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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 March 31, 2008
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)
7700 Bonhomme Avenue, St. Louis, Missouri 63105
(Address of principal executive offices including zip code)
(314) 505-5500
(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, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
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 May 9, 2008
----------------------------- --------------------------------------------
Common Stock, Par Value $1.00 6,026,996
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Centrue Financial Corporation
Form 10-Q Index
March 31, 2008
Page
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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 ..............30
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
MARCH 31, 2008 AND DECEMBER 31, 2007
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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March 31, December 31,
2008 2007
----------- -------------
ASSETS
Cash and cash equivalents $ 50,606 $ 51,628
Securities available-for-sale 207,267 238,661
Restricted securities 10,670 10,670
Loans 1,016,097 957,285
Allowance for loan losses (11,221) (10,755)
----------- ------------
Net loans 1,004,876 946,530
Cash surrender value of life insurance 27,147 26,895
Mortgage servicing rights 3,090 3,161
Premises and equipment, net 34,649 35,615
Goodwill 25,101 25,498
Intangible assets, net 10,495 11,007
Other real estate 1,153 2,937
Other assets 12,798 12,397
----------- ------------
Total assets $ 1,387,852 $ 1,364,999
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing $ 118,368 $ 114,360
Interest-bearing 930,681 918,662
----------- ------------
Total deposits 1,049,049 1,033,022
Federal funds purchased and securities sold under agreements to repurchase 49,166 44,937
Federal Home Loan Bank advances 115,408 121,615
Notes payable 24,031 13,802
Series B mandatory redeemable preferred stock 831 831
Subordinated debentures 20,620 20,620
Other liabilities 10,877 11,296
----------- ------------
Total liabilities 1,269,982 1,246,123
Commitments and contingent liabilities - -
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;7,451,210 and 7,438,110
shares issued at March 31, 2008 and at December 31, 2007 7,451 7,438
Surplus 71,131 70,901
Retained earnings 61,219 60,344
Accumulated other comprehensive income (loss) (11) 939
----------- ------------
140,290 140,122
Treasury stock, at cost 1,425,064 shares at March 31, 2008 and 1,366,564 at
December 31, 2007 (22,420) (21,246)
----------- ------------
Total stockholders' equity 117,870 118,876
----------- ------------
Total liabilities and stockholders' equity $ 1,387,852 $ 1,364,999
=========== ============
See Accompanying Notes to Unaudited Financial Statements
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1.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended
March 31,
-------------------------
2008 2007
----------- -----------
Interest income
Loans $ 17,295 $ 16,046
Securities
Taxable 2,474 3,277
Exempt from federal income taxes 358 382
Federal funds sold and other 55 108
----------- -----------
Total interest income 20,182 19,813
Interest expense
Deposits 8,340 8,817
Federal funds purchased and securities sold under agreements to repurchase 333 410
Federal Home Loan Bank advances 1,172 645
Series B mandatory redeemable preferred 12 12
Subordinated debentures 384 448
Notes payable 238 158
----------- -----------
Total interest expense 10,479 10,490
Net interest income 9,703 9,323
Provision for loan losses 766 -
----------- -----------
Net interest income after Provision for loan losses 8,937 9,323
Noninterest income
Service charges 1,636 1,583
Trust income 253 229
Mortgage banking income 446 434
Brokerage commissions and fees 102 126
Bank owned life insurance 252 241
Securities gains 848 -
Gain on sale of OREO 96 82
Gain on sale of other assets 482 -
Other income 823 559
----------- -----------
4,938 3,254
Noninterest expenses
Salaries and employee benefits 4,829 5,148
Occupancy 1,210 941
Furniture and equipment 611 695
Marketing 223 192
Supplies and printing 131 181
Telephone 241 178
Data Processing 303 583
Amortization of intangible assets 909 621
Other expenses 1,859 1,409
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10,316 9,948
See Accompanying Notes to Unaudited Financial Statements
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2.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended
March 31,
-------------------------
2008 2007
----------- -----------
Income before income taxes 3,559 2,629
Income taxes 1,114 730
----------- -----------
Net income $ 2,445 $ 1,899
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Preferred stock dividends 52 52
----------- -----------
Net income for common stockholders $ 2,393 $ 1,847
=========== ===========
Basic earnings per common share $ 0.40 $ 0.29
=========== ===========
Diluted earnings per common share $ 0.39 $ 0.28
=========== ===========
Total comprehensive income:
Net income $ 2,445 $ 1,899
Change in unrealized gains (losses) on available for sale securities (950) 173
Tax effect (368) 67
----------- -----------
Total comprehensive income, net of tax (582) 106
----------- -----------
Total comprehensive income $ 1,863 $ 2,005
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See Accompanying Notes to Unaudited Financial Statements
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3.
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (IN THOUSANDS)
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Three Months Ended
March 31,
---------------------
2008 2007
--------- ---------
Cash flows from operating activities
Net income $ 2,445 $ 1,899
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation 875 845
Amortization of intangible assets 909 621
Amortization of mortgage servicing rights, net 143 108
Amortization of bond premiums, net 55 55
Share based compensation 41 6
Provision for loan losses 766 -
Earnings on bank-owned life insurance (252) (241)
Securities losses/(gains), net (848) -
(Gain) loss on sale of real estate acquired in settlement of loans (76) (82)
(Gain) loss on sale of loans (358) (291)
(Gain) on sale of branch (482) -
Proceeds from sales of loans held for sale 34,812 10,248
Origination of loans held for sale (38,733) (10,699)
Change in assets and liabilities
(Increase) decrease in other assets 185 (3,273)
Increase (decrease) in other liabilities (652) 3,942
--------- ---------
Net cash provided by (used in) operating activities (1,170) 3,138
Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale 92,046 13,461
Purchases of securities available for sale (61,300) (3,638)
Net decrease (increase) in loans (69,983) (33,197)
Purchase of premises and equipment (318) (817)
Proceeds from sale of OREO 2,287 199
Sale of Branches, net of premium received (7,746) -
--------- ---------
Net cash provided by (used in) investing activities (45,014) (23,992)
Cash flows from financing activities
Net increase (decrease) in deposits 38,713 30,687
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 4,229 5,149
Repayment of advances from the Federal Home Loan Bank (145,207) (5,409)
Proceeds from advances from the Federal Home Loan Bank 139,000 -
Payments on notes payable (21) (255)
Proceeds from notes payable 10,250 -
Dividends on common stock (789) (775)
Dividends on preferred stock (52) (52)
Proceeds from exercise of stock options 214 266
Purchase of treasury stock (1,175) (42)
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Net cash provided by financing activities 45,162 29,569
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,022) 8,715
Cash and cash equivalents
Beginning of period 51,628 40,195
--------- ---------
End of period $ 50,606 $ 48,910
========= =========
Supplemental disclosures of cash flow information
Cash payments for
Interest $ 11,246 $ 9,947
Income taxes - -
Transfers from loans to other real estate owned 492 2,242
See Accompanying Notes to Unaudited Financial Statements
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4.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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Note 1. Summary of Significant Accounting Policies
Centrue Financial Corporation (the "Company") is a bank holding company
organized under the laws of the State of Delaware. The Company provides a full
range of products and services to individual and corporate customers located in
the north central, east central, south central, suburban west area of Chicago,
suburban metro east area of St. Louis, and northwest Illinois areas. These
products and services include demand, time, and savings deposits; lending;
mortgage banking, brokerage, asset management, and trust services. The Company
is subject to competition from other financial institutions, including banks,
thrifts and credit unions, as well as nonfinancial institutions providing
financial services. Additionally, the Company and its subsidiary Centrue Bank
(the "Bank") are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.
Basis of presentation
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. The allowance for loan losses,
carrying value of goodwill, value of mortgage servicing rights, deferred taxes,
and fair values of financial instruments are particularly subject to change.
Actual results could differ from those estimates. Certain 2007 amounts have been
reclassified to conform to the 2008 presentation.
Assets held in an agency or fiduciary capacity, other than trust cash on deposit
with Centrue Bank, are not assets of the Company and, accordingly, are not
included in the accompanying consolidated financial statements. The consolidated
financial statements include the accounts of the Company and Centrue Bank.
Intercompany balances and transactions have been eliminated in consolidation.
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, 2007. The annualized results of operations during the three months ended
March 31, 2008 are not necessarily indicative of the results expected for the
year ending December 31, 2008. All financial information is in thousands (000s),
except shares and per share data.
Note 2. Earnings Per Share
Basic earnings per common share is net income for common shareholders for the
three months ended March 31, 2008 and 2007 divided by the weighted-average
common shares outstanding during the period. Diluted earnings per common share
includes the dilutive effect of additional potential shares issuable under stock
options and Series A convertible preferred shares using the treasury stock
method. Computations for basic and diluted earnings per share are provided
below:
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5.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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Note 2. Earnings Per Share (continued)
Three Months Ended
March 31,
---------------------------
2008 2007
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Basic Earnings Per Common Share
Net income available to common shareholders $ 2,393 $ 1,847
Weighted average common shares outstanding 6,052,000 6,462,000
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Basic earnings per common share $ 0.40 $ 0.29
============= ===========
Diluted Earnings Per Common Share
Weighted average common shares outstanding 6,052,000 6,462,000
Add: dilutive effect of assumed exercised stock options 37,000 35,000
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Weighted average common and dilutive
potential shares outstanding 6,089,000 6,497,000
============= ===========
Diluted earnings per common share $ 0.39 $ 0.28
============= ===========
There were approximately 340,800 and 276,200 options outstanding for the three
months ended March 31, 2008 and 2007, 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.
Note 3. Securities
The Company's consolidated securities portfolio, which represented 18.8% of the
Company's 2008 first 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 March 31, 2008 and December 31, 2007,
respectively:
March 31, 2008
-----------------------------------------------
Gross Gross
Fair Unrealized Unrealized % of
Value Gains Losses Portfolio
--------- ---------- ---------- ---------
U.S. government agencies $ 19,960 $ 807 $ - 9.6%
States and political subdivisions 41,344 1,048 (108) 19.9
U. S. government mortgage-backed securities 93,422 850 (123) 45.2
Collateralized mortgage obligations 23,401 141 (262) 11.3
Equity securities 27,176 92 (2,448) 13.1
Corporate 1,964 24 (39) 0.9
--------- ---------- ---------- ---------
$ 207,267 $ 2,962 $ (2,980) 100.0%
========= ========== ========== =========
December 31, 2007
-----------------------------------------------
Gross Gross
Fair Unrealized Unrealized % of
Value Gains Losses Portfolio
--------- ---------- ---------- ---------
U.S. government agencies $ 103,624 $ 1,415 $ (14) 43.5%
States and political subdivisions 41,561 501 (13) 17.4
U. S. government mortgage-backed securities 47,784 287 (106) 20.0
Collateralized mortgage obligations 24,077 68 (100) 10.1
Equity securities 18,874 105 (609) 7.9
Corporate 2,741 9 (10) 1.1
--------- ---------- ---------- ---------
$ 238,661 $ 2,385 $ (852) 100.0%
========= ========== ========== =========
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6.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 3. Securities (continued)
Management does not believe any individual unrealized losses as of March 31,
2008, 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.
The amounts below include the activity related to security sales and calls. The
activity related to securities available-for-sale were as follows:
Three Months Ended
March 31,
------------------
2008 2007
--------- ------
Proceeds $ 83,897 $
Realized gains $ 848 $
Realized losses $ - $
Note 4. Loans
The following table describes the composition of loans by major categories
outstanding as of March 31, 2008 and December 31, 2007, respectively:
March 31, 2008 December 31, 2007
------------------- -------------------------
$ % $ %
----------- ----- ---------- ------------
Commercial $ 197,683 19.5% $ 181,210 18.9%
Agricultural 14,671 1.4 21,861 2.3
Real estate:
Commercial mortgages 398,639 39.2 362,920 37.9
Construction 177,028 17.4 159,274 16.6
Agricultural 22,597 2.2 23,560 2.5
1-4 family mortgages 197,650 19.5 198,208 20.7
Installment 7,356 0.7 8,611 0.9
Other 473 0.1 1,641 0.2
----------- ----- ---------- ------------
Total loans 1,016,097 100.0% 957,285 100.0%
===== ============
Allowance for loan losses (11,221) (10,755)
----------- ----------
Loans, net $ 1,004,876 $ 946,530
=========== ==========
The following table presents data on impaired loans:
March 31, December 31,
2008 2007
--------- ------------
Impaired loans for which an allowance has been provided $ 6,179 $ 5,502
Impaired loans for which no allowance has been provided 3,723 5,923
--------- ------------
Total loans determined to be impaired $ 9,902 $ 11,425
========= ============
Allowance for loan loss for impaired loans included in
the allowance for loan losses $ 2,212 $ 2,350
========= ============
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.
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7.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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Note 4. Loans (continued)
As of March 31, 2008, the Company had $3,920 of loans held for sale and at
December 31, 2007, the Company had $1,598 of loans held for sale.
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
months ended March 31, 2008 and 2007 are summarized below:
Three Months Ended
March 31,
--------------------------
2008 2007
------------- ----------
Beginning balance $ 10,755 $ 10,835
Charge-offs (398) (498)
Recoveries 98 270
Provision for loan losses 766 -
------------- ----------
Ending balance $ 11,221 $ 10,607
============= ==========
Period end total loans $ 1,016,097 $ 868,529
============= ==========
Average loans $ 999,042 $ 856,962
============= ==========
Ratio of net charge-offs to average loans 0.03% 0.03%
Ratio of provision for loan losses to average loans 0.08 0.00
Ratio of allowance for loan losses
to period end total loans 1.10 1.22
Ratio of allowance for loan losses
to total nonperforming loans 276.52 112.65
Ratio of allowance for loan losses
to average loans 1.12 1.24
Note 5. Share Based Compensation
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, 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, 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 254,000 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.
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8.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 5. Share Based Compensation (continued)
The Company's compensation committee awarded 5,000 restricted common stock
awards available under the restricted stock portion of the plan. The restricted
shares were issued out of treasury shares with an aggregate grant date fair
value of $90. The awards were granted using the fair value as the last sale
price as quoted on the NASDAQ Stock Market on the date of grant of $18.03. The
awarded shares vest at a rate of 20% of the initially awarded amount per year,
beginning on the first anniversary date of the award, and are contingent upon
continuous service by the recipient through the vesting date. Currently, there
are 1,000 shares of the restricted stock that have vested.
A summary of the status of the option plans as of March 31, 2008, and changes
during the period ended on those dates is presented below:
March 31, 2008
------------------------------------------------
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Life Value
------- ----------- ----------- ----------
Outstanding at January 1, 2008 574,024 $ 18.96
Granted 93,000 17.63
Exercised (13,100) 16.36
Forfeited (37,710) 20.69
------- -----------
Outstanding at end of period 616,214 $ 18.71 5.2 years $ 1,124
======= =========== =========== ==========
Vested or expected to vest 606,620 18.71 5.0 years 1,114
Options exercisable at period end 403,014 $ 18.71 4.5 years $ 896
======= =========== =========== ==========
Options outstanding at March 31, 2008 and December 31, 2007 were as follows:
Outstanding Exercisable
--------------------- ------------------------
Weighted-
Average Weighted-
Remaining Average
Contractual Exercise
Range of Exercise Prices Number Life Number Price
------------------------------------ ------- ----------- ----------- ----------
March 31, 2008:
$ 11.25 - $ 13.00 46,381 2.3 years 46,381 $ 11.60
13.88 - 18.50 216,033 4.9 years 123,033 15.55
19.03 - 23.31 353,800 5.8 years 233,600 21.79
------- ----------- ----------- ----------
616,214 5.2 years 403,014 $ 18.71
======= =========== =========== ==========
December 31, 2007:
11.25 - 13.00 46,381 2.6 years 46,381 11.60
13.88 - 18.50 143,443 3.2 years 143,443 15.60
19.03 - 23.31 384,200 5.9 years 260,600 21.86
------- ----------- ----------- ----------
574,024 5.0 years 450,424 $ 18.81
======= =========== =========== ==========
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9.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 5. Share Based Compensation (continued)
Information related to the stock option plan during the quarter ended March 31,
2008 and 2007 is as follows:
March 31, March 31,
2008 2007
--------- ---------
Intrinsic value of options exercised $ 37 $ 124
Cash received from option exercises 214 266
Tax benefit realized from option exercises - 103
Weighted average of fair value of options granted 3.36 4.65
The compensation cost that has been charged against income for the stock options
portion of the Equity Incentive Plan was $24 and $6 for the three months ended
March 31, 2008 and 2007. The compensation cost that has been charged against
income for the restricted stock portion of the Equity Incentive Plan was $5 and
$0 for the three months ended March 31, 2008 and 2007.
The fair value of each option award is estimated on the date of grant using a
closed form option valuation (Black-Scholes) model that uses the assumptions
noted in the table below. Expected volatilities are based on historical
volatilities of the Company's common stock. The Company uses historical data to
estimate option exercise and post-vesting termination behavior. (Employee and
management options are tracked separately.) The expected term of options granted
is based on historical data and represents the period of time that options
granted are expected to be outstanding, which takes into account that the
options are not transferable. The risk-free interest rate for the expected term
of the option is based on the U.S. Treasury yield curve in effect at the time of
the grant. The fair value of options granted was determined using the following
weighted-average assumptions as of grant date:
March 31, March 31,
2008 2007
--------- ---------
Fair value $ 3.36 $ 4.69
Risk-free interest rate 2.75% 4.69%
Expected option life (years) 6 6
Expected stock price volatility 24.07% 23.67%
Dividend yield 2.95% 2.68%
Unrecognized stock option compensation expense related to unvested awards (net
of estimated forfeitures) for the remainder of 2008 and beyond is estimated as
follows:
Amount
---------
April, 2008 - December, 2008 $ 145
2009 172
2010 172
2011 160
2012 104
2013 5
---------
Total $ 758
=========
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10.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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 utilizes a line of business ("LOB") reporting structure which 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 other operations. 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 and holding company services 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.
The accounting policies used with respect to segment reporting are the same as
those described in the summary of significant accounting policies as forth in
Note 1. Segment performance is evaluated using net income.
Information reported internally for performance assessment follows.
Three Months Ended
-----------------------------------------------------------------------------
March 31, 2008
-----------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Consolidated
Segment Segment Segment Management Operations Totals
---------- ---------- ---------- ---------- ---------- ------------
Net interest income (loss) $ 3,256 $ 5,911 $ 602 $ (9) $ (57) $ 9,703
Other revenue 3,076 287 848 382 345 4,938
Other expense 3,344 1,101 218 319 3,554 8,536
Noncash items
Depreciation 431 2 - 4 438 875
Provision for loan losses - 766 - - - 766
Other intangibles 507 - - 398 - 905
Net allocations 920 2,441 629 3 (3,993) -
Income tax expense 373 623 199 (116) 35 1,114
Segment profit (loss) $ 757 $ 1,265 $ 404 $ (235) $ 254 $ 2,445
Goodwill $ 11,927 $ 12,404 $ - $ 770 $ - $ 25,101
Segment assets $ 300,540 $ 798,855 $ 205,825 $ 913 $ 81,719 $ 1,387,852
Three Months Ended
-----------------------------------------------------------------------------
March 31, 2007
-----------------------------------------------------------------------------
Retail Commercial Treasury Wealth Other Consolidated
Segment Segment Segment Management Operations Totals
---------- ---------- ---------- ---------- ---------- ------------
Net interest income (loss) $ 3,148 $ 5,773 $ 286 $ 59 $ 57 $ 9,323
Other revenue 1,952 204 294 516 288 3,254
Other expense 2,883 1,094 159 541 3,812 8,489
Noncash items
Depreciation 398 4 - 6 429 837
Provision for loan losses - - - - - -
Other intangibles 348 - - 274 (1) 621
Net allocations 942 2,239 898 161 (4,240) -
Income tax expense 106 442 (81) (100) 364 731
Segment profit (loss) $ 423 $ 2,198 $ (396) $ (307) $ (19) $ 1,899
Goodwill $ 11,843 $ 12,387 $ - $ 1,166 $ - $ 25,396
Segment assets $ 241,930 $ 722,762 $ 281,432 $ 2,709 $ 69,988 $ 1,318,821
--------------------------------------------------------------------------------
11.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 8. Borrowed Funds and Debt Obligations
On March 31, 2008, the Company entered into a new loan agreement with LaSalle
Bank N.A. which provides for up to an aggregate principal amount of $35,250 in
borrowings. The loan agreement consists of three credit facilities. The first
credit facility consists of a $25,000 secured revolving line of credit which
matures in December 2008. The second credit facility consists of a $250 secured
term facility, which will mature in March 2015. The third credit facility
consists of a $10,000 in subordinated debt, which also matures in March 2015.
The interest rate on the term and subordinated debt credit facilities is three
month LIBOR plus 295 basis points. The interest rate on the revolving credit
facility is three month LIBOR plus 125 basis points. Repayment of each of the
three credit facilities is interest only on a quarterly basis, with the
principal amount of the loan due at maturity. The revolving and term credit
facilities are secured by a pledge of the stock of Centrue Bank. The
subordinated debt credit facility is unsecured and is intended to qualify as
tier II capital for regulatory purposes. The loan agreement contains customary
covenants, including but not limited to, Centrue Bank's maintenance of its
status as well-capitalized, minimum return on average assets on an annual basis
of 0.50%, maximum nonperforming assets to primary capital below 20%, and minimum
loan loss reserves to total loans of 1.00%. The Company intends to use the
credit facilities for general working capital purposes. The loan agreement
contains no penalty for early repayment of either the revolving credit facility
or the subordinated debt credit facility.
Note 9. Business Acquisitions and Divestures
On March 28, 2008 the Company completed the sale of its Hanover and Elizabeth
branches to Apple River State Bank headquartered in Apple River, Illinois. Apple
River assumed approximately $25,300 in deposits and aquired $12,700 in loans,
and $401 in premises and equipment. The net gain on the sale was $482.
On December 28, 2007, the Company entered into an agreement to sell its Manlius
and Tampico, Illinois branches to Peoples National Bank headquartered in
Kewanee, Illinois. The Definitive Purchase and Assumption Agreement entered into
calls for Peoples National to assume approximately $31.3 million in deposits and
$25.9 million in loans. Additionally, Peoples National Bank is acquiring
premises and equipment of $276. The transaction is expected to be completed late
in the second quarter of 2008. Management does not expect a loss on this
transaction.
The proposed sale of the remaining branches in 2008 (Manlius and Tampico) is not
expected to have a material impact on the future operations and results of the
Company.
Note 10. Fair Value
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. In February 2008, the FASB issued staff
position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays
the effective date of FAS 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008 and interim periods within those fiscal years. The impact of adoption was
not material.
Statement 157 establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) or identical assets or liabilities in
active markets that the entity has the ability to access as of the
measurement date.
--------------------------------------------------------------------------------
12.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 10. Fair Value (continued)
Level 2: Significant other observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs to reflect a reporting entity's
own assumptions about the assumptions that market participants would use
to price an asset or liability.
The fair value of securities available for sale are determined by obtaining
quoted prices on nationally recognized securities exchanges (Level 1 inputs) or
matrix pricing, which is a mathematical technique widely used in the industry to
value debt securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the securities' relationship to
other benchmark quoted securities (Level 2 inputs).
Assets and liabilities measured at fair value are summarized below:
Fair Value Measurements at March 31, 2008 Using
-----------------------------------------------
Quoted Prices in Significant
Active Markets Other
for Identical Observable
Assets Inputs
March 31, 2008 (Level 1) (Level 2)
-------------- ---------------- -----------
Assets and Liabilities Measured on a Recurring Basis
----------------------------------------------------
Assets:
Available for sale securities $ 207,267 $ - $ 207,267
Assets and Liabilities Measured on a Non-Recurring Basis
--------------------------------------------------------
Assets:
Impaired Loans $ 3,967 $ - $ 3,967
Impaired loans, which are measured for impairment using the fair value of the
collateral for collateral dependent loans, had a carrying amount of $6,179 with
a valuation allowance of $2,212, resulting in an additional provision for loan
losses of $0 for the period.
--------------------------------------------------------------------------------
13.
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Note 11. Recent Accounting Developments
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. The new standard is
effective for the Company on January 1, 2008. The Company did not elect the fair
value option for any financial assets or financial liabilities as of January 1,
2008.
In January 2007, the FASB issued Derivatives Implementation Group Issue B40,
Application of Paragraph 13 (b) to Securitized Interests in Prepayable Financial
Assets (DIG Issue B40). DIG Issue B40 provides an exemption from the embedded
derivative test of paragraph 13 (b) of SFAS No. 133 for instruments that would
otherwise require bifurcation if the test is met solely because of a prepayment
feature included within the securitized interest and prepayment is not
controlled by the security holder. SFAS No. 155 and DIG Issue B40 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. Due to the
adoption of this item, the Company recorded an entry of $730 to the beginning
balance for retained earnings as of January 1, 2008.
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written
Loan Commitments Recorded at Fair Value through Earnings ("SAB 109").
Previously, SAB 105, Application of Accounting Principles to Loan Commitments,
stated that in measuring the fair value of a derivative loan commitment, a
company should not incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that
the expected net future cash flows related to the associated servicing of the
loan should be included in measuring fair value for all written loan commitments
that are accounted for at fair value through earnings. SAB 105 also indicated
that internally-developed intangible assets should not be recorded as part of
the fair value of a derivative loan commitment, and SAB 109 retains that view.
SAB 109 is effective for derivative loan commitments issued or modified in
fiscal quarters beginning after December 15, 2007. The impact of this standard
was not material.
On March 19, 2008, the FASB issued FASB Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities (SFAS 161), which is intended to
improve financial reporting for derivative instruments and hedging activities.
Additional disclosures will be required that require disclosure of the fair
values of derivative instruments and their gains and losses in tabular format.
It also requires disclosure of derivatives features that are credit
risk-related. These changes will enable investors to better understand their
effects on an entity's financial position, financial performance and cash flows.
It is effective for financial statements for fiscal years and interim periods
beginning after November 15, 2008. The impact of this statement will not have a
material effect on the Company's consolidated financial statements.
--------------------------------------------------------------------------------
14.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Centrue Financial Corporation (the "Company") is a bank holding company
organized under the laws of the State of Delaware. The Company provides a full
range of products and services to individual and corporate customers located in
the north central, east central, south central, suburban west area of Chicago,
suburban metro east area of St. Louis, and northwest Illinois areas. These
products and services include demand, time, and savings deposits; lending;
mortgage banking, brokerage, asset management, and trust services. The Company
is subject to competition from other financial institutions, including banks,
thrifts and credit unions, as well as nonfinancial institutions providing
financial services. Additionally, the Company and its subsidiary Centrue Bank
(the "Bank") are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.
The following discussion provides an analysis of the Company's results of
operations and financial condition for the three months ended March 31, 2008 as
compared to the same period in 2007. 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 2007 amounts have been reclassified to conform to
the 2008 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, 2007. The annualized results of operations during the three months ended
March 31, 2008 are not necessarily indicative of the results expected for the
year ending December 31, 2008. 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 2007 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.
--------------------------------------------------------------------------------
15.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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.
General
First Quarter 2008 Highlights:
o Nonrecurring activity for the quarter accounted for approximately $349,000
in net income after taxes or $0.06 per diluted share. Excluding
nonrecurring activity, net income increased 10.4%, while diluted earnings
per share rose 17.9%, in comparison to first quarter 2007 results.
o First quarter 2008 results included the following nonrecurring activity:
o Approximately $84,000 in discounted agency securities were
called resulting in a net gain on sale of $848. Cash received
from the called securities was used to fund loans and reinvest
in adjustable rate or "hybrid" securities.
o Net gain on sale of branches of $482.
o Write-down of $397 in goodwill related to the anticipated sale
of a business line within the Wealth Management segment.
o Approximately $362 in costs associated with branch
sales/closings, employee separation costs and other
miscellaneous costs.
o The loan portfolio increased $58,800 or 6.1% from year-end 2007 and
$147,600 or 17.0% from first quarter 2007.
o The level of nonperforming assets decreased $1,800 or 25.7% to $5,200
versus the $7.0 million that existed as of December 31, 2007.
o The net interest margin decreased 10 basis points to 3.25% as compared to
3.35% recorded in the first and fourth quarters of 2007.
o As part of an ongoing effort by the Company to redeploy capital to higher
growth markets, the Company completed the sale of its Hanover and
Elizabeth branches. The transaction resulted in selling $12,700 in loans
and $25,300 in deposits and generated a net gain on sale of $482. Upcoming
branch transactions include the previously announced sale of the Manlius
and Tampico branches and closing of the Ashkum branch, both scheduled to
be completed in the second quarter.
o Entered into a $10,000 subordinated debt agreement with LaSalle Bank N.A.
The subordinated debt credit facility is unsecured and is intended to
qualify as tier II capital for regulatory purposes.
o In an effort to provide greater visibility and recognition within the
investment community, the Company relocated our corporate headquarters to
St. Louis, Missouri.
--------------------------------------------------------------------------------
16.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Results of Operations
Net Income
Net income for the first quarter 2008 equaled $2,445 or $0.39 per diluted share
as compared to $1,899 or $0.28 per diluted share in the same period of 2007.
This represents increases of 28.8% in net income and 39.3% in diluted per share
earnings.
Return on average assets was 0.71% for the first quarter of 2008 compared to
0.60% for the same period in 2007. Return on average stockholders' equity was
8.24% for the first quarter of 2008 compared to 6.50% for the same period in
2007.
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 March 31,
2008 increased 4.1% to $9,968 as compared $9,574 for the same period in 2007.
The improvement in net interest income was largely related to growth in the loan
portfolio and a decrease in rates paid on interest bearing liabilities. These
improvements were partially offset by reductions in the rates earned and volume
of the securities portfolio and a decrease in rates earned on loans.
The net interest margin, on a tax equivalent basis, decreased 10 basis points to
3.25% as compared to the same period in 2007 and also decreased 10 basis points
from the fourth quarter of 2007. The primary drivers for the decrease were
compressed yields on the securities and loan portfolios, heightened competition
for deposits and increased bank funding costs. Competitive pressures in pricing
loans and deposits and expected future FOMC short-term rate reductions are
likely to maintain pressure on the margin throughout 2008.
--------------------------------------------------------------------------------
17.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
For the Three Months Ended March 31,
--------------------------------------------------------------
2008 2007
------------------------------ ------------------------------
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 $ 2,977 $ 7 0.92% $ 3,554 $ 13 1.48% $ (1) $ (5) $ (6)
Securities
Taxable 191,235 2,453 5.16 252,872 3,305 5.30 (764) (88) (852)
Non-taxable 39,380 575 5.88 41,037 564 5.57 (20) 31 11
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Total securities (tax
equivalent) 230,615 3,028 5.28 293,909 3,869 5.34 (784) (57) (841)
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Federal funds sold 4,200 37 3.54 6,103 82 5.45 (20) (25) (45)
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Loans
Commercial 220,667 3,742 6.82 182,954 3,721 8.25 752 (731) 21
Real estate 765,476 13,449 7.07 658,484 12,108 7.46 2,022 (681) 1,341
Installment and other 11,440 184 6.48 15,524 270 7.05 (64) (22) (86)
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Gross loans (tax
equivalent) 997,583 17,375 7.01 856,962 16,099 7.62 2,710 (1,434) 1,276
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Total interest-earnings
assets 1,235,375 20,447 6.66 1,160,528 20,063 7.01 1,905 (1,521) 384
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Noninterest-earning assets
Cash and cash equivalents 33,429 26,676
Premises and equipment, net 35,422 35,509
Other assets 72,259 71,295
----------- -----------
Total nonearning assets 141,110 133,480
Total assets $ 1,376,485 $ 1,294,008
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 112,010 $ 403 1.45 $ 102,601 $ 420 1.66 41 (58) (17)
Money market accounts 156,238 1,320 3.40 119,940 1,058 3.58 319 (57) 262
Savings deposits 89,413 142 0.64 102,559 181 0.72 (20) (19) (39)
Time deposits 565,086 6,475 4.61 587,319 7,157 4.94 (199) (483) (682)
Federal funds purchased and
repurchase Agreements 50,214 333 2.66 36,372 410 4.57 138 (215) (77)
Advances from FHLB 120,635 1,172 3.91 61,226 645 4.27 590 (63) 527
Notes payable 36,179 634 7.05 30,378 618 8.25 117 (101) 16
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Total interest-bearing
liabilities 1,129,775 10,479 3.73 1,040,395 10,489 4.09 986 (996) (10)
----------- -------- ------- ----------- -------- ------- ------- -------- -------
Noninterest-bearing liabilities
Noninterest-bearing deposits 115,947 125,507
Other liabilities 11,345 9,700
----------- -----------
Total noninterest-bearing
liabilities 127,292 135,207
----------- -----------
Stockholders' equity 119,418 118,406
----------- -----------
Total liabilities and $ 1,376,485 $ 1,294,008
stockholders' equity =========== ===========
Net interest income (tax
equivalent) $ 9,968 $ 9,574 $ 919 $ (525) $ 394
======== ======== ======= ======== =======
Net interest income (tax
equivalent) to total earning
assets 3.25% 3.35%
======= =======
Interest-bearing liabilities
to earning assets 91.45% 89.65%
=========== ===========
(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 SHARE AND 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 first quarter of 2008, the Company made a $766 provision to the
allowance for loan losses as compared to reporting a $0 provision for same
period in 2007.
The following factors have impacted 2008 provision levels:
o growth in loan portfolio;
o increase in action list loans since year-end;
o identifying and addressing problem credits based on the recent
deteriorating economic conditions;
Net charge-offs for the first quarter of 2008 were $300 compared with $228 for
the comparable period in 2007. Annualized net charge-offs for the period was
0.03% of average loans compared with 0.03% of average loans for same period in
2007.
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.
Noninterest Income
Noninterest income consists of a wide variety of fee-based revenues from
bank-related service charges on deposits and mortgage revenues. Also included in
this category are revenues generated by the Company's brokerage, trust and asset
management services as well as increases in cash surrender value on bank-owned
life insurance. The following table summarizes the Company's noninterest income:
Three Months Ended
March 31,
------------------
2008 2007
-------- -------
Service charges 1,636 1,583
Trust income 253 229
Mortgage banking income 446 434
Brokerage commissions and fees 102 126
Bank owned life insurance 252 241
Securities gains, net 848 -
Gain on sale of Oreo 96 82
Gain on sale of Other Assets 482 -
Other income 823 559
-------- -------
Total noninterest income $ 4,938 $ 3,254
======== =======
Noninterest income totaled $4,938 for the three months ended March 31, 2008,
compared to $3,254 for the same period in 2007. Excluding $848 in net securities
gains and $482 of net gains on the sale of other assets, noninterest income
increased $354 or 10.9% during the first quarter of 2008 as compared to the same
period in 2007. This growth was primarily due to the result of improvements in
service charges and NSF fees on deposit accounts, volume related improvement
from the mortgage banking division and increased revenue generated from
electronic banking products.
--------------------------------------------------------------------------------
19.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Noninterest Expense
Noninterest expense is comprised primarily of compensation and employee
benefits, occupancy and other operating expense. The following table summarizes
the Company's noninterest expense:
Three Months Ended
March 31,
------------------
2008 2007
-------- -------
Salaries and employee benefits $ 4,829 $ 5,148
Occupancy expense, net 1,210 941
Furniture and equipment expense 611 695
Marketing 223 192
Supplies and printing 131 181
Telephone 241 178
Data processing 303 583
Amortization of intangible assets 909 621
Other expenses 1,859 1,409
-------- -------
Total noninterest expense $ 10,316 $ 9,948
======== =======
Noninterest expense totaled $10,316 for the three months ended March 31, 2008,
compared to $9,948 for the same period in 2007. Excluding $759 of previously
mentioned non-recurring items, noninterest expense declined $391 or 3.9% during
the first quarter as compared to the same period in 2007. The decrease was
primarily the result of reductions in salaries and employee benefits due to a
decrease in full time equivalent employees, data processing costs related to the
elimination of a redundant service provider and lower supplies expense.
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 months ended March 31, 2008 and 2007.
Three Months Ended
March 31,
------------------
2008 2007
-------- -------
Income before income taxes $ 3,559 $ 2,629
Applicable income taxes 1,114 730
Effective tax rates 31.3% 27.8%
The Company recorded an income tax expense of $1,114 and $730 for the three
months ended March 31, 2008 and 2007, respectively. Effective tax rates equaled
31.3% and 27.8% respectively, for such periods.
The Company's effective tax rate was lower than statutory rates due to several
factors. First, the Company derives interest income from municipal securities
and loans, which are exempt from federal tax and certain U. S. government agency
securities, which are exempt from state tax. Also, the Company derives income
from bank owned life insurance policies, which is exempt from federal and state
tax.
--------------------------------------------------------------------------------
20.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Earnings Review by Business Segment
The Company's internal reporting and planning process focuses on four primary
lines of business (Segment(s)): Retail, Commercial, Treasury and Wealth
Management. See Note 7 of the Notes to Unaudited Consolidated Financial
Statements for the presentation of the condensed income statement and total
assets for each Segment.
The financial information presented was derived from the Company's internal
profitability reporting system that is used by management to monitor and manage
the financial performance of the Company. This information is based on internal
management accounting policies which have been developed to reflect the
underlying economics of the Segments and, to the extent practicable, to portray
the Segment as if it operated on a stand alone basis. Thus, each Segment, in
addition to its direct revenues and expenses, assets and liabilities, includes
an allocation of shared support function expenses. The Retail, Commercial,
Treasury, and Wealth Management Segments also include funds transfer adjustments
to appropriately reflect the cost of funds on loans made and funding credits on
deposits generated. Apart from these adjustments, the accounting policies used
are similar to those described in Note 1 of the Notes to Consolidated Financial
Statements.
Since there are no comprehensive authorities for management accounting
equivalent to U.S. generally accepted accounting principles, the information
presented is not necessarily comparable with similar information from other
financial institutions. In addition, methodologies used to measure, assign and
allocate certain items may change from time-to-time to reflect, among other
things, accounting estimate refinements, changes in risk profiles, changes in
customers or product lines and changes in management structure.
Retail Segment. The Retail Segment ("Retail") provides retail banking
services to individual customers through the Company's branch locations in
Illinois and Missouri. The services provided by this Segment include direct
lending, checking, savings, money market, CD accounts, safe deposit rental,
ATM's and other traditional and electronic banking services.
Retail represented 30.9% of total Segment net income in the first quarter
of 2008 as compared to 22.3% during same period in 2007. Retail assets were
$300,540 at March 31, 2008, $306,156 at December 31, 2007 and $241,930 as of
March 31, 2007. This represented 21.7%, 22.4% and 18.3% of total consolidated
assets, respectively.
The increase from first quarter of 2007 to 2008 was primarily the result
of volume related increases from the mortgage banking division, gain on sale of
branches, and stronger revenues from electronic banking products. Additionally,
lower payroll and benefit costs and equipment depreciation costs helped improve
earnings in the period. This was slightly offset by higher premises costs due to
write-down of several facilities, higher debit card expenses and miscellaneous
costs.
Commercial Segment. The Commercial Segment ("Commercial") provides
commercial banking services to business customers served through the Company's
full service branch channels located in Illinois and Missouri. The services
provided by this Segment include lending, business checking and deposits, cash
management, and other traditional as well as electronic commercial banking
services.
Commercial represented 51.7% of total Segment net income in the first
quarter of 2008 as compared to 116.7% during same period in 2007. Commercial
assets were $798,855 at March 31, 2008, $741,861 at December 31, 2007 and
$722,762 as of March 31, 2007. This represented 57.6%, 54.3% and 54.8% of total
consolidated assets, respectively.
--------------------------------------------------------------------------------
21.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
The decrease in net income from the first quarter of 2007 to 2008 was
primarily the result of the increase in provision recorded during the quarter
and the allocated expenses being higher due to growth in the commercial loan
portfolio. The increase in the provision was the result of primarily growth in
the loan portfolio and identifying and addressing problem credits and the recent
deteriorating economic conditions in a timely fashion.
Treasury Segment. The Treasury Segment ("Treasury") is responsible for
managing the investment portfolio and acquiring funding for loan activity.
Treasury represented 16.5% of total segment net income in the first quarter of
2008 and (20.1%) during same period in 2007. Treasury assets were $205,825 at
March 31, 2008, $268,484 at December 31, 2007 and $281,432 as of March 31, 2007.
This represented 14.8%, 19.7% and 21.3% of total consolidated assets,
respectively.
Treasury's assets declined during the first quarter of 2008 related to the
approximately $83,000 in discounted agency securities that were called resulting
in a net gain on sale of $848. This led to most of the increase in net income
for the period. Additionally, net allocated expenses were lower due to the
decreased asset base. These positive variances were offset somewhat by higher
taxes and operating costs.
Wealth Management Segment. The Wealth Management Segment ("Wealth")
provides trust services, estate administration, financial planning, employee
benefit plan administration, asset management, and brokerage transaction
services.
Wealth represented (9.6%) of total Segment net income during the first
quarter 2008 as compared to (16.2%) in same period in 2007. Wealth assets were
$913 at March 31, 2008, $1,289 at December 31, 2007 and $2,709 as of March 31,
2007. This represented 0.07%, 0.10% and 0.21% of total consolidated assets,
respectively.
Assets and earnings decreased due to the $397,000 write-down of goodwill
for one of its business lines.
The results for the first quarter of 2008 improved over the same period in
2007 due to reduction of operating expenses and reduction of net expense
allocations. These positive variances were slightly offset by reduced earnings
during the first quarter of 2008.
Financial Condition
General
Following are highlights when compared to December 31, 2007:
o Outstanding loans totaled $1,016,097 at March 31, 2008 compared to
$957,285 at December 31, 2007, representing an increase of $58,812 or
6.1%. The loan growth was largely generated in the St. Louis and Streator
markets and was concentrated in commercial real estate and commercial and
industrial lending activities. The Company has no direct exposure to
subprime mortgages.
o Deposits totaled $1,049,049 at March 31, 2008 compared to $1,033,022 at
December 31, 2007, representing an increase of $16,027 or 1.6%. The
majority of the increase was concentrated in lower costing non-maturing
deposits, representing a shift from higher costing time deposits.
--------------------------------------------------------------------------------
22.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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.
2008 2007
-------- -----------------------------------------
Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
-------- -------- -------- -------- --------
Nonaccrual loans $ 4,058 $ 4,090 $ 5,573 $ 4,492 $ 9,416
Loans 90 days past due and still accruing interest - - - - -
-------- -------- -------- -------- --------
Total nonperforming loans 4,058 4,090 5,573 4,492 9,416
Other real estate owned 1,153 2,937 4,620 6,568 4,262
-------- -------- -------- -------- --------
Total nonperforming assets $ 5,211 $ 7,027 $ 10,193 $ 11,060 $ 13,678
======== ======== ======== ======== ========
Nonperforming loans to total end of period loans 0.40% 0.43% 0.60% 0.49% 1.08%
Nonperforming assets to total end of period loans 0.51% 0.73% 1.09% 1.21% 1.57%
Nonperforming assets to total end of period assets 0.38% 0.51% 0.75% 0.81% 1.04%
The level of nonperforming loans at March 31, 2008 decreased 0.8% to $4,058
compared to $4,090 that was reported at December 31, 2007. The decrease in
nonperforming loans from December 31, 2007 to March 31, 2008 was largely related
to the completion of work out plans previously in place. Some of the work out
plans for nonperforming real estate loans resulted in the Company obtaining
ownership of the collateral securing the loans. Other real estate owned
decreased by $1,784 during the quarter compared to year-end 2007.
The level of nonperforming loans to total end of period loans was 0.40% at March
31, 2008, as compared to 0.43% at December 31, 2007. The reserve coverage ratio
(allowance to nonperforming loans) was reported at 276.52% as of March 31, 2008
as compared to 262.96% as of December 31, 2007.
In light of current market conditions, a review of our commercial real estate
portfolio is ongoing. This continuing review has resulted in two large
relationships aggregating $28,000 being placed onto our internal watch list over
the past thirty days. We are proactively working with the affected borrowers in
order to strengthen or liquidate the loans.
--------------------------------------------------------------------------------
23.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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 $1,131 at March 31, 2008 as compared to $2,202 at March 31, 2007 and
$1,485 at December 31, 2007. 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 March 31, 2008, the allowance for loan losses was $11,221 or 1.10% of total
loans as compared to $10,755 or 1.12% at December 31, 2007. 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;
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.
--------------------------------------------------------------------------------
24.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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
decrease in cash and cash equivalents of $1,022 from December 31, 2007 to March
31, 2008.
During the first three months of 2008, the Company experienced net cash outflows
of $45,014 in investing activities primarily due to an increase in loans and
securities and $1,170 in operating activities. In contrast, net cash inflows of
$45,162 were provided by financing activities largely due to the net growth in
deposits and issuance of debt.
--------------------------------------------------------------------------------
25.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND 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 March 31, 2008.
Payments Due by Period
--------------------------------------------------------------
Within 1 After
Year 1 - 3 Years 4 - 5 Years 5 Years Total
---------- ----------- ----------- --------- ---------
Contractual Obligations
Short-term debt $ 12,981 $ - $ - $ 250 $ 13,231
Long-term debt - 2,600 2,200 6,000 10,800
Certificates of deposit 481,972 76,264 3,327 4,395 565,958
Operating leases 348 594 613 306 1,861
Severance payments 55 - - - 55
Series B mandatory redeemable preferred
stock - 831 - - 831
Subordinated debentures - - - 20,620 20,620
FHLB advances 79,145 28,200 3,000 5,063 115,408
---------- ----------- ----------- --------- ---------
Total contractual cash obligations $ 574,501 $ 108,489 $ 9,140 $ 36,634 $ 728,764
========== =========== =========== ========= =========
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 $ 163,468 $ 59,136 $ 3,754 $ 20,541 $ 246,899
Standby letters of credit 6,871 6,638 - 2,753 16,262
---------- ----------- ----------- --------- ---------
Total contractual cash obligations $ 170,339 $ 65,774 $ 3,754 $ 23,294 $ 263,161
========== =========== =========== ========= =========
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 March 31, 2008 was $117,870, a decrease of $1,006 or 0.8%, from December 31,
2007. The decrease in stockholders' equity was largely the result of the
Company's stock repurchase program, postretirement liability adjustment related
to the adoption of FASB Issue No. 06-4 and a decrease in accumulated other
comprehensive income due to a reduction in the fair market value of
available-for-sales securities. Average quarterly equity as a percentage of
average quarterly assets was 8.68% at March 31, 2008, compared to 8.75% at
December 31, 2007. Book value per common share equaled $19.48 at March 31, 2008
compared to $19.50 at December 31, 2007.
Stock Repurchase
The Company repurchased 58,500 shares of stock during the quarter ended March
31, 2008 at an average price of $20.08. The 2006 repurchase program approved on
November 13, 2006 authorized the Company to repurchase up to 5% or 370,000
shares of common stock. This plan was completed in the fourth quarter 2007. The
2007 repurchase program approved on July 24, 2007 authorized the Company to
repurchase 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 2006 stock repurchase program. The expiration date of this
program is January 24, 2009. Unless terminated earlier by resolution of our
board of directors, the program will expire on the earlier of such expiration
date or when we have repurchased all shares authorized for repurchase under the
program.
--------------------------------------------------------------------------------
26.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
Capital Measurements
As discussed in Note 8, the Company's current debt agreements include a covenant
that require the Bank to maintain the status of being well capitalized which is
a ratio of 10.0% for total risk based capital. 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 8.9% and 10.8%,
respectively, at March 31, 2008. 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
Mar 31, ----------------------- Capital Capitalized
2008 2007 2006 Ratios Ratios
----------- ----------- --------- ------- -----------
Tier 1 risk-based capital $ 102,597 $ 101,831 $ 99,869
Tier 2 risk-based capital 21,221 10,755 10,835
----------- ----------- ---------
Total capital $ 123,818 $ 112,586 $ 110,704
=========== =========== =========
Risk-weighted assets $ 1,147,621 $ 1,102,602 $ 926,874
=========== =========== =========
Capital ratios:
Tier 1 risk-based capital 8.9% 9.2% 10.8% 4.0% 6.0%
Total risk-based capital 10.8% 10.2% 11.9% 8.0% 10.0%
Leverage ratio 7.7% 7.7% 7.9% 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.
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;
--------------------------------------------------------------------------------
27.
CENTRUE FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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 March 31, 2008 and December 31, 2007, respectively:
Change in Net Interest Income Over One Year Horizon
---------------------------------------------------
March 31, 2008 December 31, 2007
------------------------ ------------------------
Change Change
------------------------ ------------------------
$ % $ %
----------- --------- ----------- ---------
+ 200 bp $ 1,187 2.95% $ 305 0.74%
+ 100 bp 708 1.76 509 1.23
Base - - - -
- 100 bp (1,155) (2.87) (1,410) (3.41)
- 200 bp (2,787) (6.92) (3,109) (7.51)
As shown above, the Company's model at March 31, 2008, the effect of an
immediate 200 basis point increase in interest rates would increase the
Company's net interest income by $1,187 or 2.95%. The effect of an immediate 200
basis point decrease in rates would decrease the Company's net interest income
by $2,787 or 6.92%.
In January, 2008, the Federal Reserve reduced rates by 125 basis points. The
effect these rate adjustments have had is to increase pressure on our margin for
2008. Management had forecasted some of this rate reduction and took immediate
steps to lessen the impact of the additional reductions that were announced. The
mix of our funding portion of the balance sheet has been adjusted to lessen the
impact the reductions would have on our asset rate sensitive portion of the
balance sheet by taking advantage of the wider spreads in various sectors.
Additionally, the steepening of the yield curve has also been advantageous to
lessening the impact that the rate reductions will have during 2008.
--------------------------------------------------------------------------------
28.
CENTRUE FINANCIAL CORPORATION
ITEM 4. CONTROLS AND PROCEDURES
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
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, 2007.
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 March 31, 2008.
Total Number of Maximum
Shares Purchased Number of Shares
as Part of that May Yet Be
Publicly Purchased Under
Total Number of Average Price Announced Plans the Plans or
Period Shares Purchased Paid per Share or Programs Programs
------------------- ---------------- -------------- ---------------- ----------------
01/01/08 - 01/31/08 17,200 $ 22.41 17,200 436,378
02/01/08 - 02/29/08 13,100 $ 18.32 13,100 423,278
03/01/08 - 03/31/08 28,200 $ 19.47 28,200 395,078
Total (1) 58,500 $ 20.08 58,500 395,078
(1) The Company repurchased 58,500 shares of stock during the quarter
ended March 31, 2008 at an average price of $20.08. The 2006
repurchase program approved on November 13, 2006 authorized the
Company to repurchase up to 5% or 370,000 shares of common stock.
This plan was completed in the fourth quarter 2007. The 2007
repurchase program approved on July 24, 2007 authorized the Company
to repurchase 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 2006 stock
repurchase program. The expiration date of this program is January
24, 2009. Unless terminated earlier by resolution of our board of
directors, the program 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.
Item 4. Submission of Matters to a Vote of Security Holders
None
--------------------------------------------------------------------------------
30.
Item 5. Other Information
None
Item 6. Exhibits
Exhibits:
10.1 Amended and Restated Loan and Subordinated Debenture Purchase
Agreement dated as of March 31, 2008 (incorporated by reference
from current report on Form 8-K filed on April 3, 2008).
10.2 Roger D. Dotson Employment Agreement Extension dated February 7,
2008.
10.3 Steven E. Flahaven Employment Agreement Extension dated February
7, 2008.
10.4 Heather M. Hammitt Employment Agreement Extension dated February
7, 2008.
10.5 Kenneth A. Jones Employment Agreement Extension dated February
7, 2008.
10.6 Diane F. Leto Employment Agreement Extension dated February 7,
2008.
10.7 Michael A. O'Gorman Employment Agreement Extension dated
February 7, 2008.
10.8 Ricky R. Parks Employment Agreement Extension dated February 7,
2008.
10.9 Everett J. Solon Employment Agreement Extension dated February
7, 2008.
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: May 9, 2008 By: /s/ THOMAS A. DAIBER
---------------------------------------
Thomas A. Daiber
President and Principal Executive
Officer
Date: May 9, 2008 By: /s/ KURT R. STEVENSON
---------------------------------------
Kurt R. Stevenson
Senior Executive Vice President and
Principal Financial and Accounting
Officer
--------------------------------------------------------------------------------
32.