CONTENTS. Century Financial Corporation

Transcription

1 2017 ANNUAL REPORT

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3 CONTENTS Financial Highlights 2 Message to Shareholders 3 Review Performance Operations 4 Report Independent Auditors 5 Consolidated Balance Sheets 6 Consolidated Statements Income 7 Consolidated Statements Comprehensive Income 8 Consolidated Statements Changes in Shareholders Equity 8 Consolidated Statements Cash Flows 9 Notes to Consolidated Financial Statements 10 Directors 26 Officers 26 Office Locations 27 ATM Locations 27 Company Prile 28 The Annual Meeting shareholders will be held March 20, 2018 at 4:00 p.m., at Dearth Community Center, Garfield Road, Coldwater, Michigan.

4 Financial Highlights Financial Highlights Adjusted For For Year Year Net Income Net Income $ 3,076,000 $ 2,441,000 $ 1,146,000 $ $ 2,410,000 2,642,000 Cash Dividends 1,037,391 1,037, ,159 Cash Dividends Return on Average Assets 1.03% 812, % 661, % Return Return on Average on Average Assets Equity 8.47% 0.90% 3.24% 7.88% 0.90% Return on Average Equity 8.20% 8.46% At Year End Assets $ 301,539,000 $ 295,796,000 At Year Deposits End 258,184, ,326,000 Assets Net Loans $ 272,033, ,423,000 $ 177,951, ,517,000 Deposits Shareholders' Equity 236,342,000 36,501, ,660,000 34,231,000 Net Loans 167,590, ,005,000 Per Share Shareholders' Basic Equity Diluted Earnings 31,207,000 $ 0.60 $ 28,318, Cash Dividends Per Share Book Value December 31 Basic Earnings $ $ Diluted Earnings Cash Dividends is a Michigan bank holding company with Century Bank Trust as its only whollyowned subsidiary. Century Bank Trust fers a full range financial trust services through a system twelve banking fices located in Branch, St. Joseph Hillsdale Counties in Michigan. 2

5 Message to Shareholders Dear Fellow Shareholders, Dear Fellow Shareholders, It is my pleasure to announce annual performance for its subsidiary Century Bank Trust in Our company reported net income I am pleased to announce that 2013 was anor solid year for its $1,146,000 or basic earnings per share $0.60 for year. This compares to net subsidiary income Century $2,642,000 Bank Trust. earnings Your company per share earned $1.37 $2,410,000 reported or to basic you earnings in per share $1.24 for year. This is a strong increase over 2012 results when net income $2,171,000 earnings The per 2017 share performance $1.10 were represents reported. a return on average assets (ROA) 0.38% a return on average equity (ROE) 3.24%. In 2016, ROA ROE were 0.91% The 7.88%, 2013 performance respectively. represents a return on average assets (ROA) 0.90% a return on average equity (ROE) 8.46%. Corresponding numbers for 2012 were 0.82% ROA 8.16% ROE. At first glance, se results are significantly ftrack from historically consistent There were a number positive earnings things in pattern our 2013 you operations are used that to contributed seeing from to Century 11% increase Bank in yearoveryear Trust. The net main income reason strong boost in earnings per share. for However, deviation it is important in 2017 results to recognize is related first to foremost onetime, contributing pretax factor expense to Century associated Bank Trust s success is our 130 talented with terminating dedicated employees settling who serve Bank s our customers defined benefit communities. pension plan. As reported to you in last year s Annual Report subsequent 2017 quarterly reports, this strategic decision was approved by Board Directors with expected event to occur sometime during fourth quarter After all During benefit 2013 elections we were were again received, able to a exceed final distribution key operating plan measure assets was total made revenue. to participants This component in December, is combination resulting in net a pension interest related noninterest expense income. for 2017 Our totaling revenue $2,838,000. for 2013 For was comparison, $13,326,000 pension compared related to $13,033,000 expense in in was The diversification $210,000. Though our revenue definitely stream impactful during this on era 2017 historically earnings, low interest longterm rates has benefits been an important eliminating aspect our associated results for future 2013 risks net interest ongoing income expenses constituted approximately pension 64% will be revenue very beneficial with noninterest for Bank. income at 36%. Major contributors to revenue for year were our commercial lending, mortgage lending trust investment management teams. Our commercial lenders Though diligently more modest grew existing when compared relationships to pension established termination, new ones as our late2017 local business corporate economy tax continues code change to rebound. approved Our mortgage by lawmakers lenders, also once compressed again, feverishly earnings worked for to assist year. customers After remeasuring taking advantage Corporation s attractively net low deferred residential tax mortgage assets rates. considering And our Trust lower Investment federal Management tax rate in Group future, continued growing Bank recorded our client $196,000 base who more seeks investment income tax management, for 2017 trust than it estate normally planning would services. have. This Again, group s temporarily dedicated effort trying for clients on earnings, allowed but m like to end many 2013 in at record banking levels for industry, both assets I under welcome management positive department future benefits revenue. Equally lower tax as impressive rate will provide important corporations to 2013 results was economy. our focus on implementing efficiencies reducing costs in our operations. Our retail deposit operations teams reduced combination total interest Given both unique circumstances occurred this year, it is useful to provide a look at 2017 on an adjusted basis. Assuming noninterest an annual expense pension by $510,000 expense as compared tax to 2012 rate levels. matching 2016, key yearend measurements would have been: net income $3,076,000, ROA 1.03% ROE 8.47%. Century Bank Trust s balance sheet continues to be very strong exhibits top tier banking industry capital ratios liquidity. At From this perspective total assets were it can $270,517,000 be seen that up from Bank 2012 performed total assets exceptionally $266,001,000. well Total on a deposits core basis grew in slightly more than $6,000,000 ending year at $238,660,000. The asset quality measures loan portfolio within balance sheet remain solid with Without important doubt, reductions our team during dedicated 2013 in key talented categories employees nonaccrual are loans definitive or real ingredient estate owned. that Additionally, drives our success a sound allowance performance loan loss each reserve year. is maintained Their daily as a passion percentage total work loans. ethic in serving our customers, communities shareholders is truly remarkable. I am grateful for privilege to work alongside each m. In last year s letter to you, I reinforced Board Directors longterm commitment creating shareholder value focus on dividend. Strong capital, Century liquidity Financial Corporation core deposit (CFC) adjusted funding its continue dividend to twice be during key fundamentals 2013, increasing it Century $0.02 per Bank share both in Trust s March balance sheet. Total assets grew $5,743,000 or 1.94% ending at $301,539,000. At , asset levels December. An annual cash dividend $0.34 per share was paid in 2013, as compared to $0.25 per share in Additionally, $295,796,000 were reported. via a Board authorized program, CFC repurchased 28,903 shares stock on open market during year. A similar repurchase program The loan has portfolio been approved grew $11,404,000, to be utilized in or %, Our on shareholders an annual also basis. benefited A balanced from an contribution increase in stock from price all which began Bank s year lending at $8.23 teams provided ended it at $ growth. At , total loans were $191,624,000 with an allowance for loan loss reserve $2,201,000 or 1.15% loan portfolio. For same period in 2016, loans totaled $180,220,000 with For an allowance upcoming for year, loan we loss expect reserve familiar $2,269,000 tests in or community 1.26% banking loan operating portfolio. environment Century Bank continuing Trust challenge continues navigating to service low our interest customer s rates residential reduced residential mortgage mortgage loans refinance that are activity sold to being secondary main ones. market. I believe This Century fbalance Bank Trust sheet is portfolio wellpositioned was $111,331,000 has a successful at track record compared that reflects to $109,271,000 our ability to perform at appropriately Net against loan loss se in headwinds. 2017, as Your a percentage bank team will average continue loans, its focus was 0.17%, execute same on as foundation in that At drives December our longterm 31, 2017, success: nonaccrual (1) grow loans totaled retain pritable $1,942,000 business Or activity, Real (2) maintain Estate Owned strong asset was quality, $305,000. (3) manage At December operating 2016, expenses se categories (4) implement stood efficiencies. at $2,141,000 $705,000, respectively. Before closing, I want to thank each customer, employee, director shareholder for loyalty confidence you express in our Total deposits remained consistent, ending 2017 at $258,184,000 this compares to total deposits $257,326,000 company. at Your commitment Our deposit service continued teams support continue are what ir make strong Century work Bank on maintaining Trust such an exceptional growing organization keystone now deposit into products future. personal business checking savings accounts. I Century look forward Bank to reporting Trust s to you capital as we levels move continue into to soundly exceed requirements to be considered well capitalized by regulatory agencies. At , core ratios banking institutions are measured by stood at: Total capital/ risk weighted assets 16.60%, Tier 1 capital/risk weighted assets 15.67% Tier 1 capital/average assets Eric H. Beckhusen 12.52%. Chairman & CEO 3

6 Message to Shareholders (continued) Operating highlights for year are: Net operating revenue, defined as net interest noninterest income combined, increased 4.93% totaling $15,030,000 for Net operating revenue was $14,324,000 in The revenue mix for 2017 was 67% from net interest (spread) income 33% from noninterest (fee) income. Net interest income, before provision expense, increased $589,000 or 6.20%. Net interest income for 2017 was $10,083,000 compared to $9,494,000 in The provision for loan losses for 2017 was $250,000 compared to $355,000 in Total interest expense increased, ending year at $353,000 versus $220,000 in Overall fee income grew 2.40%, totaling $4,947,000 for 2017 compared to $4,831,000 for Trust Investment Management revenue continues as single largest component fee income. This team again produced record results in 2017, generating revenue $1,925,000 compared to $1,801,000 in This constitutes an increase $124,000 or 6.89%. Fee income from Deposit Services components service charges fees exchanges increased 2.82% in 2017 with aggregate revenue $1,750,000 versus $1,702,000 in The gain on sale mortgage loans declined $65,000 in 2017 compared to Total gain was $595,000 for 2017 compared to $660,000 year prior. Given rebounding housing market tight inventory, this slight decrease was fset by loan portfolio growth associated with home construction. Noninterest expense for 2017 totaled $13,147,000 compared to $10,355,000 in As mentioned previously, dramatic increase is related to onetime expense associated with terminating Bank s pension plan. Core operating expenses, net employeerelated items, for year were $4,366,000 compared to $4,308,000 in 2016 an increase $58,000 or 1.35% Strong execution by managers teams in all our core lines business coupled with conservative balance sheet management again drove Bank s core performance in This consistency continues to allow Board Directors to focus on ir commitment to longterm shareholder value return. (CFC) paid an annual cash dividend in 2017 $0.54 per share. This compares to a $0.50 per share annual payout for The market share price CFC stock (ticker symbol CYFL) was $20.00 at $18.00 at Book values for se same time periods were $19.00 $17.79, respectively. I would also like to take this opportunity to share retirement longtime Director Kelly Murphy from both Century Bank Trust Boards as Kelly joined our Board teams in 1990 his steadfast service was critical to Bank s longterm growth success in our St. Joseph County market. Kelly s passion for Century Bank Trust, our employees shareholders over last 27 years is a gleaming example commitment. Please join me in congratulating Kelly on his dedicated role as a Director. As I conclude, it is with true sincerity that I thank you for your continued support confidence as a shareholder, your business as a client making those ever important referrals friends, family associates to Century Bank Trust. As we embark on 2018, I believe we do it with encouraging factors not seen for some time in economy. Positive economic activity a rising rate environment carefully managed to this point by Federal Reserve, should provide a strong setting for wellmanaged banking organizations. However, no matter macro conditions, our longterm vision remains same an unwavering focus on daily actions that build successful communities, clients Bank. Eric H. Beckhusen Chairman & CEO 4

7 Report Independent Auditors Crowe Horwath LLP Independent Member Crowe Horwath International Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board Directors Stockholders Coldwater, Michigan INDEPENDENT AUDITOR S REPORT Board Directors Stockholders Report on Financial Statements Coldwater, Michigan We have audited accompanying consolidated financial statements, which comprise consolidated balance sheets as December 31, , related consolidated Report statements Financial Statements income, comprehensive income, changes in shareholders equity cash flows for years n ended, related notes to financial statements. We have audited accompanying consolidated financial statements, which Management s comprise consolidated Responsibility balance sheets for as Financial December Statements 31, , related consolidated statements income, comprehensive income, changes in shareholders equity cash flows for years n ended, related notes to financial statements. Management is responsible for preparation fair presentation se consolidated financial statements Management s in accordance Responsibility with for accounting Financial principles Statements generally accepted in United States America; this includes design, implementation, maintenance internal control relevant to preparation Management fair presentation is responsible consolidated for preparation financial fair statements presentation that se are free consolidated from material financial misstatement, statements in wher accordance due with to fraud accounting or error. principles generally accepted in United States America; this includes design, implementation, maintenance internal control relevant to preparation fair presentation consolidated Auditor s financial statements Responsibility that are free from material misstatement, wher due to fraud or error. Our Auditor s responsibility Responsibility is to express an opinion on se consolidated financial statements based on our audits. We conducted our audits in accordance with auditing stards generally accepted in United Our responsibility is to express an opinion on se consolidated financial statements based on our audits. We States conducted our America. audits in Those accordance stards with auditing require stards that we generally plan accepted perform in United audit States to obtain America. reasonable Those assurance stards require about that wher we plan consolidated perform financial audit to obtain statements reasonable are assurance free from material about wher misstatement. consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about amounts disclosures in An audit consolidated involves performing financial statements. procedures to The obtain procedures audit evidence selected about depend amounts on auditor s disclosures judgment, in including consolidated financial assessment statements. The risks procedures material selected misstatement depend on consolidated auditor s judgment, financial including statements, wher assessment due to fraud risks or material error. In misstatement making those risk consolidated assessments, financial auditor statements, considers wher internal due to fraud control or relevant error. In making to those entity s risk preparation assessments, fair auditor presentation considers internal consolidated control relevant financial to entity s statements preparation in order fair presentation consolidated financial statements in order to design audit procedures that are appropriate in to design audit procedures that are appropriate in circumstances, but not for purpose circumstances, but not for purpose expressing an opinion on effectiveness entity s internal control. expressing Accordingly, we an express opinion no on such opinion. effectiveness An audit also includes entity s evaluating internal control. appropriateness Accordingly, accounting we express policies no such used opinion. reasonableness An audit also includes significant evaluating accounting estimates appropriateness made by management, accounting as policies well as used evaluating reasonableness overall presentation significant consolidated accounting financial estimates statements. made by management, as well as evaluating overall presentation consolidated financial statements. We believe that audit evidence we have obtained is sufficient appropriate to provide a basis for our audit We opinion. believe that audit evidence we have obtained is sufficient appropriate to provide a basis for our audit opinion. Opinion Opinion In our opinion, consolidated financial statements referred to above present fairly, in all material respects, financial In our opinion, position Century consolidated Financial Corporation financial statements as December referred 31, 2017 to above 2016, present fairly, results in its all operations material its cash flows for years n ended in accordance with accounting principles generally accepted in United respects, financial position as December 31, , States America. results its operations its cash flows for years n ended in accordance with accounting principles generally accepted in United States America. Gr Rapids, Michigan Gr March Rapids, 7, 2016 Michigan March 5, 2018 Crowe Horwath LLP Crowe Horwath LLP 5

8 Consolidated Balance Balance Sheets Sheets December 31, 31, Assets Assets Cash Cash due due from from banks banks $ 7,415,966 8,557,178 $ $ 4,857,905 8,255,630 Short Short term term investments investments 19,153,020 17,390,000 18,725,000 24,040,000 Total Total cash cash cash cash equivalents equivalents 26,568,986 25,947,178 23,582,905 32,295,630 Time deposits in or financial institutions 3,242,439 3,490,623 Securities available for sale 48,381,641 56,937,472 Securities available for sale 48,651,288 55,701,898 Securities Securities held held to maturity to maturity (Fair (Fair value value $11,844,676 $16,177,770 in 2013 in 2017 $7,816,351 $15,371,305 in 2012) in 2016) 16,210,020 11,021,853 15,410,752 12,057,738 Federal Or Home investments Loan Bank Federal Agriculture Mortgage Corp. stock 414, , , ,553 Loans Loans held held for for sale sale 74, , , ,288 Loans, Loans, net net 189,422, ,589, ,950, ,005,193 Premises Premises equipment, net net 5,084,214 5,326,096 5,026,034 5,618,792 Bank Bank owned owned life life insurance insurance 8,550,877 7,852,680 8,318,680 7,624,398 Accrued Accrued interest interest receivable receivable 1,022, , , ,230 Or assets 2,297,386 4,472,913 Or assets 4,332,760 5,252,864 Total Assets $ 301,538,523 $ 295,795,540 Total Assets 272,032,993 $ 270,517,158 Liabilities Liabilities Deposits Deposits Noninterestbearing $ 81,405,550 $ 75,972,570 Noninterestbearing Time deposits $100,000 or more $ 13,257,745 44,261,084 $ 14,738,093 48,078,081 Time Or deposits time deposits $100,000 or more 8,350,111 19,619,375 10,311,712 22,142,683 Or Or time interestbearing deposits deposits 155,171,006 17,841, ,303,301 19,554,114 Or Total interestbearing deposits deposits 258,184, ,620, ,325, ,884,954 Total Accrued deposits interest payable 236,825,647 8, ,659,832 9,373 FHLB Advances 5,000,000 Accrued interest payable 14,676 21,396 Or liabilities 1,844,318 4,229,799 Or liabilities 4,468,517 3,517,887 Total Liabilities 265,037, ,564,848 Total Liabilities 240,825, ,199,115 Shareholders' Equity Shareholders' Preferred stock Equity $1 par value; shares authorized 300,000; Preferred issued stock outsting $1 par value; none shares authorized 300,000; issued Common outsting stock $1 par none value; shares authorized 3,000,000; Common issued stock outsting $1 par value; 1,921,140 shares authorized in ,923,757 3,000,000; in ,921,140 1,923,757 issued Paid in capital outsting 1,934,757 in ,934,757 in ,003,810 1,934,757 19,047,749 1,934,757 Paid Retained capital earnings 16,134,491 19,202,709 16,025,930 19,202,709 Accumulated or comprehensive loss (557,995) (2,766,744) Retained earnings 12,680,949 11,052,872 Total Shareholders' Equity 36,501,446 34,230,692 Accumulated or comprehensive loss (2,611,069) (3,872,295) Total Liabilities Shareholders' Equity $ 301,538,523 $ 295,795,540 Total Shareholders' Equity 31,207,346 28,318,043 Total Liabilities Shareholders' Equity $ 272,032,993 $ 270,517,158 6 The accompanying notes are an integral part se consolidated financial statements.

9 Consolidated Statements Income Consolidated Statements Income Year Ended Year Ended December December 31, 31, Interest Income Loans, including fees fees $ $ 8,701,528 7,444,260 $ 8,068,949 $ 7,157,969 Securities Taxable Taxable 1,163,739 1,235,225 1,096,418 1,410,694 Nontaxable Nontaxable 366, , , ,107 Or investments 202, ,339 Short term investments 74,068 59,006 Total interest income 10,435,130 9,713,914 Total interest income 9,049,931 8,926,776 Interest Expense Interest Deposits Expense 306, ,377 Deposits Or borrowings 46, , ,706 Or Total borrowings interest expense 352, , Total interest expense 277, ,741 Net Interest Income 10,082,612 9,493,520 Net Provision Interest Income for loan losses 250,000 8,772, ,000 8,537,035 Provision Net interest for loan income losses after provision for loan losses 9,832, ,000 9,138, ,000 Net interest income after provision for loan losses Noninterest Income 8,612,156 8,052,035 Service charges on deposit accounts 1,750,317 1,702,141 Noninterest Income Trust investment management revenue 1,925,409 1,800,577 Service Gain on charges sale on mortgage deposit accounts loans 594,950 1,649, ,511 1,595,252 Trust Gain on investment sale securities management revenue 41,346 1,714,13231,261 1,569,947 Gain Or on income sale mortgage loans 635, , ,365 1,080,063 Gain/(loss) Total noninterest sale income securities 4,947,322 (2,197) 4,830,855 (15,614) Or income 584, ,051 Total Noninterest noninterest Expense income 4,508,658 4,789,699 Salaries employee benefits 8,780,392 6,047,415 Noninterest Occupancy Expense equipment expense 1,974,833 2,053,857 Or 2,391,347 2,253,829 Salaries employee benefits 5,430,638 5,485,341 Total noninterest expense 13,146,572 10,355,101 Occupancy equipment expense 2,106,838 1,929,500 Or 2,233,961 2,101,862 Income Before Income Taxes 1,633,362 3,614,274 Total noninterest expense 9,771,437 9,516,703 Income Taxes 487, ,254 Net Income Income Before Income Taxes $ 1,145,952 $ 2,642,020 3,349,377 3,325,031 Income Basic Earnings Taxes Per Share $ 0.60 $ 908, ,013 Net Income Available to Shareholders $ 2,440,741 $ 2,410,018 Basic Diluted Earnings Per Share $ 1.26 $ 1.24 The accompanying notes are an integral part se consolidated financial statements. 7

10 10 Consolidated Statements Comprehensive Income Year ended December 31, Year Ended December 31, Net Income Available to Shareholders $ 2,440, $ 2,410, Or Net Income Comprehensive Available Income to Shareholders Or Unrealized Comprehensive gains (losses) Income on securities $ 1,145,952 $ 2,642,020 Securities Unrealized available holding for gain/(loss) sale Reclassification adjustment for net realized (gains)/losses Reclassification adjustment for net on sales securities (A) (41,346) (31,261) (gains)/losses on sales securities (A) 2,197 15,614 Unrealized gains/(losses) on securities Unrealized holding (gain)/loss 2,698,328 Unrealized holding (gain)/loss (3,628,229) 170,788 (226,384) Tax Tax effect effect (C) (C) (918,178) (44,009) 1,228,289 87,600 Net tax (1,782,347) 85,433 (2,384,326) (170,045) Defined benefit pension plan Net gain/(loss) (968,221) 1,039,331 (223,988) Reclassification adjustment for realized pension pension (gains)/losses (gains)/losses (B) (B) 178,643 3,217, , ,179 Tax effect (C) 268,457 (1,093,831) 353,373 (1,425) Net Net tax tax (521,121) 2,123, ,958 2,766 Total or comprehensive income/(loss) Total or comprehensive income (loss) (1,261,226) 2,208,749 (1,698,368) (167,279) Comprehensive Income Comprehensive Income $ $ 3,701,967 3,354,701 $ $ 2,474, , (A) Included in gain/(loss) on sale securities (A) Included in gain/(loss) on sale securities (B) (B) Included Included in in salaries salaries employee employee benefits benefits (C) (C) Income Income taxes taxes for for include include benefits benefits $61,486 $1,079,773 $93,723 $66,952 related related to reclassification to reclassification adjustments adjustments Consolidated Statements Changes Consolidated Statements in Shareholders Changes Equity in Shareholders Equity Consolidated Statements Changes in Shareholders Equity Consolidated Statements Changes in Shareholders Equity Or Accumulated Or Common Paid In Retained Comprehensive Comprehensive Accumulated Stock Capital Earnings Income/(Loss) Total Or Common Paid In Retained Comprehensive Balance, January 01, 2016 $ 1,931,757 $ 19,162,759 $ 14,347,069 $ (2,599,465) $ 32,842,120 Stock Capital Earnings Income (Loss) Total Net income 2,642,020 2,642,020 Or comprehensive loss (167,279) (167,279) Balance, Cash dividends, January 1, $ per share $ 1,963,660 $ 19,540,051 $ 9,304,278 (963,159) $ (2,173,927) $ 28,634,062 (963,159) Net Repurchase income shares (8,000) (115,010) 2,410,018 (123,010) 2,410,018 Balance, Or comprehensive December 31, income ,923,757 19,047,749 16,025,930 (1,698,368) (2,766,744) 34,230,692 (1,698,368) Cash Net income dividends, $.34 per share (661,424) 1,145,952 1,145,952 (661,424) Repurchase Or comprehensive shares income (28,903) (337,342) 2,208,749 2,208,749 (366,245) Balance, Cash dividends, December $.54 31, per 2013 share 1,934,757 19,202,709 11,052,872 (1,037,391) (3,872,295) (1,037,391) 28,318,043 Net Repurchase income shares (2,617) (43,939) 2,440,741 2,440,741 (46,556) Balance, Or comprehensive December 31, loss 2017 $ 1,921,140 $ 19,003,810 $ 16,134,491 $ 1,261,226 (557,995) $ 36,501,446 1,261,226 Cash dividends, $.42 per share (812,664) (812,664) Balance, December 31, 2014 $ 1,934,757 $ 19,202,709 $ 12,680,949 $ (2,611,069) $ 31,207,346 8 The accompanying notes are an integral part se consolidated financial statements.

11 Consolidated Statements Cash Flows Year Ended December 31, Year ended December 31, Year Ended Cash Flows from Operating Activities December 31, Net Income 2017 $ 2,440, $ 2,410,018 Adjustments Cash Flows to from Reconcile Operating Net Income Activities to Net Cash from Operating Activities Depreciation Net Income $ 1,145,952530,648 $ 2,642, ,335 Net Adjustments amortization to Reconcile securities Net Income to Net Cash from Operating Activities 290,791 (58,761) Provision Depreciation for loan losses 451,525160, , ,000 Gain Net on (accretion)/amortization sales mortgage loans on securities 97,521 (562,141) 214,570(1,080,063) Proceeds Provision from for sales loan losses mortgage loans 250,000 15,349, ,00034,176,819 Mortgage Gain on loans sales originated mortgage for loans sale (594,950) (14,739,510)(659,511) (31,952,104) Loss Proceeds on sales from securities sales mortgage loans 18,750,489 2,197 20,331,638 15,614 Loss Mortgage on sales loans or originated real estate for owned sale (17,789,089) (19,846) (20,112,577) (15,837) Gain on sales securities Earnings on bank owned life insurance (41,346) (228,282) (31,261) (231,710) Loss/(gain) on sales or real estate owned (55,583) 2,140 Net Change in Assets Liabilities Earnings on bank owned life insurance (232,197) (235,220) Interest receivable 18,402 49,433 Net Change in Assets Liabilities Interest Interest payable receivable (35,991) (6,720) (105,246) (18,184) Or Interest assets payable (1,026) (196,582) (1,088) (69,367) Or Or liabilities assets 809,074 (161,052) 740,292 (183,564) Net Or cash liabilities from operating activities 831,666 3,633,120 (789,491) 4,070,629 Cash Net Flows cash from Investing operating Activities activities 3,586,045 2,832,725 Redemption Cash Flows from Federal Investing Home Activities Loan Bank stock 77,700 0 Purchases Redemption securities Federal available Home for Loan sale Bank stock (5,500,000) (33,120,000) Proceeds Purchases from sales, securities calls available maturities for sale securities available for sale (7,080,000) 16,542,803 (40,665,000) 26,088,764 Proceeds Proceeds from from calls, sales, prepayment calls maturities maturities securities securities available held to for maturity sale 14,276,346 1,829,450 31,296,799 1,260,421 Purchases Purchases securities securities held held to maturity to maturity 5,787,448 (873,000) (4,773,000) (5,438,000) Proceeds from calls, prepayment maturities securities held to maturity (6,660,000) 2,951,590 Net change in portfolio loans (19,600,135) (6,150,731) Purchase time deposits in or financial institutions (1,494,000) (1,749,000) Proceeds from sales or real estate owned 909, ,431 Proceeds from sales time deposits in or financial institutions 1,743,000 Premises Net change equipment in portfolio expenditures, loans net (237,952) (252,838) (11,872,259) (5,320,500) Net Proceeds cash from from investing sales activities or real estate owned 434,417 (6,851,530) 299,260 (16,970,953) Cash Premises Flows from Financing equipment expenditures, Activities net (509,705) (416,839) Net Net change cash in from time investing deposits activities $100,000 or more (5,374,753) (2,523,308) (18,376,690) (7,274,183) Net Cash change Flows in from or Financing deposits Activities 205,930 13,347,733 Repurchase Net change in stock time deposits $100,000 or more (1,480,348) (1,522,220) 0 (366,245) Cash Net dividends change in paid or deposits 2,339,084 (812,664) 8,738,740 (661,424) Net Repurchase cash from financing stock activities (46,556) (3,130,042)(123,010) 5,045,881 Net Change Proceeds in from Cash FHLB Cash Advances Equivalents 8,000,000 (6,348,452) (7,854,443) Cash Repayment cash on equivalents FHLB Advances at beginning year (3,000,000) 32,295,630 40,150,073 Cash Cash dividends Cash Equivalents paid at End Year (1,037,391) $ 25,947,178 (963,159) $ 32,295,630 Net cash from financing activities 4,774,789 6,130,351 Supplemental Disclosures Cash Flow Information Net Change in Cash Cash Equivalents 2,986,081 (9,413,614) Cash Paid During Year for Cash cash equivalents at beginning year 23,582,905 32,996,519 Interest $ 284,495 $ 407,925 Cash Cash Equivalents at End Year $ 26,568,986 $ 23,582,905 Income taxes paid (refunded) 571, ,000 Supplemental Disclosures Cash Flow Information Supplemental Disclosures NonCash Financing Investing Activities Cash Paid During Year for Transfers loans to or real estate owned $ 855,651 $ 456,000 Interest $ 353,544 $ 221,482 Income taxes paid (refunded) 1,070, ,000 Supplemental Disclosures NonCash Financing Investing Activities Transfers loans to or real estate owned $ 150,222 $ 916,400 The accompanying notes are an integral part se consolidated financial statements. 9

12 Notes to Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES Nature Operations The consolidated financial statements include accounts Century Century Financial Financial Corporation Corporation ( ( Corporation ), Corporation ), its whollyowned its whollyowned subsidiary, subsidiary, Century Century Bank Bank Trust Trust ( ( Bank ), Bank ), combined combined with with its whollyowned its whollyowned subsidiaries, subsidiaries, Century Century Insurance Insurance Services Services Century Mortgage Services, after elimination significant intercompany transactions accounts. Century The Corporation Mortgage Services, provides after financial elimination services significant through intercompany its fices located transactions in sourn accounts. Michigan. Its primary deposit products are The checking, Corporation savings, provides financial term certificate services accounts, through its fices its primary located in lending sourn products Michigan. are Its residential primary deposit mortgage, products commercial, are checking, installment savings, consumer term loans. certificate Substantially accounts, all loans its are primary secured lending by specific products items are residential collateral mortgage, including commercial, business assets, installment consumer consumer assets loans. real estate. Substantially Commercial all loans loans are secured are expected by specific to be items repaid by collateral cash flows including from operations business assets, businesses. consumer assets Real estate loans real are secured estate. Commercial by both residential loans are expected commercial to be repaid real estate. by cash Or flows financial from operations instruments businesses. which potentially Real estate represent loans are concentrations secured by both credit residential risk include commercial deposit accounts real estate. in or Or financial institutions. instruments which potentially represent concentrations credit risk include deposit accounts in or financial institutions. Subsequent Events Subsequent The Bank Events has evaluated subsequent events for recognition disclosure through March 5, 2018, which is date financial statements The Bank has were evaluated available subsequent to be issued. events for recognition disclosure through March 6, 2015, which is date financial statements were available to be issued. Use Estimates Use The preparation Estimates financial statements in conformity with accounting principles generally accepted in United States America requires The preparation management financial to make statements estimates in conformity assumptions with accounting based on available principles information. generally accepted These in estimates United States assumptions America affect requires amounts management reported to in make consolidated estimates financial assumptions statements based on available disclosures information. provided. These Actual estimates amounts assumptions could differ affect from those amounts estimates. reported in consolidated financial statements disclosures provided. Actual amounts could differ from those estimates. Cash Flows Cash For Flows purpose this statement, cash cash equivalents are defined to include cash on h, dem deposits with banks, overnight investments certain short term investments with maturities three months or less upon acquisition. Overnight investments For purpose can be liquidated this statement, to cash cash within cash seven equivalents days. Net are cash defined flows to are include reported cash for on customer h, dem loan deposits deposit with transactions banks, shortterm overnight investments borrowings. certain short term investments with maturities three months or less upon acquisition. Overnight investments can be liquidated to cash within seven days. Net cash flows are reported for customer loan deposit transactions Securities shortterm borrowings. Securities classified as available for sale are reported at ir fair value related unrealized holding gains or losses are reported, Securitiesnet related income tax effects, in or comprehensive income, until realized. Such securities might be sold prior to maturity Securities due classified to changes as available in interest for rates, sale are prepayment reported at risks, ir yield fair value availability related alternative unrealized investments, holding gains liquidity or losses needs are reported, or factors. net related Securities income for tax which effects, management in or comprehensive has positive income, intent until realized. ability Such to hold securities to maturity might be are sold classified prior to as maturity held to due maturity to changes are in reported interest at rates, amortized prepayment cost. risks, Or yield securities, availability such as Federal alternative Home investments, Loan Bank liquidity Federal needs or Agriculture or factors. Mortgage Securities Corp stock, are carried at cost. for Premiums which management discounts has on positive securities intent are recognized ability in interest to hold to income maturity using are classified level yield as held method to maturity over estimated are reported life at security. amortized Gains cost. Or losses securities, on such sale as Federal securities Home are Loan recorded Bank on Federal trade Agriculture date determined Mortgage using Corp stock, specific are carried identification cost. method. Premiums discounts on securities are recognized in interest income using level yield method over estimated life security. Declines Gains fair losses value on securities sale securities below ir are cost recorded that are on or trade than date temporary determined are reflected using as realized specific identification losses. In estimating orthantemporary method. losses, management considers: (1) length time extent that fair value has been less than cost, (2) financial Declines condition in fair value near term securities prospects below ir issuer, cost that (3) are wher or than market temporary decline are reflected was affected as realized by macroeconomic losses. In estimating conditions, orthantemporary (4) wher Corporation losses, management has intent considers: to sell (1) debt length security time or more extent likely that than fair not value will has be required been less to than sell cost, debt (2) security before its anticipated recovery. If eir criteria regarding intent or requirement to sell is met, entire difference between amortized financial condition cost fair near value term is recognized prospects as impairment issuer, (3) through wher earnings. market For decline debt was securities affected that by do macroeconomic not meet aforementioned conditions, criteria, (4) wher amount Corporation impairment has is split intent into to two sell components debt security as follows: or more likely (1) orthantemporaryimpairment than not will be required to sell (OTTI) debt security related to credit before loss, its anticipated which must recovery. be recognized If eir in criteria income regarding statement intent or (2) requirement OTTI related to sell to or is met, factors, entire which difference is recognized between in or comprehensive amortized cost income. fair value The is credit recognized loss as is impairment defined as through difference earnings. between For debt securities present value that do not meet cash flows aforementioned expected to be collected criteria, amount amortized impairment cash basis. split For into equity two components securities, as follows: entire amount (1) orthantemporaryimpairment is recognized (OTTI) through related earnings. to The assessment credit loss, which wher must be an recognized orthantemporary in income decline statement exists involves (2) OTTI a related high degree to or factors, subjectivity which is recognized judgment in or is based on comprehensive information income. available The to credit management loss is defined at a point as in time. difference between present value cash flows expected to be collected amortized cash basis. For equity securities, entire amount impairment is recognized through earnings. The Time Deposits in Or Financial Institutions assessment These are FDIC wher insured an orthantemporary deposits which mature decline 2018 exists through involves 2019, a high 2021 degree through subjectivity judgment in amounts is based $249,000 on information $250,000. available to management at a point in time. Loans Held for Sale Mortgage loans originated intended for for sale sale in in secondary market market are carried are carried at at lower lower aggregate aggregate cost or cost fair or value, fair value, as as determined deteremined by outsting commitments from investors. Net Net unrealized losses, losses, if any, if any, are are recorded recorded as a as valuation a valuation allowance allowance charged to earnings. Mortgage loans held held for for sale sale are are generally generally sold sold with with servicing servicing rights rights retained. retained. The The carrying carrying value value mortgage mortgage loans loans sold sold is reduced is reduced by amount allocated to servicing right. Gains losses on sales mortgage loans are based on difference between by amount allocated to servicing right. Gains losses on sales mortgage loans are based on difference between selling price carrying value related loan sold. selling price carrying value related loan sold. 8 10

13 Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Loans Loans are are reported at at principal balance outsting, net deferred loan fees costs an allowance for loan losses. Interest income is reported on on interest method includes amortization net deferred net deferred loan fees loan fees costs over costs over loan term. loan Interest term. Interest income on income loans on is generally loans is generally discontinued discontinued at time at loan time is 90 loan days is delinquent ninety days unless delinquent, credit determined is wellsecured based upon in process contractual collection. terms In all cases, loan, unless loans are placed credit on is wellsecured nonaccrual or chargedf in process at an collection. earlier date In if all collection cases, loans principal are placed or interest on nonaccrual is considered or chargedf doubtful. All at an interest earlier accrued date if but collection not received principal for loans or placed interest on is nonaccrual considered is doubtful. reversed against Past due interest status income. is determined Interest based received on on contractual such loans is terms accounted on loan. All cash interest basis or accrued costrecovery but not method, received until for loans qualifying placed for on return nonaccrual to accrual. is reversed Loans are against returned interest to accrual income. status Interest when all received principal on such loans interest is accounted amounts contractually cash due basis are or brought costrecovery current method, future until payments qualifying are reasonably for return assured. to accrual. Loans are returned to accrual status when all principal interest amounts contractually due are brought current future payments are Allowance reasonably for assured. Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against allowance Allowance when for Loan management Losses believes uncollectibility a loan balance is confirmed. Subsequent recoveries, if any, are credited to The allowance. Management for loan losses estimates is a valuation allowance allowance balance for required probable using incurred past loan credit loss losses. experience, Loan losses nature are charged volume against allowance portfolio, when information management about believes specific borrower uncollectibility situations a estimated loan balance collateral is confirmed. values, economic Subsequent conditions, recoveries, if or any, factors. are credited to allowance. Management estimates allowance balance required using past loan loss experience, nature volume Allocations portfolio, information allowance about may specific be made borrower for specific situations loans, but estimated entire allowance collateral is values, available economic for any loan conditions, that, in management s or factors. judgment, Allocations should be allowance chargedf. may be made for specific loans, but entire allowance is available for any loan that, in management s judgment, The allowance should consists be chargedf. specific general components. The specific component relates to loans that are individually classified as The impaired allowance or loans consists orwise specific classified as general substard components. or doubtful. The specific component relates to loans that are individually classified as A impaired loan is impaired or loans when orwise full payment classified under as substard loan terms or is doubtful. not expected. Loans, for which terms have been modified, resulting in A loan concession, is impaired when for which full payment borrower under is experiencing loan terms financial is not expected. dificulties, Loans, are considered for which troubled terms debt have restructurings been modified, resulting classified in a concession, as impaired. for Commercial which borrower commercial is experiencing real estate loans financial are individually difficulties, evaluated are considered for impairment. troubled debt restructurings classified as impaired. Commercial commercial real estate loans are individually evaluated for impairment. Factors Factors considered considered by by management management in determining in determining impairment impairment include include payment payment status, status, collateral collateral value, value, probability probability collecting scheduled principal interest interest payments payments when when due. due. Loans Loans that experience that experience insignificant insignificant payment payment delays delays payment payment shortfalls generally are not classified as as impaired. Management determines significance payment delays delays payment shortfalls on a casebycase basis, taking into into consideration all all circumstances surrounding surrounding loan loan borrower, borrower, including including length length delay, delay, reasons reasons for delay, for delay, borrower s borrower s prior payment prior record, payment record, amount amount shortfall in relation shortfall to in relation principal to principal interest owed. interest owed. If If a loan loan is is impaired, impaired, a a portion portion allowance allowance is allocated is allocated so that so that loan loan is reported, is reported, net, at net, at present present value value estimated estimated future cash flows using loan s existing rate or at fair value collateral if repayment is expected solely from collateral. future Large cash groups flows smaller using balance loan s homogenous existing rate or loans, at such fair value as consumer collateral residential if repayment real is estate expected loans, solely are from collectively collateral. evaluated Large for groups impairment, smaller accordingly, balance homogenous y are loans, not separately such as consumer identified for residential impairment real disclosures. estate loans, are collectively evaluated for impairment, Troubled debt restructurings accordingly, y are are separately not separately identified identified for impairment for impairment disclosures disclosures. are measured at present value estimated future Troubled cash debt flows restructurings using loan s are separately effective rate identified at inception. for impairment If a troubled disclosures debt restructuring are measured is considered at present to be a value collateral estimated dependent future loan, cash loan flows is using reported, loan s net, at effective fair rate value at inception. collateral. If a troubled For debt troubled restructuring debt restructurings is considered that to be subsequently a collateral dependent default, loan, Corporation loan determines is reported, net, amount at fair value reserve in accordance collateral. with For troubled accounting debt restructurings policy for that allowance subsequently for default, loan losses. Corporation The general determines component amount covers nonimpaired reserve in accordance loans with is based accounting on historical policy loss for experience allowance adjusted for loan for losses. current factors. The historical loss experience is determined by portfolio segment is based on actual loss history experienced by Corporation over The general most component recent five covers years. nonimpaired This actual loss loans experience is based is supplemented on historical loss with experience or economic adjusted factors for current based factors. on The risks present historical for each portfolio loss experience segment. is determined These economic by portfolio factors segment include consideration is based actual following: loss history levels experienced trends by in delinquencies Corporation over impaired most loans; recent levels five years. trends This in actual chargefs loss experience recoveries; is supplemented trends in with volume or economic terms factors loans; based effects on any risks changes presentin risk for selection each portfolio underwriting segment. These stards; economic or factors changes include lending consideration policies, procedures, following: levels practices; experience, trends in delinquencies ability, depth impaired lending management loans; levels or trends relevant in chargefs staff; national recoveries; local trends economic in volume trends terms conditions; loans; industry effects conditions; any changes in effects risk selection changes in credit underwriting concentrations. stards; The or following changes portfolio in lending segments policies, have procedures, been identified: practices; experience, ability, depth lending management Commercial Loans or relevant to business staff; national that are sole local proprietorships, economic trends partnerships, conditions; limited industry liability conditions; companies effects Commercial changes in corporations. Loans credit concentrations. These to business loans The are that following for are commercial, sole proprietorships, portfolio segments industrial, partnerships, have or been pressional limited identified: purposes. liability companies The risk characteristics corporations. These loans se are for loans commercial, vary based industrial, on borrowers or pressional business purposes. industry The risk as repayment characteristics is typically se dependent loans vary on based cash flows on borrowers Commercial generated business from Loans to underlying industry as business that business. repayment is typically dependent on cash flows generated from underlying business. are sole proprietorships, partnerships, limited liability companies corporations. These Residential loans are for commercial, industrial, or pressional purposes. The risk characteristics se loans vary based on borrowers Residential real estate real estate Loans Loans to purchase to purchase or refinance or refinance one to onefourfamily to fourfamily residences. residences. The risks The associated risks associated with this segment business with are this generally segment industry as dependent are repayment generally on is dependent typically overall dependent on real estate overall on value cash real environment flows estate generated value environment from individual underlying payment individual business. obligations. payment Real estate obligations. is subject to Real changes estate in is market subject valuation to changes in market can be unstable valuation for a variety can be unstable reasons. for a variety reasons. Residential real estate Loans to purchase or refinance one to fourfamily residences. The risks associated with this segment are Consumer Term loans or lines credit for purchase consumer goods, vehicles or home improvement. The risk generally Consumer dependent Term on loans overall or lines real credit estate for value environment purchase consumer individual goods, payment vehicles obligations. or home improvement. Real estate is subject The to characteristics loans in this segment vary depending on type collateral but generally repayment is expected from a consumer changes risk characteristics in continuing market valuation to generate loans can in a cash be this unstable segment flow that for supports a vary variety depending calculated reasons. type collateral but generally repayment is expected from a consumer continuing to generate a cash flow that payment supports obligation. calculated Secondary payment support obligation. could involve liquidation collateral. Consumer Secondary Term support loans could or lines involve credit liquidation for purchase collateral. consumer goods, vehicles or home improvement. The risk characteristics loans in this segment vary depending on type collateral but generally repayment is expected from a Bank consumer Owned Life continuing Insurance to generate a cash flow that supports calculated payment obligation. Secondary support could involve The liquidation Corporation collateral. has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at amount that can be realized under insurance contract at balance sheet date, which is cash surrender value adjusted for or changes or amounts due that are probable at settlement. 11