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, 2017
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]
 
 
Emerging growth company
[ ü]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ü].
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares outstanding at May 10, 2017
Common Stock, Par Value $0.01
 
6,513,694



Centrue Financial Corporation
Form 10-Q Index
March 31, 2017
 
 
Page
 
 
 
 
 
 

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



 
March 31,
2017
 
December 31,
2016
ASSETS
 
 
 
Cash and cash equivalents
$
31,237

 
$
22,507

Securities available-for-sale
156,302

 
165,927

Restricted securities
8,019

 
9,860

Loans, net of allowance for loan loss: 2017 - $8,944; 2016 - $8,904
679,148

 
676,871

Bank-owned life insurance
36,203

 
35,986

Mortgage servicing rights
1,993

 
2,033

Premises and equipment, net
16,150

 
16,371

Other real estate owned, net
4,911

 
5,042

Deferred tax assets, net
34,100

 
35,035

Other assets
7,688

 
8,147

Total assets
$
975,751

 
$
977,779

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
152,196

 
$
152,524

Interest-bearing
576,293

 
587,522

Total deposits
728,489

 
740,046

Federal funds purchased and securities sold under agreements to repurchase
11,303

 
11,168

Federal Home Loan Bank advances
93,000

 
85,000

Series B mandatory redeemable preferred stock
209

 
209

Subordinated debentures
10,310

 
10,310

Other liabilities
4,037

 
4,117

Total liabilities
847,348

 
850,850

 
 
 
 
Commitments and contingent liabilities
—

 
—

 
 
 
 
Stockholders' equity
 
 
 
Series D Fixed Rate, Non-Cumulative Perpetual Preferred Stock,
 
 
 
2,636 shares authorized and issued at March 31, 2017 and
 
 
 
December 31, 2016; aggregate liquidation preference of $2,636
2,636

 
2,636

Common stock, $0.01 par value; 215,000,000 shares authorized;
 
 
 
6,581,544 shares issued at March 31, 2017 and December 31, 2016
66

 
66

Surplus
140,711

 
140,664

Retained earnings
4,022

 
3,029

Accumulated other comprehensive loss
(2,906
)
 
(3,340
)
 
144,529

 
143,055

Treasury stock, at cost, 67,850 shares at March 31, 2017
 
 
 
and December 31, 2016
(16,126
)
 
(16,126
)
Total stockholders' equity
128,403

 
126,929

Total liabilities and stockholders' equity
$
975,751

 
$
977,779


See Accompanying Notes to Consolidated Financial Statements

1
CENTRUE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 

 
Three Months Ended
March 31,
 
2017
 
2016
Interest income
 
 
 
Loans
$
7,403

 
$
7,029

Securities
 
 
 
Taxable
677

 
829

Exempt from federal income taxes
22

 
23

Federal funds sold and other
5

 
32

Total interest income
8,107

 
7,913

 
 
 
 
Interest expense
 
 
 
Deposits
376

 
263

Federal funds purchased and securities sold under
 
 
 
agreements to repurchase
7

 
12

Federal Home Loan Bank advances
227

 
230

Series B mandatory redeemable preferred stock
3

 
4

Subordinated debentures
95

 
142

Total interest expense
708

 
651

 
 
 
 
Net interest income
7,399

 
7,262

Provision for loan losses
—

 
300

Net interest income after provision for loan losses
7,399

 
6,962

 
 
 
 
Noninterest income
 
 
 
Service charges
852

 
945

Mortgage banking income
248

 
200

Electronic banking services
610

 
633

Bank-owned life insurance
217

 
223

Securities gains, net
—

 
37

Income from real estate
69

 
110

Gain on sale of OREO
2

 
48

Other income
142

 
67

 
2,140

 
2,263







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

 
Three Months Ended
March 31,
 
2017
 
2016
Noninterest expense
 
 
 
Salaries and employee benefits
4,278

 
4,304

Occupancy, net
632

 
680

Furniture and equipment
269

 
256

Marketing
37

 
35

Supplies and printing
45

 
58

Telephone
192

 
204

Data processing
471

 
423

FDIC insurance
77

 
157

Loan processing and collection costs
101

 
58

OREO carrying costs
93

 
91

OREO valuation adjustment
10

 
16

Amortization of intangible assets
—

 
238

Other expenses
1,606

 
1,346

 
7,811

 
7,866

 
 
 
 
Income before income taxes
$
1,728

 
$
1,359

Income tax expense
669

 
441

Net income
$
1,059

 
$
918

 
 
 
 
Preferred stock dividends
82

 
82

Net income for common stockholders
$
977

 
$
836

 
 
 
 
Basic earnings per common share
$
0.15

 
$
0.13

Diluted earnings per common share
$
0.15

 
$
0.13

 
 
 
 
 
 
 
 
Total comprehensive income:
 
 
 
Net income
$
1,059

 
$
918

 
 
 
 
Change in unrealized gains
 
 
 
on securities available for sale
710

 
1,195

Reclassification adjustment for losses (gains)
 
 
 
recognized in income
—

 
(37
)
Net unrealized gains
710

 
1,158

Tax effect
276

 
451

Other comprehensive income
434

 
707

Total comprehensive income
$
1,493

 
$
1,625






See Accompanying Notes to Consolidated Financial Statements

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


 
Three Months Ended
March 31,
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net income
1,059

 
918

Adjustments to reconcile net income
 
 
 
 to net cash provided by operating activities
 
 
 
Depreciation
277

 
295

Amortization of intangible assets
—

 
238

Amortization of mortgage servicing rights, net
68

 
66

Amortization of bond premiums, net
403

 
304

Share based compensation
64

 
—

Provision for loan losses
—

 
300

Provision for deferred income taxes
659

 
441

Earnings on bank-owned life insurance
(217
)
 
(223
)
OREO valuation adjustment
10

 
16

Securities gains, net
—

 
(37
)
Gain on sale of OREO
(2
)
 
(48
)
Proceeds from sales of loans held for sale
4,546

 
3,729

Origination of loans held for sale
(4,409
)
 
(3,084
)
Gain on sale of loans
(137
)
 
(92
)
Change in assets and liabilities
 
 
 
Decrease (increase) in other assets
418

 
(84
)
Decrease in other liabilities
(77
)
 
(463
)
Net cash provided by operating activities
2,662

 
2,276

Cash flows from investing activities
 
 
 
Proceeds from paydowns of securities available for sale
9,945

 
7,112

Proceeds from calls and maturities of securities available for sale
—

 
115

Proceeds from sales of securities available for sale
—

 
5,016

Purchases of securities available for sale
—

 
(9,680
)
Redemption of Federal Home Loan Bank stock
3,080

 
—

Purchase of Federal Home Loan Bank stock
(1,215
)
 
—

Purchase of Federal Reserve Bank stock
(24
)
 
(983
)
Net increase in loans
(2,277
)
 
(15,746
)
Purchase of premises and equipment
(56
)
 
(78
)
Proceeds from sale of OREO
119

 
1,166

Net cash (used in) provided by investing activities
9,572

 
(13,078
)


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


 
Three Months Ended
March 31,
 
2017
 
2016
Cash flows from financing activities
 
 
 
Net increase (decrease) in deposits
(11,557
)
 
10,765

Net increase (decrease) in federal funds purchased
 
 
 
and securities sold under agreements to repurchase
135

 
(3,157
)
Net proceeds (repayments) of advances from the Federal Home Loan Bank
8,000

 
(1,000
)
Dividends paid on preferred stock
(82
)
 
(82
)
Net cash (used in) provided by financing activities
(3,504
)
 
6,526

Net decrease in cash and cash equivalents
8,730

 
(4,276
)
Cash and cash equivalents
 
 
 
Beginning of period
22,507

 
27,655

End of period
$
31,237

 
$
23,379

Supplemental disclosures of cash flow information
 
 
 
Cash payments for
 
 
 
Interest
$
835

 
$
692

Income taxes
—

 
57

Loan transfers from branch assets held for sale
—

 
(603
)
Premises and equipment transferred from branch assets held for sale
—

 
(36
)



5
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 



Note 1. Summary of Significant Accounting Policies
Centrue Financial Corporation is a bank holding company organized under the laws of the State of Delaware.  When we use the terms “Centrue,” the “Company,” “we,” “us,” and “our,” we mean Centrue Financial Corporation, a Delaware corporation, and its consolidated subsidiary. When we use the term the “Bank,” we are referring to our wholly owned banking subsidiary, Centrue Bank. The Company and the Bank provide a full range of banking services to individual and corporate customers located in markets extending from the far western and southern suburbs of the Chicago metropolitan area across Central Illinois and metropolitan St. Louis.  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.
On January 26, 2017, the Company announced the signing of a definitive agreement with Midland States Bancorp, Inc. ("Midland") under which Midland will acquire Centrue for estimated total consideration of $175.1 million, or $26.75 per share of Centrue common stock. The transaction is expected to close in mid-2017, subject to regulatory approvals, the approval of Centrue's and Midland's shareholders and the satisfaction of customary closing conditions.
Basis of presentation
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities and other-than-temporary impairment of securities, the determination of the allowance for loan losses and valuation of other real estate owned.
For further information with respect to significant accounting policies followed by the Company in the preparation of its consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2016 amounts have been reclassified to conform to the 2017 presentation. The annualized results of operations during the three months ended March 31, 2017 are not necessarily indicative of the results expected for the year ending December 31, 2017. 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.
Recent Accounting Pronouncements
The Company has elected to comply with new and amended accounting pronouncements in the same manner as a private company under its status as an emerging growth company, as such the effective dates presented below are the dates the accounting standards become effective for the Company.
In March 2017, the FASB amended existing guidance (ASU 2017-08) to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 with early adoption permitted. The amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Management is currently in the process of evaluating the impact of the amended guidance on its Consolidated Financial Statements.
In August 2016, the FASB issued amended guidance (ASU 2016-15) to clarify the classification of certain items with an entity’s statements of cash flows. These items include debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of BOLI policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The amended guidance also specifies how to address classification of cash receipts and payments that have aspects of more than one class of cash flows. The amended guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted, and is to be applied on a retrospective basis unless it is impractical to do so. Management is currently in the process of evaluating the impact of the amended guidance on its Consolidated Financial Statements.

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


In June 2016 the FASB issued accounting standards update 2016-13 Financial Instruments - Credit Losses, commonly referred to as CECL. The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the contractual term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (HTM) debt securities. Under the provisions of the update credit losses recognized on available for sale (AFS) debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL oblige organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. For the Company, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2020. and interim periods within fiscal years beginning after December 15, 2021. Management is in the process of developing an implementation plan for CECL and estimating the impact on the Company’s financial position, results of operations and cash flows as well as its required disclosures.
In March 2016, the FASB issued an update (ASU No. 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting.) The guidance in this update affects any entity that issues share-based payment awards to its employees and is intended to simplify several aspects of the accounting for share-based payment awards including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company's results of operations or financial position.
In February 2016, the FASB issued an update (ASU No. 2016-02, Leases) creating FASB Topic 842, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. Management is currently evaluating the impact on the consolidated financial statements and related disclosures.
Note 2. Earnings Per Share
A reconciliation of the numerators and denominators for earnings per common share computations for the three months ended March 31, 2017 and 2016 is presented below. Options to purchase 332 and 1,992 shares of common stock were outstanding for March 31, 2017 and 2016, 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. Of the 33,321 shares of restricted stock units issued, 12,376 shares were considered dilutive for the three month period ended March 31, 2017.

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


 
Three Months Ended March 31,
 
2017
 
2016
Basic Earnings Per Common Share
 
 
 
Net income
$
1,059

 
$
918

Preferred stock dividends
(82
)
 
(82
)
Net income for common shareholders
$
977

 
$
836

Weighted average common shares outstanding
6,513,694

 
6,513,694

Basic earnings per common share
$
0.15

 
$
0.13

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

 
6,513,694

Add: dilutive effect of restricted stock units
12,376

 
—

Weighted average common and dilutive
 
 
 
potential shares outstanding
6,526,070

 
6,513,694

Diluted earnings per common share
$
0.15

 
$
0.13



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 $156.3 million at March 31, 2017 compared to $165.9 million at December 31, 2016. The carrying value of securities classified as restricted (Federal Reserve and Federal Home Loan Bank stock) was $8.0 million at March 31, 2017 compared to $9.9 million at December 31, 2016. The Company does not have any securities classified as trading or held-to-maturity.
The following table summarizes the fair value of available-for-sale securities, the related gross unrealized gains and losses recognized in accumulated other comprehensive income, and the amortized cost at March 31, 2017 and December 31, 2016:
 
March 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
12,680

 
$
—

 
$
(487
)
 
$
12,193

States and political subdivisions
9,120

 
3

 
(25
)
 
9,098

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
119,082

 
134

 
(862
)
 
118,354

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
13,692

 
8

 
(73
)
 
13,627

Equity securities
2,703

 
348

 
(21
)
 
3,030

 
$
157,277

 
$
493

 
$
(1,468
)
 
$
156,302


8
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 





December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. government agencies
$
12,680

 
$
—

 
$
(609
)
 
$
12,071

States and political subdivisions
9,127

 
2

 
(64
)
 
9,065

U.S. government agency residential
 
 
 
 
 
 
 
mortgage-backed securities
128,550

 
90

 
(1,327
)
 
127,313

Collateralized residential mortgage obligations:
 
 
 
 
 
 
 
Agency
14,566

 
—

 
(110
)
 
14,456

Equity securities
2,689

 
354

 
(21
)
 
3,022

 
$
167,612

 
$
446

 
$
(2,131
)
 
$
165,927

The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
 
Three Months Ended March 31,
 
2017
 
2016
Proceeds from calls and maturities
$
—

 
$
115

Proceeds from sales
—

 
5,016

Realized gains
—

 
37

Realized losses
—

 
—

Net impairment loss recognized in earnings
—

 
—


The amortized cost and fair value of the investment securities portfolio are shown below by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date and equity securities are shown separately.
 
March 31, 2017
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
3,431

 
$
3,430

Due after one year through five years
3,784

 
3,776

Due after five years through ten years
14,585

 
14,085

Due after ten years
—

 
—

U.S. government agency residential mortgage-backed securities
119,082

 
118,354

Collateralized residential mortgage obligations
13,692

 
13,627

Equity
2,703

 
3,030

 
$
157,277

 
$
156,302


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:

9
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


 
March 31, 2017
 
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
$
12,193

 
$
(487
)
 
$
—

 
$
—

 
$
12,193

 
$
(487
)
States and political subdivisions
5,221

 
(25
)
 
—

 
—

 
5,221

 
(25
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
75,122

 
(640
)
 
17,367

 
(222
)
 
92,489

 
(862
)
Collateralized residential mortgage


 


 


 


 


 


obligations: Agency
8,182

 
(73
)
 
—

 
—

 
8,182

 
(73
)
Equity securities
—

 
—

 
3,030

 
(21
)
 
3,030

 
(21
)
Total temporarily impaired
$
100,718

 
$
(1,225
)
 
$
20,397

 
$
(243
)
 
$
121,115

 
$
(1,468
)
 
December 31, 2016
 
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
$
12,071

 
$
(609
)
 
$
—

 
$
—

 
$
12,071

 
$
(609
)
States and political subdivisions
5,691

 
(64
)
 
—

 
—

 
5,691

 
(64
)
U.S. government agency residential
 
 
 
 
 
 
 
 
 
 
 
mortgage-backed securities
92,400

 
(1,178
)
 
9,379

 
(149
)
 
101,779

 
(1,327
)
Collateralized residential mortgage
 
 
 
 
 
 
 
 
 
 
 
obligations: Agency
12,559

 
(110
)
 
—

 
—

 
12,559

 
(110
)
Equity securities
2,568

 
(21
)
 
—

 
—

 
2,568

 
(21
)
Total temporarily impaired
$
125,289

 
$
(1,982
)
 
$
9,379

 
$
(149
)
 
$
134,668

 
$
(2,131
)

Unrealized losses associated with these securities are primarily due to changes in interest rates and market volatility, and the government agencies and government sponsored entities ("GSE") have not experienced significant adverse events that would call into question their ability to repay those debt obligations according to contractual terms. Further, because the Company does not have the intent to sell these bonds and it is more likely than not that it will not be required to sell the securities before their anticipated recovery of their amortized cost bases, the Company does not consider these securities to be other-than temporarily impaired as of March 31, 2017 or December 31, 2016.

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


Note 4. Loans
The major classifications of loans follow:

 
Aggregate Principal Amount
 
March 31, 2017
 
December 31, 2016
Commercial
$
92,004

 
80,287

Agricultural & AG RE
45,283

 
49,121

Construction, land & development
25,994

 
28,771

Commercial RE
438,933

 
439,326

1-4 family mortgages
82,809

 
85,152

Consumer
3,069

 
3,118

Total Loans
$
688,092

 
685,775

Allowance for loan losses
(8,944
)
 
(8,904
)
Loans, net
$
679,148

 
676,871


The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. Internal risk ratings of 0 to 5 are considered pass credits, a risk rating of a 6 is special mention, a risk rating of a 7 is substandard, and a risk rating of an 8 is doubtful. Loans classified as pass credits have no material weaknesses and are performing as agreed. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following table presents the commercial loan portfolio by internal risk rating:
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
26,521

 
$
63,072

 
$
45,283

 
$
25,901

 
$
187,274

 
$
243,071

 
$
591,122

Special Mention
 
674

 
764

 
—

 
—

 
3,532

 
1,839

 
6,809

Substandard
 
160

 
813

 
—

 
93

 
149

 
3,068

 
4,283

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
27,355

 
$
64,649

 
$
45,283

 
$
25,994

 
$
190,955

 
$
247,978

 
$
602,214


11
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
Commercial Real Estate
 
 
Internal Risk
Rating
 
Closed-end
 
Lines of
Credit
 
Agriculture &
AG RE
 
Construction,
Land &
Development
 
Owner-
Occupied
 
Non-Owner
Occupied
 
Total
Pass
 
$
24,984

 
$
53,256

 
$
49,121

 
$
28,652

 
$
194,458

 
$
236,423

 
$
586,894

Special Mention
 
687

 
764

 
—

 
—

 
1,390

 
3,824

 
6,665

Substandard
 
175

 
421

 
—

 
119

 
151

 
3,080

 
3,946

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
25,846

 
$
54,441

 
$
49,121

 
$
28,771

 
$
195,999

 
$
243,327

 
$
597,505


The following table presents the Retail Residential Loan Portfolio by Internal Risk Rating:
 
Residential -- 1-4 family
 
Senior Lien
 
Jr. Lien & Lines of
Credit
 
Total
March 31, 2017
 
 
 
 
 
Unrated
$
41,704

 
$
36,478

 
$
78,182

Special mention
78

 
85

 
163

Substandard
3,990

 
474

 
4,464

Doubtful
—

 
—

 
—

Total
$
45,772

 
$
37,037

 
$
82,809


 
Residential -- 1-4 family
 
Senior Lien
 
Jr. Lien & Lines of
Credit
 
Total
December 31, 2016
 
 
 
 
 
Unrated
$
42,772

 
$
37,561

 
$
80,333

Special mention
89

 
13

 
102

Substandard
3,969

 
748

 
4,717

Doubtful
—

 
—

 
—

Total
$
46,830

 
$
38,322

 
$
85,152


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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
An analysis of activity in the allowance for loan losses for the three months ended March 31, 2017 and 2016 follows:

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


 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,231

 
$
120

 
$
645

 
$
5,168

 
$
1,736

 
$
4

 
$
8,904

Charge-offs
—

 
—

 
—

 
—

 
(55
)
 
—

 
(55
)
Recoveries
32

 
—

 
4

 
54

 
5

 
—

 
95

Provision
233

 
(32
)
 
(77
)
 
(442
)
 
320

 
(2
)
 
—

Ending Balance
$
1,496

 
$
88

 
$
572

 
$
4,780

 
$
2,006

 
$
2

 
$
8,944


 
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
648

 
$
97

 
$
523

 
$
5,681

 
$
1,628

 
$
14

 
$
8,591

Charge-offs
—

 
—

 
—

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

 
54

 
19

 
445

 
36

 
—

 
598

Provision
60

 
(32
)
 
(26
)
 
(82
)
 
387

 
(7
)
 
300

Ending Balance
$
752

 
$
119

 
$
516

 
$
5,541

 
$
2,042

 
$
4

 
$
8,974


The following is an analysis on the balance in the allowance for loan losses and the recorded investment in impaired loans by portfolio segment based on impairment method as of March 31, 2017 and December 31, 2016:
March 31, 2017
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
724

 
$
—

 
$
59

 
$
575

 
$
1,184

 
$
—

 
$
2,542

Loans collectively evaluated for impairment
772

 
88

 
513

 
4,205

 
822

 
2

 
6,402

Total allowance balance:
$
1,496

 
$
88

 
$
572

 
$
4,780

 
$
2,006

 
$
2

 
$
8,944

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
975

 
$
—

 
$
103

 
$
3,230

 
$
4,550

 
$
—

 
$
8,858

Loans collectively evaluated for impairment
91,029

 
45,283

 
25,891

 
435,703

 
78,259

 
3,069

 
679,234

Total loans balance:
$
92,004

 
$
45,283

 
$
25,994

 
$
438,933

 
$
82,809

 
$
3,069

 
$
688,092


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


December 31, 2016
Commercial
 
Agriculture
& AG RE
 
Construction,
Land &
Development
 
Commercial
RE
 
1-4 Family
Residential
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
493

 
$
—

 
$
60

 
$
92

 
$
488

 
$
—

 
$
1,133

Loans collectively evaluated for impairment
738

 
120

 
585

 
5,076

 
1,248

 
4

 
7,771

Total allowance balance:
$
1,231

 
$
120

 
$
645

 
$
5,168

 
$
1,736

 
$
4

 
$
8,904

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
598

 
$
—

 
$
129

 
$
451

 
$
1,709

 
$
—

 
$
2,887

Loans collectively evaluated for impairment
79,689

 
49,121

 
28,642

 
438,875

 
83,443

 
3,118

 
682,888

Total loans balance:
$
80,287

 
$
49,121

 
$
28,771

 
$
439,326

 
$
85,152

 
$
3,118

 
$
685,775


Troubled Debt Restructurings:
The Company had troubled debt restructurings (“TDRs”) of $5.9 million and $0.2 million as of March 31, 2017 and December 31, 2016, respectively. Specific reserves were $1.3 million at March 31, 2017 and immaterial at December 31, 2016. At March 31, 2017 nonaccrual TDR loans were $5.9 million and $0.1 million at December 31, 2016. There were $0.02 million of TDRs on accrual at March 31, 2017 and December 31, 2016. The Company had no commitments to lend additional amounts to a customer with an outstanding loan that is classified as TDR as of March 31, 2017 and December 31, 2016.
Over the course of a period, the terms of certain loans may be modified as troubled debt restructurings. The modification of the terms of such loans may include one or a combination of the following: a reduction of the stated interest rate of the loan to a below market rate or the payment modification to interest only. A modification involving a reduction of the stated interest rate of the loan would be for periods ranging from 6 months to 16 months. During the three months ended March 31, 2017 there were $5.8 million loans modified as troubled debt restructurings. There were no loans modified as troubled debt restructurings during the three months ended March 31, 2016.

The following table presents the loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2017:
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2017
 
Number of Loans
 
Pre-Modification
Recorded Investment
 
Post-Modification
Recorded Investment
CRE - all other
 
 
 
 
 
Non-owner occupied
2

 
2,770

 
2,770

1-4 family residential
 
 
 
 
 
Senior lien
1

 
3,011

 
3,011

Total
3

 
$
5,781

 
$
5,781

 
 
 
 
 
 
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In the three months ended March 31, 2017 and the three months ended March 31, 2016 there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification.

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


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 on the probability of default in the foreseeable future without the Company granting a 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.
The following tables present data on impaired loans:
March 31, 2017
 
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
 
$
10

 
$
10

 
$
—

 
$
3

 
$
—

 
$
—

Line of credit
 
—

 
—

 
—

 
—

 
—

 
—

Agricultural & AG RE
 
—

 
—

 
—

 
—

 
—

 
—

Construction, land & development
 
32

 
209

 
—

 
28

 
—

 
—

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
133

 
275

 
—

 
41

 
3

 
3

Non-owner occupied
 
—

 
—

 
—

 
—

 
—

 
—

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
363

 
381

 
—

 
218

 
—

 
—

Jr. lien & lines of credit
 
270

 
270

 
—

 
166

 
1

 
1

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

Subtotal
 
808

 
1,145

 
—

 
456

 
4

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
150

 
$
150

 
$
104

 
$
123

 
$
—

 
$
—

Line of credit
 
814

 
814

 
620

 
484

 
4

 
3

Agricultural & AG RE
 
—

 
—

 
—

 
—

 
—

 
—

Construction, land & development
 
72

 
72

 
59

 
70

 
1

 
—

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
16

 
16

 
16

 
217

 
—

 
—

Non-owner occupied
 
3,081

 
3,080

 
559

 
989

 
36

 
22

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
3,640

 
3,640

 
1,005

 
1,463

 
32

 
20

Jr. lien & lines of credit
 
277

 
277

 
179

 
330

 
3

 
3

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

Subtotal
 
8,050

 
8,049

 
2,542

 
3,676

 
76

 
48

Total
 
$
8,858

 
$
9,194

 
$
2,542

 
$
4,132

 
$
80

 
$
52


15
CENTRUE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 


December 31, 2016
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash Basis
Interest
Recognized
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Line of credit
 
—

 
—

 
—

 
—

 
—

 
—

Agricultural & AG RE
 
—

 
—

 
—

 
85

 
—

 
—

Construction, land & development
 
57

 
235

 
—

 
19

 
—

 
—

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
134

 
134

 
—

 
9

 
7

 
9

Non-owner occupied
 
—

 
—

 
—

 
—

 
—

 
—

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
331

 
349

 
—

 
180

 
—

 
—

Jr. lien & lines of credit
 
433

 
433

 
—

 
116

 
7

 
7

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

Subtotal
 
955

 
1,151

 
—

 
409

 
14

 
16

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Closed-end
 
$
175

 
$
175

 
$
110

 
$
135

 
$
4

 
$
4

Line of credit
 
423

 
422

 
383

 
293

 
26

 
25

Agricultural & AG RE
 
—

 
—

 
—

 
80

 
—

 
—

Construction, land & development
 
72

 
72

 
60

 
84

 
4

 
1

CRE - all other
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
17

 
17

 
17

 
313

 
—

 
—

Non-owner occupied
 
300

 
300

 
75

 
1,110

 
—

 
—

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
Senior lien
 
629

 
629

 
298

 
862

 
19

 
19

Jr. lien & lines of credit
 
316

 
316

 
190

 
349

 
14

 
14

Consumer
 
—

 
—

 
—

 
1

 
—

 
—

Subtotal
 
1,932