Unassociated 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, 2010
Commission File Number: 0-28846
Centrue Financial Corporation
(Exact name of Registrant as specified in its charter)
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Delaware
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36-3145350
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(State or other jurisdiction of
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(I.R.S. Employer Identification
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incorporation or organization)
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Number)
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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 þ No o
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 o No o
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.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Shares outstanding at May 14, 2010
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Common Stock, Par Value $1.00
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6,043,176
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Centrue Financial Corporation
Form 10-Q Index
March 31, 2010
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Page
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40
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41
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Centrue Financial Corporation
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March 31, 2010 and December 31, 2009 (In Thousands, Except Share and Per Share Data)
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ASSETS
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Cash and cash equivalents
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$ |
65,484 |
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$ |
56,452 |
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Securities available-for-sale
|
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274,671 |
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264,772 |
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Restricted securities
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10,711 |
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10,711 |
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Loans
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838,700 |
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885,095 |
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Allowance for loan losses
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(41,845 |
) |
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(40,909 |
) |
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Net loans
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796,855 |
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844,186 |
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Bank-owned life insurance
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29,620 |
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29,365 |
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Mortgage servicing rights
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2,839 |
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2,885 |
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Premises and equipment, net
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29,420 |
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30,260 |
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Goodwill
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15,880 |
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15,880 |
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Other intangible assets, net
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7,212 |
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7,551 |
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Other real estate owned
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15,230 |
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16,223 |
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Other assets
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38,610 |
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34,399 |
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Total assets
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$ |
1,286,532 |
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$ |
1,312,684 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities
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Deposits
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Non-interest-bearing
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$ |
113,292 |
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$ |
119,313 |
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Interest-bearing
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932,941 |
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935,376 |
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Total deposits
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1,046,233 |
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1,054,689 |
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Federal funds purchased and securities sold under agreements to repurchase
|
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14,671 |
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16,225 |
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Federal Home Loan Bank advances
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76,060 |
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86,261 |
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Notes payable
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10,796 |
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10,796 |
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Series B mandatory redeemable preferred stock
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268 |
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|
268 |
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Subordinated debentures
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20,620 |
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20,620 |
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Other liabilities
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11,797 |
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11,211 |
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Total liabilities
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1,180,445 |
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1,200,070 |
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Commitments and contingent liabilities
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— |
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— |
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Stockholders’ equity
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Series A convertible preferred stock (aggregate liquidation preference of $2,762)
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500 |
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500 |
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Series C fixed rate, Cumulative Perpetual Preferred Stock (aggregate liquidation preference of $32,668)
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30,345 |
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30,190 |
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Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at March 31, 2010 and December 31, 2009
|
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7,454 |
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7,454 |
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Surplus
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74,765 |
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74,741 |
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Retained earnings
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14,597 |
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21,486 |
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Accumulated other comprehensive income (loss)
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622 |
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439 |
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128,283 |
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134,810 |
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Treasury stock, at cost 1,410,379 shares at March 31, 2010 and 1,425,064 shares at December 31, 2009
|
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(22,196 |
) |
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(22,196 |
) |
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Total stockholders’ equity
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106,087 |
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112,614 |
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Total liabilities and stockholders’ equity
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$ |
1,286,532 |
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$ |
1,312,684 |
|
See Accompanying Notes to Unaudited Financial Statements
Centrue Financial Corporation
And Comprehensive Income (Loss)
Three Months Ended March 31, 2010 and 2009
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(In Thousands, Except Per Share Data)
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Three Months Ended
March 31,
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2010
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2009
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Interest income
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Loans
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$ |
11,248 |
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$ |
14,189 |
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Securities
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Taxable
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1,733 |
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2,505 |
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Exempt from federal income taxes
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278 |
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317 |
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Federal funds sold and other
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27 |
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11 |
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Total interest income
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13,286 |
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17,022 |
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Interest expense
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Deposits
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4,371 |
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5,606 |
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Federal funds purchased and securities sold under agreements to repurchase
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18 |
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39 |
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Federal Home Loan Bank advances
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|
581 |
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|
543 |
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Series B mandatory redeemable preferred stock
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4 |
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|
4 |
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Subordinated debentures
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|
254 |
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|
290 |
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Notes payable
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|
88 |
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|
|
162 |
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Total interest expense
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5,316 |
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6,644 |
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Net interest income
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7,970 |
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|
10,378 |
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Provision for loan losses
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9,350 |
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2,235 |
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Net interest income (loss) after provision for loan losses
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|
|
(1,380 |
) |
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|
8,143 |
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Noninterest income
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|
|
|
|
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Service charges
|
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|
1,420 |
|
|
|
1,457 |
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Mortgage banking income
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|
319 |
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|
|
698 |
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Bank-owned life insurance
|
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|
255 |
|
|
|
256 |
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Electronic banking services
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|
484 |
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|
|
457 |
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Securities gains
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|
2 |
|
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|
14 |
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Total other-than-temporary impairment losses
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|
(4,516 |
) |
|
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(2,611 |
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Portion of loss recognized in other comprehensive income (before taxes)
|
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|
2,909 |
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1,403 |
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Net impairment on securities
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|
(1,607 |
) |
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|
(1,208 |
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Gain on sale of OREO
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9 |
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|
7 |
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Gain on sale of other assets
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|
202 |
|
|
|
93 |
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Other income
|
|
|
238 |
|
|
|
269 |
|
| |
|
|
1,322 |
|
|
|
2,043 |
|
See Accompanying Notes to Unaudited Financial Statements
Centrue Financial Corporation
Unaudited Consolidated Statements Of Income (Loss)
And Comprehensive Income (Loss)
Three Months Ended March 31, 2010 and 2009
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(In Thousands, Except Per Share Data)
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Three Months Ended
|
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March 31,
|
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2010
|
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2009
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Noninterest expenses
|
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|
|
|
|
|
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Salaries and employee benefits
|
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|
3,771 |
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|
4,126 |
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Occupancy, net
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|
788 |
|
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|
865 |
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Furniture and equipment
|
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|
524 |
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|
560 |
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Marketing
|
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|
107 |
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|
183 |
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Supplies and printing
|
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|
98 |
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|
119 |
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Telephone
|
|
|
179 |
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|
193 |
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Data processing
|
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|
382 |
|
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|
370 |
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FDIC insurance
|
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|
854 |
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|
245 |
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OREO valuation adjustment
|
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|
1,657 |
|
|
|
— |
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Amortization of intangible assets
|
|
|
339 |
|
|
|
413 |
|
|
Other expenses
|
|
|
1,787 |
|
|
|
1,803 |
|
| |
|
|
10,486 |
|
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|
8,877 |
|
| |
|
|
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|
|
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Income (loss) before income taxes
|
|
$ |
(10,544 |
) |
|
$ |
1,309 |
|
|
Income tax expense (benefit)
|
|
|
(4,284 |
) |
|
|
244 |
|
|
Net income (loss)
|
|
$ |
(6,260 |
) |
|
$ |
1,065 |
|
| |
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
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|
473 |
|
|
|
415 |
|
|
Net income (loss) for common stockholders
|
|
$ |
(6,733 |
) |
|
$ |
650 |
|
| |
|
|
|
|
|
|
|
|
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Basic earnings (loss) per common share
|
|
$ |
(1.11 |
) |
|
$ |
0.11 |
|
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Diluted earnings (loss) per common share
|
|
$ |
(1.11 |
) |
|
$ |
0.11 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss):
|
|
|
|
|
|
|
|
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Net income (loss)
|
|
$ |
(6,260 |
) |
|
$ |
1,065 |
|
|
Change in unrealized gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in earnings, net of reclassifications and tax effect
|
|
|
(1,784 |
) |
|
|
(1,815 |
) |
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Change in unrealized gains (losses) on other securities available for sale, net of reclassifications and tax effect
|
|
|
478 |
|
|
|
(3,020 |
) |
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Reclassification adjustment:
|
|
|
|
|
|
|
|
|
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Net impairment loss recognized in earnings
|
|
|
1,607 |
|
|
|
1,208 |
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(Gains) recognized in earnings
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(2 |
) |
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|
(14 |
) |
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Net unrealized gains (loss)
|
|
|
299 |
|
|
|
(3,641 |
) |
|
Tax expense (benefit)
|
|
|
116 |
|
|
|
(1,411 |
) |
|
Other comprehensive income (loss)
|
|
|
183 |
|
|
|
(2,230 |
) |
|
Total comprehensive income (loss)
|
|
$ |
(6,077 |
) |
|
$ |
(1,165 |
) |
See Accompanying Notes to Unaudited Financial Statements
Centrue Financial Corporation
|
Three Months Ended March 31, 2010 and 2009 (In Thousands)
|
| |
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Three Months Ended
|
|
| |
|
March 31,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(6,260 |
) |
|
$ |
1,065 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities
|
|
|
|
|
|
|
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Depreciation
|
|
|
575 |
|
|
|
593 |
|
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Goodwill impairment related to sale of Wealth Management
|
|
|
— |
|
|
|
163 |
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Amortization of intangible assets
|
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|
339 |
|
|
|
413 |
|
|
Amortization of mortgage servicing rights, net
|
|
|
106 |
|
|
|
263 |
|
|
Amortization of bond premiums, net
|
|
|
554 |
|
|
|
141 |
|
|
Share based compensation
|
|
|
24 |
|
|
|
73 |
|
|
Provision for loan losses
|
|
|
9,350 |
|
|
|
2,235 |
|
|
Provision for deferred income taxes
|
|
|
(189 |
) |
|
|
1,127 |
|
|
Earnings on bank-owned life insurance
|
|
|
(255 |
) |
|
|
(256 |
) |
|
Other than temporary impairment, securities
|
|
|
1,607 |
|
|
|
1,208 |
|
|
OREO valuation allowance
|
|
|
1,657 |
|
|
|
— |
|
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Securities losses (gains), net
|
|
|
(2 |
) |
|
|
(14 |
) |
|
(Gain) on sale of other assets, net
|
|
|
— |
|
|
|
(93 |
) |
|
(Gain) on sale of OREO
|
|
|
(9 |
) |
|
|
(7 |
) |
|
(Gain) loss on sale of loans
|
|
|
(190 |
) |
|
|
(747 |
) |
|
Proceeds from sales of loans held for sale
|
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|
10,886 |
|
|
|
41,130 |
|
|
Origination of loans held for sale
|
|
|
(9,699 |
) |
|
|
(40,108 |
) |
|
Change in assets and liabilities
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(4,101 |
) |
|
|
(2,442 |
) |
|
Increase (decrease) in other liabilities
|
|
|
436 |
|
|
|
2,358 |
|
|
Net cash provided by operating activities
|
|
|
4,829 |
|
|
|
7,102 |
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Proceeds paydowns of securities available for sale
|
|
|
15,943 |
|
|
|
8,648 |
|
|
Proceeds from calls and maturities of securities available for sale
|
|
|
2,310 |
|
|
|
8,551 |
|
|
Proceeds from sales of securities available for sale
|
|
|
51 |
|
|
|
— |
|
|
Purchases of securities available for sale
|
|
|
(30,012 |
) |
|
|
(2,529 |
) |
|
Net decrease (increase) in loans
|
|
|
36,203 |
|
|
|
17,280 |
|
|
(Purchase) disposal of premises and equipment
|
|
|
265 |
|
|
|
168 |
|
|
Proceeds from sale of OREO
|
|
|
127 |
|
|
|
67 |
|
|
Net cash provided by (used in) investing activities
|
|
|
24,887 |
|
|
|
32,185 |
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
(8,456 |
) |
|
|
19,233 |
|
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
|
|
|
(1,554 |
) |
|
|
(23,611 |
) |
|
Repayment of advances from the Federal Home Loan Bank
|
|
|
(25,201 |
) |
|
|
(212,008 |
) |
|
Proceeds from advances from the Federal Home Loan Bank
|
|
|
15,000 |
|
|
|
162,000 |
|
|
Payments on notes payable
|
|
|
— |
|
|
|
(8,865 |
) |
|
Dividends on common stock
|
|
|
— |
|
|
|
(422 |
) |
|
Dividends on preferred stock
|
|
|
(473 |
) |
|
|
(215 |
) |
|
Net proceeds from preferred stock issued
|
|
|
— |
|
|
|
32,668 |
|
|
Net cash provided by (used in) financing activities
|
|
|
(20,684 |
) |
|
|
(31,220 |
) |
|
Net increase (decrease) in cash and cash equivalents
|
|
|
9,032 |
|
|
|
8,067 |
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
56,452 |
|
|
|
35,014 |
|
|
End of period
|
|
$ |
65,484 |
|
|
$ |
43,081 |
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash payments for
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
4,885 |
|
|
$ |
6,284 |
|
|
Income taxes
|
|
|
— |
|
|
|
— |
|
|
Transfers from loans to other real estate owned
|
|
|
781 |
|
|
|
128 |
|
See Accompanying Notes to Unaudited Financial Statements
Centrue Financial Corporation
|
(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 subsidiaries. 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. Additionally, brokerage, asset management, and trust services are provided to our customers on a referral basis to third party providers. 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 accompanying unaudited interim consolidated financial statements of Centrue Financial Corporation have been prepared in conformity with U. S. Generally Accepted Accounting Principles (GAAP) and with general practice in the banking industry. In preparing the financial statements, management makes estimates and assumptions based on available information 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 income and expenses during the reporting period, and actual results could differ. The allowance for loan losses, carrying value of goodwill, other-than-temporary impairment of securities, 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.
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, 2009. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2009 amounts have been reclassified to conform to the 2010 presentation. The annualized results of operations during the three months ended March 31, 2010 are not necessarily indicative of the results expected for the year ending December 31, 2010. All financial information in the following tables is in thousands (000s), except shares 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.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 2. Earnings Per Share
Basic earnings per share for the three months ended March 31, 2010 and 2009 were computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share for the same periods were computed by dividing net income by the weighted average number of shares outstanding, adjusted for the dilutive effect of the stock options and warrants. Computations for basic and diluted earnings per share are provided as follows:
| |
|
Three Months Ended March 31,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Basic Earnings Per Common Share
|
|
|
|
|
|
|
|
Net income (loss) for common shareholders
|
|
$ |
(6,733 |
) |
|
$ |
650 |
|
|
Weighted average common shares outstanding
|
|
|
6,043 |
|
|
|
6,028 |
|
| |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$ |
(1.11 |
) |
|
$ |
0.11 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
6,043 |
|
|
|
6,028 |
|
|
Add: dilutive effect of assumed exercised stock options
|
|
|
— |
|
|
|
— |
|
|
Add: dilutive effect of assumed exercised common stock warrants
|
|
|
— |
|
|
|
— |
|
|
Weighted average common and dilutive potential shares outstanding
|
|
|
6,043 |
|
|
|
6,028 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$ |
(1.11 |
) |
|
$ |
0.11 |
|
There were approximately 670,769 and 711,369 options and 508,320 and 508,320 warrants outstanding for the three months ended March 31, 2010 and 2009, respectively that were not included in the computation of diluted earnings per share as they were anti-dilutive. The Company’s convertible preferred stock was not included in the computation of diluted earnings per share as it was anti-dilutive.
Note 3. Securities
The primary strategic objective related to the Company’s $285.4 million investment securities portfolio is to assist with liquidity and interest rate risk management. Securities classified as available-for-sale, carried at fair value, were $274.7 million at March 31, 2010 compared to $264.8 million at December 31, 2009. The Company also holds $10.7 million of Federal Reserve and Federal Home Loan Bank stock which are classified as restricted securities as of March 31, 2010 and December 31, 2009, respectively. The Company does not have any securities classified as trading or held-to-maturity.
The following tables represent the fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income at March 31, 2010 and December 31, 2009:
| |
|
March 31, 2010
|
|
| |
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
| |
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
| |
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
U.S. government agencies
|
|
$ |
3,445 |
|
|
$ |
195 |
|
|
$ |
— |
|
|
$ |
3,250 |
|
|
States and political subdivisions
|
|
|
34,797 |
|
|
|
1,183 |
|
|
|
(9 |
) |
|
|
33,623 |
|
|
U.S. government agency residential mortgage-backed securities
|
|
|
208,661 |
|
|
|
3,708 |
|
|
|
(240 |
) |
|
|
205,193 |
|
|
Collateralized residential mortgage obligations
|
|
|
17,349 |
|
|
|
32 |
|
|
|
(335 |
) |
|
|
17,652 |
|
|
Equity securities
|
|
|
2,166 |
|
|
|
42 |
|
|
|
(29 |
) |
|
|
2,153 |
|
|
Collateralized debt obligations
|
|
|
8,253 |
|
|
|
— |
|
|
|
(3,532 |
) |
|
|
11,785 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
274,671 |
|
|
$ |
5,160 |
|
|
$ |
(4,145 |
) |
|
$ |
273,656 |
|
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 3. Securities (Continued)
Of the $17.3 million of collateralized residential mortgage obligations (“CMOs”) held at March 31, 2010, five instruments are private label representing fair value of $9.6 million and unrealized loss of $0.2 million.
| |
|
December 31, 2009
|
|
| |
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
| |
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
| |
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
U.S. government agencies
|
|
$ |
3,966 |
|
|
$ |
216 |
|
|
$ |
— |
|
|
$ |
3,750 |
|
|
States and political subdivisions
|
|
|
36,541 |
|
|
|
1,093 |
|
|
|
(25 |
) |
|
|
35,473 |
|
|
U.S. government agency residential mortgage-backed securities
|
|
|
198,183 |
|
|
|
3,203 |
|
|
|
(249 |
) |
|
|
195,229 |
|
|
Collateralized residential mortgage obligations
|
|
|
14,426 |
|
|
|
61 |
|
|
|
(137 |
) |
|
|
14,502 |
|
|
Equity securities
|
|
|
1,898 |
|
|
|
55 |
|
|
|
(43 |
) |
|
|
1,886 |
|
|
Collateralized debt obligations
|
|
|
9,758 |
|
|
|
— |
|
|
|
(3,458 |
) |
|
|
13,216 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
264,772 |
|
|
$ |
4,628 |
|
|
$ |
(3,912 |
) |
|
$ |
264,056 |
|
Of the $14.4 million CMOs held at December 31, 2009, five instruments are private label representing fair value of $11.2 million and unrealized loss of $0.1 million.
The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
| |
|
Three Months Ended
March 31,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Proceeds from calls and maturities
|
|
$ |
2,310 |
|
|
$ |
8,551 |
|
|
Proceeds from sales
|
|
|
51 |
|
|
|
— |
|
|
Realized gains
|
|
|
2 |
|
|
|
14 |
|
|
Realized losses
|
|
|
— |
|
|
|
— |
|
|
Net impairment loss recognized in earnings
|
|
|
(1,607 |
) |
|
|
(1,208 |
) |
|
Tax benefit (provision) related to net realized gains and losses
|
|
|
1 |
|
|
|
5 |
|
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, 2010
|
|
| |
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
| |
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
| |
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State and political subdivisions
|
|
|
732 |
|
|
|
(1 |
) |
|
|
567 |
|
|
|
(8 |
) |
|
|
1,299 |
|
|
|
(9 |
) |
|
U.S. government agency residential mortgage-backed securities
|
|
|
49,256 |
|
|
|
(240 |
) |
|
|
— |
|
|
|
— |
|
|
|
49,256 |
|
|
|
(240 |
) |
|
Collateralized residential mortgage obligations
|
|
|
5,207 |
|
|
|
(152 |
) |
|
|
8,493 |
|
|
|
(183 |
) |
|
|
13,700 |
|
|
|
(335 |
) |
|
Equities
|
|
|
— |
|
|
|
— |
|
|
|
66 |
|
|
|
(29 |
) |
|
|
66 |
|
|
|
(29 |
) |
|
Collateralized debt obligations
|
|
|
— |
|
|
|
— |
|
|
|
8,253 |
|
|
|
(3,532 |
) |
|
|
8,253 |
|
|
|
(3,532 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$ |
55,195 |
|
|
$ |
(393 |
) |
|
$ |
17,379 |
|
|
$ |
(3,752 |
) |
|
$ |
72,574 |
|
|
$ |
( 4,145 |
) |
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 3. Securities (Continued)
| |
|
December 31, 2009
|
|
| |
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
| |
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
| |
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State and political subdivisions
|
|
|
444 |
|
|
|
(6 |
) |
|
|
777 |
|
|
|
(19 |
) |
|
|
1,221 |
|
|
|
(25 |
) |
|
U.S. government agency residential mortgage-backed securities
|
|
|
40,920 |
|
|
|
(249 |
) |
|
|
— |
|
|
|
— |
|
|
|
40,920 |
|
|
|
(249 |
) |
|
Collateralized residential mortgage obligations
|
|
|
— |
|
|
|
— |
|
|
|
9,841 |
|
|
|
(137 |
) |
|
|
9,841 |
|
|
|
(137 |
) |
|
Equities
|
|
|
— |
|
|
|
— |
|
|
|
51 |
|
|
|
(43 |
) |
|
|
51 |
|
|
|
(43 |
) |
|
Collateralized debt obligations
|
|
|
— |
|
|
|
— |
|
|
|
9,758 |
|
|
|
(3,458 |
) |
|
|
9,758 |
|
|
|
(3,458 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$ |
41,364 |
|
|
$ |
(255 |
) |
|
$ |
20,427 |
|
|
$ |
(3,657 |
) |
|
$ |
61,791 |
|
|
$ |
(3,912 |
) |
The fair values of securities classified as available-for-sale at March 31, 2010, by contractual maturity, are shown as follows. Securities not due at a single maturity date, including mortgage-backed securities, collateralized mortgage obligations, and equity securities are shown separately.
| |
|
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$ |
8,124 |
|
|
$ |
8,269 |
|
|
Due after one year through five years
|
|
|
16,510 |
|
|
|
17,190 |
|
|
Due after five years through ten years
|
|
|
7,940 |
|
|
|
8,335 |
|
|
Due after ten years
|
|
|
16,084 |
|
|
|
12,701 |
|
|
U.S. government agency residential mortgage-backed securities
|
|
|
205,193 |
|
|
|
208,661 |
|
|
Collateralized residential mortgage obligations
|
|
|
17,652 |
|
|
|
17,349 |
|
|
Equity
|
|
|
2,153 |
|
|
|
2,166 |
|
| |
|
$ |
273,656 |
|
|
$ |
274,671 |
|
The following table below presents a rollforward of the credit losses recognized in earnings for the three month period ended March 31, 2010:
|
Beginning balance, January 1, 2010
|
|
$ |
15,341 |
|
|
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
|
|
|
— |
|
|
Additions/Subtractions
|
|
|
|
|
|
Amounts realized for securities sold during the period
|
|
|
— |
|
|
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis
|
|
|
— |
|
|
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security
|
|
|
— |
|
|
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized
|
|
|
1,607 |
|
|
Ending balance, March 31, 2010
|
|
$ |
16,948 |
|
See Note 9 on Fair Value for additional information about our analysis on the security portfolio related to the fair value and other-than-temporary impairment disclosures of these instruments.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 4. Loans
The following table describes the composition of loans by major categories outstanding as of March 31, 2010 and December 31, 2009, respectively:
| |
|
March 31, 2010
|
|
|
December 31, 2009
|
|
| |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
Commercial
|
|
$ |
114,950 |
|
|
|
13.7 |
% |
|
$ |
126,342 |
|
|
|
14.3 |
% |
|
Agricultural
|
|
|
15,531 |
|
|
|
1.9 |
|
|
|
18,851 |
|
|
|
2.1 |
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
428,799 |
|
|
|
51.1 |
|
|
|
437,995 |
|
|
|
49.5 |
|
|
Construction
|
|
|
112,309 |
|
|
|
13.4 |
|
|
|
128,351 |
|
|
|
14.5 |
|
|
Agricultural
|
|
|
9,983 |
|
|
|
1.2 |
|
|
|
9,602 |
|
|
|
1.1 |
|
|
1-4 family mortgages
|
|
|
153,044 |
|
|
|
18.2 |
|
|
|
159,325 |
|
|
|
18.0 |
|
|
Installment
|
|
|
3,645 |
|
|
|
0.4 |
|
|
|
4,093 |
|
|
|
0.4 |
|
|
Other
|
|
|
439 |
|
|
|
0.1 |
|
|
|
536 |
|
|
|
0.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
838,700 |
|
|
|
100.0 |
% |
|
|
885,095 |
|
|
|
100.0 |
% |
|
Allowance for loan losses
|
|
|
(41,845 |
) |
|
|
|
|
|
|
(40,909 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$ |
796,855 |
|
|
|
|
|
|
$ |
844,186 |
|
|
|
|
|
The following table presents data on impaired loans:
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
Impaired loans for which an allowance has been provided
|
|
$ |
137,593 |
|
|
$ |
129,655 |
|
|
Impaired loans for which no allowance has been provided
|
|
|
17,092 |
|
|
|
35,923 |
|
| |
|
|
|
|
|
|
|
|
|
Total loans determined to be impaired
|
|
$ |
154,685 |
|
|
$ |
165,578 |
|
| |
|
|
|
|
|
|
|
|
|
Allowance for loan loss allocated to impaired loans
|
|
$ |
28,228 |
|
|
$ |
26,717 |
|
| |
|
|
|
|
|
|
|
|
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 collectability of the loans in its portfolio; incorporating feedback provided by internal loan staff; the independent loan review function; and information provided by regulatory agencies. Included in the impaired loans above is $10.9 million of troubled debt restructurings representing 5 loans categorized as 1 to 4 family and commercial real estate.
Nonaccrual loans were $78.9 million and $80.1 million as of March 31, 2010 and December 31, 2009, respectively. As of March 31, 2010 and December 31, 2009, there were no loans that were past 90 days and still accruing. The Company has loans held for sale of $0.5 million and $1.5 million as of March 31, 2010 and December 31, 2009, respectively.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 4. Loans (Continued)
The Company conducts a quarterly evaluation of the allowance for loan losses. Activity in the allowance for loan losses for the three months ended March 31, 2010 and 2009 are summarized below:
| |
|
Three Months Ended
March 31,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$ |
40,909 |
|
|
$ |
15,018 |
|
|
Charge-offs
|
|
|
(8,536 |
) |
|
|
(1,309 |
) |
|
Recoveries
|
|
|
122 |
|
|
|
66 |
|
|
Provision for loan losses
|
|
|
9,350 |
|
|
|
2,235 |
|
| |
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
41,845 |
|
|
$ |
16,010 |
|
| |
|
|
|
|
|
|
|
|
|
Period end total loans
|
|
$ |
838,700 |
|
|
$ |
985,464 |
|
| |
|
|
|
|
|
|
|
|
|
Average loans
|
|
$ |
867,578 |
|
|
$ |
1,000,409 |
|
| |
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans
|
|
|
0.97 |
% |
|
|
0.12 |
% |
|
Ratio of provision for loan losses to average loans
|
|
|
1.08 |
|
|
|
0.22 |
|
|
Ratio of allowance for loan losses to period end total loans
|
|
|
4.99 |
|
|
|
1.62 |
|
|
Ratio of allowance for loan losses to total nonperforming loans
|
|
|
46.40 |
|
|
|
103.47 |
|
|
Ratio of allowance for loan losses to average loans
|
|
|
4.82 |
|
|
|
1.60 |
|
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. The plan terminated on November 18, 2009 leaving no shares available for grant under this plan.
In April 2003, the Company adopted the 2003 Option Plan. Under the 2003 Option Plan, as amended on April 24, 2007, nonqualified options, incentive stock options, restricted stock and/or stock appreciation rights may be granted to employees and outside directors of the Company and its subsidiaries to purchase the Company’s common stock at an exercise price to be determined by the Executive and Compensation committee. Pursuant to the 2003 Option Plan, 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 seven to ten years from the date of grant. There are 66,000 shares available to grant under this plan.
The Company awarded 5,000 shares of restricted stock in November, 2006 that was 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 $0.09 million. 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 vested at a rate of 20% of the initially awarded amount per year, beginning on the date of the award and were contingent upon continuous service by the recipient through the vesting date. As of April 3, 2009, the contingency was not fulfilled and the remaining 2,000 shares of unvested restricted stock were forfeited and returned to treasury stock.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 5. Share Based Compensation (Continued)
A summary of the status of the option plans as of March 31, 2010, and changes during the period ended on those dates is presented below:
| |
|
March 31, 2010
|
|
| |
|
|
|
|
|
|
Weighted-
|
|
|
|
| |
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
| |
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
| |
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
| |
|
Shares
|
|
|
Price
|
|
Life
|
|
Value
|
|
|
Outstanding at January 1, 2010
|
|
|
690,769 |
|
|
$ |
16.68 |
|
|
|
|
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Forfeited
|
|
|
(20,000 |
) |
|
|
14.17 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
670,769 |
|
|
$ |
16.76 |
|
3.8 years
|
|
$ |
— |
|
|
Vested or expected to vest
|
|
|
664,834 |
|
|
$ |
16.79 |
|
3.7 years
|
|
$ |
— |
|
|
Options exercisable at period end
|
|
|
538,869 |
|
|
$ |
17.48 |
|
3.5 years
|
|
$ |
— |
|
Options outstanding at March 31, 2010 and December 31, 2009 were as follows:
| |
|
|
Outstanding
|
|
Exercisable
|
|
| |
|
|
|
|
Weighted-
|
|
|
|
|
|
|
| |
|
|
|
|
Average
|
|
|
|
|
Weighted-
|
|
| |
|
|
|
|
Remaining
|
|
|
|
|
Average
|
|
| |
|
|
|
|
Contractual
|
|
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Number
|
|
Life
|
|
Number
|
|
|
Price
|
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ 5.24 - $ 13.00 |
|
|
|
161,381 |
|
4.5 years
|
|
|
95,281 |
|
|
$ |
8.26 |
|
| 13.88 - 18.63 |
|
|
|
224,588 |
|
3.6 years
|
|
|
181,388 |
|
|
|
16.69 |
|
| 19.03 - 23.31 |
|
|
|
284,800 |
|
3.7 years
|
|
|
262,200 |
|
|
|
21.38 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
670,769 |
|
3.8 years
|
|
|
538,869 |
|
|
$ |
17.48 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ 5.24 - $ 13.00 |
|
|
|
170,381 |
|
4.9 years
|
|
|
77,381 |
|
|
|
7.96 |
|
| 13.88 - 18.63 |
|
|
|
233,588 |
|
3.9 years
|
|
|
167,188 |
|
|
|
16.60 |
|
| 19.03 - 23.31 |
|
|
|
286,800 |
|
3.9 years
|
|
|
259,600 |
|
|
|
21.41 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
690,769 |
|
4.1 years
|
|
|
504,169 |
|
|
$ |
17.75 |
|
Information related to the stock option plan during the quarter ended March 31, 2010 and 2009 was as follows:
| |
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$ |
— |
|
|
$ |
— |
|
|
Cash received from option exercises
|
|
|
— |
|
|
|
— |
|
|
Tax benefit realized from option exercises
|
|
|
— |
|
|
|
— |
|
The compensation cost that has been charged against income for the stock options portion of the Option Plans was $0.02 million and $0.07 million for the three months ended March 31, 2010 and 2009, respectively. There was no compensation cost charged against income for the restricted stock portion of the Option Plans for the three months ended March 31, 2010 and 2009.
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.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 5. Share Based Compensation (Continued)
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. There were no options granted in the first quarter 2010. Year to date data for March 31, 2010, December 31, 2009 and December 31, 2008, is as follows:
| |
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Fair value
|
|
$ |
— |
|
|
$ |
1.79 - 3.70 |
|
|
$ |
1.79 |
|
|
Risk-free interest rate
|
|
|
— |
|
|
|
1.53 - 2.01 |
% |
|
|
1.53 |
% |
|
Expected option life (years)
|
|
|
— |
|
|
|
6 |
|
|
|
6 |
|
|
Expected stock price volatility
|
|
|
— |
|
|
|
68.84 - 116.39 |
% |
|
|
68.84 |
% |
|
Dividend yield
|
|
|
— |
|
|
|
5.71 - 7.31 |
% |
|
|
7.57 |
% |
Unrecognized stock option compensation expense related to unvested awards (net of estimated forfeitures) for the remainder of 2010 and beyond is estimated as follows:
| |
|
Amount
|
|
|
April, 2010 – December, 2010
|
|
$ |
93 |
|
|
2011
|
|
|
120 |
|
|
2012
|
|
|
82 |
|
|
2013
|
|
|
34 |
|
|
2014
|
|
|
1 |
|
| |
|
|
|
|
|
Total
|
|
$ |
330 |
|
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 an internal reporting and planning process that focuses on lines of business (“LOB”). The reportable segments are determined by the products and services offered, primarily distinguished between retail, commercial, treasury, 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; 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.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 7. Segment Information (Continued)
Information reported internally for performance assessment follows:
| |
|
Three Months Ended
|
|
| |
|
March, 31 2010
|
|
| |
|
Retail
|
|
|
Commercial
|
|
|
Treasury
|
|
|
Other
|
|
|
Total
|
|
| |
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Operations
|
|
|
Company
|
|
|
Net interest income (loss)
|
|
$ |
1,261 |
|
|
$ |
6,426 |
|
|
$ |
903 |
|
|
$ |
(620 |
) |
|
$ |
7,970 |
|
|
Other revenue
|
|
|
1,672 |
|
|
|
235 |
|
|
|
(1,604 |
) |
|
|
1,019 |
|
|
|
1,322 |
|
|
Other expense
|
|
|
2,359 |
|
|
|
2,226 |
|
|
|
52 |
|
|
|
4,936 |
|
|
|
9,573 |
|
|
Noncash items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
314 |
|
|
|
2 |
|
|
|
— |
|
|
|
259 |
|
|
|
575 |
|
|
Provision for loan losses
|
|
|
— |
|
|
|
9,350 |
|
|
|
— |
|
|
|
— |
|
|
|
9,350 |
|
|
Other intangibles
|
|
|
338 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
338 |
|
|
Net allocations
|
|
|
1,541 |
|
|
|
2,837 |
|
|
|
418 |
|
|
|
(4,796 |
) |
|
|
— |
|
|
Income tax benefit
|
|
|
(680 |
) |
|
|
(3,197 |
) |
|
|
(407 |
) |
|
|
— |
|
|
|
(4,284 |
) |
|
Segment profit (loss)
|
|
$ |
(939 |
) |
|
$ |
(4,557 |
) |
|
$ |
(764 |
) |
|
$ |
— |
|
|
$ |
(6,260 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
7,784 |
|
|
$ |
8,096 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,880 |
|
|
Segment assets
|
|
$ |
220,268 |
|
|
$ |
650,706 |
|
|
$ |
301,065 |
|
|
$ |
114,493 |
|
|
$ |
1,286,532 |
|
| |
|
Three Months Ended
|
|
| |
|
March 31, 2009
|
|
| |
|
Retail
|
|
|
Commercial
|
|
|
Treasury
|
|
|
Other
|
|
|
Total
|
|
| |
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Operations
|
|
|
Company
|
|
|
Net interest income (loss)
|
|
$ |
2,522 |
|
|
$ |
7,156 |
|
|
$ |
1,487 |
|
|
$ |
(787 |
) |
|
$ |
10,378 |
|
|
Other revenue
|
|
|
2,595 |
|
|
|
278 |
|
|
|
(1,194 |
) |
|
|
364 |
|
|
|
2,043 |
|
|
Other expense
|
|
|
3,173 |
|
|
|
597 |
|
|
|
53 |
|
|
|
4,047 |
|
|
|
7,870 |
|
|
Noncash items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
329 |
|
|
|
1 |
|
|
|
— |
|
|
|
263 |
|
|
|
593 |
|
|
Provision for loan losses
|
|
|
175 |
|
|
|
2,060 |
|
|
|
— |
|
|
|
— |
|
|
|
2,235 |
|
|
Other intangibles
|
|
|
414 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
414 |
|
|
Net allocations
|
|
|
1,743 |
|
|
|
2,574 |
|
|
|
416 |
|
|
|
(4,733 |
) |
|
|
— |
|
|
Income tax expense (benefit)
|
|
|
(237 |
) |
|
|
644 |
|
|
|
(163 |
) |
|
|
— |
|
|
|
244 |
|
|
Segment profit (loss)
|
|
$ |
(480 |
) |
|
$ |
1,558 |
|
|
$ |
(13 |
) |
|
$ |
— |
|
|
$ |
1,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
11,927 |
|
|
$ |
12,404 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,331 |
|
|
Segment assets
|
|
$ |
247,303 |
|
|
$ |
793,624 |
|
|
$ |
256,262 |
|
|
$ |
73,174 |
|
|
$ |
1,370,363 |
|
Note 8. Borrowed Funds and Debt Obligations
On March 31, 2008, the Company originally entered into a loan agreement with Bank of America consisting of three credit facilities: a secured revolving line of credit, a secured term facility, and a subordinated debt. In February 2009, the loan agreement on the revolving line of credit was amended resulting in an aggregate principal amount of $20.3 million. The first credit facility consisted of a $10.0 million secured revolving line of credit which matured on June 30, 2009 and was not renewed by Bank of America. The second credit facility consists of a $0.3 million secured term facility, which will mature in March 31, 2015. The third credit facility consists of $10.0 million in subordinated debt, which also matures in March 31, 2015. On December 14, 2009, the Bank of America transferred to Cole Taylor Bank all rights, title, interest in to and under the loan agreements dated March 31, 2008. Repayment of each of the remaining two credit facilities is interest only on a quarterly basis, with the principal amount of the loan due at maturity. The term credit facility is secured by a pledge of the stock of the 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, the Bank’s maintenance of its status as well-capitalized, the Bank’s maximum nonperforming assets to primary capital below 90%, and the Bank’s minimum loan loss reserves to total loans of 2.00%. The Company is using these credit facilities for general working capital purposes. The loan agreement contains no penalty for early repayment of the subordinated debt credit facility. The Company is in compliance with all covenants as of March 31, 2010.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 8. Borrowed Funds and Debt Obligations (Continued)
Additionally, the Company has a note outstanding to an individual with an imputed interest rate of 5.25% maturing October 24, 2012 from a prior acquisition. The balance as of March 31, 2010 and December 31, 2009 was $0.5 million.
Note 9. Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
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 and asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Available for Sale Securities: The fair value of securities available for sale is 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). If the securities could not be priced using quoted market prices, observable market activity or comparable trades, the financial market was considered not active and the assets were classified as Level 3.
The assets included in Level 3 are trust preferred collateralized debt obligations (“CDOs”). These securities were historically priced using Level 2 inputs. However, in 2008, the decline in the level of observable inputs and market activity for trust preferred CDOs by the measurement date was significant and resulted in unreliable external pricing. As such, the Company uses an internal OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows during the quarter. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments.
We assume no recoveries on defaults and treat all interest payment deferrals as defaults. In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Company’s note class.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 9. Fair Value (Continued)
Each bank in the tranche was analyzed so that additional defaults and deferrals could be factored into the cash flow model. Three internal scenarios were developed that had different assumptions regarding the impact of the economic environment on additional defaults and deferrals. The cash flow for each tranche was updated for each scenario. A discount factor to be applied to LIBOR was developed for each specific tranche and incorporated to arrive at the discount rate for the CDO. These rates were applied to calculate the net present value of the cash flows. The results of the three net present value calculations were weighted based on their likelihood of occurring. Additionally, First Tennessee (the Company’s security broker) has developed a CDO stressing model that generates nine possible scenarios from basic data inputs on each of the CDOs. A simple average of the nine possible scenarios was developed. This result was also weighted together with the results of the weighted internal scenarios and one value was developed for each instrument.
Finally, an independent valuation of our portfolio was obtained. This was weighted as the final overall step to arrive at our valuation for March 31, 2010. Due to market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.
At March 31, 2010, the Company held seven pooled trust preferred CDOs with a book value of $11.8 million (after first quarter 2010 impairment). These securities were rated high quality (A3 and above) at inception, but at March, 2010 S&P rated these securities as B-, which are defined as highly speculative, and C, which is defined as default, with some recovery. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies.
The Company performed an analysis including evaluation for other-than-temporary-impairment (“OTTI”) for each of the seven CDOs. Upon completion of the March 31, 2010 analysis, our model indicated other-than-temporary impairment on four of these CDOs, with an aggregate cost basis of $7.8 million. Total impairment for these four CDOs totaled $4.3 million of which $1.5 million was related to credit loss based on the Company’s analysis of future cash flows. Management has determined that the remaining CDOs are deemed to be only temporarily impaired at quarter-end due to the projected cash flows adjusted for the possible further deterioration is sufficient to return the outstanding principal balance with interest at the stated rate.
During the fourth quarter 2009, the private labeled instruments in the CMO pool was evaluated using management’s required collateral coverage of 5%. Based on the Company’s first quarter monitoring of its CMO security portfolio, two of the securities in the portfolio fell below the required coverage ratio of 5%. Therefore a $0.1 million impairment charge was taken to bring those instruments back above the 5% coverage ratio.
The Company’s unrealized losses on other securities relate primarily to its investment in CDO securities. The decline in fair value is primarily attributable to temporary illiquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. Due to the illiquidity in the market, it is unlikely that the Company would be able to recover its investment in these securities if the Company sold the securities at this time. The Company does not intend to sell these securities or more likely than not will be required to sell these securities before its anticipated recovery.
Other Real Estate Owned. Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 9. Fair Value (Continued)
Mortgage Servicing Rights. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.
Loans Held For Sale. Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| |
|
|
|
|
Fair Value measurements at March 31, 2010 Using
|
|
| |
|
|
|
|
Quoted Prices in Active Markets For Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2010 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$ |
3,445 |
|
|
$ |
— |
|
|
$ |
3,445 |
|
|
$ |
— |
|
|
State and political subdivisions
|
|
|
34,797 |
|
|
|
— |
|
|
|
34,797 |
|
|
|
— |
|
|
U.S. government agency residential mortgage-backed securities
|
|
|
208,661 |
|
|
|
— |
|
|
|
208,661 |
|
|
|
— |
|
|
Collateralized residential mortgage obligations
|
|
|
17,349 |
|
|
|
— |
|
|
|
8,856 |
|
|
|
8,493 |
|
|
Equities
|
|
|
2,166 |
|
|
|
— |
|
|
|
2,166 |
|
|
|
— |
|
|
Collateralized debt obligations
|
|
|
8,253 |
|
|
|
— |
|
|
|
— |
|
|
|
8,253 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$ |
274,671 |
|
|
$ |
— |
|
|
$ |
257,925 |
|
|
$ |
16,746 |
|
| |
|
|
|
|
Fair Value measurements at December 31, 2009 Using
|
|
| |
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
| |
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
| |
|
|
|
|
For Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
| |
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
| |
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$ |
3,966 |
|
|
$ |
— |
|
|
$ |
3,966 |
|
|
$ |
— |
|
|
State and political subdivisions
|
|
|
36,541 |
|
|
|
— |
|
|
|
36,541 |
|
|
|
— |
|
|
U.S. government agency residential mortgage-backed securities
|
|
|
198,183 |
|
|
|
— |
|
|
|
198,183 |
|
|
|
— |
|
|
Collateralized residential mortgage obligations
|
|
|
14,426 |
|
|
|
— |
|
|
|
4,637 |
|
|
|
9,789 |
|
|
Equities
|
|
|
1,898 |
|
|
|
— |
|
|
|
1,898 |
|
|
|
— |
|
|
Collateralized debt obligations
|
|
|
9,758 |
|
|
|
— |
|
|
|
— |
|
|
|
9,758 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$ |
264,772 |
|
|
$ |
— |
|
|
$ |
245,225 |
|
|
$ |
19,547 |
|
Centrue Financial Corporation
Note to Unaudited Consolidated Financial Statements
|
(Table Amounts In Thousands, Except Share Data)
|
Note 9. Fair Value (Continued)
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2010:
| |
|
CDOs
|
|
|
CMOs
|
|
|
Total
Available for Sale Securities
|
|
|
Beginning balance, January 1, 2010
|
|
$ |
9,758 |
|
|
$ |
9,789 |
|
|
$ |
19,547 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest income on securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Security impairment
|
|
|
(1,468 |
) |
|
|
(139 |
) |
|
|
(1,607 |
) |
|
Other changes in fair value
|
|
|
37 |
|
|
|
(1,110 |
) |
|
|
(1,073 |
) |
|
Gains (losses) on sales of securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Included in other comprehensive income
|
|
|
(74 |
) |
|
|
(47 |
) |
|
|
(121 |
) |
|
Ending Balance, March 31, 2010
|
|
$ |
8,253 |
|
|
$ |
8,493 |
|
|
$ |
16,746 |
|
| |
|
CDOs
|
|
|
CMOs
|
|
|
Total
Available for Sale Securities
|
|
|
Beginning balance, January 1, 2009
|
|
$ |
19,848 |
|
|
$ |
— |
|
|
$ |
19,848 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest income on securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Security impairment
|
|
|
(1,208 |
) |
|
|
— |
|
|
|
(1,208 |
) |
|
Other changes in fair value
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Gains (losses) on sales of securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Included in other comprehensive income
|
|
|
(6,269 |
) |
|
|
— |
|
|
|
(6,269 |
) |
|
Ending Balance, March 31, 2009
|
|
$ |
12,371 |
|
|
$ |
— |
|
|
$ |
12,371 |
|
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
| |
|
|
|
|
Fair Value measurements at March 31, 2010 |