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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-17416
CENTURY FINANCIAL CORPORATION
_____________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1553790
___________________ ______________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Century Place
Rochester, Pennsylvania 15074
----------------------------------
(Address of principal executive offices)(Zip code)
(412) 774-1872
-------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock , $0.835 par value; 5,078,636 shares outstanding at
October 31, 1997
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 4-5
Consolidated Statement of Changes in Stockholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-19
PART II- OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Page 2
CENTURY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
ASSETS
Cash and due from banks $ 11,713 $ 13,004
Federal funds sold 7,745 8,790
Investment securities available for sale 71,477 71,873
Loans (net of unearned income of $12,892 and
$10,677) 354,903 308,010
Less allowance for loan losses 3,436 3,234
------------- ------------
Net Loans 351,467 304,776
Premises and equipment 11,170 10,020
Accrued interest and other assets 5,116 4,395
------------- ------------
TOTAL ASSETS $ 458,688 $ 412,858
============= ============
LIABILITIES
Deposits:
Noninterest - bearing demand $ 44,936 $ 41,959
Interest - bearing demand 35,130 33,754
Savings 33,248 33,625
Money market 56,525 60,457
Time 222,742 193,599
------------- ------------
Total deposits 392,581 363,394
Short term borrowings 4,000 7,000
Other borrowings 20,000 4,000
Accrued interest and other liabilities 5,428 4,428
------------- ------------
TOTAL LIABILITIES 422,009 378,822
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.835;
authorized 8,000,000 shares;
issued 5,108,809 and 3,383,943 shares,
respectively 4,266 2,826
Additional paid in capital 3,064 2,834
Retained earnings 29,256 28,239
Treasury stock, at cost (34,089 and 20,490 shares) (447) (339)
Net unrealized gain on securities 540 476
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 36,679 34,036
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 458,688 $ 412,858
============= ============
See accompanying unaudited notes to the consolidated financial statements.
Page 3
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
September 30,
------------------------------
1997 1996
------------- ------------
(In thousands)
INTEREST INCOME
Interest and fees on loans:
Taxable $ 7,077 $ 6,030
Tax exempt 680 439
Federal funds sold 147 21
Investment securities:
Taxable 951 1,109
Tax exempt 163 163
------------- ------------
Total interest income 9,018 7,762
------------- ------------
INTEREST EXPENSE
Deposits 4,328 3,250
Short term borrowings 67 185
Other borrowings 252 51
------------- ------------
Total interest expense 4,647 3,486
------------- ------------
NET INTEREST INCOME 4,371 4,276
Provision for loan losses 240 180
------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,131 4,096
------------- ------------
NONINTEREST INCOME
Service fees on deposit accounts 375 349
Trust Department income 245 205
Net gain on sale of securities - -
Other 161 109
------------- ------------
Total noninterest income 781 663
------------- ------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,710 1,683
Net occupancy and equipment expense 538 509
Deposit insurance premium 11 1
Other 811 1,012
------------- ------------
Total noninterest expense 3,070 3,205
------------- ------------
INCOME BEFORE INCOME TAXES 1,842 1,554
Income taxes 336 257
------------- ------------
NET INCOME $ 1,506 $ 1,297
============= ============
EARNINGS PER SHARE $ 0.30 $ 0.26
============= ============
DIVIDENDS DECLARED PER SHARE $ 0.11 $ 0.10
AVERAGE SHARES OUTSTANDING 5,067,101 5,049,068
See accompanying unaudited notes to the consolidated financial statements.
Page 4
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------- ------------
(In thousands)
INTEREST INCOME
Interest and fees on loans:
Taxable $ 20,112 $ 16,948
Tax exempt 1,701 1,286
Federal funds sold 342 111
Investment securities:
Taxable 2,897 3,736
Tax exempt 483 518
------------- ------------
Total interest income 25,535 22,599
------------- ------------
INTEREST EXPENSE
Deposits 11,924 9,516
Short term borrowings 348 431
Other borrowings 279 162
------------- ------------
Total interest expense 12,551 10,109
------------- ------------
NET INTEREST INCOME 12,984 12,490
Provision for loan losses 630 415
------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 12,354 12,075
------------- ------------
NONINTEREST INCOME
Service fees on deposit accounts 1,089 1,077
Trust Department income 735 589
Net gain on sale of securities - 1
Other 480 310
------------- ------------
Total noninterest income 2,304 1,977
------------- ------------
NONINTEREST EXPENSE
Salaries and employee benefits 5,199 4,989
Net occupancy and equipment expense 1,609 1,539
Deposit insurance premium 33 1
Other 2,716 2,915
------------- ------------
Total noninterest expense 9,557 9,444
------------- ------------
INCOME BEFORE INCOME TAXES 5,101 4,608
Income taxes 1,040 1,005
------------- ------------
NET INCOME $ 4,061 $ 3,603
============= ============
EARNINGS PER SHARE $ 0.80 $ 0.71
============= ============
DIVIDENDS DECLARED PER SHARE $ 0.32 $ 0.29
AVERAGE SHARES OUTSTANDING 5,060,246 5,057,609
See accompanying unaudited notes to the consolidated financial statements.
Page 5
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Net
Additional Unrealized Total
Common Paid in Retained Treasury Gain (Loss)on Stockholders'
Stock Capital Earnings Stock Securities Equity
------- ------- -------- -------- ------------- -------------
(In thousands)
Balance, December 31, 1996 $ 2,826 $ 2,834 $ 28,239 $ (339) $ 476 $ 34,036
Net Income 4,061 4,061
Dividends ($.32 per share) (1,623) (1,623)
Fifty percent stock dividend 1,416 (1,416) -
Common stock issued 24 236 260
Purchase of Treasury stock
(21,855 shares) (351) (351)
Sale of Treasury stock
(17,014 shares) (6) (5) 243 232
Net unrealized gain on
securities 64 64
------- ------- -------- -------- ------------- -------------
Balance, September 30, 1997 $ 4,266 $ 3,064 $ 29,256 $ (447) $ 540 $ 36,679
======= ======= ======== ======== ============= =============
See accompanying unaudited notes to the consolidated financial statements.
Page 6
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------- -----------
(In thousands)
OPERATING ACTIVITIES
Net income $ 4,061 $ 3,603
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 630 415
Depreciation, amortization, and accretion, net 574 118
Investment securities gains, net - (1)
Decrease (increase) in accrued interest receivable (587) 65
Increase (decrease) in accrued interest payable 1,179 209
Other, net (400) (91)
------------- -----------
Net cash provided by
operating activities 5,457 4,318
------------- -----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 19,091 24,464
Purchases (18,575) (4,660)
Proceeds from the sale of securities - 2,881
Net increase in loans (44,006) (42,516)
Purchase of loans receivable (3,250) -
Purchases of premises and equipment (1,812) (1,768)
------------- -----------
Net cash used for investing activities (48,552) (21,599)
------------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 29,187 12,529
Increase (decrease) in short term borrowings (7,000) 7,675
Increase in other borrowings 20,000 800
Cash dividends (1,569) (1,384)
Proceeds from common stock issued 260 93
Treasury stock purchase (351) (512)
Proceeds from sale of treasury stock 232 138
------------- -----------
Net cash provided by financing activities 40,759 19,339
------------- -----------
Increase (decrease) in cash and
cash equivalents (2,336) 2,058
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 21,794 10,426
-------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,458 $ 12,484
============== ===========
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
("Corporation") includes the accounts of the Corporation and its wholly owned
subsidiary, Century National Bank and Trust Company ("Century"). Significant
intercompany items have been eliminated in consolidation.
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation have been included. The
results of operations for the three and nine months ended September 30, 1997
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
Nature of Operations
- --------------------
Century Financial Corporation is a Pennsylvania corporation and is registered
under the Holding Company Act. The Corporation was organized to be the
holding company of Century National Bank. The Corporation and its subsidiary
derive substantially all their income from banking and bank-related services
which includes interest earnings on commercial, commercial mortgage,
residential real estate, and consumer loan financing as well as interest
earnings on investment securities and deposit services to its customers.
Century provides banking services to Southwestern Pennsylvania. The
Corporation is supervised by the Federal Reserve Board while Century is
subject to regulation and supervision by the Office of the Comptroller of the
Currency.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities
- --------------------------------------------------------------
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Statement No. 125
establishes for resolving issues relating to circumstances under which the
transfer of financial assets should be considered as sales of all or part of
the assets or as secured borrowings and about when a liability should be
considered extinguished. Management believes that the implementation of
Statement No. 125 does not have a significant effect on the financial position
or results of operations of the Corporation.
Earnings Per Share
- ------------------
Earnings per share for the three and nine months ended September 30, 1997 and
1996, have been calculated based upon the weighted average number of
outstanding common shares, including common stock equivalents, if such items
have a dilutive effect. For the respective periods ended, common stock
equivalents did not have a material dilutive effect on earnings per share.
Page 8
CENTURY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ----------------------------------------------------------
Pending Accounting Standards
- ----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." This statement
re-defines the standards for computing earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Statement No. 128 establishes new standards for computing and presenting EPS
and requires dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all entities with complex capital structures. Under
Statement No. 128, basic EPS is to be computed based upon income available to
common shareholders and the weighted average number of common shares
outstanding for the period. Diluted EPS is to reflect the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Corporation. Statement No. 128
also requires the restatement of all prior-period EPS data presented.
Management believes that the adoption of this statement will not have a
significant impact on the Corporation's financial position or results of
operations.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 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. SFAS No. 130 requires that companies (1) classify items of other
comprehensive income by their nature in a financial statement and (2) display
the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comprehensive purposes is required.
Reclassification of Comparative Amounts
- ---------------------------------------
Certain comparative amounts for prior periods have been reclassified to
conform with current period presentations.
Common Stock Split
- ------------------
On March 20, 1997, the Board of Directors approved a three-for-two stock
split. The additional shares resulting from the split were effected in the
form of a 50% stock dividend. All references to the number of average common
shares and per share amounts for 1996 have been restated to reflect the stock
split.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ----------------------------------------------------
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------- -----------
(In thousands)
Cash paid during the year for:
Interest $ 11,436 $ 9,900
Income taxes 700 960
Page 9
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 $458,688,000 at September 30, 1997,
an increase of $45,830,000 or 11.1% over assets at December 31, 1996. This
increase was mainly a result of an increase in net loans receivable. Total
liabilities increased $43,187,000 or 11.4% when compared to total liabilities
as of December 31, 1996. The increase in total liabilities was mostly
attributable to an increase in total deposits and borrowings. The
Corporation's total consolidated stockholders' equity increased $2,643,000 or
7.8% when compared to total stockholders' equity at December 31, 1996. This
increase was a result of: (1) $4,061,000 in net income earned, less cash
dividends declared to shareholders of $1,623,000; (2) an increase in the net
unrealized gain on investment securities available for sale; and (3) a
decrease in the balance of treasury stock.
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale at September 30, 1997 remained
relatively unchanged, decreasing $396,000 or .6% when compared to December 31,
1996. Total investment securities maturing during the nine month period ended
September 30, 1997 were $19,091,000, offset by purchases of $18,575,000.
Loan Portfolio
- --------------
Net loans increased $46,691,000 or 15.3% in the first nine months of 1997 when
compared to December 31, 1996. This increase was a result of the bank
experiencing strong loan demand throughout the 1997 period. The composition of
this loan growth has been quite diversified, with real estate and commercial
loans increasing the most significantly.
The following table represents the composition of the Corporation's loan
portfolio:
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
Commercial, financial, and agricultural $ 86,960 $ 78,666
Real estate - construction 12,316 11,042
Real estate - mortgage 154,825 124,957
Installment loans to individuals 86,785 83,637
Tax exempt loans 26,909 20,385
------------- ------------
367,795 318,687
Less unearned income 12,892 10,677
------------- ------------
354,903 308,010
Less allowance for loan losses 3,436 3,234
------------- ------------
Net loans $ 351,467 $ 304,776
============= ============
Page 10
Allowance for Loan Losses
- -------------------------
The Corporation's allowance for loan losses was $3,436,000 at September 30,
1997 compared to $3,234,000 at December 31, 1996. This represents a $202,000
or 6.2% increase for the first nine months of 1997.
The adequacy of the allowance for loan losses is determined by management
considering certain criteria such as the risk classification of loans,
delinquency trends, charge-off experience, concentrations, economic conditions
and other relevant factors. Specific reserves are established for 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 are reviewed by
management and the executive committee of Century's Board of Directors on
annual basis. In addition, loan relationships in excess of $250,000, rated
substandard or lower reviewed on a quarterly basis and evaluated for the
adequacy of payment histories, any changes collateral and exposure, if any, is
specifically reserved for. All special mention loans are 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 reserve is determined.
Activity in the allowance for loan losses is summarized as follows:
Nine Months Ended
September 30,
1997 1996
------------- ------------
(Dollars in thousands)
Balance, beginning of period $ 3,234 $ 3,003
Charge-offs:
Commercial loans 61 63
Real estate mortgages - -
Installment loans to individuals 452 271
------------- ------------
Total charge-offs 513 334
------------- ------------
Recoveries:
Commercial loans 29 13
Real estate mortgages 3 2
Installment loans to individuals 53 32
------------- ------------
Total recoveries 85 47
------------- ------------
Net charge-offs 428 287
------------- ------------
Provision charged to operations 630 415
------------- ------------
Balance, end of period $ 3,436 $ 3,131
============= ============
Net charge-offs as a percent of average
loans, net of unearned 0.13% 0.11%
Allowance for loan losses to total loans,
net of unearned income 0.97% 1.04%
The Corporation believes that the allowance for loan losses at September 30,
1997 is adequate to cover losses inherent in the portfolio as of such date.
However, there can be no assurance that Corporation will not sustain
additional losses in future periods, which could be substantial in relation to
the size of the allowance at September 30, 1997.
Page 11
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 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 concession on the interest rate or the
original repayment terms because of financial difficulties.
The following table sets forth information regarding non-performing assets:
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
Non-accrual loans $ 2,676 $ 872
Loans past due 90 days or more 329 223
Restructured loans - -
------------- ------------
Total non-performing loans 3,005 1,095
Other real estate owned - -
------------- ------------
Total non-performing assets $ 3,005 $ 1,095
============== ============
Non-performing loans as a percentage of
total loans, net of unearned income 0.85% 0.36%
Non-performing assets as a percentage of
total assets 0.66% 0.27%
Non-performing assets as a percentage of
allowance for loan losses 87.46% 33.86%
Total non-performing assets at September 30, 1997 totaled $3,005,000, an
increase of $1,910,000 compared December 31, 1996. This increase was
primarily attributable to a $1,613,000 increase in non-accrual as a result of
a commercial real estate loan placed on non-accrual status due to the debtor
filing for bankruptcy in March, 1997. Collateral for the commercial real
estate loan consists of two commercial properties, of which Century has a
first mortgage lien position on one of the properties, and as additional
collateral, a second mortgage lien position on the second property. In
accordance with Statement of Financial Accounting No. 114 and 118, the loan is
considered to be impaired.
At September 30, 1997, the Corporation's total non-performing assets,
including any loans classified regulatory purposes as loss, doubtful,
substandard or special mention do not represent or result 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 information
which causes management to have serious doubts as to the ability of borrowers
to comply with loan repayment terms.
Deposits
- --------
Total deposits increased $29,187,000 or 8.0% when compared to December 31,
1996. Money market deposits decreased $3,932,000 or 6.5% in the first nine
months of 1997. The Corporation's growth occurred in higher yielding
deposits, particularly, time deposits, which increased $29,143,000 or 15.1%.
Page 12
Borrowings
- ----------
Total borrowings of the Corporation increased $13,000,000 or 118.2% when
compared to total borrowings at December 31, 1996. This increase was
comprised solely of advances with the Federal Home Bank of Pittsburgh.
Proceeds from these borrowings were used, mostly in part, to fund current
loan growth.
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996.
Summary of Earnings
- -------------------
The Corporation earned $1,506,000 or $0.30 per share for the three months
ended September 30, 1997. This represents an increase of $209,000 or 16.1%
over net income reported for the same period in 1996. The increase in net
income is attributable to an increase in net interest income, other income and
a decrease in noninterest expense, all offset by an increase in the provision
for loan losses.
Net Interest Income
- -------------------
The Corporation's net interest income increased $95,000 or 2.2% during the
three months ended September 30, 1997 when compared to the same period in
1996. This increase is a result of a $1,256,000 or 16.2% increase in total
interest income, offset by an increase of $1,161,000 or 33.3% in total
interest expense. Net interest income, on a fully taxable equivalent basis,
as a percentage of average earning assets, commonly referred to as the net
interest margin, decreased by 51 basis points to 4.48% from 4.99% at September
30, 1996. This decrease was mostly a result of an increase in the balance and
rates paid on higher yielding deposits. (Reference may be made to the table
on page 14 in conjunction with the following paragraphs for further analysis
of net interest income.)
Interest income on loans increased $1,288,000 or 19.9% for the third quarter
of 1997 compared to the same period in 1996. This increase is attributable to
an increase in the average loan balance outstanding during the 1997 period as
well as an increase in the average yield earned.
Interest income on investment securities decreased $158,000 or 14.2% for the
third quarter of 1997 compared to the same period in 1996. This decrease is
attributable to a decrease in the average balance of investment securities
outstanding during the 1997 period as well as a decrease in the average yield
earned.
Interest income on federal funds sold increased $126,000 or 600.0% for the
third quarter of 1997 compared to the same period in 1996. This increase is a
result of an increase in the average balance of federal funds sold outstanding
during the 1997 period as well as an increase in the average yield earned.
Interest expense on deposits increased $1,078,000 or 33.2% for the third
quarter of 1997 compared to the same period in 1996. This increase is
attributable to an increase in the average rate paid on these funds during the
1997 period as well as an increase in the average balance of deposits
outstanding during the same period.
Interest expense on borrowings increased $83,000 or 35.2% for the three months
ended September 30, 1997 compared to the same period in 1996. 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.
Page 13
Net Interest Income (Continued)
- -------------------------------
The following table illustrates information regarding the average balances,
yields and rates on interest earning assets and interest-bearing liabilities:
Three Months Ended September 30,
-------------------------------------
1997 1996
----------------- ----------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
--------- ----- --------- -----
(Dollars in thousands)
Interest earning assets:
Federal funds sold $ 10,705 5.52% $ 1,576 5.33%
Investment securities (2) 70,356 6.85 78,242 6.93
Loans (1) (2) 350,739 9.28 290,280 9.23
--------- ----- --------- -----
Total interest earning assets 431,800 8.79 370,098 8.72
--------- ----- --------- -----
Interest-bearing liabilities:
Deposits 346,581 5.01 296,008 4.36
Short term borrowings 4,937 5.44 12,316 5.97
Other borrowings 17,826 5.66 4,000 5.06
--------- ----- --------- -----
Total interest-bearing
liabilities 369,344 5.05 312,324 4.43
--------- ----- --------- -----
Net earning assets $ 62,456 $ 57,774
========= =========
Net interest spread 3.75% 4.30%
===== =====
Net interest margin (3) 4.48% 4.99%
===== =====
(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 third quarter of
1997 was $240,000 compared to $180,000 charged in the same period in 1996,
representing an increase of $60,000 or 33.3%. The increase in the provision
was a result of factors such as; (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.
Noninterest Income and Expense
- ------------------------------
The Corporation's total consolidated noninterest income increased $118,000 or
17.8% for the three months ended September 30, 1997 when compared to the same
period in 1996. This increase was a result of a $40,000 or 19.5% increase in
trust department income and an increase of $52,000 or 47.7% in other income.
Trust department income increased as a result of continued growth in both the
number and value of trust accounts and the increase in other income was
attributable to an increase in ATM fees.
Page 14
Noninterest Income and Expense (Continued)
- ------------------------------------------
The Corporation's total consolidated noninterest expense decreased $135,000 or
4.2% for the three months ended September 30, 1997 when compared to the same
period in 1996. This decrease was primarily a result of a $201,000 or 19.9%
decrease in total other expense, offset by a $27,000 or 1.6% increase in
salaries and employee benefits, a $29,000 or 5.7% increase in net occupancy
and equipment expenses and a $10,000 increase in deposit insurance premium
expenses.
The decrease in total other expenses was attributable to: (1) a decrease of
$119,000 in advertising expenses related to the introduction of various new
products in the previous year; (2) a decrease of $31,000 in professional
advisory fees; (3) a decrease of $20,000 in employee tuition reimbursement
expenses; (4) a decrease of $18,000 in legal related costs; and (5) an overall
decrease in administrative expenditures.
Federal Income Taxes
- --------------------
Federal income tax expense increased $79,000 or 30.7% for the three months
ended September 30, 1997 compared to the same period in 1996. This increase
was primarily the result of an increase in pre-tax income offset by an increase
tax-exempt interest.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996.
Summary of Earnings
- -------------------
The Corporation earned $4,061,000 or $0.80 per share for the first nine months
of 1997. This represents an increase of $458,000 or 12.7% over net income
reported for the same period in 1996. The increase in net income is
attributable to an increase in net interest income and other income, offset by
an increase in the provision for loan losses and noninterest expense.
Net Interest Income
- -------------------
The Corporation's net interest income increased $494,000 or 4.0% during the
first nine months of 1997 when compared to the same period in 1996. This
increase is a result of a $2,936,000 or 13.0% increase in total interest
income, offset by an increase of $2,442,000 or 24.2% in total interest
expense. Net interest income, on a fully taxable equivalent basis, as a
percentage of average earning assets, commonly referred to as the net interest
margin, decreased by 31 basis points to 4.59% from 4.90% at September 30,
1996. This decrease was mostly a result of an increase in the balance and
rates paid on higher yielding deposits. (Reference may be made to the table
on page 16 in conjunction with the following paragraphs for further analysis
of net interest income.)
Interest income on loans increased $3,579,000 or 17.3% for the first nine
months of 1997 compared to the same period in 1996. This increase is
attributable to an increase in the average loan balance outstanding during the
1997 period, offset by a decrease in the average yield earned.
Interest income on investment securities decreased $874,000 or 20.5% for the
first nine months of 1997 compared to the same period in 1996. This decrease
is attributable to a decrease in the average balance of investment securities
outstanding during the 1997 period, offset by an increase in the average yield
earned.
Page 15
Net Interest Income (Continued)
- -------------------------------
Interest income on federal funds sold increased $231,000 or 208.1% for the
first nine months of 1997 compared to the same period in 1996. This increase
is a result of an increase in the average balance of federal funds sold
outstanding during the 1997 period as well as an increase in the average yield
earned.
Interest expense on deposits increased $2,408,000 or 25.3% for the first nine
months of 1997 compared to the same period in 1996. This increase is
attributable to an increase in the average rate paid on these funds during the
1997 period as well as an increase in the average balance of deposits
outstanding during the same period.
Interest expense on borrowings increased $34,000 or 8.9% for the nine months
ended September 30, 1997 compared to the same period in 1996. This increase
was attributable to an increase in the average balance outstanding during the
period, offset by a decrease in the average rate paid on these funds.
The following table illustrates information regarding the average balances,
yields and rates on interest earning assets and interest-bearing liabilities:
Nine Months Ended September 30,
-------------------------------------
1997 1996
----------------- ----------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
--------- ----- --------- -----
(Dollars in thousands)
Interest earning assets:
Federal funds sold $ 8,356 5.47% $ 2,748 5.38%
Investment securities (2) 69,996 6.93 89,429 6.74
Loans (1) (2) 332,391 9.13 272,289 9.25
--------- ----- --------- -----
Total interest earning assets 410,743 8.68 364,466 8.61
--------- ----- --------- -----
Interest-bearing liabilities:
Deposits 334,385 4.77 292,994 4.34
Short term borrowings 8,145 5.71 9,426 6.11
Other borrowings 7,059 5.28 3,527 6.15
--------- ----- --------- -----
Total interest-bearing
liabilities 349,589 4.80 305,947 4.41
--------- ----- --------- -----
Net earning assets $ 61,154 $ 58,519
========= =========
Net interest spread 3.88% 4.20%
===== =====
Net interest margin (3) 4.59% 4.90%
===== =====
(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 nine months
of 1997 was $630,000 compared to $415,000 charged in the same period in 1996,
representing an increase of $215,000 or 51.8%. The increase in the provision
was a result of factors such as; (1) the increase in the loan portfolio; (2)
an increase in net charge-offs; and (3) and Management's ongoing analysis of
the adequacy of the allowance for loan losses.
Page 16
Noninterest Income and Expense
- ------------------------------
The Corporation's total consolidated noninterest income increased $327,000 or
16.5% for the nine months ended September 30, 1997 when compared to the same
period in 1996. This increase was a result of a $146,000 or 24.8% increase in
trust department income and an increase of $170,000 or 54.8% 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
attributable to: (1) a $105,000 increase in ATM fees collected from
non-customer transactions; (2) a $28,000 increase in master money debit card
interchange fees; and (3) a $15,000 recovery received in early 1997 relating
to physical damages occurring at a branch facility.
The Corporation's total consolidated noninterest expense increased $113,000 or
1.2% for the nine months ended September 30, 1997 when compared to the same
period in 1996. This increase was a result of an increase of $210,000 or 4.2%
in salaries and employee benefits, an increase of $70,000 or 4.5% in net
occupancy and equipment expenses and a $32,000 increase in deposit insurance
premium expenses, offset by a decrease of $199,000 or 6.8% in total other
expenses.
The decrease in total other expenses was attributable to: (1) a decrease of
$124,000 in advertising expenses; (2) a decrease of $90,000 in legal related
costs; and (3) a decrease of $53,000 in professional advisory fees, all offset
by increases in overall administrative expenses.
Federal Income Taxes
- --------------------
Federal income tax expense increased $35,000 or 3.5% for the nine months ended
September 30, 1997 compared to the same period in 1996. This increase was
the result of an increase in pre-tax income offset by an increase tax-exempt
interest earned.
Liquidity and Interest Rate Sensitivity
- ---------------------------------------
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate possible outflows of deposits, and to
take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms
of the nature and mix of the banking institution's sources and uses of funds.
Asset liquidity is provided through loan repayments and the management of
maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining adequate levels of interest-earning assets that
mature within one year. Interest-earning deposits in banks, federal funds
sold and short-term investment securities are used for this purpose and
totaled $19,105,000 at September 30, 1997.
Closely related to the concept of liquidity is the management of
interest-earning assets and interest-bearing liabilities. The Corporation
manages its rate sensitivity position to minimize fluctuation in the net
interest margin and to minimize the risk due to changes in interest rates,
thereby attempting to achieve consistent growth of net interest income.
The difference between a financial institution's interest-sensitive assets
(i.e. assets which will mature or reprice within the same time period) and
interest-sensitive liabilities (i.e., liabilities which will mature or reprice
within the same period) is commonly referred to as its "Gap" or "Interest Rate
Gap." An institution having more interest rate sensitive assets than interest
sensitive liabilities within a given time period is said to have a "positive
gap"; an institution having more interest rate sensitive liabilities than
interest rate sensitive assets within a given time period is said to have a
"negative gap."
Page 17
Liquidity and Interest Rate Sensitivity (Continued)
- ---------------------------------------------------
The following table is presented in conformity with industry practice and
reflects contractual repricing schedules as of September 30, 1997:
Within 3 3-12 1-5 Over
Months Months Years 5 Years Total
-------- -------- ------- -------- --------
(In thousands)
Federal funds sold $ 7,745 $ - $ - $ - $ 7,745
Investment securities:
Taxable 3,220 7,655 41,479 6,462 58,816
Non-taxable 210 275 3,085 9,091 12,661
Loans 50,688 51,512 139,702 113,001 354,903
-------- -------- ------- -------- --------
Total earning assets 61,863 59,442 184,266 128,554 434,125
-------- -------- ------- -------- --------
Interest-bearing demand
deposits 7,026 - 21,195 6,909 35,130
Savings deposits 6,649 6,649 13,410 6,540 33,248
Money Market deposits 16,957 28,263 11,305 - 56,525
Time deposits 49,880 84,025 84,088 4,749 222,742
Short term borrowings - 4,000 - - 4,000
Other borrowings - 20,000 - - 20,000
-------- -------- ------- -------- --------
Total interest-bearing
liabilities 80,512 142,937 129,998 18,198 371,645
-------- -------- ------- -------- --------
Interest rate sensitivity
gap $(18,649) $(83,495) $54,268 $110,356 $ 62,480
======== ======== ======= ======== ========
Cumulative interest rate
sensitivity gap $(18,649) $(102,144) $(47,876) $ 62,480
======== ========= ======== ========
Cumulative interest rate
sensitivity gap as a
percentage of total
earning assets (4.30%) (23.53%) (11.03%) 14.39%
======== ========= ======== ========
The above table is a static view of the balance sheet with assets and
liabilities grouped into certain defined time periods. Being measured at a
specific point in time, this analysis may not fully describe the complexity of
relationships between product features and pricing, market rates, and future
management of the balance sheet mix. The primary method of measuring the
sensitivity of earnings to market interest rates is to simulate expected
earnings streams under various rate scenarios while at the same time adjusting
for the anticipated behavior of non-contractual deposit accounts. These
adjustments are influenced by the Federal Reserve Bank and other regulators'
proposed guidelines for the measurement of interest rate risk. Subject to
these qualifications, the table above reflects a cumulative gap for assets and
liabilities maturing or repricing in the next twelve months.
The Corporation's asset/liability management committee monitors the interest
rate sensitivity position of the Corporation to ultimately achieve consistent
growth of net interest income.
Page 18
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:
September 30, 1997 December 31, 1996
--------------------- ---------------------
Amount Percentage Amount Percentage
-------- ---------- -------- ----------
(Dollars in thousands)
Total Capital:
(to Risk Weighted Assets)
Actual $ 39,444 11.33% $ 36,643 11.95%
For Capital Adequacy 27,862 8.00 24,522 8.00
-------- ------ -------- ------
Excess $ 11,582 3.33% $ 12,121 3.95%
-------- ------ -------- ------
Tier I Capital:
(to Risk Weighted Assets)
Actual $ 36,008 10.34% $ 33,409 10.90%
For Capital Adequacy 13,931 4.00 12,261 4.00
-------- ------ -------- ------
Excess $ 22,077 6.34% $ 21,148 6.90%
-------- ------ -------- ------
Tier I Capital:
(to Average Assets)
Actual $ 36,008 7.91% $ 33,409 8.25%
For Capital Adequacy 18,201 4.00 16,208 4.00
-------- ------ -------- ------
Excess $ 17,807 3.91% $ 17,201 4.25%
-------- ------ -------- ------
Page 19
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 20
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: October 31, 1997 By: /s/ Joseph N. Tosh, II
--------------------------------
Joseph N. Tosh, II
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 31, 1997 By: /s/ Donald A. Benziger
---------------------------------
Donald A. Benziger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)