ITEM 1. BUSINESS - - ----------------
General - - -------
Century Financial Corporation (Corporation) is a Pennsylvania corporation and is registered under the Holding Company Act. The Corporation was organized to be the holding company of Century National Bank and Trust Company (Century). The Corporation and its subsidiary derive substantially all their income from banking and bank-related services which includes interest earnings on commercial, commercial mortgage, residential real estate, and consumer loan financing as well as interest earnings on investment securities and deposit services to its customers. Century provides banking services to Southwestern Pennsylvania. In 1989, the Corporation acquired the Independent Bankers Computer Services (IBCS), a data processing center. Effective April 1, 1995, Independent Bankers Computer Services was dissolved and its operations integrated with Century National Bank and Trust Company. IBCS was not a significant segment of the Corporation's business. The Corporation is supervised by the Federal Reserve Board while Century is subject to regulation and supervision by the Office of the Comptroller of the Currency.
Century National Bank and Trust Company was formed in 1973 as a result of the consolidation of the Union National Bank of New Brighton, New Brighton, Pennsylvania, and the Freedom National Bank, Freedom, Pennsylvania. In 1985, The National Bank of Beaver County, Monaca, Pennsylvania, and The First National Bank of Midland, Midland, Pennsylvania, were merged into Century. Each of these business combinations were accounted for as a pooling of interests.
Century engages in full service commercial and consumer banking and trust services. Century provides services to its customers through its network of thirteen full service community branches which includes drive-in facilities. Century's services include accepting time, demand and savings deposits including NOW accounts, regular savings accounts, Money Market accounts, fixed rate certificates of deposit, and club accounts. Its services also include commercial transactions either directly or through regional industrial development corporations, making construction and mortgage loans, and the renting of safe deposit facilities. Additional services include making residential mortgage loans, revolving credit loans with overdraft protection, small business loans, etc. Century's business loans include seasonal credit collateral loans, and term loans. During the five year period beginning in 1992 and ending in 1996, the Corporation's combined total assets have grown from approximately $306 million in 1992 to approximately $413 in 1996. Net income for each of the years in this period has increased also.
Trust services provided by Century include services as executor and trustee under will and deeds, as guardian and custodian and as trustee and agent for pension, profit sharing and employee benefit trusts as well as various investment, pension and estate planning services. Trust services also include service as transfer agent and registrar of stock and bond issues and escrow agent.
As of December 31, 1996, Century had a total of 164 full-time employees and 45 who were part-time.
Supervision and Regulation - - --------------------------
The Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended (the Act),and the Securities and Exchange Commission.
Century is subject to regulation and periodic examination by the Office of the Comptroller of the Currency. It is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.
Supervision and Regulation (Continued) - - --------------------------------------
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was enacted on August 9, 1989. FIRREA has significantly affected the financial industry in several ways, including higher deposit insurance premiums, more stringent capital requirements and new investment limitations and restrictions. The Federal Deposit Insurance Corporation Act of 1991 ("The FDIC Improvement Act") covers a wide area of Banking regulatory issues. The FDIC Improvement Act deals with the capitalization of the Bank Insurance Fund (BIF), with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. The FDIC refunded $193,000 to the Corporation in September, 1995 as a result of the FDIC lowering the insurance premium for bank institutions meeting certain capital requirements. In addition, the FDIC eliminated the premium for 1996, and for 1997, the Corporation expects the premium assessment to be approximately 1.29 cents per $100 of insured deposits.
The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of the Corporation cannot be predicted.
Management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation.
Competition - - -----------
All phases of Century's business are considered to be highly competitive. Century competes with other commercial banks and financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, credit companies and insurance companies. Century also competes with non-financial institutions such as retail stores that maintain their own credit programs and government agencies that make available low cost guaranteed loans to certain borrowers. Century competes in its market areas with a number of much larger financial institutions with greater resources and larger lending limits. Century's market area includes all of Beaver County, Pennsylvania, in addition to various communities in neighboring Butler County (Cranberry Township area). Century competes with local financial institutions with branches in the immediate area. Century considers its major competition to be Mellon Bank, N.A. and National City Bank of Pennsylvania, both headquartered in Pittsburgh, Pennsylvania along with First Western Bank, N.A., headquartered in New Castle, Pennsylvania.
Century is generally competitive with all financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates and fees charged on loans.
Century has a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors (including federal, state and local governments). Century has not experienced any significant seasonal fluctuations in the amount of its deposits. None of Century's deposits are from outside of the United States.
Market Area - - -----------
Century has twelve community branches in Beaver County, Pennsylvania and one branch in Butler County, bordering Beaver County. The Corporation is headquartered in Rochester, Pennsylvania. Beaver County is approximately 25 miles northwest of Pittsburgh.
Market Area (Continued) - - -----------------------
The Beaver County area was once largely dependent on heavy industry manufacturing, primarily steel. Due to the nationwide recession in the early 1980's and competition from imported steel, the county experienced reduced employment which caused a severe recession. Beaver County has now moved to a more diversified economic base consisting of light industrial, high technology, educational and health related industries.
Beaver County's largest employer is US Airways which operates its hub from the Pittsburgh International Airport. Other major employers include The Medical Center, Beaver County government, state government and Duquesne Light Company.
Statistical Disclosures by Bank Holding Companies - - -------------------------------------------------
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
Information required by this section is presented on pages XXI through XXII of the 1996 Annual report and is incorporated herein by reference.
II. Investment Portfolio
A. Book Value of Investment Portfolio
The following table sets forth the carrying value of investments as of the dates indicated.
II. Investment Portfolio (Continued) - - ------------------------------------
B. Maturity and Yield Information
The following table sets forth the maturity of investments at December 31, 1996, and the weighted average yields of such investments. The yields reflected are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each investment.
Century maintains a written lending policy requiring certain underwriting standards be met prior to funding any loan, including requirements for credit analysis, collateral value coverage, documentation and terms. The principal factor used to determine potential borrower's creditworthiness is business cash flows or consumer income available to service debt payments. Secondary sources of repayment, including collateral or guarantees, are frequently obtained. The Bank generally lends within the market areas served by the Bank's branches.
Commercial loans are granted generally to small and middle market customers for operating, expansion or asset acquisition purposes. Operating cash flows of the business enterprise are identified as the principal source of repayment, with business assets held as collateral. Collateral margins and loan terms are based upon the purpose and structure of the transaction as set forth in the loan policy.
Commercial real estate loans are granted for the acquisition or improvement of real property. Generally, commercial real estate loans do not exceed 80% of the appraised value of the property pledged to secure the transaction. Repayment of such loans are expected from the operations of the subject real estate and are carefully analyzed prior to approval.
Real estate construction loans are granted for the purpose of construction improvements to real property, both commercial and residential. Real estate loans secured by 1-4 family residential housing properties are granted subject to statutory limits regarding the maximum percentage of appraised value of the mortgaged property. Residential loan terms are normally established in compliance with regulatory requirements. Residential mortgage portfolio interest rates are established based upon factors such as interest rates in general, the supply of money available to the bank and the demand for such loans.
III. Loan Portfolio (Continued) - - -------------------------------
A. Types of Loans (Continued)
Loans to individuals represent financing extended to customers for personal or household purposes, including automobile financing, education, home improvement and personal expenditures. These loans are granted in the form of installment, indirect automobile loans, credit cards or revolving transactions. Consumer credit-worthiness is evaluated on the basis of ability to repay, stability of income sources and past credit history.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the maturity of commercial and real estate-construction loans outstanding as of December 31, 1996 and the amounts due after one year classified according to the sensitivity to changes in interest rates.
The gross amount of interest which would have been recorded for 1996 for nonaccrual loans outstanding as of December 31, 1996, as though the loans had been current in accordance with their original terms was approximately $58. There was no interest income actual recorded on these loans in 1996.
While it is impossible to predict what 1997 loan losses will be, there are no potential problem loans outstanding at the end of any period presented for which there was serious doubt as to the ability of the borrower to comply with present loan repayment terms except as discussed above.
At December 31, 1996, the Corporation had no impaired loans in accordance with Statement of Financial Accounting Standard Statement Nos. 114 and 118 that have a material effect on the financial position or results of operations of the Corporation.
At December 31, 1996, the Corporation did not have any concentrations of loans to borrowers engaged in similar activities exceeding 10% of total loans, net of unearned income.
IV. Summary of Loan Loss Experience - - ------------------------------------
A. Analysis of Loan Loss Experience
The following table summarizes the Corporations loan loss experience for each of the five years presented.
The Corporation believes that the allowance for loan losses at December 31, 1996 is adequate to cover losses inherent in the portfolio as of such date. However, there can be no assurance that the Corporation will not sustain additional losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 1996.
B. Allocation of the Allowance for Possible Loan Losses
The allocation of the allowance for possible loan losses is based upon Management's periodic and systematic review and evaluation of individual loans, overall risk characteristics of potential credit concentrations, past experience with losses, the impact of economic conditions on borrowers, and risk elements associated with particular loan categories. The allowance for loan loss is available to absorb credit losses arising from individual or portfolio segments. When losses on specific loans are identified, Management charges off the portion deemed uncollectible.
IV. Summary of Loan Loss Experience (Continued) - - ------------------------------------------------
B. Allocation of the Allowance for Possible Loan Losses
Century monitors its loan portfolio on a monthly basis and assesses a detailed analysis of delinquencies, non-performing assets and potential problem loans. The adequacy of the allowance for loan losses is determined by management considering such factors as the risk classification of loans, delinquency trends, charge-off experience, credit concentrations, economic conditions and other relevant factors. Specific reserves are established for each classified credit taking into consideration the credit's delinquency status, current operating status, pledged collateral and plan of action for resolving any deficiencies. All credit relationships in excess of $250,000 are reviewed by management and the executive committee of Century's Board of Directors on an annual basis. In addition, loan relationships in excess of $250,000, rated substandard or lower are reviewed on a quarterly basis and evaluated for the adequacy of payment histories, any changes in collateral and exposure, if any, is specifically reserved for. All special mention loans are pooled and a reserve is determined. All other homogeneous loan pools such as consumer installment loans, cash reserve, 1-4 family mortgage loans and unfunded commitments are pooled and the adequacy of the reserve is determined.
The following table shows the allocation of the allowance for possible loan losses for each of the last five years:
December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- -------- -------- -------- (In thousands) Commercial, financial and agricultural $ 1,010 $ 720 $ 859 $ 813 $ 764 Real estate - construction - - - - - Real estate - mortgage 641 521 582 507 616 Installment loans to individuals 815 733 751 502 487 Unallocated 768 1,029 1,014 1,248 605 ------- -------- -------- -------- --------
Total $ 3,234 $ 3,003 $ 3,206 $ 3,070 $ 2,472 ======= ======== ======== ======== ========
The following table shows the percentage of loans in each category to total loans for each of the last five years:
December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- -------- -------- --------
Commercial, financial and agricultural 31.1% 29.5% 22.6% 26.1% 20.5% Real estate - construction 3.5% 4.9% 3.3% 3.1% 3.0% Real estate - mortgage 39.2% 37.4% 42.4% 46.2% 54.7% Installment loans to individuals 26.2% 28.2% 31.7% 24.6% 21.8% -------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0% ======== ======== ======== ======== ========
V. Deposits - - ------------
A. Average Deposits and Rates Paid by Type
The following tables summarize the daily average amount of deposits and rates paid on such deposits for the periods indicated.
Year Ended December 31, ------------------------------------ 1996 1995 1994 -------- --------- --------- (Amounts in thousands)
Amount - - ---------------------------------- Noninterest-bearing demand deposits $ 41,157 $ 40,079 $ 37,244 Interest-bearing demand deposits 34,567 31,518 31,747 Savings deposits 34,972 37,483 41,883 Money market 49,304 49,178 47,964 Time deposits 178,167 165,474 129,824 ---------- ---------- ---------- Total $ 338,167 $ 323,732 $ 288,662 ========== ========== ========== Rate - - ---------------------------------- Noninterest-bearing demand deposits - - - Interest-bearing demand deposits 0.97% 0.96% 0.97% Savings deposits 2.02% 2.05% 2.09% Money market 2.28% 2.29% 2.30% Time deposits 6.11% 6.06% 5.31%
B. Maturities of Time Deposits of $100,000 or More
The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 1996.
December 31, ------------ (In thousands)
3 months or less $ 2,484 Over 3 through 6 months 14,415 Over 6 through 12 months 4,795 Over 12 months 7,798 ------------ Total $ 29,492 ============
VI. Return on Equity and Assets - - -------------------------------
The required information is incorporated by reference to page XVIII of the 1996 Annual Report.
VII. Short-Term Borrowings - - ----------------------------
The required information is incorporated by reference to page IX of the 1996 Annual Report.
ITEM 2.
ITEM 2. Properties - - -------------------
The Corporation's executive offices are located at One Century Place, Rochester, Pennsylvania, in a building owned by Century and which also contains Century's main office. In addition, Century owns eight other properties in Beaver County, Pennsylvania, and two properties in Butler County, Pennsylvania at the following locations: 2522 Darlington Road, Beaver Falls; Third Avenue Freedom; Seventh Street and Midland Avenue, Midland; 1001 Pennsylvania Avenue, Monaca; Third Avenue, New Brighton; 800 Brodhead Road, Aliquippa; 700 Merchant Street, Ambridge; 716 Fourteenth Street, Beaver Falls; Rt 19 and Cranberry Square, Mars; and Freedom and Haines School Road, Mars. Century leases three additional properties located at: 613 Beaver Valley Mall, Monaca; Northern Lights Shoppers City, Baden; and Third Avenue and Buffalo Street, Beaver.
All facilities and equipment are periodically appraised for insurance purposes and Management asserts that all properties are adequately insured.
ITEM 3.
ITEM 3. Legal Proceedings - - --------------------------
The required information is incorporated by reference to page XII of the 1996 Annual Report.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders - - ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of 1996.
PART II - - --------
ITEM 5.
ITEM 5. Market for Registrant's Common Equity and Related Matters - - ------------------------------------------------------------------
The required information is incorporated by reference to page XXVII of the 1996 Annual Report.
ITEM 6.
ITEM 6. Selected Financial Data - - --------------------------------
The required information is incorporated by reference to page XVIII of the 1996 Annual Report.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - - ------------------------------------------------------------------------
The required information is incorporated by reference to page XIX through XXVI of the 1996 Annual Report.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data - - ----------------------------------------------------
The required information is incorporated by reference to page I through XVIII of the 1996 Annual Report.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - - -------------------------------------------------------------------------
None
PART III - - --------
ITEM 10.
ITEM 10. Directors and Executive Officers of the Registrant - - ------------------------------------------------------------
The required information with respect to the directors is incorporated by reference to page 4 through 6 of the 1997 Annual Proxy Statement to Shareholders (the 1997 Proxy Statement).
The required information with respect to Executive Officers of the Registrant is as follows:
Principal Occupation, Business Experience Executive Officers Age during the past 5 Years - - ---------------------- ----- ----------------------------------------- Joseph N. Tosh, II 55 President/Chief Executive Officer of Century Financial Corporation since 1988, President and Chief Executive Officer of Century National Bank and Trust Company since 1985.
Donald A. Benziger 43 Senior Vice President, Chief Financial Officer and Corporate Secretary of Century Financial Corporation and Century National Bank and Trust Company since 1995, Vice President, Chief Financial Officer since 1990.
ITEM 11.
ITEM 11. Executive Compensation - - --------------------------------
The required information is incorporated by reference to page 7 through 9 of the 1997 Proxy Statement.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management - - -------------------------------------------------------------------------
The required information is incorporated by reference to page 2 through 3 of the 1997 Proxy Statement.
ITEM 13.
ITEM 13. Certain Relationship and Related Transactions - - --------------------------------------------------------
The required information is incorporated by reference to page 12 of the 1997 Proxy Statement.
PART IV - - --------
ITEM 14.
ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K - - -----------------------------------------------------------------
(a) The following documents are filed as part of this report, except as may be indicated:
(1) Financial Statements:
The following Consolidated Financial Statements of Century Financial Corporation together with the Independent Auditor's Report dated February 7, 1997 are included in the 1996 Annual Report of the registrant which is referenced in Part II, Item 8 - Financial Statements and Supplementary Data and are incorporated herein:
Page Reference ---------------- Report of Independent Certified Public Accountants. XVII Consolidated Balance Sheet, December 31, 1996 and 1995. I Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994. II Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. III Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994. IV Notes to Consolidated Financial Statements V-XVI
(2) Financial Statement Schedules:
Not applicable.
(3) Exhibits:
(a) Exhibits filed herewith or incorporated by reference are set forth in the following table prepared in accordance with Item 601 of Regulation S-K.
EXHIBIT TABLE - - ---------------------------------------------------------------------------
(3.1) Articles of Incorporation of the registrant are incorporated herein by reference to the registrant's Form S-4 Registration Statement, File No. 0-17413. (3.2) By-Laws of the registrant are incorporated herein by reference to the registrants Form S-4 Registration Statement, File No. 0-17413. (4) Instruments defining the rights of security holders, including indentures are incorporated herein by reference to the registrant's Form S-4 Registration Statement, File No. 0-17413. (13) Annual Report to Security Holders for the year ended December 31, 1996, filed herewith as exhibit 13. (21) Subsidiary of the registrant; Century National Bank and Trust Company, Incorporated in Pennsylvania, incorporated herewith by reference. (27) Financial Data Schedule for the year ended December 31, 1996, filed herewith as Exhibit 27.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Century Financial Corporation
Date: March 20, 1997 By: /s/ Joseph N. Tosh, II -------------------------- Joseph N. Tosh, II President and Chief Executive Officer (Principal Executive Officer)
Date: March 20, 1997 By: /s/ Donald A. Benziger -------------------------- Donald A. Benziger Senior Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date - - ----------------------------- -------------------- ---------------
/s/ Joseph N. Tosh, II President March 20, 1997 - - ----------------------------- Joseph N. Tosh, II
/s/ Del E. Goedeker Chairman March 20, 1997 - - ----------------------------- Del E. Goedeker
/s/ Elvin W. Batchelor Director March 20, 1997 - - ----------------------------- Elvin W. Batchelor
/s/ A. Dean Heasley Director March 20, 1997 - - ----------------------------- A. Dean Heasley
SIGNATURES (Continued)
Name Title Date - - ----------------------------- -------------------- ---------------
/s/ Harry J. Johnston Director March 20, 1997 - - ----------------------------- Harry J. Johnston
/s/ Z. John Kruzic Director March 20, 1997 - - ----------------------------- Z. John Kruzic
/s/ Wayne S. Luce Director March 20, 1997 - - ----------------------------- Wayne S. Luce
/s/ Gino F. Martinetti Director March 20, 1997 - - ----------------------------- Gino F. Martinetti
/s/ Thomas K. Reed Vice Chairman March 20, 1997 - - ----------------------------- Thomas K. Reed
/s/ Harold V. Shank, Jr. Director March 20, 1997 - - ----------------------------- Harold V. Shank, Jr.
/s/ Charles I. Homan Director March 20, 1997 - - ----------------------------- Charles I. Homan
/s/ Sister M. T. Markelewicz Director March 20, 1997 - - ----------------------------- Sister M.T. Markelewicz
/s/ Robert F. Garvin, Jr. Director March 20, 1997 - - ----------------------------- Robert F. Garvin, Jr.