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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2007
Commission File Number: 0-28846
Centrue Financial Corporation
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-3145350
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
122 West Madison Street, Ottawa, Illinois 61350
(Address of principal executive offices including zip code)
(815) 431-2720
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at November 13, 2007
----------------------------- ---------------------------------------
Common Stock, Par Value $1.00 6,226,028
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Centrue Financial Corporation
Form 10-Q Index
September 30, 2007
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
o Unaudited Consolidated Balance Sheets.........................1
o Unaudited Consolidated Statements of Income and
Comprehensive Income .......................................2
o Unaudited Consolidated Statements of Cash Flows...............4
o Notes to Unaudited Consolidated Financial Statements..........5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ..............................................28
Item 4. Controls and Procedures ..........................................29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................30
Item 1A. Risk Factors......................................................30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......30
Item 3. Defaults Upon Senior Securities...................................30
Item 4. Submission of Matters to a Vote of Security Holders...............31
Item 5. Other Information ................................................31
Item 6. Exhibits..........................................................31
SIGNATURES..................................................................32
CENTRUE FINANCIAL CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, 2007 and December 31, 2006 (In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
September 30, December 31,
2007 2006
--------------- ---------------
ASSETS
Cash and cash equivalents $ 55,008 $ 40,195
Securities available-for-sale 265,873 298,692
Loans 933,903 836,944
Allowance for loan losses (10,852) (10,835)
--------------- ---------------
Net loans 923,051 826,109
Cash surrender value of life insurance 26,644 25,904
Mortgage servicing rights 3,223 3,510
Premises and equipment, net 35,783 35,403
Goodwill 25,403 25,396
Intangible assets, net 11,541 12,733
Other real estate 4,620 2,136
Other assets 12,100 12,947
--------------- ---------------
Total assets $ 1,363,246 $ 1,283,025
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing $ 109,189 $ 125,585
Interest-bearing 954,616 901,025
--------------- ---------------
Total deposits 1,063,805 1,026,610
Federal funds purchased and securities sold
under agreements to repurchase 52,295 36,319
Advances from the Federal Home Loan Bank 80,724 63,147
Notes payable 12,397 9,015
Series B mandatory redeemable preferred stock 831 831
Subordinated debentures 20,620 20,620
Other liabilities 12,340 8,292
--------------- ---------------
Total liabilities 1,243,012 1,164,834
--------------- ---------------
Stockholders' equity
Series A convertible preferred stock (aggregate liquidation
preference of 2,762) 500 500
Common stock, $1 par value, 15,000,000 shares authorized;
7,436,110 shares issued at September 30, 2007 and
7,412,210 shares issued at December 31, 2006 7,436 7,412
Surplus 70,867 70,460
Retained earnings 58,126 52,469
Accumulated other comprehensive income 437 235
--------------- ---------------
137,366 131,076
Treasury stock, at cost 1,174,982 shares at September 30, 2007
and 957,142 at December 31, 2006 (17,132) (12,885)
--------------- ---------------
Total stockholders' equity 120,234 118,191
--------------- ---------------
Total liabilities and stockholders' equity $ 1,363,246 $ 1,283,025
=============== ===============
See Accompanying Notes to Unaudited Financial Statements
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1.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three and Nine Months Ended September 30, 2007 and 2006
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Interest income
Loans $ 18,000 $ 7,444 $ 50,963 $ 21,793
Securities
Taxable 3,071 2,065 9,543 6,083
Exempt from federal income taxes 378 218 1,141 644
Federal funds sold and other 112 75 380 141
---------- ---------- ---------- ----------
Total interest income 21,561 9,802 62,027 28,661
Interest expense
Deposits 9,734 4,128 27,994 11,452
Federal funds purchased and securities
sold under agreements to repurchase 536 69 1,409 192
Advances from the Federal Home Loan Bank 636 364 1,909 1,300
Series B Mandatory Redeemable 12 12 37 37
Subordinated debentures 395 - 1,293 -
Notes payable 164 155 487 468
---------- ---------- ---------- ----------
Total interest expense 11,477 4,728 33,129 13,449
---------- ---------- ---------- ----------
Net interest income 10,084 5,074 28,898 15,212
Provision for loan losses - (200) 226 (1,300)
---------- ---------- ---------- ----------
Net interest income after
Provision for loan losses 10,084 5,274 28,672 16,512
Noninterest income
Service charges 1,725 476 5,063 1,411
Trust income 243 202 704 620
Mortgage banking income 399 240 1,282 767
Brokerage commissions and fees 416 87 646 260
Bank owned life insurance (BOLI) 252 153 740 430
Securities (losses) - - (33) (88)
Gain on sale of Oreo 459 - 1,047 -
Other income 873 323 2,366 925
---------- ---------- ---------- ----------
4,367 1,481 11,815 4,325
Noninterest expenses
Salaries and employee benefits 3,891 2,630 14,183 8,035
Occupancy expense, net 1,028 356 2,988 1,110
Furniture and equipment expense 616 515 1,938 1,508
Marketing 325 88 738 294
Supplies and printing 137 71 474 230
Telephone 198 104 586 339
Amortization of intangible assets 562 11 1,774 71
Other expenses 1,874 816 5,744 2,764
---------- ---------- ---------- ----------
8,631 4,591 28,425 14,351
---------- ---------- ---------- ----------
See Accompanying Notes to Unaudited Financial Statements
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2.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three and Nine Months Ended September 30, 2007 and 2006
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Income from continuing operations
before income taxes 5,820 2,164 12,062 6,486
Income taxes 1,982 658 3,819 1,983
---------- ---------- ---------- ----------
Income from continuing operations 3,838 1,506 8,243 4,503
Discontinued operations:
Loss from discontinued operations - (440) - (534)
Income tax benefit - (170) - (207)
---------- ---------- ---------- ----------
Gain (loss) on discontinued operations - (270) - (327)
---------- ---------- ---------- ----------
Net income $ 3,838 $ 1,236 $ 8,243 $ 4,176
========== ========== ========== ==========
Preferred stock dividends 52 52 156 156
---------- ---------- ---------- ----------
Net income for common stockholders $ 3,786 $ 1,184 $ 8,087 $ 4,020
========== ========== ========== ==========
Basic earnings per share from
continuing operations $ 0.60 $ 0.39 $ 1.26 $ 1.16
========== ========== ========== ==========
Diluted earnings per share from
continuing operations $ 0.60 $ 0.38 $ 1.26 $ 1.14
========== ========== ========== ==========
Basic earnings per share from
discontinued operations $ - $ (0.07) $ - $ (0.09)
========== ========== ========== ==========
Diluted earnings per share from
discontinued operations $ - $ (0.07) $ - $ (0.08)
========== ========== ========== ==========
Basic earnings per common share $ 0.60 $ 0.32 $ 1.26 $ 1.07
========== ========== ========== ==========
Diluted earnings per common share $ 0.60 $ 0.31 $ 1.26 $ 1.06
========== ========== ========== ==========
Total comprehensive income:
Net income $ 3,838 $ 1,236 $ 8,243 $ 4,176
Change in unrealized gains (losses) on
available for sale securities 2,008 2,024 330 (100)
Tax effect 778 784 128 (39)
---------- ---------- ---------- ----------
Total comprehensive income, net of tax 1,230 1,240 202 (61)
---------- ---------- ---------- ----------
Total comprehensive income $ 5,068 $ 2,476 $ 8,445 $ 4,115
========== ========== ========== ==========
See Accompanying Notes to Unaudited Financial Statements
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3.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2007 and 2006 (In Thousands)
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Nine Months Ended
September 30,
------------------------------
2007 2006
------------- -------------
Cash flows from operating activities
Net Income $ 8,243 $ 4,176
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation 1,545 1,412
Amortization of intangible assets 1,773 71
Amortization of mortgage servicing rights, net 287 219
Amortization of bond premiums, net 152 328
Stock option expense 72 103
Provision for loan losses 226 (1,300)
Provision for deferred income taxes (3,778) (310)
Loss on sale of securities 33 88
Gain (loss) on sale of loans (938) (511)
(Gain) loss on sale of OREO acquired in settlement of loans (1,047) (32)
Proceeds from sales of loans held for sale 62,208 38,239
Origination of loans held for sale (65,246) (38,387)
Change in assets and liabilities
Decrease (increase) in other assets 4,319 (29)
Increase (decrease) in other liabilities 2,946 (563)
------------- -------------
Net cash provided by operating activities 10,795 3,504
Cash flows from investing activities
Securities available-for-sale
Proceeds from maturities and paydowns 35,636 30,634
Proceeds from sales 2,497 15,515
Purchases (4,557) (33,400)
Redemption of FHLB stock - 1,079
Purchase of loans - (19,513)
Net (increase) decrease in loans (101,092) 28,418
Purchase of premises and equipment (1,925) (1,169)
Sale of branch - (6,054)
Sale of insurance unit - 856
Purchase of Missouri Bank charter (581) -
Proceeds from sale of OREO acquired in settlement of loans 6,386 681
------------- -------------
Net cash provided by (used in) investing activities (63,636) 17,047
Cash flows from financing activities
Net increase (decrease) in deposits 37,195 (10,915)
Net increase in federal funds purchased
And securities sold under agreements to repurchase 15,976 3,504
Payments on notes payable (368) (2,567)
Proceeds from notes payable 3,750 1,400
Net increase (decrease) in advances from the Federal Home Loan Bank 17,577 (13,300)
Dividends on common stock (2,432) (1,346)
Dividends on preferred stock (156) (156)
Proceeds from exercise of stock options 358 160
Purchase of treasury stock (4,246) (1,638)
------------- -------------
Net cash provided by (used in) financing activities 67,654 (24,858)
------------- -------------
Net increase (decrease) in cash and cash equivalents 14,813 (4,307)
Cash and cash equivalents
Beginning of period 40,195 24,358
------------- -------------
End of period $ 55,008 $ 20,051
============= =============
Supplemental disclosures of cash flow information
Cash payments for
Interest $ 31,619 $ 13,900
Income taxes 952 1,372
Transfers from loans to other real estate owned 7,900 1,307
See Accompanying Notes to Unaudited Financial Statements
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4.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Centrue Financial Corporation (the "Company") is a bank holding company for
Centrue Bank. During the fourth quarter of 2006, the former UnionBancorp, Inc.
completed its merger with Centrue Financial Corporation with UnionBancorp, Inc.
being the surviving entity in this merger. Upon completion of the merger,
UnionBancorp, Inc. changed its name to Centrue Financial Corporation. The
accompanying unaudited interim consolidated financial statements of Centrue
Financial Corporation have been prepared in accordance with U.S. generally
accepted accounting principles and with the rules and regulations of the
Securities and Exchange Commission for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required for complete
financial statements. In the opinion of management, all normal and recurring
adjustments which are necessary to fairly present the results for the interim
periods presented have been included. The preparation of financial statements
requires management to make estimates and assumptions that affect the recorded
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. Certain 2006 amounts have been reclassified to conform to
the 2007 presentation.
For further information with respect to significant accounting policies followed
by the Company in the preparation of its consolidated financial statements,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2006. The annualized results of operations during the three and nine months
ended September 30, 2007 are not necessarily indicative of the results expected
for the year ending December 31, 2007. All financial information is in thousands
(000s), except shares and per share data. The consolidated financial statements
reflect the results of the Company's insurance unit of the Wealth Management
segment as a discontinued operation as described in Note 8.
Note 2. Earnings Per Share
Basic earnings per share for the three and nine months ended September 30, 2007
and 2006 were computed by dividing net income by the weighted average number of
shares outstanding. Diluted earnings per share for the three and nine months
ended September 30, 2007 and 2006 were computed by dividing net income by the
weighted average number of shares outstanding, adjusted for the dilutive effect
of the stock options. Computations for basic and diluted earnings per share are
provided below:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Basic Earnings Per Common Share
Net income available to common shareholders $ 3,786 $ 1,184 $ 8,087 $ 4,020
Weighted average common shares outstanding 6,322 3,743 6,399 3,757
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.60 $ 0.32 $ 1.26 $ 1.07
========== ========== ========== ==========
Diluted Earnings Per Common Share
Weighted average common shares outstanding 6,322 3,743 6,399 3,757
Add: dilutive effect of assumed exercised
stock options 36 40 34 44
---------- ---------- ---------- ----------
Weighted average common and dilutive
potential shares outstanding 6,358 3,783 6,433 3,801
========== ========== ========== ==========
Diluted earnings per common share $ 0.60 $ 0.31 $ 1.26 $ 1.06
========== ========== ========== ==========
There were approximately 244,200 and 102,500 options outstanding for the three
months ended September 30, 2007 and 2006, respectively that were not included in
the computation of diluted earnings per share. There were approximately 276,200
and 85,000 options outstanding for the nine months ended September 30, 2007 and
2006, respectively that were not included in the computation of diluted earnings
per share. These options were antidilutive since the exercise prices were
greater than the average market price of the common stock.
--------------------------------------------------------------------------------
5.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 3. Securities
The Company's consolidated securities portfolio, which represented 22.7% of the
Company's 2007 third quarter average earning asset base, is managed to minimize
interest rate risk, maintain sufficient liquidity and maximize return. All of
the Company's securities are classified as available-for-sale and are carried at
fair value. The Company does not have any securities classified as trading or
held-to-maturity.
The following table describes the fair value, gross unrealized gains and losses
of securities available-for-sale at September 30, 2007 and December 31, 2006,
respectively:
September 30, 2007
----------------------------------------------------
Gross Gross
Fair Unrealized Unrealized % of
Value Gains Losses Portfolio
---------- ---------- ---------- ----------
U.S. government agencies $ 118,053 $ 745 $ (53) 44.4%
States and political subdivisions 41,722 226 (101) 15.7
U. S. government mortgage-backed securities 50,499 212 (214) 19.0
Collateralized mortgage obligations 24,625 5 (155) 9.3
Equity securities 27,244 153 (90) 10.2
Corporate 3,730 3 (18) 1.4
---------- ---------- ---------- ----------
$ 265,873 $ 1,344 $ (631) 100.0%
========== ========== ========== ==========
December 31, 2006
----------------------------------------------------
Gross Gross
Fair Unrealized Unrealized % of
Value Gains Losses Portfolio
---------- ---------- ---------- ----------
U.S. government agencies $ 126,039 $ 308 $ (245) 42.2%
States and political subdivisions 41,471 329 (9) 13.9
U. S. government mortgage-backed securities 69,579 253 (393) 23.3
Collateralized mortgage obligations 27,237 44 (77) 9.1
Equity securities 25,602 171 - 8.6
Corporate 8,764 16 (13) 2.9
---------- ---------- ---------- ----------
$ 298,692 $ 1,121 $ (737) 100.0%
========== ========== ========== ==========
Management does not believe any individual unrealized losses as of September 30,
2007, identified in the preceding tables represent other-than-temporary
impairment. These unrealized losses are primarily attributable to changes in the
interest rates. The Company has both the intent and ability to hold each of the
securities shown in the table for the time necessary to recover its amortized
cost. The unrealized loss on the available for sale securities is included, net
of tax, in other comprehensive income.
Sales of securities available-for-sale were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Proceeds $ - $ - $ 2,497 $ 16,594
Realized gains $ - $ - $ 4 $ 17
Realized losses $ - $ - $ (37) $ (105)
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6.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 4. Loans
The following table describes the composition of loans by major categories
outstanding as of September 30, 2007 and December 31, 2006, respectively:
September 30, 2007 December 31, 2006
----------------------------- ------------------------------
$ % $ %
------------- ------------- ------------- --------------
Commercial $ 153,163 16.4% $ 154,829 18.5%
Agricultural 22,510 2.4 23,118 2.8
Real estate:
Commercial mortgages 366,966 39.3 274,909 32.9
Construction 148,533 15.9 116,608 13.9
Agricultural 24,413 2.6 27,624 3.3
1-4 family mortgages 206,830 22.2 226,884 27.1
Installment 9,480 1.0 11,998 1.4
Other 2,008 0.2 974 0.1
------------- ------------- ------------- --------------
Total loans 933,903 100.0% 836,944 100.0%
============= ==============
Allowance for loan losses (10,852) (10,835)
------------- -------------
Loans, net $ 923,051 $ 826,109
============= =============
The following table presents data on impaired loans:
September 30, December 31,
2007 2006
------------- --------------
Impaired loans for which an allowance has been provided $ 6,174 $ 4,915
Impaired loans for which no allowance has been provided 5,999 16,450
------------- --------------
Total loans determined to be impaired $ 12,173 $ 21,365
============= ==============
Allowance for loan loss for impaired loans included in the allowance
for loan losses $ 2,225 $ 1,562
============= ==============
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, current
economic conditions; the type of loan being made; the creditworthiness of the
borrower over the term of the loan; and in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents the Company's estimate of the allowance necessary to provide for
probable incurred losses in the loan portfolio. In making this determination,
the Company analyzes the ultimate collectibility of the loans in its portfolio;
incorporating feedback provided by internal loan staff; the independent loan
review function; and information provided by regulatory agencies. As of
September 30, 2007, the Company had $600 of loans held for sale as compared to
$4,850 for December 31, 2006.
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7.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 4. Loans (continued)
The Company conducts a quarterly evaluation as to the adequacy of the allowance
for loan losses. Transactions in the allowance for loan losses for the three and
nine months ended September 30, 2007 and 2006 are summarized below:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
2007 2006 2007 2006
------------- ------------- ------------- --------------
Beginning balance $ 10,828 $ 6,848 $ 10,835 $ 8,362
Charge-offs (81) (631) (770) (1,409)
Recoveries 105 86 561 450
Provision for loan losses - (200) 226 (1,300)
------------- ------------- ------------- --------------
Ending balance $ 10,852 $ 6,103 $ 10,852 $ 6,103
============= ============= ============= ==============
Period end total loans $ 933,903 $ 407,015 $ 933,903 $ 407,015
============= ============= ============= ==============
Average loans $ 921,608 $ 403,049 $ 887,477 $ 408,175
============= ============= ============= ==============
Ratio of net charge-offs to average loans 0.00 % 0.14 % 0.02% 0.23%
Ratio of provision for loan losses to average loans 0.00 (0.05) 0.03 (0.32)
Ratio of allowance for loan losses
to period end total loans 1.16 1.50 1.16 1.50
Ratio of allowance for loan losses
to total nonperforming loans 194.72 189.48 194.72 189.48
Ratio of allowance for loan losses
to average loans 1.18 1.51 1.22 1.50
Note 5. Stock Option Plans
In 1999, the Company adopted the 1999 Option Plan. Under the 1999 Option Plan,
nonqualified options may be granted to employees and eligible directors of the
Company and its subsidiaries to purchase the Company's common stock at 100% of
the fair market value on the date the option is granted. The Company has
authorized 50,000 shares for issuance under the 1999 Option Plan. During 1999,
40,750 of these shares were granted and are 100% fully vested. The options have
an exercise period of ten years from the date of grant. There are 9,250 shares
available for grant under this plan.
In April 2003, the Company adopted the 2003 Option Plan. Under the 2003 Option
Plan, as amended on April 24, 2007, nonqualified options, incentive stock
options, restricted stock and/or stock appreciation rights may be granted to
employees and outside directors of the Company and its subsidiaries to purchase
the Company's common stock at an exercise price to be determined by the
Executive and Compensation committee. Pursuant to the 2003 Option Plan, as
amended on April 24, 2007, 570,000 shares of the Company's unissued common stock
have been reserved and are available for issuance upon the exercise of options
and rights granted under the 2003 Option Plan. The options have an exercise
period of ten years from the date of grant. There are 455,000 shares available
for grant under this plan.
In addition to the Company plans described above, in conjunction with the
merger, all outstanding options of the former Centrue Financial were converted
into options to acquire Company common stock, as adjusted for the exchange
ratio. Following the merger, no additional options are issuable under any of the
former Centrue plans.
--------------------------------------------------------------------------------
8.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 5. Stock Option Plans (continued)
A summary of the status of the option plans as of September 30, 2007, and
changes during the period ended on those dates is presented below:
September 30, 2007
--------------------------------------------------------------
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Life Value
------------- ------------- ------------- --------------
Outstanding at January 1, 2007 494,424 $ 18.47
Granted 58,000 19.22
Exercised (23,900) 12.66
Forfeited (2,500) 14.22
------------- -------------
Outstanding at end of period 526,024 $ 18.85 4.3 years $ 1,092
============= ============= ============= ==============
Options exercisable at period end 436,024 $ 18.75 4.7 years $ 1,046
============= ============= ============= ==============
Options outstanding at September 30, 2007 and December 31, 2006 were as follows:
Outstanding Exercisable
----------------------------- ------------------------------
Weighted-
Average Weighted-
Remaining Average
Contractual Exercise
Range of Exercise Prices Number Life Number Price
------------------------------------------------------------ ------------- ------------- ------------- --------------
September 30, 2007:
$ 11.25 - $ 13.00 46,381 3.1 years 46,381 $ 11.60
13.88 - 18.50 145,443 3.4 years 145,443 15.57
20.30 - 23.29 334,200 4.7 years 244,200 22.00
------------- ------------ ------------- --------------
526,024 4.3 years 436,024 $ 18.75
========-==== ============ ============= ==============
December 31, 2006:
$ 7.25 - $ 9.75 7,000 0.2 years 7,000 $ 9.75
11.25 - 13.00 53,931 3.4 years 53,931 11.64
13.88 - 18.50 157,293 4.1 years 157,293 15.50
20.30 - 23.29 276,200 6.1 years 244,200 22.00
------------- ------------ ------------- --------------
494,424 5.1 years 462,424 $ 18.39
============= ============ ============= ==============
--------------------------------------------------------------------------------
9.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 5. Stock Option Plans (continued)
Information related to the stock option plan during the quarter ended September
30, 2007 and 2006 is as follows:
September 30, September 30,
2007 2006
------------- -------------
Intrinsic value of options exercised $ 12 $ 1
Cash received from option exercises 42 2
Tax benefit realized from option exercises 16 1
The Company recorded $72 and $103 in salaries and employee benefits stock
compensation expense during the nine months ended September 30, 2007 and 2006.
Unrecognized stock option compensation expense related to unvested awards (net
of estimated forfeitures) for the remainder of 2007 and beyond is estimated as
follows:
Amount
-------------
October, 2007 - December, 2007 $ 28
2008 74
2009 74
2010 74
2011 61
2012 11
-------------
Total $ 322
=============
Note 6. Contingent Liabilities and Other Matters
Neither the Company nor its subsidiary is involved in any pending legal
proceedings other than routine legal proceedings occurring in the normal course
of business, which, in the opinion of management, in the aggregate, are not
material to the Company's consolidated financial condition.
Note 7. Segment Information
The Company's reporting was enhanced so that a line of business (LOB) reporting
structure was implemented as of January 1, 2005. The reportable segments are
determined by the products and services offered, primarily distinguished between
retail, commercial, treasury, wealth management, and operations & other. Loans,
and deposits generate the revenues in the commercial segments; deposits, loans,
secondary mortgage sales and servicing generates the revenue in the retail
segment; investment income generates the revenue in the treasury segment;
brokerage, and trust services generate the revenue in the wealth management
segment (formerly known as the financial services segment); and holding company
services and discontinued operations associated with the sale of the insurance
unit generate revenue in the Other Operations segment. The "net allocations"
line represents the allocation of the costs that are overhead being spread to
the specific segments. With the sale of the insurance unit, the results for
insurance were classified into the Other Operations segment from the Wealth
Management segment.
During the quarter ended September 30, 2007, the Company completed the
integration of its operations so that the results of the Company can be
presented as follows: retail, commercial, treasury, wealth management and other
operations. In the periods since the merger in November 2006, the former Centrue
results had been shown as "other banking operations". These results are now
incorporated in the segment data as appropriate.
--------------------------------------------------------------------------------
10.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 7. Segment Information (continued)
The accounting policies used with respect to segment reporting are the same as
those described in the summary of significant accounting policies set forth in
Note 1. Segment performance is evaluated using net income. Information reported
internally for performance assessment follows.
Three Months Ended
--------------------------------------------------------------------------------
September 30, 2007
--------------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Continuing
Segment Segment Segment Management Operations Operations
---------- ---------- ---------- ---------- ---------- ----------
Net interest income (loss) $ 3,080 $ 6,686 $ 496 $ (146) $ (32) $ 10,084
Other revenue 2,319 1,004 - 664 381 4,368
Other expense 2,361 605 50 485 3,823 7,324
Noncash items
Depreciation 423 4 - 3 315 745
Provision for loan losses - - - - - -
Other intangibles 560 - - 2 - 562
Net allocations 1,144 2,169 819 6 (4,138) -
Income tax expense 320 1,673 (123) 7 105 1,982
Segment profit (loss) $ 591 $ 3,239 $ (250) $ 15 $ 244 $ 3,839
Goodwill $ 11,863 $ 12,339 $ - $ 1,201 $ - $ 25,403
Segment assets $ 360,840 $ 710,319 $ 283,930 $ 1,573 $ 6,584 $1,363,246
Three Months Ended
--------------------------------------------------------------------------------
September 30, 2006
--------------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Continuing
Segment Segment Segment Management Operations Operations
---------- ---------- ---------- ---------- ---------- ----------
Net interest income (loss) $ 1,909 $ 3,217 $ 126 $ 50 $ (228) $ 5,074
Other revenue 883 126 - 290 94 1,393
Other expense 1,306 584 61 323 2,164 4,438
Noncash items
Depreciation 225 2 - 17 237 481
Provision for loan losses 300 (500) - - - (200)
Other intangibles - - - 1 23 24
Net allocations 740 1,193 158 214 (2,305) -
Income tax expense 87 641 (101) (30) (109) 488
Segment profit (loss) $ 134 $ 1,423 $ 8 $ (185) $ (144) $ 1,236
Goodwill $ 2,512 $ 2,631 $ - $ 1,167 $ - $ 6,310
Segment assets $ 93,948 $ 329,836 $ 197,225 $ 2,132 $ 25,710 $ 648,851
--------------------------------------------------------------------------------
11.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 7. Segment Information (continued)
Nine Months Ended
--------------------------------------------------------------------------------
September 30, 2007
--------------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Continuing
Segment Segment Segment Management Operations Operations
---------- ---------- ---------- ---------- ---------- ----------
Net interest income (loss) $ 11,005 $ 17,158 $ 1,340 $ (52) $ (553) $ 28,898
Other revenue 7,494 1,848 (26) 1,453 1,047 11,816
Other expense 8,727 2,283 164 1,283 11,850 24,307
Noncash items
Depreciation 1,373 12 1 12 946 2,344
Provision for loan losses 394 (168) - - - 226
Other intangibles 1,769 - - 5 - 1,774
Net allocations 3,403 6,700 2,678 15 (12,796) -
Income tax expense 935 3,359 (654) 28 151 3,819
Segment profit (loss) $ 1,898 $ 6,820 $ (875) $ 58 $ 343 $ 8,244
Goodwill $ 11,863 $ 12,339 $ - $ 1,201 $ - $ 25,403
Segment assets $ 360,840 $ 710,319 $ 283,930 $ 1,573 $ 6,584 $1,363,246
Nine Months Ended
--------------------------------------------------------------------------------
September 30, 2006
--------------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Continuing
Segment Segment Segment Management Operations Operations
---------- ---------- ---------- ---------- ---------- ----------
Net interest income (loss) $ 5,817 $ 9,606 $ 342 $ 159 $ (712) $ 15,212
Other revenue 2,641 347 (88) 876 1,081 4,857
Other expense 4,242 1,751 192 1,057 6,652 13,894
Noncash items
Depreciation 668 8 - 54 682 1,412
Provision for loan losses 325 (1,625) - - - (1,300)
Other intangibles - - - 4 107 111
Net allocations 2,211 3,662 476 680 (7,029) -
Income tax expense 351 2,030 (353) (208) (44) 1,776
Segment profit (loss) $ 661 $ 4,127 $ (61) $ (552) $ 1 $ 4,176
Goodwill $ 2,512 $ 2,631 $ - $ 1,167 $ - $ 6,310
Segment assets $ 93,948 $ 329,836 $ 197,225 $ 2,132 $ 25,710 $ 648,851
Note 8. Discontinued Operations
During the third quarter of 2006, the Company sold the insurance unit from the
Wealth Management segment for $1,200. In accordance with FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144") the
results of operations of the insurance unit are reflected in the Company's
statements of income for the three and nine months ended September 30, 2006 as
"discontinued operations." Approximately $1,030 of goodwill and intangibles
attributed to the insurance unit on the Company's balance sheet were written off
as a result of this transaction and factored into the loss on the sale of the
discontinued operations.
--------------------------------------------------------------------------------
12.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 8. Discontinued Operations (continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Net interest income $ - $ - $ - $ -
Noninterest income - (88) - 532
Noninterest expense - 352 - 1,066
---------- ---------- ---------- ----------
Loss from discontinued operations before taxes - (440) - (534)
Income tax (benefit) for taxes - (170) - (207)
---------- ---------- ---------- ----------
Net gain (loss) from discontinued operations $ - $ (270) $ - $ (327)
========== ========== ========== ==========
Note 9. Recent Accounting Developments
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements".
This Statement defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. This Statement
establishes a fair value hierarchy about the assumptions used to measure fair
value and clarifies assumptions about risk and the effect of a restriction on
the sale or use of an asset. The standard is effective for fiscal years
beginning after November 15, 2007. The Company has not completed its evaluation
of the impact of the adoption of this standard.
In February 2006, the FASB issued Statement No. 155, "Accounting for Certain
Hybrid Financial Instruments-an amendment to FASB Statements No. 133 and 140".
This Statement permits fair value re-measurement for any hybrid financial
instruments, clarifies which instruments are subject to the requirements of
Statement No. 133, and establishes a requirement to evaluate interests in
securitized financial assets and other items. The new standard is effective for
financial assets acquired or issued after the beginning of the entity's first
fiscal year that begins after September 15, 2006. Adoption of this statement on
January 1, 2007 did not have a material impact on the Company's consolidated
financial position or results of operations.
In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a
liability be recorded during the service period when a split-dollar life
insurance agreement continues after participants' employment or retirement. The
required accrued liability will be based on either the post-employment benefit
cost for the continuing life insurance or based on the future death benefit
depending on contractual terms of the underlying agreement. This issue is
effective for fiscal years beginning after December 15, 2007. The Company is
currently evaluating the impact of the adoption of this standard.
In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140". This statement
provides the following: 1) revised guidance on when a servicing asset and
servicing liability should be recognized; 2) requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair
value, if practicable; 3) permits an entity to elect to measure servicing assets
and servicing liabilities at fair value each reporting date and report changes
in fair value in earnings in the period in which the changes occur; 4) upon
initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities for securities which are identified as
offsetting the entity's exposure to changes in the fair value of servicing
assets or liabilities that a servicer elects to subsequently measure at fair
value; and 5) requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional footnote disclosure. This standard is effective as of
the beginning of an entity's first fiscal year that begins after September 15,
2006, with the effects of initial adoption being reported as a cumulative-effect
adjustment to retained earnings. We will continue to carry the mortgage
servicing asset at lower of cost or market, reviewing it quarterly for
impairment.
--------------------------------------------------------------------------------
13.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 9. Recent Accounting Developments (continued)
In February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting principles. It is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The Company has decided not to early adopt SFAS 159 and
is currently evaluating the impact of the adoption with respect to its current
practice of measuring fair value and disclosure of it in its financial
statements.
The Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB No. 109" ("FIN 48") as of January 1,
2007. FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. A tax position is recognized as a benefit
only if it is "more likely than not" that the tax position would be sustained in
a tax examination, with a tax examination being presumed to follow. The amount
recognized is the largest amount of tax benefit that is greater than 50% likely
of being realized on examination. For tax positions not meeting the "more likely
than not" test, no benefit is recorded. The adoption had no effect on the
Company's financial statements.
The Company is subject to U. S. federal income tax as well as income tax for the
states of Illinois and Missouri. The Company is no longer subject to examination
by taxing authorities for years before 2002. The Company does not expect the
total amount of unrecognized tax benefits to significantly increase in the next
twelve months.
The Company recognizes interest and/or penalties related to income tax matters
in income tax expense. The Company did not have any amounts accrued for interest
and penalties at September 30, 2007.
--------------------------------------------------------------------------------
14.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Centrue Financial Corporation (the "Company") is a bank holding company for
Centrue Bank. During the fourth quarter of 2006, the former UnionBancorp
completed its merger with Centrue Financial Corporation with UnionBancorp being
the surviving entity in this merger. Upon completion of the merger, UnionBancorp
changed its name to Centrue Financial Corporation. The following discussion
provides an analysis of the Company's results of operations and financial
condition for the three and nine months ended September 30, 2007 as compared to
the same period in 2006. In the opinion of management, all normal and recurring
adjustments which are necessary to fairly present the results for the interim
periods presented have been included. The preparation of financial statements
requires management to make estimates and assumptions that affect the recorded
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. Certain 2006 amounts have been reclassified to conform to
the 2007 presentation.
For further information with respect to significant accounting policies followed
by the Company in the preparation of its consolidated financial statements,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2006. The annualized results of operations during the three and nine months
ended September 30, 2007 are not necessarily indicative of the results expected
for the year ending December 31, 2007. All financial information is in thousands
(000s), except shares and per share data.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. By their nature, changes in these assumptions and estimates
could significantly affect the Company's financial position or results of
operations. Actual results could differ from those estimates. Those critical
accounting policies that are of particular significance to the Company are
discussed in Note 1 of the Company's 2006 Annual Report on Form 10-K.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required based on past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations and
estimated collateral values, current economic conditions and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged off. Loan losses are charged against the allowance when management
believes that the uncollectibility of a loan balance is confirmed.
Goodwill and other intangible assets: Goodwill results from business
acquisitions and represents the excess of the purchase price over the fair value
of acquired tangible assets and liabilities and identifiable intangible assets.
Goodwill is assessed at least annually for impairment and any such impairment
will be recognized in the period identified. Other intangible assets consist of
core deposit and acquired customer relationship intangible assets arising from
whole bank, and branch company acquisitions. They are initially measured at fair
value and then are amortized over their estimated useful lives, which is ten
years.
Income taxes: Deferred tax assets and liabilities are recognized for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. Deferred taxes are recognized for the
estimated taxes ultimately payable or recoverable based on enacted tax laws.
Changes in enacted tax rates and laws are reflected in the financial statements
in the periods they occur.
--------------------------------------------------------------------------------
15.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
General
Centrue Financial Corporation is a bank holding company organized under the laws
of the state of Delaware. The Company derives most of its revenues and income
from the operations of its bank subsidiary, Centrue Bank (the "Bank"), but also
derives revenue from the Wealth Management Division of its bank subsidiary. The
Company provides a full range of services to individual and corporate customers
located in markets to the west and south of suburban Chicago, as well as in east
central and northwest Illinois, and in the St. Louis metropolitan area. These
products and services include demand, time, and savings deposits; lending;
mortgage banking; brokerage services; asset management; and trust services. The
Company is subject to competition from other financial institutions, including
banks, thrifts and credits unions, as well as nonfinancial institutions
providing financial services. Additionally, the Company and the Bank are subject
to regulations of certain regulatory agencies and undergo periodic examinations
by those regulatory agencies.
Third Quarter 2007 Highlights:
o Third quarter 2007 results included the following nonrecurring
items:
o Net gain on sale of $459 realized from properties held
in other real estate.
o Net fees of $132 generated from one U.S. Internal
Revenue Code Section 1031 exchange brokerage
transaction.
o The impact to earnings after taxes related to these
items was approximately $362 or $0.06 per diluted share.
o In order to integrate operations and streamline our retail
distribution channel, the Company closed its Urbana, Illinois
location at the end of August. This action, in addition to the
closing of the Company's Dwight In-Store and Coal City In-Store
branches earlier in the year, will reduce the branch distribution
network from 36 to 33 locations.
o With a successful core systems conversion late in the second
quarter, the Company was able to complete its integration process
which contributed to the realization of a net reduction of over 100
full-time equivalent employees as of September 30, 2007 as compared
to pro-forma staffing levels at the beginning of 2006.
Results of Operations
Net Income
Income from continuing operations for the third quarter ended September 30, 2007
equaled $3,838 or $0.60 per diluted share as compared to $1,506 or $0.38 per
diluted share in the same period of 2006. This represents increases of 154.8% in
net income and 57.9% in diluted per share earnings. For the nine months ended
September 30, 2007, net income from continuing operations equaled $8,243 or
$1.26 per diluted share compared to $4,503 or $1.14 per diluted share in the
same period during 2006. This represents increases of 83.1% in net income and
10.5% in diluted per share earnings. Results for the three months and nine
months ended September 30, 2007 include the impact from the merger of Centrue
Financial Corporation and UnionBancorp, Inc. that occurred in November 2006.
Return on average assets was 1.13% for the third quarter of 2007 compared to
0.76% for the same period in 2006. Return on average assets was 0.83% for the
nine month period ended September 30, 2007 compared to 0.85% for the same period
in 2006.
Return on average stockholders' equity was 12.78% for the third quarter of 2007
compared to 7.32% for the same period in 2006. Return on average stockholder's
equity was 9.29% for the nine month period ended September 30, 2007 compared to
8.43% for the same period in 2006.
--------------------------------------------------------------------------------
16.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Net Interest Income/ Margin
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as "rate change." The following table details each
category of average amounts outstanding for interest-earning assets and
interest-bearing liabilities, average rate earned on all interest-earning
assets, average rate paid on all interest-bearing liabilities and the net yield
on average interest-earning assets. In addition, the table reflects the changes
in net interest income stemming from changes in interest rates and from asset
and liability volume, including mix. The change in interest attributable to both
rate and volume has been allocated to the changes in the rate and the volume on
a pro rata basis.
Fully tax equivalent net interest income for the three months ended September
30, 2007 increased 98.1% to $10,315 as compared $5,206 for the same period in
2006. The improvement in net interest income was largely related to an increase
in earning assets due to the addition of the former Centrue's loan and
investment portfolios. This was offset by increases in deposit balances and a
shift in the mix of interest bearing liabilities from lower costing non-maturing
deposits (checking, NOW, savings, money market) to higher costing time deposits
and other wholesale funds.
The net interest margin, on a tax equivalent basis, decreased 9 basis points to
3.40% as compared to the same period in 2006 and increased 10 basis points from
the second quarter of 2007. The primary drivers for the decrease were compressed
loan spreads, heightened competition for deposits and fixed rate term loans that
were repriced at similar or lower rates during the last twelve months in a flat
to inverted yield curve environment. Competitive pressures in pricing loans and
deposits are likely to maintain pressure on the margin throughout 2007.
Fully tax equivalent net interest income for the nine months ended September 30,
2007 increased 89.9% to $29,628 as compared $15,602 for the same period in 2006.
Net interest income increased largely due to the factors described above
impacting the third quarter results.
--------------------------------------------------------------------------------
17.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME
For the Three Months Ended September 30,
------------------------------------------------------------
2007 2006
------------------------------ ----------------------------
Interest Interest Change Due To:
Average Income/ Average Average Income/ Average -------------------------
Balance Expense Rate Balance Expense Rate Volume Rate Net
----------- -------- ------- --------- -------- ------- ------- ------ --------
ASSETS
Interest-earning assets
Interest-earning deposits $ 751 $ 6 3.11% $ 177 $ 4 8.97% $ 6 $ (4) $ 2
Securities
Taxable 232,740 3,084 5.26 163,762 2,066 5.01 914 104 1,018
Non-taxable 40,830 560 5.44 19,123 330 6.85 298 (68) 230
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total securities
(tax equivalent) 273,570 3,644 5.28 182,885 2,396 5.20 1,212 36 1,248
----------- -------- ------- --------- -------- ------- ------- ------ --------
Federal funds sold 8,140 106 5.16 5,678 71 4.96 32 3 35
----------- -------- ------- --------- -------- ------- ------- ------ --------
Loans
Commercial 173,798 3,571 8.15 108,754 2,067 7.54 1,336 168 1,504
Real estate 737,008 14,242 7.66 285,091 5,184 7.21 8,579 228 8,807
Installment and other 10,801 223 8.20 9,009 212 9.34 79 183 262
----------- -------- ------- --------- -------- ------- ------- ------ --------
Gross loans (tax equivalent) 921,608 18,036 7.76 402,854 7,463 7.35 9,994 579 10,573
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total interest-earnings
assets 1,204,067 21,792 7.18 591,594 9,934 6.66 11,244 614 11,858
----------- -------- ------- --------- -------- ------- ------- ------ --------
Noninterest-earning assets
Cash and cash equivalents 34,749 17,226
Premises and equipment, net 35,978 13,730
Other assets 73,592 25,777
----------- ---------
Total nonearning assets 144,319 56,733
Total assets $ 1,348,387 $ 648,327
=========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 107,173 $ 409 1.51 $ 69,124 $ 332 1.91 145 (68) 77
Money market accounts 123,762 1,230 3.94 53,283 397 2.96 700 133 833
Savings deposits 94,065 153 0.65 34,657 65 0.74 97 (9) 88
Time deposits 636,757 7,942 4.95 307,100 3,334 4.31 4,112 496 4,608
Federal funds purchased and
repurchase agreements 48,494 536 4.39 5,317 69 5.15 477 (10) 467
Advances from FHLB 57,792 636 4.37 38,820 363 3.71 209 64 273
Notes payable 32,714 571 6.92 9,489 168 7.02 405 (2) 403
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total interest-bearing
liabilities 1,100,757 11,477 4.14 517,790 4,728 3.62 6,145 604 6,749
----------- -------- ------- --------- -------- ------- ------- ------ --------
Noninterest-bearing liabilities
Noninterest-bearing deposits 116,704 58,554
Other liabilities 11,805 4,944
----------- ---------
Total noninterest-bearing
liabilities 128,509 63,498
----------- ---------
Stockholders' equity 119,121 67,039
----------- ---------
Total liabilities and stockholders'
equity $ 1,348,387 $ 648,327
=========== =========
Net interest income (tax equivalent) $ 10,315 $ 5,206 $ 5,099 $ 10 $ 5,109
======== ======== ======= ====== ========
Net interest income (tax equivalent)
to total earning assets 3.40% 3.49%
======= =======
Interest-bearing liabilities to
earning assets 91.23% 87.52%
=========== =========
(1) Average balance and average rate on securities classified as
available-for-sale is based on historical amortized cost balances.
(2) Interest income and average rate on non-taxable securities are reflected
on a tax equivalent basis based upon a statutory federal income tax rate
of 34%.
(3) Nonaccrual loans are included in the average balances; overdraft loans are
excluded in the balances.
(4) Loan fees are included in the specific loan category.
--------------------------------------------------------------------------------
18.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME
For the Nine Months Ended September 30,
------------------------------------------------------------
2007 2006
------------------------------ ----------------------------
Interest Interest Change Due To:
Average Income/ Average Average Income/ Average -------------------------
Balance Expense Rate Balance Expense Rate Volume Rate Net
----------- -------- ------- --------- -------- ------- ------- ------ --------
ASSETS
Interest-earning assets
Interest-earning deposits $ 2,339 $ 27 1.56% $ 213 $ 11 6.90% $ 26 $ (10) $ 16
Securities
Taxable 243,102 9,584 5.27 173,367 6,083 4.69 2,749 752 3,501
Non-taxable 40,936 1,687 5.51 18,493 976 7.06 925 (214) 711
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total securities
(tax equivalent) 284,038 11,271 5.31 191,860 7,059 4.92 3,674 538 4,212
----------- -------- ------- --------- -------- ------- ------- ------ --------
Federal funds sold 9,048 353 5.22 3,415 130 5.09 220 3 223
----------- -------- ------- --------- -------- ------- ------- ------ --------
Loans
Commercial 177,030 10,830 8.18 112,906 6,109 7.23 3,923 798 4,721
Real estate 698,895 39,535 7.56 284,636 15,004 7.05 22,989 792 23,781
Installment and other 11,553 741 8.57 10,442 738 9.45 143 610 753
----------- -------- ------- --------- -------- ------- ------- ------ --------
Gross loans (tax equivalent) 887,478 51,106 7.70 407,984 21,851 7.16 27,055 2,200 29,255
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total interest-earnings
assets 1,182,903 62,757 7.09 603,472 29,051 6.44 30,975 2,731 33,706
----------- -------- ------- --------- -------- ------- ------- ------ --------
Noninterest-earning assets
Cash and cash equivalents 31,618 17,823
Premises and equipment, net 35,739 13,770
Other assets 74,181 24,350
----------- ---------
Total nonearning assets 141,538 55,943
Total assets $ 1,324,441 $ 659,415
=========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 105,151 $ 1,305 1.66 $ 69,507 $ 928 1.79 $ 442 $ (65) $ 377
Money market accounts 120,846 3,347 3.70 53,960 1,106 2.74 1,853 388 2,241
Savings deposits 99,352 507 0.68 36,734 187 0.68 320 - 320
Time deposits 613,642 22,835 4.98 308,021 9,231 4.01 11,373 2,231 13,604
Federal funds purchased and
repurchase agreements 41,898 1,409 4.50 5,092 192 5.04 1,238 (21) 1,217
Advances from FHLB 58,905 1,909 4.33 45,307 1,300 3.84 441 168 609
Notes payable 31,841 1,817 7.63 10,070 505 6.70 1,242 70 1,312
----------- -------- ------- --------- -------- ------- ------- ------ --------
Total interest-bearing
liabilities 1,071,635 33,129 4.13 528,691 13,449 3.40 16,908 2,772 19,680
----------- -------- ------- --------- -------- ------- ------- ------ --------
Noninterest-bearing liabilities
Noninterest-bearing deposits 122,957 59,969
Other liabilities 11,277 4,648
----------- ---------
Total noninterest-bearing
liabilities 134,234 64,617
----------- ---------
Stockholders' equity 118,572 66,107
----------- ---------
Total liabilities and
stockholders' equity $ 1,324,441 $ 659,415
=========== =========
Net interest income (tax equivalent) $ 29,628 $ 15,602 $ 14,067 $ (41) $ 14,026
======== ======== ======== ====== =========
Net interest income (tax equivalent)
to total earning assets 3.35% 3.46%
======= =======
Interest-bearing liabilities to
earning assets 90.45% 87.61%
=========== =========
(1) Average balance and average rate on securities classified as
available-for-sale is based on historical amortized cost balances.
(2) Interest income and average rate on non-taxable securities are reflected
on a tax equivalent basis based upon a statutory federal income tax rate
of 34%.
(3) Nonaccrual loans are included in the balances; Overdraft loans are
excluded in the balances.
(4) Loan fees are included in the specific loan category.
--------------------------------------------------------------------------------
19.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Provision for Loan Losses
The amount of the provision for loan losses is based on management's evaluations
of the loan portfolio, with particular attention directed toward nonperforming,
impaired and other potential problem loans. During these evaluations,
consideration is also given to such factors as management's evaluation of
specific loans, the level and composition of impaired loans, other nonperforming
loans, other identified potential problem loans, historical loss experience,
results of examinations by regulatory agencies, results of the independent asset
quality review process, the market value of collateral, the estimate of
discounted cash flows, the strength and availability of guarantees,
concentrations of credits and various other factors, including concentration of
credit risk in various industries and current economic conditions.
During the third quarter of 2007, the Company made no provision to the allowance
for loan losses as compared to reporting a negative provision of ($200) in the
2006 period. For the nine months ended September 30, 2007, the Company recorded
a $226 provision for loan losses as compared to recognizing a negative provision
of ($1,300) in the 2006 period. Results for 2006 included negative provisions
largely due to the pay-off of one $4,400 loan relationship that was classified
as impaired in late 2005 with a specific reserve allocation of $1,500.
The following factors have impacted 2007 provision levels:
o decrease in nonperforming and action list loans since year-end;
o improvement in the level of past due loans;
o higher than anticipated recoveries; and
o loans that were charged off during the first nine months of 2007 had
previously been allocated a specific reserve.
Net charge-offs for the third quarter of 2007 were $(24) compared with $545 for
the comparable period in 2006. Annualized net charge-offs for the period were
0.00% of average loans compared with 0.14% of average loans for same period in
2006. Net charge-offs for the nine months ended September 30, 2007 were $209
compared with $959 for the comparable period in 2006. Annualized net charge-offs
for the period were 0.02% of average loans compared with 0.23% of average loans
for same period in 2006.
Management remains watchful of credit quality issues. Should the economic
climate deteriorate from current levels, borrowers may experience difficulty,
and the level of nonperforming loans, charge-offs and delinquencies could rise
and require further increases in the provision. See "Nonperforming Assets" and
"Other Potential Problem Loans" for further information.
--------------------------------------------------------------------------------
20.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Noninterest Income
The following table summarizes the Company's noninterest income:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
Service charges 1,725 476 5,063 1,411
Trust income 243 202 704 620
Mortgage banking income 399 240 1,282 767
Brokerage commissions and fees 416 87 646 260
Bank owned life insurance (BOLI) 252 153 740 430
Securities gains (losses), net - - (33) (88)
Gain (loss) on sale of Oreo 459 - 1,047 -
Other income 873 323 2,366 925
------------- ------------- ------------- -------------
Total noninterest income from continuing operations $ 4,367 $ 1,481 $ 11,815 $ 4,325
============= ============= ============= =============
Noninterest income from continuing operations totaled $4,367 for the three
months ended September 30, 2007, compared to $1,481 for the same period in 2006.
Excluding $459 in net gain on sale of OREO properties from the third quarter of
2007 and $315 in gross fees generated from one U.S. Internal Revenue Code
Section 1031 exchange brokerage transaction, noninterest income increased $2,112
or 142.6% during the third quarter of 2007 as compared to the same period in
2006. The growth experienced was primarily the result of improvements in service
charges on deposit accounts, NSF fees and revenue generated from the mortgage
banking division as a result of the November 2006 merger.
Noninterest income from continuing operations totaled $11,815 for the nine
months ended September 30, 2007, compared to $4,325 for the same time frame in
2006. Excluding all net gains on sale of assets and net securities losses for
both periods, noninterest income increased $6,128 or 141.7%. The change was
largely reflective of the same items discussed regarding the third quarter.
--------------------------------------------------------------------------------
21.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Noninterest Expense
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
Salaries and employee benefits $ 3,891 $ 2,630 $ 14,183 $ 8,035
Occupancy expense, net 1,028 356 2,988 1,110
Furniture and equipment expense 616 515 1,938 1,508
Marketing 325 88 738 294
Supplies and printing 137 71 474 230
Telephone 198 104 586 339
Amortization of intangible assets 562 11 1,774 71
Other expenses 1,874 816 5,744 2,764
------------- ------------- -------------- --------------
Total noninterest expense from continuing operations $ 8,631 $ 4,591 $ 28,425 $ 14,351
============= ============= ============== ==============
Noninterest expense from continuing operations totaled $8,631 for the three
months ended September 30, 2007, compared to $4,591 for the same period in 2006.
The increase was reported across all categories and predominantly due to higher
costs associated with operating 21 additional branches resulting from the
November 2006 merger. Also adversely impacting expense levels were core deposit
amortization, accelerated depreciation expense for assets being phased out and
restructuring related expenses. As compared to the second quarter 2007,
noninterest expense levels declined 12.3% primarily due to completion of
integration activities which reduced operating costs and full-time equivalent
employees.
Noninterest expense for continuing operations totaled $28,425 for the nine
months ended September 30, 2007, increasing by $14,074 or 98.1% from the same
period in 2006. The change was largely reflective of the same items discussed
regarding the third quarter.
Applicable Income Taxes
Income tax expense for the periods included benefits for tax-exempt income,
tax-advantaged investments and general business tax credits offset by the effect
of nondeductible expenses. The following table shows the Company's income before
income taxes, as well as applicable income taxes and the effective tax rate for
the three and nine months ended September 30, 2007 and 2006.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
Income from continuing operations
before income taxes $ 5,820 $ 2,164 $ 12,062 $ 6,486
Applicable income taxes 1,982 658 3,819 1,983
Effective tax rates 34.1% 30.4% 31.7% 30.6%
The Company recorded an income tax expense of $1,982 and $658 for the three
months ended September 30, 2007 and 2006, respectively. Effective tax rates
equaled 34.1% and 30.4% respectively, for such periods. The Company recorded
income tax expense of $3,819 and $1,983 for the nine months ended September 30,
2007 and 2006, respectively. Effective tax rates equaled 31.7% and 30.6%
respectively, for such periods.
Income tax expense for the periods included benefits for tax-exempt income,
tax-advantaged investments and general business tax credits offset by the effect
of nondeductible expenses. The Company's effective tax rate was lower than
statutory rates due to the Company deriving interest income from municipal
securities and loans, which are exempt from federal tax and certain U. S.
government agency securities, which are exempt from Illinois State tax.
Additionally, the Company has reduced tax expense through various tax planning
initiatives.
--------------------------------------------------------------------------------
22.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Financial Condition
General
As of September 30, 2007, the following are the highlights of the balance sheet
when compared to December 31, 2006:
o Outstanding loans totaled $933,903 at September 30, 2007 compared to
$836,944 at December 31, 2006, representing an increase of $96,959
or 11.6%. The loan growth was largely generated in the St. Louis
market and concentrated in commercial real estate lending activity.
The Company has no direct exposure to subprime mortgages.
o Deposits totaled $1,063,805 at September 30, 2007 compared to
$1,026,610 at December 31, 2006, representing an increase of $37,195
or 3.6%. The majority of the increase was concentrated in higher
costing time and wholesale deposits representing a shift from lower
costing non-maturing deposits.
Nonperforming Assets
If a loan is placed on nonaccrual status, the loan does not generate current
period income for the Company. Loans are placed on nonaccrual status when there
are serious doubts regarding the collectibility of all principal and interest
due under the terms of the loans. Amounts received on nonaccrual loans generally
are applied first to principal and then to interest after all principal has been
collected. A loan is generally transferred to nonaccrual status if it is not in
the process of collection and is delinquent in payment of either principal or
interest beyond 90 days. Other nonperforming assets consist of real estate
acquired through loan foreclosures or other workout situations and other assets
acquired through repossessions.
The classification of a loan as nonaccrual does not necessarily indicate that
the principal is uncollectible, in whole or in part. The Bank makes a
determination as to collectibility on a case-by-case basis. The Bank considers
both the adequacy of the collateral and the other resources of the borrower in
determining the steps to be taken to collect nonaccrual loans. The final
determination as to the steps taken is made based upon the specific facts of
each situation. Alternatives that are typically considered to collect nonaccrual
loans are foreclosure, collection under guarantees, loan restructuring or
judicial collection actions.
Each of the Company's loans is assigned a rating based upon an internally
developed grading system. A separate credit administration department also
reviews grade assignments on an ongoing basis. Management continuously monitors
nonperforming, impaired and past due loans to prevent further deterioration of
these loans. The Company has an independent loan review function which is
separate from the lending function and is responsible for the review of new and
existing loans.
The following table summarizes nonperforming assets and loans past due 90 days
or more for the previous five quarters.
2007 2006
--------------------------------------- -------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
----------- ----------- ----------- ----------- ----------
Nonaccrual loans $ 5,573 $ 4,492 $ 9,416 $ 11,759 $ 3,053
Loans 90 days past due and still accruing interest - - - - 168
----------- ----------- ----------- ----------- -----------
Total nonperforming loans 5,573 4,492 9,416 11,759 3,221
Other real estate owned 4,620 6,568 4,262 2,136 859
----------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 10,193 $ 11,060 $ 13,678 $ 13,895 $ 4,080
=========== =========== =========== =========== ===========
Nonperforming loans to total end of period loans 0.60% 0.49% 1.08% 1.40% 0.79%
Nonperforming assets to total end of period loans 1.09% 1.21% 1.57% 1.66% 1.00%
Nonperforming assets to total end of period assets 0.75% 0.81% 1.04% 1.08% 0.63%
The level of nonperforming loans at September 30, 2007 decreased 52.6% to $5,573
compared to $11,759 that was reported at December 31, 2006. The decrease in
nonperforming loans from December 31, 2006 to September, 30, 2007 was largely
related to the completion of work out plans previously in place. Some of the
--------------------------------------------------------------------------------
23.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
work out plans for nonperforming real estate loans resulted in the Company
obtaining ownership of the collateral securing the loans and are reflected in a
$2,484 increase in other real estate owned.
The level of nonperforming loans to total end of period loans was 0.60% at
September 30, 2007, as compared to 1.40% at December 31, 2006. The reserve
coverage ratio (allowance to nonperforming loans) was reported at 194.72% as of
September 30, 2007 as compared to 92.14% as of December 31, 2006.
Other Potential Problem Loans
The Company has other potential problem loans that are currently performing, but
where some concerns exist as to the ability of the borrower to comply with
present loan repayment terms. Excluding nonperforming loans and loans that
management has classified as impaired, these other potential problem loans
totaled $963 at September 30, 2007 as compared to $3,785 at September 30, 2006
and $1,757 at December 31, 2006. The classification of these loans, however,
does not imply that management expects losses on each of these loans, but
believes that a higher level of scrutiny and close monitoring is prudent under
the circumstances. Such classifications relate to specific concerns for each
individual borrower and do not relate to any concentration risk common to all
loans in this group.
Allowance for Loan Losses
At September 30, 2007, the allowance for loan losses was $10,852 or 1.16% of
total loans as compared to $10,835 or 1.29% at December 31, 2006. In originating
loans, the Company recognizes that credit losses will be experienced and the
risk of loss will vary with, among other things, the following:
o general economic conditions;
o the type of loan being made;
o the creditworthiness of the borrower over the term of the loan;
o in the case of a collateralized loan, the quality of the collateral
for such a loan.
The allowance for loan losses represents the Company's estimate of the allowance
necessary to provide for probable incurred losses in the loan portfolio by
analyzing the following:
o ultimate collectibility of the loans in its portfolio;
o incorporating feedback provided by internal loan staff;
o the independent loan review function;
o results of examinations performed by regulatory agencies.
The Company regularly evaluates the adequacy of the allowance for loan losses.
Commercial credits are graded using a system that is in compliance with
regulatory classifications by the loan officers and the loan review function
validates the officers' grades. In the event that the loan review function
downgrades the loan, it is included in the allowance analysis at the lower
grade. To establish the appropriate level of the allowance, a sample of loans
(including impaired and nonperforming loans) are reviewed and classified as to
potential loss exposure.
Based on an estimation computed pursuant to the requirements of Financial
Accounting Standards Board ("FASB") Statement No. 5, "Accounting for
Contingencies," and FASB Statements Nos. 114 and 118, "Accounting by Creditors
for Impairment of a Loan," the analysis of the allowance for loan losses
consists of three components:
o specific credit allocation established for expected losses resulting
from analysis developed through specific credit allocations on
individual loans for which the recorded investment in the loan
exceeds its fair value;
--------------------------------------------------------------------------------
24.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
o general portfolio allocation based on historical loan loss
experience for each loan category;
o subjective reserves based on general economic conditions as well as
specific economic factors in the markets in which the Company
operates.
The specific credit allocation component of the allowance for loan losses is
based on a regular analysis of loans over a fixed-dollar amount where the
internal credit rating is at or below a predetermined classification. The fair
value of the loan is determined based on either the present value of expected
future cash flows discounted at the loan's effective interest rate, the market
price of the loan, or, if the loan is collateral dependent, the fair value of
the underlying collateral less cost of sale.
The general portfolio allocation component of the allowance for loan losses is
determined statistically using a loss migration analysis that examines
historical loan loss experience. The loss migration analysis is performed
quarterly and loss factors are updated regularly based on actual experience. The
general portfolio allocation element of the allowance for loan losses also
includes consideration of the amounts necessary for concentrations and changes
in portfolio mix and volume.
The allowance for loan losses is based on estimates, and ultimate losses will
vary from current estimates. These estimates are reviewed monthly, and as
adjustments, either positive or negative, become necessary, a corresponding
increase or decrease is made in the provision for loan losses. The methodology
used to determine the adequacy of the allowance for loan losses is consistent
with prior years.
Management remains watchful of credit quality issues. Should the economic
climate deteriorate from current levels, borrowers may experience difficulty,
and the level of nonperforming loans, charge-offs and delinquencies could rise
and require further increases in the provision.
Liquidity
The Company manages its liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take
advantage of earnings enhancement opportunities. In addition to the normal
inflow of funds from core-deposit growth together with repayments and maturities
of loans and investments, the Company utilizes other short-term funding sources
such as brokered time deposits, securities sold under agreements to repurchase,
overnight federal funds purchased from correspondent banks and the acceptance of
short-term deposits from public entities and Federal Home Loan Bank advances.
The Company monitors and manages its liquidity position on several bases, which
vary depending upon the time period. As the time period is expanded, other data
is factored in, including estimated loan funding requirements, estimated loan
payoffs, investment portfolio maturities or calls and anticipated depository
buildups or runoffs.
The Company classifies all of its securities as available-for-sale, thereby
maintaining significant liquidity. The Company's liquidity position is further
enhanced by structuring its loan portfolio interest payments as monthly and by
the significant representation of retail credit and residential mortgage loans
in the Company's loan portfolio, resulting in a steady stream of loan
repayments. In managing its investment portfolio, the Company provides for
staggered maturities so that cash flows are provided as such investments mature.
The Company's cash flows are comprised of three classifications: cash flows from
operating activities, cash flows from investing activities and cash flows from
financing activities. Cash flows provided by operating activities and financing
activities offset by those used in investing activities, resulted in a net
increase in cash and cash equivalents of $14,813 from December 31, 2006 to
September 30, 2007.
During the first nine months of 2007, the Company experienced net cash inflows
of $67,654 in financing activities primarily due to an increase in deposits and
$10,795 in operating activities. In contrast, net cash outflows of $63,636 were
used in investing activities largely due to the net growth in loans.
--------------------------------------------------------------------------------
25.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet
Financial Instruments
The Company has entered into contractual obligations and commitments and
off-balance sheet financial instruments. The following tables summarize the
Company's contractual cash obligations and other commitments and off balance
sheet instruments as of September 30, 2007.
Payments Due by Period
--------------------------------------------------------------------
Within 1 After
Year 1 - 3 Years 4 - 5 Years 5 Years Total
----------- ----------- ----------- ----------- -----------
Contractual Obligations
Short-term debt $ 11,454 $ - $ - $ - $ 11,454
Long-term debt - 514 343 86 943
Certificates of deposit 510,896 109,303 6,440 1,024 627,663
Operating leases 410 849 893 447 2,599
Severance payments 236 - - - 236
Series B mandatory redeemable
preferred stock - 831 - - 831
Subordinated debentures - - - 20,620 20,620
FHLB advances 62,400 10,200 3,000 5,124 80,724
----------- ----------- ----------- ----------- -----------
Total contractual cash obligations $ 585,396 $ 121,697 $ 10,676 $ 27,301 $ 745,070
=========== =========== =========== =========== ===========
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------
Within 1 After
Year 1 - 3 Years 4 - 5 Years 5 Years Total
----------- ----------- ----------- ----------- -----------
Off-Balance Sheet Financial Instruments
Lines of credit $ 117,046 $ 56,797 $ 7,160 $ 14,773 $ 195,776
Standby letters of credit 8,919 447 - 40 9,406
----------- ----------- ----------- ----------- -----------
Total contractual cash obligations $ 125,965 $ 57,244 $ 7,160 $ 14,813 $ 205,182
=========== =========== =========== =========== ===========
Capital Resources
Stockholders' Equity
The Company is committed to managing capital for maximum shareholder benefit and
maintaining strong protection for depositors and creditors. Stockholders' equity
at September 30, 2007 was $120,234, an increase of $2,043 or 1.7%, from December
31, 2006. The increase in stockholders' equity was largely the result of the net
income for the period partially offset by dividends paid to common stockholders
and an increase in treasury stock related to repurchase activity. Average
quarterly equity as a percentage of average quarterly assets was 8.83% at
September 30, 2007, compared to 10.35% at December 31, 2006. Book value per
common share equaled $19.12 at September 30, 2007 compared to $18.23 at December
31, 2006.
Stock Repurchase
On November 13, 2006, the Board of Directors approved a stock repurchase plan
whereby the Company may repurchase from time to time up to 5% or 370,000 of its
outstanding shares of common stock in the open market or in private transactions
over an 18 month period. Purchases are dependent upon market conditions and the
availability of shares. The repurchase program enables the Company to optimize
its use of capital relative to other investment alternatives and benefits both
the Company and the shareholders by enhancing earnings per share and return on
equity. During the third quarter of 2007, 104,794 shares were repurchased at a
weighted cost of $19.84.
On July 24, 2007 the Centrue Financial Corporation Board of Directors approved
an extension of the Company's existing stock repurchase program. Specifically,
the board approved the repurchase of an additional 500,000 shares, or
approximately 8% of the Company's currently issued and outstanding shares, in
--------------------------------------------------------------------------------
26.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
the open market or privately negotiated transactions over an 18 month period
commencing immediately following the completion of the current stock repurchase
program.
Capital Measurements
The Bank is expected to meet a minimum risk-based capital to risk-weighted
assets ratio of 8%, of which at least one-half (or 4%) must be in the form of
Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of Tier
1 (core) or Tier 2 (supplementary) capital. The amount of loan loss allowance
that may be included in capital is limited to 1.25% of risk-weighted assets. The
ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and Tier 2
(supplementary) capital to risk-weighted assets for the Company was 10.0% and
11.1%, respectively, at September 30, 2007. The Company is currently, and
expects to continue to be, in compliance with these guidelines.
The following table sets forth an analysis of the Company's capital ratios:
December 31, Minimum Well
Sep 30, ------------------------- Capital Capitalized
2007 2006 2005 Ratios Ratios
----------- ----------- ----------- ----------- -----------
Tier 1 risk-based capital $ 103,508 $ 99,869 $ 60,546
Tier 2 risk-based capital 10,852 10,834 6,266
----------- ----------- -----------
Total capital $ 114,360 $ 110,703 $ 66,812
=========== =========== ===========
Risk-weighted assets $ 1,034,134 $ 927,043 $ 501,342
=========== =========== ===========
Capital ratios:
Tier 1 risk-based capital 10.0% 10.8% 12.1% 4.0% 6.0%
Total risk-based capital 11.1% 11.9% 13.3% 8.0% 10.0%
Leverage ratio 7.8% 7.9% 9.0% 4.0% 5.0%
Recent Regulatory and Accounting Developments
See Note 9 to the Unaudited Consolidated Financial Statements for information
concerning recent regulatory and accounting developments.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934 as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies, and expectations of the Company, are generally
identified by the use of words such as "believe," "expect," "intend,"
"anticipate," "estimate," "project," "planned" or "potential" or similar
expressions.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying important
factors that could effect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any
forward-looking statements.
--------------------------------------------------------------------------------
27.
CENTRUE FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Among the factors that could have an impact on the Company's ability to achieve
operating results and the growth plan goals are as follows:
o management's ability to reduce and effectively manage interest rate
risk and the impact of interest rates in general on the volatility
of the Company's net interest income;
o fluctuations in the value of the Company's investment securities;
o the Company's ability to ultimately collect on any downgraded
long-standing loan relationships;
o the Company's ability to adapt successfully to technological changes
to compete effectively in the marketplace;
o credit risks and risks from concentrations (by geographic area and
by industry) within the Company's loan portfolio and individual
large loans;
o volatility of rate sensitive deposits;
o operational risks, including data processing system failures or
fraud;
o asset/liability matching risks and liquidity risks;
o the ability to successfully acquire low cost deposits or funding;
o the ability to successfully execute strategies to increase
noninterest income;
o the ability to successfully grow non-commercial real estate loans;
o the ability of the Company to fully realize expected cost savings
and revenue generation opportunities in connection with the
synergies of merging with the former Centrue Bank;
o the ability to adopt and implement new regulatory requirements as
dictated by the SEC, FASB or other rule-making bodies which govern
our industry;
o changes in the general economic or industry conditions, nationally
or in the communities in which the Company conducts business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Management
The Company performs a net interest income analysis as part of its
asset/liability management practices. The net interest income analysis measures
the change in net interest income in the event of hypothetical changes in
interest rates. This analysis assesses the risk of changes in net interest
income in the event of a sudden and sustained 100 to 200 basis point increase in
market interest rates or a 100 to 200 basis point decrease in market rates. The
interest rates scenarios are used for analytical purposes and do not necessarily
represent management's view of future market movements. The tables below present
the Company's projected changes in net interest income for the various rate
shock levels at September 30, 2007 and December 31, 2006, respectively:
Change in Net Interest Income Over One Year Horizon
--------------------------------------------------------
September 30, 2007 December 31, 2006
-------------------------- --------------------------
Change Change
-------------------------- --------------------------
$ % $ %
----------- ----------- ----------- -----------
+ 200 bp $ 518 1.26% $ 2,215 5.49%
+ 100 bp 376 0.92 1,157 2.87
Base - - - -
- 100 bp (1,585) (3.86) (1,529) (3.79)
- 200 bp (4,042) (9.84) (4,345) (10.77)
----------- ----------- ----------- -----------
--------------------------------------------------------------------------------
28.
CENTRUE FINANCIAL CORPORATION
ITEM 4. CONTROLS AND PROCEDURES
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
As shown above, the Company's model at September 30, 2007, the effect of an
immediate 200 basis point increase in interest rates would increase the
Company's net interest income by $518 or 1.26%. The effect of an immediate 200
basis point decrease in rates would decrease the Company's net interest income
by $4,042 or 9.84%.
Computations of the prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay rates and should not be relied upon as
indicative of actual results. Actual values may differ from those projections
set forth above, should market conditions vary from the assumptions used in
preparing the analysis. Further, the computations do not contemplate actions the
Company may undertake in response to changes in interest rates.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the Company's disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended). Based on this evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Company required to be included in the Company's periodic
filings with the Securities and Exchange Commission. It should be noted that in
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
The Company has designed its disclosure controls and procedures to reach a level
of reasonable assurance of achieving the desired control objectives and, based
on the evaluation described above, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective at reaching that level of reasonable assurance.
There was no change in the Company's internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended) during the Company's most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
--------------------------------------------------------------------------------
29.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business the Company may be involved in various legal
proceedings from time to time. The Company does not believe it is currently
involved in any claim or action the ultimate disposition of which would have a
material adverse effect on the Company's financial statements.
Item 1A. Risk Factors
The Company did not experience any material changes in the Risk Factors during
the Company's most recently completed fiscal quarter. For specific information
about the risks facing the Company refer to the Company's Annual Report on Form
10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases of the Company's common
stock by the Company during the quarter ended September 30, 2007.
Total Number of
Shares Purchased as Maximum Number of
Part of Publicly Shares that May Yet
Total Number of Average Price Paid Announced Plans or Be Purchased Under
Period Shares Purchased per Share Programs the Plans or Programs
------------------- ---------------- ------------------ ------------------- ---------------------
07/01/07 - - - - 754,954
07/31/07
08/01/07 - 82,194 $19.81 82,194 672,760
08/31/07
09/01/07 - 22,600 $19.92 22,600 650,160
09/30/07
Total (1) 104,794 $19.84 104,794 650,160
(1) The Company repurchased 104,794 shares at an average price per share
of $19.84 of our common stock during the quarter ended September 30,
2007 pursuant to the Company's current repurchase program. The
current repurchase program approved on November 12, 2006 authorized
us to repurchase 370,000 of the outstanding shares of our common
stock. The expiration date of this program is May 13, 2008. On July
24, 2007 the Centrue Financial Corporation Board of Directors
approved an extension of the Company's existing stock repurchase
program. Specifically, the board approved the repurchase of an
additional 500,000 shares, or approximately 8% of the Company's
currently issued and outstanding shares, in the open market or
privately negotiated transactions over an 18 month period commencing
immediately following the completion of the current stock repurchase
program. The expiration date of this program is January 24, 2009.
Unless terminated earlier by resolution of our board of directors,
the programs will expire on the earlier of such expiration date or
when we have repurchased all shares authorized for repurchase under
the program.
Item 3. Defaults Upon Senior Securities
None.
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30.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibits:
3.1 Bylaws
10.1 Employment agreement with Donald M. Davis, Market President -
St. Louis Region
31.1 Certification of Thomas A. Daiber, President and Principal
Executive Officer, required by Rule 13a - 14(a).
31.2 Certification of Kurt R. Stevenson, Senior Executive Vice
President and Principal Financial and Accounting Officer
required by Rule 13a - 14(a).
32.1(1) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Company's President and Principal Executive Officer.
32.2(1) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Company's Senior Executive Vice President and Principal
Financial and Accounting Officer.
----------------
(1) This certification is not "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, or incorporated
by reference into any filing under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended.
--------------------------------------------------------------------------------
31.
SIGNATURES
Pursuant to the requirements 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.
CENTRUE FINANCIAL CORPORATION
Date: November 13, 2007 By: /s/ Thomas A. Daiber
--------------------------------------
Thomas A. Daiber
President and Principal Executive
Officer
Date: November 13, 2007 By: /s/ Kurt R. Stevenson
--------------------------------------
Kurt R. Stevenson
Senior Executive Vice President and
Principal Financial and Accounting
Officer
--------------------------------------------------------------------------------
32.