10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2015
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 November 13, 2015
Common Stock, Par Value $0.01
 
6,513,694



Centrue Financial Corporation
Form 10-Q Index
September 30, 2015
 
 
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)
 



 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
45,686

 
$
49,167

Securities available-for-sale
206,430

 
135,371

Restricted securities
8,271

 
6,102

Loans held for sale
214

 
364

Loans, net of allowance for loan loss: 2015 - $8,403;
 
 
 
2014 - $7,981
603,515

 
545,219

Bank-owned life insurance
34,877

 
34,194

Mortgage servicing rights
2,171

 
2,240

Premises and equipment, net
22,241

 
22,626

Intangible assets, net
1,117

 
1,831

Other real estate owned, net
9,755

 
10,256

Other assets
9,399

 
9,719

Total assets
$
943,676

 
$
817,089

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
160,998

 
$
144,633

Interest-bearing
548,537

 
554,191

Total deposits
709,535

 
698,824

Federal funds purchased and securities sold under agreements to repurchase
18,869

 
26,691

Federal Home Loan Bank advances
105,000

 
20,000

Notes payable
—

 
10,250

Series B mandatory redeemable preferred stock
268

 
268

Subordinated debentures
20,620

 
20,620

Other liabilities
5,636

 
10,108

Total liabilities
859,928

 
786,761

 
 
 
 
Commitments and contingent liabilities
—

 
—

 
 
 
 
Stockholders' equity
 
 
 
Series C Fixed Rate, Cumulative Perpetual Preferred Stock, no shares authorized
 
 
 
in 2015; 32,668 shares authorized and issued 2014;
 
 
 
aggregate liquidation preference of $32,668
—

 
32,668

Series D Fixed Rate, Non-Cumulative Perpetual Preferred Stock,
 
 
 
2,636 shares authorized and issued 2015 and 2014;
 
 
 
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 2015;
 
 
 
215,000,000 shares authorized; 248,452 shares issued at 2014
66

 
2

Surplus
147,626

 
78,955

Accumulated deficit
(41,469
)
 
(58,750
)
Accumulated other comprehensive loss
(2,218
)
 
(2,051
)
 
106,641

 
53,460

Treasury stock, at cost, 96,326 shares at September 30, 2015
 
 
 
and 97,330 at December 31, 2014
(22,893
)
 
(23,132
)
Total stockholders' equity
83,748

 
30,328

Total liabilities and stockholders' equity
$
943,676

 
$
817,089


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
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Interest income
 
 
 
 
 
 
 
Loans
$
6,476

 
$
6,304

 
$
18,868

 
$
18,796

Securities
 
 
 
 
 
 
 
Taxable
794

 
543

 
2,020

 
1,766

Exempt from federal income taxes
46

 
62

 
122

 
188

Federal funds sold and other
20

 
38

 
67

 
98

Total interest income
7,336

 
6,947

 
21,077

 
20,848

 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
Deposits
316

 
498

 
940

 
1,637

Federal funds purchased and securities sold under
 
 
 
 
 
 
 
agreements to repurchase
13

 
14

 
37

 
39

Federal Home Loan Bank advances
138

 
117

 
368

 
340

Series B mandatory redeemable preferred stock
4

 
4

 
12

 
12

Subordinated debentures
128

 
152

 
413

 
447

Notes payable
—

 
86

 
84

 
254

Total interest expense
599

 
871

 
1,854

 
2,729

 
 
 
 
 
 
 
 
Net interest income
6,737

 
6,076

 
19,223

 
18,119

Provision for loan losses
—

 
675

 
—

 
2,275

Net interest income after provision for loan losses
6,737

 
5,401

 
19,223

 
15,844

 
 
 
 
 
 
 
 
Noninterest income
 
 
 
 
 
 
 
Service charges
1,075

 
1,154

 
3,010

 
3,289

Mortgage banking income
315

 
377

 
972

 
1,164

Electronic banking services
651

 
644

 
1,895

 
1,868

Bank-owned life insurance
232

 
229

 
683

 
668

Securities gains, net
196

 
410

 
297

 
788

Income from real estate
114

 
141

 
434

 
462

Gain on sale of OREO
47

 
166

 
50

 
588

Gain on sale of other assets
—

 
—

 
—

 
750

Gain on extinguishment of debt
—

 
—

 
1,750

 
—

Other income
608

 
83

 
750

 
243

 
3,238

 
3,204

 
9,841

 
9,820







2
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
4,086

 
3,796

 
12,394

 
11,490

Occupancy, net
706

 
677

 
2,142

 
2,139

Furniture and equipment
259

 
241

 
746

 
731

Marketing
105

 
61

 
263

 
174

Supplies and printing
50

 
59

 
170

 
180

Telephone
204

 
174

 
592

 
573

Data processing
442

 
476

 
1,258

 
1,282

FDIC insurance
281

 
473

 
925

 
1,428

Loan processing and collection costs
225

 
80

 
638

 
481

OREO carrying costs
187

 
277

 
655

 
801

OREO valuation adjustment
47

 
443

 
195

 
839

Amortization of intangible assets
238

 
238

 
714

 
714

Other expenses
2,012

 
1,037

 
4,286

 
3,327

 
8,842

 
8,032

 
24,978

 
24,159

 
 
 
 
 
 
 
 
Income before income taxes
$
1,133

 
$
573

 
$
4,086

 
$
1,505

Income tax expense
45

 
—

 
78

 
—

Net income
$
1,088

 
$
573

 
$
4,008

 
$
1,505

 
 
 
 
 
 
 
 
Preferred stock dividends
395

 
808

 
1,401

 
2,585

Discount on redemption of preferred stock
—

 
—

 
(13,668
)
 
—

Net income (loss) for common stockholders
$
693

 
$
(235
)
 
$
16,275

 
$
(1,080
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
0.11

 
$
(1.41
)
 
$
3.68

 
$
(5.68
)
Diluted earnings (loss) per common share
$
0.11

 
$
(1.41
)
 
$
3.68

 
$
(5.68
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss):
 
 
 
 
 
 
 
Net income
$
1,088

 
$
573

 
$
4,008

 
$
1,505

 
 
 
 
 
 
 
 
Change in unrealized gains (losses)
 
 
 
 
 
 
 
on securities available for sale
424

 
34

 
130

 
(24
)
Reclassification adjustment for gains
 
 
 
 
 
 
 
recognized in income
(196
)
 
(410
)
 
(297
)
 
(788
)
Net unrealized gains (loss)
228

 
(376
)
 
(167
)
 
(812
)
Tax effect


 


 


 


Other comprehensive income (loss)
228

 
(376
)
 
(167
)
 
(812
)
Total comprehensive income
$
1,316

 
$
197

 
$
3,841

 
$
693






See Accompanying Notes to Consolidated Financial Statements

3
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
 


 
Nine Months Ended
September 30,
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
4,008

 
$
1,505

Adjustments to reconcile net income (loss)
 
 
 
 to net cash provided by operating activities
 
 
 
Depreciation
868

 
883

Amortization of intangible assets
714

 
714

Amortization of mortgage servicing rights, net
257

 
216

Amortization of bond premiums, net
1,045

 
1,050

Provision for loan losses
—

 
2,275

Earnings on bank-owned life insurance
(683
)
 
(668
)
OREO valuation allowance
195

 
839

Securities gains, net
(297
)
 
(788
)
Gain on sale of OREO
(50
)
 
(588
)
Gain on extinguishment of debt
(1,750
)
 
—

Gain on sale of loans
(664
)
 
(782
)
Proceeds from sales of loans held for sale
26,561

 
28,977

Origination of loans held for sale
(21,901
)
 
(27,841
)
Change in assets and liabilities
 
 
 
(Increase) decrease in other assets
92

 
(1,332
)
Increase (decrease) in other liabilities
(4,449
)
 
238

Net cash provided by operating activities
3,946

 
4,698

Cash flows from investing activities
 
 
 
Proceeds from paydowns of securities available for sale
24,794

 
20,721

Proceeds from calls and maturities of securities available for sale
3,530

 
280

Proceeds from sales of securities available for sale
49,584

 
20,926

Purchases of securities available for sale
(149,842
)
 
(20,590
)
Redemption of Federal Reserve Bank stock
179

 
13

Purchase of Federal Home Loan Bank stock
(1,229
)
 
—

Purchase of Federal Reserve Bank stock
(1,119
)
 
(53
)
Net increase in loans
(62,434
)
 
(11,573
)
Purchase of premises and equipment
(483
)
 
(650
)
Proceeds from sale of OREO
639

 
3,260

Net cash (used in) provided by investing activities
(136,381
)
 
12,334



4
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
 


 
Nine Months Ended
September 30,
 
2015
 
2014
Cash flows from financing activities
 
 
 
Net increase (decrease) in deposits
10,711

 
(25,405
)
Net increase (decrease) in federal funds purchased
 
 
 
and securities sold under agreements to repurchase
(7,822
)
 
753

Net proceeds of advances from the Federal Home Loan Bank
85,000

 
(5,000
)
Repayment of Notes Payable
(8,500
)
 
—

Net proceeds from the issuance of Common Stock
68,960

 
—

Purchase of Treasury Stock
—

 
(1,255
)
Redemption of Series A Convertible Preferred Stock
—

 
(500
)
Redemption of Series C Cumulative Perpetual Preferred Stock
(19,000
)
 
—

Issuance of Series D Non-Cumulative Perpetual Preferred Stock
—

 
2,636

Dividends paid on preferred stock
(395
)
 
(881
)
Net cash provided by (used in) financing activities
128,954

 
(29,652
)
Net (decrease) in cash and cash equivalents
(3,481
)
 
(12,620
)
Cash and cash equivalents
 
 
 
Beginning of period
49,167

 
70,748

End of period
$
45,686

 
$
58,128

Supplemental disclosures of cash flow information
 
 
 
Cash payments for
 
 
 
Interest
$
6,710

 
$
2,442

Income taxes
81

 
5

Transfers from loans to other real estate owned
292

 
481


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 registration statement filed with the SEC on October 15, 2015 which includes the audited financial statements and notes for the year ended December 31, 2014. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2014 amounts have been reclassified to conform to the 2015 presentation. The annualized results of operations during the three and nine months ended September 30, 2015 are not necessarily indicative of the results expected for the year ending December 31, 2015. 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. 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 MB Financial 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 April 2015, the FASB issued an update, ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. This amendment is effective for fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. Early adoption is permitted. The amendment may be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company intends to adopt the accounting standard during 2016, as required, with no material impact.
In June of 2014, the FASB issued an update, ASU No. 2014-11 Transfers and Servicing (Topic 860), guidance that requires repurchase-to-maturity transactions to be accounted for as secured borrowings and with additional disclosures. The guidance also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. If the derecognition criteria are met as outlined in the guidance, the initial transfer will generally be accounted for as a sale and the repurchase agreement will generally be accounted for as a secured borrowing. The guidance is effective for annual reporting periods beginning after December 15, 2014 and interim reporting periods after December 15, 2015. Management

6
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


is evaluating the new guidance, but does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
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, 2016. We are 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 and nine months ended September 30, 2015 and 2014 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 thirty for one stock split the Company completed effective May 29, 2015. Options to purchase 3,488 and 6,083 shares of common stock were outstanding for September 30, 2015 and 2014, 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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Basic Earnings (Loss) Per Common Share
 
 
 
 
 
 
 
Net income
$
1,088

 
$
573

 
$
4,008

 
$
1,505

Preferred stock dividends
(395
)
 
(808
)
 
(1,401
)
 
(2,585
)
Discount on redemption of preferred stock
—

 
—

 
13,668

 
—

Net income (loss) for common shareholders
$
693

 
$
(235
)
 
$
16,275

 
(1,080
)
Weighted average common shares outstanding
6,485,218

 
166,641

 
4,420,000

 
190,160

Basic earnings per common share
$
0.11

 
$
(1.41
)
 
$
3.68

 
$
(5.68
)
Diluted Earnings Per Common Share
 
 
 
 
 
 
 
Weighted average common shares outstanding
6,485,218

 
166,641

 
4,420,000

 
190,160

Weighted average common and dilutive
 
 
 
 
 
 
 
potential shares outstanding
6,485,218

 
166,641

 
4,420,000

 
190,160

Diluted earnings (loss) per common share
$
0.11

 
$
(1.41
)
 
$
3.68

 
$
(5.68
)

On November 4, 2015 restricted stock awards totaling 28,476 shares of common stock were granted and issued. These additional shares are excluded from the above weighted average common and dilutive potential shares outstanding.

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 $206.4 million at September 30, 2015 compared to $135.4 million at December 31, 2014. The carrying value of securities classified as restricted (Federal Reserve and Federal Home Loan Bank stock) was $8.3 million at September 30, 2015 compared to $6.1 million at December 31, 2014. The Company does not have any securities classified as trading or held-to-maturity.


7
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


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 September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
40,727

 
$
205

 
$
(8
)
 
$
40,924

States and political subdivisions
14,894

 
60

 
(64
)
 
14,890

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
129,055

 
179

 
(270
)
 
128,964

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
18,876

 
22

 
(22
)
 
18,876

Equity securities
2,619

 
157

 
—

 
2,776

Corporate
—

 
—

 
—

 
—

 
$
206,171

 
$
623

 
$
(364
)
 
$
206,430




December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
21,274

 
$
6

 
$
(171
)
 
$
21,109

States and political subdivisions
8,951

 
78

 
(1
)
 
9,028

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
99,338

 
551

 
(221
)
 
99,668

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
38

 
—

 
—

 
38

Equity securities
2,579

 
157

 
—

 
2,736

Collateralized debt obligations:
 
 
 
 
 
 
 
Single issue
765

 
—

 
(3
)
 
762

Corporate
2,000

 
30

 
—

 
2,030

 
$
134,945

 
$
822

 
$
(396
)
 
$
135,371

The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Proceeds from calls and maturities
$
2,000

 
$
—

 
$
3,530

 
$
280

Proceeds from sales
34,959

 
9,471

 
49,584

 
20,926

Realized gains
272

 
410

 
397

 
839

Realized losses
(76
)
 
—

 
(100
)
 
(51
)
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.
 
September 30, 2015
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
2,108

 
$
2,113

Due after one year through five years
29,998

 
30,080

Due after five years through ten years
23,332

 
23,436

Due after ten years
183

 
185

U.S. government agency residential mortgage-backed securities
129,055

 
128,964

Collateralized residential mortgage obligations
18,876

 
18,876

Equity
2,619

 
2,776

 
$
206,171

 
$
206,430


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:
 
September 30, 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
$
4,692


$
(8
)

$
—


$
—


$
4,692


$
(8
)
States and political subdivisions
$
3,620

 
$
(64
)
 
$
—

 
$
—

 
$
3,620

 
$
(64
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
73,623

 
(270
)
 
—

 
—

 
73,623

 
(270
)
Collateralized residential mortgage

















obligations: Agency
11,765


(22
)

—


—


11,765


(22
)
Corporate
—


—


—


—


—


—

Total temporarily impaired
$
93,700

 
$
(364
)
 
$
—

 
$
—

 
$
93,700

 
$
(364
)
 
December 31, 2014
 
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
$
18,212

 
$
(157
)
 
$
1,986

 
$
(14
)
 
$
20,198

 
$
(171
)
States and political subdivisions
386

 
(1
)
 
—

 
—

 
386

 
(1
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
34,809

 
(211
)
 
2,148

 
(10
)
 
36,957

 
(221
)
Collateralized debt obligations: Single issue
—

 
—

 
762

 
(3
)
 
762

 
(3
)
Total temporarily impaired
$
53,407

 
$
(369
)
 
$
4,896

 
$
(27
)
 
$
58,303

 
$
(396
)



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
 
September 30, 2015
 
December 31, 2014
 
 
 
 
Commercial
$
66,110

 
61,561

Agricultural & AG RE
46,323

 
53,193

Construction, land & development
24,844

 
13,860

Commercial RE
372,654

 
315,213

1-4 family mortgages
98,732

 
106,472

Consumer
3,255

 
2,901

Total Loans
$
611,918

 
553,200

Allowance for loan losses
(8,403
)
 
(7,981
)
Loans, net
$
603,515

 
545,219


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:
September 30, 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
 
$
23,369

 
$
42,002

 
$
46,323

 
$
24,627

 
$
151,251

 
$
197,354

 
$
484,926

Special Mention
 
329

 
250

 
—

 
—

 
7,870

 
7,760

 
16,209

Substandard
 
160

 
—

 
—

 
217

 
475

 
7,944

 
8,796

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
23,858

 
$
42,252

 
$
46,323

 
$
24,844

 
$
159,596

 
$
213,058

 
$
509,931


10
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
18,379

 
$
42,076

 
$
53,193

 
$
13,038

 
$
139,617

 
$
157,340

 
$
423,643

Special Mention
 
392

 
250

 
—

 
—

 
1,225

 
6,620

 
8,487

Substandard
 
464

 
—

 
—

 
822

 
1,480

 
8,931

 
11,697

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
19,235

 
$
42,326

 
$
53,193

 
$
13,860

 
$
142,322

 
$
172,891

 
$
443,827


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
September 30, 2015
 
 
 
 
 
Unrated
$
49,015

 
$
43,979

 
$
92,994

Special mention
3,961

 
157

 
4,118

Substandard
1,322

 
298

 
1,620

Doubtful
—

 
—

 
—

Total
$
54,298

 
$
44,434

 
$
98,732


 
Residential -- 1-4 family
 
Senior Lien
 
Jr. Lien & Lines of
Credit
 
Total
December 31, 2014
 
 
 
 
 
Unrated
$
55,142

 
$
45,299

 
$
100,441

Special mention
3,807

 
120

 
3,927

Substandard
1,719

 
385

 
2,104

Doubtful
—

 
—

 
—

Total
$
60,668

 
$
45,804

 
$
106,472


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 September 30, 2015 and 2014 follows:
 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,036

 
$
65

 
$
396

 
$
5,185

 
$
1,951

 
$
12

 
$
8,645

Charge-offs
—

 
—

 
—

 
(24
)
 
(325
)
 
(1
)
 
(350
)
Recoveries
54

 
2

 
16

 
9

 
24

 
3

 
108

Provision
(121
)
 
(1
)
 
66

 
35

 
25

 
(4
)
 
—

Ending Balance
$
969

 
$
66

 
$
478

 
$
5,205

 
$
1,675

 
$
10

 
$
8,403

 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
2,432

 
$
60

 
$
924

 
$
6,936

 
$
2,080

 
$
29

 
$
12,461

Charge-offs
(431
)
 
—

 
(5
)
 
(283
)
 
(88
)
 
(1
)
 
(808
)
Recoveries
68

 
1

 
—

 
410

 
53

 
3

 
535

Provision
15

 
3

 
96

 
416

 
149

 
(4
)
 
675

Ending Balance
$
2,084

 
$
64

 
$
1,015

 
$
7,479

 
$
2,194

 
$
27

 
$
12,863


An analysis of activity in the allowance for loan losses for the nine months ended September 30, 2015 and 2014 follows:
 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,117

 
$
69

 
$
711

 
$
3,999

 
$
2,075

 
$
10

 
$
7,981

Charge-offs
(357
)
 
—

 
(3
)
 
(639
)
 
(455
)
 
(4
)
 
(1,458
)
Recoveries
144

 
2

 
43

 
1,616

 
45

 
30

 
1,880

Provision
65

 
(5
)
 
(273
)
 
229

 
10

 
(26
)
 
—

Ending Balance
$
969

 
$
66

 
$
478

 
$
5,205

 
$
1,675

 
$
10

 
$
8,403


 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,413

 
$
70

 
$
1,127

 
$
6,834

 
$
2,162

 
$
31

 
$
11,637

Charge-offs
(920
)
 
—

 
(118
)
 
(559
)
 
(308
)
 
(6
)
 
(1,911
)
Recoveries
288

 
1

 
34

 
473

 
61

 
5

 
862

Provision
1,303

 
(7
)
 
(28
)
 
731

 
279

 
(3
)
 
2,275

Ending Balance
$
2,084

 
$
64

 
$
1,015

 
$
7,479

 
$
2,194

 
$
27

 
$
12,863



12
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


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 September 30, 2015 and December 31, 2014:
September 30, 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
$
86

 
$
—

 
$
65

 
$
675

 
$
365

 
$
—

 
$
1,191

Loans collectively evaluated for impairment
883

 
66

 
413

 
4,530

 
1,310

 
10

 
7,212

Total allowance balance:
$
969

 
$
66

 
$
478

 
$
5,205

 
$
1,675

 
$
10

 
$
8,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
160

 
$
—

 
$
217

 
$
4,106

 
$
1,620

 
$
—

 
$
6,103

Loans collectively evaluated for impairment
65,950

 
46,323

 
24,627

 
368,548

 
97,112

 
3,255

 
605,815

Total loans balance:
$
66,110

 
$
46,323

 
$
24,844

 
$
372,654

 
$
98,732

 
$
3,255

 
$
611,918

December 31, 2014
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
430

 
$
—

 
$
126

 
$
216

 
$
783

 
$
—

 
$
1,555

Loans collectively evaluated for impairment
687

 
69

 
585

 
3,783

 
1,292

 
10

 
6,426

Total allowance balance:
$
1,117

 
$
69

 
$
711

 
$
3,999

 
$
2,075

 
$
10

 
$
7,981

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
464

 
$
—

 
$
822

 
$
5,961

 
$
2,056

 
$
—

 
$
9,303

Loans collectively evaluated for impairment
61,097

 
53,193

 
13,038

 
309,252

 
104,416

 
2,901

 
543,897

Total loans balance:
$
61,561

 
$
53,193

 
$
13,860

 
$
315,213

 
$
106,472

 
$
2,901

 
$
553,200

Troubled Debt Restructurings:
The Company had troubled debt restructurings (“TDRs”) of $0.15 million and $0.02 million as of September 30, 2015 and December 31, 2014, respectively. Specific reserves were immaterial at September 30, 2015 and December 31, 2014. At September 30, 2015 nonaccrual TDR loans were $0.13 million and $0.02 million at December 31, 2014. There were $0.03 million TDRs on accrual at September 30, 2015 compared to none at December 31, 2014. The Company had no commitments to lend additional amounts to a customer with an outstanding loan that is classified as TDR as of September 30, 2015 and December 31, 2014.

13
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


During the nine month period ended September 30, 2015, the terms of a certain loans were 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 nine month period ended September 30, 2015, there were two TDR added in a total amount of $0.1 million compared to the year ended December 31, 2014 in which two loans were added as TDRs in the amount of $5.0 million. The $5.0 million of TDRs added in 2014 were subsequently sold in the fourth quarter of 2014.
During the three months ending September 30, 2015 there was one 1-4 family residential loan modified as a troubled debt restructuring with a recorded investment of $0.1 million; compared to the same three month period ended September 30, 2014 when there were no loans modified as troubled debt restructurings. The following tables present loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2015 and 2014:
 
For the Nine Months Ended September 30, 2015
 
Number of Loans
 
Pre-Modification
Recorded Investment
 
Post-Modification
Recorded Investment
1-4 family residential
 
 
 
 
 
Senior lien
2

 
127

 
127

Total
2

 
$
127

 
$
127

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 nine months ending September 30, 2015.

 
For the Nine Months Ended September 30, 2014
 
Number of Loans
 
Pre-Modification
Recorded Investment
 
Post-Modification
Recorded Investment
Construction, land & development
1

 
$
5,013

 
$
5,013

1-4 family residential
 
 
 
 
 
Jr. lien & lines of credit
1

 
34

 
34

Total
2

 
$
5,047

 
$
5,047


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 nine months ending September 30, 2014.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In the nine months ending September 30, 2015 and the nine months ending September 30, 2014 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.


14
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


The following tables present data on impaired loans:
September 30, 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
 
$
24

 
$
24

 
$
—

 
$
16

 
$
1

 
$
1

Line of credit
 
—

 
—

 
—

 
—

 
—

 
—

Agricultural & AG RE
 
—

 
—

 
—

 
—

 
—

 
—

Construction, land & development
 
—