Edgar Filing: CENTRUE FINANCIAL CORP

Unassociated Document

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, 2010

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 incorporation or organization)		(I.R.S. Employer Identification 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	o
Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Shares outstanding at November 15, 2010
Common Stock, Par Value $1.00		6,048,405

Centrue Financial Corporation

Form 10-Q Index

September 30, 2010

		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	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	[Reserved]	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

SIGNATURES		48

Centrue Financial Corporation

Part I Financial Information

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets

September 30, 2010 and December 31, 2009 (In Thousands, Except Share and Per Share Data)

	September 30,			December 31,
	2010			2009
ASSETS
Cash and cash equivalents	$	43,927		$	56,452
Securities available-for-sale		271,301			264,772
Restricted securities		10,925			10,711
Loans		764,585			885,095
Allowance for loan losses		(43,390	)		(40,909	)
Net loans		721,195			844,186
Bank-owned life insurance		30,138			29,365
Mortgage servicing rights		2,480			2,885
Premises and equipment, net		26,162			30,260
Goodwill		15,880			15,880
Other intangible assets, net		6,584			7,551
Other real estate owned		24,695			16,223
Other assets		26,397			34,399

Total assets	$	1,179,684		$	1,312,684

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing	$	112,793		$	119,313
Interest-bearing		845,239			935,376
Total deposits		958,032			1,054,689

Federal funds purchased and securities sold under agreements to repurchase		11,725			16,225
Federal Home Loan Bank advances		81,060			86,261
Notes payable		10,711			10,796
Series B mandatory redeemable preferred stock		268			268
Subordinated debentures		20,620			20,620
Other liabilities		12,220			11,211
Total liabilities		1,094,636			1,200,070

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)		30,655			30,190

Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at September 30, 2010 and December 31, 2009		7,454			7,454
Surplus		74,748			74,741
Retained (deficit) earnings		(7,001	)		21,486
Accumulated other comprehensive income		806			439
		107,162			134,810

Treasury stock, at cost 1,405,150 shares at September 30, 2010 and 1,410,379 shares at December 31, 2009		(22,114	)		(22,196	)
Total stockholders' equity		85,048			112,614

Total liabilities and stockholders’ equity	$	1,179,684		$	1,312,684

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

And Comprehensive Income (Loss)

Three Months and Nine Months Ended September 30, 2010 and 2009

(In Thousands, Except Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Interest income
Loans	$	9,856		$	12,958		$	31,877		$	40,720
Securities
Taxable		1,377			2,041			4,723			6,697
Exempt from federal income taxes		247			312			783			937
Federal funds sold and other		28			24			93			51
Total interest income		11,508			15,335			37,476			48,405

Interest expense
Deposits		3,416			4,931			11,836			15,869

Federal funds purchased and securities sold under agreements to repurchase		7			39			37			111
Federal Home Loan Bank advances		573			595			1,733			1,708
Series B mandatory redeemable preferred stock		4			4			12			12
Subordinated debentures		270			257			783			821
Notes payable		99			101			279			382
Total interest expense		4,369			5,927			14,680			18,903

Net interest income		7,139			9,408			22,796			29,502
Provision for loan losses		7,250			14,500			24,150			29,799
Net interest income (loss) after
provision for loan losses		(111	)		(5,092	)		(1,354	)		(297	)

Noninterest income
Service charges		1,215			1,756			3,934			4,812
Mortgage banking income		628			351			1,114			1,860
Bank-owned life insurance		261			248			773			763
Electronic banking services		516			513			1,528			1,447
Securities gains		899			—			1,913			246
Total other-than-temporary impairment losses		(569	)		(4,822	)		(4,153	)		(11,193	)
Portion of loss recognized in other comprehensive income (before taxes)		71			1,690			131			2,144
Net impairment on securities		(498	)		(3,132	)		(4,022	)		(9,049	)
Gain on sale of OREO		24			130			34			166
Gain on sale of other assets		178			9			1,648			117
Other income		204			191			633			806
		3,427			66			7,555			1,168

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

And Comprehensive Income (Loss)

Three Months and Nine Months Ended September 30, 2010 and 2009

(In Thousands, Except Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Noninterest expenses
Salaries and employee benefits		3,547			3,931			11,019			12,379
Occupancy, net		647			777			2,378			2,547
Furniture and equipment		642			602			1,685			1,726
Marketing		91			191			280			579
Supplies and printing		106			108			302			344
Telephone		194			164			567			654
Data processing		388			374			1,167			1,136
FDIC insurance		842			538			2,549			1,877
Loan processing and collection costs		675			483			1,789			946
Goodwill impairment		—			—			—			8,451
OREO valuation adjustment		378			—			2,365			—
Amortization of intangible assets		307			375			967			1,182
Other expenses		1,462			1,448			4,307			4,312
		9,279			8,991			29,375			36,133

Income (loss) before income taxes	$	(5,963	)	$	(14,017	)	$	(23,174	)	$	(35,262	)
Income tax expense (benefit)		10,440			(5,605	)		3,414			(11,700	)
Net income (loss)	$	(16,403	)	$	(8,412	)	$	(26,588	)	$	(23,562	)

Preferred stock dividends		484			467			1,435			1,342
Net income (loss) for common stockholders	$	(16,887	)	$	(8,879	)	$	(28,023	)	$	(24,904	)

Basic earnings (loss) per common share	$	(2.79	)	$	(1.47	)	$	(4.64	)	$	(4.13	)
Diluted earnings (loss) per common share	$	(2.79	)	$	(1.47	)	$	(4.64	)	$	(4.13	)

Total comprehensive income (loss):
Net income (loss)	$	(16,403	)	$	(8,412	)	$	(26,588	)	$	(23,562	)
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		(341	)		1,753			(3,067	)		(811	)
Change in unrealized gains (losses) on other securities available for sale, net of reclassifications and tax effect		661			2,501			1,557			(2,234	)
Reclassification adjustment: Net impairment loss recognized in earnings		498			3,132			4,022			9,049
(Gains) recognized in earnings		(899	)		—			(1,913	)		(246	)
Net unrealized gains (loss)		81			7,386			599			5,758
Tax expense (benefit)		(32	)		2,861			232			2,230
Other comprehensive income (loss)		(49	)		4,525			367			3,528
Total comprehensive income (loss)	$	(16,452	)	$	(3,887	)	$	(26,221	)	$	(20,034	)

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Cash Flows

Nine Months Ended September 30, 2010 and 2009 (In Thousands)

	Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities
Net Income (Loss)	$	(26,588	)	$	(23,562	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation		1,927			1,997
Goodwill impairment		—			8,451
Amortization of intangible assets		967			1,182
Amortization of mortgage servicing rights, net		452			708
Amortization of bond premiums, net		2,084			533
Mortgage servicing rights valuation adjustment		225			—
Income tax valuation adjustment		12,816			—
Share based compensation		83			260
Provision for loan losses		24,150			29,799
Provision for deferred income taxes		(6,886	)		7,046
Earnings on bank-owned life insurance		(773	)		(763	)
Other than temporary impairment, securities		4,022			9,049
Securities losses (gains), net		(1,913	)		(246	)
OREO valuation allowance		2,365			—
(Gain) on sale of OREO		34			(166	)
(Gain) on sale of other assets, net		(469	)		(117	)
(Gain) loss on sale of loans		(1,102	)		(1,860	)
(Gain) loss on sale of branches		(1,179	)		—
Loss related to sale of Wealth Management		—			163
Proceeds from sales of loans held for sale		50,621			113,171
Origination of loans held for sale		(50,135	)		(110,883	)
Change in assets and liabilities
(Increase) decrease in other assets		3,191			(17,624	)
Increase (decrease) in other liabilities		(682	)		(1,372	)
Net cash provided by operating activities		13,210			15,766

Cash flows from investing activities
Proceeds from paydowns of securities available for sale		56,446			33,945
Proceeds from calls and maturities of securities available for sale		11,650			17,205
Proceeds from sales of securities available for sale		74,152			8,347
Purchases of securities available for sale		(152,431	)		(82,424	)
Net decrease (increase) in loans		82,107			63,811
(Purchase) disposal of premises and equipment		175			(387	)
Proceeds from sale of OREO		801			856
Sale of branch, net of premium received		(11,726	)		—
Net cash provided by (used in) investing activities		61,174			39,952

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Cash Flows

Nine Months Ended September 30, 2010 and 2009 (In Thousands)

	Nine Months Ended
	September 30,
	2010			2009
Cash flows from financing activities
Net increase (decrease) in deposits		(77,123	)		12,323
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase		(4,500	)		(14,905	)
Repayment of advances from the Federal Home Loan Bank		(40,201	)		(244,023	)
Proceeds from advances from the Federal Home Loan Bank		35,000			180,000
Payments on notes payable		(85	)		(8,946	)
Dividends on common stock		—			(482	)
Dividends on preferred stock		—			(1,342	)
Net proceeds from preferred stock issued		—			32,668
Net cash provided by (used in) financing activities		(86,909	)		(44,707	)

Net increase (decrease) in cash and cash equivalents		(12,525	)		11,011

Cash and cash equivalents
Beginning of period		56,452			35,014
End of period	$	43,927		$	46,025

Supplemental disclosures of cash flow information
Cash payments for interest	$	14,454		$	18,799
Cash payments for income taxes		—			1,028
Transfers from loans to other real estate owned		11,650			1,959

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 1. Summary of Significant Accounting Policies

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

Basis of presentation

The accompanying unaudited interim consolidated financial statements of Centrue Financial Corporation have been prepared in conformity with U. S. Generally Accepted Accounting Principles (“GAAP”) and with general practice in the banking industry. In preparing the financial statements, management makes estimates and assumptions based on available information 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 income and expenses during the reporting period, and actual results could differ. The allowance for loan losses, carrying value of goodwill, other-than-temporary impairment of securities, 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, 2009. The consolidated financial statements include the accounts of the Company and Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2009 amounts have been reclassified to conform to the 2010 presentation. These reclassifications did not have an impact on net income or stockholder’s equity. The annualized results of operations during the three and nine months ended September 30, 2010 are not necessarily indicative of the results expected for the year ending December 31, 2010. All financial information in the following tables is in thousands (000s), except share and per share data. In the opinion of management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 2. Earnings (Loss) Per Share

Basic earnings (loss) per share for the three and nine months ended September 30, 2010 and 2009 were computed by dividing net income (loss) by the weighted average number of shares outstanding. Diluted earnings (loss) per share for the same periods were computed by dividing net income (loss) 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 (loss) per share are provided as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Basic Earnings (Loss) Per Common Share
Net income (loss) for common shareholders	$	(16,887	)	$	(8,879	)	$	(28,023	)	$	(24,904	)
Weighted average common shares outstanding		6,046			6,043			6,044			6,033

Basic earnings (loss) per common share	$	(2.79	)	$	(1.47	)	$	(4.64	)	$	(4.13	)

Diluted Earnings (Loss) Per Common Share
Weighted average common shares outstanding		6,046			6,043			6,044			6,033
Add: dilutive effect of assumed exercised stock options		—			—			—			—

Add: dilutive effect of assumed exercised common stock warrants		—			—			—			—

Weighted average common and dilutive potential shares outstanding		6,046			6,043			6,044			6,033

Diluted earnings (loss) per common share	$	(2.79	)	$	(1.47	)	$	(4.64	)	$	(4.13	)

There were approximately 561,069 and 695,569 options and 508,320 and 508,320 warrants outstanding at September 30, 2010 and 2009, respectively that were not included in the computation of diluted earnings per share as they were anti-dilutive. The Company’s convertible preferred stock was not included in the computation of diluted earnings per share as it was anti-dilutive.

Note 3. Securities

The primary strategic objective related to the Company’s $282.2 million investment securities portfolio is to assist with liquidity and interest rate risk management. At September 30, 2010, the Company carried at fair value $271.3 million classified as available-for-sale compared to $264.8 million at December 31, 2009. The Company also holds $10.9 million and $10.7 million of Federal Reserve and Federal Home Loan Bank stock which are classified as restricted securities as of September 30, 2010 and December 31, 2009, respectively. The Company does not have any securities classified as trading or held-to-maturity.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

The following tables represent the fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2010 and December 31, 2009:

	September 30, 2010
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost
U.S. government agencies	$	12,864	$	256	$	—		$	12,608
States and political subdivisions		31,014		1,033		(1	)		29,982
U.U.S. government agency residential mortgage-backed securities		185,980		2,777		(148	)		183,351
Collateralized residential mortgage obligations:
Agency		22,182		328		—			21,854
Private Label		6,712		39		(42	)		6,715
Equity securities		2,264		68		—			2,196
Collateralized debt obligations:
Single Issue		3,859		13		—			3,846
Pooled		6,426		45		(3,053	)		9,434

	$	271,301	$	4,559	$	(3,244	)	$	269,986

	December 31, 2009
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost
U.S. government agencies	$	3,966	$	216	$	—		$	3,750
States and political subdivisions		36,541		1,093		(25	)		35,473
U.U.S. government agency residential mortgage-backed securities		198,183		3,203		(249	)		195,229
Collateralized residential mortgage obligations:
Agency		3,261		53		—			3,208
Private Label		11,165		8		(137	)		11,294
Equity securities		1,898		55		(43	)		1,886
Collateralized debt obligations:
Single Issue		—		—		—			—
Pooled		9,758		—		(3,458	)		13,216

	$	264,772	$	4,628	$	(3,912	)	$	264,056

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,
	2010			2009			2010			2009
Proceeds from calls/maturities	$	7,245		$	1,160		$	11,650		$	17,205
Proceeds from sales		39,293			—			74,152			8,347
Realized gains		937			—			1,951			246
Realized losses		(38	)		—			(38	)		—
Net impairment loss recognized in earnings		(498	)		(3,132	)		(4,022	)		(9,049	)
Tax benefit (provision) related to to net realized gains and losses		348			—			741			94

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

The following table represents securities with unrealized losses not recognized in income presented by the length of time individual securities have been in a continuous unrealized loss position:

	September 30, 2010
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss

State and political subdivisions	$	—	$	—		$	354	$	(1	)	$	354	$	(1	)
U.S. government agency residential mortgage-backed securities		19,028		(148	)		—		—			19,028		(148	)
Collateralized residential mortgage obligations: Private Label		—		—			4,808		(42	)		4,808		(42	)
Collateralized debt obligations: Pooled		—		—			6,223		(3,053	)		6,223		(3,053	)

Total temporarily impaired	$	19,028	$	(148	)	$	11,385	$	(3,096	)	$	30,413	$	( 3,244	)

	December 31, 2009
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss

State and political subdivisions	$	444	$	(6	)	$	777	$	(19	)	$	1,221	$	(25	)
U.S. government agency residential mortgage-backed securities		40,920		(249	)		—		—			40,920		(249	)
Collateralized residential mortgage obligations: Private Label		—		—			9,841		(137	)		9,841		(137	)
Equities		—		—			51		(43	)		51		(43	)
Collateralized debt obligations: Pooled		—		—			9,758		(3,458	)		9,758		(3,458	)

Total temporarily impaired	$	41,364	$	(255	)	$	20,427	$	(3,657	)	$	61,791	$	(3,912	)

The fair values of securities classified as available-for-sale at September 30, 2010, by contractual maturity, are shown as follows. Securities not due at a single maturity date, including mortgage-backed securities, collateralized mortgage obligations, and equity securities are shown separately.

	Amortized
	Cost		Fair Value
Due in one year or less	$	11,442	$	11,598
Due after one year through five years		19,281		19,823
Due after five years through ten years		7,574		7,927
Due after ten years		17,573		14,815
U.S. government agency residential mortgage-backed securities		183,351		185,980
Collateralized residential mortgage obligations		28,569		28,894
Equity		2,196		2,264
	$	269,986	$	271,301

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

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

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

Ending balance, September 30, 2010	$	19,363

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

Beginning balance, January 1, 2010	$	15,341
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		—
Additions/Subtractions
Amounts realized for securities sold during the period		—
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis		—
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security		—
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		4,022

Ending balance, September 30, 2010	$	19,363

See Note 9 on Fair Value for additional information about our analysis on the security portfolio related to the fair value and other-than-temporary impairment disclosures of these instruments.

10.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans

The following table describes the composition of loans by major categories outstanding as of September 30, 2010 and December 31, 2009, respectively:

	September 30, 2010					December 31, 2009
	$			%		$			%
Commercial	$	114,611		15.0	%	$	126,342		14.3	%
Agricultural		16,499		2.2			18,851		2.1
Real estate:
Commercial mortgages		390,400		51.0			437,995		49.5
Construction		89,236		11.7			128,351		14.5
Agricultural		9,517		1.2			9,602		1.1
1-4 family mortgages		140,671		18.4			159,325		18.0
Installment		3,177		0.4			4,093		0.4
Other		474		0.1			536		0.1

Total loans		764,585		100.0	%		885,095		100.0	%
Allowance for loan losses		(43,390	)				(40,909	)

Loans, net	$	721,195				$	844,186

The following table presents data on impaired loans:	September 30,		December 31,
	2010		2009
Impaired loans for which an allowance has been provided	$	117,544	$	129,655
Impaired loans for which no allowance has been provided		26,255		35,923

Total loans determined to be impaired	$	143,799	$	165,578

Allowance for loan loss allocated to impaired loans	$	32,106	$	26,717
Average recorded investment in impaired loans		153,477		116,260
Interest income recognized from impaired loans		3,224		11,376
Cash basis interest income recognized from impaired loans		3,109		9,322

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 $16.9 million of troubled debt restructurings representing 8 loans categorized as 1 to 4 family and commercial real estate.

Nonaccrual loans were $78.2 million and $80.1 million as of September 30, 2010 and December 31, 2009, respectively. As of September 30, 2010 and December 31, 2009, there were no loans that were past 90 days and still accruing. The Company has loans held for sale of $2.1 million and $1.5 million as of September 30, 2010 and December 31, 2009, respectively. In addition, there were $16.9 million of troubled debt restructurings as of September 30, 2010 of which $16.3 million is on nonaccrual. At December 31, 2009, troubled debt restructurings were $0.7 million.

11.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

Management evaluates the allowance for loan losses based on the combined total of specific allocations, historical loss and qualitative components and believes that the allowance for loan losses represented probable incurred credit losses inherent in the loan portfolio at September 30, 2010. Activity in the allowance for loan losses for the three and nine months ended September 30, 2010 and 2009 are summarized below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Beginning balance	$	42,378		$	26,894		$	40,909		$	15,018
Charge-offs		(6,303	)		(13,493	)		(21,898	)		(17,291	)
Recoveries		65			64			229			439
Provision for loan losses		7,250			14,500			24,150			29,799

Ending balance	$	43,390		$	27,965		$	43,390		$	27,965

Period end total loans	$	764,585		$	921,340		$	764,585		$	921,340

Average loans	$	780,383		$	938,905		$	822,379		$	971,836

Ratio of net charge-offs to average loans		0.80	%		1.43	%		2.63	%		1.73	%
Ratio of provision for loan losses to average loans		0.93			1.54			2.94			3.07
Ratio of allowance for loan losses to period end total loans		5.67			3.04			5.67			3.04
Ratio of allowance for loan losses to total nonperforming loans		45.63			36.48			45.63			36.48
Ratio of allowance for loan losses to average loans		5.56			2.98			5.28			2.88

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 had an exercise period of ten years from the date of grant, and all options have expired. The plan terminated on November 18, 2009 leaving no 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 subsidiary 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 and are available 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 available to grant under this plan.

The Company awarded 5,000 shares of restricted stock in November, 2006 that were available under the restricted stock portion of the plan. The restricted shares were issued out of treasury stock with an aggregate grant date fair value of $0.09 million. 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.

12.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 5. Share Based Compensation (Continued)

A summary of the status of the option plans as of September 30, 2010, and changes during the period ended on those dates are presented below:

	September 30, 2010
						Weighted-
				Weighted-		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Life	Value
Outstanding at January 1, 2010		690,769		$	16.68
Granted		—			—
Exercised		—			—
Forfeited		(129,700	)		16.89

Outstanding at end of period		561,069		$	16.63	3.5 years	$	—
Vested or expected to vest		555,471		$	16.67	3.4 years	$	—
Options exercisable at period end		436,669		$	17.46	3.1 years	$	—

Options outstanding at September 30, 2010 and December 31, 2009 were as follows:

					Outstanding			Exercisable
							Weighted-
							Average			Weighted-
							Remaining			Average
							Contractual			Exercise
Range of Exercise Prices					Number		Life	Number		Price
September 30, 2010:

$	5.24	-	$	13.00		146,881	4.1 years		83,281	$	8.59
	13.88	-		18.63		176,588	3.2 years		133,388		16.58
	19.03	-		23.31		237,600	3.4 years		220,000		21.35

						561,069	3.5 years		436,669	$	17.46

December 31, 2009:

$	5.24	-	$	13.00		170,381	4.9 years		77,381		7.96
	13.88	-		18.63		233,588	3.9 years		167,188		16.60
	19.03	-		23.31		286,800	3.9 years		259,600		21.41

						690,769	4.1 years		504,169	$	17.75

There were no options exercised for the periods ended September 30, 2009 and 2010.

The compensation cost that has been charged against income for the stock options portion of the Option Plans was $0.03 million and $0.05 million for the three months ended September 30, 2010 and 2009, respectively.

The compensation cost that has been charged against income for the stock options portion of the Option Plans was $0.08 million and $0.27 million for the nine months ended September 30, 2010 and 2009, respectively.

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 director options are tracked separately.

13.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 5. Share Based Compensation (Continued)

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 first, second or third quarter 2010. Year to date data for September 30, 2010, December 31, 2009 and December 31, 2008, is as follows:

	September 30, 2010		December 31, 2009			December 31, 2008
Fair value	$	—	$	1.79 – 3.70		$	3.36 – 3.69
Risk-free interest rate		—		1.53 – 2.01	%		2.75 – 2.95	%
Expected option life (years)		—		6			6
Expected stock price volatility		—		68.84 – 116.39	%		23.91 – 24.07	%
Dividend yield		—		5.71 – 7.31	%		2.79 – 2.95	%

Unrecognized stock option compensation expense related to unvested awards (net of estimated forfeitures) for the remainder of 2010 and beyond is estimated as follows:

	Amount
October, 2010 – December, 2010	$	30
2011		113
2012		79
2013		33
2014		—

Total	$	255

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.

14.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 7. Segment Information (Continued)

Information reported internally for performance assessment follows:

	Three Months Ended
	September 30, 2010
	Retail			Commercial			Treasury			Other			Total
	Segment			Segment			Segment			Operations			Company
Net interest income (loss)	$	1,197		$	5,929		$	497		$	(484	)	$	7,139
Other revenue		2,292			431			401			303			3,427
Other expense		2,555			1,061			52			4,510			8,178
Noncash items
Depreciation		541			2			—			251			794
Provision for loan losses		—			7,250			—			—			7,250
Other intangibles		307			—			—			—			307
Net allocations		1,483			3,020			439			(4,942	)		—
Income tax benefit		648			10,026			(234	)		—			10,440
Segment profit (loss)	$	(2,045	)	$	(14,999	)	$	641		$	—		$	(16,403	)

Goodwill	$	7,784		$	8,096		$	—		$	—		$	15,880
Segment assets	$	200,119		$	597,230		$	282,056		$	100,279		$	1,179,684

	Three Months Ended
	September 30, 2009
	Retail		Commercial		Treasury		Other			Total
	Segment		Segment		Segment		Operations			Company
Net interest income (loss)	$	2,128	$	6,830	$	1,220	$	(770	)	$	9,408
Other revenue