Edgar Filing: CENTRUE FINANCIAL CORP

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, 2009
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 o 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	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-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 9, 2009

Common Stock, Par Value $1.00		6,043,176

Centrue Financial Corporation
Form 10-Q Index
September 30, 2009


			Page
PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements
	•	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
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.		Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings	45
Item 1A.		Risk Factors	45
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.		Defaults Upon Senior Securities	45
Item 4.		Submission of Matters to a Vote of Security Holders	45
Item 5.		Other Information	45
Item 6.		Exhibits	45
SIGNATURES			46

Centrue Financial Corporation

Part I Financial Information

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets

September 30, 2009 and December 31, 2008 (In Thousands, Except Share and Per Share Data)


	September 30,			December 31,
	2009			2008

ASSETS
Cash and cash equivalents	$	46,025		$	35,014
Securities available-for-sale		262,374			241,851
Restricted securities		10,711			10,711
Loans		921,340			1,004,390
Allowance for loan losses		(27,965	)		(15,018	)

Net loans		893,375			989,372
Cash value of life insurance		29,081			27,917
Mortgage servicing rights		2,909			2,890
Premises and equipment, net		30,766			32,376
Goodwill		15,880			24,494
Intangible assets, net		7,906			9,088
Other real estate		13,961			12,723
Other assets		25,486			15,445


Total assets	$	1,338,474		$	1,401,881


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest-bearing	$	108,013		$	118,745
Interest-bearing		953,530			930,475

Total deposits		1,061,543			1,049,220
Federal funds purchased and securities sold under agreements to repurchase		31,401			46,306
Federal Home Loan Bank advances		76,262			140,285
Notes payable		10,880			19,826
Series B mandatory redeemable preferred stock		268			268
Subordinated debentures		20,620			20,620
Other liabilities		10,434			9,448

Total liabilities		1,211,408			1,285,973


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)		30,036			—
Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at September 30, 2009 and December 31, 2008		7,454			7,454
Surplus		74,709			71,488
Retained earnings		36,625			62,476
Accumulated other comprehensive income (loss)		(62	)		(3,590	)

		149,262			138,328
Treasury stock, at cost 1,410,379 shares at September 30, 2009 and 1,425,064 shares at December 31, 2008		(22,196	)		(22,420	)

Total stockholders’ equity		127,066			115,908


Total liabilities and stockholders’ equity	$	1,338,474		$	1,401,881

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

And Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2009 and 2008

(In Thousands, Except Per Share Data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2009			2008			2009			2008

Interest income
Loans	$	12,958		$	15,316		$	40,720		$	48,584
Securities
Taxable		2,041			2,150			6,697			6,731
Exempt from federal income taxes		312			351			937			1,064
Federal funds sold and other		24			14			51			94

Total interest income		15,335			17,831			48,405			56,473

Interest expense
Deposits		4,931			6,225			15,869			21,591
Federal funds purchased and securities sold under agreements to repurchase		39			189			111			675
Federal Home Loan Bank advances		595			838			1,708			2,786
Series B mandatory redeemable preferred stock		4			12			12			37
Subordinated debentures		257			322			821			956
Notes payable		101			263			382			739

Total interest expense		5,927			7,849			18,903			26,784


Net interest income		9,408			9,982			29,502			29,689
Provision for loan losses		14,500			1,225			29,799			2,857

Net interest income (loss) after provision for loan losses		(5,092	)		8,757			(297	)		26,832

Noninterest income
Service charges		1,756			1,980			4,812			5,491
Mortgage banking income		351			349			1,860			1,184
Bank owned life insurance		248			260			763			767
Securities gains		—			—			246			848
Total other-than-temporary impairment losses		(4,822	)		—			(11,193	)		—
Portion of loss recognized in other comprehensive income (before taxes)		1,690			—			2,144			—

Net impairment on securities		(3,132	)		—			(9,049	)		—
Gain on sale of OREO		130			122			166			360
Gain (loss) on sale of other assets		9			(33	)		117			1,078
Other income		704			916			2,253			3,096

		66			3,594			1,168			12,824

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

and Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2009 and 2008

(In Thousands, Except Per Share Data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2009			2008			2009			2008

Noninterest expenses
Salaries and employee benefits		3,931			3,554			12,379			12,876
Occupancy, net		777			761			2,547			2,718
Furniture and equipment		602			649			1,726			2,055
Marketing		191			355			579			906
Supplies and printing		108			101			344			331
Telephone		164			172			654			614
Data processing		374			378			1,136			912
FDIC insurance		538			63			1,877			138
Goodwill impairment		—			30			8,451			724
Amortization of intangible assets		375			458			1,182			1,448
Other expenses		1,931			1,601			5,258			4,937

		8,991			8,122			36,133			27,659

Income (loss) before income taxes	$	(14,017	)	$	4,229		$	(35,262	)	$	11,997
Income taxes (benefit)		(5,605	)		1,430			(11,700	)		4,048

Net income (loss)	$	(8,412	)	$	2,799		$	(23,562	)	$	7,949


Preferred stock dividends		467			52			1,342			156

Net income (loss) for common stockholders	$	(8,879	)	$	2,747		$	(24,904	)	$	7,793


Basic earnings (loss) per common share	$	(1.47	)	$	0.46		$	(4.13	)	$	1.29

Diluted earnings (loss) per common share	$	(1.47	)	$	0.46		$	(4.13	)	$	1.29



Total comprehensive income (loss):
Net income (loss)	$	(8,412	)	$	2,799		$	(23,562	)	$	7,949
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, net of reclassifications and tax effect		1,753			—			(811	)		—

Change in unrealized gains (losses) on other securities available for sale, net of reclassifications and tax effect		2,501			(514	)		(2,234	)		(6,647	)
Reclassification adjustment:
Net impairment loss recognized in earnings		3,132			—			9,049			—
(Gains) recognized in earnings		—			—			(246	)		(848	)

Net unrealized gains (loss)		7,386			(514	)		5,758			(7,495	)
Tax expense (benefit)		2,861			(199	)		2,230			(2,904	)

Other comprehensive income (loss)		4,525			(315	)		3,528			(4,591	)
Total comprehensive income (loss)	$	(3,887	)	$	2,484		$	(20,034	)	$	3,358

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Cash Flows

Nine Months Ended September 30, 2009 and 2008 (In Thousands)


	Nine Months Ended
	September 30,

	2009			2008

Cash flows from operating activities
Net Income (Loss)	$	(23,562	)	$	7,949
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation		1,997			2,157
Goodwill impairment		8,451			724
Amortization of intangible assets		1,182			1,448
Amortization of mortgage servicing rights, net		708			370
Amortization of bond premiums, net		533			386
Share based compensation		260			318
Provision for loan losses		29,799			2,857
Provision for deferred income taxes		7,046			5,113
Earnings on bank-owned life insurance		(763	)		(767	)
Other than temporary impairment, securities		9,049			—
Securities losses (gains), net		(246	)		(848	)
(Gain) loss on sale of OREO		(166	)		(360	)
(Gain) loss on sale of other assets		(117	)		—
(Gain) loss on sale of loans		(1,860	)		(904	)
(Gain) on sale of branches		—			(1,107	)
Loss related to sale of Wealth Management		163			340
Proceeds from sales of loans held for sale		113,171			61,394
Origination of loans held for sale		(110,883	)		(60,907	)
Change in assets and liabilities
(Increase) decrease in other assets		(17,624	)		(5,424	)
Increase (decrease) in other liabilities		(1,372	)		687

Net cash provided by operating activities		15,766			13,426
Cash flows from investing activities
Securities available-for-sale
Proceeds from calls, maturities, paydowns, and sales		58,497			113,428
Purchases		(82,424	)		(86,848	)
Net decrease (increase) in loans		63,811			(70,341	)
(Purchase) disposal of premises and equipment		(387	)		(202	)
(Purchase) of bank owned life insurance		(401	)		—
Proceeds from sale of OREO		856			10,408
Sale of Branches, net of premium received		—			(19,498	)

Net cash provided by (used in) investing activities		39,952			(53,053	)
Cash flows from financing activities
Net increase (decrease) in deposits		12,323			27,924
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase		(14,905	)		(12,240	)
Repayment of advances from the Federal Home Loan Bank		(244,023	)		(494,322	)
Proceeds from advances from the Federal Home Loan Bank		180,000			504,000
Payments on notes payable		(8,946	)		(3,397	)
Proceeds from notes payable		—			10,250
Dividends on common stock		(482	)		(2,477	)
Dividends on preferred stock		(1,342	)		(156	)
Proceeds from exercise of stock options		—			233
Net proceeds from preferred stock issued		32,668			—
Purchase of treasury stock		—			(1,174	)

Net cash provided by (used in) financing activities		(44,707	)		28,641

Net increase (decrease) in cash and cash equivalents		11,011			(10,986	)
Cash and cash equivalents
Beginning of period		35,014			51,628

End of period	$	46,025		$	40,642

Supplemental disclosures of cash flow information
Cash payments for
Interest	$	18,799		$	28,958
Income taxes		1,028			4,017
Transfers from loans to other real estate owned		1,959			19,709

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Notes To Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 1. Summary of Significant Accounting Policies

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 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. 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 its subsidiary, Centrue Bank (the “Bank”), are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

Basis of presentation

The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation. Certain 2008 amounts have been reclassified to conform to the 2009 presentation. Assets held in an agency or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements.

The accompanying unaudited interim consolidated financial statements of Centrue Financial Corporation have been prepared in accordance with U.S. generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required for complete financial statements. 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. The allowance for loan losses, carrying value of goodwill, value of mortgage servicing rights, deferred taxes, and fair values of financial instruments are particularly subject to change. 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, 2008. The annualized results of operations during the three and nine months ended September 30, 2009 are not necessarily indicative of the results expected for the year ending December 31, 2009. All financial information is in thousands (000s), except shares and per share data.

Note 2. Earnings Per Share

Basic earnings per share for the three and nine months ended September 30, 2009 and 2008 were computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share for the three and nine months ended September 30, 2009 and 2008 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:

Centrue Financial Corporation

Notes To Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 2. Earnings Per Share (continued)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,

	2009			2008		2009			2008

Basic Earnings Per Common Share
Net income (loss) for common shareholders	$	(8,879	)	$	2,747	$	(24,904	)	$	7,793
Weighted average common shares outstanding		6,043			6,028		6,033			6,036


Basic earnings (loss) per common share	$	(1.47	)	$	0.46	$	(4.13	)	$	1.29


Diluted Earnings Per Common Share
Weighted average common shares outstanding		6,043			6,028		6,033			6,036
Add: dilutive effect of assumed exercised stock options		—			2		—			15
Add: dilutive effect of assumed exercised common stock warrants		—			—		—			—

Weighted average common and dilutive potential shares outstanding		6,043			6,030		6,033			6,051


Diluted earnings (loss) per common share	$	(1.47	)	$	0.46	$	(4.13	)	$	1.29

There were approximately 695,569 and 611,738 options and 508,320 and 0 warrants outstanding for the three months ended September 30, 2009 and 2008, respectively that were not included in the computation of diluted earnings per share. There were approximately 695,569 and 523,300 options and 508,320 and 0 warrants outstanding for the nine months ended September 30, 2009 and 2008, respectively that were not included in the computation of diluted earnings per share. These options and warrants were anti-dilutive since the exercise prices were greater than the average market price of the common stock.

Note 3. Available for Sale Securities

The primary strategic objective related to the Company’s $262,374 investment securities portfolio is to assist with liquidity and interest rate risk management. These securities are classified as available-for-sale and are carried at fair value. The Company does not have any securities classified as trading or held-to-maturity.

The fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2009 and December 31, 2008, respectively:


	September 30, 2009

			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost

U.S. government agencies	$	3,993	$	243	$	—		$	3,750
States and political subdivisions		37,841		1,305		(19	)		36,555

U.S. government agency residential mortgage-backed securities		188,688		2,924		(238	)		186,002
Collateralized residential mortgage obligations		16,481		100		(428	)		16,809
Equity securities		1,863		32		(35	)		1,866
Collateralized debt obligations		12,509		—		(3,985	)		16,494
Corporate		999		2		(2	)		999


	$	262,374	$	4,606	$	(4,707	)	$	262,475

Centrue Financial Corporation

Notes To Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 3. Available for Sale Securities (continued)


	December 31, 2008

	Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost

U.S. government agencies	$	16,995	$	482	$	—		$	16,513
States and political subdivisions		38,202		530		(194	)		37,866
U.S. government agency residential mortgage-backed securities		143,378		1,148		(887	)		143,117
Collateralized residential mortgage obligations		20,004		53		(1,453	)		21,404
Equity securities		1,496		—		(75	)		1,571
Collateralized debt obligations		19,848		—		(5,400	)		25,248
Corporate		1,928		7		(70	)		1,991


	$	241,851	$	2,220	$	(8,079	)	$	247,710

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,

	2009			2008		2009			2008

Proceeds from calls	$	1,160		$	—	$	17,205		$	83,897
Proceeds from sales		—			—		8,347			—
Realized gains		—			—		246			848
Realized losses		—			—		—			—
Net impairment loss recognized in earnings		(3,132	)		—		(9,049	)		—
Tax benefit (provision) related to net realized gains and losses		—			—		94			329

Securities with unrealized losses not recognized in income are as follows presented by length of time individual securities have been in a continuous unrealized loss position:


September 30, 2009	Less than 12 Months					12 Months or More					Total

	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss


U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivisions		446		(4	)		781		(15	)		1,227		(19	)
U.S. government agency residential mortgage-backed securities		57,296		(238	)		—		—			57,296		(238	)
Collateralized residential mortgage obligations		—		—			10,962		(428	)		10,962		(428	)
Equities		—		—			60		(35	)		60		(35	)
Collateralized debt obligations		—		—			12,509		(3,985	)		12,509		(3,985	)
Corporate		—		—			497		(2	)		497		(2	)


Total temporarily impaired	$	57,742	$	(242	)	$	24,809	$	(4,465	)	$	82,551	$	(4,707	)

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 3. Available for Sale Securities (continued)


December 31, 2008	Less than 12 Months					12 Months or More					Total

Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss


U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivisions		7,284		(194	)		—		—			7,284		(194	)
U.S. government agency residential mortgage-backed securities		59,742		(796	)		3,245		(91	)		62,987		(887	)
Collateralized residential mortgage obligations		16,385		(1,453	)		—		—			16,385		(1,453	)
Equities		—		—			1,496		(75	)		1,496		(75	)
Collateralized debt obligations		7,579		(2,524	)		12,269		(2,876	)		19,848		(5,400	)
Corporate		1,423		(70	)		—		—			1,423		(70	)


Total temporarily impaired	$	92,413	$	(5,037	)	$	17,010	$	(3,042	)	$	109,423	$	(8,079	)

The fair values of securities classified as available-for-sale at September 30, 2009, 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.

Fair Value


Due in one year or less	$	4,137
Due after one year through five years		23,590
Due after five years through ten years		7,673
Due after ten years		18,943
U.S. government agency residential mortgage-backed securities		188,688
Collateralized residential mortgage obligations		16,481
Equity and corporate securities		2,862

	$	262,374

The following table below presents a rollforward of the credit losses recognized in earnings for the three month period ended September 30, 2009:


Beginning balance, July 1, 2009	$	8,652
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		933
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		2,199


Ending balance, September 30, 2009	$	11,784

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 3. Available for Sale Securities (continued)

The following table below presents a rollforward of the credit losses recognized in earnings for the nine month period ended September 30, 2009:


Beginning balance, January 1, 2009	$	2,734
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		8,150
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		900


Ending balance, September 30, 2009	$	11,784

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 following table describes the composition of loans by major categories outstanding as of September 30, 2009 and December 31, 2008, respectively:


	September 30, 2009						December 31, 2008

	$			%			$			%

Commercial	$	122,264			13.3	%	$	152,807			15.2	%
Agricultural		14,788			1.6			16,914			1.7
Real estate:
Commercial mortgages		444,992			48.3			460,920			45.9
Construction		151,619			16.4			164,820			16.4
Agricultural		16,013			1.7			17,339			1.7
1-4 family mortgages		166,746			18.1			185,666			18.5
Installment		4,345			0.5			5,267			0.5
Other		573			0.1			657			0.1


Total loans		921,340			100.0	%		1,004,390			100.0	%

Allowance for loan losses		(27,965	)					(15,018	)


Loans, net	$	893,375					$	989,372


The following table presents data on impaired loans:

							September 30,			December 31,
							2009			2008

Impaired loans for which an allowance has been provided							$	105,008		$	36,754
Impaired loans for which no allowance has been provided								56,385			1,880


Total loans determined to be impaired							$	161,393		$	38,634


Allowance for loan loss for impaired loans included in the allowance for loan losses							$	23,159		$	8,357

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 4. Loans (continued)

In originating loans, the Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, current 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 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. In making this determination, the Company analyzes the ultimate collectability of the loans in its portfolio; incorporating feedback provided by internal loan staff; the independent loan review function; and information provided by regulatory agencies. Included in the impaired loans above is $685 of troubled debt restructurings. These consist of 33 loans which are categorized as 1 to 4 family, installment, home equity loans, commercial and commercial real estate.

The Company has loans held for sale of $1,714 and $2,143 as of September 30, 2009 and December 31, 2008 respectively.

The Company conducts a quarterly evaluation as to the adequacy of the allowance for loan losses. Transactions in the allowance for loan losses for the three and nine months ended September 30, 2009 and 2008 are summarized below:


	Three Months Ended September 30,						Nine Months Ended September 30,

	2009			2008			2009			2008


Beginning balance	$	26,894		$	11,542		$	15,018		$	10,755
Charge-offs		(13,493	)		(1,364	)		(17,291	)		(2,384	)
Recoveries		64			58			439			233
Provision for loan losses		14,500			1,225			29,799			2,857


Ending balance	$	27,965		$	11,461		$	27,965		$	11,461


Period end total loans	$	921,340		$	973,933		$	921,340		$	973,933


Average loans	$	938,905		$	987,758		$	971,836		$	999,848


Ratio of net charge-offs to average loans		1.43	%		0.13	%		1.73	%		0.22	%
Ratio of provision for loan losses to average loans		1.54			0.12			3.07			0.29
Ratio of allowance for loan losses to period end total loans		3.04			1.18			3.04			1.18
Ratio of allowance for loan losses to total nonperforming loans		36.48			91.78			36.48			91.78
Ratio of allowance for loan losses to average loans		2.98			1.16			2.88			1.15

Note 5. Share Based Compensation

In 1999, the Company adopted the 1999 Option Plan. Under the 1999 Option Plan, nonqualified options may be granted to employees and eligible directors of the Company and its subsidiaries to purchase the Company’s common stock at 100% of the fair market value on the date the option is granted. The Company has authorized 50,000 shares for issuance under the 1999 Option Plan. During 1999, 40,750 of these shares were granted and are 100% fully vested. The options have an exercise period of ten years from the date of grant. There are 9,250 shares available for grant under this plan.

In April 2003, the Company adopted the 2003 Option Plan. Under the 2003 Option Plan, as amended on April 24, 2007, nonqualified options, incentive stock options, restricted stock and/or stock appreciation rights may be granted to employees and outside directors of the Company and its subsidiaries to purchase the Company’s common stock at an exercise price to be determined by the Executive and Compensation committee. Pursuant to the 2003 Option Plan, 570,000 shares of the Company’s unissued common stock have been reserved for issuance upon the exercise of options and rights granted under the 2003 Option Plan. The options have an exercise period of seven to ten years from the date of grant. There are 66,000 shares remaining for grants under this plan.

10.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 5. Share Based Compensation (continued)

The Company awarded 5,000 restricted common stock awards in November, 2006 that were available under the restricted stock portion of the plan. The restricted shares were issued out of treasury shares with an aggregate grant date fair value of $90. The awards were granted using the fair value as the last sale price as quoted on the NASDAQ Stock Market on the date of grant of $18.03. The awarded shares vested at a rate of 20% of the initially awarded amount per year, beginning on the date of the award and were contingent upon continuous service by the recipient through the vesting date. As of April 3, 2009, the contingency was not fulfilled and the remaining 2,000 shares of unvested restricted stock were forfeited and returned to treasury stock.

A summary of the status of the option plans as of September 30, 2009, and changes during the period ended on those dates is presented below:


	September 30, 2009

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value

Outstanding at January 1, 2009		635,519		$	18.68
Granted		143,000			8.13
Exercised		—			—
Forfeited		(82,950	)		17.30


Outstanding at end of period		695,569		$	16.68		4.5 years	$	—

Vested or expected to vest		686,938		$	16.73		4.4 years	$	—

Options exercisable at period end		503,769		$	17.72		4.0 years	$	—

Options outstanding at September 30, 2009 and December 31, 2008 were as follows:


						Outstanding				Exercisable

Range of Exercise Prices						Number		Weighted- Average Remaining Contractual Life		Number		Weighted- Average Exercise Price

September 30, 2009:

	$	5.24	—	$	13.00		170,381		5.3 years		77,381	$	7.96
		13.88	—		18.63		238,388		4.2 years		171,988		16.59
		19.03	—		23.31		286,800		4.3 years		254,400		21.44


							695,569		4.5 years		503,769	$	17.72


December 31, 2008:

	$	11.25	—	$	11.75		46,381		1.6 years		46,381		11.60
		14.25	—		18.63		249,338		4.6 years		161,338		16.43
		19.03	—		23.31		339,800		5.1 years		247,800		21.55


							635,519		4.6 years		455,519	$	18.72

11.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 5. Share Based Compensation (continued)

Information related to the stock option plan during the quarter ended September 30, 2009 and 2008 was as follows:


	September 30, 2009		September 30, 2008

Intrinsic value of options exercised	$	—	$	—
Cash received from option exercises		—		—
Tax benefit realized from option exercises		—		—

The compensation cost that has been charged against income for the stock options portion of the Equity Incentive Plan was $49 and $48 for the three months ended September 30, 2009 and 2008. For the nine months ended September 30, 2009 and 2008, it was $272 and $304. The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $0 and $5 for the three months ended September 30, 2009 and 2008. The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $(12) and $14 for the nine months ended September 30, 2009 and 2008. For the nine month period ended September 30, 2009, the negative amounts reflect the adjustment of previously recognized expense due to the forfeiture of the remainder of this restricted stock.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. (Employee and management options are tracked separately). The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no options granted in the third quarter 2009. Year to date data for September 30, 2009, December 31, 2008 and September 30, 2008, is as follows:


	September 30, 2009			December 31, 2008			September 30, 2008

Fair value	$	1.79 - 3.70		$	3.36 - 3.69		$	3.36 - 3.69
Risk-free interest rate		1.53% - 2.01	%		2.75% - 2.95	%		2.75% - 2.95	%
Expected option life (years)		6			6			6
Expected stock price volatility		68.84 – 116.39	%		23.91% - 24.07	%		23.91% - 24.07	%
Dividend yield		5.71 - 7.31	%		2.79 - 2.95	%		2.79 - 2.95	%

Unrecognized stock option compensation expense related to unvested awards (net of estimated forfeitures) for the remainder of 2009 and beyond is estimated as follows:


	Amount

September, 2009 – December, 2009	$	35
2010		140
2011		136
2012		93
2013		39
2014		1


Total	$	444

12.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 6. Contingent Liabilities and Other Matters

Neither the Company nor its subsidiary is 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.

Note 7. Segment Information

The Company utilizes an internal reporting and planning process that focuses on lines of business (“LOB”). The reportable segments are determined by the products and services offered, primarily distinguished between retail, commercial, treasury, and other operations. Loans and deposits generate the revenues in the commercial segments; deposits, loans, secondary mortgage sales and servicing generates the revenue in the retail segment; investment income generates the revenue in the treasury segment; and holding company services generate revenue in the other operations segment. The “net allocations” line represents the allocation of the costs that are overhead being spread to the specific segments.

The accounting policies used with respect to segment reporting are the same as those described in the summary of significant accounting policies as forth in Note 1. Segment performance is evaluated using net income.

Information reported internally for performance assessment follows:


	Three Months Ended

	September 30, 2009

	Retail Segment			Commercial Segment			Treasury Segment			Other Operations			Total Company

Net interest income (loss)	$	2,128		$	6,830		$	1,220		$	(770	)	$	9,408
Other revenue		2,560			329			(3,131	)		308			66
Other expense		2,824			741			68			4,349			7,982
Noncash items
Depreciation		324			1			—			309			634
Provision for loan losses		—			14,500			—			—			14,500
Other intangibles		375			—			—			—			375
Net allocations		2,095			2,879			146			(5,120	)		—
Income tax benefit		(509	)		(4,461	)		(635	)		—			(5,605	)

Segment profit (loss)	$	(421	)	$	(6,501	)	$	(1,490	)	$	—		$	(8,412	)


Goodwill	$	7,784		$	8,096		$	—		$	—		$	15,880
Segment assets	$	243,805		$	778,291		$	257,302		$	59,076		$	1,338,474


	Three Months Ended

	September 30, 2008

	Retail Segment		Commercial Segment		Treasury Segment		Other Operations			Total Company

Net interest income (loss)	$	3,437	$	6,596	$	815	$	(866	)	$	9,982
Other revenue		2,834		259		—		501			3,594
Other expense		2,711		599		41		3,619			6,970
Noncash items
Depreciation		369		2		—		293			664
Provision for loan losses		—		1,225		—		—			1,225
Other intangibles		458		—		—		30			488
Net allocations		1,692		2,223		392		(4,307	)		—
Income tax expense (benefit)		219		1,154		57		—			1,430

Segment profit (loss)	$	822	$	1,652	$	325	$	—		$	2,799


Goodwill	$	12,006	$	12,488	$	—	$	—		$	24,494
Segment assets	$	262,272	$	774,190	$	247,073	$	58,647		$	1,342,182

13.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 7. Segment Information (continued)


	Nine Months Ended

	September 30, 2009

	Retail Segment			Commercial Segment			Treasury Segment			Other Operations			Total Company

Net interest income (loss)	$	7,085		$	20,815		$	3,968		$	(2,366	)	$	29,502
Other revenue		7,996			865			(8,803	)		1,110			1,168
Other expense		9,004			1,919			174			21,857			32,954
Noncash items
Depreciation		1,162			5			—			830			1,997
Provision for loan losses		425			29,374			—			—			29,799
Other intangibles		1,182			—			—			—			1,182
Net allocations		9,747			11,719			2,477			(23,943	)		—
Income tax benefit		(1,886	)		(7,854	)		(1,960	)		—			(11,700	)

Segment profit (loss)	$	(4,553	)	$	(13,483	)	$	(5,526	)	$	—		$	(23,562	)


Goodwill	$	7,784		$	8,096		$	—		$	—		$	15,880
Segment assets	$	243,805		$	778,291		$	257,302		$	59,076		$	1,338,474


	Nine Months Ended

	September 30, 2008

	Retail Segment		Commercial Segment		Treasury Segment		Other Operations			Total Company

Net interest income (loss)	$	10,286	$	20,045	$	1,780	$	(2,422	)	$	29,689
Other revenue		9,267		893		848		1,816			12,824
Other expense		9,024		2,354		151		11,801			23,330
Noncash items
Depreciation		1,363		5		—		789			2,157
Provision for loan losses		—		2,857		—		—			2,857
Other intangibles		1,446		—		—		726			2,172
Net allocations		5,569		6,961		1,392		(13,922	)		—
Income tax expense		608		3,238		202		—			4,048

Segment profit (loss)	$	1,543	$	5,523	$	883	$	—		$	7,949


Goodwill	$	12,006	$	12,488	$	—	$	—		$	24,494
Segment assets	$	262,272	$	774,190	$	247,073	$	58,647		$	1,342,182

Note 8. Borrowed Funds and Debt Obligations

On March 31, 2008, the Company entered into a loan agreement with Bank of America (“BofA”) consisting of three credit facilities: a secured revolving line of credit, a secured term facility, and a subordinated debt. In February, 2009, the loan agreement on the revolving line of credit was amended resulting in an aggregate principal amount of $20,250 in borrowings. The first credit facility consists of a $10,000 secured revolving line of credit which matured on June 30, 2009 and was not renewed by BofA. When it matured on June 30, 2009, there was no balance on this line of credit in comparison to $8,865 at December 31, 2008. The second credit facility consists of a $250 secured term facility, which will mature on March 31, 2015. The balance on this facility was $250 as of September 30, 2009 and December 31, 2008. The third credit facility consists of $10,000 in subordinated debt, which also matures on March 31, 2015. The balance on this facility was $10,000 as of September 30, 2009 and December 31, 2008. The interest rate on the term and subordinated debt credit facilities is three month LIBOR plus 295 basis points. Repayment of each of the remaining two credit facilities is interest only on a quarterly basis, with the principal amount of the loan due at maturity. The term credit facilities are secured by a pledge of the stock of Centrue Bank. The subordinated debt credit facility is unsecured and is intended to qualify as Tier II capital for regulatory purposes.

14.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 8. Borrowed Funds and Debt Obligations (continued)

The loan agreement contains customary covenants, including but not limited to, Centrue Bank’s maintenance of its status as well-capitalized, Centrue Bank’s minimum return on average assets (“ROA”) on an annual basis of 0.50%, Centrue Bank’s maximum nonperforming assets to primary capital below 20%, and Centrue Bank’s minimum loan loss reserves to total loans of 1.00%. The Company submitted to BofA its covenant certification as required that it was in compliance with all of the debt covenants with the exception of the covenant related to the return of assets percentage which requires a ROA of 0.50% at the Bank level and the nonperforming asset ratio which requires the ratio to be 20% or below at the Bank level. The ROA at the Bank level was (0.78%) for the period ending September 30, 2009 and the nonperforming asset ratio was 53.07%. BofA could call the secured term facility of $250 due to this noncompliance with covenants but at this point have not elected to do so. The loan agreement contains no penalty for early repayment of either the secured term credit facility or the subordinated debt credit facility. As of September 30, 2009, the outstanding balance on these lines is $10,250. Additionally, the Company has a note outstanding to an individual with an imputed interest rate of 5.25% maturing on October 24, 2012 related to a prior acquisition. The balance as of September 30, 2009 was $630 and December 31, 2008 was $711.

Note 9. Fair Value

Accounting standards on fair value measurement (i.e. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. They also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities: The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). If the securities could not be priced using quoted market prices, observable market activity or comparable trades, the financial market was considered not active and the assets were classified as Level 3.

The assets included in Level 3 are trust preferred collateralized debt obligations (“CDOs”). These securities were historically priced using Level 2 inputs. However, in 2008, the decline in the level of observable inputs and market activity for trust preferred CDOs by the measurement date was significant and resulted in unreliable external pricing. As such, the Company uses an internal OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows during the quarter. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments.

15.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 9. Fair Value (continued)

We assume no recoveries on defaults and treat all interest payment deferrals as defaults. In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Company’s note class.

Each bank in the tranche was analyzed so that additional defaults and deferrals could be factored into the cash flow model. Three internal scenarios were developed that had different assumptions regarding the impact of the economic environment on additional defaults and deferrals. The cash flow for each tranche was updated for each scenario. A discount factor to be applied to LIBOR was developed for each specific tranche and incorporated to arrive at the discount rate for CDO. These rates were applied to calculate the net present value of the cash flows. The results of the three net present value calculations were weighted based on their likelihood of occurring. Additionally, First Tennessee (the Company’s security broker) has developed a CDO stressing model that generates nine possible scenarios from basic data inputs on each of the CDOs. A simple average of the nine possible scenarios was developed. This result was also weighted together with the results of the weighted internal scenarios and one value was developed for each instrument.

Finally, an independent valuation of our portfolio was obtained. This was weighted as the final overall step to arrive at our valuation for September 30, 2009. Due to market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

At September 30, 2009, the Company held nine pooled trust preferred CDOs with a book value of $16,494 (after third quarter 2009 impairment). These securities were rated high quality (A3 and above) at inception, but at September 30, 2009 S&P rated these securities as B+/B-, which are defined as highly speculative, and C, which is defined as default, with some recovery. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies.

The Company performed an analysis including evaluation for other-than-temporary-impairment (“OTTI”) for each of the nine CDOs. Upon completion of the September 30, 2009 analysis, our model indicated other-than-temporary impairment on five of these CDOs, with an aggregate cost basis of $13,632. Total impairment for these five CDOs totaled $5,376, of which $3,132 was related to credit loss based on the Company’s analysis of future cash flows. Management has determined that the remaining CDOs are deemed to be only temporarily impaired at quarter-end due to the projected cash flows adjusted for the possible further deterioration is sufficient to return the outstanding principal balance with interest at the stated rate.

During the third quarter 2009, the collateralized mortgage obligation (“CMO”) pool was evaluated using management’s required collateral coverage of 4%. Based on the Company’s third quarter monitoring of its CMO security portfolio, all of the securities in this portfolio maintained coverage ratios exceeding the 4%. Thus, no further impairments were taken regarding this portion of the security portfolio. The CMO portfolio contains home mortgages which experienced pressure due to the economy in the previous quarter.

The Company’s unrealized losses on other securities relate primarily to its investment in pooled trust preferred securities. The decline in fair value is primarily attributable to temporary illiquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. Due to the illiquidity in the market, it is unlikely that the Company would be able to recover its investment in these securities if the Company sold the securities at this time.

16.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 9. Fair Value (continued)

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	Fair Value measurements at September 30, 2009 Using

	September 30, 2009		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
U.S. government agencies	$	3,993	$	—	$	3,993	$	—
State and political subdivisions		37,841		—		37,841		—
U.S. government agency residential mortgage-backed securities		188,688		—		188,688		—
Collateralized residential mortgage obligations		16,481		—		14,911		1,570
Equities		1,863		—		1,863		—
Collateralized debt obligations		12,509		—		—		12,509
Corporate		999		—		999		—


Available-for-sale securities	$	262,374	$	—	$	248,295	$	14,079


	Fair Value measurements at December 31, 2008 Using

	December 31, 2008		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
U.S. government agencies	$	16,995	$	—	$	16,995	$	—
State and political subdivisions		38,202		—		38,202		—
U.S. government agency residential mortgage-backed securities		143,378		—		143,378		—
Collateralized residential mortgage obligations		20,004		—		20,004		—
Equities		1,496		—		1,496		—
Collateralized debt obligations		19,848		—		—		19,848
Corporate		1,928		—		1,928		—


Available-for-sale securities	$	241,851	$	—	$	222,003	$	19,848

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2009:

17.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 9. Fair Value (continued)


	Available for Sale Securities

Beginning balance, July 1, 2009	$	11,099
Total gains or losses (realized/unrealized) included in earnings
Transfers into Level 3		—
Interest income on securities		—
Security impairment		(3,132	)
Other changes in fair value		—
Gains (losses) on sales of securities		—
Included in other comprehensive income		6,112

Ending Balance, September 30, 2009	$	14,079


	Available for Sale Securities

Beginning balance, January 1, 2009	$	19,848
Total gains or losses (realized/unrealized) included in earnings
Transfers into Level 3		1,330
Interest income on securities		—
Security impairment		(9,049	)
Other changes in fair value		—
Gains (losses) on sales of securities		—
Included in other comprehensive income		1,950

Ending Balance, September 30, 2009	$	14,079

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:


	Fair Value measurements at September 30, 2009 Using

	September 30, 2009		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
Impaired loans	$	81,849	$	—	$	81,849	$	—


	Fair Value measurements at December 31, 2008 Using

	December 31, 2008		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
Impaired loans	$	28,397	$	—	$	28,397	$	—

Impaired and restructured loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $105,008 with a valuation allowance of $23,159, resulting in an additional provision for loan losses of $1,598 for the period.

18.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 9. Fair Value (continued)

The majority of our impaired loans are collateralized by real estate. The carrying value for these real estate secured impaired loans was based upon information in independent appraisals obtained on the underlying collateral. The methods and assumptions used to estimate fair value are described as follows:

The carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on the methods described above. The carrying value and fair value of the subordinated debentures issued to capital trusts are estimated using market data for similarly risk weighted items to value them. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, the fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. The fair value of loans held for sale is based on market quotes. The fair value of debt and redeemable stock is based on current rates for similar financing.

It was not practicable to determine the fair value of the restricted securities due to restrictions placed on its transferability. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements.

The estimated fair values of the Company’s financial instruments were as follows:


	September 30, 2009				December 31, 2008

	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial assets
Cash and cash equivalents	$	46,025	$	46,025	$	35,014	$	35,014
Securities		262,374		262,374		241,851		241,851
Restricted securities		10,711		N/A		10,711		N/A
Net loans		893,375		852,583		989,372		994,010
Accrued interest receivable		5,171		5,171		5,547		5,547
Financial liabilities
Deposits		1,061,543		1,062,586		1,049,220		1,050,795
Federal funds purchased and securities sold under agreements to repurchase		31,401		31,401		46,306		46,306
Federal Home Loan Bank advances		76,262		77,894		140,285		141,430
Notes payable		10,880		8,012		19,826		18,921
Subordinated debentures		20,620		15,184		20,620		18,031
Series B mandatory redeemable preferred stock		268		268		268		268
Accrued interest payable		4,334		4,334		4,230		4,230

In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of the trained work force, customer goodwill, and similar items.

19.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 10. Participation in the Treasury Capital Purchase Program

On January 9, 2009, the Company completed the sale of $32,668 in preferred shares to the U.S. Department of the Treasury as part of the government’s Capital Purchase Program. In exchange for the aggregate consideration of $32,668, the Company issued 32,668 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series C, with a $1,000 per share liquidation preference, and a warrant to purchase up to 508,320 shares of the Company’s common stock at an exercise price of $9.64 per share. Management is accreting the discount on the preferred stock over a five year life using an effective yield.

The preferred securities issued by Centrue pay cumulative dividends of 5% a year for the first five years and 9% a year thereafter. For the August scheduled payment, the Company suspended paying its dividends on these preferred shares after properly notifying the Treasury Department. The Company is accruing the expense in accordance to GAAP and the terms of the program. Centrue may, at its option, redeem the preferred securities at their liquidation preference plus accrued and unpaid dividends at any time. Both the preferred securities and the warrant will be accounted for as components of regulatory Tier 1 capital. The original securities purchase agreement, between the Company and the Treasury, limits the payment of dividends on the Common Stock to a quarterly cash dividend of $0.14 per share (as discussed above the Company is deferring these dividends), limits the Company’s ability to repurchase its Common Stock, and subjects the Company to certain executive compensation limitations.

Note 11. Goodwill and Intangible Assets

Goodwill

Goodwill initially recorded is subject to the completion of the valuation of assets acquired and liabilities assumed. Purchase accounting adjustments are the adjustments to the initial goodwill recorded at the time an acquisition is completed. Such adjustments generally consist of adjustments to the assigned fair value of assets acquired and liabilities assumed resulting from the completion of appraisals or other valuations and adjustments to initial estimates recorded for transaction costs or exit liabilities. Goodwill is not amortized but is subject to impairment tests on at least an annual basis. Management performed its annual review of goodwill at December 31, 2008 using the comparable transaction approach and has updated that review each quarter as the stock prices in the financial services sector generally remained out of favor. Due to continued pressures created by the economy on asset quality, the Company hired a third party in the second quarter 2009 to conduct an in-depth step one analysis per accounting standards (i.e. ASC 350 “Goodwill and Other Intangible Assets”). The results of this analysis showed that the Company failed step one. The third party conducted a step two test which indicated an impairment of $8,451 which was recorded in the second quarter 2009. Based on the Company’s analysis at September 30, 2009, there was no additional goodwill impairment taken in the third quarter of 2009. However, if the economy remains stressed and bank stocks remain out of favor, no assurance can be given that future impairment tests will not result in a charge to earnings.

The change in balance of goodwill during the year is as follows:


	September 30, 2009			December 31, 2008

Beginning of period	$	24,494		$	25,498
Goodwill impairment due to sale of Wealth Management		(163	)		(724	)
Goodwill allocated to Brokerage & Asset Management sale		—			(280	)
Impairment		(8,451	)		—


End of period	$	15,880		$	24,494

20.

CENTRUE FINANCIAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Note 11. Goodwill and Intangible Assets (continued)

In late 2008, the Company completed the sale of its asset management and brokerage product lines. Additionally, the Company entered into an agreement to sell its Trust product line to Hometown National Bank in LaSalle, Illinois. This transaction was completed during the first quarter of 2009. The goodwill impairment related to the sale of Wealth Management, Asset Management and Brokerage is the result of these transactions.

Acquired Intangible Assets

Acquired intangible assets were as follows as of the quarter ending:


	September 30, 2009				December 31, 2008

	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Amortized intangible assets:
Core deposit intangibles	$	14,124	$	6,799	$	14,124	$	5,617
Other customer relationship intangibles		—		—		—		—
Missouri charter		581		—		581		—


Total	$	14,705	$	6,799	$	14,705	$	5,617

The core deposit intangible asset recorded in the 2006 merger with Centrue Financial Corporation was $13,035. Aggregate amortization expense was $1,182 and $1,448 for the nine months ended September 30, 2009 and 2008.

Estimated amortization expense for subsequent periods is as follows:


Remaining quarters in 2009	$	356
2010		1,257
2011		1,029
2012		951
2013		951
Thereafter		2,781

Note 12. Subsequent Events

As defined in ASC 855, Subsequent Events, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to shareholders and other financial statement users for general use and reliance in a form and format that complies with GAAP. The Company has evaluated subsequent events through November 9, 2009, which is the date that the Company’s financial statements are being issued.

21.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 13. Recent Accounting Developments

In January 2009, the FASB Emerging Issues Task Force finalized Issue No. 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20, which is codified as ASC 325-40. This issue amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. If the fair value of an available-for-sale or held-to-maturity debt security is less than its cost basis at the measurement date, generally accepted accounting principles require that the reporting entity assess the impaired security to determine whether the impairment is other than temporary. Other-than-temporary impairments are recognized through earnings. This amendment allows for changes which include using reasonable judgment of the probability that the holder will be unable to collect amounts due rather than using the EITF 99-20’s previous requirement to estimate a “market participant’s” view of cash flows. Beginning on March 31, 2009, the Company has applied this FSP in determining if our securities have any other-than-temporary impairments.

In April 2009, the FASB issued Staff Position No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which is codified as ASC 320-10. This amends existing guidance for determining whether impairment is other-than-temporary for debt securities. The FSP requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment related to other factors is recognized in other comprehensive income. Additionally, the FSP expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities. This FSP is effective for interim and annual reporting periods after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP as of January 1, 2009. During the nine months ended September 30, 2009, the Company recognized a $8,878 non-cash impairment charge to write down five of our collateralized debt obligations due to other-than-temporary impairment, which was credit related. Please see Note 9 of the Notes to the Unaudited Consolidated Interim Financial Statements included in this Quarterly Report on Form 10-Q.

In April 2009, the FASB issued Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which is codified as ASC 480-10. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The FSP provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The FSP also requires increased disclosures. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP as of January 1, 2009. The adoption of this FSP did not have a significant impact to the Company’s financial statements.

22.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 13. Recent Accounting Developments (continued)

In April 2009, the FASB issued Staff Position No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which is codified as ASC 825-10. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require these disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP for the three months ended March 31, 2009, and the fair value disclosures are included in this Form 10-Q.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140. This standard has not yet been codified in the FASB Accounting Standards Codification. FAS 166 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This Statement must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. Additionally, the disclosure provisions of this Statement should be applied to transfers that occurred both before and after the effective date of this Statement. The Company does not expect the adoption of this Statement to have a significant impact to the Company’s financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), which improves financial reporting by enterprises involved with variable interest entities. This standard has not yet been codified in the FASB Accounting Standards Codification. FAS 167 amends Interpretation No. 46(R), Consolidation of Variable Interest Entities, to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. This Statement also requires additional disclosures about an enterprise’s involvement in variable interest entities. FAS 167 will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. The Company does not expect the adoption of this Statement to have a significant impact to the Company’s financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which is codified as ASC 105, Generally Accepted Accounting Principles. The objective of this Statement is to replace Statement 162, The Hierarchy of Generally Accepted Accounting Principles, and to establish the FASB Accounting Standards Codification ^TMas the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this Statement will not impact the Company’s financial condition. Beginning with this Quarterly Report on Form 10-Q for September 30, 2009, and in all filings thereafter, references to Financial Accounting Standards that have been codified in the FASB Accounting Standards Codification have been replaced with references to the appropriate guidance in the Codification.

23.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(In Thousands, Except Share and Per Share Data)

Note 13. Recent Accounting Developments (continued)

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Measuring Liabilities at Fair Value, which is codified as ASC 820, Fair Value Measurements and Disclosures. This Update provides amendments to Topic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of Topic 820. The amendments in this Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents transfer of the liability. The amendments in this Update also clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this Update is effective for the first reporting period (including interim periods) beginning after issuance. The adoption of this Update did not have a significant impact to the Company’s financial statements.

24.

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)

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. 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, 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, 2009 as compared to the same period in 2008. 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, 2008. The annualized results of operations during the three and nine months ended September 30, 2009 are not necessarily indicative of the results expected for the year ending December 31, 2009. Certain 2008 amounts have been reclassified to conform to the 2009 presentation. 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 2008 Annual Report on Form 10-K.

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.

25.

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)

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 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 when the Company is unable to retain their position in the instrument allowing it to recover. If the Company is able to retain the instrument and allow it to recover its value, only the credit component of any identified impairment is recognized through the income statement. The fair values of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). If the securities could not be priced using quoted market prices, observable market activity or comparable trades, the financial market was considered not active and the assets were classified as Level 3. The assets included in Level 3 are trust preferred CDOs and one CMO. These securities were historically priced using Level 2 inputs. In 2008, the decline in the level of observable inputs and market activity for trust preferred CDOs by the measurement date was significant and resulted in unreliable external pricing. As such, these investments are now considered Level 3 inputs and are priced using an internal model. The following information is incorporated into the pricing model utilized in determining individual security valuations:


	•	historical and current performance of the underlying collateral

	•	deferral/default rates

	•	collateral coverage ratios

	•	break in yield calculations

	•	cash flow projections

	•	required liquidity and credit premiums

	•	financial trend analysis with respect to the individual issuing financial institutions and insurance companies

Due to market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such valuation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. For additional discussion on securities, see Notes 3 and 9 of “Notes to Consolidated Financial Statements” of this Form 10-Q.

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 if conditions warrant it more frequently. 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.

26.

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)

General

Third Quarter Highlights:


	•	Earnings: Third quarter net loss of $8,412 compared to $16,215 net loss for second quarter 2009 and $2,799 net income for third quarter 2008. Results were adversely impacted by $14,500 provision for loan losses and $3,132 impairment on collateralized debt obligations (“CDO”) securities.

	•	Risk-Based Capital Ratios: All regulatory capital ratios to be considered “well-capitalized” were exceeded as of September 30, 2009 as total risk-based capital was 13.16% as compared to 12.18% at year-end 2008.

	•	Credit Quality: Increased the allowance for loan losses to 3.04% of total loans; Nonperforming assets increased $9,290 from second quarter 2009 to 6.7% of total assets; provision levels exceeded net charge-offs by $1,071.

	•	Balance Sheet: Total loans decreased $83,050 since year-end 2008 on strategic reduction initiatives to reduce balance sheet risk. Total deposits increased $12,323 since year-end 2008. In-market deposits increased $47,095, FHLB advances decreased $64,023 and brokered deposits decreased $34,771 during the same period.

	•	Net Interest Margin: Net interest margin compressed 6 basis points from the prior quarter to 3.21% mainly due to increased levels of nonaccrual loans and surplus liquidity initiatives.

	•	Liquidity: In-market deposits, cash and securities grew while wholesale funding and loans decreased.

Results of Operations

Net Income (Loss)

Net income (loss) for the third quarter ended September 30, 2009 equaled $(8,412) or $(1.47) per common diluted share as compared to $2,799 or $0.46 per common diluted share in the same period of 2008.

The results for the third quarter 2009 were adversely impacted by a $14,500 provision for loan losses largely related to asset quality deterioration in the Company’s land development, construction and commercial real estate portfolios. Also contributing to the loss was a $3,132 non-cash impairment charge related to CDO securities largely reflective of conditions impacting the banking sector leading to deterioration of capital, liquidity and asset quality. For the nine months ended September 30, 2008, net income (loss) equaled $(23,562) or $(4.13) per common diluted share as compared to $7,949 or $1.29 per common diluted share in the same period during 2008. Results for full year 2009 were adversely impacted by a $29,799 provision for loans losses, a $8,451 goodwill impairment charge taken in the second quarter 2009, and a $9,049 impairment on CDO securities.

Return on average equity was (25.47)% for the third quarter 2009 as compared to 9.64% for the same period in 2008. Return on average assets was (2.51)% for the third quarter 2009 compared to 0.83% for the same period in 2008.

Return on average equity was (22.38)% for the nine month period ended September 30, 2009 compared to 9.04% for the same period in 2008. Return on average assets was (2.32)% for the nine month period ended September 30, 2009 compared to 0.78% for the same period in 2008.

27.

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)

Net Interest Income/ Margin

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 third quarter 2009 decreased 6.0% to $9,609 as compared to $10,225 for the same period in 2008. The decline in net interest income was due to downward pressure on the net interest margin and interest income lost due to non-accrual loans and loans charged-off.

The net interest margin, on a tax equivalent basis, was 3.21% for the third quarter, representing decreases of 6 basis points from 3.27% recorded in the second quarter of 2009 and 16 basis points from 3.37% recorded in the third quarter of 2008. Downward pressure placed on interest income due to higher nonaccrual loans and re-investing dollars from loan pay downs into the lower yielding investment portfolio, and a decline in loan yields which outpaced the decline in funding costs, led to a reduction in the net interest spread and margin compared with the third quarter 2008. Due largely to the protracted economic downturn, the increase of nonaccrual loans, and the Company’s interest rate sensitivity and liquidity position, the margin will likely remain under pressure through the remainder of 2009 and into 2010.

Fully tax equivalent net interest income for the nine months ended September 30, 2009 totaled $30,113, representing a decrease of $331 or 1.1% compared to the $30,444 earned during the same period in 2008. The decrease in the net interest income is due mainly to the same reasons stated above for the third quarter 2009.

28.

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,

	2009								2008

				Interest								Interest
	Average			Income/		Average			Average			Income/		Average			Change Due To:
	Balance			Expense		Rate			Balance			Expense		Rate			Volume			Rate			Net

ASSETS

Interest-earning assets
Interest-earning deposits	$	2,783		$	17		2.44	%	$	2,179		$	2		0.37	%	$	2		$	13		$	15
Securities
Taxable		210,600			2,034		3.83			179,204			2,134		4.75			381			(481	)		(100	)
Non-taxable		35,683			487		5.42			38,882			548		5.61			(42	)		(19	)		(61	)


Total securities (tax equivalent)		246,283			2,521		4.06			218,086			2,682		4.89			339			(500	)		(161	)


Federal funds sold		—			—		—			769			12		6.21			(6	)		(6	)		(12	)


Loans
Commercial		142,326			2,143		5.97			181,255			2,749		6.03			(576	)		(30	)		(606	)
Real estate		790,466			10,726		5.38			797,900			12,478		6.22			28			(1,780	)		(1,752	)
Installment and other		5,530			130		9.31			7,841			151		7.67			(43	)		22			(21	)


Gross loans (tax equivalent)		938,322			12,999		5.50			986,996			15,378		6.20			(591	)		(1,788	)		(2,379	)


Total interest-earnings assets		1,187,388			15,537		5.19			1,208,030			18,074		5.95			(256	)		(2,281	)		(2,537	)


Noninterest-earning assets
Cash and cash equivalents		54,262								26,357
Premises and equipment, net		30,908								33,472
Other assets		56,948								69,965


Total nonearning assets		142,118								129,794

Total assets	$	1,329,506							$	1,337,824


LIABILITIES & STOCKHOLDERS’ EQUITY

Interest-bearing liabilities
NOW accounts		108,794			148		0.54			104,196			274		1.04			6			(132	)		(126	)
Money market accounts		146,862			434		1.17			155,965			886		2.26			(66	)		(386	)		(452	)
Savings deposits		89,478			61		0.27			86,303			59		0.27			2			—			2
Time deposits		589,945			4,288		2.88			543,434			5,006		3.67			433			(1,151	)		(718	)
Federal funds purchased and repurchase Agreements		31,344			39		0.50			42,482			189		1.76			(46	)		(104	)		(150	)
Advances from FHLB		76,266			595		3.10			123,862			838		2.69			(359	)		116			(243	)
Notes payable & subordinated debt		31,742			363		4.53			42,218			597		5.63			(117	)		(117	)		(234	)


Total interest-bearing liabilities		1,074,431			5,928		2.19			1,098,460			7,849		2.84			(147	)		(1,774	)		(1,921	)


Noninterest-bearing liabilities
Noninterest-bearing deposits		112,778								113,282
Other liabilities		11,244								10,561

Total noninterest-bearing liabilities		124,022								123,843


Stockholders’ equity		131,053								115,521


Total liabilities and stockholders’ equity	$	1,329,506							$	1,337,824


Net interest income (tax equivalent)				$	9,609							$	10,225				$	(109	)	$	(507	)	$	(616	)

Net interest income (tax equivalent) to total earning assets							3.21	%							3.37	%

Interest-bearing liabilities to earning assets		90.49	%							90.93	%


⁽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.

29.

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,

	2009							2008

			Interest							Interest
	Average		Income/		Average			Average		Income/		Average			Change Due To:
	Balance		Expense		Rate			Balance		Expense		Rate			Volume			Rate			Net

ASSETS

Interest-earning assets
Interest-earning deposits	$	2,738	$	27		1.32	%	$	2,668	$	11		0.55	%	$	1		$	15		$	16
Securities
Taxable		209,791		6,677		4.26			183,117		6,666		4.88			929			(918	)		11
Non-taxable		35,547		1,464		5.51			39,134		1,677		5.72			(149	)		(64	)		(213	)


Total securities (tax equivalent)		245,338		8,141		4.44			222,251		8,343		5.01			780			(982	)		(202	)


Federal funds sold		—		—		—			2,543		83		4.34			(41	)		(42	)		(83	)


Loans
Commercial		155,655		6,720		5.77			201,767		9,613		6.36			(2,035	)		(858	)		(2,893	)
Real estate		810,025		33,742		5.57			787,267		38,681		6.56			1,118			(6,057	)		(4,939	)
Installment and other		5,615		387		9.20			9,851		497		6.74			(199	)		89			(110	)


Gross loans (tax equivalent)		971,295		40,849		5.62			998,885		48,791		6.52			(1,116	)		(6,826	)		(7,942	)


Total interest-earnings assets		1,219,371		49,017		5.38			1,226,347		57,228		6.23			(376	)		(7,835	)		(8,211	)


Noninterest-earning assets
Cash and cash equivalents		40,902							29,708
Premises and equipment, net		31,452							34,442
Other assets		64,003							69,216


Total nonearning assets		136,357							133,366

Total assets	$	1,355,728						$	1,359,713


LIABILITIES & STOCKHOLDERS’ EQUITY

Interest-bearing liabilities
NOW accounts		104,571		481		0.62			107,722		968		1.20			(53	)		(434	)		(487	)
Money market accounts		147,975		1,708		1.54			159,126		3,313		2.78			(298	)		(1,307	)		(1,605	)
Savings deposits		89,391		180		0.27			88,870		262		0.39			(3	)		(79	)		(82	)
Time deposits		595,548		13,501		3.03			555,681		17,048		4.10			861			(4,408	)		(3,547	)
Federal funds purchased and repurchase Agreements		28,180		111		0.53			44,087		675		2.04			(217	)		(347	)		(564	)
Advances from FHLB		91,277		1,708		2.50			118,772		2,786		3.13			(611	)		(467	)		(1,078	)
Notes payable & subordinated debt		33,291		1,215		4.88			40,870		1,732		5.66			(289	)		(228	)		(517	)