SEC Document

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, 2016
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 incorporation or organization)
 
(I.R.S. Employer Identification number)
122 W. Madison Street, Ottawa, IL 61350
(Address of principal executive offices including zip code)
(815) 431-8400
(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 [ü] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ü] 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
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[ ü]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ü].
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 11, 2016
Common Stock, Par Value $0.01
 
6,513,694




Centrue Financial Corporation
Form 10-Q Index
March 31, 2016
 
 
Page
 
 
 
 
 
 


CENTRUE FINANCIAL CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE AND SHARE DATA)
 



 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
Cash and cash equivalents
$
23,379

 
$
27,655

Securities available-for-sale
169,782

 
171,440

Restricted securities
10,099

 
9,116

Loans held for sale
182

 
735

Loans, net of allowance for loan loss: 2016 - $8,974; 2015 - $8,591
641,005

 
624,956

Branch assets held for sale
16,034

 
16,673

Bank-owned life insurance
35,326

 
35,103

Mortgage servicing rights
2,091

 
2,129

Premises and equipment, net
16,671

 
16,852

Intangible assets, net
642

 
880

Other real estate owned, net
7,377

 
8,401

Deferred tax assets, net
37,367

 
38,180

Other assets
9,062

 
9,098

Total assets
$
969,017

 
$
961,218

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
156,627

 
$
164,137

Interest-bearing
572,642

 
554,367

Total deposits
729,269

 
718,504

Federal funds purchased and securities sold under agreements to repurchase
15,573

 
18,730

Federal Home Loan Bank advances
75,000

 
76,000

Series B mandatory redeemable preferred stock
268

 
268

Subordinated debentures
20,620

 
20,620

Other liabilities
5,462

 
5,815

Total liabilities
846,192

 
839,937

 
 
 
 
Commitments and contingent liabilities

 

 
 
 
 
Stockholders' equity
 
 
 
Series D Fixed Rate, Non-Cumulative Perpetual Preferred Stock,
 
 
 
2,363 shares authorized and issued at March 31, 2016 and
 
 
 
December 31, 2015; aggregate liquidation preference of $2,636
2,636

 
2,636

Common stock, $0.01 par value; 215,000,000 shares authorized;
 
 
 
6,581,544 shares issued at March 31, 2016 and December 31, 2015
66

 
66

Surplus
140,610

 
140,609

Accumulated deficit
(2,122
)
 
(2,958
)
Accumulated other comprehensive loss
(2,239
)
 
(2,946
)
 
138,951

 
137,407

Treasury stock, at cost, 67,850 shares at March 31, 2016
 
 
 
and December 31, 2015
(16,126
)
 
(16,126
)
Total stockholders' equity
122,825

 
121,281

Total liabilities and stockholders' equity
$
969,017

 
$
961,218


See Accompanying Notes to Consolidated Financial Statements

1

CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 

 
Three Months Ended
March 31,
 
2016
 
2015
Interest income
 
 
 
Loans
$
7,029

 
$
6,087

Securities
 
 
 
Taxable
829

 
594

Exempt from federal income taxes
23

 
33

Federal funds sold and other
32

 
20

Total interest income
7,913

 
6,734

 
 
 
 
Interest expense
 
 
 
Deposits
263

 
320

Federal funds purchased and securities sold under
 
 
 
agreements to repurchase
12

 
13

Federal Home Loan Bank advances
230

 
117

Series B mandatory redeemable preferred stock
4

 
4

Subordinated debentures
142

 
156

Notes payable

 
84

Total interest expense
651

 
694

 
 
 
 
Net interest income
7,262

 
6,040

Provision for loan losses
300

 

Net interest income after provision for loan losses
6,962

 
6,040

 
 
 
 
Noninterest income
 
 
 
Service charges
945

 
928

Mortgage banking income
200

 
280

Electronic banking services
633

 
591

Bank-owned life insurance
223

 
223

Securities gains, net
37

 
27

Income from real estate
110

 
153

Gain on sale of OREO
48

 
2

Gain on extinguishment of debt

 
1,750

Other income
67

 
73

 
2,263

 
4,027







2

CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 

 
Three Months Ended
March 31,
 
2016
 
2015
Noninterest expense
 
 
 
Salaries and employee benefits
4,304

 
4,242

Occupancy, net
680

 
768

Furniture and equipment
256

 
241

Marketing
35

 
35

Supplies and printing
58

 
68

Telephone
204

 
184

Data processing
423

 
406

FDIC insurance
157

 
397

Loan processing and collection costs
58

 
171

OREO carrying costs
91

 
292

OREO valuation adjustment
16

 
61

Amortization of intangible assets
238

 
238

Other expenses
1,346

 
1,080

 
7,866

 
8,183

 
 
 
 
Income before income taxes
$
1,359

 
$
1,884

Income tax expense
441

 
17

Net income
$
918

 
$
1,867

 
 
 
 
Preferred stock dividends
82

 
1,006

Discount on redemption of preferred stock

 
(13,668
)
Net income for common stockholders
$
836

 
$
14,529

 
 
 
 
Basic earnings per common share(1)
$
0.13

 
$
65.60

Diluted earnings per common share(1)
$
0.13

 
$
65.60

 
 
 
 
 
 
 
 
Total comprehensive income:
 
 
 
Net income
$
918

 
$
1,867

 
 
 
 
Change in unrealized gains
 
 
 
on securities available for sale
1,195

 
818

Reclassification adjustment for gains
 
 
 
recognized in income
(37
)
 
(27
)
Net unrealized gains
1,158

 
791

Tax effect
451

 

Other comprehensive income
707

 
791

Total comprehensive income
$
1,625

 
$
2,658





(1) Share and per share amounts have been adjusted to reflect the Company's 1:30 reverse stock split effective May 29, 2015
See Accompanying Notes to Consolidated Financial Statements

3

CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
 


 
Three Months Ended
March 31,
 
2016
 
2015
Cash flows from operating activities
 
 
 
Net income
$
918

 
$
1,867

Adjustments to reconcile net income
 
 
 
 to net cash provided by operating activities
 
 
 
Depreciation
295

 
280

Amortization of intangible assets
238

 
238

Amortization of mortgage servicing rights, net
66

 
92

Amortization of bond premiums, net
304

 
293

Provision for loan losses
300

 

Provision for deferred income taxes
441

 

Earnings on bank-owned life insurance
(223
)
 
(223
)
OREO valuation adjustment
16

 
61

Securities gains, net
(37
)
 
(27
)
Gain on sale of OREO
(48
)
 
(2
)
Gain on extinguishment of debt

 
(1,750
)
Gain on sale of loans
(92
)
 
(182
)
Proceeds from sales of loans held for sale
3,729

 
5,659

Origination of loans held for sale
(3,084
)
 
(5,119
)
Change in assets and liabilities
 
 
 
(Increase) decrease in other assets
(84
)
 
1,415

Decrease in other liabilities
(463
)
 
(5,013
)
Net cash (used in) provided by operating activities
2,276

 
(2,411
)
Cash flows from investing activities
 
 
 
Proceeds from paydowns of securities available for sale
7,112

 
6,145

Proceeds from calls and maturities of securities available for sale
115

 
110

Proceeds from sales of securities available for sale
5,016

 
4,985

Purchases of securities available for sale
(9,680
)
 
(35,748
)
Redemption of Federal Reserve Bank stock

 
179

Purchase of Federal Reserve Bank stock
(983
)
 

Net increase in loans
(15,746
)
 
(16,562
)
Purchase of premises and equipment
(78
)
 
(45
)
Proceeds from sale of OREO
1,166

 
234

Net cash used in investing activities
(13,078
)
 
(40,702
)


4

CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
 


 
Three Months Ended
March 31,
 
2016
 
2015
Cash flows from financing activities
 
 
 
Net increase in deposits
10,765

 
13,849

Net decrease in federal funds purchased
 
 
 
and securities sold under agreements to repurchase
(3,157
)
 
(9,728
)
Net proceeds (repayments) of advances from the Federal Home Loan Bank
(1,000
)
 
15,000

Repayment of Notes Payable

 
(8,500
)
Net proceeds from the issuance of Common Stock

 
68,964

Redemption of Series C Cumulative Perpetual Preferred Stock

 
(19,000
)
Dividends paid on preferred stock
(82
)
 

Net cash provided by financing activities
6,526

 
60,585

Net increase (decrease) in cash and cash equivalents
(4,276
)
 
17,472

Cash and cash equivalents
 
 
 
Beginning of period
27,655

 
49,167

End of period
$
23,379

 
$
66,639

Supplemental disclosures of cash flow information
 
 
 
Cash payments for
 
 
 
Interest
$
692

 
$
5,401

Income taxes
57

 
2

Transfers from loans to other real estate owned

 
34

Transfers from loan portfolio and sold in secondary market

 
315

Loan transfers from branch assets held for sale
(603
)
 

Premises and equipment transferred from branch assets held for sale
(36
)
 


5

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 



Note 1. Summary of Significant Accounting Policies
Centrue Financial Corporation is a bank holding company organized under the laws of the State of Delaware.  When we use the terms “Centrue,” the “Company,” “we,” “us,” and “our,” we mean Centrue Financial Corporation, a Delaware corporation, and its consolidated subsidiary. When we use the term the “Bank,” we are referring to our wholly owned banking subsidiary, Centrue Bank. The Company and the Bank provide a full range of banking services to individual and corporate customers located in markets extending from the far western and southern suburbs of the Chicago metropolitan area across Central Illinois down to the metropolitan St. Louis area.  These services include demand, time, and savings deposits; business and consumer lending; and mortgage banking. The Company is subject to competition from other financial institutions and nonfinancial institutions providing financial services.  Additionally, the Company and the Bank are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.
Basis of presentation
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities and other-than-temporary impairment of securities, the determination of the allowance for loan losses and valuation of other real estate owned.
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, 2015. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2015 amounts have been reclassified to conform to the 2016 presentation. The annualized results of operations during the three months ended March 31, 2016 are not necessarily indicative of the results expected for the year ending December 31, 2016. All financial information in the following tables is in thousands (000s), except share and per share data. 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.
Reverse Stock Split
Common shares and per share amounts for all periods shown have been restated to reflect the impact of the 1:30 reverse stock split the Company completed effective May 29, 2015.
Capital Event
On March 31, 2015, the Company completed the issuance of $76.0 million of new common stock in a private placement offering, $68.2 million of net proceeds after issuance and registration costs of $7.8 million. A total of 6.3 million shares were sold in the offering at a price of $12.00 per share. In conjunction with the stock offering the Company used the proceeds in part to pay $4.9 million in accrued but unpaid interest on its subordinated debentures, redeemed all $32.7 million of Series C Preferred Stock for $19.0 million, settled $10.3 million in notes payable with a financial institution for $8.5 million and made a $36.0 million capital contribution into Centrue Bank. The remaining proceeds have been and will be used for general corporate purposes.
Recent Accounting Pronouncements
In March 2016, the FASB issued an update (ASU No. 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting.) The guidance in this update affects any entity that issues share-based payment awards to its employees and is intended to simplify several aspects of the accounting for share-based payment awards including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the impact on the consolidated financial statements and related disclosures.
In February 2016, the FASB issued an update (ASU No. 2016-02, Leases) creating FASB Topic 842, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact on the consolidated financial statements and related disclosures.
In January 2016, the FASB issued an update, ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance in this update requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized

6

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently determining the impact of this new guidance on the consolidated financial statements.
In May 2014, the FASB issued an update (ASU No. 2014-09, Revenue from Contracts with Customers) creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update will become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. Management is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.
Note 2. Earnings Per Share
A reconciliation of the numerators and denominators for earnings per common share computations for the three months ended March 31, 2016 and 2015 is presented below (shares in thousands). Common shares, options, and per share amounts for all periods shown have been restated to reflect the impact of the one for thirty reverse stock split the Company completed effective May 29, 2015. Options to purchase 1,992 and 4,982 shares of common stock were outstanding for March 31, 2016 and 2015, respectively; but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price and, therefore, were anti-dilutive.
 
Three Months Ended March 31,
 
2016
 
2015
Basic Earnings Per Common Share
 
 
 
Net income
$
918

 
$
1,867

Preferred stock dividends
(82
)
 
(1,006
)
Discount on redemption of preferred stock

 
13,668

Net income for common shareholders
$
836

 
$
14,529

Weighted average common shares outstanding
6,513,694

 
221,492

Basic earnings per common share
$
0.13

 
$
65.60

Diluted Earnings Per Common Share
 
 
 
Weighted average common shares outstanding
6,513,694

 
221,492

Weighted average common and dilutive
 
 
 
potential shares outstanding
6,513,694

 
221,492

Diluted earnings per common share
$
0.13

 
$
65.60



Note 3. Securities
The primary strategic objective related to the Company's securities portfolio is to assist with liquidity and interest rate risk management. The fair value of the securities classified as available-for-sale was $169.8 million at March 31, 2016 compared to $171.4 million at December 31, 2015. The carrying value of securities classified as restricted (Federal Reserve and Federal Home Loan Bank stock) was $10.1 million at March 31, 2016 compared to $9.1 million at December 31, 2015. The Company does not have any securities classified as trading or held-to-maturity.
The following table summarizes the fair value of available-for-sale securities, the related gross unrealized gains and losses recognized in accumulated other comprehensive income, and the amortized cost at March 31, 2016 and December 31, 2015:

7

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


 
March 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
9,650

 
$
13

 
$

 
$
9,663

States and political subdivisions
13,085

 
36

 
(26
)
 
13,095

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
127,087

 
184

 
(372
)
 
126,899

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
17,196

 
33

 
(3
)
 
17,226

Equity securities
2,646

 
253

 

 
2,899

 
$
169,664

 
$
519

 
$
(401
)
 
$
169,782




December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
14,629

 
$
13

 
$
(35
)
 
$
14,607

States and political subdivisions
10,190

 
16

 
(25
)
 
10,181

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
127,039

 
7

 
(1,017
)
 
126,029

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
17,990

 

 
(157
)
 
17,833

Equity securities
2,632

 
158

 

 
2,790

 
$
172,480

 
$
194

 
$
(1,234
)
 
$
171,440

The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
 
Three Months Ended March 31,
 
2016
 
2015
Proceeds from calls and maturities
$
115

 
$
110

Proceeds from sales
5,016

 
4,985

Realized gains
37

 
46

Realized losses

 
(19
)
Net impairment loss recognized in earnings

 


8

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


The amortized cost and fair value of the investment securities portfolio are shown below by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date and equity securities are shown separately.
 
March 31, 2016
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
3,939

 
$
3,947

Due after one year through five years
10,625

 
10,614

Due after five years through ten years
8,171

 
8,197

Due after ten years

 

U.S. government agency residential mortgage-backed securities
127,087

 
126,899

Collateralized residential mortgage obligations
17,196

 
17,226

Equity
2,646

 
2,899

 
$
169,664

 
$
169,782


Securities with unrealized losses not recognized in income are as follows presented by length of time individual securities have been in a continuous unrealized loss position:
 
March 31, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
States and political subdivisions
$
6,449

 
$
(26
)
 
$

 
$

 
$
6,449

 
$
(26
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
72,170

 
(314
)
 
6,104

 
(58
)
 
78,274

 
(372
)
Collateralized residential mortgage

















obligations: Agency
2,247


(3
)





2,247


(3
)
Total temporarily impaired
$
80,866

 
$
(343
)
 
$
6,104

 
$
(58
)
 
$
86,970

 
$
(401
)
 
December 31, 2015
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. government agencies
$
10,394

 
$
(35
)
 
$

 
$

 
$
10,394

 
$
(35
)
States and political subdivisions
6,057

 
(25
)
 

 

 
6,057

 
(25
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
124,411

 
(1,017
)
 

 

 
124,411

 
(1,017
)
Collateralized residential mortgage
 
 
 
 
 
 
 
 
 
 
 
obligations: Agency
17,833

 
(157
)
 

 

 
17,833

 
(157
)
Total temporarily impaired
$
158,695

 
$
(1,234
)
 
$

 
$

 
$
158,695

 
$
(1,234
)


9

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


Note 4. Loans
The major classifications of loans follow:

 
Aggregate Principal Amount
 
March 31, 2016
 
December 31, 2015
 
 
 
 
Commercial
$
70,033

 
67,360

Agricultural & AG RE
47,705

 
50,121

Construction, land & development
27,042

 
26,016

Commercial RE
408,074

 
391,918

1-4 family mortgages
94,218

 
95,227

Consumer
2,907

 
2,905

Total Loans
$
649,979

 
633,547

Allowance for loan losses
(8,974
)
 
(8,591
)
Loans, net
$
641,005

 
624,956


The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. Internal risk ratings of 0 to 5 are considered pass credits, a risk rating of a 6 is special mention, a risk rating of a 7 is substandard, and a risk rating of an 8 is doubtful. Loans classified as pass credits have no material weaknesses and are performing as agreed. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following table presents the commercial loan portfolio by internal risk rating:
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
Commercial Real Estate
 
 
Internal Risk
Rating
 
Closed-end
 
Lines of
Credit
 
Agriculture &
AG RE
 
Construction,
Land &
Development
 
Owner-
Occupied
 
Non-Owner
Occupied
 
Total
Pass
 
$
24,399

 
$
44,840

 
$
47,705

 
$
26,852

 
$
177,881

 
$
207,211

 
$
528,888

Special Mention
 
296

 
250

 

 
63

 
7,629

 
11,382

 
19,620

Substandard
 
198

 
50

 

 
127

 
405

 
3,566

 
4,346

Doubtful
 

 

 

 

 

 

 

Total
 
$
24,893

 
$
45,140

 
$
47,705

 
$
27,042

 
$
185,915

 
$
222,159

 
$
552,854


10

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
Commercial Real Estate
 
 
Internal Risk
Rating
 
Closed-end
 
Lines of
Credit
 
Agriculture &
AG RE
 
Construction,
Land &
Development
 
Owner-
Occupied
 
Non-Owner
Occupied
 
Total
Pass
 
$
24,303

 
$
42,374

 
$
50,121

 
$
25,825

 
$
164,538

 
$
203,679

 
$
510,840

Special Mention
 
304

 
250

 

 
64

 
7,701

 
11,512

 
19,831

Substandard
 
129

 

 

 
127

 
412

 
4,076

 
4,744

Doubtful
 

 

 

 

 

 

 

Total
 
$
24,736

 
$
42,624

 
$
50,121

 
$
26,016

 
$
172,651

 
$
219,267

 
$
535,415


The following table presents the Retail Residential Loan Portfolio by Internal Risk Rating:
 
Residential -- 1-4 family
 
Senior Lien
 
Jr. Lien & Lines of
Credit
 
Total
March 31, 2016
 
 
 
 
 
Unrated
$
48,616

 
$
39,700

 
$
88,316

Special mention
3,839

 
195

 
4,034

Substandard
1,448

 
420

 
1,868

Doubtful

 

 

Total
$
53,903

 
$
40,315

 
$
94,218


 
Residential -- 1-4 family
 
Senior Lien
 
Jr. Lien & Lines of
Credit
 
Total
December 31, 2015
 
 
 
 
 
Unrated
$
48,319

 
$
41,380

 
$
89,699

Special mention
4,011

 
168

 
4,179

Substandard
1,036

 
313

 
1,349

Doubtful

 

 

Total
$
53,366

 
$
41,861

 
$
95,227


The retail residential loan portfolio is generally unrated. Delinquency is a typical factor in adversely risk rating a credit to a special mention or substandard.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

11

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


An analysis of activity in the allowance for loan losses for the three months ended March 31, 2016 and 2015 follows:
 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
648

 
$
97

 
$
523

 
$
5,681

 
$
1,628

 
$
14

 
$
8,591

Charge-offs

 

 

 
(503
)
 
(9
)
 
(3
)
 
(515
)
Recoveries
44

 
54

 
19

 
445

 
36

 

 
598

Provision
60

 
(32
)
 
(26
)
 
(82
)
 
387

 
(7
)
 
300

Ending Balance
$
752

 
$
119

 
$
516

 
$
5,541

 
$
2,042

 
$
4

 
$
8,974


 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,117

 
$
69

 
$
711

 
$
3,999

 
$
2,075

 
$
10

 
$
7,981

Charge-offs

 

 
(3
)
 
(1
)
 
(67
)
 
(1
)
 
(72
)
Recoveries
26

 

 
21

 
22

 
9

 
8

 
86

Provision
(4
)
 
(19
)
 
(292
)
 
(2
)
 
325

 
(8
)
 

Ending Balance
$
1,139

 
$
50

 
$
437

 
$
4,018

 
$
2,342

 
$
9

 
$
7,995


The following is an analysis on the balance in the allowance for loan losses and the recorded investment in impaired loans by portfolio segment based on impairment method as of March 31, 2016 and December 31, 2015:
March 31, 2016
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
179

 
$

 
$
10

 
$
614

 
$
432

 
$

 
$
1,235

Loans collectively evaluated for impairment
573

 
119

 
506

 
4,927

 
1,610

 
4

 
7,739

Total allowance balance:
$
752

 
$
119

 
$
516

 
$
5,541

 
$
2,042

 
$
4

 
$
8,974

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
248

 
$

 
$
127

 
$
3,971

 
$
1,867

 
$

 
$
6,213

Loans collectively evaluated for impairment
69,785

 
47,705

 
26,915

 
404,103

 
92,351

 
2,907

 
643,766

Total loans balance:
$
70,033

 
$
47,705

 
$
27,042

 
$
408,074

 
$
94,218

 
$
2,907

 
$
649,979


12

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2015
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
80

 
$

 
$
10

 
$
1,178

 
$
325

 
$
1

 
$
1,594

Loans collectively evaluated for impairment
568

 
97

 
513

 
4,503

 
1,303

 
13

 
6,997

Total allowance balance:
$
648

 
$
97

 
$
523

 
$
5,681

 
$
1,628

 
$
14

 
$
8,591

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
129

 
$

 
$
127

 
$
4,488

 
$
1,348

 
$
1

 
$
6,093

Loans collectively evaluated for impairment
67,231

 
50,121

 
25,889

 
387,430

 
93,879

 
2,904

 
627,454

Total loans balance:
$
67,360

 
$
50,121

 
$
26,016

 
$
391,918

 
$
95,227

 
$
2,905

 
$
633,547


Troubled Debt Restructurings:
The Company had troubled debt restructurings (“TDRs”) of $0.23 million and $0.24 million as of March 31, 2016 and December 31, 2015, respectively. Specific reserves were immaterial at March 31, 2016 and December 31, 2015. At March 31, 2016 nonaccrual TDR loans were $0.23 million and $0.24 million at December 31, 2015. There were no TDRs on accrual at March 31, 2016 and December 31, 2015. The Company had no commitments to lend additional amounts to a customer with an outstanding loan that is classified as TDR as of March 31, 2016 and December 31, 2015.
Over the course of a period, the terms of certain loans may be modified as troubled debt restructurings. The modification of the terms of such loans may include one or a combination of the following: a reduction of the stated interest rate of the loan to a below market rate or the payment modification to interest only. A modification involving a reduction of the stated interest rate of the loan would be for periods ranging from 6 months to 16 months. During the three months ended March 31, 2016, there were no loans modified as troubled debt restructurings compared to the same three month period ended March 31, 2015 when there was one Senior lien 1-4 family residential loan modified as troubled debt restructurings with a pre-modification and post-modification recorded investment of $0.03 million.
 
 
 
 
 
 
 
 
 
 
 
 
The troubled debt restructurings described above did not have a material impact to the allowance for loan losses and did not result in any additional charge-offs during the three months ended March 31, 2015.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In the three months ended March 31, 2016 and the three months ended March 31, 2015 there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification.
The Company evaluates loan modifications to determine if the modification constitutes a troubled debt restructure. A loan modification constitutes a troubled debt restructure if the borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its loans with the Company’s debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting guidelines. TDRs are separately identified for impairment disclosures. If a loan is considered to be collateral dependent loan, the TDR is reported, net, at the fair value of the collateral.


13

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


The following tables present data on impaired loans:
March 31, 2016
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash Basis
Interest
Recognized
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$

 
$

 
$

 
$
15

 
$

 
$

Line of credit
 

 

 

 

 

 

Agricultural & AG RE
 

 

 

 

 

 

Construction, land & development
 

 

 

 
113

 

 

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
3

 
3

 

 
70

 

 

Non-owner occupied
 

 

 

 

 

 

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
167

 
167

 

 
253

 

 

Jr. lien & lines of credit
 
69

 
69

 

 
79

 
1

 
1

Consumer
 

 

 

 

 

 

Subtotal
 
239

 
239

 

 
530

 
1

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
198

 
$
198

 
$
129

 
$
119

 
$

 
$

Line of credit
 
50

 
50

 
50

 
12

 
1

 

Agricultural & AG RE
 

 

 

 

 

 

Construction, land & development
 
127

 
419

 
10

 
134

 

 

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
402

 
402

 
97

 
420

 

 
3

Non-owner occupied
 
3,566

 
4,948

 
517

 
3,768

 

 

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
1,280

 
1,316

 
316

 
1,006

 
5

 
2

Jr. lien & lines of credit
 
351

 
351

 
116

 
257

 

 

Consumer
 

 

 

 

 

 

Subtotal
 
5,974

 
7,684

 
1,235

 
5,716

 
6

 
5

Total
 
$
6,213

 
$
7,923

 
$
1,235

 
$
6,246

 
$
7

 
$
6


14

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2015
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash Basis
Interest
Recognized
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
2

 
$
2

 
$

 
$
15

 
$
1

 
$
1

Line of credit
 

 

 

 

 

 

Agricultural & AG RE
 

 

 

 

 

 

Construction, land & development
 

 

 

 
299

 

 

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
6

 
6

 

 
78

 

 

Non-owner occupied
 

 

 

 

 

 

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
176

 
176

 

 
277

 

 

Jr. lien & lines of credit
 
71

 
71

 

 
88

 
3

 
3

Consumer
 

 

 

 

 

 

Subtotal
 
255

 
255

 

 
757

 
4

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
127

 
$
127

 
$
80

 
$
199

 
$
2

 
$
2

Line of credit
 

 

 

 

 

 

Agricultural & AG RE
 

 

 

 

 

 

Construction, land & development
 
127

 
419

 
10

 
120

 

 

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
406

 
541

 
100

 
586

 
11

 
9

Non-owner occupied
 
4,076

 
4,955

 
1,078

 
4,101

 
17

 
17

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
859

 
984

 
215

 
1,003

 
14

 
10

Jr. lien & lines of credit
 
242

 
242

 
110

 
230

 
5

 
5

Consumer
 
1

 

 
1

 

 

 

Subtotal
 
5,838

 
7,268

 
1,594

 
6,239

 
49

 
43

Total
 
$
6,093

 
$
7,523

 
$
1,594

 
$
6,996

 
$
53

 
$
47

The Company determined that there were $0.6 million of loans that were classified as impaired but were considered to be performing (i.e., loans which are accruing interest) loans at March 31, 2016 compared to $0.1 million at December 31, 2015.

15

CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 
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