27 3 FINANCIAL DATA SCHEDULE
9 12-MOS DEC-31-1996 DEC-31-1996 13,004 0 8,790 0 71,873 0 0 308,010 3,234 412,858 363,394 7,000 4,428 4,000 0 0 2,826 31,210 412,858 24,933 5,466 165 30,564 13,054 13,866 16,698 625 1 12,613 6,176 6,176 0 0 4,906 1.46 1.46 4.87 872 223 0 0 3,003 467 73 3,234 3,234 0 768
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