ars
CENTRUE FINANCIAL CORPORATION
2005 ANNUAL REPORT
CORPORATE
PROFILE &
TABLE OF CONTENTS
CORPORATE PROFILE
Centrue Financial Corporation (the Company) is the
holding company for Centrue Bank (the Bank). As a
community-oriented financial institution, the Bank operates
twenty retail banking offices and provides comprehensive
financial services to families and local businesses residing in
Kankakee, Champaign, Clinton, Effingham, Grundy, Iroquois,
Livingston and St. Clair counties, and portions of Will County
in Illinois.
Since February 25, 2005, the common stock of the Company
has been publicly traded on the Nasdaq National Market System
under the symbol TRUE. Prior to February 25,
2005, it was traded on the American Stock Exchange under the
symbol CFF.
TABLE OF CONTENTS
Factors That May Affect Future Results
This publication contains statements concerning earnings,
revenues, operating margins, growth and other financial
measurements; new business and business opportunities;
acquisitions; and other aspects of future operating or financial
performance. These statements are based on assumptions currently
believed to be valid and may be forward-looking
statements under the securities laws, as further detailed
on pages 28 and 29 of this Annual Report. Various factors
could materially affect actual results. These include, among
other things, changes in general economic or market conditions,
government regulation and competition. For additional
information about these factors, see our report on
Form 10-K for 2005
and our other filings with the Securities and Exchange
Commission.
Non-GAAP disclosures
Our summary consolidated financial information and other
financial data contain information determined by methods other
than in accordance with accounting principles generally accepted
in the United States of America (GAAP). These measures include
net interest income on a fully tax equivalent basis, net
interest margin on a fully tax equivalent basis and tangible
book value per share. Our management uses these non-GAAP
measures in its analysis of our performance. The tax equivalent
adjustment to net interest income recognizes the income tax
savings when comparing taxable and tax-exempt assets and assumes
a 35% tax rate. Tangible book value per share and tangible
equity to assets ratio measures exclude the ending balances of
acquisition-related goodwill and other intangible assets, net of
tax benefit, in determining tangible stockholders equity.
Banking and financial institution regulators also exclude
goodwill and other intangible assets, net of tax benefit, from
stockholders equity when assessing capital adequacy.
Management believes the presentation of the financial measures
excluding the impact of these items provides useful supplemental
information that is helpful in understanding our financial
results, as they provide a method to assess managements
success in utilizing our tangible capital. This disclosure
should not be viewed as a substitute for the results determined
to be in accordance with GAAP, nor is it necessarily comparable
to non-GAAP performance measures that may be presented by other
companies.
1
LETTER TO
STOCKHOLDERS
The mission of Centrue Financial Corporation is to be the
premier bank holding company serving communities between Chicago
Illinois and St. Louis Missouri with a return on equity
within the upper quartile of our peer group. Our regional
banking philosophy is to support and empower our employees to
provide superior customer service.
Dear Stockholder,
We are pleased to provide you with our 2005 annual report which
reflects the results of our second full year following the
merger that formed Centrue Financial Corporation. One of the
initial challenges that we identified in 2003 as we began to
transform Centrue Bank into a commercial bank was to clean up
the inherited asset quality issues and our new management team
believes that it has achieved this objective. Our nonperforming
loans have decreased by 66% from their peak of
$11.1 million in June 2004 to $3.8 million at
December 31, 2005. We also expect to be paid off on our two
largest remaining nonperforming assets during 2006, at which
time our asset quality should be better than the median for
banks in our peer group. In addition to improving asset quality,
we have enhanced the composition of our loan portfolio by
prudently growing our commercial and commercial real estate
loans while reducing the amount of residential mortgage loans on
our balance sheet. The significantly improved asset quality,
coupled with enhanced yields from a diversified loan mix, has
helped us to lay the necessary foundation for the achievement of
our mission to be the premier bank serving our markets.
Banking is a relationship business and our customers prefer to
bank with professionals whom they know and trust. Over the last
two years, we have built a new, strong management team and
continue to recruit experienced, revenue producing personnel.
Each of our four banking regions is led by a regional president
who is an experienced commercial lender and who knows and
understands their market. These leaders and their staff are
challenged to meet the needs of their communities and are
empowered to make decisions and to provide quality service to
their customers. Our professionals have not only enhanced the
quality of products and services that we provide to our
customers, but have also been successful in bringing new
customer relationships to Centrue Financial. During 2005, we
were able to report significant expansion of our commercial loan
and deposit business as we realized a 16% increase in commercial
and commercial real estate loans, a 26% increase in non-interest
checking account balances and a 90% increase in our sweep
balances. We achieved this growth while maintaining our net
interest margin for the year at 3.41% during a rapidly rising
rate environment.
In 2003, we announced plans to open one or two new banking
locations annually to solidify our market position in existing
communities and to expand into contiguous central Illinois
markets. In addition to completing the Aviston merger, we opened
a very successful new facility in Bradley during 2003. The
Bradley location has already become our highest volume location.
Bradley helped to increase our strong branch network in Kankakee
County, where we are the market leader in total deposits. In
2004, we continued our expansion by opening a new branch in
Dwight and acquiring the Parish Bank in Momence.
During 2005, we entered two new markets and significantly
expanded our presence in a third. In addition to the acquisition
of Illinois Community Bank in Effingham, we opened a loan
production office in Plainfield and opened our new
25,000 square foot bank building in Fairview Heights. The
impressive facility in the growing Fairview Heights community,
along with our motivated staff, has helped our deposit growth in
this market exceed our expectations. Recruiting talented bankers
has been a critical step to help us fulfill our previously
announced strategy to expand our geographic footprint.
We also continue to develop a sales and performance culture
throughout our organization that we believe will enhance our
future profitability. During 2005, we increased our staff by
34 full time equivalents, which correspondingly increased
our salary and benefit costs. These added positions were
primarily related to staffing our new locations, although we
also strengthened our management depth with the addition of a
Chief Operating Officer and new managers for our mortgage,
consumer lending, operations and compliance departments.
While our initiatives to grow and upgrade our franchise are
designed to increase long term profitability, the associated
increases in our overhead expenses were reflected in our
financial results for 2005. These expenses included costs from
our data processing upgrade, the acquisition and integration of
Illinois Community Bank and other merger and acquisition
activity. We believe
2
LETTER TO
STOCKHOLDERS
that we have invested wisely in our people, as well as our
facilities and systems, in order to achieve our growth and
profitability objectives and to provide our stockholders with
annual returns on stockholder equity in excess of the 10% return
realized in 2005. To further assist in promoting long term
stockholder value, we continue to repurchase the Companys
common stock and acquired an additional 178,865 shares or
7.5% of our stock during 2005.
We plan to continue to recruit experienced bankers and open
several additional branches within the next few years. Our
immediate focus is to open branches in the OFallon,
Belleville and Edwardsville communities of the St. Louis
Metro East market and continue the momentum we are experiencing
from our Fairview Heights location. We are excited about our
presence in the burgeoning southwestern suburban Chicago area
near our Plainfield loan production office. We plan to expand
our presence in the Champaign market as well as continue to
evaluate opportunities for new banking locations in and near all
of our existing markets. During 2006, we will complete the
renovation of our Kankakee branch as well as consolidate our two
existing branches in Momence into one new, more efficient
location. All of these efforts will continue to increase our
ability to provide superior and convenient service to customers
while focusing resources in high growth markets.
The relocation of our Company headquarters to Fairview Heights
is part of the natural evolution brought to the Company by our
new management team. Many of our senior officers are from the
St. Louis Metro East area and have very strong ties to
businesses and communities in this area. We are not relocating
people from other locations and continue to be committed to
providing the best banking service in all of our markets as we
have for the past 120 years.
We are also pleased about the nomination of Randall E. Ganim as
a new director for your Company at this years annual
meeting. Randy is the founder and President of one of the
largest public accounting firms in the St. Louis
Metropolitan area. He has previously served as a board member on
a large, publicly held St. Louis area bank holding company
prior to its sale to a larger out of state banking company.
Randys experience and reputation will be a strong
complement to our Board.
This years annual meeting will mark the retirement of one
of our Companys directors, Wes Walker. Wes has served on
our Companys board for 14 years and helped our
Company establish its current strong foundation, poised for
future growth and success. Wes was the executive director of the
YMCA in the Kankakee area for 25 years and received
national recognition for his accomplishments. He will be truly
missed by his Centrue family.
Centrue Financial is well equipped and prepared to meet the
challenges in 2006 and beyond that the banking industry will
face. We have recruited a strong team of experienced bankers,
adopted and implemented key systems and procedures and have
cleaned up much of the inherited asset quality issues. Our
objective for 2006 is to build on our solid foundation in order
to grow our franchise, improve our profitability and provide a
solid return to our stockholders.
Thank you for your continued interest and support.
Sincerely,
|
|
|
|
|
|
Michael A. Griffith
Chairman of the Board |
|
Thomas A. Daiber
President and CEO |
3
FINANCIAL
HIGHLIGHTS
FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share data) | |
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
641,341 |
|
|
$ |
611,853 |
|
|
$ |
609,411 |
|
|
$ |
546,404 |
|
|
$ |
490,280 |
|
Loans, net, including loans held for sale
|
|
|
436,841 |
|
|
|
419,379 |
|
|
|
426,043 |
|
|
|
384,517 |
|
|
|
394,744 |
|
Investment securities held-to-maturity (1)
|
|
|
50 |
|
|
|
149 |
|
|
|
942 |
|
|
|
1,143 |
|
|
|
1,554 |
|
Investment securities available-for-sale
|
|
|
125,190 |
|
|
|
124,763 |
|
|
|
87,712 |
|
|
|
82,638 |
|
|
|
46,391 |
|
Deposits
|
|
|
507,916 |
|
|
|
495,777 |
|
|
|
496,257 |
|
|
|
431,964 |
|
|
|
415,279 |
|
Total borrowings
|
|
|
65,737 |
|
|
|
49,661 |
|
|
|
54,396 |
|
|
|
59,700 |
|
|
|
30,000 |
|
Trust preferred securities
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
Stockholders equity
|
|
|
42,921 |
|
|
|
43,176 |
|
|
|
45,643 |
|
|
|
41,107 |
|
|
|
41,191 |
|
Shares outstanding (3)
|
|
|
2,262,939 |
|
|
|
2,380,666 |
|
|
|
2,606,022 |
|
|
|
2,331,762 |
|
|
|
2,432,716 |
|
For the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
$ |
18,382 |
|
|
$ |
17,548 |
|
|
$ |
11,358 |
|
|
$ |
12,037 |
|
|
$ |
13,528 |
|
|
Net income
|
|
|
4,380 |
|
|
|
4,889 |
|
|
|
1,363 |
|
|
|
2,233 |
|
|
|
3,261 |
|
Per common share (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share outstanding
|
|
$ |
18.97 |
|
|
$ |
18.14 |
|
|
$ |
17.51 |
|
|
$ |
17.63 |
|
|
$ |
16.93 |
|
|
Tangible book value per share outstanding (2)
|
|
|
11.77 |
|
|
|
12.16 |
|
|
|
12.66 |
|
|
|
15.81 |
|
|
|
15.11 |
|
|
Basic earnings per share
|
|
|
1.87 |
|
|
|
1.96 |
|
|
|
0.65 |
|
|
|
0.94 |
|
|
|
1.34 |
|
|
Diluted earnings per share
|
|
|
1.86 |
|
|
|
1.95 |
|
|
|
0.65 |
|
|
|
0.93 |
|
|
|
1.31 |
|
Financial ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity to total assets
|
|
|
6.69% |
|
|
|
7.06% |
|
|
|
7.49% |
|
|
|
7.52% |
|
|
|
8.40% |
|
|
Non-performing assets to total assets
|
|
|
0.87% |
|
|
|
1.64% |
|
|
|
1.00% |
|
|
|
2.03% |
|
|
|
0.45% |
|
|
Net charge-offs to average loans
|
|
|
0.44% |
|
|
|
0.77% |
|
|
|
1.53% |
|
|
|
0.01% |
|
|
|
0.02% |
|
|
Net interest margin
|
|
|
3.41% |
|
|
|
3.42% |
|
|
|
3.16% |
|
|
|
3.22% |
|
|
|
3.16% |
|
|
Efficiency ratio (5)
|
|
|
73.44% |
|
|
|
67.04% |
|
|
|
72.40% |
|
|
|
65.40% |
|
|
|
70.97% |
|
|
Return on average assets
|
|
|
0.69% |
|
|
|
0.80% |
|
|
|
0.25% |
|
|
|
0.42% |
|
|
|
0.69% |
|
|
Return on average stockholders equity
|
|
|
9.95% |
|
|
|
10.96% |
|
|
|
4.00% |
|
|
|
5.42% |
|
|
|
8.20% |
|
|
Average equity to average assets
|
|
|
6.96% |
|
|
|
7.31% |
|
|
|
6.33% |
|
|
|
7.70% |
|
|
|
8.41% |
|
|
Dividend payout Ratio (4)
|
|
|
|
|
|
|
3.83% |
|
|
|
46.15% |
|
|
|
30.32% |
|
|
|
18.32% |
|
|
|
(1) |
Includes certificates of deposit. |
|
(2) |
Calculated by subtracting goodwill and other intangible assets
from stockholders equity. |
|
(3) |
All share and per share information for years prior to 2003 has
been restated for the 2 for 1 stock split in October 2003. |
|
(4) |
Calculated by dividing dividends per share by earnings per share. |
|
(5) |
Calculated as noninterest expense divided by fully tax
equivalent net interest income plus noninterest income excluding
securities gains. |
4
MANAGEMENTS
DISCUSSION AND
ANALYSIS
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Centrue Financial Corporation (the Company) is the
holding company for Centrue Bank, (the Bank). All
references to the Company in the following discussion include
the Bank and the Banks wholly-owned service corporation,
Centrue Service Corporation (CSC), unless indicated
otherwise. In October 2003, Kankakee Bancorp, Inc. merged with
Aviston Financial Corporation (Aviston Financial)
and subsequent to the merger, the remaining corporation changed
its name to Centrue Financial Corporation. At the time of the
merger, Aviston Financial had approximately $96.5 million
in total assets. The subsidiary banks were merged to
form Centrue Bank, a state-chartered commercial bank. On
March 5, 2004, the Company acquired Parish Bank and Trust
Co. (Parish) located in Momence, Illinois. At the
time of the acquisition, Parish had approximately
$21 million in total assets. On April 8, 2005, the
Company acquired Illinois Community Bancorp, Inc., located in
Effingham, Illinois. At the time of the acquisition, Illinois
Community had approximately $29.9 million in total assets.
The Company also opened a new branch in the growing Fairview
Heights market in May 2005 and has announced plans to open
additional branches in the St. Louis Metro East area over
the next few years.
The Company completed its second full year as Centrue Financial
in 2005. Since the 2003 merger, a new experienced management
team has been assembled by Thomas A. Daiber, who joined the
Company as CEO during the merger. Virtually every senior officer
position has been filled with a new executive. During 2005, the
Company made significant progress in cleaning up the asset
quality issues it inherited in 2003 and has reduced
nonperforming loans by 66% from its peak in June 2004. Through
the addition of a Chief Credit Officer and implementation of
sound lending policies and practices, the Companys asset
quality has continued to improve. Following the expected
liquidation of two large nonperforming assets in 2006,
management expects the Companys asset quality measurements
to be at peer group levels.
While operating as one significant business unit, the Company
has a regional president for each of its four operating regions
that has responsibility for managing the daily activity within
each respective market. Management believes that customer
service is enhanced through its practice of empowering its
employees to make decisions while serving the customer. The
Company continues to work to improve its operational efficiency
and profitability while continuing to implement its previously
announced strategy to expand within its markets and surrounding
communities. During 2005, the Company entered two new markets
and significantly expanded its presence in a third. As a result,
the staffing level of the Company increased by thirty four full
time equivalents during the year primarily due to the addition
of the staff at the acquired Effingham location and due to
staffing of the new Fairview Heights branch as well as the new
loan production office in Plainfield. We also added management
depth during 2005 with the addition of an experienced Chief
Operating Officer and new managers for the mortgage, consumer
lending, operations and compliance departments.
Net income decreased 10.4% to $4.4 million in 2005 compared
to record income of $4.9 million in 2004. The results for
2005 included costs associated with a data processing
conversion, the opening of the new Fairview Heights branch, the
acquisition and integration of Illinois Community Bank in
Effingham and other merger and acquisition activity. Assets grew
4.8% from $611.9 million at the end of 2004 to
$641.3 million at the end of 2005.
The Company has had an aggressive capital management plan over
the last four years. As part of this strategy, the Company made
open market purchases of its own stock totaling
1,045,335 common shares of stock at a total cost of
$23.8 million. The Company repurchased 167,224 common
shares at a total cost of $3.2 million ($19.15 per
share) in 2002, 466,540 shares of stock at a total cost of
$9.3 million ($19.95 per share) in 2003,
232,706 shares of stock at a total cost of
$6.5 million ($27.99 per share) in 2004 and an
additional 178,865 shares of stock at a total cost of
$4.8 million ($26.93 per share) in 2005. The Company
executed a 2 for 1 stock split in the
5
MANAGEMENTS
DISCUSSION AND
ANALYSIS
form of a dividend during October of 2003. All references in
this discussion to the prices and number of shares have been
adjusted for this split. In addition, the Company is
continuously evaluating balance sheet opportunities to augment
and leverage its capital base to maximize stockholders
return on equity. The Company will continue to evaluate
opportunities in 2006 in an effort to enhance earnings.
The Companys results of operations are dependent primarily
on net interest income, which is the difference, or
spread, between the interest income earned on its
loans and investments and its cost of funds, consisting of
interest paid on its deposits and on borrowed funds. The
Companys operating expenses principally consist of
employee compensation and benefits, occupancy, marketing and
other general and administrative expenses. The Companys
results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of
regulatory authorities.
Mission and Goals
The Companys mission is to be the premier bank serving the
communities between Chicago, Illinois and St. Louis,
Missouri with a return on equity within the upper quartile of
our peer group. Our regional banking philosophy is to support
and empower our employees to provide superior customer service.
In seeking to accomplish this mission, management has adopted a
business strategy designed to accomplish a number of goals,
including:
|
|
|
|
|
increase return on equity and increase stockholders value; |
|
|
|
maintain the Banks capital at a level that exceeds
regulatory requirements; |
|
|
|
attain a high level of asset quality; |
|
|
|
manage the Companys exposure to changes in market interest
rates; |
|
|
|
maximize the Companys net interest margin; and |
|
|
|
to the extent available, take advantage of loan and deposit
growth opportunities in the Companys principal market
areas. |
The Company has attempted to achieve these goals by focusing on
a number of areas, including:
|
|
|
|
|
management of the Companys capital to enhance
stockholders value; |
|
|
|
employment of experienced and dedicated officers and employees; |
|
|
|
enhancement of controls over asset quality by employment of a
chief credit officer and credit administration staff; |
|
|
|
installation of an incentive compensation program for every
employee based upon attainment of Company and individual
objectives; |
|
|
|
implementation of a sales management process to deepen existing
customer relationships and to attract new customers from within
our markets; |
|
|
|
investment in new technology and item processing services to
improve delivery of services to customers; |
|
|
|
establishment of regional banking centers with a local regional
president; |
|
|
|
expansion of the Companys geographic presence through
strategic acquisitions and de novo branches; |
|
|
|
the origination of commercial real estate, consumer, commercial
business, and, multi-family and construction loans; |
6
MANAGEMENTS
DISCUSSION AND
ANALYSIS
|
|
|
|
|
forming strategic alliances for ancillary banking services such
as trust, brokerage and credit card services designed to enhance
product offerings for customers while increasing efficiency; |
|
|
|
providing high quality service to enhance customer loyalty; and |
|
|
|
offering a variety of financial products and services to serve
as comprehensively as practicable the financial needs of
families and community businesses in its market areas. |
Critical Accounting Policies
In the ordinary course of business, the Company has made a
number of estimates and assumptions relating to the reporting of
results of operations and financial condition in preparing its
financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual
results could differ significantly from those estimates under
different assumptions and conditions. The Company believes the
following discussion, including the allowance for loan losses,
goodwill, real estate held for sale, mortgage servicing rights
and deferred taxes, addresses the Companys most critical
accounting policies, which are those that are most important to
the portrayal of the Companys financial condition and
results and require managements most difficult, subjective
and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain.
Allowance for Loan Losses The allowance for
loan losses is a material estimate that is particularly
susceptible to significant changes in the near term and is
established through a provision for loan losses. The allowance
is based upon past loan experience and other factors which, in
managements judgment, deserve current recognition in
estimating loan losses. The evaluation includes a review of all
loans on which full collectibility may not be reasonably
assured. Other factors considered by management include the size
and character of the loan portfolio, concentrations of loans to
specific borrowers or industries, existing economic conditions
and historical losses on each portfolio category. In connection
with the determination of the allowance for loan losses,
management obtains independent appraisals for significant
properties, which collateralize loans. Management believes it
uses the best information available to make such determinations.
If circumstances differ substantially from the assumptions used
in making determinations, future adjustments to the allowance
for loan losses may be necessary and results of operations could
be affected. While the Company believes it has established its
existing allowance for loan loses in conformity with accounting
principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the
Banks loan portfolio, will not request an increase in the
allowance for loan losses. Because future events affecting
borrowers and collateral cannot be predicted with certainty,
there can be no assurance that increases to the allowance will
be necessary if loan quality deteriorates.
Goodwill Costs in excess of the estimated
fair value of identified net assets acquired through purchase
transactions are recorded as an asset by the Company. This
amount was originally amortized into expense on a straight-line
basis assuming a life of twenty years. Effective January 1,
2002, the Company ceased amortization in accordance with newly
adopted accounting standards generally accepted in the United
States of America. The Company performed an initial impairment
assessment as of January 1, 2002 and annual impairment
assessments as of September 30. No impairment of goodwill
was identified as a result of these tests. In making these
impairment assessments, management must make subjective
assumptions regarding the fair value of the Companys
assets and liabilities. It is possible that these judgments may
change over time as market conditions or Company strategies
change, and these changes may cause the Company to record
impairment charges to adjust the goodwill to its estimated fair
value.
Real Estate Held for Sale Real estate held
for sale is recorded at the propertys fair value less
estimated cost to sell at the date of foreclosure (cost).
Initial valuation adjustments, if any, are charged against the
allowance for loan losses. Property is evaluated to ensure the
recorded amount
7
MANAGEMENTS
DISCUSSION AND
ANALYSIS
is supported by its current fair value. Subsequent declines in
estimated fair value are charged to expense when incurred.
Mortgage Servicing Rights The Company
recognizes as a separate asset the rights to service mortgage
loans for others. The value of mortgage servicing rights is
amortized in relation to the servicing revenue expected to be
earned. Mortgage servicing rights are periodically evaluated for
impairment based upon the fair value of those rights. Estimating
the fair value of the mortgage servicing rights involves
judgment, particularly of estimated prepayments speeds of the
underlying mortgages serviced. Net income could be affected if
managements assumptions and estimates differ from actual
prepayments.
Deferred Income Taxes Deferred income tax
assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based
on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Deferred
tax assets are also recognized for operating loss and tax credit
carryforwards. Valuation allowances are established when
necessary to reduce deferred tax assets to an amount expected to
be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in
deferred tax assets and liabilities.
The above listing is not intended to be a comprehensive list of
all the Companys accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the
United States of America, with no need for managements
judgment in their application. There are also areas in which
managements judgment in selecting any available
alternative would not produce a materially different result.
Economic Climate
During 2005, interest rates continued to rise at a rapid pace.
For the second straight year, the Federal Open Market Committee
(the FOMC) increased the federal funds target
200 basis points from 2.25% at the beginning of the year,
up to 4.25% at the end of the year. Additionally, the Wall
Street Journal prime rate increased from 5.25% to 7.25% by the
end of 2005. In January 2006, the FOMC increased the federal
funds rate an additional 25 basis points, which in turn
caused a 25 basis point increase in the prime rate. The
federal funds rate is the rate at which financial institutions
borrow from each other, while the prime rate is one of the rates
at which banks lend money to their customers. Of the
Companys commercial loans at December 31, 2005,
approximately 36.9% are tied to the prime rate and immediately
reprice. The increase in rates should continue to have a
positive impact on the Banks ability to generate interest
income on commercial loans, however, the increase in rates also
places pressure on interest bearing liabilities. At the
beginning of 2006, the slope of the U.S. Treasury yield
curve has flattened and is slightly inverted. The Company
expects to continue to see net interest margin pressure due to
the fact that long-term rates have remained largely unchanged
while short-term rates have increased 200 basis points
during 2005.
Results of Operations
The Companys results of operations depend primarily on the
level of its net interest and non-interest income and its
control of operating expenses. Net interest income depends upon
the volume of interest-earning assets and interest-bearing
liabilities and the interest rate earned from or paid on them.
8
MANAGEMENTS
DISCUSSION AND
ANALYSIS
Net Interest Income Analysis
The following table presents for the periods indicated the total
dollar amount of interest income from average interest-earning
assets and resultant yields, as well as the interest expense on
average interest-bearing liabilities, expressed both in dollars
and rates. All average balances are monthly average balances.
Non-accruing loans have been included in the table as loans
carrying a zero yield.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 | |
|
Year Ended December 31, 2004 | |
|
Year Ended December 31, 2003 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
Interest | |
|
|
|
Average | |
|
Interest | |
|
|
|
Average | |
|
Interest | |
|
|
|
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
|
Balance | |
|
Paid | |
|
Rate | |
|
Balance | |
|
Paid | |
|
Rate | |
|
Balance | |
|
Paid | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1)
|
|
$ |
434,367 |
|
|
$ |
26,857 |
|
|
|
6.18 |
% |
|
$ |
433,406 |
|
|
$ |
24,955 |
|
|
|
5.76 |
% |
|
$ |
366,305 |
|
|
$ |
23,523 |
|
|
|
6.42 |
% |
|
Investment securities (2)
|
|
|
123,863 |
|
|
|
5,240 |
|
|
|
4.23 |
% |
|
|
108,825 |
|
|
|
4,424 |
|
|
|
4.07 |
% |
|
|
75,088 |
|
|
|
3,554 |
|
|
|
4.73 |
% |
|
Other interest-earning assets
|
|
|
7,340 |
|
|
|
198 |
|
|
|
2.70 |
% |
|
|
12,037 |
|
|
|
119 |
|
|
|
0.99 |
% |
|
|
49,296 |
|
|
|
313 |
|
|
|
0.63 |
% |
|
FHLB stock
|
|
|
4,181 |
|
|
|
177 |
|
|
|
4.23 |
% |
|
|
3,462 |
|
|
|
214 |
|
|
|
6.18 |
% |
|
|
2,929 |
|
|
|
195 |
|
|
|
6.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
569,751 |
|
|
|
32,472 |
|
|
|
5.70 |
% |
|
|
557,730 |
|
|
|
29,712 |
|
|
|
5.33 |
% |
|
|
493,618 |
|
|
|
27,585 |
|
|
|
5.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
62,318 |
|
|
|
|
|
|
|
|
|
|
|
52,308 |
|
|
|
|
|
|
|
|
|
|
|
45,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
632,069 |
|
|
|
|
|
|
|
|
|
|
$ |
610,038 |
|
|
|
|
|
|
|
|
|
|
$ |
538,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$ |
253,847 |
|
|
|
7,499 |
|
|
|
2.95 |
% |
|
$ |
261,473 |
|
|
|
6,467 |
|
|
|
2.47 |
% |
|
$ |
243,629 |
|
|
|
7,564 |
|
|
|
3.10 |
% |
|
Savings deposits
|
|
|
94,206 |
|
|
|
644 |
|
|
|
0.68 |
% |
|
|
90,580 |
|
|
|
560 |
|
|
|
0.62 |
% |
|
|
78,450 |
|
|
|
860 |
|
|
|
1.10 |
% |
|
Interest Bearing Demand deposits
|
|
|
93,934 |
|
|
|
1,321 |
|
|
|
1.41 |
% |
|
|
92,698 |
|
|
|
780 |
|
|
|
0.84 |
% |
|
|
83,001 |
|
|
|
792 |
|
|
|
0.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
441,987 |
|
|
|
9,464 |
|
|
|
2.14 |
% |
|
|
444,751 |
|
|
|
7,807 |
|
|
|
1.76 |
% |
|
|
405,080 |
|
|
|
9,216 |
|
|
|
2.28 |
% |
|
Borrowings
|
|
|
79,820 |
|
|
|
3,600 |
|
|
|
4.51 |
% |
|
|
63,991 |
|
|
|
2,843 |
|
|
|
4.44 |
% |
|
|
62,115 |
|
|
|
2,780 |
|
|
|
4.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
521,807 |
|
|
|
13,064 |
|
|
|
2.50 |
% |
|
|
508,742 |
|
|
|
10,650 |
|
|
|
2.09 |
% |
|
|
467,194 |
|
|
|
11,996 |
|
|
|
2.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
|
62,785 |
|
|
|
|
|
|
|
|
|
|
|
52,654 |
|
|
|
|
|
|
|
|
|
|
|
33,719 |
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,448 |
|
|
|
|
|
|
|
|
|
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
588,040 |
|
|
|
|
|
|
|
|
|
|
|
565,435 |
|
|
|
|
|
|
|
|
|
|
|
504,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
44,029 |
|
|
|
|
|
|
|
|
|
|
|
44,603 |
|
|
|
|
|
|
|
|
|
|
|
34,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
632,069 |
|
|
|
|
|
|
|
|
|
|
$ |
610,038 |
|
|
|
|
|
|
|
|
|
|
$ |
538,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
19,408 |
|
|
|
|
|
|
|
|
|
|
$ |
19,062 |
|
|
|
|
|
|
|
|
|
|
$ |
15,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
3.24 |
% |
|
|
|
|
|
|
|
|
|
|
3.02 |
% |
Net earning assets
|
|
$ |
47,944 |
|
|
|
|
|
|
|
|
|
|
$ |
48,988 |
|
|
|
|
|
|
|
|
|
|
$ |
26,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on average interest-earning assets (net interest
margin)
|
|
|
|
|
|
|
|
|
|
|
3.41 |
% |
|
|
|
|
|
|
|
|
|
|
3.42 |
% |
|
|
|
|
|
|
|
|
|
|
3.16 |
% |
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
109.19 |
% |
|
|
|
|
|
|
|
|
|
|
109.63 |
% |
|
|
|
|
|
|
|
|
|
|
105.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Calculated on a tax-equivalent basis assuming a 35% tax rate,
including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and the allowance for loan
losses. Includes net loan fees of $447, $276, and $142 for 2005,
2004, and 2003, respectively. |
|
(2) |
Calculated on a tax-equivalent basis assuming a 35% tax rate. |
9
MANAGEMENTS
DISCUSSION AND
ANALYSIS
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase related to higher outstanding
balances and that due to the levels of interest rates. For each
category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to:
(i) changes in volume (i.e., changes in volume multiplied
by old rate) and (ii) changes in rate (i.e., changes in
rate multiplied by old volume).
For purposes of this table, changes attributable to both rate
and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due
to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Year Ended December 31, | |
|
|
2005 vs. 2004 | |
|
2004 vs. 2003 | |
|
|
| |
|
| |
|
|
Increase (Decrease) | |
|
|
|
Increase (Decrease) | |
|
|
|
|
Due to | |
|
Total | |
|
Due to | |
|
Total | |
|
|
| |
|
Increase | |
|
| |
|
Increase | |
|
|
Volume | |
|
Rate | |
|
(Decrease) | |
|
Volume | |
|
Rate | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$ |
30 |
|
|
$ |
1,872 |
|
|
$ |
1,902 |
|
|
$ |
4,024 |
|
|
$ |
(2,595 |
) |
|
$ |
1,429 |
|
|
Investment securities
|
|
|
631 |
|
|
|
185 |
|
|
|
816 |
|
|
|
1,425 |
|
|
|
(555 |
) |
|
|
870 |
|
|
Other interest-earning assets
|
|
|
(38 |
) |
|
|
117 |
|
|
|
79 |
|
|
|
(315 |
) |
|
|
124 |
|
|
|
(191 |
) |
|
Federal Home Loan Bank stock
|
|
|
39 |
|
|
|
(76 |
) |
|
|
(37 |
) |
|
|
33 |
|
|
|
(14 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$ |
662 |
|
|
$ |
2,098 |
|
|
$ |
2,760 |
|
|
$ |
5,167 |
|
|
$ |
(3,040 |
) |
|
$ |
2,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate accounts
|
|
$ |
(194 |
) |
|
$ |
1,226 |
|
|
$ |
1,032 |
|
|
$ |
530 |
|
|
$ |
(1,627 |
) |
|
$ |
(1,097 |
) |
|
Savings deposits
|
|
|
23 |
|
|
|
61 |
|
|
|
84 |
|
|
|
118 |
|
|
|
(418 |
) |
|
|
(300 |
) |
|
Interest Bearing Deposits
|
|
|
9 |
|
|
|
532 |
|
|
|
541 |
|
|
|
87 |
|
|
|
(99 |
) |
|
|
(12 |
) |
|
Borrowings
|
|
|
678 |
|
|
|
79 |
|
|
|
757 |
|
|
|
83 |
|
|
|
(20 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$ |
516 |
|
|
$ |
1,898 |
|
|
$ |
2,414 |
|
|
$ |
818 |
|
|
$ |
(2,164 |
) |
|
$ |
(1,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
|
|
|
$ |
346 |
|
|
|
|
|
|
|
|
|
|
$ |
3,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Operating Results for 2005 to 2004
General
Net income was $4.4 million, or $1.86 per share
(diluted), for the year ended December 31, 2005 compared to
$4.9 million, or $1.95 per share (diluted), for the
year ended December 31, 2004. The 10.4% decrease in net
income occurred primarily due to an increase in noninterest
expenses of $2.9 million, partially offset by increases in
net interest income of $285,000, noninterest income of
$1.2 million, as well as decreases in the provision for
loan losses of $549,000 and income tax expense of $378,000. The
results for 2005 included costs associated with a data
processing conversion, the opening of the new Fairview Heights
branch, the acquisition and integration of Illinois Community
Bank in Effingham and other merger and acquisition activity.
Net Interest Income
Tax equivalent net interest income was $19.4 million for
the year ended December 31, 2005, an increase of $346,000,
or 1.5%, compared to 2004. Tax equivalent net interest income
increased primarily due to an increase in interest income of
$2.8 million or 9.2%, partially offset by an increase in
interest expense of $2.4 million or 22.7%. The increase in
interest income resulted
10
MANAGEMENTS
DISCUSSION AND
ANALYSIS
from an increase in the average balance of interest-earning
assets of $12.0 million as well as an increase of
37 basis points in the average rate of interest on interest
earning assets. The increase in interest expense resulted
primarily from an increase in the average rate of interest on
interest-bearing liabilities of 41 basis points, as well as
an increase in the average balance of interest-bearing
liabilities of $13.1 million. During 2005 the FOMC
increased interest rates by 200 basis points. This increase
raised short-term interest rates as well as the prime rate which
was the primary driving force in the increase in the rates for
both the interest earning assets and the interest bearing
liabilities.
Interest Income
Tax equivalent interest income totaled $32.5 million for
2005, an increase of $2.8 million or 9.3%, as compared to
$29.7 million for 2004. This resulted from a
$12.0 million increase in average interest-earning assets
from $557.7 million during 2004 to $569.7 million
during 2005, as well as an increase in the yield earned on
interest-earning assets from 5.33% during 2004 to 5.70% during
2005.
Tax equivalent interest on loans was $26.9 million for
2005, an increase of $1.9 million, or 7.6%, as compared to
2004. This was primarily attributable to an increase in the
yield on loans from 5.76% during 2004 to 6.18% during 2005, as
well as an increase of $961,000 in average outstanding loans.
The increase in yields on loans resulted from an increase in
overall interest rates, including the prime rate which resulted
in loans repricing to higher interest rates during 2005.
Tax equivalent interest earned on investment securities and
other interest-earning assets and dividends on Federal Home
Loan Bank of Chicago (FHLB) stock totaled
$5.6 million for 2005, compared to $4.8 million for
2004. This represented an increase of 18.0% during 2005. The
increase was primarily due to a rise in average yield on these
assets from 3.83% in 2004 to 4.15% in 2005, as well as an
increase in the average balance of these assets from
$124.3 million in 2004 to $135.4 million in 2005. The
overall increase in average yields was primarily due to variable
rate securities repricing due to increases in overall interest
rates.
Interest Expense
Interest expense was $13.1 million for 2005,
$2.4 million or 22.7% more than in 2004. This was due to an
increase in average rates to 2.50% for 2005 from 2.09% for 2004,
as well as an increase of $13.1 million in the average
balance of interest-bearing liabilities to $521.8 million
for 2005 compared to $508.7 million for 2004.
During 2005, average interest bearing deposits decreased by
$2.8 million, to $442.0 million for 2005, compared to
$444.8 million for 2004. The rate paid on interest bearing
deposits increased 38 basis points to 2.14% from 1.76%. The
increase in the average cost of deposits was due to the higher
interest rate environment, partially offset by a continued focus
by the Company to shift to lower yielding deposits. Certificate
of deposit accounts decreased $7.6 million from 2004 to
2005 and the ratio of certificate of deposit accounts to total
interest bearing deposits decreased from 58.8% in 2004 to 57.4%
in 2005. The decrease in average balances was primarily due to
the focus by the Company to reduce higher yielding deposits,
partially offset by balances acquired in the Illinois Community
acquisition that occurred in April of 2005.
Interest expense on borrowings was $3.6 million for 2005,
$757,000 or 26.6% more than in 2004. The increase in interest
expense on borrowings was primarily due to an increase in
average balances of $15.8 million from $64.0 million
in 2004 to $79.8 million in 2005, as well as an increase in
the average rate of 7 basis points from 4.44% in 2004 to
4.51% in 2005. The increase in the average balance was primarily
due to an increase in the average balance of customer repurchase
agreements of $9.8 million.
11
MANAGEMENTS
DISCUSSION AND
ANALYSIS
Provision for Loan Losses
The Company recorded a $651,000 provision for loan losses during
2005 compared to a $1.2 million provision during 2004.
Charge-offs during 2005 decreased to $2.7 million from
$3.6 million during 2004. Recoveries during 2005 increased
to $822,000 from $295,000 in 2004. The ratio of net charge-offs
to average outstanding loans dropped to 0.44% in 2005 from 0.77%
in 2004. The decrease in the provision for loan losses was
primarily due to a decrease in nonperforming loans as well as
lower net charge-offs. The new management team has worked
diligently over the past two years to reduce the level of
nonperforming loans. This effort has resulted in the reduction
of net charge offs and nonperforming loans in 2005. Management
has implemented a new asset quality program in an effort to
ensure that the Company is adequately reserved for loan losses.
In line with the improvements garnered as a result of the asset
quality program, it was determined that the Company could lower
the provision for loan losses for 2005.
The allowance for loan losses is maintained at a level believed
adequate by management to absorb probable losses in the loan
portfolio. Managements methodology to determine the
adequacy of the allowance for loan losses considers specific
credit reviews, past loan loss experience, current economic
conditions and trends, and the volume, growth and composition of
the loan portfolio. Based upon the Companys quarterly
analysis of the adequacy of the allowance for loan losses,
considering remaining collateral of loans with more than a
normal degree of risk, historical loan loss percentages and
economic conditions, it is managements belief that the
$4.5 million allowance for loan losses at December 31,
2005 was adequate. However, there can be no assurance that the
allowance for loan losses will be adequate to cover all future
losses.
Each credit on the Companys internal loan watch
list is evaluated periodically to estimate potential
losses. In addition, minimum loss estimates for each category of
watch list credits are provided for based on managements
judgment which considers past loan loss experience and other
factors. For installment and real estate mortgage loans,
specific allocations are based on past loss experience adjusted
for recent portfolio growth and economic trends. The total of
the estimated loss exposure resulting from the analysis is
considered the allocated portion of the allowance for loan
losses. The amounts specifically provided for individual loans
and pools of loans are supplemented by an unallocated portion of
the allowance for loan losses. This unallocated amount is
determined based on managements judgment which considers,
among other things, the risk of error in the specific
allocations, other potential exposure in the loan portfolio,
economic conditions and trends, and other factors. Further
information is included in the asset quality section of this
report on page 20.
The allowance for loan losses is charged when management
determines that the prospects of recovery of the principal of a
loan have significantly diminished. Subsequent recoveries, if
any, are credited to the allowance for loan losses. All
installment loans that are 90 to 120 days past due are
charged off monthly unless the loans are insured for credit loss
or where scheduled payments are being received. Real estate
mortgage loans are written down to fair value upon foreclosure.
Commercial and other loan charge-offs are made based on
managements on-going evaluation of non-performing loans.
12
MANAGEMENTS
DISCUSSION AND
ANALYSIS
The following is a summary of certain asset quality information
at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Total loans
|
|
$ |
441,327 |
|
|
$ |
424,854 |
|
Total assets
|
|
|
641,341 |
|
|
|
611,853 |
|
Allowance for loan losses
|
|
|
4,486 |
|
|
|
5,475 |
|
Net loan charge-offs
|
|
|
1,895 |
|
|
|
3,352 |
|
Nonperforming loans
|
|
|
3,823 |
|
|
|
6,991 |
|
Nonperforming assets
|
|
|
5,532 |
|
|
|
10,035 |
|
Net loan charge-offs as a percentage of average loans
|
|
|
0.44 |
% |
|
|
0.77 |
% |
Nonperforming assets to total assets
|
|
|
0.87 |
% |
|
|
1.64 |
% |
Allowance for loan losses to gross loans
|
|
|
1.02 |
% |
|
|
1.29 |
% |
Allowance for loan losses to nonperforming loans
|
|
|
117.34 |
% |
|
|
78.31 |
% |
The Company will continue to report and monitor the adequacy of
the allowance for loan losses based on managements
analysis of its loan portfolio and general economic conditions.
Noninterest Income
Noninterest income increased $1.2 million for 2005 to
$7.2 million, compared to $6.0 million for 2004. The
20.3% increase in noninterest income was the result of an
increase of $1.5 million in fee income, offset by decreases
of $283,000 in gain on sales of loans and a $127,000 decrease in
gain on sale of real estate held for sale. The increase in fee
income during 2005 was the result of the implementation of a new
overdraft protection program that began in June of 2004. The
decrease in the gain on sale of loans was primarily due to a
lower volume of loan originations during 2005, including loans
that the Company sold during 2004 in order to reduce interest
rate risk in the mortgage loan portfolio. Additionally, the 2004
results included a gain on the sale of the credit card portfolio
of $127,000. The gain on sale of loans for 2005 was primarily
generated from new mortgage loan originations.
Noninterest Expenses
Noninterest expenses were $19.7 million for 2005, as
compared to $16.8 million for 2004. This represented an
increase of $2.9 million or 17.5%. The increase in
noninterest expenses primarily resulted from increases in
compensation and benefits of $1.9 million, occupancy
expenses of $203,000, furniture and equipment of $381,000, legal
and professional fees of $184,000 and other expenses of
$268,000. The acquisition of Illinois Community contributed
increases of $411,000 in compensation and benefits, $93,000 in
occupancy expense, $73,000 in furniture and equipment expense
and $231,000 in other expense. The remaining $1.5 million
increase in compensation and benefits was primarily due to the
addition of key personnel, the addition of personnel upon the
opening of the Fairview Heights location, as well as merit
increases from 2004 to 2005. The remaining $110,000 increase in
occupancy expense was primarily due to the opening of the
Fairview Heights, Illinois office. The remaining $308,000
increase in furniture and equipment was primarily due to the
write-down of $420,000 of fixed assets and prepaid expenses
related to the Companys former data processing system
which became obsolete after the conversion to Jack Henry and
Associates Silverlake system in June of 2005, partially
offset by reduced furniture and equipment expenses for the
remaining portion of the year. Legal and professional fees
increased primarily due to the Companys merger and
acquisition activity.
Income Taxes
Income tax expense was $1.5 million for 2005, as compared
to $1.9 million for 2004. The Companys effective tax
rate was 26.0% for 2005 and 28.2% for 2004. These decreases were
the result of the decrease in pre-tax income, as well as an
increase in non-taxable income resulting
13
MANAGEMENTS
DISCUSSION AND
ANALYSIS
from an increase in municipal investment income. A summary of
the significant tax components is provided in Note 12 of
the Notes to Consolidated Financial Statements included later in
this report.
Comparison of Operating Results for 2004 to 2003
General
Net income was $4.9 million, or $1.95 per share
(diluted), for 2004 compared to $1.4 million, or
$0.65 per share (diluted), for 2003. The 258.7% increase in
net income occurred primarily due to an increase in net interest
income of $3.3 million, a decrease of $2.9 million in
provision for loan losses, and an increase in noninterest income
of $301,000 offset by an increase in noninterest expenses of
$1.4 million, as well as an increase in income taxes of
$1.6 million.
Net Interest Income
Net interest income was $18.7 million for 2004, an increase
of $3.3 million, or 21.1%, during 2004 compared to 2003.
Net interest income increased primarily due to an increase in
interest income of $1.9 million or 7.0% as well as a
decrease in interest expense of $1.3 million or 11.2%. The
increase in interest income resulted from an increase in the
average balance of interest-earning assets of
$64.1 million, partially offset by a decrease of
26 basis points in the average rate of interest on interest
earning assets. The decrease in interest expense resulted
primarily from the decrease in the average rate of interest on
interest-bearing liabilities of 48 basis points, which was
partially offset by an increase in the average balance of
interest-bearing liabilities of $41.5 million. During 2004,
the interest rate environment shifted higher beginning at the
end of the second quarter of the year and continued higher
throughout the end of 2004. This increase raised short-term
interest rates as well as the prime rate and had a positive
effect on net interest income during the second half of 2004.
Interest Income
Tax equivalent interest income totaled $29.7 million for
2004, an increase of $2.1 million or 7.7%, as compared to
$27.6 million for 2003. This resulted from a
$64.1 million increase in average interest-earning assets
from $493.6 million during 2003 to $557.7 million
during 2004, partially offset by a decrease in the yield earned
on interest-earning assets from 5.59% during 2003 to 5.33%
during 2004.
Tax equivalent interest on loans was $25.0 million for
2004, an increase of $1.5 million, or 6.1%, as compared to
2003. This was primarily attributable to an increase of
$67.1 million in average outstanding loans as well as a
decrease in the yield on loans from 6.42% during 2003 to 5.76%
during 2004. The decrease in yields on loans resulted from loans
repricing to lower interest rates during 2003 and early 2004.
Tax equivalent interest earned on investment securities and
other interest-earning assets and dividends on FHLB stock
totaled $4.8 million for 2004, compared to
$4.1 million for 2003. This represented an increase of
17.2% during 2004. This was primarily due to an increase in
average yield on these assets from 3.19% in 2003 to 3.83% in
2004, which was partially offset by a decrease in the average
balance of these assets from $127.3 million in 2003 to
$124.3 million in 2004. The overall increase in average
yields was primarily due to the Company shifting lower yielding
federal funds sold to higher yielding investment securities.
Interest Expense
Interest expense was $10.7 million for 2004,
$1.3 million or 11.2% less than in 2003. This was due to a
decrease in average rates to 2.09% for 2004 from 2.57% for 2003,
which was partially offset by an increase of $41.5 million
in the average balance of interest-bearing liabilities to
$508.7 million for 2004 compared to $467.2 million for
2003.
14
MANAGEMENTS
DISCUSSION AND
ANALYSIS
During 2004, average interest bearing deposits increased by
$39.7 million, to $444.8 million for 2004, compared to
$405.1 million for 2003. The rate paid on interest bearing
deposits decreased 52 basis points to 1.76% from 2.28%. The
decrease in the average cost of deposits was due to the lower
interest rate environment as well as a continued focus by the
Company to shift to lower yielding deposits. The increase in
average balances was primarily due to the Aviston Financial
merger that occurred in October of 2003 and the Parish
acquisition that occurred in March of 2004.
During both 2004 and 2003, $2.8 million of the
Companys interest expense related to borrowings. While
interest expense on borrowed funds remained constant, the
average balance of borrowed funds increased $1.9 million
from $62.1 million in 2003 to $64.0 million in 2004.
The increase in the average balance was partially offset by a
decrease of four basis points in the average interest rate on
borrowed funds to 4.44% in 2004 from 4.48% in 2003.
Provision for Loan Losses
The Company recorded a $1.2 million provision for loan
losses during 2004 compared to a $4.1 million provision
during 2003. Charge-offs during 2004 decreased to
$3.6 million from $6.2 million during 2003. Recoveries
during 2004 decreased to $295,000 from $632,000 in 2003. The
ratio of net charge-offs to average outstanding loans was 0.77%
in 2004 and 1.53% in 2003. The decrease in the provision for
loan losses was primarily due to the higher amount of net
charge-offs taken during 2003 compared to 2004. The majority of
the charge-offs taken in 2004 had previously been reserved for
during 2003 and prior years.
Noninterest Income
Noninterest income increased $301,000 for 2004 to
$6.0 million, compared to $5.7 million for 2003. The
5.3% increase in noninterest income was the result of an
increase of $1.5 million in fee income, offset by decreases
of $385,000 in gain on sales of loans, $478,000 in gain on sale
of branch, and a $247,000 decrease in other income. The increase
in fee income during 2004 was the result of an overall
restructuring of fees to be more competitive with other local
banks as well as the implementation of a new overdraft
protection program that began in June of 2004. The decrease in
the gain on sale of loans was primarily due to the large amount
of mortgage refinancing that took place in 2003 as a result of
the low interest rate environment. The gain on sale of loans for
2004 was primarily generated from new mortgage loan
originations. The gain on sale of branch in 2003 was due to the
Company selling a branch in Hoopeston, Illinois. The decrease in
other income was due to several immaterial changes.
Noninterest Expenses
Noninterest expenses were $16.8 million for 2004, as
compared to $15.4 million for 2003. This represented an
increase of $1.4 million or 8.7%. The increase in
noninterest expenses primarily resulted from increases in
compensation and benefits of $801,000, furniture and equipment
of $425,000, and other expenses of $201,000. These increases
were partially offset by a decrease in legal and professional
fees of $224,000. The increases in compensation and benefits,
furniture and equipment, and other expenses were primarily due
to additional personnel and locations resulting from the Aviston
Financial merger which occurred in October 2003. Legal and
professional fees decreased due to legal costs incurred in 2003
relating to the Companys name change and fees relating to
merger and acquisition activity which were not allowed to be
capitalized.
Income Taxes
Income tax expense was $1.9 million for 2004, as compared
to $290,000 for 2003. The Companys effective tax rate was
28.2% for 2004 and 17.5% for 2003. These increases were the
result of the increase in pre-tax income, partially offset by an
increase in non-taxable income resulting from an increase in
municipal investment income as well as the reduction in the
valuation allowance for deferred taxes. The valuation allowance
for deferred taxes was reduced
15
MANAGEMENTS
DISCUSSION AND
ANALYSIS
due to the Companies belief that net operating losses for state
income taxes will be realized prior to their expiration date.
Financial Condition
Total assets increased by $29.5 million or 4.8% to
$641.3 million at December 31, 2005, from
$611.9 million at December 31, 2004. The increase in
total assets was due primarily to the acquisition of Illinois
Community Bank with specific increases in cash and cash
equivalents of $5.0 million, net loans of
$9.5 million, loans held for sale of 8.0 million,
office properties and equipment of $4.3 million and,
goodwill of $2.0 million, offset by a decrease in real
estate held for sale of $1.3 million.
Lending Activities
General. The principal lending activity of the Company is
to offer financial services to our commercial, consumer and
residential customers located in our primary market areas. These
financial services include 1-4 family residential, multi-family,
commercial business, commercial real estate, consumer loans and
all types of construction loans. In addition, to increase
overall profitability and to diversify our portfolio, we
continue to focus our loan growth rate on commercial and
commercial real estate lending which will move us to be more in
line with our commercial banking peers. From time to time, the
Company has also utilized loan purchases to supplement loan
originations.
Net loans increased by $9.5 million or 2.3% to
$428.5 million at December 31, 2005 from
$419.0 million at December 31, 2004. Loans held for
sale increased to $8.4 million at December 31, 2005
from $416,000 at December 31, 2004. The increase in net
loans and loans held for sale was primarily attributable to the
acquisition of Illinois Community as well as new loan
originations, partially offset by paydowns on previously
existing loans. During the last few years, the Company has
re-focused its loan efforts on the commercial portfolio and as a
result experienced a high volume of commercial related loan
originations. The Company expects to continue to focus on
increasing the commercial and commercial real estate loan
portfolio during 2006.
16
MANAGEMENTS
DISCUSSION AND
ANALYSIS
Loan Composition. The following table provides
information concerning the composition of the Companys
loan portfolio in dollar amounts and in percentages (before
deductions for deferred fees and discounts and allowances for
loan losses) as of the dates indicated. Loans held for sale are
included in one-to-four
family real estate loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$ |
170,803 |
|
|
|
38.68 |
% |
|
$ |
175,640 |
|
|
|
41.32 |
% |
|
$ |
212,578 |
|
|
|
48.97 |
% |
|
$ |
228,623 |
|
|
|
58.39 |
% |
|
$ |
247,435 |
|
|
|
62.20 |
% |
|
Multi-family
|
|
|
8,274 |
|
|
|
1.88 |
|
|
|
15,655 |
|
|
|
3.68 |
|
|
|
16,461 |
|
|
|
3.79 |
|
|
|
13,672 |
|
|
|
3.49 |
|
|
|
11,983 |
|
|
|
3.01 |
|
|
Commercial
|
|
|
131,365 |
|
|
|
29.75 |
|
|
|
101,516 |
|
|
|
23.88 |
|
|
|
77,142 |
|
|
|
17.77 |
|
|
|
56,589 |
|
|
|
14.45 |
|
|
|
48,543 |
|
|
|
12.20 |
|
|
Construction and Development
|
|
|
34,274 |
|
|
|
7.76 |
|
|
|
28,731 |
|
|
|
6.76 |
|
|
|
26,173 |
|
|
|
6.03 |
|
|
|
20,243 |
|
|
|
5.17 |
|
|
|
19,884 |
|
|
|
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
344,716 |
|
|
|
78.07 |
|
|
|
321,542 |
|
|
|
75.64 |
|
|
|
332,354 |
|
|
|
76.56 |
|
|
|
319,127 |
|
|
|
81.50 |
|
|
|
327,845 |
|
|
|
82.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
57,864 |
|
|
|
13.10 |
|
|
|
61,090 |
|
|
|
14.37 |
|
|
|
58,235 |
|
|
|
13.42 |
|
|
|
33,301 |
|
|
|
8.51 |
|
|
|
31,255 |
|
|
|
7.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
30,138 |
|
|
|
6.83 |
|
|
|
28,188 |
|
|
|
6.63 |
|
|
|
24,305 |
|
|
|
5.60 |
|
|
|
22,560 |
|
|
|
5.76 |
|
|
|
18,407 |
|
|
|
4.63 |
|
|
All other consumer
|
|
|
8,853 |
|
|
|
2.00 |
|
|
|
14,303 |
|
|
|
3.36 |
|
|
|
19,185 |
|
|
|
4.42 |
|
|
|
16,558 |
|
|
|
4.23 |
|
|
|
20,288 |
|
|
|
5.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
38,991 |
|
|
|
8.83 |
|
|
|
42,491 |
|
|
|
9.99 |
|
|
|
43,490 |
|
|
|
10.02 |
|
|
|
39,118 |
|
|
|
9.99 |
|
|
|
38,695 |
|
|
|
9.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
441,571 |
|
|
|
100.00 |
% |
|
|
425,123 |
|
|
|
100.00 |
% |
|
|
434,079 |
|
|
|
100.00 |
% |
|
|
391,546 |
|
|
|
100.00 |
% |
|
|
397,795 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred fees and discounts
|
|
|
244 |
|
|
|
|
|
|
|
269 |
|
|
|
|
|
|
|
565 |
|
|
|
|
|
|
|
505 |
|
|
|
|
|
|
|
470 |
|
|
|
|
|
|
Allowance for loan losses
|
|
|
4,486 |
|
|
|
|
|
|
|
5,475 |
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
6,524 |
|
|
|
|
|
|
|
2,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
$ |
436,841 |
|
|
|
|
|
|
$ |
419,379 |
|
|
|
|
|
|
$ |
426,043 |
|
|
|
|
|
|
$ |
384,517 |
|
|
|
|
|
|
$ |
394,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, the total amount of loans due
after December 31, 2005 which had predetermined interest
rates was $271.6 million, while the total amount of loans
due after such date which had floating or adjustable interest
rates was $170.0 million.
As a state chartered commercial bank, the amount of loans the
Bank is permitted to make to any one borrower is generally
limited to 25% of the Banks unimpaired capital and
surplus. At December 31, 2005, the Banks regulatory
loan-to-one borrower
limit was $12.1 million. Additionally, as part of the
Banks loan policy and strategic plan the Bank sets
guidelines on the percentage of each type of loan for the
loans portfolio. The concentrations of loans by type are
regularly reviewed by the chief credit officer and by the loan
committee. As of December 31, 2005, the Bank did not have
any concentrations in loan types that are not already disclosed.
Investment Activities
Investment securities available-for-sale increased $427,000 to
$125.2 million at December 31, 2005 compared to
$124.8 million at December 31, 2004.
17
MANAGEMENTS
DISCUSSION AND
ANALYSIS
The composition and maturities of the investment securities
portfolio at December 31, 2005, are indicated in the
following table, at amortized cost which excludes unrealized
gains (losses) on securities available for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 | |
|
|
| |
|
|
Less Than | |
|
|
|
1 to | |
|
|
|
5 to | |
|
|
|
Over | |
|
|
|
|
1 Year | |
|
|
|
5 Years | |
|
|
|
10 Years | |
|
|
|
10 Years | |
|
|
|
Total | |
|
|
|
|
Amount | |
|
Yield | |
|
Amount | |
|
Yield | |
|
Amount | |
|
Yield | |
|
Amount | |
|
Yield | |
|
Amount | |
|
Yield | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency securities
|
|
$ |
2,563 |
|
|
|
4.17 |
% |
|
$ |
75,362 |
|
|
|
4.17 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
77,925 |
|
|
|
4.17 |
% |
Municipal bonds
|
|
|
1,015 |
|
|
|
3.63 |
|
|
|
6,079 |
|
|
|
3.30 |
|
|
|
16,399 |
|
|
|
3.17 |
|
|
|
|
|
|
|
|
|
|
|
23,493 |
|
|
|
3.18 |
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
2,060 |
|
|
|
4.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,060 |
|
|
|
4.26 |
|
Mortgage backed securities
|
|
|
63 |
|
|
|
8.00 |
|
|
|
3,147 |
|
|
|
4.21 |
|
|
|
1,349 |
|
|
|
4.96 |
|
|
|
14,653 |
|
|
|
5.42 |
|
|
|
19,212 |
|
|
|
5.15 |
|
Mutual funds and equity securities
|
|
|
779 |
|
|
|
4.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
779 |
|
|
|
4.62 |
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250 |
|
|
|
5.34 |
|
|
|
4,250 |
|
|
|
5.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,420 |
|
|
|
3.77 |
% |
|
$ |
86,648 |
|
|
|
4.11 |
% |
|
$ |
17,748 |
|
|
|
3.17 |
% |
|
$ |
18,903 |
|
|
|
5.19 |
% |
|
$ |
127,719 |
|
|
|
4.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office properties and equipment increased $4.3 million to
$22.6 million at December 31, 2005 compared to
$18.3 million at December 31, 2004. The increase was
primarily attributable to the acquisition of Illinois Community
as well as the completion of construction of a new branch office
in Fairview Heights, Illinois, and various equipment upgrades.
Goodwill increased $2.0 million to $14.4 million at
December 31, 2005 compared to $12.4 million at
December 31, 2004. The increase in goodwill was a result of
the purchase of Illinois Community and represented the full
amount of goodwill created in the transaction. Accounting for
goodwill and the measurement of impairment is discussed in more
detail in Note 1 of the Notes to Consolidated Financial
Statements included later in this report.
Real estate held for sale decreased $1.3 million to
$1.7 million at December 31, 2005 compared to
$3.0 million at December 31, 2004. The decrease in
real estate held for sale was primarily attributable to the sale
of a portion of the Companys largest real estate owned
property. Additionally, the amount of loans transferred to real
estate held for sale decreased from $3.3 million in 2004 to
$1.2 million in 2005.
Deposits
Deposits increased by $12.1 million or 2.4% to
$507.9 million at December 31, 2005, from
$495.8 million at December 31, 2004. During 2004, the
Company also began a sweep repurchase program which totaled
$8.6 million at the end of 2004 and increased to
$16.3 million at the end of 2005. While not considered
deposits, the sweep repurchase program allows business customers
to sweep their funds to interest bearing accounts while
maintaining collateralized balances. The balances for the sweep
repurchase program are included in short-term borrowings. During
2004 and 2005, the Company attempted to reduce higher rate
interest-bearing liabilities in the face of intense competition
in the various markets in which the Company operates and was
able to increase checking and sweep accounts and decrease
certificate of deposit accounts. In 2006, the Company will
continue to look for ways to reduce its overall cost of funds,
including pursuing lower rate deposits.
18
MANAGEMENTS
DISCUSSION AND
ANALYSIS
The following table sets forth the composition of deposits and
the percentage of each category to total deposits for the
periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Noninterest bearing demand deposits
|
|
$ |
67,982 |
|
|
|
13.38 |
% |
|
$ |
53,919 |
|
|
|
10.88 |
% |
Interest bearing demand deposits
|
|
|
41,081 |
|
|
|
8.09 |
|
|
|
48,495 |
|
|
|
9.78 |
|
Savings and money market deposits
|
|
|
143,922 |
|
|
|
28.34 |
|
|
|
134,876 |
|
|
|
27.20 |
|
Time deposits $100,000 or more
|
|
|
73,017 |
|
|
|
14.37 |
|
|
|
61,274 |
|
|
|
12.36 |
|
Time deposits less than $100,000
|
|
|
181,914 |
|
|
|
35.82 |
|
|
|
197,213 |
|
|
|
39.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
507,916 |
|
|
|
100.00 |
% |
|
$ |
495,777 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
The Company utilizes borrowings primarily for three purposes.
The first is to leverage the Companys capital in order to
generate additional net interest income. The second is the
management of short term cash requirements. The third is to
assist in funding acquisitions of other financial institutions.
The decision to borrow money to leverage capital is based on
several factors, including the current asset/liability mix, the
regulatory capital position of the Bank and the adequacy of
available interest rate spreads subject to the limits
established by the Company. Borrowings for leveraging purposes
are derived from securities sold under agreements to repurchase
and advances from the FHLB. Borrowings related to short term
cash management are in the form of advances from the FHLB,
customer repurchase agreements, and as required, federal funds
purchased. As a member of the FHLB, the Bank is authorized to
apply for advances from the FHLB. Each FHLB credit program has
its own interest rate, which may be fixed or variable, and range
of maturities. The FHLB may prescribe the acceptable uses for
these advances, as well as limitations on the size of the
advances and repayment provisions. Borrowings related to funding
acquisitions are in the form of notes payable from other
financial institutions. Generally, these borrowings are
short-term in nature.
Short-term borrowings increased $12.8 million from
$14.2 million in 2004 to $27.0 million in 2005.
Short-term borrowings consist of overnight advances from the
FHLB, customer sweep repurchase agreements, and federal funds
purchased. The increase was due to an increase of
$7.8 million of customer repurchase agreements and an
increase in short-term FHLB borrowings of $10.7 million,
partially offset by a $3.5 million decrease of federal
funds purchased.
Long-term borrowings increased $3.2 million from
$55.5 million in 2004 to $58.7 million in 2005.
Long-term borrowings consist of advances from the FHLB, notes
payable, funds from securities sold under agreements to
repurchase and junior subordinated debt owed to unconsolidated
trusts (trust preferred securities). The increase in long-term
borrowings was primarily due to an increase in borrowings from
the FHLB of $12.6 million, partially offset by securities
sold under agreements to repurchase which decreased
$9.2 million.
Stockholders equity on a per share basis increased by 4.6%
from $18.14 at December 31, 2004, to $18.97 at
December 31, 2005. Total stockholders equity
decreased by $255,000 or 0.6% to $42.9 million at
December 31, 2005. The decrease in stockholders
equity was due mainly to common stock repurchases and a decrease
in unrealized gains on available-for-sale securities. During
2005, the Company repurchased 178,865 shares of common
stock at a total cost of approximately $4.8 million.
Asset Quality
The Companys asset quality management program,
particularly with regard to loans, is designed to analyze
potential risk elements and to support the growth of a
profitable and high quality loan portfolio. The existing loan
portfolio is monitored in a number of ways, including through the
19
MANAGEMENTS
DISCUSSION AND
ANALYSIS
Companys loan rating system. The loan rating system is
also used to determine the adequacy of the allowance for loan
losses. The Companys loan analysis process proactively
identifies, monitors and works with borrowers for whom there are
indications of future repayment difficulties.
The Companys lending philosophy is to invest in loans in
the communities served by its banking offices so it can
effectively monitor and control risk. The majority of the loan
portfolio is comprised of retail loans and loans to
small-to-midsize
businesses. The loan portfolio does not include any loans to
foreign countries.
Non-performing assets include foreclosed assets, loans that have
been placed on non-accrual status, loans 90 days or more
past due that continue to accrue interest and restructured
troubled debt. During the year ended December 31, 2005,
total non-performing assets decreased by $4.4 million, or
44.5%, to $5.6 million from $10.0 million at
December 31, 2004. The decrease in nonperforming assets was
mainly attributable to significant efforts over the past two
years which resulted in the final resolution of several
long-standing nonperforming loans.
The following table represents the amount of loans that were on
non-accrual, past due 90 days and still accruing and
forgone interest for each of the last five fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Non-accrual loans
|
|
$ |
3,823 |
|
|
$ |
6,769 |
|
|
$ |
3,248 |
|
|
$ |
6,834 |
|
|
$ |
730 |
|
Loans past due 90 days and still accruing
|
|
|
|
|
|
|
222 |
|
|
|
2,232 |
|
|
|
3,439 |
|
|
|
391 |
|
Real estate held for sale
|
|
|
1,709 |
|
|
|
3,002 |
|
|
|
319 |
|
|
|
316 |
|
|
|
469 |
|
Troubled debt restructurings
|
|
|
35 |
|
|
|
42 |
|
|
|
281 |
|
|
|
480 |
|
|
|
611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming
|
|
$ |
5,567 |
|
|
$ |
10,035 |
|
|
$ |
6,080 |
|
|
$ |
11,069 |
|
|
$ |
2,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on non-accrual loans and troubled
debt restructurings
|
|
|
|
|
|
|
|
|
|
$ |
199 |
|
|
$ |
70 |
|
|
|
|
|
Foregone interest on non-accrual loans
|
|
$ |
341 |
|
|
$ |
520 |
|
|
$ |
525 |
|
|
$ |
387 |
|
|
$ |
33 |
|
The Company recognized large loan loss provisions of
approximately 1% of total loans in both 2003 and 2002 on a group
of commercial real estate and real estate development loans that
were made in previous years. During 2003, the Company adopted a
new loan policy and implemented new loan approval, documentation
and monitoring processes. The Company also recruited and
employed an experienced commercial lending team including three
new regional presidents, each of whom is an experienced
commercial lender, as well as three other seasoned commercial
lenders. In 2004, the Company recruited a Chief Credit Officer
to strengthen our monitoring of credit quality and the overall
loan portfolio. His duties include responsibility for all credit
administration activities and to oversee an independent review
of new and existing loans in the portfolio. Company management
performs a quarterly analysis of the adequacy of the allowance
for loan losses. Management classifies problem loans into one of
four categories: Special Mention, Substandard, Doubtful, and
Loss. During the year ended December 31, 2005, total
adversely classified loans decreased by $8.8 million to
$10.6 million from $19.4 million at December 31,
2004. This decrease was due in part to the Companys
implementation of an ongoing comprehensive loan review, as well
as the adoption and implementation of a new comprehensive loan
policy that has identified problem loans in a more timely
manner. The new program was designed to assist management in
focusing collection efforts in problem areas and is expected to
continue to result in lower charge-offs. Classified loans began
decreasing in 2004 and decreased dramatically during 2005. The
Company will continue to work to reduce the volume of classified
loans in 2006.
Certain loans may require frequent management attention and are
reviewed on a monthly or more frequent basis. Although payments
on these loans may be current or less than 90 days past due,
20
MANAGEMENTS
DISCUSSION AND
ANALYSIS
the borrowers presently have or have had a history of financial
difficulties and management has a concern as to the
borrowers ability to comply with the present loan payment
terms. Management believes such loans present more than the
normal risk of collectibility. As such, these loans may result
in classification at some future point in time as nonperforming.
At December 31, 2005, such loans amounted to approximately
$9.7 million, as compared to $12.4 million at
December 31, 2004.
Analysis of Allowance for Loan Losses. The following
table sets forth an analysis of the Companys allowance for
loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Balance at beginning of period
|
|
$ |
5,475 |
|
|
$ |
7,471 |
|
|
$ |
6,524 |
|
|
$ |
2,582 |
|
|
$ |
2,156 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
Commercial real estate
|
|
|
143 |
|
|
|
1,333 |
|
|
|
1,134 |
|
|
|
|
|
|
|
28 |
|
|
Consumer
|
|
|
1,028 |
|
|
|
235 |
|
|
|
144 |
|
|
|
79 |
|
|
|
61 |
|
|
Commercial business
|
|
|
1,388 |
|
|
|
2,079 |
|
|
|
4,964 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,717 |
|
|
|
3,647 |
|
|
|
6,242 |
|
|
|
81 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
451 |
|
|
|
110 |
|
|
|
583 |
|
|
|
|
|
|
|
1 |
|
|
Consumer
|
|
|
97 |
|
|
|
16 |
|
|
|
46 |
|
|
|
22 |
|
|
|
24 |
|
|
Commercial business
|
|
|
266 |
|
|
|
155 |
|
|
|
3 |
|
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
822 |
|
|
|
295 |
|
|
|
632 |
|
|
|
33 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,899 |
) |
|
|
(3,352 |
) |
|
|
(5,610 |
) |
|
|
(48 |
) |
|
|
(77 |
) |
Additions charged to operations
|
|
|
651 |
|
|
|
1,200 |
|
|
|
4,122 |
|
|
|
3,990 |
|
|
|
503 |
|
Additions through acquisitions
|
|
|
255 |
|
|
|
156 |
|
|
|
2,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
4,486 |
|
|
$ |
5,475 |
|
|
$ |
7,471 |
|
|
$ |
6,524 |
|
|
$ |
2,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to average loans
outstanding during the period
|
|
|
0.44 |
% |
|
|
0.77 |
% |
|
|
1.53 |
% |
|
|
0.01 |
% |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to average
non-performing assets
|
|
|
41.52 |
% |
|
|
31.63 |
% |
|
|
110.06 |
% |
|
|
0.75 |
% |
|
|
3.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance in the allowance for loan losses and the related
amount charged to operations is based upon periodic evaluations
of the loan portfolio by management. These evaluations consider
several factors including, but not limited to, general economic
conditions, loan portfolio composition, prior loan loss
experience, and managements estimate of future potential
losses.
Beginning in 2003, the Company undertook a comprehensive review
of its loan procedures and implemented a new comprehensive loan
policy. This process indicated the need for additional
allocations of commercial related loans during 2004. During
2005, the Company again reviewed how it specifically allocated
the allowance and made adjustments based upon its review of
specific loans. The allowance for loan losses is a material
estimate that is particularly susceptible to significant changes
in the near term and is established through a provision for loan
losses. The allowance is based upon past loan experience and
other factors which, in managements judgment, deserve
current recognition in estimating loan losses. The evaluation
includes a review of all loans on which full collectibility may
not be reasonably assured. Other factors considered by
management include the size and character of the loan portfolio,
concentrations of loans to
21
MANAGEMENTS
DISCUSSION AND
ANALYSIS
specific borrowers or industries, existing economic conditions
and historical losses on each portfolio category. In connection
with the determination of the allowance for loan losses,
management obtains independent appraisals for significant
properties, which collateralize loans. Management establishes
historical loss percentages and evaluates problem loans and
adjusts allocations as necessary. Management believes it uses
the best information available to make such determinations. If
circumstances differ substantially from the assumptions used in
making determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be
affected. While the Company believes it has established its
existing allowance for loan loses in conformity with accounting
principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the
Banks loan portfolio, will not request an increase in the
allowance for loan losses. Because future events affecting
borrowers and collateral cannot be predicted with certainty,
there can be no assurance that increases to the allowance will
not be necessary if loan quality deteriorates. The following
table represents the allocation of the allowance for loan losses
by loan category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
|
Each | |
|
|
|
Each | |
|
|
|
Each | |
|
|
|
Each | |
|
|
|
Each | |
|
|
|
|
Category to | |
|
|
|
Category to | |
|
|
|
Category to | |
|
|
|
Category to | |
|
|
|
Category to | |
|
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
One-to-four family
|
|
$ |
711 |
|
|
|
38.68 |
% |
|
$ |
581 |
|
|
|
41.32 |
% |
|
$ |
1,012 |
|
|
|
48.97 |
% |
|
$ |
224 |
|
|
|
58.39 |
% |
|
$ |
157 |
|
|
|
62.20 |
% |
Multi-family
|
|
|
220 |
|
|
|
1.88 |
|
|
|
76 |
|
|
|
3.68 |
|
|
|
197 |
|
|
|
3.79 |
|
|
|
7 |
|
|
|
3.49 |
|
|
|
6 |
|
|
|
3.01 |
|
Commercial real estate
|
|
|
1,139 |
|
|
|
29.75 |
|
|
|
1,877 |
|
|
|
23.88 |
|
|
|
2,455 |
|
|
|
17.77 |
|
|
|
3,212 |
|
|
|
14.45 |
|
|
|
933 |
|
|
|
12.20 |
|
Construction and development
|
|
|
728 |
|
|
|
7.76 |
|
|
|
284 |
|
|
|
6.76 |
|
|
|
1,673 |
|
|
|
6.03 |
|
|
|
1,403 |
|
|
|
5.17 |
|
|
|
532 |
|
|
|
5.00 |
|
Commercial
|
|
|
1,269 |
|
|
|
13.10 |
|
|
|
2,194 |
|
|
|
14.37 |
|
|
|
1,454 |
|
|
|
13.42 |
|
|
|
1,434 |
|
|
|
8.51 |
|
|
|
729 |
|
|
|
7.86 |
|
Consumer
|
|
|
310 |
|
|
|
8.83 |
|
|
|
348 |
|
|
|
9.99 |
|
|
|
336 |
|
|
|
10.02 |
|
|
|
244 |
|
|
|
9.99 |
|
|
|
225 |
|
|
|
9.73 |
|
Unallocated
|
|
|
109 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,486 |
|
|
|
100.00 |
% |
|
$ |
5,474 |
|
|
|
100.00 |
% |
|
$ |
7,471 |
|
|
|
100.00 |
% |
|
$ |
6,524 |
|
|
|
100.00 |
% |
|
$ |
2,582 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/ Liability Management
In an attempt to manage its exposure to changes in interest
rates, management closely monitors the Companys interest
rate risk. The Bank has a funds management committee that
consists of the Chief Executive Officer, Chief Operating
Officer, a Regional President, the Corporate Controller and the
Bank Controller. The committee meets monthly and reviews the
Banks interest rate risk position and evaluates its
current asset/liability pricing and strategies. The committee
adjusts pricing and strategies as needed and makes
recommendations to the Banks board of directors regarding
significant changes in strategy. In addition, on a quarterly
basis, the board reviews the Banks asset/liability
position, including simulations of the effect on the Banks
capital of various interest rate scenarios.
The Companys exposure to market risk is reviewed on a
regular basis by the funds management committee. Interest rate
risk is the potential of economic losses due to future interest
rate changes. These economic losses can be reflected as a loss
of future net interest income and/or a loss of current fair
market values. The Funds Management Committee generally uses
three types of analysis in measuring and reviewing the
Companys interest rate sensitivity. These are Static GAP
analysis, Dynamic Gap Analysis and Economic Value of Equity
(EVE).
The Static GAP analysis consists of examining the matching of
assets and liabilities and the extent to which such assets and
liabilities are interest rate sensitive and by
monitoring an institutions interest rate sensitivity gap.
An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning
assets
22
MANAGEMENTS
DISCUSSION AND
ANALYSIS
anticipated, based upon certain assumptions, to mature or
reprice within a specific time period and the amount of
interest-bearing liabilities anticipated, based upon certain
assumptions, to mature or reprice within that same time period.
A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of
interest rate sensitive liabilities. During a period of rising
interest rates, a positive gap would tend to result in an
increase in net interest income while a negative gap would tend
to adversely affect net interest income. During a period of
falling interest rates, a positive gap would tend to adversely
affect net interest income while a negative gap would tend to
result in an increase in net interest income.
The following condensed GAP report summarizing the
Companys interest rate sensitivity sets forth the interest
rate sensitivity of the Banks assets and liabilities at
December 31, 2005. Except as stated below, the amounts of
assets and liabilities shown which reprice or mature during a
particular period are determined in accordance with the earlier
of the term to repricing or maturity of the asset or liability.
Based on the Companys historical trends, interest bearing
demand deposits, money market deposits, and savings deposits
have been proven to be a very stable source of funds, even
through interest rate fluctuations. Accordingly, Company
management believes these deposits are not 100% rate sensitive
within the three months or less time frame. As a result,
interest bearing demand and savings deposits have been allocated
between the five repricing categories as follows: three months
or less 20%, after three through twelve
months 20%, after one through three
years 20%, after three through five
years 20%, and after five years 20%.
Money market deposits have been allocated between the categories
as follows: after
23
MANAGEMENTS
DISCUSSION AND
ANALYSIS
three through twelve months 50% and after one
through three years 50%. Certificate accounts are
assumed to reprice at the date of contractual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing or Repricing | |
|
|
| |
|
|
|
|
4 Months | |
|
|
|
|
1-3 | |
|
to One | |
|
Over 1-3 | |
|
Over 3-5 | |
|
Over 5 | |
|
|
|
|
Months | |
|
Year | |
|
Years | |
|
Years | |
|
Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amount | |
|
Amount | |
|
Amount | |
|
Amount | |
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fixed rate one-to-four family (including commercial real estate
and construction loans)
|
|
$ |
7,911 |
|
|
$ |
9,750 |
|
|
$ |
29,055 |
|
|
$ |
39,915 |
|
|
$ |
122,192 |
|
|
$ |
208,823 |
|
Adjustable rate one-to-four family (including commercial real
estate and construction loans)
|
|
|
34,020 |
|
|
|
24,074 |
|
|
|
28,756 |
|
|
|
8,893 |
|
|
|
5,876 |
|
|
|
101,619 |
|
Construction & Development
|
|
|
28,269 |
|
|
|
1,079 |
|
|
|
1,107 |
|
|
|
1,590 |
|
|
|
2,229 |
|
|
|
34,274 |
|
Commercial business loans
|
|
|
20,194 |
|
|
|
8,898 |
|
|
|
12,135 |
|
|
|
8,801 |
|
|
|
7,836 |
|
|
|
57,864 |
|
Consumer loans
|
|
|
24,510 |
|
|
|
2,080 |
|
|
|
4,557 |
|
|
|
7,268 |
|
|
|
576 |
|
|
|
38,991 |
|
Investment securities and other
|
|
|
14,427 |
|
|
|
3,829 |
|
|
|
37,218 |
|
|
|
44,703 |
|
|
|
25,013 |
|
|
|
125,190 |
|
Federal Funds Sold, interest bearing due from banks, money
market funds, and certificates of deposit
|
|
|
4,692 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
134,023 |
|
|
|
49,760 |
|
|
|
112,828 |
|
|
|
111,170 |
|
|
|
163,722 |
|
|
|
571,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
|
17,627 |
|
|
|
17,627 |
|
|
|
17,627 |
|
|
|
17,627 |
|
|
|
17,626 |
|
|
|
88,134 |
|
Now and money market
|
|
|
8,216 |
|
|
|
36,110 |
|
|
|
36,110 |
|
|
|
8,216 |
|
|
|
8,217 |
|
|
|
96,869 |
|
Certificates under $100,000
|
|
|
39,485 |
|
|
|
69,290 |
|
|
|
64,180 |
|
|
|
8,959 |
|
|
|
|
|
|
|
181,914 |
|
Certificates of $100,000 or more
|
|
|
34,533 |
|
|
|
24,834 |
|
|
|
11,779 |
|
|
|
1,871 |
|
|
|
|
|
|
|
73,017 |
|
Borrowings
|
|
|
47,314 |
|
|
|
17,000 |
|
|
|
7,500 |
|
|
|
|
|
|
|
3,223 |
|
|
|
75,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
147,175 |
|
|
|
164,861 |
|
|
|
137,196 |
|
|
|
36,673 |
|
|
|
29,066 |
|
|
|
514,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets less interest-bearing liabilities
|
|
$ |
(13,152 |
) |
|
$ |
(115,101 |
) |
|
$ |
(24,368 |
) |
|
$ |
74,497 |
|
|
$ |
134,656 |
|
|
$ |
56,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate sensitivity gap
|
|
$ |
(13,152 |
) |
|
$ |
(128,253 |
) |
|
$ |
(152,621 |
) |
|
$ |
(78,124 |
) |
|
$ |
56,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate gap as a percentage of assets
|
|
|
(2.05 |
)% |
|
|
(20.00 |
)% |
|
|
(23.80 |
)% |
|
|
(12.18 |
)% |
|
|
8.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain shortcomings are inherent in the method of analysis
presented in the foregoing table. For example, although certain
assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may
lag behind changes in market rates. Additionally, certain
assets, such as ARMs, have features which restrict changes in
interest rates on a short-term basis and over the life of the
asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest
rate increase.
The dynamic interest rate risk analysis calculates risk to net
interest income under three different scenarios, including flat,
upward and downward rate shifts. The analysis assumes that rates
change over a 12 month time frame. The analysis calculates
net interest spread, net interest margin, loan to deposit, cost
of funds, ratio of earning assets and capital. The model assumes
that as principal runs off, principal is reinvested into the
same category. Other assumptions which are varied include: loan
rates, investment yields and growth rates. This is accomplished
using a simulation model. Modeling techniques encompass
contractual maturity, prepayment assumptions covering interest
rate increases and decreases and index-driven repricing
characteristics. The model projects
24
MANAGEMENTS
DISCUSSION AND
ANALYSIS
changes in net interest income over a one-year period should
interest rates rise, fall or remain constant. These effects are
analyzed assuming interest rate increases or decreases of 100,
200 and 300 basis points. The model also incorporates key
assumptions involving the Companys ability to control and
direct deposit rates, particularly on non-maturity categories.
As of December 31, 2005, the simulation model indicated
that over a twelve month horizon if interest rates were to
increase 100 basis points, net income would increase
$303,000. If interest rates were to decrease 100 basis
points, net income would decrease $220,000.
The economic value of equity calculation uses information about
the Companys assets, liabilities and off-balance sheet
items, market interest rate levels and assumptions about the
behavior of the assets and liabilities, to calculate the
Companys equity value. The economic value of equity is the
market value of assets minus the market value of liabilities,
adjusted for off-balance sheet items divided by the market value
of assets. The economic value of equity is then subjected to
immediate and permanent upward changes of 300 basis points
in market interest rate levels, in 100 basis point
increments, and a downward change of 100 basis points. The
resulting changes in equity value and net interest income at
each increment are measured against pre-determined, minimum EVE
ratios for each incremental rate change, as approved by the
board in the interest rate risk policy.
The following table presents the Banks EVE ratios for the
various rate change levels at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
EVE Ratios | |
|
|
| |
Changes in Interest Rates |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
300 basis point rise
|
|
|
7.60% |
|
|
|
7.54% |
|
200 basis point rise
|
|
|
7.43% |
|
|
|
7.88% |
|
100 basis point rise
|
|
|
7.33% |
|
|
|
8.06% |
|
Base rate scenario
|
|
|
6.86% |
|
|
|
7.91% |
|
100 basis point decline
|
|
|
5.24% |
|
|
|
6.60% |
|
The preceding table indicates that at December 31, 2005, in
the event of an immediate and permanent 100 basis point
increase in prevailing market interest rates, the Banks
EVE ratio, would be expected to increase and that in the event
of an immediate and permanent decrease in prevailing market
interest rates, the Banks EVE ratio would be expected to
decrease.
At December 31, 2005, the EVE increases in a rising rate
scenario because the Company is asset sensitive and would have
more interest earning assets repricing than interest-bearing
liabilities. This effect is increased by periodic and lifetime
limits on changes in rate on most adjustable-rate,
interest-earning assets. The EVE decreases in a falling rate
scenario because of the limits on the Companys ability to
decrease rates on some of its deposit sources, such as money
market accounts and NOW accounts, and by the ability of
borrowers to repay loans ahead of schedule and refinance at
lower rates.
The EVE ratio is calculated by the Companys fixed income
investment advisor, and reviewed by management, on a quarterly
basis utilizing information about the Companys assets,
liabilities and off-balance sheet items, which is provided by
the Company. The calculation is designed to estimate the effects
of hypothetical rate changes on the EVE, utilizing projected
cash flows, and is based on numerous assumptions, including
relative levels of market interest rates, loan prepayments
speeds and deposit decay rates. Actual changes in the EVE, in
the event of market interest rate changes of the type and
magnitude used in the calculation, could differ significantly.
Additionally, the calculation does not account for possible
actions taken by Funds Management to mitigate the adverse
effects of changes in market interest rates.
In managing its asset/liability mix, the Company, at times,
depending on the relationship between long-term and short-term
interest rates, market conditions and consumer preferences, may
place somewhat greater emphasis on maximizing its net interest
margin than on better matching the
25
MANAGEMENTS
DISCUSSION AND
ANALYSIS
interest rate sensitivity of its assets and liabilities in an
effort to improve its net income. While the Company does have
some exposure to changing interest rates, management believes
that the Company is positioned to protect earnings throughout
changing interest rate environments and that the Companys
market risk is reasonable at this time.
The Company currently does not enter into derivative financial
instruments, including futures, forwards, interest rate risk
swaps, option contracts, or other financial instruments with
similar characteristics and the Company has no market risk
sensitive instruments held for trading purposes. However, the
Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing
needs of its customers such as commitments to extend credit and
letters of credit. Commitments to extend credit and letters of
credit are not recorded as an asset by the Company until the
commitment is accepted and funded or the letter of credit is
exercised.
Liquidity and Capital Resources
The Companys primary sources of funds are deposits,
proceeds from principal and interest payments on loans and on
investment securities. While maturities and scheduled
amortization of loans and investment securities are a
predictable source of funds, deposit flows and mortgage loan
prepayments are greatly influenced by general interest rates,
economic conditions and competition. In a period of declining
interest rates, mortgage loan prepayments generally increase. As
a result, the proceeds from mortgage loan prepayments are
invested in lower yielding loans or other investments which have
the effect of reducing interest income. In a period of rising
interest rates, mortgage loan prepayments generally decrease and
the proceeds from such prepayments are invested in higher
yielding loans or investments which would have the effect of
increasing interest income.
The Companys liquidity, represented by cash and cash
equivalents, is a result of its operating, investing and
financing activities. The primary investing activities of the
Company are the origination of loans, the purchase of investment
securities, and, to a lesser extent, the purchase of loans and
loan participations. The Company manages the investing
activities primarily by investing in or selling loans and
investment securities. During 2005, the Company acquired
Illinois Community. This transaction was an investing activity
that was not part of the day to day operations of the Company.
All other transactions such as the purchase of fixed assets and
the reinvestment of investment security maturities are common
activities of the Company.
The Companys investing activities have a direct
correlation to the financing activities. Factors that influence
the Companys financing activities involve the collection
of deposits and advances and repayments of borrowings. The
Company has the ability to borrow funds from the FHLB.
Additionally, the Company has approximately $20 million
available on a line of credit from a third party financial
institution. The issuance or purchase of stock also has a direct
effect on the Companys financing activities. Additional
financing activities that the Company may engage in include the
purchase and issuance of common stock, as well as, the payment
of dividends on common stock. During 2005, the Company
repurchased 178,865 shares of its common stock.
26
MANAGEMENTS
DISCUSSION AND
ANALYSIS
The Company maintains a certain level of cash and other liquid
assets to fund normal volumes of loan commitments, deposit
withdrawals and other obligations. The following table
summarizes significant contractual obligations and other
commitments at December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time | |
|
Long-term | |
|
|
Years Ended December 31, |
|
Deposits | |
|
Borrowings (1) | |
|
Total | |
|
|
| |
|
| |
|
| |
2006
|
|
$ |
167,991 |
|
|
$ |
16,341 |
|
|
$ |
184,332 |
|
2007
|
|
|
61,937 |
|
|
|
31,449 |
|
|
|
93,386 |
|
2008
|
|
|
14,172 |
|
|
|
156 |
|
|
|
14,328 |
|
2009
|
|
|
5,101 |
|
|
|
10,165 |
|
|
|
15,266 |
|
2010
|
|
|
5,730 |
|
|
|
174 |
|
|
|
5,904 |
|
thereafter
|
|
|
|
|
|
|
438 |
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
254,931 |
|
|
$ |
58,723 |
|
|
$ |
313,654 |
|
|
|
|
|
|
|
|
|
|
|
Financial instruments whose contract amounts represent credit
risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to originate loans
|
|
|
|
|
|
|
|
|
|
$ |
3,787 |
|
Commitments to extend credit
|
|
|
|
|
|
|
|
|
|
|
56,873 |
|
Standby letters of credit
|
|
|
|
|
|
|
|
|
|
|
4,508 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
378,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Fixed rate callable borrowings are included in the period of
their modified duration rather than in the period in which they
are due. Borrowings include fixed rate callable advances of
$5 million and $2 million maturing in 2008 and 2011
which are callable in 2006. Trust preferred debentures of
$10 million mature in both 2032 and 2034, but are callable
in 2007 and 2009. |
The Companys most liquid assets are cash, cash in banks
and highly liquid, short-term investments. The levels of these
assets are dependent on the Companys operating, financing,
lending and investing activities during any given period.
Securities available-for-sale may also be utilized to meet
liquidity needs. At December 31, 2005 and 2004, these
liquid assets totaled $18.3 million and $13.3 million,
respectively.
Liquidity management for the Company is both a daily and
long-term function of the Companys management strategy.
Excess funds are generally invested in short-term investments
such as federal funds. In the event that the Company should
require funds beyond its ability to generate them internally,
additional sources of funds are available, including FHLB
advances. At December 31, 2005, the Company had outstanding
long-term borrowings totaling $58.7 million, of which
$37.5 million were advances from the FHLB,
$20.0 million were junior subordinated debt owed to
unconsolidated trusts, and $1.2 million were funds from
notes payable.
At December 31, 2005, the Company had outstanding
commitments to originate mortgage loans of $3.8 million, of
which 95% were at fixed interest rates. These commitments
provided that the loans would be secured by properties located,
for the most part, in the Companys primary market areas.
The Company anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of
deposit that were scheduled to mature in one year or less from
December 31, 2005, totaled $168.0 million. Based upon
the historically stable nature of the Companys deposit
base, management believes that a significant portion of such
deposits will remain with the Company. The Company also had
unused lines of credit provided to customers of
$56.9 million at December 31, 2005.
At December 31, 2005, the Company and Bank met all capital
requirements as set by federal and state regulatory agencies.
See Note 13 of the Notes to Consolidated Financial
Statements and the discussion of the Companys financial
condition above.
27
MANAGEMENTS
DISCUSSION AND
ANALYSIS
Dividends
The Federal Reserve Boards policy is that a bank holding
company should pay cash dividends only to the extent that its
net income for the past year is sufficient to cover both the
cash dividends and a rate of earnings retention that is
consistent with the holding companys capital needs, asset
quality and overall financial condition, and that it is
inappropriate for a bank holding company experiencing serious
financial problems to borrow funds to pay dividends.
Furthermore, under certain circumstances, the Federal Reserve
Board may prohibit a bank holding company from paying any
dividends if a bank subsidiary of the holding company is
classified under prompt corrective action as
undercapitalized.
The Companys primary source for cash dividends is the
dividends received from our subsidiary bank. The Bank is subject
to various regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain capital
above regulatory minimums. The Bank, in general, may not pay
dividends in excess of its net profits. The Bank declared and
paid dividends totaling $10.4 million, $2.5 million
and $1.9 million to the Company, its sole stockholder,
during 2005, 2004 and 2003, respectively.
Cash dividends in the total amount of $.075 and $.30 per
share were paid by the Company during 2004 and 2003,
respectively. The Company discontinued payment of its quarterly
cash dividend in 2004 in an effort to focus on the repurchase of
shares, as well as to strengthen the capital of the Company for
possible future acquisitions. The payment of future dividends,
if any, will depend primarily upon the Companys earnings,
financial condition and need for funds, as well as restrictions
imposed by regulatory authorities regarding dividend payments
and net worth requirements.
Special Note Concerning Forward-Looking Statements
This document (including information incorporated by reference)
contains, and future oral and written statements of the Company
and its management may contain, forward-looking statements,
within the meaning of such term in the Private Securities
Litigation Reform Act of 1995, with respect to the financial
condition, results of operations, plans, objectives, future
performance and business of the Company. Forward-looking
statements, which may be based upon beliefs, expectations and
assumptions of the Companys management and on information
currently available to management, are generally identifiable by
the use of words such as believe,
expect, anticipate, plan,
intend, estimate, may,
will, would, could,
should or other similar expressions. Additionally,
all statements in this document, including forward-looking
statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in
light of new information or future events.
The Companys ability to predict results or the actual
effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on the
operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:
|
|
|
|
|
The strength of the United States economy in general and the
strength of the local economies in which the Company conducts
its operations which may be less favorable than expected and may
result in, among other things, a deterioration in the credit
quality and value of the Companys assets. |
|
|
|
The economic impact of past and any future terrorist threats and
attacks, acts of war or threats thereof, and the response of the
United States to any such threats and attacks. |
|
|
|
The effects of, and changes in, federal, state and local laws,
regulations and policies affecting banking, securities,
insurance and monetary and financial matters. |
|
|
|
The effects of changes in interest rates (including the effects
of changes in the rate of prepayments of the Companys
assets) and the policies of the Board of Governors of the
Federal Reserve System. |
28
MANAGEMENTS
DISCUSSION AND
ANALYSIS
|
|
|
|
|
The ability of the Company to compete with other financial
institutions as effectively as the Company currently intends due
to increases in competitive pressures in the financial services
sector. |
|
|
|
The inability of the Company to obtain new customers and to
retain existing customers. |
|
|
|
The timely development and acceptance of products and services,
including products and services offered through alternative
delivery channels such as the Internet. |
|
|
|
Technological changes implemented by the Company and by other
parties, including third party vendors, which may be more
difficult or more expensive than anticipated or which may have
unforeseen consequences to the Company and its customers. |
|
|
|
The ability of the Company to develop and maintain secure and
reliable electronic systems. |
|
|
|
The ability of the Company to retain key executives and
employees and the difficulty that the Company may experience in
replacing key executives and employees in an effective manner. |
|
|
|
Consumer spending and saving habits which may change in a manner
that affects the Companys business adversely. |
|
|
|
Business combinations and the integration of acquired businesses
which may be more difficult or expensive than expected. |
|
|
|
The costs, effects and outcomes of existing or future litigation. |
|
|
|
Changes in accounting policies and practices, as may be adopted
by state and federal regulatory agencies and the Financial
Accounting Standards Board. |
|
|
|
The ability of the Company to manage the risks associated with
the foregoing as well as anticipated. |
These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be
placed on such statements. Additional information concerning the
Company and its business, including other factors that could
materially affect the Companys financial results, is
included in the Companys filings with the Securities and
Exchange Commission.
29
McGladrey & Pullen
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Centrue Financial Corporation
Kankakee, Illinois
We have audited the accompanying consolidated balance sheets of
Centrue Financial Corporation and Subsidiary as of
December 31, 2005 and 2004, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the years in the three-year period ended
December 31, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Centrue Financial Corporation
and Subsidiary as of December 31, 2005 and 2004, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2005, in
conformity with accounting principles generally accepted in the
United States of America.
Champaign, Illinois
February 8, 2006
McGladrey & Pullen LLP serves clients global business
needs through its membership in
RSM International (an affiliation of separate and independent
accounting and consulting firms).
30
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands, | |
|
|
except share and | |
|
|
per share data) | |
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
13,566 |
|
|
$ |
10,760 |
|
Interest bearing due from banks and other
|
|
|
4,692 |
|
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
18,258 |
|
|
|
13,286 |
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
50 |
|
|
|
149 |
|
Investment securities available-for-sale, at fair value
|
|
|
125,190 |
|
|
|
124,763 |
|
Loans, net of allowance for loan losses of $4,486 in 2005 and
$5,475 in 2004
|
|
|
428,468 |
|
|
|
418,963 |
|
Loans held for sale
|
|
|
8,373 |
|
|
|
416 |
|
Office properties and equipment
|
|
|
22,579 |
|
|
|
18,267 |
|
Goodwill
|
|
|
14,362 |
|
|
|
12,446 |
|
Life insurance contracts
|
|
|
9,465 |
|
|
|
9,110 |
|
Non-marketable equity securities
|
|
|
5,059 |
|
|
|
4,211 |
|
Accrued interest receivable
|
|
|
3,248 |
|
|
|
2,570 |
|
Intangible assets
|
|
|
1,922 |
|
|
|
1,774 |
|
Real estate held for sale
|
|
|
1,709 |
|
|
|
3,002 |
|
Other assets
|
|
|
2,658 |
|
|
|
2,896 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
641,341 |
|
|
$ |
611,853 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
|
|
$ |
67,982 |
|
|
$ |
53,919 |
|
|
|
Interest bearing
|
|
|
439,934 |
|
|
|
441,858 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
507,916 |
|
|
|
495,777 |
|
|
Short-term borrowings
|
|
|
27,014 |
|
|
|
14,188 |
|
|
Long-term borrowings
|
|
|
58,723 |
|
|
|
55,473 |
|
|
Other liabilities
|
|
|
4,767 |
|
|
|
3,239 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
598,420 |
|
|
|
568,677 |
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 14 and 15)
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized and unissued,
500,000 shares
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 5,500,000 shares
authorized; 4,200,300 shares issued
|
|
|
42 |
|
|
|
42 |
|
|
Additional paid-in capital
|
|
|
29,722 |
|
|
|
28,998 |
|
|
Retained income, partially restricted
|
|
|
48,305 |
|
|
|
43,925 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,657 |
) |
|
|
27 |
|
|
Unearned restricted stock (14,750 and 19,750 shares in 2005
and 2004, respectively)
|
|
|
(346 |
) |
|
|
(512 |
) |
|
Treasury stock (1,937,361 and 1,819,634 shares in 2005 and
2004, respectively), at cost
|
|
|
(33,145 |
) |
|
|
(29,304 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
42,921 |
|
|
|
43,176 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
641,341 |
|
|
$ |
611,853 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
31
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005, 2004 and 2003
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands, | |
|
|
except per share data) | |
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
26,759 |
|
|
$ |
24,884 |
|
|
$ |
23,442 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,266 |
|
|
|
3,584 |
|
|
|
3,466 |
|
|
|
Tax exempt
|
|
|
696 |
|
|
|
597 |
|
|
|
60 |
|
|
Deposits with banks and other
|
|
|
198 |
|
|
|
119 |
|
|
|
313 |
|
|
FHLB dividends
|
|
|
177 |
|
|
|
214 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
32,096 |
|
|
|
29,398 |
|
|
|
27,476 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
9,463 |
|
|
|
7,807 |
|
|
|
9,216 |
|
|
Short-term borrowings
|
|
|
654 |
|
|
|
115 |
|
|
|
47 |
|
|
Long-term borrowings
|
|
|
2,946 |
|
|
|
2,728 |
|
|
|
2,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
13,063 |
|
|
|
10,650 |
|
|
|
11,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
19,033 |
|
|
|
18,748 |
|
|
|
15,480 |
|
Provision for loan losses
|
|
|
651 |
|
|
|
1,200 |
|
|
|
4,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
18,382 |
|
|
|
17,548 |
|
|
|
11,358 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income
|
|
|
5,808 |
|
|
|
4,357 |
|
|
|
2,874 |
|
|
Net gain on sales of securities
|
|
|
183 |
|
|
|
85 |
|
|
|
8 |
|
|
Net gain (loss) on sales of real estate held for sale
|
|
|
(23 |
) |
|
|
104 |
|
|
|
253 |
|
|
Net gain on sales of loans held for sale
|
|
|
603 |
|
|
|
886 |
|
|
|
1,271 |
|
|
Gain on sale of branch
|
|
|
|
|
|
|
|
|
|
|
478 |
|
|
Increase in cash surrender value of life insurance contracts
|
|
|
355 |
|
|
|
358 |
|
|
|
403 |
|
|
Other
|
|
|
299 |
|
|
|
217 |
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
7,225 |
|
|
|
6,007 |
|
|
|
5,706 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
10,490 |
|
|
|
8,587 |
|
|
|
7,786 |
|
|
Occupancy
|
|
|
1,638 |
|
|
|
1,435 |
|
|
|
1,398 |
|
|
Furniture and equipment
|
|
|
1,751 |
|
|
|
1,370 |
|
|
|
945 |
|
|
Legal and professional fees
|
|
|
854 |
|
|
|
670 |
|
|
|
894 |
|
|
Telephone and postage
|
|
|
624 |
|
|
|
611 |
|
|
|
534 |
|
|
Data processing services
|
|
|
492 |
|
|
|
615 |
|
|
|
514 |
|
|
Advertising
|
|
|
391 |
|
|
|
279 |
|
|
|
440 |
|
|
Amortization of intangibles
|
|
|
276 |
|
|
|
229 |
|
|
|
147 |
|
|
Other
|
|
|
3,173 |
|
|
|
2,954 |
|
|
|
2,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
19,689 |
|
|
|
16,750 |
|
|
|
15,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5,918 |
|
|
|
6,805 |
|
|
|
1,653 |
|
Income taxes
|
|
|
1,538 |
|
|
|
1,916 |
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
4,380 |
|
|
$ |
4,889 |
|
|
$ |
1,363 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$ |
1.87 |
|
|
$ |
1.96 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$ |
1.86 |
|
|
$ |
1.95 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Dividends Per Share
|
|
$ |
|
|
|
$ |
0.075 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2005, 2004 and 2003
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
Unearned | |
|
|
|
Total | |
|
|
Common | |
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
Restricted | |
|
Treasury | |
|
Stockholders | |
|
|
Stock | |
|
Capital | |
|
Income | |
|
Income (Loss) | |
|
Stock | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except share and per share data) | |
Balance, December 31, 2002
|
|
$ |
36 |
|
|
$ |
15,022 |
|
|
$ |
38,517 |
|
|
$ |
1,631 |
|
|
$ |
|
|
|
$ |
(14,099 |
) |
|
$ |
41,107 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,363 |
|
|
Unrealized gain (loss) on securities available-for-sale arising
during the period, net of tax of $(326)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(548 |
) |
|
|
|
|
|
|
|
|
|
|
(548 |
) |
|
Less: Reclassifications adjustment for gains included in net
income, net of tax of $3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810 |
|
Purchase of 466,540 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,308 |
) |
|
|
(9,308 |
) |
Exercise of stock options
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
202 |
|
Restricted stock awards
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
(820 |
) |
|
|
398 |
|
|
|
|
|
Stock issued in acquisition (700,300 shares)
|
|
|
6 |
|
|
|
13,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,471 |
|
Dividends paid on common stock $.30 per share
|
|
|
|
|
|
|
|
|
|
|
(649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
42 |
|
|
|
28,929 |
|
|
|
39,231 |
|
|
|
1,088 |
|
|
|
(820 |
) |
|
|
(22,827 |
) |
|
|
45,643 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,889 |
|
|
Unrealized gain (loss) on securities available-for-sale arising
during the period, net of tax of $(530)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,114 |
) |
|
|
|
|
|
|
|
|
|
|
(1,114 |
) |
|
Less: Reclassifications adjustment for gains included in net
income, net of tax of $32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828 |
|
Purchase of 232,706 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,514 |
) |
|
|
(6,514 |
) |
Exercise of stock options
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
189 |
|
Restricted stock awards
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
38 |
|
|
|
|
|
Forfeit of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
(149 |
) |
|
|
|
|
Amortization of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
225 |
|
Dividends paid on common stock $.075 per share
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
42 |
|
|
|
28,998 |
|
|
|
43,925 |
|
|
|
27 |
|
|
|
(512 |
) |
|
|
(29,304 |
) |
|
|
43,176 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,380 |
|
|
Unrealized (loss) on securities available-for-sale arising
during the period, net of tax of $(919)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,815 |
) |
|
|
|
|
|
|
|
|
|
|
(1,815 |
) |
|
Less: Reclassifications adjustment for gains included in net
income, net of tax of $52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,696 |
|
Purchase of 178,865 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,817 |
) |
|
|
(4,817 |
) |
Stock issued in acquisition (59,638 shares)
|
|
|
|
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
960 |
|
|
|
1,657 |
|
Issuance of restricted stock
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
35 |
|
|
|
|
|
Forfeit of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
(19 |
) |
|
|
|
|
Amortization of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$ |
42 |
|
|
$ |
29,722 |
|
|
$ |
48,305 |
|
|
$ |
(1,657 |
) |
|
$ |
(346 |
) |
|
$ |
(33,145 |
) |
|
$ |
42,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
4,380 |
|
|
$ |
4,889 |
|
|
$ |
1,363 |
|
|
Adjustments to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
651 |
|
|
|
1,200 |
|
|
|
4,122 |
|
|
|
Depreciation
|
|
|
2,054 |
|
|
|
1,722 |
|
|
|
1,293 |
|
|
|
Amortization of investments, net
|
|
|
195 |
|
|
|
103 |
|
|
|
179 |
|
|
|
Amortization of intangibles
|
|
|
276 |
|
|
|
229 |
|
|
|
147 |
|
|
|
Amortization of restricted stock
|
|
|
209 |
|
|
|
225 |
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,330 |
|
|
|
1,284 |
|
|
|
551 |
|
|
|
Origination of loans held for sale
|
|
|
(28,751 |
) |
|
|
(31,008 |
) |
|
|
(56,224 |
) |
|
|
Proceeds from sales of loans held for sale
|
|
|
26,444 |
|
|
|
51,651 |
|
|
|
57,623 |
|
|
|
Net gain on sales of loans held for sale
|
|
|
(603 |
) |
|
|
(886 |
) |
|
|
(1,271 |
) |
|
|
Net gain on sales of securities
|
|
|
(183 |
) |
|
|
(85 |
) |
|
|
(8 |
) |
|
|
Net (gain) loss on sales of real estate held for sale
|
|
|
23 |
|
|
|
(104 |
) |
|
|
(253 |
) |
|
|
Gain on sale of branch
|
|
|
|
|
|
|
|
|
|
|
(478 |
) |
|
|
Increase in cash surrender value of life insurance contracts
|
|
|
(355 |
) |
|
|
(358 |
) |
|
|
(403 |
) |
|
|
Federal Home Loan Bank stock dividend
|
|
|
(209 |
) |
|
|
(213 |
) |
|
|
(229 |
) |
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(569 |
) |
|
|
86 |
|
|
|
559 |
|
|
|
|
Other assets and liabilities, net
|
|
|
1,056 |
|
|
|
1,584 |
|
|
|
(2,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,948 |
|
|
|
30,319 |
|
|
|
4,211 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(21,332 |
) |
|
|
(88,785 |
) |
|
|
(37,784 |
) |
|
Proceeds from sales of available for sale securities
|
|
|
13,698 |
|
|
|
5,943 |
|
|
|
96 |
|
|
Proceeds from maturities of available for sale securities
|
|
|
11,207 |
|
|
|
52,148 |
|
|
|
47,226 |
|
|
Proceeds from maturities of held-to-maturity securities
|
|
|
|
|
|
|
242 |
|
|
|
201 |
|
|
Proceeds from maturities of certificates of deposit
|
|
|
99 |
|
|
|
199 |
|
|
|
|
|
|
Proceeds from sales of real estate held for sale
|
|
|
2,581 |
|
|
|
648 |
|
|
|
678 |
|
|
Proceeds from sales of office properties and equipment
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
Cash paid for branch sale
|
|
|
|
|
|
|
|
|
|
|
(12,315 |
) |
|
Cash acquired, net of cash (paid) for acquisitions
|
|
|
(228 |
) |
|
|
38 |
|
|
|
2,984 |
|
|
Net (increase) decrease in loans
|
|
|
1,296 |
|
|
|
(10,205 |
) |
|
|
19,547 |
|
|
Purchases of office properties and equipment, net
|
|
|
(3,953 |
) |
|
|
(2,607 |
) |
|
|
(6,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
3,383 |
|
|
|
(42,379 |
) |
|
|
13,866 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
34
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposit accounts
|
|
|
(15,618 |
) |
|
|
(19,004 |
) |
|
|
1,355 |
|
|
Proceeds from long-term borrowings
|
|
|
44,360 |
|
|
|
14,000 |
|
|
|
104 |
|
|
Repayments of long-term borrowings
|
|
|
(41,110 |
) |
|
|
(21,475 |
) |
|
|
(12,400 |
) |
|
Change in short-term borrowings
|
|
|
12,826 |
|
|
|
12,740 |
|
|
|
798 |
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
189 |
|
|
|
202 |
|
|
Dividends paid
|
|
|
|
|
|
|
(195 |
) |
|
|
(649 |
) |
|
Purchase of treasury stock
|
|
|
(4,817 |
) |
|
|
(6,514 |
) |
|
|
(9,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(4,359 |
) |
|
|
(20,259 |
) |
|
|
(19,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,972 |
|
|
|
(32,319 |
) |
|
|
(1,821 |
) |
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
13,286 |
|
|
|
45,605 |
|
|
|
47,426 |
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$ |
18,258 |
|
|
$ |
13,286 |
|
|
$ |
45,605 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
11,616 |
|
|
$ |
10,651 |
|
|
$ |
12,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
1,160 |
|
|
$ |
1,478 |
|
|
$ |
1,104 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure
|
|
$ |
1,156 |
|
|
$ |
3,254 |
|
|
$ |
428 |
|
|
|
|
|
|
|
|
|
|
|
Sale of Hoopeston Branch:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets disposed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(6,370 |
) |
|
|
Accrued interest receivable
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
Premises and equipment
|
|
|
|
|
|
|
|
|
|
|
(165 |
) |
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
(197 |
) |
|
Liabilities assumed by buyer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
|
|
|
|
|
|
|
|
2,162 |
|
|
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
17,243 |
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
Gain on sale of branch
|
|
|
|
|
|
|
|
|
|
|
(478 |
) |
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,315 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$ |
1,658 |
|
|
$ |
4,400 |
|
|
$ |
|
|
|
Stock issued
|
|
|
1,657 |
|
|
|
|
|
|
|
13,471 |
|
|
Cost incurred
|
|
|
744 |
|
|
|
123 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
$ |
4,059 |
|
|
$ |
4,523 |
|
|
$ |
14,072 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
2,174 |
|
|
$ |
4,561 |
|
|
$ |
2,984 |
|
|
|
Certificates of deposit
|
|
|
|
|
|
|
298 |
|
|
|
|
|
|
|
Investments
|
|
|
6,561 |
|
|
|
8,616 |
|
|
|
15,355 |
|
|
|
Nonmarketable equity securities
|
|
|
639 |
|
|
|
85 |
|
|
|
329 |
|
|
|
Loans
|
|
|
12,608 |
|
|
|
7,342 |
|
|
|
72,068 |
|
|
|
Loans held for sale
|
|
|
5,047 |
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
109 |
|
|
|
104 |
|
|
|
339 |
|
|
|
Office properties and equipment
|
|
|
2,428 |
|
|
|
269 |
|
|
|
1,426 |
|
|
|
Other assets, including deferred taxes
|
|
|
(189 |
) |
|
|
72 |
|
|
|
|
|
|
|
Real estate held for sale
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,916 |
|
|
|
1,013 |
|
|
|
8,367 |
|
|
|
Intangible assets
|
|
|
424 |
|
|
|
774 |
|
|
|
358 |
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
(27,757 |
) |
|
|
(18,524 |
) |
|
|
(80,588 |
) |
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
(6,194 |
) |
|
|
Other liabilities
|
|
|
(56 |
) |
|
|
(87 |
) |
|
|
(372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$ |
4,059 |
|
|
$ |
4,523 |
|
|
$ |
14,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash acquired, net of cash (paid)
|
|
$ |
(228 |
) |
|
$ |
38 |
|
|
$ |
2,984 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
36
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY
Note 1. Summary of Significant Accounting Policies
Nature of Operations
Through Centrue Bank (the Bank), Centrue Financial
Corporation (the Company), provides a full range of
banking services to individual and corporate customers through
its twenty locations throughout Illinois. The Bank is subject to
competition from other financial institutions and nonfinancial
institutions providing financial products. Additionally, the
Company and the Bank are subject to the regulations of certain
regulatory agencies and undergo periodic examinations by those
regulatory agencies.
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, the Bank and the
Banks wholly-owned subsidiary, Centrue Service
Corporation. Significant intercompany accounts and transactions
have been eliminated in consolidation.
The consolidated financial statements of the Company have been
prepared in conformity with accounting principles generally
accepted in the United States of America and conform to
predominate practice within the banking industry.
Industry Segment Information
The primary source of income for the Company is interest from
the origination of consumer, commercial and real estate mortgage
loans along with interest on the investment in securities
portfolio. The Company accepts deposits from customers in the
normal course of business and within their primary market areas.
The Company operates primarily in the banking industry which
accounts for more than 99% of its revenues, operating income and
assets, with the remaining operations coming from activities of
the Centrue Financial Corporation and Centrue Service
Corporation. The Company uses the management
approach for reporting information about segments in the
annual and interim financial statements. The management approach
is based on the way the chief operating decision-maker organizes
segments within a Company for making operating decisions and
assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure
and any other manner in which management disaggregates a
company. Based on the management approach model, the Company has
determined that its business is comprised of a single operating
segment.
Use of Estimates
In preparing the consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America, management is required to make estimates and
assumptions which significantly affect the amounts reported in
the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period
of time include the determination of the allowance for loan
losses and valuation of mortgage servicing rights, goodwill,
deferred tax assets and real estate held for sale. Actual
results could differ from those estimates.
Comprehensive Income
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized
gains and losses on available-for-sale securities, are reported
as a separate component of the equity section of the balance
sheet, such items, along with net income, are components of
comprehensive income.
37
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Cash and Cash Equivalents
For reporting cash flows, cash and cash equivalents represent
highly liquid investments with maturities of 90 days or
less at the time of purchase and includes cash on hand, due from
bank accounts (including cash items in process of clearing),
money market funds and federal funds sold. Cash flows from
loans, deposits and short-term borrowings are reported net.
Securities
Securities classified as available-for-sale are those securities
that the Company intends to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on
various factors, including significant movements in interest
rates, changes in the maturity mix of the Companys assets
and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities
available-for-sale are carried at fair value. The difference
between fair value and cost, adjusted for amortization of
premium and accretion of discounts, results in an unrealized
gain or loss. Unrealized gains or losses are reported as
accumulated other comprehensive income (loss), net of the
related deferred tax effect. Gains or losses on the sale of
securities are determined on the basis of the specific security
sold and are included in earnings. Premiums and discounts are
recognized in interest income using the interest method over
their contractual lives.
Declines in the fair value of available-for-sale securities
below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers
(1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition
and near-term prospects of the issuer, and (3) the intent
and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Loans
Loans originated or purchased are identified as either held for
sale or portfolio at origination or purchase. Loans held for
portfolio are originated or purchased with the intent to hold
them to maturity for the purpose of earning interest income.
Since the Bank has the ability to hold such loans as intended,
they are recorded at cost. Interest is credited to income as
earned using the simple interest method applied to the daily
balances of the principal outstanding.
The accrual of interest income on loans is discontinued at the
time the loan is 90 days past due or earlier when, in the
opinion of management, there is reasonable doubt as to the
borrowers ability to meet payments of interest or
principal when they become due. Interest income on these loans
is recognized to the extent interest payments are received and
the principal is considered fully collectible.
Loan origination fees and certain direct origination costs are
being amortized as an adjustment of the yield over the
contractual life of the related loan, adjusted for prepayments,
using the interest method.
Loans Held for Sale
Loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or fair value, as
determined by aggregate outstanding commitments from investors
or current investor yield requirements. Net unrealized losses
are recognized through a valuation allowance by charges to
income.
Mortgage loans held for sale are generally sold with the
mortgage servicing rights retained by the Company. The carrying
value of mortgage loans sold is reduced by the cost allocated to
the associated mortgage servicing rights. Gains or losses on
sales of mortgage loans are recognized based on the difference
between the selling price and the carrying value of the related
mortgage loans sold
38
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Allowance for Loan Losses
The allowance for loan losses (allowance) is
established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes that the
uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance is evaluated on a regular basis by management and
is based upon managements periodic review of the
collectibility of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated
values of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective, as it
requires estimates that are susceptible to significant revision
as more information becomes available.
While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions. In
addition, various regulatory agencies periodically review the
allowance. These agencies may require the Bank to make additions
to the allowance based on their judgments of collectibility
based on information available to them at the time of their
examination.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment
include payment status, collateral value and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration
all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay,
the borrowers prior payment record and the amount of the
shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis for commercial
and construction loans by either the present value of expected
future cash flows discounted at the loans effective
interest rate, the loans obtainable market price or the
fair value of the collateral if the loan is collateral
dependent. Large groups of smaller balance homogenous loans are
collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual consumer and residential
loans for impairment disclosures.
Real Estate Held for Sale
Real estate acquired through foreclosure or deed in lieu of
foreclosure represents specific assets to which the Company has
acquired legal title in satisfaction of indebtedness. Such real
estate is recorded at the lower of propertys fair value at
the date of foreclosure or cost. Initial valuation adjustments,
if any, are charged against the allowance for loan losses.
Property is evaluated regularly to ensure the recorded amount is
supported by its current fair value. Subsequent declines in
estimated fair value are charged to expense when incurred.
Revenues and expenses related to holding and operating these
properties are included in operations.
Office Properties and Equipment
Office properties and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the
assets. Estimated lives are 15 to 39 years for buildings
and leasehold improvements and 3 to 15 years for furniture
and equipment.
Non-Marketable Equity Securities
The Bank, as a member of the Federal Home Loan Bank of Chicago
(the FHLB), is required to maintain an investment in
capital stock of the FHLB in an amount equal to 1% of its
outstanding home loans. No ready market exists for the FHLB
stock, and it has no quoted market
39
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
value. For disclosure purposes, such stock is assumed to have a
market value which is equal to cost.
Intangible Assets
Intangible assets consist of core deposit intangibles from
business acquisitions. This amount is amortized into other
expense on a straight-line basis over periods of 10 to
15 years. On a periodic basis, the Company reviews the
intangible assets for events or circumstances that may indicate
a change in recoverability of the underlying basis.
Goodwill
Goodwill resulted from the acquisition of Coal City National
Bank in 1998, Aviston Financial Corporation in 2003, Parish
Bank & Trust Company in 2004 and Illinois Community
Bancorp in 2005. The Coal City amount was originally amortized
into expense on a straight-line basis assuming a life of twenty
years. The Company performed an annual impairment assessment on
all goodwill as of September 30th.
Loan Servicing
The cost of mortgage-servicing rights acquired is amortized in
proportion to, and over the period of, estimated net servicing
revenues. Impairment of mortgage-servicing rights is assessed
based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights
are stratified based on the year of origination and original
life and compared to current market interest rates, prepayment
speeds and other relevant factors. The amount of impairment
recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceeds their fair value.
Income Taxes
Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Deferred tax assets are also
recognized for operating loss and tax credit carryforwards.
Valuation allowances are established when necessary to reduce
deferred tax assets to an amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets and
liabilities.
Earnings Per Share
Basic earnings per share are computed by dividing net income for
the year by the average number of shares outstanding. Shares of
unearned restricted stock are not considered outstanding in this
calculation.
Diluted earnings per share are determined by dividing net income
for the year by the average number of shares of common stock and
dilutive potential common shares outstanding. Dilutive potential
common shares assume exercise of stock options and use of
proceeds to purchase treasury stock at the average market price
for the period.
40
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
The following reflects earnings per share calculations for basic
and diluted methods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income available to common shareholders
|
|
$ |
4,380,000 |
|
|
$ |
4,889,000 |
|
|
$ |
1,363,000 |
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding
|
|
|
2,345,971 |
|
|
|
2,490,789 |
|
|
|
2,098,386 |
|
Diluted potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option equivalents
|
|
|
9,413 |
|
|
|
11,847 |
|
|
|
2,891 |
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
2,355,384 |
|
|
|
2,502,636 |
|
|
|
2,101,277 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.87 |
|
|
$ |
1.96 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
1.86 |
|
|
$ |
1.95 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Employee Compensation
The Company has two stock-based employee compensation plans
which are more fully described in Note 13. As permitted
under accounting principles generally accepted in the United
States of America, grants of options under the plan are
accounted for under the recognition and measurement principles
of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Because options
granted under the plan had an exercise price equal to market
value of the underlying common stock on the date of the grant,
no stock-based employee compensation cost is included in
determining net income. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands, | |
|
|
except per share data) | |
Net income, as reported
|
|
$ |
4,380 |
|
|
$ |
4,889 |
|
|
$ |
1,363 |
|
Deduct total stock-based compensation expense determined under
the fair value method for all awards, net of related tax effects
|
|
|
(296 |
) |
|
|
(264 |
) |
|
|
(328 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
4,084 |
|
|
$ |
4,625 |
|
|
$ |
1,035 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.87 |
|
|
$ |
1.96 |
|
|
$ |
0.65 |
|
|
|
Pro forma
|
|
|
1.74 |
|
|
|
1.86 |
|
|
|
0.49 |
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.86 |
|
|
$ |
1.95 |
|
|
$ |
0.65 |
|
|
|
Pro forma
|
|
|
1.73 |
|
|
|
1.84 |
|
|
|
0.49 |
|
The fair value of the stock options granted in 2005, 2004 and
2003 has been estimated using the Black-Scholes option-pricing
model with the following weighted average assumptions. The
Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no
vesting restrictions. In addition, such models require the use
of subjective assumptions, including expected stock price
volatility. In managements opinion, such valuation models
may not necessarily provide the best single measure of option
value.
41
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Number of options granted
|
|
|
78,000 |
|
|
|
65,500 |
|
|
|
107,000 |
|
Risk-free interest rate
|
|
|
4.02%-4.38% |
|
|
|
4.04%-4.45% |
|
|
|
3.41%-4.27% |
|
Expected life, in years
|
|
|
5 |
|
|
|
10 |
|
|
|
5-10 |
|
Expected volatility
|
|
|
16%-17% |
|
|
|
22%-23% |
|
|
|
22%-25% |
|
Expected dividend yield
|
|
|
0.00% |
|
|
|
0.00%-1.25% |
|
|
|
1.14%-1.29% |
|
Estimated weighted average fair value per option
|
|
|
$6.80 |
|
|
|
$11.71 |
|
|
|
$9.70 |
|
Emerging Accounting Standards
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment, which is an Amendment of FASB
Statement Nos. 123 and 95. SFAS No. 123R changes,
among other things, the manner in which share-based
compensation, such as stock options and restricted stock awards,
will be accounted for by both public and non-public companies.
For public companies, the cost of employee services received in
exchange for equity instruments including options and restricted
stock awards generally will be measured at fair value at the
grant date. The grant date fair value will be estimated using
option-pricing models adjusted for the unique characteristics of
those options and instruments, unless observable market prices
for the same or similar options are available. The cost will be
recognized over the requisite service period, often the vesting
period.
The changes in accounting will replace existing requirements
under SFAS No. 123, Accounting for Stock-Based
Compensation, and will eliminate the ability to account for
share-based compensation transactions using APB Opinion
No. 25, Accounting for Stock Issued to Employees,
which does not require companies to expense options if the
exercise price is equal to the trading price at the date of
grant. The accounting for similar transactions involving parties
other than employees or the accounting for employee stock
ownership plans that are subject to AICPA Statement of
Position 93-6,
Employers Accounting for Employee Stock Ownership
Plans, would remain unchanged.
On April 14, 2005, the Securities and Exchange Commission
(SEC) announced the adoption of a new rule that amends the
compliance dates for SFAS No. 123R. Under
SFAS No. 123R, the Company would have been required to
implement the standard as of the beginning of the first interim
period that begins after June 15, 2005. The SECs new
rule allows companies to implement SFAS No. 123R at
the beginning of their next fiscal year (beginning
January 1, 2006, in the case of the Company), instead of
the next reporting period that begins after June 15, 2005.
The SECs new rule does not change the accounting required
by SFAS No. 123R; it changes only the dates for
compliance with the standard. The impact in the years following
2005 will be dependent upon stock options granted, the estimated
value of these options and the vesting terms for the options
granted.
Reclassification
Certain amounts in the 2004 and 2003 consolidated financial
statements have been reclassified to conform to the 2005
presentation. Such reclassifications have no effect on
previously reported net income or stockholders equity.
Note 2. Business Acquisitions
On April 8, 2005, the Company acquired for 50% cash and 50%
common stock of the Company, all of the outstanding shares of
Illinois Community Bancorp, Inc (ICBI) for a total
cost of $4.1 million, including related expenses of
$744,000. The acquisition was accounted for using the purchase
method of accounting. As such, the results of operations of the
acquired entity are excluded from the consolidated financial
statements of income for the periods prior to the acquisition
date. The purchase price has been allocated based on the fair
values at the date of acquisition. This allocation resulted in
intangible assets of $424,000 and goodwill of $1.9 million.
42
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
The intangible assets are being amortized over ten years. At
closing, ICBI had assets of $29.9 million, including
$17.7 million of loans, deposits of $27.8 million and
stockholders equity of $1.3 million. This acquisition
was not considered material to the Company as a whole and
therefore, proforma information is not included.
On March 5, 2004, the Company acquired for cash all of the
outstanding shares of Parish Bank and Trust Company
(Parish Bank) for a total cost of $4.5 million,
including related expenses of $123,000. The acquisition was
accounted for using the purchase method of accounting. As such,
the results of operations of the acquired entity are excluded
from the consolidated financial statements of income for the
periods prior to the acquisition date. The purchase price has
been allocated based on the fair values at the date of
acquisition. This allocation resulted in intangible assets of
$774,000 and goodwill of $1.0 million. The intangible
assets are being amortized over ten years. At closing, Parish
Bank had assets of $21.5 million, including
$7.3 million of loans, deposits of $18.5 million and
stockholders equity of $2.9 million. This acquisition
was not considered material to the Company as a whole and
therefore, proforma information is not included.
On October 9, 2003, the Company acquired for stock all of
the outstanding shares of Aviston Financial Corporation
(Aviston Financial) for a total cost of
$14.1 million. The acquisition has been accounted for using
the purchase method of accounting. As such, the results of
operations of the acquired entity are excluded from the
consolidated financial statements of income for the periods
prior to the acquisition date. The purchase price has been
allocated based on the fair values at the date of acquisition.
This allocation resulted in intangible assets of $358,000 and
goodwill of $8.4 million. The intangible assets are being
amortized over ten years. At closing, Aviston Financial had
assets of $96.5 million, deposits of $80.6 million and
stockholders equity of $9.3 million.
Note 3. Goodwill and Intangible Assets
Intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 | |
|
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
|
Amount | |
|
Amortization | |
|
|
| |
|
| |
|
|
(in thousands) | |
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$ |
3,414 |
|
|
$ |
1,492 |
|
Aggregate amortization expense:
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005
|
|
$ |
276 |
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
|
|
|
|
|
For the year ended:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$ |
278 |
|
|
|
|
|
|
|
2007
|
|
$ |
278 |
|
|
|
|
|
|
|
2008
|
|
$ |
278 |
|
|
|
|
|
|
|
2009
|
|
$ |
278 |
|
|
|
|
|
|
|
2010
|
|
$ |
278 |
|
|
|
|
|
|
|
Thereafter
|
|
$ |
532 |
|
|
|
|
|
The changes in the carrying amount of goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Balance, at beginning of year
|
|
$ |
12,446 |
|
|
$ |
11,433 |
|
Goodwill acquired
|
|
|
1,916 |
|
|
|
1,013 |
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$ |
14,362 |
|
|
$ |
12,446 |
|
|
|
|
|
|
|
|
43
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Note 4. Investment Securities
Amortized costs and fair values of investment securities
available for sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Fair | |
|
|
Cost | |
|
Gains | |
|
Losses | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$ |
77,924 |
|
|
$ |
1 |
|
|
$ |
1,562 |
|
|
$ |
76,363 |
|
Municipal bonds
|
|
|
23,492 |
|
|
|
5 |
|
|
|
756 |
|
|
|
22,741 |
|
Mortgage-backed securities
|
|
|
19,211 |
|
|
|
111 |
|
|
|
267 |
|
|
|
19,055 |
|
Corporate bonds
|
|
|
2,060 |
|
|
|
|
|
|
|
111 |
|
|
|
1,949 |
|
Mutual funds and equity securities
|
|
|
779 |
|
|
|
29 |
|
|
|
|
|
|
|
808 |
|
Other securities
|
|
|
4,250 |
|
|
|
24 |
|
|
|
|
|
|
|
4,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
127,716 |
|
|
$ |
170 |
|
|
$ |
2,696 |
|
|
$ |
125,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$ |
70,944 |
|
|
$ |
263 |
|
|
$ |
58 |
|
|
$ |
71,149 |
|
Municipal bonds
|
|
|
23,582 |
|
|
|
47 |
|
|
|
278 |
|
|
|
23,351 |
|
Mortgage-backed securities
|
|
|
23,396 |
|
|
|
291 |
|
|
|
157 |
|
|
|
23,530 |
|
Corporate bonds
|
|
|
2,076 |
|
|
|
|
|
|
|
76 |
|
|
|
2,000 |
|
Mutual funds
|
|
|
400 |
|
|
|
|
|
|
|
15 |
|
|
|
385 |
|
Other securities
|
|
|
4,320 |
|
|
|
28 |
|
|
|
|
|
|
|
4,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
124,718 |
|
|
$ |
629 |
|
|
$ |
584 |
|
|
$ |
124,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of securities classified as
available-for-sale at December 31, 2005, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to
prepay mortgage backed securities without prepayment penalties,
and certain securities require principal repayments prior to
maturity. Therefore, these securities and mutual fund shares are
not included in the maturity categories in the following
maturity summary.
|
|
|
|
|
|
|
|
|
|
|
|
Amortized | |
|
Fair | |
|
|
Cost | |
|
Value | |
|
|
| |
|
| |
|
|
(in thousands) | |
Due within 1 year
|
|
$ |
3,579 |
|
|
$ |
3,547 |
|
Due after 1 year through 5 years
|
|
|
83,498 |
|
|
|
81,713 |
|
Due after 5 through 10 years
|
|
|
16,399 |
|
|
|
15,793 |
|
Due after 10 years
|
|
|
4,250 |
|
|
|
4,274 |
|
Mortgage-backed securities
|
|
|
19,211 |
|
|
|
19,055 |
|
Mutual fund shares and equity securities
|
|
|
779 |
|
|
|
808 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
127,716 |
|
|
$ |
125,190 |
|
|
|
|
|
|
|
|
Investment securities available-for-sale with a carrying value
of approximately $77.8 million and $70.5 million at
December 31, 2005 and 2004, respectively, were pledged to
secure public deposit accounts and for other purposes as
required or permitted by law.
44
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Unrealized losses and fair value, aggregated by investment
category and length of time that individual securities
available-for-sale have been in a continuous unrealized loss
position, as of December 31, 2005 and 2004 (in thousands),
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
Less than 12 Months | |
|
12 Months or More | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
U.S. government and agency securities
|
|
$ |
49,408 |
|
|
$ |
957 |
|
|
$ |
26,704 |
|
|
$ |
605 |
|
|
$ |
76,112 |
|
|
$ |
1,562 |
|
Municipal bonds
|
|
|
4,643 |
|
|
|
75 |
|
|
|
17,081 |
|
|
|
681 |
|
|
|
21,724 |
|
|
|
756 |
|
Mortgage-backed securities
|
|
|
4,478 |
|
|
|
44 |
|
|
|
5,983 |
|
|
|
223 |
|
|
|
10,461 |
|
|
|
267 |
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
1,949 |
|
|
|
111 |
|
|
|
1,949 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,529 |
|
|
$ |
1,076 |
|
|
$ |
51,717 |
|
|
$ |
1,620 |
|
|
$ |
110,246 |
|
|
$ |
2,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
Less than 12 Months | |
|
12 Months or More | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
U.S. government and agency securities
|
|
$ |
30,342 |
|
|
$ |
58 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30,342 |
|
|
$ |
58 |
|
Municipal bonds
|
|
|
17,259 |
|
|
|
277 |
|
|
|
528 |
|
|
|
1 |
|
|
|
17,787 |
|
|
|
278 |
|
Mortgage-backed securities
|
|
|
5,312 |
|
|
|
104 |
|
|
|
4,343 |
|
|
|
53 |
|
|
|
9,655 |
|
|
|
157 |
|
Corporate bonds
|
|
|
1,999 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
1,999 |
|
|
|
76 |
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
15 |
|
|
|
385 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
54,912 |
|
|
$ |
515 |
|
|
$ |
5,256 |
|
|
$ |
69 |
|
|
$ |
60,168 |
|
|
$ |
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. In
estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which
the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and
(3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
The unrealized losses on the Companys investment
securities were caused by interest rate increases. The
contractual cash flows of the municipal bonds, federal agency
and federal agency mortgage backed securities are guaranteed by
state agencies or an agency of the U.S. government.
Accordingly, it is expected that the securities would not be
settled at a price less than the amortized cost of the
Companys investment. The Companys corporate bonds
are all rated A1 or better by Moodys. Because the decline
in market value is attributable to changes in interest rates and
not credit quality and because the Company has the ability and
intent to hold these investments until a recovery of fair value,
which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired at
December 31, 2005.
45
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Realized gains and losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Realized gains
|
|
$ |
198 |
|
|
$ |
90 |
|
|
$ |
8 |
|
Realized losses
|
|
|
(15 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain
|
|
$ |
183 |
|
|
$ |
85 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
The tax expense applicable to these net realized gains and
losses amounted to $52,000, $32,000, and $3,000, respectively.
Note 5. Loans
Loans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Real estate mortgage loans:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$ |
162,430 |
|
|
$ |
175,224 |
|
|
Multifamily
|
|
|
8,274 |
|
|
|
15,655 |
|
|
Commercial
|
|
|
131,365 |
|
|
|
101,516 |
|
|
Construction and development
|
|
|
34,274 |
|
|
|
28,731 |
|
|
|
|
|
|
|
|
|
|
|
336,343 |
|
|
|
321,126 |
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
57,864 |
|
|
|
61,090 |
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Home equity loans
|
|
|
30,138 |
|
|
|
28,188 |
|
|
All other consumer loans
|
|
|
8,853 |
|
|
|
14,303 |
|
|
|
|
|
|
|
|
|
|
|
38,991 |
|
|
|
42,491 |
|
|
|
|
|
|
|
|
Gross loans
|
|
|
433,198 |
|
|
|
424,707 |
|
Less:
|
|
|
|
|
|
|
|
|
|
Deferred loan fees, net
|
|
|
244 |
|
|
|
269 |
|
|
Allowance for loan losses
|
|
|
4,486 |
|
|
|
5,475 |
|
|
|
|
|
|
|
|
|
|
$ |
428,468 |
|
|
$ |
418,963 |
|
|
|
|
|
|
|
|
The Companys opinion as to the ultimate collectibility of
these loans is subject to estimates regarding the future cash
flows from operations and the value of property, real and
personal, pledged as collateral. These estimates are affected by
changing economic conditions and the economic prospects of the
borrowers.
Changes in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance at beginning of year
|
|
$ |
5,475 |
|
|
$ |
7,471 |
|
|
$ |
6,524 |
|
|
Provision for loan losses
|
|
|
651 |
|
|
|
1,200 |
|
|
|
4,122 |
|
|
Purchased allowance
|
|
|
255 |
|
|
|
156 |
|
|
|
2,435 |
|
|
Charge-offs
|
|
|
(2,717 |
) |
|
|
(3,647 |
) |
|
|
(6,242 |
) |
|
Recoveries
|
|
|
822 |
|
|
|
295 |
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
4,486 |
|
|
$ |
5,475 |
|
|
$ |
7,471 |
|
|
|
|
|
|
|
|
|
|
|
46
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Information about impaired loans and non-accrual loans as of and
for the years ended December 31, 2005, 2004 and 2003 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Impaired loans with a valuation allowance
|
|
$ |
3,894 |
|
|
$ |
4,934 |
|
|
$ |
4,545 |
|
Impaired loans without a valuation allowance
|
|
|
1,096 |
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$ |
4,990 |
|
|
$ |
5,840 |
|
|
$ |
4,545 |
|
|
|
|
|
|
|
|
|
|
|
Related valuation allowance
|
|
$ |
851 |
|
|
$ |
1,348 |
|
|
$ |
2,524 |
|
Non-accrual loans, excluding impaired loans
|
|
$ |
1,676 |
|
|
$ |
1,176 |
|
|
$ |
1,438 |
|
Loans past due ninety days or more and still accruing interest
|
|
$ |
|
|
|
$ |
222 |
|
|
$ |
2,232 |
|
Average monthly balance of impaired loans (based on month-end
balances)
|
|
$ |
4,574 |
|
|
$ |
6,512 |
|
|
$ |
5,097 |
|
Interest income recognized on impaired loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199 |
|
Interest income recognized on a cash basis on impaired loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199 |
|
Note 6. Loan Servicing
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of these loans at December 31 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Mortgage loan portfolios serviced for:
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$ |
148,293 |
|
|
$ |
136,433 |
|
|
Fannie Mae
|
|
|
933 |
|
|
|
1,383 |
|
|
|
|
|
|
|
|
|
|
$ |
149,226 |
|
|
$ |
137,816 |
|
|
|
|
|
|
|
|
Custodial escrow balances maintained in connection with the
foregoing loan servicing, and included in deposits, were
approximately $1.1 million at December 31, 2005 and
2004.
A summary of the changes in the balance of mortgage servicing
rights in 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Balance, beginning
|
|
$ |
1,056 |
|
|
$ |
822 |
|
Servicing assets recognized during the year
|
|
|
305 |
|
|
|
372 |
|
Amortization of servicing assets
|
|
|
(263 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
|
Balance, ending
|
|
$ |
1,098 |
|
|
$ |
1,056 |
|
|
|
|
|
|
|
|
The aggregate changes in the valuation allowances for mortgage
servicing rights in 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Balance, beginning
|
|
$ |
156 |
|
|
$ |
206 |
|
Additions
|
|
|
|
|
|
|
|
|
Reductions
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
Balance, ending
|
|
$ |
156 |
|
|
$ |
156 |
|
|
|
|
|
|
|
|
47
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Note 7. Office Properties and Equipment
Office properties and equipment consisted of:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Land
|
|
$ |
6,159 |
|
|
$ |
6,110 |
|
Buildings and improvements
|
|
|
19,181 |
|
|
|
12,445 |
|
Construction in progress
|
|
|
|
|
|
|
2,179 |
|
Furniture and equipment
|
|
|
5,779 |
|
|
|
9,561 |
|
|
|
|
|
|
|
|
|
|
|
31,119 |
|
|
|
30,295 |
|
Less: Accumulated depreciation and amortization
|
|
|
8,540 |
|
|
|
12,028 |
|
|
|
|
|
|
|
|
|
|
$ |
22,579 |
|
|
$ |
18,267 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense amounted to
$2.1 million, $1.7 million and $1.3 million for
the years ended December 31, 2005, 2004 and 2003,
respectively.
Note 8. Lease Commitments and Total Rental Expense
The Company has leased four branch locations under various
noncancellable agreements which expire between
September 30,2008, and July 31, 2010, and require
various minimum annual rentals. One of the leases also requires
the payment of the property taxes, normal maintenance and
insurance on the property. The total minimum rental commitment
at December 31,2005, is due as follows:
|
|
|
|
|
During the Year Ending December 31: |
|
|
|
|
|
2006
|
|
$ |
147 |
|
2007
|
|
|
153 |
|
2008
|
|
|
128 |
|
2009
|
|
|
43 |
|
Thereafter
|
|
|
23 |
|
|
|
|
|
|
|
$ |
494 |
|
|
|
|
|
Note 9. Deposits
The composition of deposits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Demand deposits noninterest bearing
|
|
$ |
67,982 |
|
|
$ |
53,919 |
|
|
|
|
|
|
|
|
Savings
|
|
|
88,134 |
|
|
|
87,990 |
|
NOW
|
|
|
41,081 |
|
|
|
48,495 |
|
Money market
|
|
|
55,788 |
|
|
|
46,886 |
|
Time deposits, $100,000 or more
|
|
|
73,017 |
|
|
|
61,274 |
|
Other time deposits
|
|
|
181,914 |
|
|
|
197,213 |
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
439,934 |
|
|
|
441,858 |
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
507,916 |
|
|
$ |
495,777 |
|
|
|
|
|
|
|
|
48
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
As of December 31, 2005, time deposits had scheduled
maturity dates as follows:
|
|
|
|
|
Year of Maturity |
|
Amount | |
|
|
| |
|
|
(in thousands) | |
2006
|
|
$ |
167,991 |
|
2007
|
|
|
61,937 |
|
2008
|
|
|
14,172 |
|
2009
|
|
|
5,101 |
|
2010
|
|
|
5,730 |
|
|
|
|
|
|
|
$ |
254,931 |
|
|
|
|
|
Note 10. Short-Term Borrowings
Short-term borrowings consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Federal funds purchased
|
|
$ |
|
|
|
$ |
3,500 |
|
Securities sold under repurchase agreements
|
|
|
16,314 |
|
|
|
8,563 |
|
Federal Home Loan Bank line of credit
|
|
|
10,700 |
|
|
|
|
|
Line of credit
|
|
|
|
|
|
|
2,125 |
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$ |
27,014 |
|
|
$ |
14,188 |
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase, which are
classified as secured borrowings, mature daily. Securities sold
under agreements to repurchase are reflected at the amount of
cash received in connection with the transaction. The securities
underlying the agreements to repurchase are under the control of
the Bank.
The Company has an unsecured line of credit for $20 million
from a third party lender. At December 31, 2005 the entire
line was available.
Note 11. Long Term Borrowings
Long-term borrowings consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Reverse repurchase agreements
|
|
$ |
|
|
|
$ |
9,200 |
|
Other borrowings
|
|
|
1,157 |
|
|
|
1,318 |
|
Junior subordinated debt owed to unconsolidated trusts
|
|
|
20,000 |
|
|
|
20,000 |
|
Federal Home Loan Bank advances
|
|
|
37,566 |
|
|
|
24,955 |
|
|
|
|
|
|
|
|
|
Total long-term borrowings
|
|
$ |
58,723 |
|
|
$ |
55,473 |
|
|
|
|
|
|
|
|
At December 31, 2005 and 2004, other borrowings of
$1.2 million and $1.3 million, respectively, consisted
of a note payable to an individual. The note payable bears an
imputed rate of interest of 5.25% and matures in 2012 with
semi-annual payments of $100,000, including interest.
The weighted average maturity date of Federal Home
Loan Bank advances was approximately 22 months and
25 months and the weighted average interest rates were
approximately 4.34% and 4.16% at December 31, 2005 and
2004, respectively.
At December 31, 2005 and 2004,
one-to-four family real
estate mortgage loans of approximately $181.0 million and
$181.8 million, respectively, were pledged to secure
advances from the Federal Home Loan Bank of Chicago.
49
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
The Company issued $10.0 million each in April 2002 and
April 2004 in cumulative trust preferred securities through
newly formed special-purpose trusts, Kankakee Capital
Trust I (Trust I) and Centrue Statutory Trust II
(Trust II). The proceeds of the offerings were invested by
the trusts in junior subordinated deferrable interest debentures
of Trust I and Trust II. Trust I and
Trust II are wholly-owned unconsolidated subsidiaries of
the Company, and their sole assets are the junior subordinated
deferrable interest debentures. Distributions are cumulative and
are payable quarterly at a variable rate of 3.70% and 2.65% over
the LIBOR rate, respectively, (at a rate of 8.15% and 7.15% at
December 31, 2005) per annum of the stated liquidation
amount of $1,000 per preferred security. Interest expense
on the trust preferred securities was $1.4 million,
$851,000 and $558,000 for the years ended December 31,
2005, 2004 and 2003, respectively. The obligations of the trusts
are fully and unconditionally guaranteed, on a subordinated
basis, by the Company. The trust preferred securities for
Trust I are mandatorily redeemable upon the maturity of the
debentures on April 7, 2032, or to the extent of any
earlier redemption of any debentures by the Company, and are
callable beginning April 7, 2007. The trust preferred
securities for Trust II are mandatorily redeemable upon the
maturity of the debentures on April 22, 2034, or to the
extent of any earlier redemption of any debentures by the
Company, and are callable beginning April 22, 2009. Holders
of the capital securities have no voting rights, are unsecured,
and rank junior in priority of payment to all of the
Companys indebtedness and senior to the Companys
capital stock. For regulatory purposes, the trust preferred
securities qualify as Tier I capital subject to certain
provisions.
We established statutory trusts for the sole purpose of issuing
trust preferred securities and related trust common securities.
These trust preferred capital securities are included in our
consolidated Tier 1 Capital and Total Capital at
December 31, 2005. In December 2003, the Financial
Accounting Standards Board issued a revised version of
Interpretation No. 46 that required the deconsolidation of
these statutory trusts by most public companies no later than
March 31, 2004. We adopted the revised version of
Interpretation No. 46 as of December 31, 2003. In
March 2005, the Board of Governors of the Federal Reserve System
issued a final rule allowing bank holding companies to continue
to include qualifying trust preferred capital securities in
their Tier 1 Capital for regulatory capital purposes,
subject to a 25% limitation to all core (Tier I) capital
elements, net of goodwill less any associated deferred tax
liability. The final rule provides a five-year transition
period, ending March 31, 2009, for application of the
aforementioned quantitative limitation. As of December 31,
2005, 100% of the trust preferred securities described in
Note 13 of our audited consolidated financial statements
qualified as Tier I capital under the final rule adopted in
March 2005.
Future payments at December 31, 2005, for all long-term
borrowings were as follows:
|
|
|
|
|
|
Year Ended |
|
Amount | |
|
|
| |
|
|
(in thousands) | |
2006
|
|
$ |
9,341 |
|
2007
|
|
|
31,449 |
|
2008
|
|
|
5,156 |
|
2009
|
|
|
10,165 |
|
2010
|
|
|
174 |
|
Thereafter
|
|
|
2,438 |
|
|
|
|
|
|
Total
|
|
$ |
58,723 |
|
|
|
|
|
Junior subordinated debt owed to unconsolidated trusts are
included in the period of their modified duration, rather than
the period in which they are due. Subordinated debt of
$10 million mature in both 2032 and 2034 but are callable
in 2007 and 2009.
50
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Note 12. Income Taxes
Income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Current
|
|
$ |
208 |
|
|
$ |
632 |
|
|
$ |
(261 |
) |
Deferred
|
|
|
1,330 |
|
|
|
1,284 |
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,538 |
|
|
$ |
1,916 |
|
|
$ |
290 |
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax expense differed from the maximum
statutory federal rate of 35% as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Expected income taxes
|
|
$ |
2,071 |
|
|
$ |
2,382 |
|
|
$ |
579 |
|
Income tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal benefit
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
Income taxed at lower rate
|
|
|
(59 |
) |
|
|
(68 |
) |
|
|
(16 |
) |
|
Increase in cash surrender value of life insurance
|
|
|
(124 |
) |
|
|
(125 |
) |
|
|
(137 |
) |
|
Tax exempt interest, net
|
|
|
(284 |
) |
|
|
(237 |
) |
|
|
(80 |
) |
|
Reduction in valuation allowance for deferred taxes
|
|
|
|
|
|
|
(169 |
) |
|
|
|
|
|
Other
|
|
|
(178 |
) |
|
|
133 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,538 |
|
|
$ |
1,916 |
|
|
$ |
290 |
|
|
|
|
|
|
|
|
|
|
|
51
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Significant components of the deferred tax liabilities and
assets, included in other assets, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$ |
1,930 |
|
|
$ |
2,075 |
|
|
State net operating loss carryforwards
|
|
|
390 |
|
|
|
245 |
|
|
Federal net operating loss carryforwards
|
|
|
963 |
|
|
|
691 |
|
|
Accrued benefits
|
|
|
144 |
|
|
|
204 |
|
|
Unrealized losses on securities available for sale
|
|
|
852 |
|
|
|
|
|
|
Other
|
|
|
40 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,319 |
|
|
|
3,319 |
|
|
Less: Valuation allowance for deferred tax assets
|
|
|
1,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
3,112 |
|
|
|
3,319 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available-for-sale
|
|
|
|
|
|
|
(13 |
) |
|
Deferred loan fees
|
|
|
(313 |
) |
|
|
(344 |
) |
|
FHLB stock divided
|
|
|
(531 |
) |
|
|
(386 |
) |
|
Office properties and equipment
|
|
|
(759 |
) |
|
|
(467 |
) |
|
Mortgage servicing rights
|
|
|
(366 |
) |
|
|
(350 |
) |
|
Intangible assets
|
|
|
(975 |
) |
|
|
(501 |
) |
|
Basis in acquired assets
|
|
|
(420 |
) |
|
|
(193 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,364 |
) |
|
|
(2,254 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$ |
(252 |
) |
|
$ |
1,065 |
|
|
|
|
|
|
|
|
Retained earnings at December 31, 2005 and 2004 included
approximately $9.0 million of the tax bad debt reserve
which accumulated prior to 1988, for which no deferred income
tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only,
which would be subject to the then-current corporate income tax
rate. The unrecorded deferred income tax liability on the above
amounts was approximately $3.1 million as of
December 31, 2005 and 2004.
As of December 31, 2005, the Company had Illinois net
operating loss carryforwards of approximately $8.1 million
for income tax purposes. The difference between book and tax net
operating income results from interest income from certain
investments which is exempt from income tax for state income tax
purposes. The net operating loss carryforwards expire through
2015.
At December 31, 2005, the Company also had Federal net
operating loss carryforwards of approximately $2.8 million
for income tax purposes which expire through 2024.
Due to limitations inherent in the tax laws regarding
utilization of net operating losses and uncertainty as to the
Companys ability to utilize the net operating losses
before they expire, the Company has established valuation
allowances of $963,000 and $229,000 against the federal and
state net operating losses, respectively.
52
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Note 13. Stockholders Equity and Regulatory Capital
The Company (on a consolidated basis) and the Bank are subject
to various regulatory capital requirements administered by the
federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory
and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material
effect on the Company and the Banks financial statements.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company
and the Banks capital amounts and classifications are also
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding
companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of
Tier 1 capital (as defined by the regulations) to average
assets (as defined) and Total and Tier I capital (as
defined) to risk-weighted assets (as defined). Management
believes, as of December 31, 2005, that the Company and the
Bank meet all capital adequacy requirements to which it is
subject.
53
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
As of December 31, 2005, the most recent notification from
the Banks primary regulators, categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based and
Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that
management believes have changed the Banks category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well Capitalized | |
|
|
|
|
|
|
|
|
Under Prompt | |
|
|
|
|
For Capital | |
|
Corrective Action | |
|
|
Actual | |
|
Adequacy Purposes | |
|
Provisions | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital to Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
$ |
43,153 |
|
|
|
6.91% |
|
|
$ |
24,967 |
|
|
|
4.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
43,773 |
|
|
|
7.08% |
|
|
|
24,733 |
|
|
|
4.00% |
|
|
$ |
30,917 |
|
|
|
5.00% |
|
Tier I Capital to Risk Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
|
43,153 |
|
|
|
10.28% |
|
|
|
16,796 |
|
|
|
4.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
43,773 |
|
|
|
10.49% |
|
|
|
16,696 |
|
|
|
4.00% |
|
|
|
25,044 |
|
|
|
6.00% |
|
Total Capital to Risk Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
|
52,780 |
|
|
|
12.57% |
|
|
|
33,593 |
|
|
|
8.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
48,259 |
|
|
|
11.56% |
|
|
|
33,391 |
|
|
|
8.00% |
|
|
|
41,739 |
|
|
|
10.00% |
|
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital to Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
$ |
43,312 |
|
|
|
7.32% |
|
|
$ |
23,674 |
|
|
|
4.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
45,656 |
|
|
|
7.81% |
|
|
|
23,382 |
|
|
|
4.00% |
|
|
$ |
29,227 |
|
|
|
5.00% |
|
Tier I Capital to Risk Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
|
43,312 |
|
|
|
11.01% |
|
|
|
15,742 |
|
|
|
4.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
45,656 |
|
|
|
11.32% |
|
|
|
16,136 |
|
|
|
4.00% |
|
|
|
24,204 |
|
|
|
6.00% |
|
Total Capital to Risk Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrue Financial
|
|
|
53,857 |
|
|
|
13.69% |
|
|
|
31,483 |
|
|
|
8.00% |
|
|
|
N/A |
|
|
|
|
|
|
Centrue Bank
|
|
|
50,703 |
|
|
|
12.57% |
|
|
|
32,272 |
|
|
|
8.00% |
|
|
|
40,340 |
|
|
|
10.00% |
|
A liquidation account in the amount of $17.7 million was
established for the benefit of eligible deposit account holders
who continue to maintain their deposit accounts in the Bank
after the December 30, 1992 conversion from a mutual
savings and loan association to a stock savings bank. In the
unlikely event of a complete liquidation of the Bank, each
eligible deposit account holder would be entitled to receive a
liquidation distribution from the liquidation account, in the
proportionate amount of the then-current adjusted balance for
deposit accounts held, before any distribution may be made with
respect to the Banks capital stock. The Bank may not
declare or pay a cash dividend to the Company on, or repurchase
any of, its capital stock if the effect thereof would cause the
net worth of the Bank to be reduced below the amount required
for the liquidation account. Due to various natural events, such
as death, relocation and general attrition of accounts, the
balance in the liquidation account has been reduced to $861,000
as of December 31, 2005.
Federal and state banking regulations place certain restrictions
on dividends paid by the Bank to the Company. At
December 31, 2005, the Banks retained earnings
available for payment of
54
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
dividends was $481,000. In addition, dividends paid by the Bank
to the Company would be prohibited if the effect thereof would
cause the Banks capital to be reduced below applicable
minimum capital requirements.
Note 14. Officer, Director and Employee Plans
401(k) Savings Plan
The Bank sponsors a qualified, tax-exempt deferred contribution
plan qualifying under section 401(k) of the Internal
Revenue Code (the 401(k) Plan). Virtually all
employees are eligible to participate after meeting certain age
and service requirements. Eligible employees are permitted to
contribute 1% to 50% of their compensation to the
401(k) Plan. The Company also has the option to contribute
discretionary profit sharing contributions. Expense related to
the 401(k) Plan, including plan administration, amounted to
approximately $159,000, $108,000 and $309,000, for the years
ended December 31, 2005, 2004 and 2003, respectively.
The Company formerly had an Employee Stock Ownership (the
ESOP) plan which during 2004, was merged into the
Companys 401(k) Plan. All participant balances were
considered 100% vested upon the merger. During 2003, the Company
made a direct cash contribution totaling $120,000, to the ESOP.
Costs related to the merger of the ESOP into the 401(k) during
2004 amounted to approximately $17,000.
Stock Option Plan
In 2003, the Company adopted an incentive stock option plan for
the benefit of directors, officers, and employees of the Company
or the Bank (the 2003 Stock Option Plan). The number
of shares of common stock authorized under the 2003 Stock Option
Plan is 400,000. The option exercise price of an incentive stock
option must be at least equal to the fair market value per share
of the common stock on the date of grant. The 2003 Stock Option
Plan also provides for the issuance of nonqualified stock
options, restricted stock and stock appreciation rights and
limited stock appreciation rights.
Activity in the stock option plan was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
Fixed Options |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at beginning of year
|
|
|
147,300 |
|
|
$ |
24.720 |
|
|
|
101,800 |
|
|
$ |
22.690 |
|
|
|
9,500 |
|
|
$ |
14.632 |
|
Granted
|
|
|
78,000 |
|
|
|
27.234 |
|
|
|
65,500 |
|
|
|
27.234 |
|
|
|
107,000 |
|
|
|
22.666 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(10,000 |
) |
|
|
19.000 |
|
|
|
(12,700 |
) |
|
|
15.988 |
|
Forfeited
|
|
|
(1,500 |
) |
|
|
26.967 |
|
|
|
(10,000 |
) |
|
|
26.000 |
|
|
|
(2,000 |
) |
|
|
26.250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
223,800 |
|
|
|
25.405 |
|
|
|
147,300 |
|
|
|
24.720 |
|
|
|
101,800 |
|
|
|
22.690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end
|
|
|
103,800 |
|
|
|
|
|
|
|
65,800 |
|
|
|
|
|
|
|
46,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
|
|
|
|
$ |
6.80 |
|
|
|
|
|
|
$ |
11.71 |
|
|
|
|
|
|
$ |
9.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
Outstanding | |
|
Weighted | |
|
Weighted | |
|
Outstanding | |
|
Weighted | |
|
|
as of | |
|
Average | |
|
Average | |
|
as of | |
|
Average | |
|
|
December 31, | |
|
Contractual | |
|
Exercise | |
|
December 31, | |
|
Exercise | |
|
|
2005 | |
|
Life (in Years) | |
|
Price | |
|
2005 | |
|
Price | |
Exercise Price | |
|
| |
|
| |
|
| |
|
| |
|
| |
$ |
18.575 |
|
|
|
5,000 |
|
|
|
6.9 |
|
|
$ |
18.575 |
|
|
|
5,000 |
|
|
$ |
18.575 |
|
|
19.000 |
|
|
|
11,800 |
|
|
|
7.3 |
|
|
|
19.000 |
|
|
|
11,800 |
|
|
|
19.000 |
|
|
20.250 |
|
|
|
20,000 |
|
|
|
7.4 |
|
|
|
20.250 |
|
|
|
20,000 |
|
|
|
20.250 |
|
|
23.185 |
|
|
|
15,000 |
|
|
|
7.5 |
|
|
|
23.185 |
|
|
|
6,000 |
|
|
|
23.185 |
|
|
26.250 |
|
|
|
30,000 |
|
|
|
7.8 |
|
|
|
26.250 |
|
|
|
12,000 |
|
|
|
26.250 |
|
|
26.500 |
|
|
|
20,000 |
|
|
|
8.4 |
|
|
|
26.500 |
|
|
|
20,000 |
|
|
|
26.500 |
|
|
27.500 |
|
|
|
39,500 |
|
|
|
8.8 |
|
|
|
27.500 |
|
|
|
7,900 |
|
|
|
27.500 |
|
|
27.970 |
|
|
|
5,500 |
|
|
|
8.1 |
|
|
|
27.970 |
|
|
|
1,100 |
|
|
|
27.970 |
|
|
26.700 |
|
|
|
4,000 |
|
|
|
6.3 |
|
|
|
26.700 |
|
|
|
|
|
|
|
|
|
|
27.100 |
|
|
|
20,000 |
|
|
|
6.3 |
|
|
|
27.100 |
|
|
|
20,000 |
|
|
|
27.100 |
|
|
25.950 |
|
|
|
14,500 |
|
|
|
6.6 |
|
|
|
25.950 |
|
|
|
|
|
|
|
|
|
|
26.090 |
|
|
|
7,000 |
|
|
|
6.7 |
|
|
|
26.090 |
|
|
|
|
|
|
|
|
|
|
27.000 |
|
|
|
31,500 |
|
|
|
7.0 |
|
|
|
27.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,800 |
|
|
|
7.5 |
|
|
$ |
25.405 |
|
|
|
103,800 |
|
|
$ |
24.048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Rights Plan
On May 14, 1999, the Companys Board of Directors
adopted a Stockholders Rights Plan. The Plan provided for
the distribution of one Right on June 15, 1999, for each
share of the Companys outstanding common stock as of
May 24, 1999. The Rights have no immediate economic value
to stockholders because they cannot be exercised unless and
until a person, group or entity acquires 15% or more of the
Companys common stock or announces a tender offer. The
Plan also permits the Companys Board of Directors to
redeem each Right for one cent under various circumstances.
In general, the Rights Plan provides that if a person, group or
entity acquires a 15% or larger stake in the Company or
announces a tender offer, and the Companys Board chooses
not to redeem the Rights, all holders of Rights, other than the
15% stockholder or the tender offeror, will be able to purchase
a certain amount of the Companys common stock for half of
its market price.
Restricted Stock Awards
During 2005 and 2004, the Company issued restricted stock awards
to certain employees and directors. The shares vest from one to
five-year periods. As the shares vest, they will be charged to
compensation expense at the market price at date of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Under restriction, beginning of year
|
|
|
19,750 |
|
|
|
27,800 |
|
|
|
|
|
Granted
|
|
|
2,200 |
|
|
|
2,400 |
|
|
|
27,800 |
|
Restrictions released
|
|
|
(6,450 |
) |
|
|
(5,400 |
) |
|
|
|
|
Forfeited and reissuable
|
|
|
(750 |
) |
|
|
(5,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under restriction, end of year
|
|
|
14,750 |
|
|
|
19,750 |
|
|
|
27,800 |
|
|
|
|
|
|
|
|
|
|
|
Compensation expense is recognized for financial statement
purposes over the period of performance. Compensation expense of
$209,000 and $225,000 was recognized for the year ended
56
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
December 31, 2005 and 2004. No compensation expense was
recognized for the year ended December 31, 2003.
Directors Deferred Compensation Plan
The Company has a deferred compensation plan for nonemployee
directors of the Company in which a participating director may
defer directors fees in the form of phantom stock
units. For directors electing to participate in the plan,
a deferred compensation account, included in other liabilities
on the consolidated balance sheet, is credited with phantom
stock units. Phantom stock units shall also be increased by any
dividends or stock splits declared by the Company. At
December 31, 2005 and 2004, the liability for deferred
compensation was $268,000 and $101,000 which represented
approximately 10,149 and 3,585 phantom stock units, respectively.
Note 15. Commitments and Contingencies
In the normal course of business, there are outstanding various
contingent liabilities such as claims and legal actions, which
are not reflected in the consolidated financial statements. In
the opinion of management, the ultimate resolution of these
matters is not expected to have a material effect on the
financial position or on the results of operations of the
Company and its subsidiary.
Note 16. Financial Instruments
The Bank is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, standby
letters of credit, and financial guarantees. Those instruments
involve, to varying degrees, elements of credit and interest
rate risk. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Banks exposure to credit loss, in the event of
nonperformance by the other party to the financial instruments
for commitments to extend credit and standby letters of credit,
is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments whose contract amount represent credit
risk follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Commitments to originate new loans
|
|
$ |
3,787 |
|
|
$ |
10,694 |
|
Commitments to extend credit
|
|
|
56,873 |
|
|
|
48,121 |
|
Standby letters of credit
|
|
|
4,508 |
|
|
|
2,750 |
|
Such commitments are recorded in the financial statements when
they are funded or related fees are incurred or received. These
commitments are principally at variable interest rates.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
Standby letters of credit written are conditional commitments
issued by the bank to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial
paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. In the
event the customer does not perform in accordance with the terms
of the agreement with the third party, the Bank would be
required to fund the commitment. The maximum potential amount of
future payments the Bank could be
57
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
required to make is represented by the contractual amount shown
in the summary above. If the commitment is funded, the Bank
would be entitled to seek recovery from the customer. At
December 31, 2005 and 2004, no amounts have been recorded
as liabilities for the Banks potential obligations under
these guarantees.
The Company and the Bank do not engage in the use of interest
rate swaps, futures, forwards, or option contracts.
Note 17. Fair Value of Financial Instruments
The following table reflects a comparison of carrying amounts
and the fair values of the financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in thousands) | |
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
18,258 |
|
|
$ |
18,258 |
|
|
$ |
13,286 |
|
|
$ |
13,286 |
|
|
Certificates of deposit
|
|
|
50 |
|
|
|
50 |
|
|
|
149 |
|
|
|
149 |
|
|
Investment securities
|
|
|
125,190 |
|
|
|
125,190 |
|
|
|
124,763 |
|
|
|
124,763 |
|
|
Loans, gross
|
|
|
432,954 |
|
|
|
427,330 |
|
|
|
424,438 |
|
|
|
428,198 |
|
|
Loans held for sale
|
|
|
8,373 |
|
|
|
8,373 |
|
|
|
416 |
|
|
|
416 |
|
|
Nonmarketable equity securities
|
|
|
5,059 |
|
|
|
5,059 |
|
|
|
4,211 |
|
|
|
4,211 |
|
|
Accrued interest receivable
|
|
|
3,248 |
|
|
|
3,248 |
|
|
|
2,570 |
|
|
|
2,570 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
507,916 |
|
|
$ |
508,465 |
|
|
$ |
495,777 |
|
|
$ |
497,657 |
|
|
Short-term borrowings
|
|
|
27,014 |
|
|
|
27,014 |
|
|
|
14,188 |
|
|
|
14,188 |
|
|
Long-term borrowings
|
|
|
58,723 |
|
|
|
58,522 |
|
|
|
55,473 |
|
|
|
55,725 |
|
|
Accrued interest payable
|
|
|
2,035 |
|
|
|
2,035 |
|
|
|
568 |
|
|
|
568 |
|
The fair values utilized in the table were derived using the
information described below for the group of instruments listed.
It should be noted that the fair values disclosed in this table
do not represent market values of all assets and liabilities of
the Company and, thus, should not be interpreted to represent a
market or liquidation value for the Company.
The following methods and assumptions were used by the Company
in estimating the fair value disclosures for financial
instruments:
Cash and cash equivalents and certificates of deposit:
The carrying amounts reported in the balance sheet for cash and
short-term instruments approximate those assets fair
values.
Investment securities: Fair values for securities are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments. The carrying amounts of
accrued interest approximate their fair values.
Nonmarketable equity securities: Those securities are
carried at cost, as fair values are not readily determinable.
Loans: For variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are
based on carrying values. The fair values for fixed-rate loans
are estimated using discounted cash flow analyses using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amounts of
accrued interest approximate their fair value.
Loans held for sale: Fair values are based on quoted
market price.
58
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Off-balance-sheet instruments: Fair values for the
Banks off-balance-sheet instruments (guarantees and loan
commitments) are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the counterparties credit standing. The
fair value for such commitments is nominal.
Deposits: The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
balance sheet date. The carrying amounts for variable-rate,
fixed-term money market accounts approximate their fair values
at the balance sheet date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits. The carrying amounts of
advance payments by borrowers for taxes and insurance
approximate their fair value.
Short-term borrowings: The carrying amounts of federal
funds purchased, securities sold under repurchase agreements,
and other short-term borrowings maturing within ninety days
approximate their fair values.
Long-term borrowings: Rates currently available to the
Company for debt with similar terms and remaining maturities are
used to estimate fair value of existing debt. The
Trust Preferred Debentures are privately held; therefore
the carrying amount approximates fair value.
Accrued interest payable: The carrying amounts of accrued
interest payable approximate their fair value.
Note 18. Sale of Branch
On February 14, 2003, the Company sold its Hoopeston bank
branch at a premium resulting in a gain of $478,000. The branch
had approximately $6.4 million in loans and
$19.4 million in deposits.
Note 19. Condensed Parent Company Only Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
Statements of financial condition |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,514 |
|
|
$ |
370 |
|
|
Certificate of deposit
|
|
|
50 |
|
|
|
50 |
|
|
Investment securities available-for-sale
|
|
|
4,787 |
|
|
|
6,450 |
|
|
Equity in net assets of Centrue Bank
|
|
|
58,463 |
|
|
|
59,916 |
|
|
Investment in Capital Trusts
|
|
|
620 |
|
|
|
620 |
|
|
Other assets
|
|
|
936 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
$ |
66,370 |
|
|
$ |
68,509 |
|
|
|
|
|
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
$ |
21,157 |
|
|
$ |
23,443 |
|
|
Other liabilities
|
|
|
2,292 |
|
|
|
1,890 |
|
|
Common stock
|
|
|
42 |
|
|
|
42 |
|
|
Additional paid-in capital
|
|
|
29,722 |
|
|
|
28,998 |
|
|
Retained income
|
|
|
48,305 |
|
|
|
43,925 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,657 |
) |
|
|
27 |
|
|
Unearned restricted stock
|
|
|
(346 |
) |
|
|
(512 |
) |
|
Treasury stock
|
|
|
(33,145 |
) |
|
|
(29,304 |
) |
|
|
|
|
|
|
|
|
|
$ |
66,370 |
|
|
$ |
68,509 |
|
|
|
|
|
|
|
|
59
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
Statements of income |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of subsidiary
|
|
$ |
5,791 |
|
|
$ |
5,867 |
|
|
$ |
2,309 |
|
|
Interest income
|
|
|
249 |
|
|
|
198 |
|
|
|
41 |
|
|
Net gain (loss) on sale of securities
|
|
|
(15 |
) |
|
|
(5 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,025 |
|
|
|
6,060 |
|
|
|
2,358 |
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,480 |
|
|
|
1,057 |
|
|
|
611 |
|
|
Other expenses
|
|
|
1,063 |
|
|
|
739 |
|
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
2,543 |
|
|
|
1,796 |
|
|
|
1,594 |
|
|
|
|
Income before income tax benefit
|
|
|
3,482 |
|
|
|
4,264 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
898 |
|
|
|
625 |
|
|
|
599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
4,380 |
|
|
$ |
4,889 |
|
|
$ |
1,363 |
|
|
|
|
|
|
|
|
|
|
|
60
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
Statements of cash flows |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
4,380 |
|
|
$ |
4,889 |
|
|
$ |
1,363 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of securities
|
|
|
15 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
Distributions in excess of (less than) net income of subsidiary
|
|
|
4,566 |
|
|
|
(3,271 |
) |
|
|
(415 |
) |
|
|
Compensation expense for restricted stock
|
|
|
209 |
|
|
|
225 |
|
|
|
|
|
|
|
Other
|
|
|
579 |
|
|
|
363 |
|
|
|
(772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
9,749 |
|
|
|
2,211 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of securities
|
|
|
1,984 |
|
|
|
1,996 |
|
|
|
96 |
|
|
|
Purchases
|
|
|
(315 |
) |
|
|
(8,996 |
) |
|
|
(14 |
) |
|
|
Maturities of securities
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
Acquisitions
|
|
|
(3,171 |
) |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,502 |
) |
|
|
(6,000 |
) |
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(4,817 |
) |
|
|
(6,514 |
) |
|
|
(9,308 |
) |
|
Dividends paid
|
|
|
|
|
|
|
(195 |
) |
|
|
(649 |
) |
|
Proceeds from issuance of junior subordinated debentures
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
2,603 |
|
|
|
933 |
|
|
Payments on borrowings
|
|
|
(2,286 |
) |
|
|
(2,000 |
) |
|
|
(100 |
) |
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
189 |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(7,103 |
) |
|
|
4,083 |
|
|
|
(8,922 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,144 |
|
|
|
294 |
|
|
|
(8,652 |
) |
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
370 |
|
|
|
76 |
|
|
|
8,728 |
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
1,514 |
|
|
$ |
370 |
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|