-----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, U2DNQ/LXiwZSpVeiVKlV6J8QPUYeRLoXIDTFfJM9/yqR6nQ9pHp4KnM3bb8Ln3Gz E4mm/DFjmyCRshbd5lDkkw== 0000950132-96-000194.txt : 19960401 0000950132-96-000194.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950132-96-000194 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17416 FILM NUMBER: 96540931 BUSINESS ADDRESS: STREET 1: ONE CENTURY PL CITY: ROCHESTER STATE: PA ZIP: 15074 BUSINESS PHONE: 4127741872 10-K 1 FORM 10-K UNITED STATES 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 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 NO.) ONE CENTURY PLACE ROCHESTER, PENNSYLVANIA 15074 ----------------------- ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(412) 774-1872 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 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 REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART 3 OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. (X) --- THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT AS OF MARCH 26, 1996: COMMON STOCK, $0.835 PAR VALUE, $47,682,116 THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF MARCH 26, 1996: COMMON STOCK, $0.835 PAR VALUE, 3,375,725 SHARES DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE ANNUAL SHAREHOLDERS REPORT FOR THE YEAR ENDED DECEMBER 31, 1995 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II. PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING TO BE HELD APRIL 29, 1996 ARE INCORPORATED BY REFERENCE INTO PART III. -2- CENTURY FINANCIAL CORPORATION FORM 10K INDEX PART I
PAGE NUMBER ITEM 1 BUSINESS 4-22 ITEM 2 PROPERTIES 22 ITEM 3 LEGAL PROCEEDINGS 22 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 23 ITEM 6 SELECTED FINANCIAL DATA 23 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23 ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 23 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24 ITEM 11 EXECUTIVE COMPENSATION 24 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 24 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 24 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 25 EXHIBIT INDEX 26 SIGNATURES 27-28
-3- PART I ITEM 1. DESCRIPTION OF BUSINESS - ----------------------- 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 CENTURY. THE CORPORATION IS ENGAGED PRINCIPALLY IN COMMERCIAL BANKING ACTIVITIES THROUGH ITS BANKING SUBSIDIARY. CENTURY BECAME A WHOLLY-OWNED SUBSIDIARY OF THE CORPORATION ON JUNE 1, 1988. THE CORPORATION OWNS ALL OF THE ISSUED AND OUTSTANDING COMMON STOCK OF CENTURY. ON MARCH 1, 1989, CENTURY BECAME THE SOLE STOCKHOLDER OF THE INDEPENDENT BANKERS COMPUTER SERVICE, INC. (IBCS), A DATA PROCESSING CENTER. ON JUNE 1, 1989, THE CORPORATION ACQUIRED ALL OF THE STOCK OF IBCS FROM CENTURY AND WAS OPERATING THE CENTER AS A NON-BANK SUBSIDIARY. EFFECTIVE APRIL 1, 1995, INDEPENDENT BANKERS COMPUTER SERVICE, INCORPORATED WAS DISSOLVED AND ITS OPERATIONS INTEGRATED WITH CENTURY NATIONAL BANK AND TRUST COMPANY. GENERAL - ------- CENTURY 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, PENNSYLVANIA, WERE MERGED INTO CENTURY. EACH OF THESE BUSINESS COMBINATIONS WAS ACCOUNTED FOR AS A POOLING OF INTERESTS. CENTURY ENGAGES IN FULL SERVICE COMMERCIAL AND CONSUMER BANKING AND TRUST BUSINESS. CENTURY PROVIDES SERVICES TO ITS CUSTOMERS THROUGH ITS NETWORK OF TWELVE FULL SERVICE OFFICES WHICH INCLUDES DRIVE-IN FACILITIES. CENTURY'S SERVICES INCLUDE ACCEPTING TIME, DEMAND AND SAVINGS DEPOSITS INCLUDING NOW ACCOUNTS, REGULAR SAVINGS ACCOUNTS, MONEY MARKET ACCOUNTS, INVESTMENT CERTIFICATES, 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 -4- ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED) - ----------------------- OVERDRAFT CHECKING PROTECTION, SMALL BUSINESS LOANS, ETC. CENTURY'S BUSINESS LOANS INCLUDE SEASONAL CREDIT COLLATERAL LOANS, AND TERM LOANS. DURING THE FIVE YEAR PERIOD BEGINNING IN 1991 AND ENDING IN 1995, THE CORPORATION'S COMBINED TOTAL ASSETS HAVE GROWN FROM APPROXIMATELY $279 MILLION IN 1991 TO APPROXIMATELY $377 MILLION IN 1995. NET INCOME FOR EACH OF THE YEARS IN THIS PERIOD HAS INCREASED. 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 NINE OTHER PROPERTIES LOCATED AT 2552 DARLINGTON ROAD, BEAVER FALLS, PENNSYLVANIA; FREEDOM AND HAINES SCHOOL ROAD, MARS, PENNSYLVANIA; THIRD AVENUE, FREEDOM, PENNSYLVANIA; SEVENTH STREET AND MIDLAND AVENUE, MIDLAND, PENNSYLVANIA; 1001 PENNSYLVANIA AVENUE, MONACA, PENNSYLVANIA; THIRD AVENUE, NEW BRIGHTON, PENNSYLVANIA; 800 BRODHEAD ROAD, ALIQUIPPA, PENNSYLVANIA; 700 MERCHANT STREET, AMBRIDGE, PENNSYLVANIA AND 716 FOURTEENTH STREET, BEAVER FALLS, PENNSYLVANIA. CENTURY LEASES THREE ADDITIONAL PROPERTIES LOCATED AT 613 BEAVER VALLEY MALL, MONACA, PENNSYLVANIA; NORTHERN LIGHTS SHOPPERS CITY, BADEN, PENNSYLVANIA AND THIRD AVENUE AND BUFFALO STREET, BEAVER, PENNSYLVANIA. ALL FACILITIES AND EQUIPMENT ARE PERIODICALLY APPRAISED FOR INSURANCE PURPOSES AND ARE ADEQUATELY INSURED. 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. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989 ("FIRREA") WAS ENACTED ON AUGUST 9, 1989. -5- ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED) - ----------------------- 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 IMPROVEMENT ACT OF 1991 ("THE FDIC IMPROVEMENT ACT") COVERS A WIDE EXPANSE OF BANKING REGULATORY ISSUES. THE FDIC IMPROVEMENT ACT DEALS WITH THE RECAPITALIZATION OF THE BANK INSURANCE FUND, 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 CORPORATION EXPECTS SUBSTANTIALLY LOWER FDIC EXPENSE IN 1996. 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 HIGHLY COMPETITIVE. CENTURY'S MARKET AREA INCLUDES ALL OF BEAVER COUNTY IN ADDITION TO SELECTED COMMUNITIES IN NEIGHBORING BUTLER (CRANBERRY TOWNSHIP AREA) COUNTY. CENTURY COMPETES WITH LOCAL COMMERCIAL BANKS AND THRIFT INSTITUTIONS WITH BRANCHES IN CENTURY'S MARKET AREA. CENTURY CONSIDERS ITS MAJOR COMPETITION TO BE MELLON BANK, N.A. AND INTEGRA/PITTSBURGH, BOTH HEADQUARTERED IN PITTSBURGH, PENNSYLVANIA ALONG WITH FIRST WESTERN BANK, N.A, HEADQUARTERED IN NEW CASTLE, PENNSYLVANIA. CENTURY COMPETES WITH COMMERCIAL BANKS, SAVINGS BANKS, SAVINGS AND LOAN ASSOCIATIONS, INSURANCE COMPANIES, REGULATED SMALL LOAN COMPANIES AND CREDIT UNIONS WITH RESPECT TO ATTRACTING LOAN ACTIVITY AND DEMAND DEPOSITS. -6- ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED) - ----------------------- COMPETITION (CONTINUED) - ----------------------- 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. LOAN COMMITMENTS AS OF DECEMBER 31, 1995 AND 1994, WERE APPROXIMATELY $29,307,000 AND $27,783,000, RESPECTIVELY. 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 THE BANK'S DEPOSITS ARE FROM OUTSIDE OF THE UNITED STATES. MARKET AREA - ----------- CENTURY HAS TWELVE OFFICES IN BEAVER COUNTY AND ONE OFFICE IN BUTLER COUNTY, BORDERING BEAVER COUNTY. THE BANK IS HEADQUARTERED IN ROCHESTER, PENNSYLVANIA. BEAVER COUNTY IS APPROXIMATELY 20 MILES NORTHWEST OF PITTSBURGH. THE BEAVER COUNTY AREA WAS ONCE LARGELY DEPENDENT ON HEAVY INDUSTRY MANUFACTURING, PRIMARILY STEEL. DUE TO THE NATIONWIDE RECESSION IN THE EARLY 1980s 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 USAIR WHICH OPERATES ITS HUB FROM THE PITTSBURGH AIRPORT. OTHER MAJOR EMPLOYERS INCLUDE THE MEDICAL CENTER, BEAVER COUNTY GOVERNMENT, STATE GOVERNMENT AND DUQUESNE LIGHT CORPORATION. -7- STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES INFORMATION REGARDING STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES REQUIRED BY GUIDE 3, IS SET FORTH AS FOLLOWS:
CENTURY FINANCIAL CORPORATION (IN THOUSANDS) AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS 1995 ------------------------------ AVERAGE VOLUME INTEREST YIELD (1) (2) (3) INTEREST-EARNING ASSETS ----------------------------- TAXABLE INVESTMENT SECURITIES $81,445 $5,012 6.15% NON-TAXABLE INVESTMENT SECURITIES 11,985 959 8.00% LOANS 246,379 22,498 9.13% FEDERAL FUNDS SOLD 3,923 234 5.96% -------- -------- ------- TOTAL INTEREST-EARNING ASSETS 343,732 28,703 8.35% NON-INTEREST EARNING ASSETS CASH AND DUE FROM BANKS 8,387 ALLOWANCE FOR LOAN LOSSES (3,137) OTHER ASSETS 13,729 -------- TOTAL ASSETS $362,711 ======== LIABILITIES AND CAPITAL INTEREST-BEARING LIABILITIES NOW ACCOUNTS $31,518 $303 0.96% MONEY MARKET ACCOUNTS 49,178 1,127 2.29% SAVINGS DEPOSITS 37,483 770 2.05% TIME DEPOSITS 165,474 10,034 6.06% SHORT TERM BORROWINGS 2,491 148 5.94% OTHER BORROWINGS 3,200 243 7.59% -------- -------- ------- TOTAL INTEREST-BEARING LIABILITIES 289,344 12,625 4.36% NON-INTEREST BEARING LIABILITIES DEMAND DEPOSITS 40,079 OTHER LIABILITIES 3,901 CAPITAL 29,387 -------- TOTAL LIABILITIES AND CAPITAL $362,711 ======== NET INTEREST INCOME AND NET YIELD ON INTEREST EARNING ASSETS $16,078 4.72% ======== ======= NET EARNING ASSETS AND NET INTEREST SPREAD $54,388 3.99% ======== =======
(1) FOR THE PURPOSE OF THESE COMPUTATIONS, NONACCRUING LOANS ARE INCLUDED IN THE DAILY AVERAGE LOAN AMOUNTS OUTSTANDING. (2) INTEREST ON LOANS INCLUDES FEE INCOME. (3) YIELDS WERE COMPUTED ON A TAX EQUIVALENT BASIS USING A 34% FEDERAL INCOME TAX RATE AND WERE DETERMINED ON THE BASIS OF COST, ADJUSTED FOR AMORTIZATION OF PREMIUM OR ACCRETION OF DISCOUNT. -8- STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES INFORMATION REGARDING STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES REQUIRED BY GUIDE 3, IS SET FORTH AS FOLLOWS:
CENTURY FINANCIAL CORPORATION (IN THOUSANDS) AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS 1994 ------------------------------ AVERAGE VOLUME INTEREST YIELD (1) (2) (3) INTEREST-EARNING ASSETS ----------------------------- TAXABLE INVESTMENT SECURITIES $61,765 $3,263 5.28% NON-TAXABLE INVESTMENT SECURITIES 11,421 829 7.26% LOANS 222,946 19,857 8.91% FEDERAL FUNDS SOLD 6,352 232 3.65% -------- -------- ------- TOTAL INTEREST-EARNING ASSETS 302,484 24,181 7.99% NON-INTEREST EARNING ASSETS CASH AND DUE FROM BANKS 9,273 ALLOWANCE FOR LOAN LOSSES (3,186) OTHER ASSETS 13,283 -------- TOTAL ASSETS $321,854 ======== LIABILITIES AND CAPITAL INTEREST-BEARING LIABILITIES NOW ACCOUNTS $31,747 $306 0.97% MONEY MARKET ACCOUNTS 47,964 1,104 2.30% SAVINGS DEPOSITS 41,883 874 2.09% TIME DEPOSITS 129,824 6,900 5.31% SHORT TERM BORROWINGS 1,067 40 3.75% OTHER BORROWINGS 2,981 230 7.72% -------- -------- ------- TOTAL INTEREST-BEARING LIABILITIES 255,466 9,454 3.70% NON-INTEREST BEARING LIABILITIES DEMAND DEPOSITS 37,244 OTHER LIABILITIES 2,266 CAPITAL 26,878 -------- TOTAL LIABILITIES AND CAPITAL $321,854 ======== NET INTEREST INCOME AND NET YIELD ON INTEREST EARNING ASSETS $14,727 4.92% ======== ======= NET EARNING ASSETS AND NET INTEREST SPREAD $47,018 4.29% ======== =======
(1) FOR THE PURPOSE OF THESE COMPUTATIONS, NONACCRUING LOANS ARE INCLUDED IN THE DAILY AVERAGE LOAN AMOUNTS OUTSTANDING. (2) INTEREST ON LOANS INCLUDES FEE INCOME. (3) YIELDS WERE COMPUTED ON A TAX EQUIVALENT BASIS USING A 34% FEDERAL INCOME TAX RATE AND WERE DETERMINED ON THE BASIS OF COST, ADJUSTED FOR AMORTIZATION OF PREMIUM OR ACCRETION OF DISCOUNT. -9- STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES INFORMATION REGARDING STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES REQUIRED BY GUIDE 3, IS SET FORTH AS FOLLOWS:
CENTURY FINANCIAL CORPORATION (IN THOUSANDS) AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS 1993 ------------------------------ AVERAGE VOLUME INTEREST YIELD (1) (2) (3) INTEREST-EARNING ASSETS ----------------------------- TAXABLE INVESTMENT SECURITIES $62,956 $3,298 5.24% NON-TAXABLE INVESTMENT SECURITIES 19,844 1,370 6.90% INTEREST-EARNING DEPOSITS 602 33 5.48% LOANS 197,501 18,503 9.37% FEDERAL FUNDS SOLD 9,318 287 3.08% -------- -------- ------- TOTAL INTEREST-EARNING ASSETS 290,221 23,491 8.09% NON-INTEREST EARNING ASSETS CASH AND DUE FROM BANKS 8,677 ALLOWANCE FOR LOAN LOSSES (2,783) OTHER ASSETS 11,604 -------- TOTAL ASSETS $307,719 ======== LIABILITIES AND CAPITAL INTEREST-BEARING LIABILITIES NOW ACCOUNTS $32,474 $534 1.64% MONEY MARKET ACCOUNTS 48,088 1,269 2.64% SAVINGS DEPOSITS 42,294 1,061 2.51% TIME DEPOSITS 118,465 6,278 5.30% SHORT TERM BORROWINGS 1,749 50 2.86% OTHER BORROWINGS 1,500 139 9.25% -------- -------- ------- TOTAL INTEREST-BEARING LIABILITIES 244,570 9,331 3.82% NON-INTEREST BEARING LIABILITIES DEMAND DEPOSITS 35,765 OTHER LIABILITIES 2,346 CAPITAL 25,038 -------- TOTAL LIABILITIES AND CAPITAL $307,719 ======== NET INTEREST INCOME AND NET YIELD ON INTEREST EARNING ASSETS $14,160 4.88% ======== ======= NET EARNING ASSETS AND NET INTEREST SPREAD $45,651 4.27% ======== =======
(1) FOR THE PURPOSE OF THESE COMPUTATIONS, NONACCRUING LOANS ARE INCLUDED IN THE DAILY AVERAGE LOAN AMOUNTS OUTSTANDING. (2) INTEREST ON LOANS INCLUDES FEE INCOME. (3) YIELDS WERE COMPUTED ON A TAX EQUIVALENT BASIS USING A 34% FEDERAL INCOME TAX RATE AND WERE DETERMINED ON THE BASIS OF COST, ADJUSTED FOR AMORTIZATION OF PREMIUM OR ACCRETION OF DISCOUNT. -10- CENTURY FINANCIAL CORPORATION ANALYSIS OF CHANGES IN NET INTEREST INCOME
1995 CHANGE FROM 1994 ------------------------------ TOTAL CHANGE DUE TO CHANGE VOLUME RATE (1) (1) ------------------------------ (IN THOUSANDS) INTEREST INCOME ON: TAXABLE INVESTMENT SECURITIES $1,757 $1,040 $717 NON-TAXABLE INVESTMENT SECURITIES (2) 130 41 89 LOANS (2) 2,641 2,099 542 FEDERAL FUNDS SOLD (6) (89) 83 ------ ------ ------ TOTAL INTEREST INCOME $4,522 $3,091 $1,431 ------ ------ ------ INTEREST EXPENSE ON: NOW DEPOSITS ($3) ($1) ($2) MONEY MARKET DEPOSITS 23 28 (5) SAVINGS DEPOSITS (104) (89) (15) TIME DEPOSITS 3,134 1,893 1,241 SHORT TERM BORROWINGS 108 53 55 OTHER BORROWINGS 13 17 (4) ------ ------ ------ TOTAL INTEREST EXPENSE 3,171 1,901 1,270 ------ ------ ------ NET INTEREST INCOME $1,351 $1,190 $161 ====== ====== ======
(1) CHANGES IN INTEREST INCOME/EXPENSE NOT ARISING SOLELY AS A RESULT OF VOLUME OR RATE VARIANCES ARE ALLOCATED PROPORTIONATELY TO RATE AND VOLUME. (2) ADJUSTED TO TAXABLE EQUIVALENT BASIS OF 34% TAX RATE. -11- CENTURY FINANCIAL CORPORATION ANALYSIS OF CHANGES IN NET INTEREST INCOME
1994 CHANGE FROM 1993 ------------------------------- TOTAL CHANGE DUE TO CHANGE VOLUME RATE (1) (1) ------------------------------- (IN THOUSANDS) INTEREST INCOME ON: TAXABLE INVESTMENT SECURITIES ($43) ($73) $30 NON-TAXABLE INVESTMENT SECURITIES (2) (541) (581) 40 INTEREST BEARING DEPOSITS IN BANKS (25) (22) (3) LOANS (2) 1,354 2,384 (1,030) FEDERAL FUNDS SOLD (55) (91) 36 -------- -------- -------- TOTAL INTEREST INCOME $690 $1,617 ($927) -------- -------- -------- INTEREST EXPENSE ON: NOW DEPOSITS ($228) ($12) ($216) MONEY MARKET DEPOSITS (165) (3) (162) SAVINGS DEPOSITS (187) (10) (177) TIME DEPOSITS 622 602 20 SHORT TERM BORROWINGS (10) (15) 5 OTHER BORROWINGS 91 91 0 -------- -------- -------- TOTAL INTEREST EXPENSE 123 653 (530) -------- -------- -------- NET INTEREST INCOME $567 $964 ($397) ======== ======== ========
(1) CHANGES IN INTEREST INCOME/EXPENSE NOT ARISING SOLELY AS A RESULT OF VOLUME OR RATE VARIANCES ARE ALLOCATED PROPORTIONATELY TO RATE AND VOLUME. (2) ADJUSTED TO TAXABLE EQUIVALENT BASIS OF 34% TAX RATE. -12- CENTURY FINANCIAL CORPORATION AVAILABLE FOR SALE INVESTMENT SECURITIES AS OF DECEMBER 31, 1995 (IN THOUSANDS)
----------------------------------------------------------------------------------------- BOOK VALUES MATURING ----------------------------------------------------------------------------------------- WITHIN 1 1 YEAR THROUGH 5 YEARS THROUGH OVER YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ----------------------------------------------------------------------------------------- U S TREASURY SECURITIES $2,004 5.88% $7,355 6.28% $0 0.00% $0 0.00% $9,359 U S AGENCY SECURITIES 9,074 6.99% 16,560 6.59% 0 0.00% 0 0.00% 25,634 OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS 2,074 4.26% 3,064 6.39% 8,156 5.83% 813 6.99% 14,107 TAXABLE - OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS 206 6.56% 1,431 7.74% 3,919 6.80% 1,704 6.22% 7,260 MORTGAGE-BACKED SECURITIES 0 0.00% 12,815 6.50% 4,683 6.09% 10,935 7.47% 28,433 OTHER SECURITIES 4,111 7.98% 8,941 7.14% 0 0.00% 0 0.00% 13,052 EQUITY SECURITIES 0 0.00% 0 0.00% 0 0.00% 1,207 6.00% 1,207 ------- -------- -------- -------- -------- TOTAL $17,469 $50,166 $16,758 $14,659 $99,052 ======= ======== ======== ======== ======== WEIGHTED AVERAGE YIELD 6.77% 6.64% 6.13% 7.18% ====== ====== ====== ======
WEIGHTED AVERAGE YIELDS WERE COMPUTED ON A TAX EQUIVALENT BASIS USING A 34% FEDERAL INCOME TAX STATUTORY RATE AND WERE DETERMINED ON THE BASIS OF COST, ADJUSTED FOR AMORTIZATION OF PREMIUM OR ACCRETION DISCOUNTED. -13- CENTURY FINANCIAL CORPORATION INVESTMENT SECURITIES AS OF DECEMBER 31,
1995 1994 --------- ---------------------- AVAILABLE AVAILABLE HELD FOR FOR TO SALE SALE MATURITY 1993 --------- --------- --------- --------- U S TREASURY SECURITIES $9,359 $7,071 -- $4,022 U S AGENCIES 25,634 21,301 2,043 26,735 OBLIGATIONS OF STATE AND 14,107 -- 13,379 13,727 POLITICAL SUBDIVISIONS TAXABLE - OBLIGATIONS OF STATE 7,260 -- 5,451 4,878 AND POLITICAL SUBDIVISIONS MORTGAGE-BACKED SECURITIES 28,433 10,300 2,583 18,328 OTHER SECURITIES 13,052 -- 13,636 12,156 EQUITY SECURITIES 1,207 -- 1,121 1,143 --------- --------- --------- --------- $99,052 $38,672 $38,213 $80,989 ========= ========= ========= =========
EXCLUDING THOSE HOLDINGS OF THE INVESTMENT PORTFOLIO IN U.S. TREASURY SECURITIES AND OTHER AGENCIES AND CORPORATIONS OF THE U.S. GOVERNMENT, THERE WERE NO INVESTMENTS IN SECURITIES OF ANY ONE ISSUER WHICH EXCEEDED 10% OF THE CORPORATION'S SHAREHOLDERS EQUITY AT DECEMBER 31, 1995. -14-
CENTURY FINANCIAL CORPORATION LOANS (IN THOUSANDS) ------------------------------------------------- 1995 1994 1993 1992 1991 ------------------------------------------------- REAL ESTATE - MORTGAGE $99,484 $103,089 $96,247 $111,317 $109,991 REAL ESTATE - CONSTRUCTION 12,918 7,957 6,556 6,018 4,662 COMMERCIAL 62,945 44,514 40,523 25,857 21,530 CONSUMER 75,295 77,109 51,157 44,458 41,321 TERM FEDERAL FUNDS - - - 2,000 3,000 OTHER 15,509 10,456 13,963 13,832 13,476 -------- -------- -------- -------- -------- TOTAL $266,151 $243,125 $208,446 $203,482 $193,980 LESS UNEARNED INCOME 8,539 7,859 5,389 5,580 5,640 -------- -------- -------- -------- -------- TOTAL LOANS $257,612 $235,266 $203,057 $197,902 $188,340 ======== ======== ======== ======== ========
LOAN MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF COMMERCIAL AND REAL ESTATE-CONSTRUCTION LOANS:
DECEMBER 31, 1995 -------------------------------------- DUE 1 YEAR DUE WITHIN THROUGH AFTER 1 YEAR 5 YEARS 5 YEARS TOTAL -------------------------------------- (IN THOUSANDS) COMMERCIAL LOANS $20,585 $28,618 $13,742 $62,945 REAL ESTATE-CONSTRUCTION 8,664 2,504 1,750 12,918 ------- ------- ------- ------- $29,249 $31,122 $15,492 $75,863 ======= ======= ======= ======= PREDETERMINED INTEREST RATES $7,056 $25,908 $15,142 $48,106 FLOATING INTEREST RATES 22,193 5,214 350 27,757 ------- ------- ------- ------- $29,249 $31,122 $15,492 $75,863 ======= ======= ======= =======
THERE ARE NO LOAN CONCENTRATIONS EXCEEDING 10% OF TOTAL LOANS AS OF DECEMBER 31, 1995. -15- 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 BORROWERS' 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 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 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 PURPOSES OF CONSTRUCTING 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. LOANS TO INDIVIDUALS REPRESENT FINANCING EXTENDED TO CONSUMERS 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 CARD OR REVOLVING CREDIT TRANSACTIONS. CONSUMER CREDITWORTHINESS IS EVALUATED ON THE BASIS OF ABILITY TO REPAY, STABILITY OF INCOME SOURCES AND PAST CREDIT HISTORY. -16- SUMMARY OF LOAN LOSS EXPERIENCE
DECEMBER 31, ---------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------- (IN THOUSANDS) LOANS OUTSTANDING AT END OF YEAR $257,612 $235,266 $203,057 $197,902 $188,340 ======== ======== ======== ======== ======== AVERAGE LOANS OUTSTANDING 246,379 222,946 197,501 191,697 179,386 ======== ======== ======== ======== ======== ALLOWANCE FOR LOAN LOSSES: BALANCE, BEGINNING OF YEAR 3,206 3,070 2,472 1,824 1,205 -------- -------- -------- -------- -------- LOANS CHARGED OFF: COMMERCIAL 0 1 26 21 42 REAL ESTATE MORTGAGES 49 0 3 23 70 CONSUMER 426 175 129 148 240 -------- -------- -------- -------- -------- TOTAL LOANS CHARGED OFF $475 $176 $158 $192 $352 -------- -------- -------- -------- -------- RECOVERIES: COMMERCIAL 4 10 98 43 349 REAL ESTATE MORTGAGES 7 0 0 0 0 CONSUMER 21 32 33 50 43 -------- -------- -------- -------- -------- TOTAL RECOVERIES 32 42 131 93 392 -------- -------- -------- -------- -------- NET LOANS CHARGED OFF 443 134 27 99 (40) -------- -------- -------- -------- -------- PROVISION FOR LOSSES 240 270 625 747 579 -------- -------- -------- -------- -------- BALANCE, END OF YEAR $3,003 $3,206 $3,070 $2,472 $1,824 ================================================ RATIO OF NET CHARGE-OFFS/RECOVERIES TO AVERAGE LOANS OUTSTANDING 0.18% 0.06% 0.01% 0.05% -0.02% NON-PERFORMING LOANS LOANS PAST DUE 90 DAYS OR MORE $266 $539 $167 $313 $125 NON-ACCRUAL LOANS 901 1,317 425 969 1,240 RESTRUCTURED - - - - - -------- -------- -------- -------- -------- $1,167 $1,856 $592 $1,282 $1,365 ======== ======== ======== ======== ========
INCLUDED IN NON-ACCRUAL LOANS AT DECEMBER 31, 1994 ARE THREE COMMERCIAL LOANS. TWO OF THE THREE LOANS WERE SUBSEQUENTLY BROUGHT CURRENT IN 1995, RESULTING IN A REDUCTION IN THE NON-ACCRUAL BALANCE AT DECEMBER 31, 1995. IN ESTABLISHING A CHARGE TO THE PROVISION FOR LOAN LOSSES, AND THE RELATED BALANCE IN THE ALLOWANCE FOR LOAN LOSSES, MANAGEMENT CONSIDERS A VARIETY OF FACTORS, INCLUDING ACTUAL LOSSES INCURRED, THE LEVEL OF THE ALLOWANCE FOR LOAN LOSSES, LOAN GROWTH, DELINQUENCY TRENDS AND RATIOS, THE EXISTING ECONOMIC CLIMATE, AND MANAGEMENT'S ASSESSMENT OF POTENTIAL FUTURE LOSSES ON OUTSTANDING LOANS. -17- CENTURY MONITORS ITS LOAN PORTFOLIO AND ON A MONTHLY BASIS PROVIDES DETAILED ANALYSIS OF DELINQUENCIES, NON-PERFORMING ASSETS, AND POTENTIAL PROBLEM LOANS TO THE PROBLEM LOAN COMMITTEE OF THE BOARD. MANAGEMENT CONDUCTS A FORMAL, QUALITATIVE ANALYSIS OF THE ADEQUACY OF CENTURY'S ALLOWANCE FOR LOAN LOSSES. ALL LOAN RELATIONSHIPS IN EXCESS OF $250,000 ARE REVIEWED ANNUALLY BY THE EXECUTIVE COMMITTEE OF CENTURY'S BOARD OF DIRECTORS. ON A QUARTERLY BASIS, ALL LOAN RELATIONSHIPS IN EXCESS OF $250,000 RATED SUBSTANDARD OR LOWER ARE REVIEWED BY CENTURY'S LOAN REVIEW OFFICER AND THE PROBLEM LOAN COMMITTEE. THESE LOANS ARE REVIEWED FOR PAYMENT HISTORY, ANY CHANGES IN COLLATERAL AND ANY EXPOSURE IS SPECIFICALLY RESERVED FOR. ALL SPECIAL MENTION LOANS ARE POOLED AND A RESERVE IS DETERMINED FROM BOTH CENTURY'S HISTORICAL EXPERIENCE AND HISTORICAL LOSS PERCENTAGES FROM ROBERT MORRIS ASSOCIATES. ALL OTHER HOMOGENEOUS LOAN POOLS SUCH AS CONSUMER INSTALLMENT LOANS, CASH RESERVE AND 1-4 FAMILY MORTGAGE LOANS ARE POOLED AND THE ADEQUACY OF THE RESERVE IS DETERMINED BASED ON SUCH FACTORS AS GENERAL ECONOMIC CONDITIONS, HISTORICAL CHARGE-OFF EXPERIENCE AND DELINQUENCY TRENDS. ADDITIONALLY, CONSIDERATION IS GIVEN TO COMMITMENTS TO EXTEND CREDIT BASED ON THE CHARACTERISTICS OF THE RISKS ASSOCIATED WITH THESE SPECIFIC COMMITMENTS. MANAGEMENT CONSIDERS THE LEVEL OF ITS ALLOWANCE TO BE ADEQUATE. NON-PERFORMING LOANS AT DECEMBER 31, 1995, WERE 0.45% OF OUTSTANDING LOANS NET OF UNEARNED INCOME VERSUS 0.79% AT DECEMBER 31, 1994. WHILE IT IS IMPOSSIBLE TO PREDICT WHAT 1996 LOAN LOSSES WILL BE, MANAGEMENT ESTIMATES THAT GROSS LOSSES SHOULD NOT EXCEED APPROXIMATELY 0.25% OF LOANS OUTSTANDING AT DECEMBER 31, 1995. INFORMATION WITH RESPECT TO NONACCRUAL LOANS AT DECEMBER 31, 1995 THRU 1991 IS AS FOLLOWS:
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (IN THOUSANDS) NONACCRUAL LOANS: $ 901 $1,317 $ 425 $ 969 $1,240 ====== ====== ====== ====== ======
THE GROSS AMOUNT OF INTEREST WHICH WOULD HAVE BEEN RECORDED IF ALL NONACCRUAL LOANS HAD BEEN ACCRUING INTEREST AT THEIR ORIGINAL TERMS IS: $ 51 $ 56 $ 31 $ 96 $ 98 ===== ====== ===== ====== ======
-18- LOANS CLASSIFIED FOR REGULATORY PURPOSES AS LOSS, DOUBTFUL, SUBSTANDARD, OR SPECIAL MENTION DO NOT REPRESENT OR RESULT FROM TRENDS OR UNCERTAINTIES WHICH WILL MATERIALLY IMPACT FUTURE OPERATING RESULTS, LIQUIDITY OR CAPITAL RESOURCES; NOR DOES MANAGEMENT HAVE ANY INFORMATION WHICH WOULD CAUSE IT TO HAVE SERIOUS DOUBTS AS TO THE ABILITY OF SUCH BORROWERS TO COMPLY WITH LOAN REPAYMENT TERMS. -19- SUMMARY OF DEPOSITS THE AVERAGE DAILY AMOUNT OF DEPOSITS AND RATES PAID ON SUCH DEPOSITS IS SUMMARIZED FOR THE PERIODS INDICATED IN THE FOLLOWING TABLE:
YEARS ENDED DECEMBER 31 --------------------------------------------- 1995 1994 1993 --------------------------------------------- (IN THOUSANDS) DEMAND ACCOUNTS $40,079 $37,244 $35,765 NOW ACCOUNTS 31,518 0.96% 31,747 0.97% 32,474 1.64% MONEY MARKET ACCOUNTS 49,178 2.29% 47,964 2.30% 48,088 2.64% SAVINGS DEPOSITS 37,483 2.05% 41,883 2.09% 42,294 2.51% TIME DEPOSITS 165,474 6.06% 129,824 5.31% 118,465 5.30% --------- ---------- --------- TOTAL $323,732 $288,662 $277,086 ========= ========== =========
THE FOLLOWING TABLE SETS FORTH, BY TIME REMAINING TO MATURITY, TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE.
DECEMBER 31 ----------- 1995 ----------- (IN THOUSANDS) THREE MONTHS OR LESS $3,951 THREE TO SIX MONTHS 15,263 SIX TO TWELVE MONTHS 2,648 OVER TWELVE MONTHS 5,690 ----------- $27,552 ===========
-20- CENTURY FINANCIAL CORPORATION THE FOLLOWING TABLE SHOWS CONSOLIDATED CAPITAL RATIOS FOR THE CORPORATION FOR EACH OF THE LAST THREE YEARS:
YEARS ENDED DECEMBER 31, ------------------------------------------ 1995 1994 1993 ------------------------------------------ AT YEAR END: EQUITY TO ASSETS 8.42% 8.34% 8.16% PRIMARY CAPITAL TO ADJUSTED ASSETS 9.10% 9.16% 8.92% TOTAL CAPITAL TO ADJUSTED ASSETS 9.10% 9.25% 9.11% TOTAL RISK-BASED CAPITAL TO RISK WEIGHTED ASSETS 12.55% 12.90% 13.32% TIER I 11.43% 11.53% 11.80% CORE LEVERAGE RATIO 8.13% 8.28% 8.04%
MANAGEMENT IS NOT AWARE OF ANY KNOWN TRENDS, EVENTS, OR UNCERTAINTIES THAT WILL HAVE OR ARE LIKELY TO HAVE A MATERIAL EFFECT ON THE LIQUIDITY, CAPITAL RESOURCES OR OPERATIONS OF THE CORPORATION. -21- ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED) - ----------------------- AS OF DECEMBER 31, 1995, CENTURY HAD A TOTAL OF 158 FULL-TIME EMPLOYEES AND 44 WHO WERE PART-TIME. 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 OTHER 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 AS ESCROW AGENT. ON JANUARY 1, 1996, THE CORPORATION APPOINTED CHEMICAL MELLON SHAREHOLDER SERVICES AS OUR TRANSFER AGENT AND REGISTRAR OF STOCK. ITEM 2. PROPERTIES - ---------- THIS INFORMATION IS INCLUDED IN ITEM 1 DESCRIPTION OF BUSINESS. ITEM 3. LEGAL PROCEEDINGS - ----------------- ON JANUARY 2, 1996, A FORMER EMPLOYEE OF THE BANK FILED A CIVIL ACTION IN U.S. DISTRICT COURT IN PITTSBURGH AGAINST THE BANK. THE LAWSUIT ALLEGES WRONGFUL DISCHARGE AND THAT THE BANK VIOLATED THE AGE DISCRIMINATION IN EMPLOYMENT ACT (ADEA) AND PENNSYLVANIA PUBLIC POLICY. MANAGEMENT BELIEVES THAT THE LIABILITY, IF ANY, ARISING FROM SUCH ACTIONS WILL NOT HAVE A MATERIAL EFFECT ON THE CORPORATION'S FINANCIAL POSITION. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - --------------------------------------------------- THERE WERE NO MATTERS SUBMITTED DURING THE FOURTH QUARTER OF THE FISCAL YEAR COVERED BY THIS REPORT TO A VOTE OF SECURITY HOLDERS. -22- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED MATTERS - ------------------------------------------------------------ THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE TO THE INFORMATION APPEARING UNDER THE CAPTION "MARKET AND DIVIDEND INFORMATION" ON PAGE XXIV IN THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. ITEM 6. SELECTED FINANCIAL DATA - ----------------------- THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE TO THE INFORMATION APPEARING UNDER THE CAPTION "SELECTED FINANCIAL DATA" ON PAGE XVII IN THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ----------------------------------------------------------- AND OPERATING RESULTS - --------------------- THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE TO THE INFORMATION APPEARING UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS" ON PAGES XVIII THROUGH XXIII IN THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------------------------------------------- THE INFORMATION REQUIRED BY THIS ITEM AND THE INDEPENDENT ACCOUNTANT'S REPORT THEREON ARE INCORPORATED BY REFERENCE ON PAGES I THROUGH XVII TO THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ---------------------------------------------------- NO REPORTS ON FORM 8-K REPORTING A CHANGE OF ACCOUNTANTS HAVE BEEN FILED SINCE THE INCEPTION OF CFC (JUNE 1, 1988) AND NEITHER A CHANGE IN ACCOUNTANTS NOR ANY DISAGREEMENTS WITH ACCOUNTANTS HAS OCCURRED FOR THE SUBSIDIARY - CENTURY NATIONAL BANK AND TRUST COMPANY. -23- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- THE INFORMATION REQUIRED BY THIS ITEM REGARDING DIRECTORS IS INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY STATEMENT OF THE REGISTRANT WHICH WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1996. THE INFORMATION REQUIRED BY THIS ITEM REGARDING EXECUTIVE OFFICERS OF THE CORPORATION IS AS FOLLOWS:
PRINCIPAL OCCUPATION, BUSINESS EXECUTIVE OFFICERS AGE EXPERIENCE DURING THE PAST FIVE YEARS - ------------------ --- ------------------------------------- JOSEPH N. TOSH, II 54 PRESIDENT/CEO-CENTURY FINANCIAL CORP. SINCE 1988, EVP-CENTURY NATIONAL BANK SINCE 1985. DONALD A. BENZIGER 42 SENIOR VICE PRESIDENT/CFO AND CORPORATE SECRETARY - CENTURY FINANCIAL CORP. AND CENTURY NATIONAL BANK SINCE 1995, VP/CFO SINCE 1990. VP/CF0--CONTROLLER - UNITED NATIONAL BANK 1985-1990.
ITEM 11. EXECUTIVE COMPENSATION ---------------------- THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY STATEMENT OF THE REGISTRANT WHICH WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY STATEMENT OF THE REGISTRANT WHICH WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY STATEMENT OF THE REGISTRANT WHICH WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1996. -24- ITEM 14. EXHIBITS - FINANCIAL STATEMENT SCHEDULES AND REPORTS ON -------- -------------------------------------------- FORM 8-K -------- (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT, EXCEPT AS INDICATED: (1) (2) THE FINANCIAL STATEMENTS FILED HEREWITH OR INCORPORATED BY REFERENCE ARE LISTED IN THE ACCOMPANYING INDEX TO FINANCIAL STATEMENTS. (3) EXHIBITS FILED HEREWITH OR INCORPORATED BY REFERENCE HEREIN ARE SET FORTH IN THE FOLLOWING TABLE PREPARED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K. NO REPORTS ON FORM 8-K WERE REQUIRED TO BE FILED DURING THE LAST QUARTER OF THE PERIOD COVERED BY THIS REPORT. EXHIBIT TABLE ------------- (3) ARTICLES OF INCORPORATION AND BY-LAWS A. ARTICLES OF INCORPORATION OF THE REGISTRANT ARE INCORPORATED BY REFERENCE TO FORM S-4 OF THE REGISTRANT, NO. 0-17413. B. BY-LAWS OF THE REGISTRANT ARE INCORPORATED BY REFERENCE TO FORM S-4 OF THE REGISTRANT, 0-17413. (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. ARTICLES OF INCORPORATION AND BY-LAWS: SEE ITEM 14 (A) (3) ABOVE. (13) ANNUAL REPORT TO SECURITY HOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995 (FILED HEREWITH AS EXHIBIT 13). (21) SUBSIDIARY OF THE REGISTRANT. (27) FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 1995 (FILED HEREWITH AS EXHIBIT 27). NAME STATE OF INCORPORATION ---- ---------------------- CENTURY NATIONAL BANK & TRUST COMPANY PENNSYLVANIA 3. EXHIBITS -------- THE EXHIBITS LISTED ON THE EXHIBIT INDEX ON PAGE 26 ARE FILED HEREWITH IN RESPONSE TO THIS ITEM. (B) REPORTS ON FORM 8-K THE REGISTRANT FILED NO FORM 8-K CURRENT REPORT DURING THE FOURTH QUARTER OF THE YEAR ENDED DECEMBER 31, 1995. -25- INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS - ----------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AS PERTAINING TO THE CONSOLIDATED FINANCIAL STATEMENTS OF CENTURY FINANCIAL CORPORATION AND RELATED NOTES IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES ARE INCORPORATED BY REFERENCE TO THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995. BALANCE SHEETS, DECEMBER 31, 1995 AND 1994. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993. THE CORPORATION DOES NOT MEET BOTH OF THE TESTS REQUIRED UNDER ITEM 302(a)(5) OF REGULATION S-K AND THEREFORE IS NOT REQUIRED TO PROVIDE SUPPLEMENTARY FINANCIAL DATA. EXHIBITS - -------- FOR INFORMATION REGARDING EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE, SEE PAGE 25 OF THIS REPORT. -26- SIGNATURES ---------- PURSUANT TO THE REQUIREMENTS OF SECTION 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. (REGISTRANT) CENTURY FINANCIAL CORPORATION BY /s/ Joseph N. Tosh, II ----------------------------------------------------------- JOSEPH N. TOSH, II - PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: March 21, 1996 -------------------------------------------------------- BY /s/ Donald A. Benziger ----------------------------------------------------------- DONALD A. BENZIGER - SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER DATE: March 21, 1996 -------------------------------------------------------- PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - ---------------------------------------------------------------- /s/ Joseph N. Tosh, II March 21, 1996 - ------------------------ PRESIDENT ---------------- JOSEPH N. TOSH, II /s/ Foster McCarl, Jr. March 21, 1996 - ------------------------ CHAIRMAN ---------------- FOSTER MCCARL, JR. /s/ Elvin W. Batchelor March 21, 1996 - ------------------------ DIRECTOR ---------------- ELVIN W. BATCHELOR /s/ Del E. Goedeker March 21, 1996 - ------------------------ DIRECTOR ---------------- DEL E. GOEDEKER
-27- SIGNATURES (CONTINUED)
SIGNATURE TITLE DATE - ---------------------------------------------------------------- /s/ A. Dean Heasley March 21, 1996 - ---------------------------- DIRECTOR ----------------- A. DEAN HEASLEY /s/ Harry J. Johnston March 21, 1996 - ---------------------------- DIRECTOR ----------------- HARRY J. JOHNSTON /s/ Z. John Kruzic March 21, 1996 - ---------------------------- DIRECTOR ----------------- Z. JOHN KRUZIC /s/ Wayne S. Luce March 21, 1996 - ---------------------------- DIRECTOR ----------------- WAYNE S. LUCE /s/ Gino F. Martinetti March 21, 1996 - ---------------------------- DIRECTOR ----------------- GINO F. MARTINETTI /s/ Thomas K. Reed March 21, 1996 - ---------------------------- DIRECTOR ----------------- THOMAS K. REED /s/ Harold V. Shank, Jr. March 21, 1996 - ---------------------------- DIRECTOR ----------------- HAROLD V. SHANK, JR. /s/ Charles I. Homan March 21, 1996 - ---------------------------- DIRECTOR ----------------- CHARLES I. HOMAN /s/ Daniel Dalle Molle March 21, 1996 - ---------------------------- DIRECTOR ----------------- DANIEL DALLE MOLLE /s/ Sister M. T. Markelewicz March 21, 1996 - ---------------------------- DIRECTOR ----------------- SISTER M. T. MARKELEWICZ /s/ Robert F. Garvin, Jr. March 21, 1996 - ---------------------------- DIRECTOR ----------------- ROBERT F. GARVIN, JR.
-28- EX-13 2 ANNUAL REPORT EXHIBIT 13 CENTURY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS - -----------------------------------------------
December 31, 1995 1994 -------- -------- (In thousands) ASSETS Cash and due from banks $ 10,426 $ 9,418 Investment securities available for sale 99,052 38,672 Investment securities (approximate market value of $37,602) -- 38,213 Loans (net of unearned income of $8,539 and $7,859) 257,612 235,266 Less allowance for loan losses 3,003 3,206 -------- -------- Net loans 254,609 232,060 Premises and equipment 8,625 8,549 Accrued interest and other assets 4,277 4,868 -------- -------- TOTAL ASSETS $376,989 $331,780 ======== ======== LIABILITIES Deposits: Noninterest-bearing demand $ 41,708 $ 39,206 Interest-bearing demand 33,191 30,714 Savings 35,615 39,682 Money market 47,370 43,781 Time 170,441 144,656 -------- -------- Total deposits 328,325 298,039 Short term borrowings 10,000 470 Other borrowings 3,200 3,200 Accrued interest and other liabilities 3,722 2,415 -------- -------- TOTAL LIABILITIES 345,247 304,124 -------- -------- STOCKHOLDERS' EQUITY Common stock, par value $.835; authorized 8,000,000 shares; issued 3,376,984 and 3,365,116 shares 2,820 2,810 Additional paid in capital 2,755 2,638 Retained earnings 25,285 22,911 Treasury stock, at cost (1,259 shares) (16) -- Net unrealized gain (loss) on securities 898 (703) -------- -------- TOTAL STOCKHOLDERS' EQUITY 31,742 27,656 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $376,989 $331,780 ======== ========
See accompanying notes to the consolidated financial statements. I CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME - -----------------------------------------------
Year Ended December 31, 1995 1994 1993 ---------- ---------- ---------- (In thousands) INTEREST INCOME Interest and fees on loans: Taxable $ 20,462 $ 18,100 $ 16,570 Tax exempt 1,344 1,160 1,276 Federal funds sold 234 240 320 Investment securities: Taxable 5,012 3,255 3,298 Tax exempt 633 547 904 ---------- ---------- ---------- Total interest income 27,685 23,302 22,368 ---------- ---------- ---------- INTEREST EXPENSE Deposits 12,234 9,184 9,142 Short term borrowings 148 40 50 Other borrowings 243 230 139 ---------- ---------- ---------- Total interest expense 12,625 9,454 9,331 ---------- ---------- ---------- NET INTEREST INCOME 15,060 13,848 13,037 Provision for loan losses 240 270 625 ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,820 13,578 12,412 ---------- ---------- ---------- OTHER INCOME Service fees on deposit accounts 1,496 1,432 1,404 Trust Department income 673 572 518 Investment securities gains (losses), net (14) 11 -- Gain on sale of branch office - 309 -- Other 419 415 371 ---------- ---------- ---------- Total other income 2,574 2,739 2,293 ---------- ---------- ---------- OTHER EXPENSE Salaries and employee benefits 5,950 5,994 5,680 Net occupancy expense 1,027 1,072 946 Equipment expense 920 802 699 Deposit insurance premium 347 631 607 Other 3,496 3,017 2,887 ---------- ---------- ---------- Total other expense 11,740 11,516 10,819 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 5,654 4,801 3,886 Income taxes 1,386 1,120 539 ---------- ---------- ---------- NET INCOME $ 4,268 $ 3,681 $ 3,347 ========== ========== ========== EARNINGS PER SHARE $ 1.27 $ 1.09 $ 1.00 AVERAGE SHARES OUTSTANDING 3,373,322 3,364,439 3,362,283
See accompanying notes to the consolidated financial statements. II CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - -----------------------------------------------
Net Additional Unrealized Total Common Paid in Retained Treasury Gain (loss) on Stockholders' Stock Capital Earnings Stock Securities Equity ------ ---------- -------- ---------- -------------- ------------ (In thousands) Balance, December 31, 1992 $1,946 $2,996 $ 19,156 $ -- $ -- $ 24,098 Net income 3,347 3,347 Dividends ($.44 per share) (1,487) (1,487) Twenty percent stock dividend 394 (394) -- Stock options exercised 4 4 ------ ------ -------- ---------- ----------- -------- Balance, December 31, 1993 2,340 2,606 21,016 -- -- 25,962 Initial net unrealized gain on securities 54 54 Net income 3,681 3,681 Dividends ($.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 Ne1 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 ====== ====== ======== ========== =========== ========
See accompanying notes to the consolidated financial statements. III CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS - -----------------------------------------------
Year Ended December 31, 1995 1994 1993 -------- -------- -------- (In thousands) OPERATING ACTIVITIES Net income $ 4,268 $ 3,681 $ 3,347 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 240 270 625 Depreciation, amortization, and accretion, net 1,403 825 235 Deferred income taxes 209 330 ( 309) Investment securities (gains) losses, net 14 ( 11) -- Decrease (increase) in accrued interest receivable ( 382) 55 204 Increase (decrease) in accrued interest payable 747 264 ( 65) Gain on the sale of branch deposits -- ( 309) -- Other, net 138 (11) ( 1,115) -------- -------- -------- Net cash provided by operating activities 6,637 5,094 2,922 -------- -------- -------- INVESTING ACTIVITIES Investment securities available for sale: Proceeds from the sale of securities 4,984 5,801 -- Proceeds from maturities and repayments of securities 14,502 10,549 -- Purchases of securities (39,222) (17,483) -- Investment securities: Proceeds from the sale of securities 775 -- -- Proceeds from maturities and repayments of securities 12,951 26,302 53,264 Purchases of securities (14,273) (21,917) (51,894) Net increase in loans (22,638) (32,103) ( 4,508) Purchases of premises and equipment ( 843) ( 621) ( 4,299) Sale of branch office -- (13,552) -- Other, net -- ( 23) 6 -------- -------- -------- Net cash used for investing activities (43,764) (43,047) ( 7,431) -------- -------- -------- FINANCING ACTIVITIES Net increase in deposits 30,286 26,516 10,438 Net increase (decrease) in short term borrowings 9,530 ( 2,530) -- Net increase in other borrowings -- 1,700 -- Cash dividends ( 1,790) ( 1,290) ( 1,179) Proceeds from exercise of stock options 127 34 4 Treasury stock purchase ( 125) -- -- Proceeds from issuance of treasury stock 107 -- -- -------- -------- -------- Net cash provided by financing activities 38,135 24,430 9,263 -------- -------- -------- Increase (decrease) in cash and cash equivalents 1,008 (13,523) 4,754 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,418 22,941 18,187 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,426 $ 9,418 $ 22,941 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 11,878 $ 9,190 $ 9,396 Income taxes 945 1,085 780
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 National Bank. The Corporation and its subsidiary derive substantially all their income from banking and bank-related services which include 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. 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. At the time of dissolution, IBCS had net assets of approximately $310 which were contributed to Century. The investment in subsidiary on the parent company financial statements is carried at the parent company's equity in the underlying net assets. The consolidated financial statements have been prepared in conformity with generally accepted accounting principals. 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 The Corporation has classified investment securities into two categories, held to maturity and available for sale. Debt securities acquired with the intent to hold to maturity are stated at cost and adjusted for amortization of premium and accretion of discount which are computed using a level yield method and are recognized as adjustments of interest income. Certain other debt and equity securities have been classified 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, Century adopted Statement of Financial Accounting Standards Statement No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by Statement No. 118. Under this Standard, Century 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 the undiscounted cash flows or the fair value of the underlying collateral. Statement 118 amends Statement 114 to permit a creditor to use existing methods for recognizing interest income on impaired loans eliminating the income recognition provisions of Statement 114. The adoption of these statements did not have a material effect on Century's financial position or results of operations. V SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 which is charged to operations. The provision is based upon management's periodic evaluation of individual loans, the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses are particularly susceptible to significant change 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. 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, 1995, 1994, and 1993, have been calculated based upon the weighted average number of issued and 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. VI SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Pending Accounting Standards Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," will become effective for the Corporation beginning in 1996. This statement requires recognition of compensation expense to 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. Additionally, the statement establishes fair value as the measurement basis for transactions in which an entity acquires goods or services from non-employees in exchange for equity instruments. The statement 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 entities common stock or other equity instruments. Management believes implementation of Statement 123 will not have a significant impact on the financial position or operations of the Corporation. Reclassification of Comparative Amounts Certain comparative amounts for prior years have been reclassified to conform with the current year presentations. 2. COMMON STOCK SPLIT On December 15, 1994, and April 21, 1993, the Board of Directors approved six for five stock splits. The additional shares resulting from the splits were each effected in the form of a 20% stock dividend. All references to the number of common shares and per share amounts for 1993 have been restated to reflect the stock splits. 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 investment securities from the 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:
1995 ------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- --------- Available For Sale 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 ======== ====== ====== ======== 1994 ------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- --------- Available For Sale U. S. Treasury securities $ 7,231 $ -- $ (160) $ 7,071 U. S. Government agency securities 21,773 15 (487) 21,301 Mortgage-backed securities and collateralized mortgage obligations 10,733 -- (433) 10,300 -------- ------ ------- -------- Total $ 39,737 $ 15 $(1,080) $ 38,672 ======== ====== ======= ========
VII INVESTMENT SECURITIES (Continued)
1994 ------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- --------- Held To Maturity U. S. Government agency securities $ 2,043 $ -- $ ( 37) $ 2,006 Obligations of states and political subdivisions 18,830 141 (229) 18,742 Mortgage-backed securities 2,583 -- (163) 2,420 Other securities 13,636 27 (350) 13,313 -------- ------ ------- -------- Total debt securities 37,092 168 (779) 36,481 Equity securities 1,121 -- -- 1,121 -------- ------ ------- -------- Total $38,213 $ 168 $ (779) $ 37,602 ======== ====== ======= ========
The amortized cost and estimated market value of debt securities at December 31, 1995, 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.
Available for Sale ----------------------- Estimated Amortized Market Cost Value --------- --------- Due in one year or less $17,377 $17,469 Due after one year through five years 36,634 37,351 Due after five years through ten years 11,759 12,075 Due after ten years 2,490 2,517 ------- ------- 68,260 69,412 Mortgage-backed securities and collateralized mortgage obligations 28,224 28,433 ------- ------- Total $96,484 $97,845 ======= =======
Investment securities with a carrying value of $37,101 and $24,682 at December 31, 1995 and 1994, respectively, were pledged to secure deposits and other purposes as required by law. Proceeds from the sales of investment securities available for sale were $4,984 and $5,801 in 1995 and 1994, respectively. Gross gains resulting from these sales were $17 in 1994. Gross losses were $31 in 1995 and $6 in 1994. 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:
1995 1994 --------- -------- Commercial, financial, and agricultural $ 62,945 $ 44,514 Real estate--construction 12,918 7,957 Real estate--mortgage 99,484 103,089 Installment loans to individuals 75,295 77,109 Tax exempt loans 15,509 9,881 Other -- 575 --------- -------- 266,151 243,125 Less unearned income 8,539 7,859 --------- -------- 257,612 235,266 Less allowance for loan losses 3,003 3,206 --------- -------- Net loans $ 254,609 $232,060 ========= ========
VIII NET LOANS (Continued) 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 aftertime 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, 1995, is as follows: December 31, Amounts December 31, 1994 Additions Collected 1995 ------------ --------- --------- ------------ $1,310 $25 $237 $1,098 Loans on which the accrual of interest has been discontinued amounted to $1,317 at December 31, 1994. The gross amount of interest which would have been recorded if all such loans had been accruing interest at their original terms is $56 for 1994 and $31 for 1993. 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, 1995 and 1994, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area. 5. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses for the years ended December 31, 1995, 1994, and 1993, are as follows:
1995 1994 1993 ------- ------ ------ Balance, January 1 $ 3,206 $3,070 $2,472 Add: Provisions charged to operations 240 270 625 Recoveries 32 42 131 Less loans charged off 475 176 158 ------- ------ ------ Balance, December 31 $ 3,003 $3,206 $3,070 ======= ====== ======
6. PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows:
1995 1994 ------ ------ Land and land improvements $1,098 $1,061 Buildings 7,175 7,014 Furniture and equipment 4,473 4,720 Leasehold improvements 518 504 ------ ------ 13,264 13,299 Less accumulated depreciation 4,639 4,750 ------ ------ Total $8,625 $8,549 ====== ======
Depreciation expense amounted to $767 in 1995, $787 in 1994, and $529 in 1993. 7. DEPOSITS Time deposits include certificates of deposit in denominations of $100 or more. Such deposits aggregated $27,552 and $18,361 at December 31, 1995 and 1994, respectively. Interest expense on certificates of deposit over $100 amounted to $1,863 in 1995, $1,360 in 1994, and $1,459 in 1993. 8. SHORT TERM BORROWINGS The outstanding balances and related information for short term borrowings are summarized as follows:
1995 1994 --------------- ------------- Amount Rate Amount Rate ------- ---- ------ ---- Balance at year-end $10,000 5.54% $ 470 6.00% Average balance outstanding during the year 2,510 5.91 193 5.08 Maximum amount outstanding at any month end 12,000 -- 470 --
IX SHORT TERM BORROWINGS (Continued) 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 has pledged, as collateral for borrowings from the FHLB of Pittsburgh, all stock in the Federal Home Loan Bank and certain other qualifying collateral. Century maintains a revolving line of credit (flexline advance) with the FHLB. The amount available on this line of credit as of December 31, 1995 is approximately $34,584. 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, 1995 and 1994. 9. OTHER BORROWINGS Other borrowings as of December 31, 1995 and 1994, are summarized as follows:
Interest Description Rate 1995 1994 - ------------------------------- -------- ------- ------- Subordinated capital notes 9.25% $1,500 $1,500 Federal Home Loan Bank advance 6.13 1,700 1,700 ------ ------ Total $3,200 $3,200 ====== ======
Subordinated capital notes consist of ten year subordinated notes maturing October 1, 1996. Interest on the notes is paid semiannually on April 1 and October 1 of each year. The notes are subordinate in right of payments to the depositors and all claims of creditors, and may not be redeemed prior to maturity without the prior written approval of the Comptroller of the Currency. The Federal Home Loan Bank advance consists of a fixed rate advance maturing in the year 2001. 10. INCOME TAXES The provision for income taxes consists of:
1995 1994 1993 ------ ------- ----- Currently payable $1,177 $ 790 $ 848 Deferred 209 330 (309) ------ ------- ----- Total $1,386 $ 1,120 $ 539 ====== ======= =====
The components of the net deferred tax assets are as follows:
1995 1994 ---- ------ Deferred Tax Assets: Allowance for loan losses $759 $ 828 Deferred loan origination fees, net 59 110 Net unrealized loss on securities -- 362 Other 65 6 ---- ------ Total deferred tax assets 883 1,306 ---- ------ Deferred Tax Liabilities: Premises and equipment 128 97 Net unrealized gain on securities 463 -- Accrued pension costs 124 -- Other 32 39 ---- ------ Total deferred tax liabilities 747 136 ---- ------ Net deferred tax assets $136 $1,170 ==== ======
No valuation allowance was established at December 31, 1995, 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:
1995 1994 1996 ----------------- ----------------- --------------- % of % of % of Pre-Tax Pre-Tax Pre-Tax Amount Income Amount Income Amount Income ------ ------- ------ -------- ------ ------- Provision at statutory rate $1,922 34.0% $1,632 34.0% $ l,321 34.0% Effect of tax free income (672) (11.9 ) (580) (12.1 ) (755) (19.4 ) Nondeductible interest expense 61 1.1 47 1.0 75 1.9 Other net 75 1.3 21 .4 (102) (2.6 ) ------ ------- ------ ------- ------- ------ Actual provision and effective rate $1,386 24.5% $1,120 23.3% $ 539 13.9% ====== ======= ====== ======= ======= ======
X 11. PENSION AND PROFIT SHARING PLANS Century sponsors a trusteed, noncontributory 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:
1995 1994 1993 ------ ------ ------ Service costs of the current period $ 225 $ 264 $ 261 Interest cost on projected benefit obligations 281 298 277 Actual return on plan assets (940) 78 (227) Net amortization and deferral 583 (424) ( 63) ----- ----- ----- Total $ 149 $ 216 $ 248 ===== ===== =====
The actuarial present value of the accumulated benefit obligation at December 31, 1995 and 1994 was $3,327 and $3,222 including vested benefit obligations of $3,287 and $3,176. The following sets forth the funded status of the plan and the amounts recognized in the accompanying consolidated balance sheet:
1995 1994 ------- ------- Plan assets at fair value $ 5,291 $ 3,624 Actuarial present value of projected benefit obligation (4,622) (4,510) ------- ------- Funded status 669 ( 886) Unrecognized transition amount ( 348) ( 406) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions 14 912 ------- ------- Pension asset (liability) $ 335 $ ( 380) ======= =======
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, 1995. Assumptions used in determining net periodic pension cost are as follows:
1995 1994 1993 ------ ------ ------ 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 5.00 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 predetermined performance goals. The plan contributions for the years 1995, 1994, and 1993 amounted to $386, $263, and $193, 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 which 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, 1995, there were 1,259 shares being held in treasury which will be used in conjunction with the Plan. During 1995, there were 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:
1995 1994 ------ ------ Commitments to extend credit $29,124 $27,688 Standby letters of credit 183 95 ------- ------- Total $29,307 $27,783 ======= =======
XI COMMITMENTS AND CONTINGENT LIABILITIES (Continued) 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, 1995, the minimum rental commitments for all noncancelable leases are as follows (in thousands):
1996 $ 106 1997 80 1998 69 1999 67 2000 67 2001 and thereafter 778 ------ Total $1,167 ======
Occupancy and equipment expenses include rental expenditures of $134 for 1995, $153 for 1994, and $179 for 1993. Contingent Liabilities The Corporation and its subsidiaries 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 established an incentive stock option plan in April, 1993 under which 336,204 shares of common stock can be issued, after adjusting for the stock split in December, 1994 and April, 1993. 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 10 years from such date. No charges to earnings have been made with respect to the options granted under the stock option plan. The following table presents share data related to the stock option plan:
Shares Under Option -------------------- 1995 1994 --------- -------- Outstanding, January 100,10O 61,443 Granted 49,080 44,646 Exercised (11,833) (2,630) Forfeited (7,617) (3,349) ------- ------- Outstanding, December 31 (at prices ranging from $10.59 - $12.60) 129,740 100,110 ======= =======
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 1996, without the approval of the Comptroller, is $4,716 plus 1996 profits retained up to the date of the dividend declaration. XII REGULATORY MATTERS (Continued) Included in cash and due from banks are required federal reserves of $3,215 and $2,404 at December 31, 1995 and 1994, 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. 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 (Unaudited) Century is subject to risk-based capital rules. These guidelines include a common framework for defining elements of capital and a system for relating capital to risk. The minimum risk-based capital requirement is 8%. The capital position of Century as of December 31, 1995 as calculated by management, was 8.0%. Additionally, the general regulatory guidelines establish a minimum ratio of leverage capital to adjusted total assets of 3.00% for top rated financial institutions, with less highly rated institutions, or those with higher levels of risk, required to maintain ratios of 100 to 200 basis points above the minimum level. Century's ratios under these guidelines, as calculated by management, as of December 31, 1995 was 8.13%. 18. FAIR VALUE DISCLOSURE The estimated fair values at December 31, 1995 and 1994 of the Corporation's financial instruments are as follows:
1995 1994 ------------------ ------------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- -------- Financial assets: Cash and due from banks $ 10,426 $ 10,426 $ 9,418 $ 9,418 Investment securities available for sale 99,052 99,052 38,672 38,672 Investment securities -- -- 38,213 37,602 Net loans 254,609 252,273 232,060 209,630 Accrued interest receivable 2,606 2,606 2,224 2,224 -------- -------- --------- -------- Total $366,693 $364,357 $320,587 $297,546 ======== ======== ======== ======== Financial liabilities: Deposits $328,325 $331,204 $298,039 $295,333 Short term borrowings 10,000 10,000 470 470 Other borrowings 3,200 3,351 3,200 2,972 Accrued interest payable 1,755 1,755 1,008 1,008 -------- -------- --------- -------- Total $343,280 $346,310 $302,717 $299,783 ======== ======== ======== ========
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, Accrued Interest Receivable, Short Term Borrowings, and Accrued Interest Payable The fair value is equal to the current carrying value. XIII FAIR VALUE DISCLOSURE (Continued) Investment Securities The fair value of securities held as investments 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. The fair value of securities available for sale is equal to the current carrying value. 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. XIV 19. PARENT COMPANY Following are condensed financial statements for the Corporation.
CONDENSED BALANCE SHEET December 31 1995 1994 ------- ------- ASSETS Cash $ 144 $ 55 Investment in bank subsidiary 31,588 27,305 Investment in nonbank subsidiary -- 293 Other 466 340 ------- ------- TOTAL ASSETS $32,198 $27,993 ======= ======= LIABILITIES Dividends payable $ 439 $ 337 Other 17 -- STOCKHOLDERS' EQUITY 31,742 27,656 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,198 $27,993 ======= =======
CONDENSED STATEMENT OF INCOME Year Ended December 31, 1995 1994 1993 ------- ------- ------- INCOME Dividends from bank subsidiary $ 1,905 $ 1,318 $ 1,487 Other 205 3 -- EXPENSES Other 219 7 8 ------- ------- ------- Income before income taxes 1,891 1,314 1,479 Income tax benefit ( 5) ( 2) ( 3) ------- ------- ------- Income before equity in undistributed net income of subsidiaries 1,896 1,316 1,482 Equity in undistributed net income of subsidiaries 2,372 2,365 1,865 ------- ------- ------- NET INCOME $ 4,268 $ 3,681 $ 3,347
CONDENSED STATEMENT OF CASH FLOWS Year Ended December 31, 1995 1994 1993 ------- ------- ------- OPERATING ACTIVITIES Net income $ 4,268 $ 3,681 $ 3,347 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (2,372) (2,365) (1,865) Other, net ( 126) ( 22) ( 310) ------- ------- ------- Net cash provided by operating activities 1,770 1,294 1,172 FINANCING ACTIVITIES Cash dividends (1,790) (1,290) (1,179) Proceeds from exercise of stock options 127 34 4 Treasury stock purchase (125) -- -- Proceeds from issuance of treasury stock 107 -- -- ------- ------- ------- Net cash used for financing activities (1,681) (1,256) (1,175) ------- ------- ------- Increase (decrease) in cash 89 38 ( 3) CASH AT BEGINNING OF YEAR 55 17 20 ------- ------- ------- CASH AT END OF YEAR $ 144 $ 55 $ 17
XV 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As explained in the notes to the consolidated financial statements, effective January 1, 1995, the Corporation changed its method of accounting for impairment of loans and related allowance for loan losses, and effective January 1, 1994, also changed its method of accounting for investment securities. /s/S. R. Snodgrass, A.C. Wexford, PA February 2, 1996 S.R. Snodgrass, A.C. 101 Bradford Road Wexford, PA 15090-6909 Phone: 412-934-0344 Facsimile: 412-934-0345 XVI CENTURY FINANCIAL CORPORATION SELECTED FINANCIAL DATA - --------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- SUMMARY OF EARNINGS Interest income $ 27,685 $ 23,302 $ 22,368 $ 23,515 $ 24,541 Interest expense 12,625 9,454 9,331 10,746 12,628 ---------- ---------- ---------- ---------- ---------- Net interest income 15,060 13,848 13,037 12,769 11,913 Provision for loan losses 240 270 625 747 579 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 14,820 13,578 12,412 12,022 11,334 Other income 2,574 2,739 2,293 2,076 2,048 Other expenses 11,740 11,516 10,819 10,047 9,548 ---------- ---------- ---------- ---------- ---------- Income before income taxes 5,654 4,801 3,886 4,051 3,834 Income taxes 1,386 1,120 539 827 913 ---------- ---------- ---------- ---------- ---------- Net income $ 4,268 $ 3,681 $ 3,347 $ 3,224 $ 2,921 ========== ========== ========== ========== ========== PER SHARE DATA (1) Earnings per share: Net income $ 1.27 $ 1.09 $ 1.00 $ .96 $ .87 Dividends paid .53 .38 .35 .32 .31 Book value per share at period end 9.40 8.22 7.73 7.17 6.53 Average shares outstanding 3,373,322 3,364,439 3,362,283 3,362,180 3,362,180 BALANCE SHEET DATA: (At End of Period) Assets $ 376,989 $ 331,780 $ 317,936 $ 305,951 $ 278,944 Deposits 328,325 298,039 285,395 274,957 250,514 Loans, net of unearned income 257,612 235,266 203,057 197,902 188,340 Allowance for loan losses 3,003 3,206 3,070 2,472 1,824 Investment securities -- 38,213 80,989 81,639 75,508 Investment securities for sale 99,052 38,672 -- -- -- Stockholders' equity 31,742 27,656 25,962 24,098 21,948 SIGNIFICANT RATIOS: Return on average assets 1.18% 1.14% 1.09% 1.10% 1.07% Return on average equity 14.48 13.67 13.37 14.14 14.07 Loans as a percent of deposits 78.46 78.94 71.15 71.98 75.18 Average equity to average assets 8.13 8.36 8.14 7.79 7.63 Dividends paid as a percent of net income 41.94 35.04 35.23 33.31 35.16
(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. XVII CENTURY FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION - -------------------------------------------- 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 EARNINGS Century Financial Corporation's 1995 net income was a record $4,268, increasing $587, or 15.9%, from 1994's net income of $3,681. Earnings per share in 1995 were $1.27, increasing 16.5% from $1.09 per share in 1994, based on average shares outstanding of 3,373,322 in 1995 and 3,364,439 in 1994. Net income was $3,347, or $1.00 per share in 1993 based on 3,362,283 average shares outstanding. The increase in net income was achieved through an 8.7% increase in net interest income, offset by only a modest increase of 1.9% in noninterest expenses. Key industry performance ratios increased in 1995 over the previous two years. The Corporation's return on average equity was 14.48%, for 1995, compared to 13.67% and 13.37% for 1994 and 1993, respectively. The Corporation's return on average assets was 1.18%, 1.14% and 1.09% for 1995, 1994 and 1993, respectively. 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 Corporation's 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 1995 totaled $15,060, an increase of $1,212, or 8.8%, over 1994. Net interest income for 1994 was $13,848, or 6.2%, over 1993's level. The increase in net interest income was the result of a substantial increase in the amount of average earning assets in 1995 to $340,595. This was an increase of $41,241, or 13.8%, over 1994's average earning assets of $299,354. 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 more 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 $1,348, or 9.2%, in 1995 and $567, or 4.0%, in 1994. The following table shows the increases over the last three years in actual and tax equivalent net interest income:
Year Ended December 31, 1995 1994 1993 ------- ------- ------- Net interest income, actual $15,060 $13,848 $13,037 Tax equivalent adjustment 1,018 879 1,123 ------- ------- ------- Net tax equivalent interest income 16,078 14,727 14,160 ======= ======= ======= Increase in actual net interest income 1,212 811 268 ======= ======= ======= Percentage increase 8.8% 6.2% 2.1% ======= ======= ======= Increase in tax equivalent net interest income 1,351 567 258 ======= ======= ======= Percentage increase 9.2% 4.0% 1.9% ======= ======= ======= Net interest margin 4.72% 4.92% 4.88% ======= ======= =======
XVIII NET INTEREST INCOME (Continued) 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 above table illustrates that the net margin was 4.72% in 1995 compared to 4.92% in 1994 and 4.88% in 1993. 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 1995 as average loans outstanding decreased to 71.4% of average earning assets compared to 73.4% in 1994 and 68.1% in 1993. 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 through the provision expense. The recorded values of the loans actually removed from the Consolidated Balance Sheets 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 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. For unclassified loans and smaller loans not individually reviewed, management considers historical charge-off experience in determining the amount to be allocated to the allowance. An unallocated or general reserve is also established which takes into consideration among other things, unfunded commitments, concentrations of credit, economic conditions, delinquency and nonaccrual trends, management experience and trends in volume and terms of loans. The allowance is maintained at a level determined according to this methodology by charging the provision to operations. The provision charged to operations in 1995 was $240 compared to $270 in 1994 and $625 in 1993. Actual losses, net of recoveries, were $443 in 1995, $134 in 1994 and $27 in 1993. Net charge-offs as a percentage of the balance of the allowance for loan losses at the beginning of the year was 13.8% in 1995, 4.4% in 1994 and 1.1% in 1993. Century's allowance for loan losses decreased at year-end 1995 to $3,003 from $3,206 at December 31, 1994. At December 31, 1995, the allowance represented 1.17% of loans, net of unearned income. This compares to 1.36% of loans, net of unearned income, at the end of 1994. While the balance of the allowance decreased $203, the significant increase in total loans outstanding was also a prime contributor to a lower period ending reserve to loan ratio. The Corporation believes that the allowance for loan losses at December 31, 1995 of $3,003 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, 1995. NONINTEREST INCOME Total noninterest income decreased $165, or 6.0%, in 1995 compared to 1994. It increased $446, or 19.5%, in 1994 compared to 1993. Service charges on deposits increased $64, or 4.5%, in 1995 after increasing only $28, or 2.0%, in 1994. Service charges on deposit accounts continue to be the primary source of noninterest income, representing 58.1% of the total in 1995, compared to 52.3% in 1994 and 61.2% in 1993. Trust income increased $101, or 17.7%, in 1995, after increasing $54, or 10.4%, in 1994. This increased income was attributable to both new accounts and increased values in existing accounts. Total trust assets were $176,000 at December 31, 1995. This was an increase of $26,000, or 17.3%, over 1994 year- end trust assets. Other noninterest income increased $4, or 1.0%, in 1995, compared to a $44 increase in 1994. The increase in 1994 was attributable to the sale of two properties which had been classified as other real estate owned and were disposed of in 1994 resulting in a gain on the sale of other real estate owned. Net security losses equalled $14 in 1995 compared to a gain of $11 in 1994. In the first quarter of 1994, Century completed the sale of certain assets and deposit liabilities of its Moon Township Office. Deposits totalled $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 $224, or 1.9%, in 1995 compared to a $697, or 6.4%, increase in 1994 over 1993. This small increase in noninterest expense compared to the Corporation's 13.6% gain in assets reflects both the decrease in FDIC insurance premium expense in 1995 compared to 1994 and Management's vigorous efforts to closely monitor and control these expenses. XIX NONINTEREST EXPENSE (Continued) Total employee compensation, including salaries, wages and benefits declined .7% in 1995. While salaries and wages increased only $58, or 1.3%, the major increase was in profit sharing expense. Profit sharing is paid to all eligible employees of the Corporation and is based on total pretax earnings and return on average equity. Offsetting the increase in salaries and wages and profit sharing expense was a substantial reduction in both pension and health insurance costs. Net occupancy expense decreased $45, or 4.2%, in 1995 due to lower utility and maintenance costs incurred in 1995 compared to 1994. 1994's expense had increased $126, or 13.3%, over 1993 due to occupying the new administration and retail office in Rochester, along with new branch offices in Ambridge and Beaver. Equipment expense increased $118, or 14.7%, in 1995 as a new mainframe was purchased in April of 1995. In addition, to support Century's emphasis on customer sales and service, a significant number of personal computers were purchased during the year to aid community banking officers and customer sales representatives in meeting customer needs. The FDIC deposit insurance premium expense declined in 1995 to $347. This was a decrease of $284, or 45%, from 1994. 1994's deposit insurance premium was $24, or 4.0%, higher than 1993's. The Corporation expects substantially lower FDIC expense in 1996. The expense to be incurred in 1996 will be influenced by whether or not commercial banks must pay a portion of the annual interest due on FICO bonds which funded the Savings and Loan bailout. Other expenses increased $479, or 15.9%, in 1995 after increasing only $130, or 4.5%, in 1994. 1995's increase was due in large part to higher professional fees associated with the introduction of the Corporation's 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. The Corporation expects only moderate increases in total other expenses in 1996 as it continues to monitor and control these expenses. INCOME TAXES The provision for income tax was $1,386 in 1995 compared to $1,120 in 1994 and $539 in 1993. This increase is the result of higher taxable income in 1995. Effective January 1, 1993, the Corporation adopted "Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes." Under Statement 109, deferred tax expense is computed under the liability method. The adoption of Statement 109 decreased federal income taxes by $56 in 1993. FINANCIAL CONDITION Total assets at December 31, 1995 were $376,989, an increase of $45,209, or 13.6%, compared to December 31, 1994. Assets increased $13,844, or 4.4%, in 1994 over 1993. Earning assets at December 31, 1995 were $356,664, an increase of $44,513, or 14.3%, over 1994 year-end. Earning assets equalled 93.9% of total assets at year-end compared to 93.2% at December 31, 1994. Loans, net of unearned income, increased $22,346, or 9.5%, in 1995 and increased $32,209 or 15.9%, in 1994 over 1993. At December 31, 1995, loans represented 72.2% of earning assets, while representing 75.4% at December 31, 1994, and 68.0% at year-end 1993. Over the last two years, Century has focused on loan growth in conjunction with its continued emphasis on sales and service to customers. Senior Community banking officers are making a concerted effort to increase Century's commercial loans and developing new business in southwestern Pennsylvania. Century saw its total of investments increase to $99,052 at December 31, 1995. Most of this growth was in mortgage-backed securities and collateralized mortgage obligations which provide cash flow of interest and principal repayment to coincide with Century's liability structure. During 1995, in accordance with FAS 115, Century reclassified all of its investment securities from the held to maturity to the available for sale classification. At December 31, 1995, all investments were classified as available for sale. Deposits grew $30,286, or 10.2%, from December 31, 1994 to December 31, 1995. Both noninterest-bearing and interest-bearing demand deposit accounts increased from year-end 1994. While savings deposits decreased $4,067, growth in money market accounts offset that. The major portion of deposit growth in 1995 occurred in time deposits which increased $25,785, or 17.8% during 1995. Century conducted several time deposit promotions during 1995 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. Short term borrowings, consisting of federal funds purchased and short term borrowings from the Federal Home Loan Bank, increased to $10,000 at December 31, 1995. This was done to fund loan growth late in 1995 rather than selling securities. Rates on these short term borrowings are very favorable to deposit rates of like terms. Century will continue to review all borrowing alternatives to control interest expense. 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. XX LIQUIDITY AND INTEREST RATE SENSITIVITY (Continued) 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 enhance 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 and short-term investment securities are used for this purpose and totalled $36,276 at December 31, 1995. 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" or "interest rate sensitivity 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." 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, 1995:
3 3-12 1-5 Over Months Months Years 5 Years Total ------- -------- -------- ------- ------- Taxable investment securities $12,552 $ 21,227 $ 47,545 $ 4,024 $ 85,348 Nontaxable investment securities 686 1,775 2,698 8,545 13,704 Interest-bearing deposits 36 -- -- -- 36 Loans 71,603 47,706 89,914 48,389 257,612 ------- ------- -------- ------- -------- Total earning assets $84,877 $ 70,708 $140,157 $60,958 $356,700 ------- --------- -------- ------- -------- Interest-bearing demand deposits $ -- $ -- $ 33,191 $ -- $ 33,191 Savings deposits -- 21,369 14,246 -- 35,615 Money market deposits 28,422 -- 18,948 -- 47,370 Time deposits 28,555 83,602 50,285 7,999 170,441 Short-term borrowings 10,000 -- -- -- 10,000 Other borrowings -- 1,500 -- 1,700 3,200 ------- --------- -------- ------- -------- Total interest-bearing liabilities $66,977 $ 106,471 $116,670 $ 9,699 $299,817 ------- --------- -------- ------- -------- Interest rate sensitivity gap $17,900 ($35,763) $ 23,487 $51,259 $ 56,883 ======= ======== ======== ======= ======== Cumulative interest rate sensitivity gap $17,900 ($17,863) $ 5,624 $56,883 ======= ======== ======== ======= Cumulative interest rate sensitivity gap as a percentage of total earning assets 5.02% -5.01% 1.58% 15.95% ======= ======== ======== =======
The table above 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 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 noncontractual deposit accounts. For this reason, interest-bearing demand deposits are placed in the 1-to-5 year category. That portion of savings deposits considered most volatile are placed in the 3-to-12 months repricing category with the remainder in the 1-to-5 year time frame; and that portion of money market deposits considered most volatile are placed in the 3-month time frame with the remainder in the 1-to-5 year time frame. Subject to these qualifications, the table above reflects a cumulative negative gap for assets and liabilities maturing or repricing in 1996. This cumulative negative gap of $17,863, represents 5.01% of earning assets at December 31, 1995. 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. 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. XXI CAPITAL RESOURCES Total stockholders' equity at December 31, 1995 was $31,742, compared to $27,656 at year-end 1994. This 14.8% increase in stockholders' equity was primarily due to the retention of net earnings, plus the positive impact of unrealized gains on investment securities available for sale, upon adoption of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, on January 1, 1994. Total cash dividends of $.53 per share were paid to stockholders in 1995 compared to $.38 per share in 1994 and $.35 per share in 1993. The resulting dividend payout ratio was 42.1 % in 1995, 35.8% in 1994 and 35.3% in 1993. The total cash dividend of $.53 per share 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. Excluding the $.10 special dividend, the increase in dividends per share in 1995 was 13.2% over 1994's and represented a dividend payout ratio of 34.1%. 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, 1995, and 1994:
Tier I: 1995 1994 -------- -------- Common shareholders' equity $ 31,742 $ 27,656 Less: Non-exempt intangible assets (176) (202) Unrealized depreciation (appreciation) (898) 703 in securities available-for-sale -------- -------- Total Tier I $ 30,668 $ 28,157 Tier II: Qualifying long-term debt $ -- $ 300 Qualifying allowance for loan losses 3,003 3,023 -------- -------- Total Tier II $ 3,003 $ 3,323 Total Capital $ 33,671 $ 31,480 ======== ======== Risk weighted assets $268,303 $241,423 ======== ======== Tier I capital ratio 11.43% 11.66% ======== ======== Required Tier I capital ratio 4.00% 4.00% ======== ======== Total capital ratio 12.55% 13.04% ======== ======== Required total capital ratio 8.00% 8.00% ======== ========
In addition to risk-based capital requirements, a leverage ratio test must also be met. The leverage ratio is defined as the ratio of Tier I capital to assets (not risk adjusted). The required ratio for each financial institution will be determined based on the financial institution's relative soundness. A minimum ratio of Tier I capital to total assets of three percent has been established for top rated financial institutions, with less highly rated or those with higher levels of risk required to maintain ratios of 100 to 200 basis points above the minimum level. The Corporation's leverage ratio was 8.13% at December 31, 1995. XXII 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 different 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 to do not gain or lose purchasing power solely as a result of general price level changes. Examples of nonmonetary items are premisis 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. XXIII CENTURY FINANCIAL CORPORATION MARKET AND DIVIDEND INFORMATION - ----------------------------------------------- Century Financial Corporation's (Corporation) common stock is traded in the over-the-counter market and not listed on any organized exchange. Trades have generally occurred in relatively small lots and the following priceS quoted are not necessarily indicative of the market value of a substantial block. At December 31, 1995, the Corporation had approximately 960 shareholders of record. The following table sets forth the ranges of bid prices: STOCK PRICES
1994 HIGH LOW ---- ------ ------ First Quarter $13.13 $12.71 Second Quarter 13.33 12.50 Third Quarter 12.92 12.50 Fourth Quarter 12.71 12.50 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 1995 and 1994.
1994 ---- First Quarter $0.09 per share Second Quarter 0.09 per share Third Quarter 0.10 per share Fourth Quarter 0.10 per share ---- Total for 1994 $0.38 ===== 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. XXIV EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 10,426 0 0 0 99,052 0 0 257,612 3,003 376,989 328,325 10,000 3,722 3,200 0 0 2,820 28,922 376,989 21,806 5,645 234 27,685 12,234 12,625 15,060 240 (14) 11,740 5,654 5,654 0 0 4,268 0 0 4.72 901 266 0 1,167 3,206 475 32 3,003 3,003 0 0
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