-----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, HJowyue6SkcxD6/Exa9GCEUtNUFtgDhpQw61wNZV3uByJTG8WQJ8/J2ol1LIhL0y OBcNJg6c6LAR2OhWtfPpyg== 0001018712-98-000015.txt : 19980518 0001018712-98-000015.hdr.sgml : 19980518 ACCESSION NUMBER: 0001018712-98-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY FINANCIAL CORP CENTRAL INDEX KEY: 0000820414 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251553790 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17416 FILM NUMBER: 98622290 BUSINESS ADDRESS: STREET 1: ONE CENTURY PL CITY: ROCHESTER STATE: PA ZIP: 15074 BUSINESS PHONE: 4127741872 MAIL ADDRESS: STREET 1: ONE CENTURY PLACE CITY: ROCHESTER STATE: PA ZIP: 15074 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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) (724) 774-1872 -------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock , $0.835 par value; 5,113,481 shares outstanding at May 8, 1998 Page 1 CENTURY FINANCIAL CORPORATION FORM 10-Q INDEX PAGE NUMBER ------ PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Income 4 Consolidated Statement of Comprehensive Income 5 Consolidated Statement of Changes in Stockholders' Equity 6 Consolidated Statement of Cash Flows 7 Notes to Consolidated Financial Statements 8-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-18 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 19 ITEM 2. Changes in Securities 19 ITEM 3. Defaults Upon Senior Securities 19 ITEM 4. Submission of Matters to a Vote of Security Holders 19 ITEM 5. Other Information 19 ITEM 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Page 2 CENTURY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) March 31, December 31, 1998 1997 ------------- ------------- (In thousands) ASSETS Cash and due from banks $ 10,655 $ 12,439 Interest-bearing deposits in other banks 3,449 1,645 Federal funds sold 525 11,235 Investment securities available for sale 67,736 67,647 Loans (net of unearned income of $12,747 and $12,717) 359,629 353,921 Less allowance for loan losses 4,844 4,717 ------------- ------------- Net Loans 354,785 349,204 Premises and equipment 11,495 11,562 Accrued interest and other assets 5,923 4,800 ------------- ------------- TOTAL ASSETS $ 454,568 $ 458,532 ============= ============= LIABILITIES Deposits: Noninterest-bearing demand $ 44,861 $ 47,994 Interest-bearing demand 37,596 36,265 Savings 34,275 33,278 Money market 54,605 52,523 Time 221,168 222,866 ------------- ------------- Total deposits 392,505 392,926 Short term borrowings - 4,000 Other borrowings 20,000 20,000 Accrued interest and other liabilities 4,385 4,898 ------------- ------------- TOTAL LIABILITIES 416,890 421,824 ------------- ------------- STOCKHOLDERS' EQUITY Common stock, par value $.835; authorized 8,000,000 shares; issued 5,121,914 and 5,108,809 shares, respectively 4,277 4,266 Additional paid in capital 3,543 3,223 Retained earnings 29,472 28,823 Treasury stock, at cost (8,648 and 16,561 shares) (243) (217) Accumulated other comprehensive income, net of income taxes 629 613 ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 37,678 36,708 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 454,568 $ 458,532 ============= ============= See accompanying unaudited notes to the consolidated financial statements. Page 3 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- INTEREST INCOME (In thousands) Interest and fees on loans: Taxable $ 6,968 $ 6,297 Tax exempt 709 534 Interest-bearing deposits with other banks 35 5 Federal funds sold 103 134 Investment securities: Taxable 889 971 Tax exempt 167 160 ------------- ------------- Total interest income 8,871 8,101 ------------- ------------- INTEREST EXPENSE Deposits 4,233 3,726 Short term borrowings 27 120 Other borrowings 276 27 ------------- ------------- Total interest expense 4,536 3,873 ------------- ------------- NET INTEREST INCOME 4,335 4,228 Provision for loan losses 270 195 ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,065 4,033 ------------- ------------- NONINTEREST INCOME Service fees on deposit accounts 354 347 Trust Department income 288 245 Other 182 160 ------------- ------------- Total noninterest income 824 752 ------------- ------------- NONINTEREST EXPENSE Salaries and employee benefits 1,744 1,724 Net occupancy and equipment expense 568 527 Deposit insurance premium 12 10 Other 960 852 ------------- ------------- Total noninterest expense 3,284 3,113 ------------- ------------- INCOME BEFORE INCOME TAXES 1,605 1,672 Income taxes 242 370 ------------- ------------- NET INCOME $ 1,363 $ 1,302 ============= ============= EARNINGS PER SHARE: Basic $ 0.27 $ 0.26 Dilutive 0.26 0.25 DIVIDENDS DECLARED PER SHARE $ 0.11 $ 0.10 See accompanying unaudited notes to the consolidated financial statements. Page 4 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- (In thousands) Net income $ 1,363 $ 1,302 Other comprehensive income: Unrealized holding gains (losses) arising during the period 24 (302) ------------- ------------- Other comprehensive income (loss) before tax 24 (302) ------------- ------------- Income tax expense (benefit) relating to other comprehensive income (loss) 8 (102) ------------- ------------- Other comprehensive income (loss), net of tax 16 (200) ------------- ------------- Comprehensive income $ 1,379 $ 1,102 ============= ============= See accompanying unaudited notes to the consolidated financial statements. Page 5
CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Accumulated Other Additional Comprehensive Total Common Paid-in Retained Treasury Income, Net of Stockholders' Stock Capital Earnings Stock Income Taxes Equity --------- ---------- ---------- ---------- ------------- ------------- (In thousands) Balance, December 31, 1997 $ 4,266 $ 3,223 $ 28,823 $ (217) $ 613 $ 36,708 Comprehensive income 1,363 16 1,379 Dividends ($.11 per share) (564) (564) Stock Options exercised 11 104 (150) 316 281 Purchase of Treasury stock (342) (342) Tax benefit from stock options exercised 216 216 --------- ---------- ---------- ---------- ------------- ------------- Balance, March 31, 1998 $ 4,277 $ 3,543 $ 29,472 $ (243) $ 629 $ 37,678 ========= ========== ========== ========== ============= =============
See accompanying unaudited notes to the consolidated financial statements. Page 6 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- (In thousands) OPERATING ACTIVITIES Net income $ 1,363 $ 1,302 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 270 195 Depreciation, amortization, and accretion, net 274 160 Decrease (increase) in accrued interest receivable 151 (281) Increase (decrease) in accrued interest payable (30) 347 Other, net (1,552) (531) ------------- ------------- Net cash provided by operating activities 476 1,192 ------------- ------------- INVESTING ACTIVITIES Investment securities available for sale: Proceeds from maturities and repayments 3,629 5,267 Purchases (3,723) (6,174) Net increase in loans (5,840) (13,311) Purchases of premises and equipment (189) (228) ------------- ------------- Net cash used for investing activities (6,123) (14,446) ------------- ------------- FINANCING ACTIVITIES Net increase (decrease) in deposits (421) 7,338 Decrease in short term borrowings (4,000) - Cash dividends (561) (505) Proceeds from stock options exercised 281 84 Treasury stock purchase (342) (51) Proceeds from sale of treasury stock - 50 ------------- ------------- Net cash provided by (used for) financing activities (5,043) 6,916 ------------- ------------- Decrease in cash and cash equivalents (10,690) (6,338) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,319 21,794 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,629 $ 15,456 ============= ============= See accompanying unaudited notes to the consolidated financial statements. Page 7 CENTURY FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - --------------------------- The consolidated financial statements of Century Financial Corporation ("The Corporation") includes the accounts of the Corporation and its wholly owned subsidiary, Century National Bank and Trust Company ("Century"). Significant intercompany items have been eliminated in consolidation. Basis of Presentation - --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results which may be expected for the entire fiscal year. Nature of Operations - -------------------- Century Financial Corporation is a Pennsylvania corporation and is registered under the Holding Company Act of 1956, as amended ("BHCA"). The Corporation was organized to be the holding company of Century National Bank. The Corporation and its subsidiary derive substantially all their income from banking and bank-related services which includes interest earnings on commercial, commercial mortgage, residential real estate, and consumer loan financing as well as interest earnings on investment securities and deposit services to its customers. Century provides banking services to Southwestern Pennsylvania. Common Stock Split - ------------------ On March 20, 1997, the Board of Directors approved a three-for-two stock split. The additional shares resulting from the split were effected in the form of a 50% stock dividend. All references to the number of average common shares and per share amounts for 1997 have been restated to reflect the stock split. Comprehensive Income - -------------------- Effective January 1, 1998, the Corporation adopted Statement of Financial Accounting Standards Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 establishes standards for reporting and presentation of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is presented with the same prominence as other financial statements. The adoption of Statement No. 130 did not have a material impact on the Corporation. Page 8 CENTURY FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassification of Comparative Amounts - --------------------------------------- Certain amounts for prior periods have been reclassified to conform with current period presentations. 2. EARNINGS PER SHARE Effective December 31, 1997, the Corporation adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Statement No. 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for the previously reported periods have been restated to conform to Statement No. 128. The following table sets forth the computation of basic and diluted earnings per share. Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- Denominator for basic earnings per share: Weighted-average shares outstanding 5,111,556 5,050,518 ============= ============= Denominator for diluted earnings per share: Weighted-average shares outstanding 5,111,556 5,050,518 Employee stock options 95,708 46,444 ------------- ------------- Denominator for diluted earnings per share 5,207,264 5,096,962 ============= ============= There are no convertible securities which would effect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. 3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- Cash paid during the period for: (In thousands) Interest $ 4,566 $ 3,526 Income taxes - 15 Page 9 CENTURY FINANCIAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. AGREEMENT AND PLAN OF REORGANIZATION On December 3, 1997, the Board of Directors executed a definitive agreement and plan of merger, which provides for the affiliation of the Corporation with Citizens Bancshares, Inc. , an Ohio corporation registered under the Bank Holding Company Act headquartered in Salineville, Ohio (Citizens). The agreement provides that the affiliation will be effected by means of a merger of the Corporation and Citizens. In the merger, each stockholder of the Corporation will receive 0.425 shares of Citizens common stock in exchange for each share of the Corporation's stock, subject to certain terms, conditions, limitations and adjustments set forth in the agreement. Completion of the merger is anticipated to take place upon approval by regulatory agencies and stockholders of the Corporation and Citizens. 5. SUBSEQUENT EVENT Merger with Citizens Bancshares, Inc. - ------------------------------------ On May 12, 1998, the Corporation merged with Citizens in accordance with the Agreement and Plan of Merger dated December 3, 1997. In the merger, each share of Century common stock outstanding was converted into .3963 shares of Citizens common stock, without par value. Additional Provision for Loan Losses - ------------------------------------ During the second quarter of 1998, Century incurred an additional provision for loan loss in the amount of $2,000,000. The additional provision, which was charged directly to Century's operations, was a result of Management's on-going assessment of the adequacy of the allowance for loan losses, taking into consideration its overall assessment of the adequacy of the allowance in relation to the previously announced merger of the Corporation and Citizens. Management of Century has reviewed and subsequently agreed to the overall general evaluation practices utilized by Citizens when determining the adequacy of the allowance for loan loss. The increase in the allowance will enable Century to better conform to Citizen's overall general allowance for loan loss policies following the merger. Page 10 CENTURY FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION ------------------- Summary of Financial Condition - ------------------------------ The Corporation's consolidated assets were $454,568,000 at March 31, 1998, a decrease of $3,964,000 from total assets at December 31, 1997. This decrease was mainly attributable to a decrease of $10,710,000 in federal funds sold offset by a $5,581,000 increase in net loans receivable. Total liabilities during the first quarter of 1998 decreased by $4,934,000 and was mainly a result of a decrease in short term borrowings. Total consolidated stockholders' equity increased by $970,000 when compared to total stockholders's equity at December 31, 1997. Contributing to this increase was $1,363,000 in net income earned, less cash dividends declared to shareholders of $564,000. Investment Securities Available for Sale - ---------------------------------------- Investment securities available for sale at March 31, 1998 remained relatively unchanged, decreasing $89,000 when compared to December 31, 1997. Total investment securities maturing during the period were $3,629,000 offset by purchases of $3,723,000. Loan Portfolio - -------------- Net loans increased $5,581,000 or 1.6% in the first three months of 1998 when compared to December 31, 1997. The increase in the loan portfolio during the first quarter of 1998 occurred mostly in commercial and tax exempt loans which increased $3,738,000 or 4.1% and $5,822,000 or 24.4%, respectively. Funding for the first quarter loan growth was provided by short term liquid assets that matured during the same period. The following table represents the composition of the Corporation's loan portfolio: March 31, December 31, 1998 1997 ------------- ------------- (In thousands) Commercial, financial, and agricultural $ 94,161 $ 90,423 Real estate - construction 8,452 10,262 Real estate mortgage: 155,905 156,338 Installment loans to individuals 84,198 85,777 Tax exempt loans 29,660 23,838 ------------- ------------- 372,376 366,638 Less unearned income 12,747 12,717 ------------- ------------- 359,629 353,921 Less allowance for loan losses 4,844 4,717 ------------- ------------- Net loans $ 354,785 $ 349,204 ============= ============= Page 11 Allowance for Loan Losses - ------------------------- The Corporation's allowance for loan losses was $4,844,000 at March 31, 1998 compared to $4,717,000 at December 31, 1997. This represents a $127,000 or 2.7% increase over the December 31, 1997 balance. Contributing to this increase was a $270,000 loan loss provision charged to operations during the first quarter of 1998 offset by net charge-offs of $143,000 incurred during the same period. Activity in the allowance for loan losses is summarized as follows: Three Months Ended March 31, 1998 1997 ------------- ------------- (Dollars in thousands) Balance, beginning of period $ 4,717 $ 3,234 Charge-offs: Commercial loans - 3 Real estate mortgages - - Installment loans to individuals 172 134 ------------- ------------- Total charge-offs 172 137 ------------- ------------- Recoveries: Commercial loans 7 - Real estate mortgages - 3 Installment loans to individuals 22 35 ------------- ------------- Total recoveries 29 38 ------------- ------------- Net charge-offs 143 99 ------------- ------------- Provision charged to operations 270 195 ------------- ------------- Balance, end of period $ 4,844 $ 3,330 ============= ============= Net charge-offs as a percent of average loans, net of unearned 0.04% 0.03% ============= ============= Allowance for loan losses to total loans, net of unearned income 1.35% 1.04% ============= ============= The adequacy of the allowance for loan losses is determined by management considering certain criteria such as the risk classification of loans, delinquency trends, charge-off experience, credit concentrations, economic conditions and other relevant factors. Specific reserves are established for each classified credit taking into consideration the credit's delinquency status, current operating status, pledged collateral and plan of action for resolving any deficiencies. All credit relationships in excess of $250,000 are reviewed by management and the executive committee of Century's Board of Directors on an annual basis. In addition, loan relationships in excess of $250,000, rated substandard or lower are reviewed on a quarterly basis and evaluated for the adequacy of payment histories, any changes in collateral and exposure, if any, is specifically reserved for. All special mention loans are pooled and a reserve is determined. All other homogeneous loan pools such as consumer installment loans, cash reserve, 1-4 family mortgage loans and unfunded commitments are pooled and the adequacy of the reserve is determined. The Corporation believes that the allowance for loan losses at March 31, 1998 is adequate to cover losses inherent in the portfolio as of such date. However, there can be no assurance that the Corporation will not sustain additional losses in future periods, which could be substantial in relation to the size of the allowance at March 31, 1998. Page 12 Non-performing Assets - --------------------- Non-performing assets include non-performing loans and other real estate owned. Non-performing loans consists of non-accrual loans, loans 90 days or more past due, and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued and any previously accrued interest is reversed against current income. Restructured loans are loans with respect to which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties. The following table sets forth information regarding non-performing assets: March 31, December 31, 1998 1997 ------------- ------------- (In thousands) Non-accrual loans $ 3,614 $ 3,664 Loans past due 90 days or more 87 73 Restructured loans - - ------------- ------------- Total non-performing loans 3,701 3,737 ------------- ------------- Other real estate owned - - ------------- ------------- Total non-performing assets $ 3,701 $ 3,737 ============= ============= Non-performing loans as a percentage of total loans, net of unearned income 1.03% 1.06% Non-performing assets as a percentage of total assets 0.81% 0.82% Non-performing assets as a percentage of allowance for loan 76.40% 79.22% Total non-performing assets at March 31, 1998 totaled $3,701,000, compared to $3,737.000 at December 31, 1997. Non-performing assets for both periods presented are comprised mostly of non-accrual loans which totaled $3,614,000 and $3,664,000 at March 31, 1998 and December 31, 1997, respectively. Included in the non-accrual loans for the periods presented are two separate commercial real estate loans. The first, is a commercial real estate loan in the amount of $1,540,000 whose debtor filed for bankruptcy in early 1997. The loan is collateralized by two separate commercial real estate properties with Century holding a first mortgage lien position on one of the properties and a second mortgage lien position on the other property. In early 1998, Century approved a sales agreement for the property on which Century has a first lien position. The agreement calls for the debtor to sell the property to a third party and apply $970,000 in proceeds from the sale against the debtor's loan balance with Century. The sale is expected to consummate by mid 1998. The second non-accrual loan is a commercial real estate loan in the amount of $702,000. The loan was placed on non-accrual status in the third quarter of 1997 due to the debtor filing for bankruptcy. The loan is comprised of a commercial land development project with Century holding as collateral a first mortgage lien position on the land development project. In addition, Century holds various other positions on other commercial and non-commercial properties owned by the debtor. In accordance with Statement of Financial Accounting Standard No 114 and 118, both loans are considered to be impaired. Total combined average balances for the loans during the first quarter of 1998 equaled $2,613,000, for which $356 of the allowance for loan losses had been allocated. Century did not recognize any interest income on these loans during the first quarter of 1998. Page 13 Non-performing Assets(Continued) - -------------------------------- At March 31, 1998, the Corporation's total non-performing assets, including any loans classified for regulatory purposes as loss, doubtful, substandard or special mention do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. Nor do they represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of borrowers to comply with loan repayment terms. Deposits - -------- Total deposits decreased $421,000 or .10% when compared to December 31, 1997. Demand deposit accounts and Time deposits decreased by $1,802,000 or 2.1% and $1,698,000 or 0.7%, respectively. The Corporation's growth during the quarter occurred mostly in Money Market accounts which increased by $ 2,082,000 or 4.0%. Borrowings - ---------- Total borrowings of the Corporation decreased $4,000,000 or 16.7% when compared to total borrowings at December 31, 1997. This decrease was a result of a $4,000,000 Federal Home Loan Bank Advance that matured during the first quarter of 1998. The remaining balance of total borrowings outstanding is comprised solely of advances with the Federal Home Loan Bank of Pittsburgh. RESULTS OF OPERATIONS --------------------- COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Summary of Earnings - ------------------- The Corporation earned $1,363,000 or $0.27 per basic share for the three months ended March 31, 1998. This represents an increase of $61,000 or 4.7% over net income reported for the same period in 1997. The increase in net income is attributable to an increase in net interest income, total noninterest income and a decrease in income tax expense, all offset by an increase in total noninterest expense and the provision for loan losses. Net Interest Income - ------------------- The Corporation's net interest income increased $107,000 or 2.5% during the three months ended March 31, 1998 when compared to the same period in 1997. This increase is a result of a $770,000 or 9.5% increase in total interest income, offset by an increase of $663,000 or 17.1% in total interest expense. Net interest income, on a fully taxable equivalent basis, as a percentage of average earning assets, commonly referred to as the net interest margin, decreased by 16 basis points to 4.47% from 4.63% at March 31, 1997. This decrease was mostly a result of an increase in the balance and rates paid on higher yielding deposits. (Reference is made to the table on page 14 in conjunction with the following paragraphs for further analysis of net interest income.) Interest income on loans increased $846,000 or 12.4% for the first quarter of 1998 compared to the same period in 1997. This increase is attributable to an increase in the average loan balance outstanding during the 1998 period offset by a slight decrease in the average yield earned. Page 14 Net Interest Income (Continued) - ------------------------------- Interest income on investment securities decreased $75,000 or 6.6% for the first quarter of 1998 compared to the same period in 1997. This decrease is attributable to a decrease in the average balance of investment securities outstanding during the 1998 period offset by an increase in the average yield earned. Interest expense on deposits increased $507,000 or 13.6% for the first quarter of 1998 compared to the same period in 1997. This increase is attributable to an increase in the average rate paid on these funds during the 1998 period as well as an increase in the average balance of deposits outstanding during the same period. Interest expense on total borrowings increased $156,000 or 106.1% for the three months ended March 31, 1998 compared to the same period in 1997. This increase was attributable to an increase in the average balance of borrowed funds outstanding as well as an increase in the rate paid on these funds. The following table illustrates information regarding the average balances, yields and rates on interest earning assets and interest-bearing liabilities: Three Months Ended March 31, --------------------------------------- 1998 1997 ----------------- ----------------- Average Yield/ Average Yield/ Balance Rate Balance Rate ------- ------ ------- ------ (Dollars in thousands) Interest earning assets: Federal funds sold $ 7,448 5.59% $10,145 5.34% Interest-bearing deposits with other banks 2,494 5.65 252 5.61 Investment securities (2) 67,527 6.86 76,504 6.43 Loans (1) (2) 357,097 9.13 315,050 9.15 ------- ------ ------- ------ Total interest earning assets 434,566 8.72 401,951 8.53 ------- ------ ------- ------ Interest-bearing liabilities: Deposits 345,778 4.96 325,782 4.64 Short term borrowings 2,356 4.59 8,822 5.50 Other borrowings 20,000 5.60 2,178 5.06 ------- ------ ------- ------ Total interest-bearing liabilities 368,134 5.00 336,782 4.66 ------- ------ ------- ------ Net earning assets $66,432 $65,169 ======= ======= Net interest spread 3.72% 3.87% ====== ====== Net interest margin (3) 4.47% 4.63% ====== ====== (1) For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding. (2) Yields are computed on a tax equivalent basis using a 34% federal income tax rate. (3) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets. Provision For Loan Losses - ------------------------- The provision for loan losses charged to operations in the first quarter of 1998 was $270,000 compared to $195,000 charged in the same period in 1997, representing an increase of $75,000 or 38.5%. The increase in the provision was a result of; (1) the increase in the loan portfolio during the same period, (2) an increase in the level of net charge-offs; and (3) Management's ongoing analysis of the adequacy of the allowance for loan losses. Page 15 Noninterest Income and Expense - ------------------------------ The Corporation's total consolidated noninterest income increased $72,000 or 9.6% for the three months ended March 31, 1998 when compared to the same period in 1997. This increase was a result of a $43,000 or 17.6% increase in trust department income and an increase of $22,000 or 13.8% in other income. Trust department income increased as a result of continued growth in both the number and value of trust accounts. The increase in other income was mostly attributable to an increase in ATM related fees. Included in other income for the 1997 period was a one-time recovery received in the amount of $15,000 relating to physical damages occurring at a branch facility. The Corporation's total consolidated noninterest expense increased $171,000 or 5.5% for the three months ended March 31, 1998 when compared to the same period in 1997. This increase was primarily a result of a $108,000 or 12.7% increase in total other expense, a $20,000 or 1.2% increase in salaries and employee benefits, and a $41,000 or 7.8% increase in net occupancy and equipment expenses. The increase in total other expenses was attributable to: (1) an increase of $15,000 in advertising expenses related to the introduction of Century's new "Free Checking"product in early 1998; (2) an increase of $66,000 in professional advisory fees; and (3) an increase of $18,000 in ATM related costs. Federal Income Taxes - -------------------- Federal income tax expense decreased $128,000 or 34.6% for the three months ended March 31, 1998 compared to the same period in 1997. This decrease was the result of an increase in tax-exempt interest which increased during the same period as a result of an increase in the balance of tax free loans outstanding. Also contributing to the decrease was a decrease in taxable income when compared to the same period in the previous year. Liquidity and Interest Rate Sensitivity - --------------------------------------- The liquidity of a banking institution reflects its ability to provide funds to meet loan requests, to accommodate possible outflows of deposits, and to take advantage of interest rate market opportunities. Funding of loan requests, providing for liability outflows, and management of interest rate fluctuations require continuous analysis in order to match the maturities of specific categories of short-term loans and investments with specific types of deposits and borrowings. Bank liquidity is thus normally considered in terms of the nature and mix of the banking institution's sources and uses of funds. Asset liquidity is provided through loan repayments and the management of maturity distributions for loans and securities. An important aspect of liquidity lies in maintaining adequate levels of interest-earning assets that mature within one year. Interest-earning deposits in banks, federal funds sold and short-term investment securities are used for this purpose and totaled $12,659 at March 31, 1998. Closely related to the concept of liquidity is the management of interest-earning assets and interest-bearing liabilities. The Corporation manages its rate sensitivity position to minimize fluctuation in the net interest margin and to minimize the risk due to changes in interest rates, thereby attempting to achieve consistent growth of net interest income. The difference between a financial institution's interest-sensitive assets (i.e. assets which will mature or reprice within the same time period) and interest-sensitive liabilities (i.e., liabilities which will mature or reprice within the same period) is commonly referred to as its "Gap" or "Interest Rate Gap". An institution having more interest rate sensitive assets than interest sensitive liabilities within a given time period is said to have a "positive gap"; an institution having more interest rate sensitive liabilities than interest rate sensitive assets within a given time period is said to have a "negative gap". Page 16 Liquidity and Interest Rate Sensitivity (Continued) - --------------------------------------------------- The following table is presented in conformity with industry practice and reflects contractual repricing schedules as of March 31, 1998: Within 3 3-12 1-5 Over Months Months Years 5 Years Total --------- --------- --------- --------- --------- (In thousands) Interest-earning deposits with other banks $ 3,449 $ - $ - $ - $ 3,449 Federal funds sold 525 - - - 525 Investment securities: Taxable 423 7,267 41,191 6,117 54,998 Non-taxable 275 720 3,135 8,608 12,738 Loans 55,872 36,880 150,017 116,860 359,629 --------- --------- --------- --------- --------- Total earning assets 57,095 44,867 194,343 131,585 427,890 --------- --------- --------- --------- --------- Interest-bearing demand deposits 7,519 - 22,683 7,394 37,596 Savings deposits 6,855 6,855 13,825 6,740 34,275 Money Market deposits 16,381 27,302 10,922 - 54,605 Time deposits 57,590 72,533 85,880 5,165 221,168 Other borrowings - - 20,000 - 20,000 --------- --------- --------- --------- --------- Total interest-bearing liabilities 88,345 106,690 153,310 19,299 367,644 --------- --------- --------- --------- --------- Interest rate sensitivity gap $ (31,250) $ (61,823) $ 41,033 $ 112,286 $ 60,246 ========= ========= ========= ========= ========= Cumulative interest rate sensitivity gap $ (31,250) $ (93,073) $ (52,040) $ 60,246 ========= ========= ========= ========= Cumulative interest rate sensitivity gap as a percentage of total earning assets (7.30%) (21.75%) (12.16%) 14.08% ========= ========= ========= ========= The above table is a static view of the balance sheet with assets and liabilities grouped into certain defined time periods. Being measured at a specific point in time, this analysis may not fully describe the complexity of relationships between product features and pricing, market rates, and future management of the balance sheet mix. The primary method of measuring the sensitivity of earnings to market interest rates is to simulate expected earnings streams under various rate scenarios while at the same time adjusting for the anticipated behavior of non-contractual deposit accounts. These adjustments are influenced by the Federal Reserve Bank and other regulators' proposed guidelines for the measurement of interest rate risk. Subject to these qualifications, the table above reflects a cumulative gap for assets and liabilities maturing or repricing in the next twelve months. The Corporation's asset/liability management committee monitors the interest rate sensitivity position of the Corporation to ultimately achieve consistent growth of net interest income. Page 17 Liquidity and Interest Rate Sensitivity (Continued) - --------------------------------------------------- At this time, management is not aware of any known trends, events, or uncertainties that would have a material effect on either the liquidity, capital resources or operations of the Corporation. Nor is management aware of any current recommendations by the regulatory authorities which, if implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. Capital Resources - ----------------- As a bank holding company, the Corporation is required to meet certain risk-based capital and leverage requirements. The risk-based capital requirements redefine the components of capital, categorize assets into different risk classes and include certain off-balance sheet items in the calculation of the adequacy of capital. A financial institution's capital is divided into two classes, Tier I and Tier II. In addition to risk-based capital requirements, a leverage ratio test must also be met. The leverage ratio is defined as the ratio of Tier I capital to average assets (not risk adjusted). The required ratio for each financial institution will be determined based on the financial institution's relative soundness. A minimum ratio of Tier I capital to total average assets of three percent has been established for top rated financial institutions, with less highly rated or those with higher levels of risk required to maintain ratios of 100 to 200 basis points above the minimum level. The Corporation's Tier I, total risk-based capital and leveraged capital ratios consisted of the following: March 31, 1998 December 31, 1997 --------------------- -------------------- Amount Percentage Amount Percentage --------- ---------- -------- ---------- (Dollars in thousands) Total Capital: (to Risk Weighted Assets) Actual $ 41,340 11.73% $ 40,296 11.66% For Capital Adequacy 28,184 8.00% 27,656 8.00% To Be Well Capitalized 35,230 10.00% 34,570 10.00% Tier I Capital: (to Risk Weighted Assets) Actual $ 36,931 10.48% $ 35,970 10.40% For Capital Adequacy 14,092 4.00% 13,828 4.00% To Be Well Capitalized 21,138 6.00% 20,742 6.00% Tier I Capital: (to Average Assets) Actual $ 36,931 8.10% $ 35,970 7.80% For Capital Adequacy 18,231 4.00% 18,449 4.00% To Be Well Capitalized 22,789 5.00% 23,062 5.00% Page 18 CENTURY FINANCIAL CORPORATION PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6. Exhibits and reports on Form 8-K (a) Exhibits The exhibits listed below are filed herewith or incorporated herein by reference: 27 Financial Data Schedule, filed herewith. (b) Reports on Form 8-K None Page 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized. Century Financial Corporation Date: May 8, 1998 By: /s/ Joseph N. Tosh, II ------------------------------------------------- Joseph N. Tosh, II President and Chief Executive Officer (Principal Executive Officer) Date: May 8, 1998 By: /s/ Donald A. Benziger ------------------------------------------------- Donald A. Benziger Senior Vice President and Chief Financial Officer (Principal Financial Officer) Page 20 EX-27 2
9 1,000 3-MOS DEC-31-1997 MAR-31-1998 10,655 3,449 525 0 67,736 0 0 359,629 4,844 454,568 392,505 0 4,385 20,000 0 0 4,277 33,401 454,568 7,677 1,056 138 8,871 4,233 4,536 4,335 270 0 3,284 1,605 1,605 0 0 1,363 .27 .26 4.47 3,614 87 0 0 4,717 172 29 4,844 4,844 0 0
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