Unassociated Document /head>

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2011
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)
 
7700 Bonhomme Avenue, St. Louis, Missouri 63105
(Address of principal executive offices including zip code)

(314) 505-5500
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No 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
o
 
Non-accelerated filer
o
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Shares outstanding at November 14, 2011
     
Common Stock, Par Value $1.00
 
6,063,441

 
 

 

Centrue Financial Corporation
Form 10-Q Index
September 30, 2011
 
     
Page
     
         
     
         
      Unaudited Consolidated Balance Sheets  
1
 
         
      Unaudited Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)  
2
 
         
      Unaudited Consolidated Statements of Cash Flows  
4
 
         
      Notes to Unaudited Consolidated Financial Statements  
5
 
         
 
34
 
         
 
51
 
         
 
52
 
         
     
         
 
53
 
         
 
53
 
         
 
53
 
         
 
53
 
         
 
53
 
         
 
53
 
         
 
54
 
       
 
55
 

 
 

 

Centrue Financial Corporation
September 30, 2011 and December 31, 2010 (In Thousands, Except Share Data)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Cash and cash equivalents
  $ 63,296     $ 82,945  
Securities available-for-sale
    236,086       219,475  
Restricted securities
    9,150       10,470  
Loans
    620,450       721,871  
Allowance for loan losses
    (23,314 )     (31,511 )
Net loans
    597,136       690,360  
Bank-owned life insurance
    31,158       30,403  
Mortgage servicing rights
    2,151       2,425  
Premises and equipment, net
    24,526       25,687  
Other real estate owned
    32,912       25,564  
Other assets
    12,538       17,833  
                 
Total assets
  $ 1,008,953     $ 1,105,162  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities
               
Deposits
               
Non-interest-bearing
  $ 111,263     $ 118,667  
Interest-bearing
    750,854       812,438  
Total deposits
    862,117       931,105  
Federal funds purchased and securities sold under agreements to repurchase
    21,364       16,188  
Federal Home Loan Bank advances
    48,058       71,059  
Notes payable
    10,533       10,623  
Series B mandatory redeemable preferred stock
    268       268  
Subordinated debentures
    20,620       20,620  
Other liabilities
    13,032       12,378  
Total liabilities
    975,992       1,062,241  
                 
Commitments and contingent liabilities
           
                 
Stockholders’ equity
               
Series A convertible preferred stock (aggregate liquidation preference of $2,762)
    500       500  
Series C fixed rate, Cumulative Perpetual Preferred Stock (aggregate liquidation preference of $32,668)
    31,274       30,810  
Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at September 30, 2011 and December 31, 2010
    7,454       7,454  
Surplus
    74,776       74,721  
Accumulated Deficit
    (59,456 )     (46,861 )
Accumulated other comprehensive income (loss)
    527       (1,589 )
      55,075       65,035  
Treasury stock, at cost 1,405,150 shares at September 30, 2011 and December 31, 2010
    (22,114 )     (22,114 )
Total stockholders’ equity
    32,961       42,921  
                 
Total liabilities and stockholders’ equity
  $ 1,008,953     $ 1,105,162  
 
See Accompanying Notes to Unaudited Financial Statements
 
 
1.

 
 
Centrue Financial Corporation
And Comprehensive Income (Loss)
Three Months and Nine Months Ended September 30, 2011 and 2010
(In Thousands, Except Per Share Data)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Interest income
                       
Loans
  $ 8,297     $ 9,856     $ 26,414     $ 31,877  
Securities
                               
Taxable
    1,047       1,377       3,132       4,723  
Exempt from federal income taxes
    158       247       550       783  
Federal funds sold and other
    40       28       108       93  
Total interest income
    9,542       11,508       30,204       37,476  
                                 
Interest expense
                               
Deposits
    1,937       3,416       6,637       11,836  
Federal funds purchased and securities sold under agreements to repurchase
    11       7       32       37  
Federal Home Loan Bank advances
    347       573       1,114       1,733  
Series B mandatory redeemable preferred stock
    4       4       12       12  
Subordinated debentures
    277       270       821       783  
Notes payable
    89       99       270       279  
Total interest expense
    2,665       4,369       8,886       14,680  
                                 
Net interest income
    6,877       7,139       21,318       22,796  
Provision for loan losses
    2,400       7,250       9,900       24,150  
Net interest income (loss) after provision for loan losses
    4,477       (111 )     11,418       (1,354 )
                                 
Noninterest income
                               
Service charges
    1,232       1,215       3,483       3,934  
Mortgage banking income
    341       628       1,050       1,114  
Bank-owned life insurance
    256       261       755       773  
Electronic banking services
    552       516       1,644       1,528  
Securities gains
          899       379       1,913  
Total other-than-temporary impairment losses
          (569 )     (499 )     (4,153 )
Portion of loss recognized in other comprehensive income (before taxes)
          71             131  
Net impairment on securities
          (498 )     (499 )     (4,022 )
Gain (loss) on sale of OREO
    (12 )     24       (60 )     34  
Gain (loss) on sale of other assets
    (16 )     178       47       1,648  
Other income
    213       204       575       633  
      2,566       3,427       7,374       7,555  
 
See Accompanying Notes to Unaudited Financial Statements
 
 
2.

 
 
Centrue Financial Corporation
Unaudited Consolidated Statements Of Income (Loss)
And Comprehensive Income (Loss)
Three Months and Nine Months Ended September 30, 2011 and 2010
(In Thousands, Except Per Share Data)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
    2011     2010     2011     2010  
Noninterest expenses
                               
Salaries and employee benefits
    3,505       3,547       10,598       11,019  
Occupancy, net
    712       647       2,136       2,378  
Furniture and equipment
    407       642       1,267       1,685  
Marketing
    56       91       183       280  
Supplies and printing
    67       106       208       302  
Telephone
    229       194       637       567  
Data processing
    381       388       1,120       1,167  
FDIC insurance
    323       842       1,997       2,549  
Loan processing and collection costs
    495       675       1,597       1,789  
OREO valuation adjustment
    4,473       378       5,770       2,365  
Amortization of intangible assets
    250       307       789       967  
Other expenses
    1,499       1,462       4,472       4,307  
      12,397       9,279       30,774       29,375  
                                 
Income (loss) before income taxes
  $ (5,354 )   $ (5,963 )   $ (11,982 )   $ (23,174 )
Income tax expense (benefit)
    (606 )     10,440       (1,352 )     3,414  
Net income (loss)
  $ (4,748 )   $ ( 16,403 )   $ (10,630 )   $ (26,588 )
                                 
Preferred stock dividends
    505       484       1,500       1,435  
Net income (loss) for common stockholders
  $ (5,253 )   $ (16,887 )   $ (12,130 )   $ (28,023 )
                                 
Basic earnings (loss) per common share
  $ (0.87 )   $ (2.79 )   $ (2.01 )   $ (4.64 )
Diluted earnings (loss) per common share
  $ (0.87 )   $ (2.79 )   $ (2.01 )   $ (4.64 )
                                 
                                 
Total comprehensive income (loss):
                               
Net income (loss)
  $ (4,748 )   $ (16,403 )   $ (10,630 )   $ (26,588 )
Change in unrealized gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in earnings
          (341 )     (80 )     (3,067 )
Change in unrealized gains (losses) on other securities available for sale
    1,075       661       3,411       1,557  
Reclassification adjustment:                                
Net impairment loss recognized in earnings
          498       499       4,022  
(Gains) recognized in earnings
          (899 )     (379 )     (1,913 )
Net unrealized gains (loss)
    1,075       (81 )     3,451       599  
Tax expense (benefit)
    416       (32 )     1,335       232  
Other comprehensive income (loss)
    659       (49 )     2,116       367  
Total comprehensive income (loss)
  $ (4,089 )   $ (16,452 )   $ (8,514 )   $ (26,221 )
 
See Accompanying Notes to Unaudited Financial Statements
 
 
3.

 

Centrue Financial Corporation
Nine Months Ended September 30, 2011 and 2010 (In Thousands)

   
Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities
           
Net Income (Loss)
  $ (10,630 )   $ (26,588 )
                 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
               
Depreciation
    1,406       1,927  
Amortization of intangible assets
    789       967  
Amortization of mortgage servicing rights, net
    341       452  
Amortization of bond premiums, net
    1,666       2,084  
Mortgage servicing rights valuation adjustment
    89       225  
Income tax valuation allowance
    3,896       12,816  
Share based compensation
    54       83  
Provision for loan losses
    9,900       24,150  
Provision for deferred income taxes
    (3,896 )     (6,886 )
Earnings on bank-owned life insurance
    (755 )     (773 )
Other than temporary impairment, securities
    499       4,022  
OREO valuation allowance
    5,770       2,365  
Securities sale losses (gains), net
    (379 )     (1,913 )
(Gain) on sale of other assets, net
    (47 )     (469 )
(Gain) loss on sale of OREO
    60       (34
(Gain) loss on sale of loans
    (787 )     (1,102 )
(Gain) loss on sale of branches
          (1,179 )
Proceeds from sales of loans held for sale
    31,651       50,621  
Origination of loans held for sale
    (31,149 )     (50,135 )
Change in assets and liabilities
               
(Increase) decrease in other assets
    4,166       3,259  
Increase (decrease) in other liabilities
    (2,227 )     (682 )
Net cash provided by operating activities
    10,417       13,210  
Cash flows from investing activities
               
Proceeds from paydowns of securities available for sale
    31,946       56,446  
Proceeds from calls and maturities of securities available for sale
    18,000       11,650  
Proceeds from sales of securities available for sale
    19,738       74,152  
Purchases of securities available for sale
    (83,212 )     (152,431 )
Net decrease (increase) in loans
    64,458       82,107  
(Purchase) disposal of premises and equipment
    (245 )     175  
Proceeds from sale of OREO
    6,152       801  
Sale of branch, net of premium received
          (11,726 )
Net cash provided by (used in) investing activities
    56,837       61,174  
Cash flows from financing activities
               
Net increase (decrease) in deposits
    (68,988 )     (77,123 )
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
    5,176       (4,500 )
Repayment of advances from the Federal Home Loan Bank
    (33,001 )     (40,201 )
Proceeds from advances from the Federal Home Loan Bank
    10,000       35,000  
Payments on notes payable
    (90 )     (85 )
Net cash provided by (used in) financing activities
    (86,903 )     (86,909 )
Net increase (decrease) in cash and cash equivalents
    (19,649 )     (12,525 )
Cash and cash equivalents
               
Beginning of period
    82,945       56,452  
End of period
  $ 63,296     $ 43,927  
Supplemental disclosures of cash flow information
               
Cash payments for
               
Interest
  $ 9,018     $ 14,454  
Income taxes
    19        
Transfers from loans to other real estate owned
    19,151       11,650  
 
See Accompanying Notes to Unaudited Financial Statements

 
4.

 
 
Centrue Financial Corporation
(Table Amounts In Thousands, Except Share Data)
 
Note 1. Summary of Significant Accounting Policies

Centrue Financial Corporation is a bank holding company organized under the laws of the State of Delaware. When we use the terms “Centrue,” the “Company,” “we,” “us,” and “our,” we mean Centrue Financial Corporation, a Delaware Corporation, and its consolidated subsidiaries. When we use the term the “Bank,” we are referring to our wholly owned banking subsidiary, Centrue Bank. The Company and the Bank provide a full range of banking services to individual and corporate customers located in markets extending from the far western and southern suburbs of the Chicago metropolitan area across Central Illinois down to the metropolitan St. Louis area. These services include demand, time, and savings deposits; business and consumer lending; and mortgage banking. Additionally, brokerage, asset management, and trust services are provided to our customers on a referral basis to third party providers. The Company is subject to competition from other financial institutions and nonfinancial institutions providing financial services. Additionally, the Company and the Bank are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

Basis of presentation

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities and other-than-temporary impairment of securities, the determination of the allowance for loan losses and valuation of other real estate owned.

For further information with respect to significant accounting policies followed by the Company in the preparation of its consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2010 amounts have been reclassified to conform to the 2011 presentation. The annualized results of operations during the three and nine months ended September 30, 2011 are not necessarily indicative of the results expected for the year ending December 31, 2011. All financial information in the following tables is in thousands (000s), except share and per share data. In the opinion of management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included.

Note 2. Earnings Per Share

Basic earnings per share for the three and nine months ended September 30, 2011 and 2010 were computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share for the same periods were computed by dividing net income by the weighted average number of shares outstanding, adjusted for the dilutive effect of the stock options and warrants. Computations for basic and diluted earnings per share are provided as follows:
 
 
5.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 2. Earnings Per Share (Continued)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Basic Earnings (Loss) Per Common Share
                       
Net income (loss) for common shareholders
  $ (5,253 )   $ (16,887 )   $ (12,130 )   $ (28,023 )
Weighted average common shares outstanding
    6,048       6,046       6,048       6,044  
                                 
Basic earnings (loss) per common share
  $ (0.87 )   $ (2.79 )   $ (2.01 )   $ (4.64 )
                                 
Diluted Earnings (Loss) Per Common Share
                               
Weighted average common shares outstanding
    6,048       6,046       6,048       6,044  
Add: dilutive effect of assumed exercised stock options
                       
Add: dilutive effect of assumed exercised common stock warrants
                       
Weighted average common and dilutive potential shares outstanding
    6,048       6,046       6,048       6,044  
                                 
Diluted earnings (loss) per common share
  $ (0.87 )   $ (2.79 )   $ (2.01 )   $ (4.64 )
 
There were 464,038 options and 508,320 warrants outstanding for the three and nine months ended September 30, 2011 and 561,069 options and 508,320 warrants outstanding for the three and nine months ended September 30, 2010 that were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price and therefore, were anti-dilutive. In addition, the Company’s convertible preferred stock was not included in the computation of diluted earnings per share as it was anti-dilutive.

Note 3. Securities

The primary strategic objective related to the Company’s securities portfolio is to assist with liquidity and interest rate risk management. The fair value of securities classified as available-for-sale was $236.1 million at September 30, 2011 compared to $219.5 million at December 31, 2010. The fair value of securities classified as restricted (Federal Reserve and Federal Home Loan Bank stock) was $9.2 million at September 30, 2011 compared to $10.5 million at December 31, 2010. The Company does not have any securities classified as trading or held-to-maturity.

The following tables represent the fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at September 30, 2011 and December 31, 2010:
 
   
September 30, 2011
 
         
Gross
   
Gross
       
   
Fair
   
Unrealized
   
Unrealized
   
Amortized
 
   
Value
   
Gains
   
Losses
   
Cost
 
U.S. government agencies
  $ 3,285     $ 99     $     $ 3,186  
States and political subdivisions
    21,361       721             20,640  
U.S. government agency residential mortgage-backed securities
    179,098       2,991       (98 )     176,205  
Collateralized residential mortgage obligations:
                               
Agency
    16,823       257             16,566  
Private label
    2,178       354       (4 )     1,828  
Equity securities
    2,520       155             2,365  
Collateralized debt obligations:
                               
Single issue
    3,071       25             3,046  
Pooled
    5,763       46       (2,394 )     8,111  
Corporate
    1,987             (13 )     2,000  
                                 
    $ 236,086     $ 4,648     $ (2,509 )   $ 233,947  
 
 
6.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 3. Securities (Continued)
 
   
December 31, 2010
 
         
Gross
   
Gross
       
   
Fair
   
Unrealized
   
Unrealized
   
Amortized
 
   
Value
   
Gains
   
Losses
   
Cost
 
U.S. government agencies
  $ 7,085     $ 168     $     $ 6,917  
States and political subdivisions
    28,348       531       (8 )     27,825  
U.S. government agency residential mortgage-backed securities
    147,846       2,070       (131 )     145,907  
Collateralized residential mortgage obligations:
                               
Agency
    20,735       192             20,543  
Private label
    4,936       70       (77 )     4,943  
Equity securities
    2,254       41             2,213  
Collateralized debt obligations:
                               
Single issue
    3,849       3             3,846  
Pooled
    4,422       42       (4,213 )     8,593  
                                 
    $ 219,475     $ 3,117     $ (4,429 )   $ 220,787  
 
The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Proceeds from calls and maturities
  $ 6,080     $ 7,245     $ 18,000     $ 11,650  
Proceeds from sales
          39,293       19,738       74,152  
Realized gains
          937       379       1,951  
Realized losses
          (38 )           (38 )
Net impairment loss recognized in earnings
          (498 )     (499 )     (4,022 )
Tax benefit (provision) related to net realized gains and losses
          (155 )     46       814  
 
The following table represents securities with unrealized losses not recognized in income presented by the length of time individual securities have been in a continuous unrealized loss position:

   
September 30, 2011
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
                                     
U.S. government agency residential mortgage-backed securities
    23,352       (98 )                 23,352       (98 )
Collateralized residential mortgage obligations: private label
    860       (4 )                 860       (4 )
Collateralized debt obligations: pooled
                5,667       (2,394 )     5,667       (2,394 )
Corporate
    1,987       (13 )                 1,987       (13 )
                                                 
Total temporarily impaired
  $ 26,199     $ (115 )   $ 5,667     $ (2,394 )   $ 31,866     $ ( 2,509 )
 
 
7.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 3. Securities (Continued)
 
   
December 31, 2010
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
                                     
State and political subdivisions
  $ 664     $ (3 )   $ 350     $ (5 )   $ 1,014     $ (8 )
U.S. government agency residential mortgage-backed securities
    17,216       (131 )                 17,216       (131 )
Collateralized residential mortgage obligations: private label
                2,559       (77 )     2,559       (77 )
Collateralized debt obligations: pooled
                4,330       (4,213 )     4,330       (4,213 )
                                                 
Total temporarily impaired
  $ 17,880     $ (134 )   $ 7,239     $ (4,295 )   $ 25,119     $ (4,429 )
 
The fair values of securities classified as available-for-sale at September 30, 2011, by contractual maturity, are shown as follows. Securities not due at a single maturity date, including mortgage-backed securities, collateralized mortgage obligations, and equity securities are shown separately.
 
   
Amortized
       
   
Cost
   
Fair Value
 
Due in one year or less
  $ 5,491     $ 5,533  
Due after one year through five years
    12,613       12,959  
Due after five years through ten years
    6,400       6,740  
Due after ten years
    12,479       10,235  
U.S. government agency residential mortgage-backed securities
    176,205       179,098  
Collateralized residential mortgage obligations
    18,394       19,001  
Equity securities
    2,365       2,520  
    $ 233,947     $ 236,086  
 
The following table presents a rollforward of the credit losses recognized in earnings for the three month period ended September 30, 2011 and 2010:

   
2011
   
2010
 
Beginning balance, July 1,
  $ 20,861     $ 18,865  
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
           
Additions/Subtractions
               
Amounts realized for securities sold during the period
           
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis
           
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security
           
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized
          498  
                 
Ending balance, September 30,
  $ 20,861     $ 19,363  

 
8.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 3. Securities (Continued)

The following table presents a rollforward of the credit losses recognized in earnings for the nine month period ended September 30, 2011 and 2010:

   
2011
   
2010
 
Beginning balance, January 1,
  $ 20,362     $ 15,341  
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
           
Additions/Subtractions
               
Amounts realized for securities sold during the period
           
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis
           
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security
           
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized
    499       4,022  
                 
Ending balance, September 30,
  $ 20,861     $ 19,363  
 
See Note 9 on Fair Value for additional information about our analysis on the security portfolio related to the fair value and other-than-temporary impairment disclosures of these instruments.

Note 4. Loans

The major classifications of loans follow:
 
   
Aggregate Principal Amount
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
             
Commercial
  $ 73,545     $ 87,226  
Agricultural & AGRE
    37,883       44,289  
Construction, land & development
    44,230       72,078  
Commercial RE
    300,169       342,208  
1-4 family mortgages
    162,019       172,666  
Consumer
    2,604       3,404  
Total loans
  $ 620,450     $ 721,871  
Allowance for loan losses
    (23,314 )     (31,511 )
Loans, net
  $ 597,136     $ 690,360  
 
There were $2.0 million and $1.7 million of loans held for sale at September 30, 2011 and December 31, 2010, respectively.

The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. Internal risk ratings of 0 to 5 are considered pass credits, a risk rating of a 6 is special mention, a risk rating of a 7 is substandard, and a risk rating of an 8 is doubtful. Loans classified as pass credits have no identified material weaknesses and are performing as agreed. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
 
9.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

The following table presents the commercial loan portfolio by internal risk rating:
 
Sep. 30, 2011
 
Commercial
     
Construction
 
Commercial Real Estate
     
Internal Risk Rating
 
Closed end
 
Lines of Credit
 
Agriculture
& AG RE
 
Land & Development
 
Owner-Occupied
 
Non-Owner Occupied
 
Total
 
1-2   $ 1,215   $ 313   $ 4,579   $ 3,758   $ 3,782   $ 836   $ 14,483  
3     3,354     5,066     13,056     1,122     10,072     18,645     51,315  
4     18,016     21,641     14,669     1,743     72,871     47,550     176,490  
5     10,117     3,301     3,411     6,157     21,113     51,963     96,062  
6     3,039     3,849     2,103     5,672     6,331     17,258     38,252  
7     2,076     1,558     65     25,778     20,007     29,741     79,225  
8                              
Total
  $ 37,817   $ 35,728   $ 37,883   $ 44,230   $ 134,176   $ 165,993   $ 455,827  

Dec. 31, 2010
 
Commercial
     
Construction
 
Commercial Real Estate
     
Internal Risk Rating
 
Closed end
 
Lines of Credit
 
Agriculture & AG RE
 
Land & Development
 
Owner-Occupied
 
Non-Owner Occupied
 
Total
 
1-2   $ 2,294   $ 331   $ 8,527   $ 4,700   $ 8,559   $ 1,479   $ 25,890  
3     3,935     7,333     10,873     1,237     17,673     23,045     64,096  
4     21,225     24,042     16,742     1,500     76,491     61,468     201,468  
5     10,483     4,768     3,588     8,720     21,389     42,495     91,443  
6     1,217     4,506     42     7,232     3,206     20,821     37,024  
7     2,149     4,898     4,517     48,689     25,075     40,507     125,835  
8         45                     45  
Total
  $ 41,303   $ 45,923   $ 44,289   $ 72,078   $ 152,393   $ 189,815   $ 545,801  
 
The retail residential loan portfolio is generally unrated. Delinquency is a typical factor in adversely risk rating a credit to a special mention or substandard. The following table presents the retail residential loan portfolio by internal risk rating:

    Residential – 1-4 family  
   
Senior Lien
   
JR Lien & Lines of Credit
   
Total
 
Sep. 30, 2011
                 
Unrated
  $ 96,512     $ 52,245     $ 148,757  
Special mention
    1,266       925       2,191  
Substandard
    9,657       1,414       11,071  
Total
  $ 107,435     $ 54,584     $ 162,019  

   
Residential – 1-4 family
 
   
Senior Lien
   
JR Lien & Lines of Credit
   
Total
 
Dec. 31, 2010
           
Unrated
  $ 99,852     $ 55,147     $ 154,999  
Special mention
    1,034       1,769       2,803  
Substandard
    13,707       1,157       14,864  
Total
  $ 114,593     $ 58,073     $ 172,666  

 
10.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

An analysis of the activity in the allowance for loan losses for the three months ended September 30, 2011 and 2010 follows:
 
   
Commercial
   
Agriculture & AGRE
   
Construction, Land & Development
   
Commercial RE
   
1-4 Family Residential
   
Consumer
   
Total
 
September 30, 2011
                                         
                                                         
Beginning Balance
  $ 1,751     $ 386     $ 6,310     $ 13,009     $ 2,867     $ 35     $ 24,358  
Charge-offs
    (151 )     (21 )     (3,018 )     (961 )     (194 )     (9 )     (4,354 )
Recoveries
    17       3       451       12       426       1       910  
Provision
    509       (362 )     1,372       702       170       9       2,400  
                                                         
Ending Balance
  $ 2,126     $ 6     $ 5,115     $ 12,762     $ 3,269     $ 36     $ 23,314  

September 30, 2010
     
Beginning Balance
  $ 42,378  
Charge-offs
    (6,303 )
Recoveries
    65  
Provision
    7,250  
Ending Balance
  $ 43,390  
 
An analysis of the activity in the allowance for loan losses for the nine months ended September 30, 2011 and 2010 follows:
 
   
Commercial
   
Agriculture & AGRE
   
Construction, Land & Development
   
Commercial RE
   
1-4 Family Residential
   
Consumer
   
Total
 
September 30, 2011
                                         
                                                         
Beginning Balance
  $ 1,634     $ 337     $ 12,500     $ 13,721     $ 3,273     $ 46     $ 31,511  
Charge-offs
    (391 )     (674 )     (9,852 )     (6,975 )     (1,489 )     (35 )     (19,416 )
Recoveries
    35       6       551       243       462       22       1,319  
Provision
    848       337       1,916       5,773       1,023       3       9,900  
                                                         
Ending Balance
  $ 2,126     $ 6     $ 5,115     $ 12,762     $ 3,269     $ 36     $ 23,314  

September 30, 2010
     
Beginning Balance
  $ 40,909  
Charge-offs
    (21,898 )
Recoveries
    229  
Provision
    24,150  
Ending Balance
  $ 43,390  

 
11.

 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

The following is an analysis on the balance and allowance for loan loss for impaired loans as of September 30, 2011 and December 31, 2010:

Sep. 30, 2011
 
Commercial
   
Agriculture & AG RE
   
Construction, Land & Development
   
Commercial RE
   
1-4 Family Residential
   
Consumer
   
Total
 
Allowance for loan losses:
                                         
Loans individually evaluated for impairment
  $ 1,156     $     $ 2,423     $ 5,439     $ 1,405     $     $ 10,423  
Loans collectively evaluated for impairment
    970       6       2,692       7,323       1,864       36       12,891  
Total ending allowance balance
  $ 2,126     $ 6     $ 5,115     $ 12,762     $ 3,269     $ 36     $ 23,314  
                                                         
Loan balances:
                                                       
Loans individually evaluated for impairment
  $ 3,427     $ 65     $ 25,779     $ 42,537     $ 10,849     $     $ 82,657  
Loans collectively evaluated for impairment
    70,118       37,818       18,451       257,632       151,170       2,604       537,793  
Loans with an allowance recorded:
  $ 73,545     $ 37,883     $ 44,230     $ 300,169     $ 162,019     $ 2,604     $ 620,450  

Dec. 31, 2010
 
Commercial
   
Agriculture & AG RE
   
Construction, Land & Development
   
Commercial RE
   
1-4 Family Residential
   
Consumer
   
Total
 
Allowance for loan losses:
                                         
Loans individually evaluated for impairment
  $ 1,175     $ 328     $ 8,174     $ 6,487     $ 1,500     $     $ 17,664  
Loans collectively evaluated for impairment
    459       9       4,326       7,234       1,773       46       13,847  
Total ending allowance balance
  $ 1,634     $ 337     $ 12,500     $ 13,721     $ 3,273     $ 46     $ 31,511  
                                                         
Loan balances:
                                                       
Loans individually evaluated for impairment
  $ 6,858     $ 4,516     $ 48,535     $ 51,652     $ 14,602     $ 1     $ 126,164  
Loans collectively evaluated for impairment
    80,368       39,773       23,543       290,556       158,064       3,403       595,707  
Loans with an allowance recorded:
  $ 87,226     $ 44,289     $ 72,078     $ 342,208     $ 172,666     $ 3,404     $ 721,871