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| TRUE > SEC Filings for TRUE > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
Centrue Financial Corporation (the "Company") is a bank holding company organized under the laws of the State of Delaware. The Company provides a full range of products and services to individual and corporate customers extending from the far western and southern suburbs of the Chicago metropolitan area across Central Illinois down to the metropolitan St. Louis area. 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.
The following discussion provides an analysis of the Company's results of operations and financial condition for the three and nine months ended September 30, 2008 as compared to the same period in 2007. In the opinion of management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included. The preparation of financial statements requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
For further information with respect to significant accounting policies followed
by the Company in the preparation of its consolidated financial statements,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2007. The annualized results of operations during the three and nine months
ended September 30, 2008 are not necessarily indicative of the results expected
for the year ending December 31, 2008. All financial information is in thousands
(000s), except shares and per share data.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, changes in these assumptions and estimates could significantly affect the Company's financial position or results of operations. Actual results could differ from those estimates. Those critical accounting policies that are of particular significance to the Company are discussed in Note 1 of the Company's 2007 Annual Report on Form 10-K.
Securities: Available-for-sale securities are those that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available-for-sale are carried at fair value with unrealized gains or losses, net of the related deferred income tax effect, reported in other comprehensive income. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and the Company's ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. Securities are written down to fair value when a decline in fair value is not temporary.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan balance is confirmed.
Goodwill and other intangible assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank, and branch company acquisitions. They are initially measured at fair value and then are amortized over their estimated useful lives, which is ten years.
Income taxes: Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws. Changes in enacted tax rates and laws are reflected in the financial statements in the periods they occur.
General
Third Quarter 2008 Highlights:
o Risk-based capital and tier-1 leverage ratios were at 11.70% and 8.30%, respectively, up from 11.17% and 7.93% that was reported at June 30, 2008.
o The net interest margin increased 3 basis points to its highest level in four quarters largely due to the prudent management of funding costs. The margin was reported at 3.37% as compared to 3.34% recorded in the second quarter 2008 and increased 12 basis points from 3.25% reported in the first quarter 2008.
o The efficiency ratio dropped to its lowest level in 16 quarters as it improved to 58.85%, a decrease from 59.42% recorded in the third quarter 2007 and 64.76% reported in the second quarter 2008.
o The loan portfolio increased $16,600 or 1.7% from year-end 2007. Excluding $32,300 in loans related to branch sales recorded in the first and second quarters of 2008, loans grew $48,900 or 5.1% since year-end 2007.
o As part of an ongoing effort to redeploy capital to more profitable business units, the Company completed the sale of asset management and the brokerage business units. We anticipate completing the sale of the Trust product line during the fourth quarter.
o Nonperforming assets remained relatively stable from June 30 levels, marginally increasing from $24,100 or 1.76% of assets recorded at June 30, 2008 to $24,900 or 1.87% of assets at quarter end.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Results of Operations
Net Income for the third quarter ended September 30, 2008 equaled $2,799 or $0.46 per diluted share. Comparatively, net income was $2,705 or $0.44 per diluted share for the second quarter of 2008 and $3,838 or $0.60 per diluted share in the third quarter of 2007. This represents an increase of 4.5% in diluted earnings per share over second quarter 2008 results and a decrease of 23.3% in diluted earnings per share in comparison to third quarter 2007 results. The decrease, when compared to third quarter 2007, was primarily related to $591 ($362, net of tax) in nonrecurring income and no recorded provision to the allowance for loan losses in the third quarter 2007.
For the nine months ended September 30, 2008, net income equaled $7,949 or $1.29 per diluted share as compared to $8,243 or $1.26 per diluted share in the same period during 2007. This represents an increase of 2.4% in diluted earnings per share.
Return on average assets was 0.83% for the third quarter of 2008 compared to 1.13% for the same period in 2007. Return on average assets was 0.78% for the nine month period ended September 30, 2008 compared to 0.83% for the same period in 2007.
Return on average stockholders' equity was 9.64% for the third quarter of 2008 compared to 12.78% for the same period 2008. Return on average stockholder's equity was 9.04% for the nine month period ended September 30, 2008 compared to 9.29% for the same period in 2007.
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 details each category of average amounts outstanding for interest-earning assets and interest-bearing liabilities, average rate earned on all interest-earning assets, average rate paid on all interest-bearing liabilities and the net yield on average interest-earning assets. In addition, the table reflects the changes in net interest income stemming from changes in interest rates and from asset and liability volume, including mix. The change in interest attributable to both rate and volume has been allocated to the changes in the rate and the volume on a pro rata basis.
Fully tax equivalent net interest income for the three months ended September 30, 2008 decreased 0.9% to $10,225 as compared $10,315 for the same period in 2007. The deterioration of net interest income was due to the decline in the net interest margin.
The net interest margin, on a tax equivalent basis, was 3.37% for the third quarter of 2008 as compared to 3.40% for the same period in 2007. The decline in the net interest margin was related to the Company's asset-sensitivity and the open market interest rate environment.
Between late September 2007 and May 2008, the Federal Open Market Committee (FOMC) reduced rates seven times for a cumulative reduction of 325 basis points. With most of the Company's floating rate loans repricing within 30 days of a rate change, loan yields began to reflect the downward pricing beginning in the fourth quarter of 2007 and continued through the first six months of 2008.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Most of the corresponding decreases in funding costs did not begin until the first quarter of 2008. However, funding costs typically take 90 to 120 days to reprice. Thus, funding costs continued to lag loan repricing for most of the second quarter of 2008, as market interest rates stabilized. The disparity between repricing of loans and the repricing of funding costs narrowed substantially during the third quarter. Management anticipates that the FOMC's 50-basis-point rate reduction on October 8, and potential further rate cuts, will continue to compress the margin.
Fully tax equivalent net interest income for the nine months ended September 30, 2008 increased 2.8% to $30,444 as compared to $29,628 for the same period in 2007. Net interest income increased largely due to strong growth in average earning assets and decreases in rates paid on interest-bearing funding which dropped in response to the current rate environment.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME
For the Three Months Ended September 30,
--------------------------------------------------------------
2008 2007
----------------------------- -----------------------------
Interest Interest Change Due To:
Average Income/ Average Average Income/ Average -------------------------------
Balance Expense Rate Balance Expense Rate Volume Rate Net
---------- -------- ---- ---------- -------- ---- ------- -------- --------
ASSETS
Interest-earning assets
Interest-earning deposits $ 2,179 $ 2 0.37% $ 751 $ 6 3.11% $ 4 $ (8) $ (4)
Securities
Taxable 179,204 2,134 4.75 232,740 3,084 5.26 (720) (230) (950)
Non-taxable 38,882 548 5.61 40,830 560 5.44 (30) 18 (12)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total securities
(tax equivalent) 218,086 2,682 4.89 273,570 3,644 5.28 (750) (212) (962)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Federal funds sold 769 12 6.21 8,140 106 5.16 (113) 19 (94)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Loans
Commercial 181,255 2,749 6.03 173,798 3,571 8.15 49 (871) (822)
Real estate 797,900 12,478 6.22 737,008 14,242 7.66 834 (2,598) (1,764)
Installment
and other 7,841 151 7.67 10,801 223 8.20 (78) 6 (72)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Gross loans
(tax equivalent) 986,996 15,378 6.20 921,607 18,036 7.76 805 (3,463) (2,658)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total interest-
earnings assets 1,208,030 18,074 5.95 1,204,068 21,792 7.18 (54) (3,664) (3,718)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Noninterest-earning assets
Cash and cash equivalents 26,357 34,749
Premises and equipment, net 33,472 35,978
Other assets 69,965 73,592
---------- ----------
Total nonearning assets 129,794 144,319
Total assets $1,337,824 $1,348,387
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 104,196 $ 274 1.04 $ 107,173 $ 409 1.51 (5) (130) (135)
Money market accounts 155,965 886 2.26 123,762 1,230 3.94 298 (642) (344)
Savings deposits 86,303 59 0.27 94,065 153 0.65 (8) (86) (94)
Time deposits 543,434 5,006 3.67 636,757 7,942 4.95 (962) (1,973) (2,935)
Federal funds purchased
and repurchase
agreements 42,482 189 1.76 48,494 536 4.39 (37) (311) (348)
Advances from FHLB 123,862 838 2.69 57,792 636 4.37 533 (331) 202
Notes payable 42,218 597 5.63 32,714 571 6.92 126 (100) 26
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total interest-
bearing
liabilities 1,098,460 7,849 2.84 1,100,757 11,477 4.14 (55) (3,573) (3,628)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Noninterest-bearing
liabilities
Noninterest-bearing deposits 113,282 116,705
Other liabilities 10,561 11,804
---------- ----------
Total noninterest-
bearing
liabilities 123,843 128,509
---------- ----------
Stockholders' equity 115,521 119,121
---------- ----------
Total liabilities and
stockholders' equity $1,337,824 $1,348,387
========== ==========
Net interest income
(tax equivalent) $ 10,225 $ 10,315 $ 1 $ (91) $ (90)
======== ======== ======= ======== ========
Net interest income
(tax equivalent)
to total earning
assets 3.37% 3.40%
==== ====
Interest-bearing
liabilities to
earning assets 90.93% 91.42%
========== ==========
|
(1) Average balance and average rate on securities classified as
available-for-sale is 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; overdraft loans are
excluded in the balances.
(4) Loan fees are included in the specific loan category.
CENTRUE FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME
For the Nine Months Ended September 30,
--------------------------------------------------------------
2008 2007
----------------------------- -----------------------------
Interest Interest Change Due To:
Average Income/ Average Average Income/ Average -------------------------------
Balance Expense Rate Balance Expense Rate Volume Rate Net
---------- -------- ---- ---------- -------- ---- ------- -------- --------
ASSETS
Interest-earning assets
Interest-earning deposits $ 2,668 $ 11 0.55% $ 2,339 $ 27 1.56% $ 1 $ (17) $ (16)
Securities
Taxable 183,117 6,666 4.88 243,102 9,584 5.27 (2,325) (593) (2,918)
Non-taxable 39,134 1,677 5.72 40,936 1,687 5.51 (85) 75 (10)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total securities
(tax equivalent) 222,251 8,343 5.01 284,038 11,271 5.31 (2,410) (518) (2,928)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Federal funds sold 2,543 83 4.34 9,048 353 5.22 (225) (45) (270)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Loans
Commercial 201,767 9,613 6.36 177,030 10,830 8.18 1,022 (2,239) (1,217)
Real estate 787,267 38,681 6.56 698,895 39,535 7.56 4,158 (5,012) (854)
Installment
and other 9,851 497 6.74 11,553 741 8.57 (262) 18 (244)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Gross loans
(tax equivalent) 998,885 48,791 6.52 887,478 51,106 7.70 4,918 (7,233) (2,315)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total interest-
earnings assets 1,226,347 57,228 6.23 1,182,903 62,757 7.09 2,284 (7,813) (5,529)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Noninterest-earning assets
Cash and cash equivalents 29,708 31,618
Premises and equipment, net 34,442 35,739
Other assets 69,216 74,181
---------- ----------
Total nonearning assets 133,366 141,538
Total assets $1,359,713 $1,324,441
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 107,722 $ 968 1.20 $ 105,151 $ 1,305 1.66 $ 44 $ (381) $ (337)
Money market accounts 159,126 3,313 2.78 120,846 3,347 3.70 973 (1,007) (34)
Savings deposits 88,870 262 0.39 99,352 507 0.68 (39) (206) (245)
Time deposits 555,681 17,048 4.10 613,642 22,835 4.98 (1,758) (4,029) (5,787)
Federal funds purchased
and repurchase
agreements 44,087 675 2.04 41,898 1,409 4.50 7 (741) (734)
Advances from FHLB 118,772 2,786 3.13 58,905 1,909 4.33 1,564 (687) 877
Notes payable 40,870 1,732 5.66 31,841 1,817 7.63 540 (625) (85)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Total interest-
bearing
liabilities 1,115,128 26,784 3.21 1,071,635 33,129 4.13 1,331 (7,676) (6,345)
---------- -------- ---- ---------- -------- ---- ------- -------- --------
Noninterest-bearing
liabilities
Noninterest-bearing deposits 116,220 122,957
Other liabilities 10,882 11,277
---------- ----------
Total noninterest-
bearing
liabilities 127,102 134,234
---------- ----------
Stockholders' equity 117,483 118,572
---------- ----------
Total liabilities and
stockholders' equity $1,359,713 $1,324,441
========== ==========
Net interest income
(tax equivalent) $ 30,444 $ 29,628 $ 953 $ (137) $ 816
======== ======== ======= ======== ========
Net interest income
(tax equivalent)
to total earning
assets 3.32% 3.35%
==== ====
Interest-bearing
liabilities to
earning assets 90.93% 90.59%
========== ==========
|
(1) Average balance and average rate on securities classified as
available-for-sale is 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%.
. . .
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