SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007
Commission File Number: 0-28846

CENTRUE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

 

 

 

Delaware

 

36-3145350

(State or other jurisdiction of

 

(I.R.S. Employer Identification

incorporation or organization)

 

Number)

122 West Madison Street, Ottawa, Illinois 61350
(Address of principal executive offices, including zip code)

(815) 431-2720
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Name of Each Exchange

Title of Exchange Class

 

which Registered     




Common Stock ($1.00 par value)

 

The NASDAQ Stock Market  

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 403 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer o

Accelerated filer þ

 

 

Non-accelerated filer   o

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b of the Exchange Act). Yes o  No þ.

As of February 25, 2008, the Registrant had issued and outstanding 6,054,246 shares of the Registrant’s Common Stock. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2007, the last business day of the Registrant’s most recently completed second quarter, was $109,668,167.*

 

 

*

Based on the last reported price of $20.05 of an actual transaction in the Registrant’s Common Stock on June 30, 2007, and reports of beneficial ownership filed by directors and executive officers of the Registrant. Shares of Common Stock held by any executive officer or director of the Registrant have been excluded from the foregoing computation because such persons may be deemed to be affiliates; provided, however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders (the “2008 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

As used in this report, the terms “we,” “us,” “our,” “Centrue” and the “Company” mean Centrue Financial Corporation and its subsidiary, unless the context indicates another meaning, and the term “Common Stock” means our common stock, par value $1.00 per share.


CENTRUE FINANCIAL CORPORATION
Form 10-K Index

 

 

 

 

 

 

Page

 

 


 

 

 

 

PART I

 

 

 

 

Item 1.

Business

1

 

Item 1A.

Risk Factors

12

 

Item 1B.

Unresolved Staff Comments

16

 

Item 2.

Properties

16

 

Item 3.

Legal Proceedings

16

 

Item 4.

Submission of Matters to a Vote of Security Holders

16

 

 

 

 

 

PART II

 

 

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

17

 

Item 6.

Selected Consolidated Financial Data

20

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

49

 

Item 8.

Financial Statements and Supplementary Data

49

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

94

 

Item 9A.

Controls and Procedures

94

 

Item 9B.

Other Information

94

 

 

 

 

 

PART III

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

95

 

Item 11.

Executive Compensation

95

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

95

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

96

 

Item 14.

Principal Accountant Fees and Services

96

 

Item 15.

Exhibits and Financial Statement Schedules

96

 




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CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


PART I

 

 

Item 1.

Business

THE COMPANY

Centrue Financial Corporation

Centrue Financial Corporation (the “Company”) is a bank holding company incorporated in Delaware in 1982 for the purpose of becoming a holding company registered under the Bank Holding Company Act of 1956, as amended (the “Act”). The Company is a publicly traded banking company with assets of $1.4 billion at year-end 2007 and is headquartered in Ottawa, Illinois. On November 13, 2006, the Company (formerly known as UnionBancorp, Inc. now known as Centrue Financial Corporation) merged with Centrue Financial Corporation (former Centrue), parent of Centrue Bank with the Company being the surviving entity in the merger. Operating results of former Centrue are included in the consolidated financial statements since the date of the acquisition. As a result of this merger, the Company solidified its market share in the northern and central Illinois markets, expanded its customer base to enhance deposit fee income, marketed additional products and services to new customers and reduced operating costs through economies of scale.

The Company operates one wholly owned subsidiary: Centrue Bank (the “Bank”), employing 344 full-time equivalent employees at December 31, 2007. The Company has responsibility for the overall conduct, direction, and performance of its subsidiary. The Company provides various services, establishes Company-wide policies and procedures, and provides other resources as needed, including capital.

Subsidiary

At December 31, 2007, the Bank had $1.4 billion in total assets, $1.0 billion in total deposits, and 35 offices (33 full-service bank branches and 2 back-room sales support non-banking facilities) located in markets extending from the far western and southern suburbs of the Chicago metropolitan area across Central and Northern Illinois down to the metropolitan St. Louis area.

The Bank is engaged in commercial and retail banking and offers a broad range of lending, depository, and related financial services, including accepting deposits; commercial and industrial, consumer, and real estate lending; trust and asset management services; and other banking services tailored for consumer, commercial and industrial, and public or governmental customers.

Competition

The Company’s market area is highly competitive with numerous commercial banks, savings and loan associations and credit unions. In addition, financial institutions, based in surrounding communities and in the southern and western metro area of Chicago and the suburban metro area of St. Louis, actively compete for customers within the Company’s market area. The Company also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services.

The Company competes for loans principally through the range and quality of the services it provides and through competitive interest rates and loan fees. The Company believes that its long-standing presence in the communities it serves and personal service philosophy enhance its ability to compete favorably in attracting and retaining individual and business customers. The Company actively solicits deposit-related customers and competes for deposits by offering customers personal attention, professional service and competitive interest rates.

1.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


Under the Gramm-Leach-Bliley Act of 1999, effective March 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act, and future action stemming from the Act, is expected to continue to significantly change the competitive environment in which the Company and Centrue Bank conduct business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

SUPERVISION AND REGULATION

General

Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Illinois Department of Financial and Professional Regulation (the “DFPR”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”), the Internal Revenue Service and state taxing authorities and the Securities and Exchange Commission (the “SEC”). The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions, such as the Company and its subsidiary, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and its subsidiary establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds and the depositors, rather than the shareholders, of financial institutions.

The following is a summary of the material elements of the regulatory framework that applies to the Company and its subsidiaries. It does not describe all of the statutes, regulations and regulatory policies that apply to the Company and its subsidiaries, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to the applicable statutes, regulations and regulatory policies. Any change in applicable law, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries.

The Company

General. The Company, as the sole stockholder of Centrue Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the “BHCA”). In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to Centrue Bank and to commit resources to support Centrue Bank in circumstances where the Company might not do so absent such policy. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file with the Federal Reserve periodic reports of operations and such additional information as the Federal Reserve may require. The Company is also subject to regulation by the DFPR under the Illinois Bank Holding Company Act, as amended.

2.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


Investments and Activities. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank; or (iii) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws which require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

The BHCA also generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking .... as to be a proper incident thereto.” Under current regulations of the Federal Reserve, the Company is permitted to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance or equipment leasing business, the operation of a computer service bureau (including software development), and the operation of mortgage banking and brokerage businesses. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

In November, 1999, the Gramm-Leach-Bliley Act (“GLB Act”) was signed into law. Under the GLB Act, bank holding companies that meet certain standards and elect to become “financial holding companies” are permitted to engage in a wider range of activities than those permitted for bank holding companies, including securities and insurance activities. Specifically, a bank holding company that elects to become a financial holding company may engage in any activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines is (i) financial in nature or incidental thereto, or (ii) complementary to any such financial-in-nature activity, provided that such complementary activity does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. A bank holding company may elect to become a financial holding company only if each of its depository institution subsidiaries is well-capitalized, well-managed, and has a Community Reinvestment Act rating of “satisfactory” or better at their most recent examination.

The GLB Act specifies many activities that are financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment or economic advisory services; underwriting, dealing in, or making a market in securities; and those activities currently permitted for bank holding companies that are so closely related to banking or managing or controlling banks, as to be a proper incident thereto.

3.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


The GLB Act changed federal laws to facilitate affiliation between banks and entities engaged in securities and insurance activities. The law also established a system of functional regulation under which banking activities, securities activities, and insurance activities conducted by financial holding companies and their subsidiaries and affiliates will be separately regulated by banking, securities, and insurance regulators, respectively.

Federal law also prohibits any person or company from acquiring “control” of a bank or bank holding company without prior notice to the appropriate federal bank regulator. “Control” is defined in certain cases as the acquisition of 10% or more of the outstanding shares of a bank or bank holding company.

Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

The Federal Reserve’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: a risk-based requirement expressed as a percentage of total risk-weighted assets, and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders’ equity less intangible assets (other than certain mortgage servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments which do not qualify as Tier 1 capital and a portion of the company’s allowance for loan and lease losses.

The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or by the risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.

4.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


As of December 31, 2007, the Company had regulatory capital as follows:

 

 

 

 

 

 

 

 

 

 

Risk-Based

 

Leverage

 

 

 

 

Capital Ratio

 

Capital Ratio

 

 

 

 


 


 

 

 

Company

 

10.2%

 

7.7%

 

The risk-based capital ratio and the leverage capital ratio were 2.2% and 3.7% respectively, in excess of the Federal Reserve’s minimum requirements. See Note 16 in the Notes in Consolidated Financial Statements for further information.

Dividends. The Company is organized under the Delaware General Corporation Law (the “DGCL”). The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company should not pay cash dividends which exceed its net income or which can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

Federal Securities Regulation. The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

The SEC and the NASDAQ have adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that will apply to Centrue Financial Corporation as a registered company under the Securities Exchange Act of 1934 and a NASDAQ-traded company. The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SEC and NASDAQ Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and new corporate governance rules.

The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under Securities Exchange Act of 1934.

5.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules requiring the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the SEC. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. Sarbanes-Oxley section 404 requires significant oversight of a public company’s internal control over the financial statements. For accelerated filers, the rules require them to provide management’s report on internal control over financial reporting by December 31, 2007. The rule further requires an accelerated filer to have an external auditor’s attestation report on internal control over financial reporting as of December 31, 2007. The Company incurred approximately $272,000 in additional expenses to comply with the provisions of the Sarbanes-Oxley Act.

Centrue Bank

Centrue Bank is an Illinois-chartered bank, the deposit accounts of which are insured by the FDIC. Centrue Bank is also a member of the Federal Reserve System (“member bank”). As an Illinois-chartered, FDIC-insured member bank, Centrue Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFPR, as the chartering authority for Illinois banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of deposit insurance.

Deposit Insurance. As an FDIC-insured institution, Centrue Bank is required to pay deposit insurance premium assessments to the FDIC.

Pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “FDIRA”) in 2006, the previously separate deposit insurance funds for banks and savings associations were merged into a single deposit insurance fund administered by the FDIC. Centrue Bank’s deposits are insured up to applicable limitations by that deposit insurance fund.

Following the adoption of the FDIRA, the FDIC has the opportunity, through its rulemaking authority, to better price deposit insurance for risk than was previously authorized. The FDIC adopted regulations that create a system of risk-based assessments. Under the new regulations, there are four risk categories, and each insured institution will be assigned to a risk category based on capital levels and supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2 will be placed in Risk Category I while other institutions will be placed in Risk Categories II, III or IV depending on their capital levels and CAMEL composite ratings. The current assessment rates established by the FDIC provide that the highest rated institutions, those in Risk Category I, will pay premiums of between 0.05% and 0.07% of deposits and the lowest rated institutions, those in Risk Category IV, will pay premiums of 0.43% of deposits. The assessment rates may be changed by the FDIC as necessary to maintain the insurance fund at the reserve ratio designated by the FDIC, which currently is 1.25% of insured deposits. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits. Deposit insurance assessments will be collected for a quarter, at the end of the next quarter. Assessments are based on deposit balances at the end of the quarter, except for institutions with $1 billion or more in assets, such as Centrue Bank, and any institution that becomes insured on or after January 1, 2007 which will have their assessment base determined using average daily balances of insured deposits.

6.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


In 2006, the FDIC adopted a final rule allocating a one-time assessment credit among insured financial institutions. This credit may be used to offset deposit insurance assessments (not to include FICO assessments) beginning in 2007. The Company began taking advantage of this credit in 2007 and expects to realize benefit from this credit thru the second quarter of 2009.

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (i) has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe or unsound condition to continue operations or (iii) has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance, if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of Centrue Bank.

FICO Assessments. FDIC insured institutions are also subject to assessments to cover interest payments due on the outstanding obligations of the Financing Corporation (“FICO”). FICO was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance until the final maturity of the outstanding FICO obligations in 2019. FDIC insured institutions will share the cost of the interest on the FICO bonds on a pro rata basis. During the year ended December 31, 2007, the FICO assessment rate for DIF members ranged between approximately 0.0114% of deposits and approximately 0.0122% of deposits. During the year ended December 31, 2007, Centrue Bank paid FICO assessments totaling $121,829. For the first quarter of 2008, the rate established by the FDIC for the FICO assessment is 0.0114% of deposits.

Supervisory Assessments. All Illinois banks are required to pay supervisory assessments to the DFPR to fund the operations of the DFPR. The amount of the assessment is calculated based on the institution’s total assets, including consolidated subsidiaries, as reported to the DFPR. During the year ended December 31, 2007, Centrue Bank paid supervisory assessments to the DFPR totaling $194,836.

Capital Requirements. The Federal Reserve has established the following minimum capital standards for state-chartered Federal Reserve System member banks, such as Centrue Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. For purposes of these capital standards, Tier 1 capital and total capital consist of substantially the same components as Tier 1 capital and total capital under the Federal Reserve’s capital guidelines for bank holding companies (see “—The Company—Capital Requirements”).

The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations of the Federal Reserve provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

7.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


During the year ended December 31, 2007, Centrue Bank was not required by the Federal Reserve to increase its capital to an amount in excess of the minimum regulatory requirement. As of December 31, 2007, Centrue Bank had regulatory capital as follows:

 

 

 

 

 

 

 

 

 

 

Risk-Based

 

Leverage

 

 

 

 

Capital Ratio

 

Capital Ratio

 

 

 

 


 


 

 

 

Centrue Bank

 

11.0%

 

8.3%

 

The risk-based capital ratio and the leverage capital ratio are 3.0% and 4.3% in excess of the Federal Reserve’s minimum requirements. See Note 16 in the Notes in Consolidated Financial Statements for further information.

Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the institution to submit a capital restoration plan; limiting the institution’s asset growth and restricting its activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions between the institution and its affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. As of December 31, 2007, Centrue Bank was considered well capitalized.

Additionally, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC insured depository institutions in danger of default.

Dividends. Under the Illinois Banking Act, Illinois-chartered banks may not pay dividends in excess of their net profits then on hand, after deducting losses and bad debts. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by state member banks, such as Centrue Bank. Generally, a member bank may pay dividends out of its undivided profits, in such amounts and at such times as the bank’s board of directors deems prudent. Without prior Federal Reserve approval, however, a state member bank may not pay dividends in any calendar year which, in the aggregate, exceed such bank’s calendar year-to-date net income plus such bank’s retained net income for the two preceding calendar years.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, Centrue Bank exceeded its minimum capital requirements under applicable guidelines and had approximately $5.03 million available to be paid as dividends to the Company as of December 31, 2007. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by Centrue Bank if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.

8.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


Insider Transactions. Centrue Bank is subject to certain restrictions imposed by federal law on extensions of credit to the Company, on investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans. Certain limitations and reporting requirements are also placed on extensions of credit by Centrue Bank to its directors and officers, to directors and officers of the Company, to principal stockholders of the Company, and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person becoming a director or officer of the Company or a principal stockholder of the Company may obtain credit from the banks with which Centrue Bank maintains a correspondent relationship.

Safety and Soundness Standards. The federal banking agencies have adopted guidelines which establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

Branching Authority. Illinois banks, such as Centrue Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. Additionally, Centrue Bank has authority under Missouri law to establish branches anywhere in the State of Missouri, subject to receipt of all required regulatory approvals.

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), both state and national banks are allowed to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. Illinois law permits interstate mergers, subject to certain conditions, including a prohibition against interstate mergers involving an Illinois bank that has been in existence and continuous operation for fewer than five years.

9.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if specifically authorized by state law. Certain states permit out-of-state banks to establish de novo branches or acquire branches from another bank although the laws of some of these states require a reciprocal provision under the law of the state where the bank establishing or acquiring the branch is chartered. Illinois law permits out-of-state banks to establish branches in Illinois in this manner, and Illinois-chartered banks may branch into other states in this manner if the law of the state in which the branch will be established or acquired so authorizes even if the law of such state requires a reciprocal provision under Illinois law.

State Bank Activities. Under federal law and FDIC regulations, FDIC insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member.

The GLB Act also authorizes insured state banks to engage in financial activities, through subsidiaries, similar to the activities permitted for financial holding companies. If a state bank wants to establish a subsidiary engaged in financial activities, it must meet certain criteria, including that it and all of its affiliated insured depository institutions are well-capitalized and have a Community Reinvestment Act rating of at least “satisfactory” and that it is well-managed. There are capital deduction and financial statement requirements and financial and operational safeguards that apply to subsidiaries engaged in financial activities. Such a subsidiary is considered to be an affiliate of the bank and there are limitations on certain transactions between a bank and a subsidiary engaged in financial activities of the same type that apply to transactions with a bank’s holding company and its subsidiaries.

Reserve Requirement. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows:

 

 

 

 

for the first $9.3 million of net transaction accounts, there is no reserve;

 

 

 

 

for net transaction accounts totaling over $9.3 million and up to and including $43.9 million, a reserve of 3%; and

 

 

 

 

for net transaction accounts totaling in excess of $43.9 million, a reserve requirement of $1.038 million plus 10% against that portion of the total transaction accounts greater than $43.9 million.

The dollar amounts and percentages reported here are all subject to adjustment by the Federal Reserve. The effect of maintaining the required non-interest earning reserves is to reduce Centrue Bank’s interest earning assets.

Wealth Management Division

Centrue Bank, through its wealth management division, conducts a full service trust business in the State of Illinois, pursuant to a certificate of authority issued to the Commissioner under the Illinois Corporate Fiduciaries Act (the “Fiduciaries Act”). The wealth management division is subject to periodic examination by the DFPR and the DFPR has the authority to take action against it to enforce compliance with the laws applicable to its operations.

10.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


EXECUTIVE OFFICERS

The term of office for the executive officers of the Company is from the date of election until the next annual organizational meeting of the Board of Directors. In addition to the information provided in the 2008 Proxy Statement, the names and ages of the executive officers of the Company as of December 31, 2007, as well as the offices of the Company and the Subsidiary held by these officers on that date, and principal occupations for the past five years are set forth below.

Thomas A. Daiber, 50, is the President & Chief Executive Officer of Centrue Financial Corporation and Centrue Bank. Mr. Daiber joined the former Centrue Financial in October of 2003 as its President and Chief Executive Officer. Mr. Daiber had previously served as Chairman, President and Chief Executive Officer of Aviston Financial Corporation and Chairman and Chief Executive Officer of the State Bank of Aviston from October 2002 to October 2003. Mr. Daiber served as Allegiant Bancorp, Inc.’s Chief Financial Officer from May of 1999 until March of 2003.

Kurt R. Stevenson, 41, is the Senior Executive Vice President & Chief Financial Officer of Centrue Financial Corporation and Centrue Bank and has held that role since 2003. Prior to that, Mr. Stevenson served as the Company’s Vice President and Chief Financial Officer since June 2000. Mr. Stevenson also acted as the interim President immediately prior to the 2006 merger and as the interim Chief Operating Officer in 2007.

Everett J. Solon, 54, is a Market President (currently responsible for the Company’s Streator, Dwight, Ottawa and Peru locations), a position held since 2003. In 2007, he also acted as the Company’s Head of Mortgage Banking. Before consolidating into one bank charter in 2003, Mr. Solon had served as the President and Chief Executive Officer of UnionBank since 1994.

Donald M. Davis, 47, is a Market President (currently responsible for the Company’s St. Louis market area), a position held since he joined the former Centrue Bank in 2006. He had previously worked for National City Bank as its Senior Vice President of Commercial Real Estate since 2005. Mr. Davis worked for Allegiant Bancorp, Inc. from 1997 to 2005 as its Senior Vice President/Commercial Business Development Officer.

Steven E. Flahaven, 52, is the Company’s Executive Vice President & Head of Commercial Banking, a position held since 2006. Beginning in 2004, he acted as the Senior Vice President and Senior Commercial Loan Officer. Mr. Flahaven joined UnionBank in 2002 as its Vice President and Senior Lender.

Ricky R. Parks, 42, is the Market President for the Company’s Fairview Heights, Aviston, Belleville, Effingham and St. Rose locations. Mr. Parks joined the former Centrue Bank in January of 2004 as a Senior Vice President and Senior Lender and in October of 2004 was named its Regional Bank President. Prior to joining Centrue, Mr. Parks worked for Union Planters Bank from September of 1991 until January of 2004 in the Metro-East St. Louis market and held the position of Senior Vice President & Commercial Team Leader prior to his departure.

Robert L. Davidson, 62, was promoted to Executive Vice President, Chief Investment Officer and ALCO Manager in January of 2006. He had previously served as the Company’s Senior Vice President, Chief Investment Officer and ALCO Manager since 2001. Mr. Davidson became employed with UnionBancorp in 1995 as the Investment Officer as a result of the acquisition of Prairie Bancorp and previously worked for Van Kampen Merritt Investment Advisory, Inc.

11.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


Roger D. Dotson, 60, is the Company’s Executive Vice President, a position held since late 2007. He had previously served as the Company’s Head of Retail Banking. Mr. Dotson joined the former Centrue Bank as their Regional President in 2005. Prior to joining the Company, Mr. Dotson served as the President & CEO of Illinois Community Bank located in Effingham, Illinois.

Heather M. Hammitt, 33, is the Company’s Executive Vice President & Head of Human Resources & Corporate Communication. Ms. Hammitt joined UnionBancorp in March of 1998 and has served in various positions of management in human resources department during that time.

Kenneth A. Jones, 44, is the Company’s Executive Vice President & Chief Credit Officer. Mr. Jones joined UnionBank in October 2000 and prior to his current position he served in the role of Commercial Collector.

Diane F. Leto, 46, is the Company’s Executive Vice President & Head of Operations. She has been with the Company since June of 2004. Prior to joining the Company Ms. Leto was the Senior Vice President of Operations for Castle Bank located in Dekalb, Illinois.

Michael A. O’Gorman, 41, is the Market President for the Company’s Kankakee region. Mr. O’Gorman joined the former Centrue Bank in January of 2004 as the President of Centrue North. Prior to joining Centrue, Mr. O’Gorman worked for National City Bank in Kankakee as a Community Bank President.

Available Information

Our Internet address is www.centrue.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

 

 

Item 1A.

Risk Factors

An investment in the Company’s common stock is subject to risks inherent to the Company’s business. The material risk and uncertainties that management believes affect the Company are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations. This report is qualified in its entirety by these risk factors. See also, “Special Note Regarding Forward-Looking Statements.”

If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment.

12.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


References to “we,” “us,” and “our” in this section refer to the Company and its subsidiary, unless otherwise specified or unless the context otherwise requires.

Risks Related to the Company’s Business

We are subject to interest rate risk.

The Company’s earnings and cash flows are largely dependent upon its net interest income. Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the Company’s ability to originate loans and obtain deposits, (ii) the fair value of the Company’s financial assets and liabilities, and (iii) the average duration of the Company’s mortgage-backed securities portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations. Also, the Company’s interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on the Company’s balance sheet. See Part II sections “Net Interest Income” and “Interest Rate Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further discussion related to the Company’s management of interest rate risk.

We are subject to lending risk.

As of December 31, 2007 approximately 76.8% of the Company’s loan portfolio consisted of commercial, financial, and agricultural, real estate construction, and commercial real estate loans (collectively, “commercial loans”). Commercial loans are generally viewed as having more inherent risk of default than residential mortgage loans or retail loans. Also, the commercial loan balance per borrower is typically larger than that for residential mortgage loans and retail loans, inferring higher potential losses on an individual loan basis. Because the Company’s loan portfolio contains a number of commercial loans with large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses, and an increase in loan charge offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations. See Part II “Loans” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further discussion of credit risks related to different loan types.

We are subject to economic conditions of our geographic market.

The Company’s success depends to a large degree on the general economic conditions of the geographic markets served by the Bank in the States of Illinois and Missouri and, to a lesser extent, contiguous states.

13.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K


The local economic conditions on these areas have a significant impact on the generation of the Bank’s commercial, real estate commercial, and real estate construction loans; the ability of borrowers to repay these loans; and the value of the collateral securing these loans. Adverse changes in the economic conditions of the counties in which we operate could also negatively impact the financial results of the Company’s operations and have a negative effect on its profitability. For example, these factors could lead to reduced interest income and an increase in the provision for loan losses.

A portion of the loans in the Company’s portfolio is secured by real estate. Most of these loans are secured by properties located in the north central, north west, east central, south central and St. Louis’s suburban east counties of Illinois, as well as, the St. Louis metro area of Missouri. Negative conditions in the real estate markets where collateral for a mortgage loan is located could adversely affect the borrower’s ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various factors, including changes in general or regional economic conditions, supply and demand for properties and governmental rules or policies.

Our allowance for loan losses may be insufficient.

Managing the Company’s allowance for loan losses is based upon, among other things, (1) historical experience, (2) an evaluation of local and national economic conditions, (3) regular reviews of delinquencies and loan portfolio quality, (4) current trends regarding the volume and severity of past due and problem loans, (5) the existence and effect of concentrations of credit, and (6) results of regulatory examinations. Based upon such factors, management makes various assumptions and judgments about the ultimate collectibility of the respective loan portfolios. Although the Company believes that the allowance for loan losses is adequate, there can be no assurance that such allowance will prove sufficient to cover future losses. Future adjustments may be necessary if economic conditions change or adverse developments arise with respect to nonperforming or performing loans or if regulatory supervision changes. Material additions to the allowance for loan losses would result in a material decrease in the Company’s net income, and possibly its capital, and could result in the inability to pay dividends, among other adverse consequences.

Mergers and Acquisitions may disrupt our business and dilute stockholder value.

The Company regularly evaluates mergers and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. The Company seeks merger or acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services.

Acquiring or merging with other banks, businesses, and acquiring branches involves potential adverse impact to the Company’s financial results and various other risks commonly associated with mergers and acquisitions, including, among other things:

 

 

 

 

Difficulty in estimating the value of the target company

 

 

 

 

Payment of a premium over book and market values that may dilute the Company’s tangible book value and earnings per share in the short and long term

 

 

 

 

Potential exposure to unknown or contingent liabilities of the target company

14.



 

CENTRUE FINANCIAL CORPORATION
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K



 

 

 

 

Exposure to potential asset quality issues of the target company

 

 

 

 

There may be volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts

 

 

 

 

Difficulty and expense of integrating the operations and personnel of the target company

 

 

 

 

Inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits

 

 

 

 

Potential disruption to the Company’s business

 

 

 

 

Potential diversion of the Company’s management’s time and attention

 

 

 

 

The possible loss of key employees and customers of the target company

 

 

 

 

Potential changes in banking or tax laws or regulations that may affect the target company

Details of the Company’s recent acquisition activity are presented in Note 2, “Business Acquisitions and Divestitures,” of the notes to consolidated financial statements within Part II, Item 8.

Our information systems may experience an interruption or breach in security.

The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan, and other systems. While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of its information systems, we cannot assure you that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of the Company’s information systems could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

Risks Associated With The Company’s Industry

We operate in a highly regulated industry.

The banking industry is heavily regulated. The banking business of the Company and the Bank are subject, in certain respects, to regulation by the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, the IDFPR and the SEC. The Company’s success depends not only on competitive factors but also on state and federal regulations affecting banks and bank holding companies. The regulations are primarily intended to protect depositors, not stockholders or other security holders. The ultimate effect of recent and proposed changes to the regulation of the financial institution industry cannot be predicted. Regulations now affecting the Company may be modified at any time, and there is no assurance that such modifications, if any, will not adversely affect the Company’s business.

We operate in an industry that is significantly affected by general business and economic conditions.

The Company’s operations and profitability are impacted by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, and the strength of the U. S. economy and the local economies in which the Company operates, all of which are beyond the Company’s control. A deterioration in economic conditions could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for the Company’s products and services among other things, any of which could have a material adverse impact on the Company’s financial condition and results of operations.

15.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K



 

 

Item 1B.

Unresolved Staff Comments

 

 

None.

 

 

 

Item 2.

Properties

At December 31, 2007, the Company operated 35 offices (32 full-service bank branches and 2 back-room sales support nonbanking facilities in Illinois and 1 full-service bank branch in Missouri). The principal offices of the Company are located in Ottawa, Illinois. All of the Company’s offices are owned by Centrue Bank and are not subject to any mortgage or material encumbrance, with the exception of four offices that are leased: one is located in LaSalle County in Illinois, one in Will County in Illinois, one in St. Clair County in Illinois and one in St. Louis County in Missouri. The Company believes that its current facilities are adequate for its existing business.

 

 

 

 

 

AFFILIATE

 

MARKETS SERVED

 

PROPERTY/TYPE LOCATION


 


 


 

 

 

 

 

The Company

 

 

 

Administrative Office: Ottawa, IL

 

 

 

 

 

Centrue Bank

 

Bureau, Champaign, Clinton,
DeKalb, Effingham, Grundy,
Iroquois, Jo Daviess, Kane,
Kankakee, Kendall, LaSalle,
Livingston, St. Clair, Whiteside
and Will Counties in Illinois

 

Main Office: Streator, IL

Thirty-three banking offices and two
non-banking offices located in markets
served.

 

 

 

 

 

 

 

St. Louis County in Missouri

 

.

In addition to the banking locations listed above, Centrue Bank owns thirty-three automated teller machines, some of which are housed within banking offices and some of which are independently located.

At December 31, 2007, the properties and equipment of the Company had an aggregate net book value of approximately $35.6 million.

 

 

Item 3.

Legal Proceedings

Neither the Company nor its subsidiary are involved in any pending legal proceedings other than routine legal proceedings occurring in the normal course of business, which, in the opinion of management, in the aggregate, are not material to the Company’s consolidated financial condition.

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

None.

 

16.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K


PART II

 

 

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock was held by approximately 1,080 stockholders of record as of February 25, 2008, and is traded on The NASDAQ Stock Market under the symbol “TRUE.” The table below indicates the high and low sales prices of the Common Stock as reported by NASDAQ for transactions of which the Company is aware, and the dividends declared per share for the Common Stock during the periods indicated. Because the Company is not aware of the price at which certain private transactions in the Common Stock have occurred, the prices shown may not necessarily represent the complete range of prices at which transactions in the Common Stock have occurred during such periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Sales

 

 

 

 

 


 

Cash

 

 

 

High

 

Low

 

Dividends

 

 

 


 


 


 

2007

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

19.93

 

$

18.99

 

$

0.12

 

Second Quarter

 

 

20.55

 

 

18.50

 

 

0.13

 

Third Quarter

 

 

20.31

 

 

18.95

 

 

0.13

 

Fourth Quarter

 

 

24.90

 

 

19.19

 

 

0.13

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

21.48

 

$

20.12

 

$

0.11

 

Second Quarter

 

 

21.12

 

 

19.44

 

 

0.12

 

Third Quarter

 

 

20.17

 

 

17.44

 

 

0.12

 

Fourth Quarter

 

 

20.00

 

 

18.30

 

 

0.12

 

 

 

 

 

 

 

 

 

 

 

 

The holders of the Common Stock are entitled to receive dividends as declared by the board of directors of the Company, which considers payment of dividends quarterly. Upon the consummation of the acquisition of Prairie in 1996, preferential dividends were required to be paid or accrued quarterly, with respect to the outstanding shares of Preferred Stock. The ability of the Company to pay dividends in the future will be primarily dependent upon its receipt of dividends from Centrue Bank. In determining cash dividends, the Board of Directors considers the earnings, capital requirements, debt and dividend servicing requirements, financial ratio guidelines it has established, financial condition of the Company and other relevant factors. Centrue Bank’s ability to pay dividends to the Company and the Company’s ability to pay dividends to its stockholders are also subject to certain regulatory restrictions.

The Company has paid regular cash dividends on the Common Stock since it commenced operations in 1982. There can be no assurance, however, that any such dividends will be paid by the Company or that such dividends will not be reduced or eliminated in the future. The timing and amount of dividends will depend upon the earnings, capital requirements and financial condition of the Company and Centrue Bank, as well as the general economic conditions and other relevant factors affecting the Company and its subsidiaries. In 1996, the Company entered into a new loan agreement in connection with the acquisition of Prairie and Country, replacing the Company’s prior loan agreement. The loan agreement contains no direct prohibitions against the payment by the Company of dividends, but indirectly restricts such dividends through the required maintenance of minimum capital ratios. In addition, the terms of the Series A Preferred Stock, and the Series B Preferred Stock issued to certain of Prairie’s preferred stockholders prohibit the payment of dividends by the Company on the Common Stock during any period for which dividends on the respective series of Preferred Stock are in arrears.

17.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K


The following graph shows a comparison of cumulative total returns for Centrue Financial Corporation, the NASDAQ Stock Market (US Companies) and an index of SNL Midwest Bank Stocks for the five-year period beginning January 1, 2003 and ending on December 31, 2007. The graph was prepared at our request by SNL Financial LC, Charlottesville, Virginia.

COMPARISON OF CUMULATIVE TOTAL RETURN
(ASSUMES $100 INVESTED ON JANUARY 1, 2003)

(PERFORMANCE GRAPH)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period Ending

 

 

 


 

Index

 

12/31/02

 

12/31/03

 

12/31/04

 

12/31/05

 

12/31/06

 

12/31/07

 




















 

Centrue Financial Corporation

 

$

100.00

 

$

146.48

 

$

145.17

 

$

148.49

 

$

138.95

 

$

164.79

 

NASDAQ Composite

 

 

100.00

 

 

150.01

 

 

162.89

 

 

165.13

 

 

180.85

 

 

198.60

 

SNL Midwest Bank

 

 

100.00

 

 

128.00

 

 

144.44

 

 

139.18

 

 

160.87

 

 

125.39

 

18.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K


The following table provides information about purchases of the Company’s common stock by the Company during the fourth quarter 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of
Shares Purchased

 

Average Price Paid
per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs

 











10/01/07 –10/31/07

 

6,000

 

$

19.95

 

 

6,000

 

 

644,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11/01/07 –11/30/07

 

170,462

 

 

21.33

 

 

170,462

 

 

473,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/01/07 –12/31/07

 

20,120

 

 

22.34

 

 

20,120

 

 

453,578

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 











Total (1)

 

196,582

 

$

21.39

 

 

196,582

 

 

453,578

 

 












 

 

 

 

(1)

The Company repurchased 196,582 shares of stock during the quarter ended December 31, 2007 at an average price of $21.39. The 2006 repurchase program approved on November 13, 2006 provided for the Company to repurchase up to 5% or 370,000 shares of common stock. This plan was completed in the fourth quarter 2007. The 2007 repurchase program approved on July 24, 2007 authorized the Company to repurchase an additional 500,000 shares, or approximately 8% of the Company’s currently issued and outstanding shares, in the open market or privately negotiated transactions over an 18 month period commencing immediately following the completion of the 2006 stock repurchase program. The expiration date of this program is January 24, 2009. Unless terminated earlier by resolution of our board of directors, the programs will expire on the earlier of such expiration date or when we have repurchased all shares authorized for repurchase under the program.

19.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K



 

 

Item 6.

Selected Financial Data

The following table presents selected consolidated financial data for the five years ended December 31, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 


 


 


 


 


 

Statement of Income Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

83,576

 

$

43,858

 

$

34,697

 

$

34,898

 

$

41,075

 

Interest expense

 

 

44,735

 

 

21,351

 

 

13,704

 

 

13,231

 

 

15,946

 

 

 



 



 



 



 



 

Net interest income

 

 

38,841

 

 

22,507

 

 

20,993

 

 

21,667

 

 

25,129

 

Provision for loan losses

 

 

675

 

 

(1,275

)

 

250

 

 

1,924

 

 

8,236

 

 

 



 



 



 



 



 

Net interest income after provision for loan losses

 

 

38,166

 

 

23,782

 

 

20,743

 

 

19,743

 

 

16,893

 

Noninterest income

 

 

15,665

 

 

6,688

 

 

6,298

 

 

12,378

 

 

11,971

 

Noninterest expense

 

 

37,333

 

 

22,723

 

 

21,343

 

 

24,860

 

 

26,306

 

 

 



 



 



 



 



 

Income before income taxes

 

 

16,498

 

 

7,747

 

 

5,698

 

 

7,261

 

 

2,558

 

Provision (benefit) for income taxes

 

 

5,175

 

 

2,145

 

 

1,319

 

 

2,173

 

 

67

 

 

 



 



 



 



 



 

Income from continuing operations (after taxes)

 

 

11,323

 

 

5,602

 

 

4,379

 

 

5,088

 

 

2,491

 

Loss on discontinued operations

 

 

 

 

(415

)

 

(206

)

 

(285

)

 

(361

)

 

 



 



 



 



 



 

Net income

 

$

11,323

 

$

5,187

 

$

4,173

 

$

4,803

 

$

2,130

 

Preferred stock dividends

 

 

207

 

 

207

 

 

207

 

 

207

 

 

193

 

 

 



 



 



 



 



 

Net income for common stockholders

 

$

11,116

 

$

4,980

 

$

3,966

 

$

4,596

 

$

1,937

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common shares from continuing operations

 

$

1.75

 

$

1.31

 

$

1.06

 

$

1.21

 

$

0.57

 

Basic earnings per common share

 

 

1.75

 

 

1.21

 

 

1.01

 

 

1.14

 

 

0.48

 

Diluted earnings per common share from continuing operations

 

 

1.74

 

 

1.30

 

 

1.04

 

 

1.19

 

 

0.56

 

Diluted earnings per common share

 

 

1.74

 

 

1.20

 

 

0.99

 

 

1.12

 

 

0.48

 

Dividends per common stock

 

 

0.51

 

 

0.48

 

 

0.44

 

 

0.40

 

 

0.35

 

Dividend payout ratio for common stock

 

 

29.17

%

 

27.05

%

 

43.39

%

 

35.10

%

 

74.39

%

Book value per common stock

 

$

19.50

 

$

18.23

 

$

17.23

 

$

17.30

 

$

16.77

 

Basic weighted average common shares outstanding

 

 

6,341,693

 

 

4,119,235

 

 

3,943,741

 

 

4,033,608

 

 

3,997,464

 

Diluted weighted average common shares outstanding

 

 

6,380,016

 

 

4,163,836

 

 

4,002,908

 

 

4,109,999

 

 

4,069,220

 

Period-end common shares outstanding

 

 

6,071,546

 

 

6,455,068

 

 

3,806,876

 

 

4,032,144

 

 

4,026,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

$

249,331

 

$

298,692

 

$

196,440

 

$

191,661

 

$

252,248

 

Loans

 

 

957,285

 

 

836,944

 

 

417,525

 

 

419,275

 

 

476,812

 

Allowance for loan losses

 

 

10,755

 

 

10,835

 

 

8,362

 

 

9,732

 

 

9,011

 

Total assets

 

 

1,364,999

 

 

1,283,025

 

 

676,222

 

 

669,546

 

 

793,422

 

Total deposits

 

 

1,033,022

 

 

1,026,610

 

 

543,841

 

 

512,477

 

 

638,032

 

Stockholders’ equity

 

 

118,876

 

 

118,191

 

 

66,075

 

 

70,247

 

 

68,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Performance Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.85

%

 

0.69

%

 

0.63

%

 

0.65

%

 

0.28

%

Return on average stockholders’ equity

 

 

9.53

 

 

6.69

 

 

6.06

 

 

7.06

 

 

3.16

 

Net interest margin ratio

 

 

3.35

 

 

3.41

 

 

3.56

 

 

3.34

 

 

3.65

 

Efficiency ratio

 

 

66.67

 

 

76.81

 

 

77.78

 

 

82.90

 

 

72.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming assets to total end of period assets

 

 

0.51

%

 

1.08

%

 

0.62

%

 

0.69

%

 

1.10

%

Nonperforming loans to total end of period loans

 

 

0.43

 

 

1.40

 

 

0.96

 

 

1.00

 

 

1.78

 

Net loan charge-offs to total average loans

 

 

0.08

 

 

0.22

 

 

0.39

 

 

0.23

 

 

1.18

 

Allowance for loan losses to total loans

 

 

1.12

 

 

1.29

 

 

2.00

 

 

2.32

 

 

1.89

 

Allowance for loan losses to nonperforming loans

 

 

262.96

 

 

92.14

 

 

208.84

 

 

231.60

 

 

106.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equity to average assets

 

 

8.90

%

 

10.35

%

 

10.39

%

 

9.27

%

 

8.87

%

Total capital to risk adjusted assets

 

 

10.23

 

 

11.94

 

 

13.33

 

 

14.30

 

 

12.15

 

Tier 1 leverage ratio

 

 

7.69

 

 

7.90

 

 

9.03

 

 

9.54

 

 

7.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

(1)

Calculated as noninterest expense less amortization of intangibles and expenses related to other real estate owned divided by the sum of net interest income before provisions for loan losses and total noninterest income excluding securities gains and losses and gains on sale of assets.

20.



 

Centrue Financial Corporation

Securities And Exchange Commission

Form 10-K



 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of the Company’s results of operations and financial condition of Centrue Financial Corporation for the three years ended December 31, 2007. Management’s discussion and analysis (MD&A) should be read in conjunction with “Selected Consolidated Financial Data,” the consolidated financial statements of the Company, and the accompanying notes thereto. Unless otherwise stated, all earnings per share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis. All financial information is in thousands (000’s), except per share data.

21.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “planned” or “potential” or similar expressions.

The Company’s 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 the subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory changes; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan or securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company’s market areas; the Company’s implementation of new technologies; the Company’s ability to develop and maintain secure and reliable electronic systems; and accounting principles, policies, and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Critical Accounting Policies and Estimates

Note 1 to our Consolidated Financial Statements for the year ended December 31, 2007 contains a summary of our significant accounting policies. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Our policy with respect to the methodologies used to determine the allowance for loan losses is our most critical accounting policy. The policy is important to the presentation of our financial condition and results of operations, and it involves a higher decree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition.

The following is a description of our critical accounting policy and an explanation of the methods and assumptions underlying its application.

Allowance for Loan Losses: The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

22.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The allowance for loan losses is based on an estimation computed pursuant to the requirements of Financial Accounting Standards Board (“FASB”) Statement No. 5, “Accounting for Contingencies” and FASB Statements Nos. 114 and 118, “Accounting by Creditors for Impairment of a Loan,” the analysis of the allowance for loan losses consists of three components: (i) specific credit allocation established for expected losses resulting from analysis developed through specific credit allocations on individual loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for each loan category; and (iii) subjective reserves based on general economic conditions as well as specific economic factors in markets in which the Company operates.

The specific credit allocation component of the allowances for loan losses is based on an analysis of individual loans and historical loss experience for each loan category. The specific credit allocations are based on regular analysis of all loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values.

The general portfolio allocation component of the allowance for loan losses is determined statistically using a loss analysis that examines historical loan loss experience. The loss analysis is performed quarterly and loss factors are updated regularly based on actual experience. The general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for concentrations and changes in portfolio mix and volume.

There are many factors affecting the allowance for loan losses; some are quantitative while others require qualitative judgment. The process for determining the allowance (which management believes adequately considers all of the potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differs from management estimates, additional provision for credit losses could be required that could adversely affect the Company’s earnings or financial position in future periods.

Goodwill: Costs in excess of the estimated fair value of identified assets acquired through purchase transactions are recorded as an asset of the Company. As per Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, an annual impairment analysis is required to be performed to determine if the asset is impaired and needs to be written down to its fair value. This assessment is conducted as of December 31 of each year or more frequently if conditions warrant. Per the December 31, 2007 analysis, no impairment was identified as a result of these tests. In making these impairment analyses, management must make subjective assumptions regarding the fair value of the Company’s 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 changes to adjust the goodwill to its estimated fair value.

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.

23.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


General

Centrue Financial Corporation (the “Company”) is a bank holding company organized under the laws of the State of Delaware. On November 13, 2006, the Company (formerly known as UnionBancorp, Inc. now known as Centrue Financial Corporation) merged with Centrue Financial Corporation (former Centrue), parent of Centrue Bank with the Company being the surviving entity in the merger. Operating results of former Centrue are included in the consolidated financial statements since the date of the acquisition. The Company provides a full range of products and services to individual and corporate customers located in the north central, east central, south central, suburban west area of Chicago, suburban metro east area of St. Louis, and northwest Illinois areas. These products and services include demand, time, and savings deposits; lending; mortgage banking, brokerage, asset management, and trust services. The Company is subject to competition from other financial institutions, including banks, thrifts and credit unions, as well as nonfinancial institutions providing financial services. Additionally, the Company and its subsidiary Centrue Bank (the “Bank”) are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

Merger, Acquisition and Divestiture Activity

          Completed Transactions

On June 15, 2007, in order to integrate operations and streamline its retail distribution channel, the Company consolidated its Dwight In-Store and Coal City In-Store Illinois branches into nearby main bank locations.

On August 31, 2007, in order to integrate operations and streamline its retail distribution channel, the Company closed its Urbana, Illinois branch location. Customers of this location will continue to be served by our nearby Champaign branch location.

          Announced Transactions

On October 24, 2007, the Company entered into an agreement to sell its Hanover & Elizabeth, Illinois branches to Apple River State Bank headquartered in Apple River, Illinois. The Definitive Purchase and Assumption Agreement entered into calls for Apple River to assume approximately $25,300 in deposits and $12,700 in loans. The transaction is expected to be completed late in the first quarter of 2008.

On December 28, 2007, the Company entered into an agreement to sell its Manlius & Tampico, Illinois branches to Peoples National Bank headquartered in Kewanee, Illinois. The Definitive Purchase and Assumption Agreement entered into calls for Peoples National to assume approximately $31,300 in deposits and $25,900 in loans. The transaction is expected to be completed late in the second quarter of 2008.

24.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


Results of Operations

     Net Income

          2007 compared to 2006. Net income equaled $11,323 or $1.74 per diluted share for the year ended December 31, 2007 as compared to net income of $5,187 or $1.20 per diluted share for the year ended December 31, 2006. Net income for continuing operations equaled $11,323 or $1.74 per diluted share as compared to net income of $5,602 or $1.30 per diluted share. This represents a 118.3% increase in net income and a 45.0% increase in diluted per share earnings in the current fiscal year over fiscal 2006.

The Company’s annual results for continuing operations improved in 2007 versus 2006 due to volume related increases in net interest income and other fee based revenue largely related to a full year’s operating results from the Centrue merger and organic loan growth generated in the St. Louis market. These improvements were partially offset by increases in noninterest expenses associated with operating twenty-one additional branches resulting from the merger and an increased provision for loan losses.

Return on average assets was 0.85% for the year ended December 31, 2007 compared to 0.69% for the same period in 2006. Return on average stockholders’ equity was 9.53% for the year ended December 31, 2007 compared to 6.69% for the same period in 2006.

          2006 compared to 2005. Net income equaled $5,187 or $1.20 per diluted share for the year ended December 31, 2006 as compared to net income of $4,173 or $0.99 per diluted share for the year ended December 31, 2005. During the period, the Company reported a net loss of $415 or $0.10 per diluted share for discontinued operations related to the sale of the insurance line as compared to a net loss of $206 or $0.05 per diluted share for 2005.

Net income for continuing operations equaled $5,602 or $1.30 per diluted share as compared to net income of $4,379 or $1.04 per diluted share. This represents a 27.9% increase in net income and a 25.0% increase in diluted per share earnings in the current fiscal year over fiscal 2005.

The Company’s annual results for continuing operations were higher in 2006 versus 2005 due primarily to several key issues. First, due to general improvement in asset quality, the Company decreased the provision for loan losses. Second, volume related increases in net interest income and other fee based revenue largely related to operating results from the Centrue merger being recorded for the last 49 days of the year. Finally, salaries and benefit costs were lower due to a reduction in work force implemented in the fourth quarter of 2005. These were partially offset by increases in occupancy, furniture and equipment expenses related to operations for the last 49 days from the Centrue merger. In addition, performance for the full year of 2006 was negatively impacted by integration and related costs recorded in the fourth quarter specific to the Centrue merger.

Return on average assets was 0.69% for the year ended December 31, 2006 compared to 0.63% for the same period in 2005. Return on average stockholders’ equity was 6.69% for the year ended December 31, 2006 compared to 6.06% for the same period in 2005.

25.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


     Net Interest Income/ Margin

Net interest income is the difference between income earned on interest-earning assets and the interest expense incurred for the funding sources used to finance these assets. Changes in net interest income generally occur due to fluctuations in the volume of earning assets and paying liabilities and rates earned and paid, respectively, on those assets and liabilities. The net yield on total interest-earning assets, also referred to as net interest margin, represents net interest income divided by average interest-earning assets. Net interest margin measures how efficiently the Company uses its earning assets and underlying capital. The Company’s long-term objective is to manage those assets and liabilities to provide the largest possible amount of income while balancing interest rate, credit, liquidity and capital risks. For purposes of this discussion, both net interest income and margin have been adjusted to a fully tax equivalent basis for certain tax-exempt securities and loans.

          2007 compared to 2006. Net interest income, on a tax equivalent basis, was $39,958 for the year ended December 31, 2007, compared with $23,099 earned during the same period in 2006. This represented an increase of $16,859 or 72.9%. The improvement in net interest income was largely related to an increase in earning assets due to the addition of the former Centrue’s loan and investment portfolios for a full year in 2007 and organic loan growth generated primarily in the St. Louis market. This was offset by increases in deposit balances and a shift in the mix of funding liabilities from lower costing non-interest bearing deposits to higher costing time deposits.

The $40,238 increase in interest income resulted from improvements of $37,453 related to volume and $2,785 due to rates. The majority of the change in interest income was related to a $437,690 improvement in average loans largely related to the 2006 merger and organic loan growth generated from the St. Louis market. Also, contributing were yield increases of 42 basis points in the loan portfolio and 29 basis points in the security portfolio.

The $23,379 increase in interest expense resulted from increases of $20,381 due to volume and $2,998 associated with rate. The majority of the change was attributable to a $487,557 increase in average interest-bearing liabilities related to the 2006 merger and 69 basis point increase in rates paid on total time deposits.

The net interest margin decreased 6 basis points to 3.35% for the year ended December 31, 2007 from 3.41% during the same period in 2006. Adversely impacting margin levels was a funding shift into higher costing time and wholesale deposits away from lower costing non-maturing deposits. The changes in deposit composition, as well as a generally higher cost of funds during the year, put pressure on the margin. Due largely to continued competition in pricing loans and deposits, and the recent economic downturn, the margin will likely remain under pressure throughout 2008.

          2006 compared to 2005. Net interest income, on a tax equivalent basis, was $23,099 for the year ended December 31, 2006, compared with $21,587 earned during the same period in 2005. This represented an increase of $1,512 or 7.0%. The increase in net interest income is attributable to the year-over-year improvement in income earned on interest earning assets totaling $9,156 exceeding the year-over-year increase of interest expense paid on interest bearing liabilities totaling $7,644.

The $9,156 increase in interest income resulted from improvements of $4,066 related to volume and $5,090 due to rates. The majority of the change in interest income was related to yield increases of 63 basis points in the loan portfolio and 89 basis points in the security portfolio. Also, contributing was the $71,445 improvement in earning-assets largely related to the merger with Centrue in the fourth quarter.

26.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The $7,644 increase in interest expense resulted from increases of $5,535 associated with rate and $2,109 due to volume. The majority of the change was attributable to a 118 basis point increase in rates paid on total time deposits due to repricing of short-term instruments in a higher interest rate environment. Also contributing to the increase was higher expense caused by the addition of interest-bearing liabilities largely related to the merger with Centrue in the fourth quarter.

The net interest margin decreased 15 basis points to 3.41% for the year ended December 31, 2006 from 3.56% during the same period in 2005. The decrease resulted primarily from the result of an inverted yield curve and competitive pressures in pricing loans and deposits.

27.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENT’s DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

(In Thousands, Except Share Data)


AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 


 

 

 

 

 

2007

 

 

 

 

 

2006

 

 

 

 

 

2005

 

 

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

Average

 

Income/

 

Average

 

Average

 

Income/

 

Average

 

Average

 

Income/

 

Average

 

 

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

 

 

 


 


 


 


 


 


 


 


 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

2,362

 

$

33

 

 

1.40

%

$

736

 

$

16

 

 

2.18

%

$

147

 

$

7

 

 

4.65

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

237,078

 

 

12,473

 

 

5.26

 

 

183,443

 

 

8,785

 

 

4.79

 

 

169,468

 

 

6,331

 

 

3.73

 

Non-taxable

 

 

40,950

 

 

2,248

 

 

5.49

 

 

21,711

 

 

1,478

 

 

6.81

 

 

21,076

 

 

1,504

 

 

7.14

 

 

 



 



 



 



 



 



 



 



 



 

Total securities (tax equivalent)

 

 

278,028

 

 

14,721

 

 

5.29

 

 

205,154

 

 

10,263

 

 

5.00

 

 

190,544

 

 

7,835

 

 

4.11

 

 

 



 



 



 



 



 



 



 



 



 

Federal funds sold

 

 

10,811

 

 

545

 

 

5.04

 

 

6,846

 

 

364

 

 

5.31

 

 

3,785

 

 

115

 

 

3.23

 

 

 



 



 



 



 



 



 



 



 



 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

180,714

 

 

14,962

 

 

8.28

 

 

121,435

 

 

8,957

 

 

7.38

 

 

117,571

 

 

8,131

 

 

6.92

 

Real estate

 

 

708,734

 

 

53,480

 

 

7.55

 

 

334,119

 

 

23,529

 

 

7.03

 

 

277,267

 

 

17,640

 

 

6.36

 

Installment and other

 

 

13,210

 

 

952

 

 

7.21

 

 

9,414

 

 

1,326

 

 

14.08

 

 

16,945

 

 

1,571

 

 

9.27

 

 

 



 



 



 



 



 



 



 



 



 

Gross loans (tax equivalent)

 

 

902,658

 

 

69,394

 

 

7.69

 

 

464,968

 

 

33,812

 

 

7.27

 

 

411,783

 

 

27,342

 

 

6.64

 

 

 



 



 



 



 



 



 



 



 



 

Total interest-earnings assets

 

 

1,193,859

 

 

84,693

 

 

7.09

 

 

677,704

 

 

44,455

 

 

6.56

 

 

606,259

 

 

35,299

 

 

5.82

 

 

 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

31,692

 

 

 

 

 

 

 

 

18,818

 

 

 

 

 

 

 

 

18,874

 

 

 

 

 

 

 

Premises and equipment, net

 

 

35,747

 

 

 

 

 

 

 

 

16,618

 

 

 

 

 

 

 

 

13,782

 

 

 

 

 

 

 

Other assets

 

 

73,579

 

 

 

 

 

 

 

 

36,074

 

 

 

 

 

 

 

 

24,138

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

141,018

 

 

 

 

 

 

 

 

71,510

 

 

 

 

 

 

 

 

56,794

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,334,877

 

 

 

 

 

 

 

$

749,214

 

 

 

 

 

 

 

$

663,053

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

105,417

 

$

1,740

 

 

1.65

%

$

74,328

 

$

1,313

 

 

1.77

%

$

72,722

 

$

915

 

 

1.26

%

Money market accounts

 

 

126,614

 

 

4,861

 

 

3.84

 

 

62,778

 

 

1,876

 

 

2.99

 

 

59,160

 

 

1,080

 

 

1.83

 

Savings deposits

 

 

96,838

 

 

655

 

 

0.68

 

 

45,343

 

 

315

 

 

0.69

 

 

42,122

 

 

212

 

 

0.50

 

Time $100,000 and over

 

 

226,605

 

 

12,010

 

 

5.30

 

 

209,030

 

 

9,093

 

 

4.35

 

 

148,238

 

 

4,522

 

 

3.05

 

Other time deposits

 

 

387,530

 

 

18,294

 

 

4.72

 

 

137,470

 

 

5,608

 

 

4.14

 

 

136,745

 

 

4,181

 

 

3.06

 

Federal funds purchased and repurchase agreements

 

 

43,859

 

 

1,881

 

 

4.29

 

 

9,947

 

 

407

 

 

4.09

 

 

6,243

 

 

197

 

 

3.16

 

Advances from FHLB

 

 

64,964

 

 

2,834

 

 

4.36

 

 

46,499

 

 

1,823

 

 

3.92

 

 

54,571

 

 

2,128

 

 

3.91

 

Notes payable

 

 

32,428

 

 

2,460

 

 

7.59

 

 

11,303

 

 

921

 

 

8.15

 

 

9,176

 

 

477

 

 

5.20

 

 

 



 



 



 



 



 



 



 



 



 

Total interest-bearing liabilities

 

 

1,084,255

 

 

44,735

 

 

4.13

 

 

596,698

 

 

21,356

 

 

3.58

 

 

528,977

 

 

13,712

 

 

2.59

 

 

 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

120,355

 

 

 

 

 

 

 

 

68,650

 

 

 

 

 

 

 

 

61,040

 

 

 

 

 

 

 

Other liabilities

 

 

11,459

 

 

 

 

 

 

 

 

6,355

 

 

 

 

 

 

 

 

4,133

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total noninterest-bearing liabilities

 

 

131,814

 

 

 

 

 

 

 

 

75,005

 

 

 

 

 

 

 

 

65,173

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Stockholders’ equity

 

 

118,808

 

 

 

 

 

 

 

 

77,511

 

 

 

 

 

 

 

 

68,903

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,334,877

 

 

 

 

 

 

 

$

749,214

 

 

 

 

 

 

 

$

663,053

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Net interest income (tax equivalent)

 

 

 

 

$

39,958

 

 

 

 

 

 

 

$

23,099

 

 

 

 

 

 

 

$

21,587

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

Net interest income (tax equivalent) to total earning assets

 

 

 

 

 

 

 

 

3.35

%

 

 

 

 

 

 

 

3.41

%

 

 

 

 

 

 

 

3.56

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Interest-bearing liabilities to earning assets

 

 

90.82

%

 

 

 

 

 

 

 

88.05

%

 

 

 

 

 

 

 

87.25

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 


(1)

Average balance and average rate on securities classified as available-for-sale are based on historical amortized cost balances.

 

(2)

Interest income and average rate on non-taxable securities are reflected on a tax equivalent basis based upon a statutory federal income tax rate of 34%.

 

(3)

Nonaccrual loans are included in the average balances.

 

(4)

Overdraft loans are excluded in the average balances.

28.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds referred to as “rate change.” The following table reflects the changes in net interest income stemming from changes in interest rates and from asset and liability volume, including mix. Any variance attributable jointly to volume and rate changes is allocated to the volume and rate variances in proportion to the relationship of the absolute dollar amount of the change in each.

RATE/VOLUME ANALYSIS OF
NET INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 


 

 

 

2007 Compared to 2006

 

2006 Compared to 2005

 

 

 


 


 

 

 

Change Due to

 

Change Due to

 

 

 


 


 

 

 

Volume

 

Rate

 

Net

 

Volume

 

Rate

 

Net

 

 

 


 


 


 


 


 


 

Interest-income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

23

 

$

(6

)

$

17

 

$

14

 

$

(5

)

$

9

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,822

 

 

866

 

 

3,688

 

 

552

 

 

1,902

 

 

2,454

 

Non-taxable

 

 

1,056

 

 

(286

)

 

770

 

 

83

 

 

(109

)

 

(26

)

Federal funds sold

 

 

200

 

 

(19

)

 

181

 

 

139

 

 

110

 

 

249

 

Loans

 

 

33,352

 

 

2,230

 

 

35,582

 

 

3,278

 

 

3,192

 

 

6,470

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

 

37,453

 

 

2,785

 

 

40,238

 

 

4,066

 

 

5,090

 

 

9,156

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

513

 

 

(86

)

 

427

 

 

21

 

 

377

 

 

398

 

Money market accounts

 

 

2,451

 

 

534

 

 

2,985

 

 

70

 

 

726

 

 

796

 

Savings deposits

 

 

348

 

 

(8

)

 

340

 

 

17

 

 

86

 

 

103

 

Time, $100,000 and over

 

 

8,554

 

 

1,553

 

 

10,107

 

 

2,022

 

 

2,322

 

 

4,344

 

Other time deposits

 

 

4,652

 

 

844

 

 

5,496

 

 

21

 

 

1,633

 

 

1,654

 

Federal funds purchased and repurchase agreements

 

 

1,454

 

 

20

 

 

1,474

 

 

140

 

 

70

 

 

210

 

Advances from FHLB

 

 

806

 

 

205

 

 

1,011

 

 

(311

)

 

6

 

 

(305

)

Notes payable

 

 

1,603

 

 

(64

)

 

1,539

 

 

129

 

 

315

 

 

444

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

20,381

 

 

2,998

 

 

23,379

 

 

2,109

 

 

5,535

 

 

7,644

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

17,072

 

$

(213

)

$

16,859

 

$

1,957

 

$

(445

)

$

1,512

 

 

 



 



 



 



 



 



 

Provision for Loan Losses. The amount of the provision for loan losses is based on management’s evaluations of the loan portfolio, with particular attention directed toward nonperforming, impaired and other potential problem loans. During these evaluations, consideration is also given to such factors as management’s evaluation of specific loans, the level and composition of impaired loans, other nonperforming loans, other identified potential problem loans, historical loss experience, results of examinations by regulatory agencies, results of the independent asset quality review process, the market value of collateral, the estimate of discounted cash flows, the strength and availability of guarantees, concentrations of credits, and various other factors, including concentration of credit risk in various industries and current economic conditions.

29.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


          2007 compared to 2006. The 2007 provision for loan losses charged to operating expense totaled $675, an increase of $1,950 in comparison to recording a negative provision of ($1,275) in the 2006 period. The increase in the provision was the result of identifying and addressing problem credits and the recent deteriorating economic conditions in a timely fashion. Results for 2006 included negative provisions largely due to the pay-off of one $4,400 loan relationship that was classified as impaired in late 2005 with a specific reserve allocation of $1,500. The following factors also impacted 2007 provision levels:

 

 

 

 

decrease in nonperforming and action list loans since year-end;

 

 

decrease in the level of past due loans;

 

 

higher than anticipated recoveries; and

 

 

many loans that were charged off during 2007 had previously been allocated a specific reserve.

Net charge-offs for the year ended December 31, 2007 were $755 compared with $1,019 in the same period of 2006. Annualized net charge-offs decreased to 0.09% of average loans for 2007 compared to 0.22% in the same period in 2006.

Management remains watchful of credit quality issues. Should the economic climate deteriorate from current levels, borrowers may experience difficulty, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision.

          2006 compared to 2005. The 2006 provision for loan losses charged to operating expense totaled ($1,275), a decrease of $1,525 in comparison to the $250 recorded during the same period for 2005. The decrease in the provision for loan losses was largely based on the pay-off of one $4,400 loan relationship that was classified as impaired as of year-end 2005 with a specific reserve allocation of $1,500. Also contributing to management’s decision to make the reverse provision were continued improvements in the quality of the loan portfolio, and favorable loan loss experience. Furthermore, this was positively impacted by loan resolutions, either through charge-off of nonbankable assets or through successful workout strategies that were executed throughout 2006. Net charge-offs for the year ended December 31, 2006 were $1,019 compared with $1,620 in the same period of 2005. Annualized net charge-offs decreased to 0.22% of average loans for 2006 compared to 0.39% in the same period in 2005.

Management remains watchful of credit quality issues. Should the economic climate deteriorate from current levels, borrowers may experience difficulty, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision.

30.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


Noninterest Income. Noninterest income consists of a wide variety of fee-based revenues from bank-related service charges on deposits and mortgage revenues. Also included in this category are revenues generated by the Company’s brokerage, trust and asset management services as well as increases in cash surrender value on bank-owned life insurance. The following table summarizes the Company’s noninterest income:

NONINTEREST INCOME
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

 

 

 

 

 

 

 

 

Service charges

 

$

6,789

 

$

2,473

 

$

1,996

 

Trust income

 

 

942

 

 

858

 

 

811

 

Mortgage banking income

 

 

1,743

 

 

1,113

 

 

1,350

 

Brokerage commissions and fees

 

 

795

 

 

326

 

 

513

 

Bank owned life insurance

 

 

991

 

 

628

 

 

545

 

Securities losses

 

 

(29

)

 

(104

)

 

(79

)

Gain on sale of assets

 

 

1,107

 

 

(14

)

 

4

 

Other income

 

 

3,327

 

 

1,408

 

 

1,158

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income from continuing operations

 

$

15,665

 

$

6,688

 

$

6,298

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassed to discontinued operations

 

 

 

 

 

 

1,304

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Previously reported noninterest income levels

 

$

15,665

 

$

6,688

 

$

7,602

 

 

 



 



 



 

          2007 compared to 2006. Noninterest income from continuing operations totaled $15,665 for the year ended December 31, 2007, as compared to $6,688 for the same period in 2006. This represented an increase of $8,977 or 134.2% in 2007 over the prior period. Excluding net securities losses and the gains on sale of other assets, noninterest income shows a year-over-year increase of $7,781 or 114.3%.

The growth was primarily the result of improvements in service charges and NSF fees on deposit accounts, electronic banking services (included in “other income”), and revenue generated from the mortgage banking division as a result of a full year’s activity from the November 2006 merger. Also contributing to the increase were gains on sale of properties held in other real estate (included in the category “gain on sale of assets”), increased revenue generated from the brokerage product line, and income earned on accrued interest related to a federal tax refund.

          2006 compared to 2005. Noninterest income for continuing operations totaled $6,688 for the year ended December 31, 2006, as compared to $6,298 for the same timeframe in 2005. This represented an increase of $390 or 6.2% in 2006 over the prior period. Excluding net securities losses and the gains on sale of other assets, noninterest income shows a year-over-year increase of $433 or 6.8%. The increase reflected higher service charges and fees received on items drawn on customer accounts with insufficient funds (included in “service charges”), and variable-related improvement in electronic banking card-based fees. Also contributing to the change was the recognition of revenue generated from the Centrue merger for 49 days.

These improvements were partially offset by declines in revenue generated from the brokerage product line due to a change in the mix of products sold during the year and the mortgage banking division. The decrease in mortgage banking income, which includes gains generated from the sale of loans and net servicing revenue (after amortization of mortgage servicing rights), was due to a shortfall in the production of new mortgage loans originated. The remaining categories remained relatively stable with only slight year-over-year changes.

31.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


          Noninterest Expense. Noninterest expense for continuing operations is comprised primarily of compensation and employee benefits, occupancy and other operating expense. The following table summarizes the Company’s noninterest expense:

NONINTEREST EXPENSE
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

17,635

 

$

12,181

 

$

12,546

 

Occupancy expense, net

 

 

4,043

 

 

1,714

 

 

1,488

 

Furniture and equipment expenses

 

 

2,621

 

 

2,276

 

 

1,852

 

Marketing

 

 

1,035

 

 

697

 

 

491

 

Supplies and printing

 

 

653

 

 

421

 

 

343

 

Telephone

 

 

834

 

 

490

 

 

425

 

Data processing

 

 

1,650

 

 

788

 

 

490

 

Amortization of intangible assets

 

 

2,308

 

 

416

 

 

120

 

Other expense

 

 

6,554

 

 

3,740

 

 

3,588

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense for continuing operations

 

$

37,333

 

$

22,723

 

$

21,343

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassed to discontinued operations

 

 

 

 

 

 

1,622

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Previously reported noninterest expense levels

 

$

37,333

 

$

22,723

 

$

22,965

 

 

 



 



 



 

          2007 compared to 2006. Noninterest expense for continuing operations totaled $37,333 for the year ended December 31, 2007, as compared to $22,723 for the same period in 2006. This represented an increase of $14,610 or 64.3% in 2007 from 2006.

The increase was experienced in all categories and primarily due to higher costs associated with operating twenty-one additional branches for a full year’s activity from the November 2006 merger. Also contributing were increases in professional fees related to Sarbanes-Oxley compliance, core deposit amortization, accelerated depreciation expense for assets being phased out, and valuation adjustments taken on properties held in other real estate taken in light of recent economic downturns. Offsetting these increases were cost savings related to the completion of integration activities which reduced operating costs and fifty-four full-time equivalent employees.

          2006 compared to 2005. Noninterest expense for continuing operations totaled $22,723 for the year ended December 31, 2006, as compared to $21,343 for the same timeframe in 2005. This represented an increase of $1,380 or 6.5% in 2006 from 2005.

Adversely impacting expense levels was approximately $767 in acquisition and integration costs related to accelerated share-based compensation, employee bonus and severance payments, contract termination costs, marketing related advertising and promotional items, and accelerated depreciation expense for assets being phased out. Also contributing to the increase were costs associated with the operation of twenty-one additional branches resulting from the Centrue merger. These increased costs were offset by $1,608 in savings from salaries and employee benefits expense related to a reduction in work force plan implemented during the fourth quarter of 2005 intended to realign expense levels with revenue levels. The remaining categories remained relatively stable with only slight year-over-year changes.

32.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


          Applicable Income Taxes. Income tax expense for the periods included benefits for tax-exempt income, tax-advantaged investments and general business tax credits offset by the effect of nondeductible expenses. The following table shows the Company’s income before income taxes, as well as applicable income taxes and the effective tax rate for each of the past three years:

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

$

16,498

 

$

7,747

 

$

5,698

 

Applicable income taxes

 

 

5,175

 

 

2,145

 

 

1,319

 

Effective tax rates

 

 

31.4

%

 

27.7

%

 

23.2

%

The Company recorded income tax expense of $5,175 and $2,145 for 2007 and 2006, respectively. Effective tax rates equaled 31.4% and 27.7% respectively, for such periods. During the second quarter of 2005, the Company recorded a $251 reduction in state income taxes due to the receipt of a tax refund related to amended tax returns outstanding from prior years. Excluding this refund, the effective tax rate for 2005 would have been 27.0%.

The Company’s effective tax rate was lower than statutory rates due to several factors. First, the Company derives interest income from municipal securities and loans, which are exempt from federal tax and certain U. S. government agency securities, which are exempt from state tax. Second, the level of tax-exempt income has decreased as a percentage of taxable income. Finally, the Company derives income from bank owned life insurance policies, which is exempt from federal and state tax.

          Preferred Stock Dividends. The Company paid $207 of preferred stock dividends in 2007, 2006 and 2005.

Earnings Review by Business Segment

The Company’s internal reporting and planning process focuses on four primary lines of business (Segment(s)): Retail, Commercial, Treasury and Wealth Management. See Note 21 of the Notes to Consolidated Financial Statements for the presentation of the condensed income statement and total assets for each Segment.

The financial information presented was derived from the Company’s internal profitability reporting system that is used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting policies which have been developed to reflect the underlying economics of the Segments and, to the extent practicable, to portray the Segment as if it operated on a stand alone basis. Thus, each Segment, in addition to its direct revenues and expenses, assets and liabilities, includes an allocation of shared support function expenses. The Retail, Commercial, Treasury, and Wealth Management Segments also include funds transfer adjustments to appropriately reflect the cost of funds on loans made and funding credits on deposits generated. Apart from these adjustments, the accounting policies used are similar to those described in Note 1 of the Notes to Consolidated Financial Statements.

Since there are no comprehensive authorities for management accounting equivalent to U.S. generally accepted accounting principles, the information presented is not necessarily comparable with similar information from other financial institutions. In addition, methodologies used to measure, assign and allocate certain items may change from time-to-time to reflect, among other things, accounting estimate refinements, changes in risk profiles, changes in customers or product lines and changes in management structure.

33.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


          Retail Segment. The Retail Segment (Retail) provides retail banking services to individual customers through the Company’s branch locations in Illinois and Missouri. The services provided by this Segment include direct and indirect lending, checking, savings, money market and CD accounts, safe deposit rental, ATM’s and other traditional and electronic banking services.

          Retail represented 14.7% of total segment net income in 2007, 14.0% in 2006 and 2.9% in 2005. Retail assets were $306,156 at December 31, 2007 and represented 22.4% of total consolidated assets. This compared to $240,872 at December 31, 2006 and $99,916 at December 31, 2005.

          The growth from 2006 to 2007 was primarily the result of operating twenty-one additional branches for a full year’s activity from the November 2006 merger. This increased the net interest income, other revenue and other expense categories.

          Commercial Segment. The Commercial Segment (Commercial) provides commercial banking services to business customers served through the Company’s full service branch channels located in Illinois and Missouri. The services provided by this Segment include lending, business checking and deposits, cash management, and other traditional as well as electronic commercial banking services.

          Commercial represented 91.1% of total segment net income in 2007, 114.5% in 2006 and 95.9% in 2005. Commercial assets were $741,861 at December 31, 2007 and represented 54.3% of total consolidated assets. This compared to $686,495 at December 31, 2006 and $330,240 at December 31, 2005.

          The growth from 2006 to 2007 was primarily the result of the increase in earning asset portfolio due to the addition of the former Centrue’s loan portfolio for a full year and organic growth generated primarily in the St. Louis market. The increase in the provision was the result of identifying and addressing problem credits and the recent deteriorating economic conditions in a timely fashion. Results for 2006 included negative provisions largely due to the pay-off of one $4,400 loan relationship that was classified as impaired in late 2005 with a specific reserve allocation of $1,500.

          Treasury Segment. The Treasury Segment (Treasury) is the area of the bank responsible for managing the investment portfolio and acquiring funding for loan activity. In 2007, the reduction in the investment portfolio was caused by the selling of investments and using the proceeds to fund the loan growth experienced in the Commercial Segment. Net interest income grew as a result of having the combined investment portfolio for a full year after the merge in November 2006.

          Treasury represented (13.0%) of total segment net income in 2007, (1.2%) in 2006 and (2.3%) in 2005. Treasury assets were $268,484 at December 31, 2007 representing 19.7% of total consolidated assets. This compared to $328,841 at December 31, 2006 and $216,355 at December 31, 2005.

          Wealth Management Segment. The Wealth Management Segment (Wealth) provides trust services, estate administration, financial planning, employee benefit plan administration, asset management, and brokerage transaction services.

34.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


          Wealth represented 1.6% of total segment net income in 2007, (10.3%) in 2006 and (15.3%) in 2005. Wealth assets were $1,289 at December 31, 2007 and represented 0.1% of total consolidated assets. This compared to $1,330 at December 31, 2006 and $3,723 at December 31, 2005.

          The improvement in earnings from 2006 to 2007 was the result of the sale of the Insurance business unit in late 2006. See Note 22 in the Notes to Consolidated Financial Statements for additional details on this transaction. Additionally in 2007, the revenue increased due to increased revenue from the brokerage product line.

Interest Rate Sensitivity Management

The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities) which are primarily funded by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Company are for other than trading purposes. Such financial instruments have varying levels of sensitivity to changes in market rates of interest. The operating income and net income of Centrue Bank depends, to a substantial extent, on “rate differentials,” i.e., the differences between the income Centrue Bank receives from loans, securities, and other earning assets and the interest expense they pay to obtain deposits and other liabilities. These rates are highly sensitive to many factors that are beyond the control of Centrue Bank, including general economic conditions and the policies of various governmental and regulatory authorities.

The Company measures its overall interest rate sensitivity through a net interest income analysis. The net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of changes in net interest income in the event of a sudden and sustained 100 to 200 basis point increase in market interest rates or a 100 to 200 basis point decrease in market rates. The interest rates scenarios are used for analytical purposes and do not necessarily represent management’s view of future market movements.

35.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The tables below present the Company’s projected changes in net interest income for 2007 and 2006 for the various rate shock levels.

 

 

 

 

 

 

 

 

 

 

 

December 31, 2007

 

Net Interest Income

 


 


 

 

 

Amount

 

Change

 

Change

 

 

 


 


 


 

 

 

(Dollars in Thousands)

 

 

 

 

 

+200 bp

 

$

41,670

 

$

305

 

 

0.74

%

+100 bp

 

 

41,874

 

 

509

 

 

1.23

 

Base

 

 

41,365

 

 

 

 

 

-100 bp

 

 

39,955

 

 

(1,410

)

 

(3.41

)

-200 bp

 

 

38,256

 

 

(3,109

)

 

(7.51

)

Based on the Company’s model at December 31, 2007, the effect of an immediate 200 basis point increase in interest rates would increase the Company’s net interest income by 0.74% or approximately $305. The effect of an immediate 200 basis point decrease in rates would decrease the Company’s net interest income by $3,109 or 7.52%.

In January, 2008, the Federal Reserve reduced rates by 125 basis points. The effect these rate adjustments have had is to increase pressure on our margin for 2008. Management had forecasted some of this rate reduction and took immediate steps to lessen the impact of the additional reductions that were announced. The mix of our funding portion of the balance sheet has been adjusted to lessen the impact the reductions would have on our asset rate sensitive portion of the balance sheet by taking advantage of the wider spreads in various sectors. Additionally, the steepening of the yield curve has also been advantageous to lessening the impact that the rate reductions will have during 2008.

 

 

 

 

 

 

 

 

 

 

 

December 31, 2006

 

Net Interest Income

 


 


 

 

 

Amount

 

Change

 

Change

 

 

 


 


 


 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

+200 bp

 

$

42,539

 

$

2,214

 

 

5.49

%

+100 bp

 

 

41,482

 

 

1,157

 

 

2.87

 

Base

 

 

40,325

 

 

 

 

 

-100 bp

 

 

38,795

 

 

(1,530

)

 

(3.79

)

-200 bp

 

 

35,980

 

 

(4,345

)

 

(10.77

)

Based on the Company’s model at December 31, 2006, the effect of an immediate 200 basis point increase in interest rates would increase the Company’s net interest income by 5.49% or approximately $2,214. The effect of an immediate 200 basis point decrease in rates would decrease the Company’s net interest income by $4,345 or 10.77%.

Financial Condition

          Loans and Asset Quality. Outstanding loans totaled $957.3 million at December 31, 2007 compared to $836.9 million at December 31, 2006, representing an increase of $120.4 million or 14.4%. The loan growth was largely generated in the St. Louis market and was concentrated in commercial real estate lending activity. The Company has no direct exposure to sub prime mortgages.

          The Company offers a broad range of products, including agribusiness, commercial, residential, and installment loans, designed to meet the credit needs of its borrowers. The Company’s loans are diversified by borrower and industry group.

36.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The following table describes the composition of loans by major categories outstanding:

(Dollars in Thousands)
LOAN PORTFOLIO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Principal Amount

 

 

 

December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 


 


 


 


 


 

 

Commercial

 

$

181,210

 

$

154,829

 

$

91,537

 

$

91,941

 

$

105,767

 

Agricultural

 

 

21,861

 

 

23,118

 

 

26,694

 

 

28,718

 

 

33,766

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgages

 

 

362,920

 

 

274,909

 

 

126,503

 

 

129,597

 

 

134,985

 

Construction

 

 

159,274

 

 

116,608

 

 

68,508

 

 

38,882

 

 

30,674

 

Agricultural

 

 

23,560

 

 

27,624

 

 

33,033

 

 

30,601

 

 

37,092

 

1-4 family mortgages

 

 

198,208

 

 

226,884

 

 

57,920

 

 

77,566

 

 

94,163

 

Installment

 

 

8,611

 

 

11,998

 

 

12,747

 

 

21,502

 

 

37,415

 

Other

 

 

1,641

 

 

974

 

 

583

 

 

468

 

 

2,950

 

 

 



 



 



 



 



 

Total loans

 

$

957,285

 

$

836,944

 

$

417,525

 

$

419,275

 

$

476,812

 

Allowance for loan losses

 

 

(10,755

)

 

(10,835

)

 

(8,362

)

 

(9,732

)

 

(9,011

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

946,530

 

$

826,109

 

$

409,163

 

$

409,543

 

$

467,801

 

 

 



 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Principal Amount

 

 

 

Percentage of Total Loan Portfolio

 

 

 

December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 


 


 


 


 


 

 

Commercial

 

 

18.93

%

 

18.50

%

 

21.92

%

 

21.93

%

 

22.18

%

Agricultural

 

 

2.28

 

 

2.76

 

 

6.39

 

 

6.85

 

 

7.08

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgages

 

 

37.91

 

 

32.85

 

 

30.31

 

 

30.91

 

 

28.31

 

Construction

 

 

16.64

 

 

13.93

 

 

16.41

 

 

9.27

 

 

6.43

 

Agricultural

 

 

2.46

 

 

3.30

 

 

7.91

 

 

7.30

 

 

7.78

 

1-4 family mortgages

 

 

20.71

 

 

27.11

 

 

13.87

 

 

18.50

 

 

19.75

 

Installment

 

 

0.90

 

 

1.43

 

 

3.05

 

 

5.13

 

 

7.85

 

Other loans

 

 

0.17

 

 

0.12

 

 

0.14

 

 

0.11

 

 

0.62

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loans

 

 

100.00

%

 

100.00

%

 

100.00

%

 

100.00

%

 

100.00

%

 

 



 



 



 



 



 

As of December 31, 2007 and 2006, commitments of Centrue Bank (and its predecessors) under standby letters of credit and unused lines of credit totaled approximately $271,856 and $203,745, respectively.

37.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


Stated loan maturities (including rate loans reset to market interest rates) of the total loan portfolio, net of unearned income, at December 31, 2007 were as follows:

STATED LOAN MATURITIES (1)
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within

 

1 to 5

 

After 5

 

 

 

 

 

1 Year

 

Years

 

Years

 

Total

 

 

 


 


 


 


 

 

Commercial

 

$

104,792

 

$

50,621

 

$

25,797

 

$

181,210

 

Agricultural

 

 

15,742

 

 

4,718

 

 

1,401

 

 

21,861

 

Real estate

 

 

200,713

 

 

266,023

 

 

277,226

 

 

743,962

 

Installment

 

 

2,856

 

 

5,124

 

 

2,272

 

 

10,252

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

324,103

 

$

326,486

 

$

306,696

 

$

957,285

 

 

 



 



 



 



 

(1)      Maturities based upon contractual maturity dates

The maturities presented above are based upon contractual maturities. Many of these loans are made on a short-term basis with the possibility of renewal at time of maturity. All loans, however, are reviewed on a continuous basis for creditworthiness.

Rate sensitivities of the total loan portfolio, net of unearned income, at December 31, 2007 were as follows:

LOAN REPRICING
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within

 

1 to 5

 

After 5

 

 

 

 

 

1 Year

 

Years

 

Years

 

Total

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate

 

$

81,552

 

$

210,671

 

$

116,007

 

$

408,230

 

Variable rate

 

 

240,817

 

 

114,784

 

 

189,364

 

 

544,965

 

Nonaccrual

 

 

2,663

 

 

1,115

 

 

312

 

 

4,090

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

325,032

 

$

326,570

 

$

305,683

 

$

957,285

 

 

 



 



 



 



 

          Nonperforming Assets. The Company’s financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on its loan portfolio, unless a loan is placed on nonaccrual status. Loans are placed on nonaccrual status when there are serious doubts regarding the collectibility of all principal and interest due under the terms of the loans. If a loan is placed on nonaccrual status, the loan does not generate current period income for the Company and any amounts received are generally applied first to principal and then to interest. It is the policy of the Company not to renegotiate the terms of a loan because of a delinquent status. Rather, a loan is generally transferred to nonaccrual status if it is not in the process of collection and is delinquent in payment of either principal or interest beyond 90 days.

The classification of a loan as nonaccrual does not necessarily indicate that the principal is uncollectible, in whole or in part. The Bank makes a determination as to collectibility on a case-by-case basis and considers both the adequacy of the collateral and the other resources of the borrower in determining the steps to be taken to collect nonaccrual loans. The final determination as to the steps taken is made based upon the specific facts of each situation. Alternatives that are typically considered to collect nonaccrual loans are foreclosure, collection under guarantees, loan restructuring, or judicial collection actions.

38.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


Other nonperforming assets consist of real estate acquired through loan foreclosures or other workout situations and other assets acquired through repossessions.

Each of the Company’s loans is assigned a rating based upon an internally developed grading system. A separate credit administration department also reviews grade assignments on a quarterly basis. Management continuously monitors nonperforming, impaired, and past due loans to prevent further deterioration of these loans. The Company has an independent loan review function which is separate from the lending function and is responsible for the review of new and existing loans.

The following table sets forth a summary of nonperforming assets:

NONPERFORMING ASSETS
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 


 


 


 


 


 

Nonaccrual loans

 

$

4,090

 

$

11,759

 

$

3,082

 

$

3,649

 

$

8,149

 

Loans 90 days past due and still accruing interest

 

 

 

 

 

 

922

 

 

553

 

 

328

 

 

 



 



 



 



 



 

Total nonperforming loans

 

 

4,090

 

 

11,759

 

 

4,004

 

 

4,202

 

 

8,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

2,937

 

 

2,136

 

 

203

 

 

420

 

 

227

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonperforming assets

 

$

7,027

 

$

13,895

 

$

4,207

 

$

4,622

 

$

8,704

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loans to total end of period loans

 

 

0.43

%

 

1.40

%

 

0.96

%

 

1.00

%

 

1.78

%

Nonperforming assets to total end of period loans

 

 

0.73

 

 

1.66

 

 

1.01

 

 

1.10

 

 

1.83

 

Nonperforming assets to total end of period assets

 

 

0.51

 

 

1.08

 

 

0.62

 

 

0.69

 

 

1.10

 

The level of nonperforming loans at December 31, 2007 decreased 65.2% to $4,090 versus the $11,759 that existed as of December 31, 2006. The decrease of $7,669 was largely related to resolutions of nonbankable loans or through successful workout strategies executed throughout 2007. The level of nonperforming loans to total end of period loans was 0.43% at December 31, 2007, as compared to 1.40% at December 31, 2006. The reserve coverage ratio (allowance to nonperforming loans) was reported at 262.96% as of December 31, 2007 as compared to 92.14% as of December 31, 2006.

          Other Potential Problem Loans. The Company has other potential problem loans that are currently performing, but where some concerns exist as to the ability of the borrower to comply with present loan repayment terms. Excluding nonperforming loans and loans that management has classified as impaired, these other potential problem loans totaled $1,485 at December 31, 2007 as compared to $1,757 at December 31, 2006. The classification of these loans, however, does not imply that management expects losses on each of these loans, but believes that a higher level of scrutiny and closer monitoring is prudent under the circumstances. Such classifications relate to specific concerns for each individual borrower and do not relate to any concentration risk common to all loans in this group.

39.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The following table sets forth a summary of other real estate owned and other collateral acquired at December 31, 2007:

OTHER REAL ESTATE OWNED
(Dollars in Thousands
)

 

 

 

 

 

 

 

 

 

 

Number

 

Net Book

 

 

 

of

 

Carrying

 

 

 

Parcels

 

Value

 

 

 


 


 

Developed property

 

 

15

 

$

1,047

 

Vacant land or unsold lots

 

 

67

 

 

1,890

 

 

 



 



 

Total other real estate owned

 

 

82

 

$

2,937

 

 

 



 



 

           Allowance for Loan Losses. At December 31, 2007, the allowance for loan losses was $10,755 or 1.12% of total loans as compared to $10,835 or 1.29% at December 31, 2006. The Company recorded a provision of $675 to the allowance for loan losses in 2007 due to the loan growth of $120,341 experienced in 2007.

In conjunction with the Centrue merger, the Company acquired $436,459 in net loans. Centrue’s allowance for loan losses at the acquisition date, not allocated to impaired loans, was $4,767. The Company applied the guidance required under the American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-3”) and determined that certain loans acquired in the merger had evidence of deterioration of credit quality since origination and were probable that all contractual required payments would not be collected on these loans. The Company determined that 54 loans with a book value totaling approximately $11,796 and a fair value of $9,379 were within the guidelines set forth under SOP 03-3. The Company recorded these at their fair value and reduced the allowance for loan losses by $2,416. Accordingly, the Company recorded $4,767 of allowance for loan losses on loans not subject to SOP 03-3.

At December 31, 2006, the allowance for loan losses was $10,835 or 1.29% of total loans as compared to $8,362 or 2.00% at December 31, 2005. The Company recorded a negative provision of ($1,275) to the allowance for loan losses largely based on the pay-off of one $4,400 loan relationship that was classified as impaired as of year-end with a specific reserve allocation of $1,500. Also contributing to management’s decision to make the reverse provision were continued improvements in the quality of the loan portfolio and favorable loan loss experience.

In originating loans, the Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, the following:

 

 

 

 

general economic conditions;

 

 

 

 

the type of loan being made;

 

 

 

 

the creditworthiness of the borrower over the term of the loan; and

 

 

 

 

in the case of a collateralized loan, the quality of the collateral for such a loan.

The allowance for loan losses represents the Company’s estimate of the allowance necessary to provide for probable incurred losses in the loan portfolio by analyzing the following:

 

 

 

 

ultimate collectibility of the loans in its portfolio;

 

 

 

 

incorporating feedback provided by internal loan staff;

 

 

 

 

the independent loan review function; and

 

 

 

 

information provided by examinations performed by regulatory agencies.

40.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And

Results Of Operations

(In Thousands, Except Share Data)


The Company regularly evaluates the adequacy of the allowance for loan losses. Commercial credits are graded using a system that is in compliance with regulatory classifications by the loan officers and the loan review function validates the officers’ grades. In the event that the loan review function downgrades the loan, it is included in the allowance analysis at the lower grade. To establish the appropriate level of the allowance, a sample of loans (including impaired and nonperforming loans) are reviewed and classified as to potential loss exposure.

Based on an estimation computed pursuant to the requirements of Financial Accounting Standards Board (“FASB”) Statement No. 5, “Accounting for Contingencies,” and FASB Statements Nos. 114 and 118, “Accounting by Creditors for Impairment of a Loan,” the analysis of the allowance for loan losses consists of three components:

 

 

 

 

specific credit allocation established for expected losses resulting from analysis developed through specific credit allocations on individual loans for which the recorded investment in the loan exceeds its fair value;

 

 

general portfolio allocation based on historical loan loss experience for each loan category; and

 

 

subjective reserves based on general economic conditions as well as specific economic factors in the markets in which the Company operates.

The specific credit allocation component of the allowance for loan losses is based on a regular analysis of loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. The fair value of the loan is determined based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less cost of sale.

The general portfolio allocation component of the allowance for loan losses is determined statistically using a loss migration analysis that examines historical loan loss experience. The loss migration analysis is performed quarterly and loss factors are updated regularly based on actual experience. The general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for concentrations and changes in portfolio mix and volume.

The allowance for loan losses is based on estimates, and ultimate losses will vary from current estimates. These estimates are reviewed monthly, and as adjustments, either positive or negative, become necessary, a corresponding increase or decrease is made in the provision for loan losses. The methodology used to determine the adequacy of the allowance for loan losses is consistent with prior years.

Management remains watchful of credit quality issues. Should the economic climate deteriorate from current levels, borrowers may experience difficulty, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision.

41.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)


The following table presents a detailed analysis of the Company’s allowance for loan losses:

ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 


 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

10,835

 

$

8,362

 

$

9,732

 

$

9,011

 

$

6,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

797

 

 

552

 

 

342

 

 

1,497

 

 

4,791

 

Real estate mortgages

 

 

651

 

 

1,044

 

 

1,611

 

 

389

 

 

626

 

Installment and other loans

 

 

119

 

 

88

 

 

367

 

 

578

 

 

812

 

 

 



 



 



 



 



 

Total charge-offs

 

 

1,567

 

 

1,684

 

 

2,320

 

 

2,464

 

 

6,229

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

442

 

 

223

 

 

394

 

 

1,021

 

 

415

 

Real estate mortgages

 

 

263

 

 

357

 

 

208

 

 

230

 

 

46

 

Installment and other loans

 

 

107

 

 

85

 

 

98

 

 

184

 

 

93

 

 

 



 



 



 



 



 

Total recoveries

 

 

812

 

 

665

 

 

700

 

 

1,435

 

 

554

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

 

 

755

 

 

1,019

 

 

1,620

 

 

1,029

 

 

5,675

 

 

 



 



 



 



 



 

Provision for loan losses

 

 

675

 

 

(1,275

)

 

250

 

 

1,924

 

 

8,236

 

Reduction due to sale of loans

 

 

 

 

 

 

 

 

174

 

 

 

Increase due to merger

 

 

 

 

4,767

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Ending balance

 

$

10,755

 

$

10,835

 

$

8,362

 

$

9,732

 

$

9,011

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period end total loans

 

$

957,285

 

$

836,944

 

$

417,525

 

$

419,275

 

$

476,812

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loans

 

$

902,658

 

$

464,968

 

$

411,783

 

$

447,605

 

$

482,343

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs to average loans

 

 

0.08

%

 

0.22

%

 

0.39

%

 

0.23

%

 

1.18

%

Ratio of provision for loan losses to average loans

 

 

0.07

 

 

(0.27

)

 

0.06

 

 

0.43

 

 

1.71

 

Ratio of allowance for loan losses to ending total loans

 

 

1.12

 

 

1.29

 

 

2.00

 

 

2.32

 

 

1.89

 

Ratio of allowance for loan losses to total nonperforming loans

 

 

262.96

 

 

92.14

 

 

208.84

 

 

231.60

 

 

106.30

 

42.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)


The following table sets forth an allocation of the allowance for loan losses among the various loan categories:

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2007

 

2006

 

2005

 

2004

 

2003

 

 

 


 


 


 


 


 

 

 

Amount

 

Loan
Category
to Gross
Loans

 

Amount

 

Loan
Category
to Gross
Loans

 

Amount

 

Loan
Category
to Gross
Loans

 

Amount

 

Loan
Category
to Gross
Loans

 

Amount

 

Loan
Category
to Gross
Loans

 

 

 


 


 


 


 


 


 


 


 


 


 

 

Commercial

 

$

4,013

 

 

37.31

%

$

4,888

 

 

21.84

%

$

7,386

 

 

28.32

%

$

6,035

 

 

28.78

%

$

4,935

 

 

29.26

%

Real estate

 

 

6,553

 

 

60.93

 

 

5,668

 

 

76.61

 

 

773

 

 

68.49

 

 

3,311

 

 

65.98

 

 

2,846

 

 

62.27

 

Installment and other loans

 

 

189

 

 

1.76

 

 

279

 

 

1.55

 

 

203

 

 

3.19

 

 

386

 

 

5.24

 

 

593

 

 

8.47

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

637

 

 

 

 

 



 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

10,755

 

 

100.00

%

$

10,835

 

 

100.00

%

$

8,362

 

 

100.00

%

$

9,732

 

 

100.00

%

$

9,011

 

 

100.00

%

 

 



 



 



 



 



 



 



 



 



 



 

          Securities Activities. The Company’s consolidated securities portfolio, which represented 23.3% of the Company’s average earning asset base as of December 31, 2007, as compared to 28.7% as of December 31, 2006, is managed to minimize interest rate risk, maintain sufficient liquidity, and maximize return. The portfolio includes several callable agency debentures, adjustable rate mortgage pass-throughs, and collateralized mortgage obligations. Corporate bonds consist of investment grade obligations of public corporations. Equity securities consist primarily of trust preferred stock as well as CRA, FAMC and IBBI stock. The Company’s financial planning anticipates income streams generated by the securities portfolio based on normal maturity and reinvestment. Securities classified as available-for-sale, carried at fair value, were $238,661 at December 31, 2007 compared to $290,224 at December 31, 2006. The Company does not have any securities classified as trading or held-to-maturity. The Company also holds $10,670, $8,468 and $6,376 of Federal Reserve and Federal Home Loan Bank stock which is classified as restricted securities as of December 31, 2007, December 31, 2006 and December 31, 2005, respectively.

The following table describes the composition of securities by major category and maturity:

SECURITIES PORTFOLIO
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

 

 

 


Amount

 

 

% of
Portfolio

 

 


Amount

 

 

% of
Portfolio

 

 


Amount

 

 

% of
Portfolio

 

 

 



 



 



 



 



 



 

Available-for-Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

103,624

 

 

43.42

 

$

126,039

 

 

43.43

 

$

30,858

 

 

16.24

 

U.S. government agency mortgage backed securities

 

 

47,784

 

 

20.02

 

 

69,579

 

 

23.97

 

 

101,022

 

 

53.15

 

States and political subdivisions

 

 

41,561

 

 

17.41

 

 

41,471

 

 

14.29

 

 

18,400

 

 

9.68

 

Collateralized mortgage obligations

 

 

24,077

 

 

10.09

 

 

27,237

 

 

9.39

 

 

20,937

 

 

11.02

 

Corporate bonds

 

 

2,741

 

 

1.15

 

 

8,764

 

 

3.02

 

 

6,907

 

 

3.63

 

Other securities

 

 

18,874

 

 

7.91

 

 

17,134

 

 

5.90

 

 

11,940

 

 

6.28

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

238,661

 

 

100.00

%

$

290,224

 

 

100.00

%

$

190,064

 

 

100.00

%

 

 



 



 



 



 



 



 

43.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)


The following table sets forth the contractual, callable or estimated maturities and yields of the debt securities portfolio as of December 31, 2007. Mortgage backed and collateralized mortgage obligation securities are included at estimated maturity.

MATURITY SCHEDULE
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturing

 

 

 


 

 

 

Within 1 Year

 

After 1 but
Within 5 Years

 

After 5 but
Within 10 Years

 

After 10 Years

 

Total

 

 

 


 


 


 


 


 

 

 

Amount

 

Yield

 

Amount

 

Yield

 

Amount

 

Yield

 

Amount

 

Yield

 

Amount

 

 

 



 



 



 



 



 



 



 



 



 

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and corporations

 

$

26,139

 

 

4.622

%

$

74,297

 

 

4.678

%

$

3,188

 

 

6.000

%

$

 

 

%

$

103,624

 

U.S. government agency mortgage backed securities

 

 

1,567

 

 

4.622

 

 

291

 

 

5.188

 

 

8,278

 

 

5.065

 

 

37,648

 

 

5.761

 

 

47,784

 

States and political subdivisions (1)

 

 

2,814

 

 

6.594

 

 

28,466

 

 

5.668

 

 

4,132

 

 

6.524

 

 

6,149

 

 

5.665

 

 

41,561

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

342

 

 

5.014

 

 

23,735

 

 

5.548

 

 

24,077

 

Corporate bonds

 

 

765

 

 

4.597

 

 

1,976

 

 

5.138

 

 

 

 

 

 

 

 

 

 

2,741

 

 

 



 

 



 

 



 

 



 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

31,285

 

 

 

 

$

105,030

 

 

 

 

$

15,940

 

 

 

 

$

67,532

 

 

 

 

$

219,787

 

 

 



 

 



 

 



 

 



 

 



 


 

 


(1)

Rates on obligations of states and political subdivisions have been adjusted to tax equivalent yields using a 34% income tax rate

          Deposit Activities. Deposits are attracted through the offering of a broad variety of deposit instruments, including checking accounts, money market accounts, regular savings accounts, term certificate accounts (including “jumbo” certificates in denominations of $100,000 or more), and retirement savings plans. The Company’s average balance of total deposits was $1,063,359 for 2007, representing an increase of $465,760 or 77.9% compared with the average balance of total deposits for 2006 primarily resulting from $523,630 in deposits added as a result of the Centrue merger.

The following table sets forth certain information regarding Centrue Bank’s average deposits:

AVERAGE DEPOSITS
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

 

 

Average
Amount

 

%
of
Total

 

Average
Rate
Paid

 


Average
Amount

 

%
of
Total

 

Average
Rate
Paid

 


Average
Amount

 

%
of
Total

 

Average
Rate
Paid

 

 

 


 


 


 


 


 


 


 


 


 

Non-interest-bearing demand deposits

 

$

120,355

 

 

11.32

%

 

%

$

68,650

 

 

11.49

%

 

%

$

61,040

 

 

11.74

%

 

%

Savings accounts

 

 

96,838

 

 

9.11

 

 

0.68

 

 

45,343

 

 

7.59

 

 

0.69

 

 

42,122

 

 

8.10

 

 

0.50

 

Interest-bearing demand deposits

 

 

232,031

 

 

21.82

 

 

2.84

 

 

137,106

 

 

22.94

 

 

2.33

 

 

131,882

 

 

25.36

 

 

1.51

 

Time, less than $100,000

 

 

387,530

 

 

36.44

 

 

4.72

 

 

137,470

 

 

23.00

 

 

4.14

 

 

136,745

 

 

26.30

 

 

3.06

 

Time, $100,000 or more

 

 

226,605

 

 

21.31

 

 

5.30

 

 

209,030

 

 

34.98

 

 

4.35

 

 

148,238

 

 

28.50

 

 

3.05

 

 

 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

$

1,063,359

 

 

100.00

%

 

3.53

%

$

597,599

 

 

100.00

%

 

3.05

%

$

520,027

 

 

100.00

%

 

2.10

%

 

 



 



 



 



 



 



 



 



 



 

As of December 31, 2007, average time deposits over $100,000 represented 21.31% of total average deposits, compared with 34.98% of total average deposits as of December 31, 2006. The Company’s large denomination time deposits are generally from customers within the local market areas of its subsidiary bank and provide a greater degree of stability than is typically associated with brokered deposit customers with limited business relationships.

44.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)


The following table sets forth the remaining maturities for time deposits of $100,000 or more at December 31, 2007:

TIME DEPOSITS OF $100,000 OR MORE
(Dollars in Thousands)

Maturity Range

 

 

 

 

 

Three months or less

 

$

90,329

 

Over three months through six months

 

 

33,475

 

Over six months through twelve months

 

 

50,022

 

Over twelve months

 

 

27,492

 

 

 



 

 

 

 

 

 

Total

 

$

201,318

 

 

 



 

         Return on Equity and Assets. The following table presents various ratios for the Company:

RETURN ON EQUITY AND ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended
December 31,

 

 

 


 

 

 

2007

 

2006

 

2005

 

 

 


 


 


 

Return on average assets

 

 

0.85

%

 

0.69

%

 

0.63

%

Return on average equity

 

 

9.53

 

 

6.69

 

 

6.06

 

Average equity to average assets

 

 

8.90

 

 

10.35

 

 

10.39

 

Dividend payout ratio for common stock

 

 

29.17

 

 

27.05

 

 

43.39

 

         Liquidity

The Company manages its liquidity position with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. In addition to the normal inflow of funds from core-deposit growth together with repayments and maturities of loans and investments, the Company utilizes other short-term funding sources such as brokered time deposits, securities sold under agreements to repurchase, overnight federal funds purchased from correspondent banks and the acceptance of short-term deposits from public entities, and Federal Home Loan Bank advances.

The Company monitors and manages its liquidity position on several bases, which vary depending upon the time period. As the time period is expanded, other data is factored in, including estimated loan funding requirements, estimated loan payoffs, investment portfolio maturities or calls, and anticipated depository buildups or runoffs.

The Company classifies all of its securities as available-for-sale, thereby maintaining significant liquidity. The Company’s liquidity position is further enhanced by structuring its loan portfolio interest payments as monthly and by the significant representation of retail credit and residential mortgage loans in the Company’s loan portfolio, resulting in a steady stream of loan repayments. In managing its investment portfolio, the Company provides for staggered maturities so that cash flows are provided as such investments mature.

45.



 

CENTRUE FINANCIAL CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)


The Company’s cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows provided by operating activities and investing activities offset by cash flows used in financing activities resulted in a net increase in cash and cash equivalents of $11,433 from December 31, 2006 to December 31, 2007.

During 2007, the Company experienced net cash outflows of $76,355 in investing activities primarily due to large increases in loans. In contrast, net cash inflows of $66,772 were provided by financing activities due to increases in deposits and advances from the Federal Home Loan Bank and $21,016 from operating activities largely due to net income.

Centrue Bank’s securities portfolio, federal funds sold, and cash and due from bank deposit balances serve as the primary sources of liquidity for the Company. At December 31, 2007, 21.91% of Centrue Bank’s interest-bearing liabilities were in the form of time deposits of $100,000 and over. Management believes these deposits to be a stable source of funds. However, if a large number of these time deposits matured at approximately the same time and were not renewed, Centrue Bank’s liquidity could be adversely affected. Currently, the maturities of Centrue Bank’s large time deposits are spread throughout the year, with 44.9% maturing in the first quarter of 2008, 16.6% maturing in the second quarter of 2008, 24.8% maturing in the third and fourth quarters of 2008, and the remaining 13.7% maturing thereafter. Centrue Bank monitors those maturities in an effort to minimize any adverse effect on liquidity.

The Company’s borrowings included trust preferred securities, notes payable, FHLB advances and securities sold under agreements to repurchase at December 31, 2007 in the principal amount of $10,000 each for Centrue Statutory Trust II and Centrue Statutory Trust III, $12,864 payable to the Company’s principal correspondent bank, $121,615 of FHLB advances, $44,937 of securities sold under agreements to repurchase, shareholder note for $868 related to the purchase of a previous acquisition and $70 payable to individuals related to the purchase of the Howard Marshall Agency. The note to the Company’s principal correspondent bank is renewable annually, requires quarterly interest payments, and is collateralized by the Company’s stock in the Bank. The note related to the purchase of the Howard Marshall Agency requires monthly principal and interest payments. The shareholder note requires bi-annual payments of $500 at an imputed interest rate.

The Company’s principal source of funds for repayment of the indebtedness is dividends from Centrue Bank. At December 31, 2007, approximately $5,025 was available for dividends without regulatory approval.

Contractual Obligations

The Company has entered into contractual obligations and commitments and off-balance sheet financial instruments. The following tables summarize the Company’s contractual cash obligations and other commitments and off-balance sheet instruments as of December 31, 2007:

46.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And
Results Of Operations

(In Thousands, Except Share Data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

 


 

Contractual Obligations

 

Within 1
Year

 

1-3 Years

 

4-5 Years

 

After
5 Years

 

Total

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

12,934

 

$

 

$

 

$

 

$

12,934

 

Long-term debt

 

 

 

 

706

 

 

162

 

 

 

 

868

 

Certificates of deposit

 

 

485,595

 

 

76,193

 

 

3,538

 

 

3,313

 

 

568,639

 

Operating leases

 

 

410

 

 

856

 

 

893

 

 

447

 

 

2,606

 

Severance payments

 

 

32

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B Mandatory redeemable preferred stock

 

 

 

 

831

 

 

 

 

 

 

831

 

Subordinated Debentures

 

 

 

 

 

 

 

 

20,620

 

 

20,620

 

FHLB Advances

 

 

103,344

 

 

10,204

 

 

3,001

 

 

5,066

 

 

121,615

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contractual cash obligations

 

$

602,315

 

$

88,790

 

$

7,594

 

$

29,446

 

$

728,145

 

 

 



 



 



 



 



 

Commitments, Contingencies, and Off-Balance Sheet Financial Instruments

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, often including obtaining collateral at exercise of the commitment. At December 31, 2007, the Company had $262,288 in outstanding loan commitments including outstanding commitments for various lines of credit. The Company also has $9,568 of standby letters of credit as of December 31, 2007. See Note 18 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby letters of credit.

Capital Resources

          Stockholders’ Equity

The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. Stockholders’ equity at December 31, 2007 was $118,876, an increase of $685 or 0.6%, from December 31, 2006. The increase in stockholders’ equity was largely the result of net income for the period partially offset by dividends paid to shareholders and the purchase of treasury stock. Average equity as a percentage of average assets was 8.90% at December 31, 2007, compared to 10.35% at December 31, 2006. Book value per common share equaled $19.50 at December 31, 2007, an increase from $18.23 reported at the end of 2006.

          Stock Repurchase Programs

The 2006 repurchase program was completed on July 23, 2007. The 2007 repurchase program approved on July 24, 2007 authorized the company to repurchase an additional 500,000 shares, or approximately 8% of the Company’s currently issued and outstanding shares, in the open market or privately negotiated transactions over an 18 month period. The expiration date of this program is January 24, 2009. Unless terminated earlier by resolution of our board of directors, the program will expire on the earlier of such expiration date or when we have repurchased all shares authorized for repurchase under the program.

47.



 

Centrue Financial Corporation

Management’s Discussion And Analysis Of Financial Condition And
Results Of Operations

(In Thousands, Except Share Data)


          Capital Measurements

The Company and Centrue Bank are expected to meet a minimum risk-based capital to risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss allowance that may be included in capital is limited to 1.25% of risk-weighted assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and Tier 2 (supplementary) capital to risk-weighted assets for the Company was 9.2% and 10.2%, respectively, at December 31, 2007. The decline in the respective capital ratios was primarily due to the Company taking advantage of its stock repurchase plan during the year. The Company is currently, and expects to continue to be, in compliance with these guidelines.

As of December 31, 2007, the Tier 2 risk-based capital was comprised of $10,755 in allowance for loan losses (limited to 1.25% of risk-weighted assets). The Series A Preferred Stock is convertible into common stock, subject to certain adjustments intended to offset the amount of losses incurred by the Company upon the post-closing sale of certain securities acquired in conjunction with a previous acquisition.

The following table sets forth an analysis of the Company’s capital ratios:

RISK-BASED CAPITAL RATIOS
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

Minimum

 

Well

 

 

 


 

Capital

 

Capitalized

 

 

 

2007

 

2006

 

2005

 

Ratios

 

Ratios

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

$

101,831

 

$

99,869

 

$

60,546

 

 

 

 

 

 

 

Tier 2 risk-based capital

 

 

10,755

 

 

10,835

 

 

6,266

 

 

 

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 

Total capital

 

$

112,586

 

$

110,704

 

$

66,812

 

 

 

 

 

 

 

Risk-weighted assets

 

$

1,102,602

 

$

926,874

 

$

501,342

 

 

 

 

 

 

 

Capital ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

9.2

%

 

10.8

%

 

12.1

%

 

4.0

%

 

N/A

 

Total risk-based capital

 

 

10.2

 

 

11.9

 

 

13.3

 

 

8.0

 

 

N/A

 

Leverage ratio

 

 

7.7

 

 

7.9

 

 

9.0

 

 

4.0

 

 

N/A

 

Impact of Inflation, Changing Prices, and Monetary Policies

The financial statements and related financial data concerning the Company have been prepared in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly sensitive to many factors which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the FRB.

48.



 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

 

The discussion under the caption “Interest Rate Sensitivity Management” contained in Item 7 of this Form 10-K is incorporated herein by this reference.

 

Item 8.

Financial Statements and Supplementary Data

Index to Financial Statements

 

 

Report of Independent Registered Public Accounting Firm

50

 

 

Consolidated Balance Sheets (December 31, 2007 and 2006)

52

 

 

Consolidated Statements of Income
(For the years ended December 31, 2007, 2006 and 2005)

53

 

 

Consolidated Statements of Stockholders’ Equity
(For the years ended December 31, 2007, 2006 and 2005)

55

 

 

Consolidated Statements of Cash Flows
(For the years ended December 31, 2007, 2006 and 2005)

57

 

 

Notes

59

Supplementary Data

The Supplementary Financial Information required to be included in this Item 8 is hereby incorporated by reference by Note 24 to the Notes to Consolidated Financial Statements contained herein.

49.



 

(CROWE(TM) LOGO)

 

Crowe Chizek and Company LLC

Member Horwath International

Report of Independent Registered Public Accounting Firm

Audit Committee
Board of Directors and Stockholders
Centrue Financial Corporation
Ottawa, Illinois

We have audited the accompanying consolidated balance sheets of Centrue Financial Corporation (“the Company”) as of December 31, 2007 and 2006, 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, 2007. We also have audited Centrue Financial Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control Over Financial Reporting as disclosed in Item 9A of Form 10-K. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

50.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Centrue Financial Corporation as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Centrue Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

 

 

-s- Crowe Chizek and Company  LLC

 

 

 

Crowe Chizek and Company LLC

Oak Brook, Illinois

 

March 12, 2008

 

51.



 

CENTRUE FINANCIAL CORPORATION

Consolidated Balance Sheets

December 31, 2007 and 2006 (In Thousands, Except Share and Per Share Data)


 

 

 

 

 

 

 

 

 

 

2007

 

2006

 







ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,628

 

$

40,195

 

Securities available-for-sale

 

 

238,661

 

 

290,224

 

Restricted securities

 

 

10,670

 

 

8,468

 

Loans

 

 

957,285

 

 

836,944

 

Allowance for loan losses

 

 

(10,755

)

 

(10,835

)

 

 



 



 

Net loans

 

 

946,530

 

 

826,109

 

Cash value of life insurance

 

 

26,895

 

 

25,904

 

Mortgage servicing rights

 

 

3,161

 

 

3,510

 

Premises and equipment, net

 

 

35,615

 

 

35,403

 

Goodwill

 

 

25,498

 

 

25,396

 

Intangible assets, net

 

 

11,007

 

 

12,733

 

Other real estate

 

 

2,937

 

 

2,136

 

Other assets

 

 

12,397

 

 

12,947

 

 

 



 



 

 

 

 

 

 

 

 

 

Total assets

 

$

1,364,999

 

$

1,283,025

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Non-interest-bearing

 

$

114,360

 

$

125,585

 

Interest-bearing

 

 

918,662

 

 

901,025

 

 

 



 



 

Total deposits

 

 

1,033,022

 

 

1,026,610

 

Securities sold under agreements to repurchase

 

 

44,937

 

 

36,319

 

Federal Home Loan Bank advances

 

 

121,615

 

 

63,147

 

Notes payable

 

 

13,802

 

 

9,015

 

Series B mandatory redeemable preferred stock

 

 

831

 

 

831

 

Subordinated debentures

 

 

20,620

 

 

20,620

 

Other liabilities

 

 

11,296

 

 

8,292

 

 

 



 



 

Total liabilities

 

 

1,246,123

 

 

1,164,834

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Series A Convertible Preferred Stock (aggregate liquidation preference of $2,762)

 

 

500

 

 

500

 

Common stock, $1 par value, 15,000,000 shares authorized; 7,438,110 and 7,412,210 shares issued in 2007 and 2006

 

 

7,438

 

 

7,412

 

Surplus

 

 

70,901

 

 

70,460

 

Retained earnings

 

 

60,344

 

 

52,469

 

Accumulated other comprehensive income

 

 

939

 

 

235

 

 

 



 



 

 

 

 

140,122

 

 

131,076

 

Treasury stock, at cost, 1,366,564 shares - 2007 and 957,142 – 2006

 

 

(21,246

)

 

(12,885

)

 

 



 



 

Total stockholders’ equity

 

 

118,876

 

 

118,191

 

 

 



 



 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,364,999

 

$

1,283,025

 

 

 



 



 

See Accompanying Notes to Consolidated Financial Statements.

52.


CENTRUE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 (IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

2005

 









Interest income

 

 

 

 

 

 

 

 

 

 

Loans

 

$

69,060

 

$

33,717

 

$

27,251

 

Securities

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

12,419

 

 

8,785

 

 

6,331

 

Exempt from federal income taxes

 

 

1,520

 

 

976

 

 

993

 

Federal funds sold and other

 

 

577

 

 

380

 

 

122

 

 

 



 



 



 

Total interest income

 

 

83,576

 

 

43,858

 

 

34,697

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

37,560

 

 

18,204

 

 

10,910

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

1,881

 

 

407

 

 

197

 

Advances from the Federal Home Loan Bank

 

 

2,834

 

 

1,824

 

 

2,128

 

Series B Mandatory Redeemable

 

 

50

 

 

50

 

 

50

 

Subordinated debentures

 

 

1,688

 

 

242

 

 

 

Notes payable

 

 

722

 

 

624

 

 

419

 

 

 



 



 



 

Total interest expense

 

 

44,735

 

 

21,351

 

 

13,704

 

 

 



 



 



 

Net interest income

 

 

38,841

 

 

22,507

 

 

20,993

 

Provision (credit) for loan losses

 

 

675

 

 

(1,275

)

 

250

 

 

 



 



 



 

Net interest income after provision for loan losses

 

 

38,166

 

 

23,782

 

 

20,743

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Service charges

 

 

6,789

 

 

2,473

 

 

1,996

 

Trust income

 

 

942

 

 

858

 

 

811

 

Mortgage banking income

 

 

1,743

 

 

1,113

 

 

1,350

 

Brokerage commissions and fees

 

 

795

 

 

326

 

 

513

 

Bank owned life insurance

 

 

991

 

 

628

 

 

545

 

Securities losses

 

 

(29

)

 

(104

)

 

(79

)

Gain on sale of OREO

 

 

1,107

 

 

 

 

4

 

Other income

 

 

3,327

 

 

1,394

 

 

1,158

 

 

 



 



 



 

 

 

 

15,665

 

 

6,688

 

 

6,298

 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,635

 

 

12,181

 

 

12,546

 

Occupancy, net

 

 

4,043

 

 

1,714

 

 

1,488

 

Furniture and equipment

 

 

2,621

 

 

2,276

 

 

1,852

 

Marketing

 

 

1,035

 

 

697

 

 

491

 

Supplies and printing

 

 

653

 

 

421

 

 

343

 

Telephone

 

 

834

 

 

490

 

 

425

 

Data processing

 

 

1,650

 

 

788

 

 

490

 

Amortization of intangible assets

 

 

2,307

 

 

416

 

 

120

 

Other expenses

 

 

6,555

 

 

3,740

 

 

3,588

 

 

 



 



 



 

 

 

 

37,333

 

 

22,723

 

 

21,343

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

16,498

 

 

7,747

 

 

5,698

 

Income taxes

 

 

5,175

 

 

2,145

 

 

1,319

 

 

 



 



 



 

Income from continuing operations

 

$

11,323

 

$

5,602

 

$

4,379

 

See Accompanying Notes to Consolidated Financial Statements.

53.


CENTRUE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 (IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

2005

 









 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

Loss from operations of discontinued insurance unit (including loss on disposal of $452 in 2006)

 

 

 

 

(677

)

 

(326

)

Income tax benefit

 

 

 

 

(262

)

 

(120

)

 

 



 



 



 

Loss on discontinued operations

 

 

 

 

(415

)

 

(206

)

 

 



 



 



 

Net income

 

 

11,323

 

 

5,187

 

 

4,173

 

Preferred stock dividends

 

 

207

 

 

207

 

 

207

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Net income for common stockholders

 

$

11,116

 

$

4,980

 

$

3,966

 

 

 



 



 



 

Basic earnings per common share from continuing operations for common stockholders

 

$

1.75

 

$

1.31

 

$

1.06

 

Basic earnings per common share from discontinued operations for common stockholders

 

 

 

 

(0.10

)

 

(0.05

)

 

 



 



 



 

Basic earnings per common share for common stockholders

 

$

1.75

 

$

1.21

 

$

1.01

 

 

 



 



 



 

Diluted earnings per common share from continuing operations for common stockholders

 

$

1.74

 

$

1.30

 

$

1.04

 

Diluted earnings per common share from discontinued operations for common stockholders

 

 

 

 

(0.10

)

 

(0.05

)

 

 



 



 



 

Diluted earnings per common share for common stockholders

 

$

1.74

 

$

1.20

 

$

0.99

 

 

 



 



 



 

Dividends per common share for common stockholders

 

$

0.51

 

$

0.48

 

$

0.44

 

 

 



 



 



 

See Accompanying Notes to Consolidated Financial Statements.

54.



 

CENTRUE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 (IN THOUSANDS, EXCEPT SHARE DATA)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A
Convertible
Preferred
Stock

 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock

 

Total

 

 

 


 


 


 


 


 


 


 

Balance, January 1, 2005

 

$

500

 

$

4,641

 

$

22,632

 

$

46,592

 

$

1,351

 

$

(5,469

)

$

70,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

(1,721

)

 

 

 

 

 

(1,721

)

Preferred stock dividends

 

 

 

 

 

 

 

 

(207

)

 

 

 

 

 

(207

)

Exercise of stock options (43,486 shares)

 

 

 

 

43

 

 

535

 

 

 

 

 

 

 

 

578

 

Purchase of 268,754 shares of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

(5,739

)

 

(5,739

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

4,173

 

 

 

 

 

 

4,173

 

Net change in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments

 

 

 

 

 

 

 

 

 

 

(1,256

)

 

 

 

(1,256

)