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 June 30, 2011
Commission File Number: 0-28846

Centrue Financial Corporation
(Exact name of Registrant as specified in its charter)
     
Delaware
  
36-3145350
(State or other jurisdiction of 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
o
Accelerated filer
o
 
Non-accelerated filer
o
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ.

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

Class
  
Shares outstanding at August 12, 2011
Common Stock, Par Value $1.00
  
6,048,405
 
 
 
 
 
Centrue Financial Corporation
Form 10-Q Index
June 30, 2011
 
     
Page
         
     
         
     
         
   
1
  
         
   
2
  
         
   
4
  
         
   
5
  
         
 
30
  
         
    47  
     
 
 
48
  
         
     
         
 
49
  
         
 
49
  
         
 
49
  
         
 
49
  
         
 
49
  
         
 
49
  
         
 
50
  
         
 
51
  
 
 
 
 
 
Centrue Financial Corporation
Part I Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
June 30, 2011 and December 31, 2010 (In Thousands, Except Share Data)

   
June 30,
    
December 31,
  
   
2011
    
2010
  
ASSETS
            
Cash and cash equivalents
   $ 45,863     $ 82,945  
Securities available-for-sale
     221,127       219,475  
Restricted securities
     9,190       10,470  
Loans
     660,882       721,871  
Allowance for loan losses
     (24,358 )     (31,511 )
Net loans
     636,524       690,360  
Bank-owned life insurance
     30,902       30,403  
Mortgage servicing rights
     2,340       2,425  
Premises and equipment, net
     24,935       25,687  
Other real estate owned
     35,618       25,564  
Other assets
     15,757       17,833  
                 
Total assets
   $ 1,022,256     $ 1,105,162  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Liabilities
                
Deposits
                
Non-interest-bearing
   $ 112,986     $ 118,667  
Interest-bearing
     753,051       812,438  
Total deposits
     866,037       931,105  
Federal funds purchased and securities sold under agreements to repurchase
     16,180       16,188  
Federal Home Loan Bank advances
     58,059       71,059  
Notes payable
     10,533       10,623  
Series B mandatory redeemable preferred stock
     268       268  
Subordinated debentures
     20,620       20,620  
Other liabilities
     12,998       12,378  
Total liabilities
     984,695       1,062,241  
                 
Commitments and contingent liabilities
     —       —  
                 
Stockholders’ equity
                
Series A convertible preferred stock (aggregate liquidation preference of $2,762)
     500       500  
Series C fixed rate, Cumulative Perpetual Preferred Stock (aggregate liquidation preference of $32,668)
     31,120       30,810  
Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at June 30, 2011 and December 31, 2010
     7,454       7,454  
Surplus
     74,780       74,721  
Retained earnings (accumulated deficit)
     (54,047 )     (46,861 )
Accumulated other comprehensive income (loss)
     (132 )     (1,589 )
      59,675       65,035  
Treasury stock, at cost 1,405,150 shares at June 30, 2011 and December 31, 2010
     (22,114 )     (22,114 )
Total stockholders’ equity
     37,561       42,921  
                 
Total liabilities and stockholders’ equity
   $ 1,022,256     $ 1,105,162  

See Accompanying Notes to Unaudited Financial Statements
 
 
1.
 

Centrue Financial Corporation
Unaudited Consolidated Statements Of Income (Loss)
And Comprehensive Income (Loss)
Three Months and Six Months Ended June 30, 2011 and 2010
(In Thousands, Except Per Share Data)

   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Interest income
                        
Loans
   $ 8,836     $ 10,773     $ 18,117     $ 22,021  
Securities
                                
Taxable
     1,088       1,613       2,085       3,346  
Exempt from federal income taxes
     177       258       392       536  
Federal funds sold and other
     37       38       68       65  
Total interest income
     10,138       12,682       20,662       25,968  
                                 
Interest expense
                                
Deposits
     2,213       4,049       4,700       8,420  
Federal funds purchased and securities sold under agreements to repurchase
     10       12       21       30  
Federal Home Loan Bank advances
     355       579       767       1,160  
Series B mandatory redeemable preferred stock
     4       4       8       8  
Subordinated debentures
     274       259       544       513  
Notes payable
     91       92       181       180  
Total interest expense
     2,947       4,995       6,221       10,311  
                                 
Net interest income
     7,191       7,687       14,441       15,657  
Provision for loan losses
     3,250       7,550       7,500       16,900  
Net interest income (loss) after provision for loan losses
     3,941       137       6,941       (1,243 )
                                 
Noninterest income
                                
Service charges
     1,189       1,299       2,251       2,719  
Mortgage banking income
     302       167       709       486  
Bank-owned life insurance
     250       257       499       512  
Electronic banking services
     565       528       1,092       1,012  
Securities gains
     379       1,012       379       1,014  
Total other-than-temporary impairment losses
     (107 )     (3,921 )     (499 )     (5,762 )
Portion of loss recognized in other comprehensive income (before taxes)
     —       2,004       —       2,238  
Net impairment on securities
     (107 )     (1,917 )     (499 )     (3,524 )
Gain (loss) on sale of OREO
     (92 )     1       (48 )     10  
Gain on sale of other assets
     —       1,268       63       1,470  
Other income
     198       191       362       429  
      2,684       2,806       4,808       4,128  
 
See Accompanying Notes to Unaudited Financial Statements

 
2.
 

Centrue Financial Corporation
Unaudited Consolidated Statements Of Income (Loss)
And Comprehensive Income (Loss)
Three Months and Six Months Ended June 30, 2011 and 2010
(In Thousands, Except Per Share Data)
 
   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Noninterest expenses
                        
Salaries and employee benefits
     3,460       3,701       7,093       7,472  
Occupancy, net
     704       943       1,424       1,731  
Furniture and equipment
     421       519       860       1,043  
Marketing
     67       82       127       189  
Supplies and printing
     77       98       141       196  
Telephone
     204       194       408       373  
Data processing
     375       397       739       779  
FDIC insurance
     824       853       1,674       1,707  
Loan processing and collection costs
     511       602       1,102       1,114  
OREO valuation adjustment
     1,097       330       1,297       1,987  
Amortization of intangible assets
     263       321       539       660  
Other expenses
     1,574       1,570       2,973       2,845  
      9,577       9,610       18,377       20,096  
                                 
Income (loss) before income taxes
   $ (2,952 )   $ (6,667 )   $ (6,628 )   $ (17,211 )
Income tax expense (benefit)
     (528 )     (2,742 )     (746 )     (7,026 )
Net income (loss)
   $ (2,424 )   $ ( 3,925 )   $ (5,882 )   $ (10,185 )
                                 
Preferred stock dividends
     501       478       995       951  
Net income (loss) for common stockholders
   $ (2,925 )   $ (4,403 )   $ (6,877 )   $ (11,136 )
                                 
Basic earnings (loss) per common share
   $ (0.48 )   $ (0.73 )   $ (1.14 )   $ (1.84 )
Diluted earnings (loss) per common share
   $ (0.48 )   $ (0.73 )   $ (1.14 )   $ (1.84 )
                                 
                                 
Total comprehensive income (loss):
                                
Net income (loss)
   $ (2,424 )   $ (3,925 )   $ (5,882 )   $ (10,185 )
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
     (21 )     (982 )     (145 )     (2,633 )
Change in unrealized gains (losses) on other securities available for sale
     1,416       458       2,401       803  
                                 
Reclassification adjustment:
                                
Net impairment loss recognized in earnings
     107       1,917       499       3,524  
(Gains) recognized in earnings
     (379 )     (1,012 )     (379 )     (1,014 )
Net unrealized gains (loss)
     1,123       381       2,376       680  
Tax expense (benefit)
     434       148       919       264  
Other comprehensive income (loss)
     689       233       1,457       416  
Total comprehensive income (loss)
   $ (1,735 )   $ (3,692 )   $ (4,425 )   $ (9,769 )

See Accompanying Notes to Unaudited Financial Statements

 
3.
 

Centrue Financial Corporation
Unaudited Consolidated Statements Of Cash Flows
Six Months Ended June 30, 2011 and 2010 (In Thousands)

   
Six Months Ended
  
   
June 30,
  
   
2011
    
2010
  
Cash flows from operating activities
            
Net Income (Loss)
  
$
(5,882
)
  
$
(10,185
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
                
Depreciation
    
946
      
1,133
  
Amortization of intangible assets
    
539
      
660
  
Amortization of mortgage servicing rights, net
    
198
      
218
  
Amortization of bond premiums, net
    
1,175
      
1,291
  
Mortgage servicing rights valuation adjustment
    
—
      
225
  
Income tax valuation allowance
    
2,029
      
—
  
Share based compensation
    
58
      
53
  
Provision for loan losses
    
7,500
      
16,900
  
Provision for deferred income taxes
    
(2,029
)
    
(4,377
)
Earnings on bank-owned life insurance
    
(499
)
    
(512
)
Other than temporary impairment, securities
    
499
      
3,524
  
OREO valuation allowance
    
1,297
      
1,987
  
Securities sale losses (gains), net
    
(379
)
    
(1,014
)
(Gain) on sale of other assets, net
    
(63
)
    
(291
)
(Gain) loss on sale of OREO
    
48
      
(10
)
(Gain) loss on sale of loans
    
(443
)
    
(462
)
(Gain) loss on sale of branches
    
—
      
(1,179
)
Proceeds from sales of loans held for sale
    
20,871
      
24,036
  
Origination of loans held for sale
    
(19,517
)
    
(22,767
)
Change in assets and liabilities
                
(Increase) decrease in other assets
    
1,302
      
4,052
  
Increase (decrease) in other liabilities
    
(1,328
)
    
(117
)
Net cash provided by operating activities
    
6,322
      
13,165
  
Cash flows from investing activities
                
Proceeds from paydowns of securities available for sale
    
22,647
      
37,993
  
Proceeds from calls and maturities of securities available for sale
    
11,920
      
4,405
  
Proceeds from sales of securities available for sale
    
19,698
      
34,860
  
Purchases of securities available for sale
    
(53,485
)
    
(112,643
)
Net decrease (increase) in loans
    
30,565
      
68,504
  
(Purchase) disposal of premises and equipment
    
(194
)
    
221
  
Proceeds from sale of OREO
    
3,611
      
232
  
Sale of branch, net of premium received
    
—
      
(11,726
)
Net cash provided by (used in) investing activities
    
34,762
      
21,846
  
Cash flows from financing activities
                
Net increase (decrease) in deposits
    
(65,068
)
    
(41,885
)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
    
(8
)
    
(4,726
)
Repayment of advances from the Federal Home Loan Bank
    
(23,000
)
    
(25,201
)
Proceeds from advances from the Federal Home Loan Bank
    
10,000
      
15,000
  
Payments on notes payable
    
(90
)
    
—
  
Net cash provided by (used in) financing activities
    
(78,166
)
    
(56,812
)
Net increase (decrease) in cash and cash equivalents
    
(37,082
)
    
(21,801
)
Cash and cash equivalents
                
Beginning of period
    
82,945
      
56,452
  
End of period
  
$
45,863
    
$
34,651
  
Supplemental disclosures of cash flow information
                
Cash payments for
                
Interest
  
$
6,373
    
$
9,924
  
Income taxes
    
19
      
—
  
Transfers from loans to other real estate owned
    
14,860
      
2,188
  

See Accompanying Notes to Unaudited Financial Statements

 
4.
 

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

Basis of presentation

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

For further information with respect to significant accounting policies followed by the Company in the preparation of its consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The consolidated financial statements include the accounts of the Company and Centrue Bank. Intercompany balances and transactions have been eliminated in consolidation and certain 2010 amounts have been reclassified to conform to the 2011 presentation. The annualized results of operations during the three and six months ended June 30, 2011 are not necessarily indicative of the results expected for the year ending December 31, 2011. All financial information in the following tables is in thousands (000s), except share and per share data. In the opinion of management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included.
 
 
5.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 2. Earnings Per Share

Basic earnings per share for the three and six months ended June 30, 2011 and 2010 were computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share for the same periods were computed by dividing net income by the weighted average number of shares outstanding, adjusted for the dilutive effect of the stock options and warrants. Computations for basic and diluted earnings per share are provided as follows:
 
   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Basic Earnings (Loss) Per Common Share
                        
Net income (loss) for common shareholders
   $ (2,925 )   $ (4,403 )   $ (6,877 )   $ (11,136 )
Weighted average common shares outstanding
     6,048       6,043       6,048       6,043  
                                 
Basic earnings (loss) per common share
   $ (0.48 )   $ (0.73 )   $ (1.14 )   $ (1.84 )
                                 
Diluted Earnings (Loss) Per Common Share
                                
Weighted average common shares outstanding
     6,048       6,043       6,048       6,043  
Add: dilutive effect of assumed exercised stock options
     —       —       —       —  
Add: dilutive effect of assumed exercised common stock warrants
     —       —       —       —  
Weighted average common and dilutive potential shares outstanding
     6,048       6,043       6,048       6,043  
                                 
Diluted earnings (loss) per common share
   $ (0.48 )   $ (0.73 )   $ (1.14 )   $ (1.84 )

There were 496,738 options and 508,320 warrants outstanding for the three and six months ended June 30, 2011 and 628,569 options and 508,320 warrants outstanding for the three and six months ended June 30, 2010 that were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price and therefore, were anti-dilutive. In addition, the Company’s convertible preferred stock was not included in the computation of diluted earnings per share as it was anti-dilutive.

Note 3. Securities

The primary strategic objective related to the Company’s securities portfolio is to assist with liquidity and interest rate risk management. The fair value of securities classified as available-for-sale was $221.1 million at June 30, 2011 compared to $219.5 million at December 31, 2010. The fair value of securities classified as restricted (Federal Reserve and Federal Home Loan Bank stock) was $9.2 million at June 30, 2011 compared to $10.5 million at December 31, 2010. The Company does not have any securities classified as trading or held-to-maturity.

The following tables represent the fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income(loss) at June 30, 2011 and December 31, 2010:
 
   
June 30, 2011
  
         
Gross
    
Gross
        
   
Fair
    
Unrealized
    
Unrealized
    
Amortized
  
   
Value
    
Gains
    
Losses
    
Cost
  
U.S. government agencies
   $ 8,499     $ 106     $ —     $ 8,393  
States and political subdivisions
     21,473       553       (3 )     20,923  
U.S. government agency residential mortgage-backed securities
     158,085       2,413       (75 )       155,747  
Collateralized residential mortgage obligations:
                                
Agency
     18,268       356       —       17,912  
Private label
     3,004       221       —       2,783  
Equity securities
     2,443       95       —       2,348  
Collateralized debt obligations:
                                
Single issue
     3,885       39       —       3,846  
Pooled
     5,470       65       (2,706 )     8,111  
                                 
    $ 221,127     $ 3,848     $ (2,784 )   $ 220,063  
 
 
6.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)
 
   
December 31, 2010
  
         
Gross
    
Gross
        
   
Fair
    
Unrealized
    
Unrealized
    
Amortized
  
   
Value
    
Gains
    
Losses
    
Cost
  
U.S. government agencies
   $ 7,085     $ 168     $ —     $ 6,917  
States and political subdivisions
     28,348       531       (8 )     27,825  
U.S. government agency residential mortgage-backed securities
     147,846       2,070       (131 )       145,907  
Collateralized residential mortgage obligations:
                                
Agency
     20,735       192       —       20,543  
Private label
     4,936       70       (77 )     4,943  
Equity securities
     2,254       41       —       2,213  
Collateralized debt obligations:
                                
Single issue
     3,849       3       —       3,846  
Pooled
     4,422       42       (4,213 )     8,593  
                                 
    $ 219,475     $ 3,117     $ (4,429 )   $ 220,787  
 
The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:
 
   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
      2011       2010       2011       2010  
Proceeds from calls and maturities
   $ 7,260     $ 2,095     $ 11,920     $ 4,405  
Proceeds from sales
     19,376       34,809       19,698       34,860  
Realized gains
     379       1,012       379       1,014  
Realized losses
     —       —       —       —  
Net impairment loss recognized in earnings
     (107 )     (1,917 )     (499 )     (3,524 )
Tax benefit (provision) related to net realized gains and losses
     (105 )     349       46       969  
 
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:
 
   
June 30, 2011
  
   
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
     727       (3 )     —       —       727       (3 )
U.S. government agency residential mortgage-backed securities
     33,044       (75 )     —       —       33,044       (75 )
Collateralized debt obligations: pooled
     —       —       5,356       (2,706 )     5,356       (2,706 )
                                                 
Total temporarily impaired
   $ 33,771     $ (78 )   $ 5,356     $ (2,706 )   $ 39,127     $ ( 2,784 )

 
7.
 

Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 3. Securities (Continued)
 
   
December 31, 2010
  
   
Less than 12 Months
    
12 Months or More
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Loss
    
Value
    
Loss
    
Value
    
Loss
  
                                     
State and political subdivisions
   $ 664     $ (3 )   $ 350     $ (5 )   $ 1,014     $ (8 )
U.S. government agency residential mortgage-backed securities
     17,216       (131 )     —       —       17,216       (131 )
Collateralized residential mortgage obligations: private label
     —       —       2,559       (77 )     2,559       (77 )
Collateralized debt obligations: pooled
     —       —       4,330       (4,213 )     4,330       (4,213 )
                                                 
Total temporarily impaired
   $ 17,880     $ (134 )   $ 7,239     $ (4,295 )   $ 25,119     $ (4,429 )
 
The fair values of securities classified as available-for-sale at June 30, 2011, by contractual maturity, are shown as follows. Securities not due at a single maturity date, including mortgage-backed securities, collateralized mortgage obligations, and equity securities are shown separately.
 
   
Amortized
        
   
Cost
    
Fair Value
  
Due in one year or less
   $ 5,767     $ 5,847  
Due after one year through five years
     12,822       13,145  
Due after five years through ten years
     7,893       8,012  
Due after ten years
     14,791       12,323  
U.S. government agency residential mortgage-backed securities
     155,747       158,085  
Collateralized residential mortgage obligations
     20,695       21,272  
Equity
     2,348       2,443  
    $ 220,063     $ 221,127  
 
The following table presents a rollforward of the credit losses recognized in earnings for the three month period ended June 30, 2011 and 2010:
 
   
2011
    
2010
  
Beginning balance, April 1,
   $ 20,754     $ 16,948  
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
     —       —  
Additions/Subtractions
                
Amounts realized for securities sold during the period
     —       —  
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis
     —       —  
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security
     —       —  
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized
     107       1,917  
                 
Ending balance, June 30,
   $ 20,861     $ 18,865  
 
 
8.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 3. Securities (Continued)

The following table presents a rollforward of the credit losses recognized in earnings for the six month period ended June 30, 2011 and 2010:
 
   
2011
    
2010
  
Beginning balance, January 1,
  
$
20,362
    
$
15,341
  
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
    
—
      
—
  
Additions/Subtractions
                
Amounts realized for securities sold during the period
    
—
      
—
  
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis
    
—
      
—
  
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security
    
—
      
—
  
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized
    
499
      
3,524
  
                 
Ending balance, June 30,
  
$
20,861
    
$
18,865
  
 
See Note 9 on Fair Value for additional information about our analysis on the security portfolio related to the fair value and other-than-temporary impairment disclosures of these instruments.

Note 4. Loans

The major classifications of loans follow:
 
   
Aggregate Principal Amount
  
   
June 30,
    
December 31,
  
   
2011
    
2010
  
             
Commercial
   $ 84,669     $ 87,226  
Agricultural & AGRE
     36,649       44,289  
Construction, land & development
     53,416       72,078  
Commercial RE
     318,772       342,208  
1-4 family mortgages
     164,590       172,666  
Consumer
     2,786       3,404  
Total loans
   $ 660,882     $ 721,871  
Allowance for loan losses
     (24,358 )     (31,511 )
Loans, net
   $ 636,524     $ 690,360  
 
There were $0.8 million and $1.7 million of loans held for sale at June 30, 2011 and December 31, 2010, respectively.

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

 
 
9.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

The following table presents the commercial loan portfolio by internal risk rating:
 
Jun. 30, 2011
  
Commercial
      
Construction
  
Commercial Real Estate
      
Internal Risk Rating
  
Closed end
  
Lines of Credit
  
Agriculture & AGRE
  
Land & Development
  
Owner-Occupied
  
Non-Owner Occupied
  
Total
  
1-2   $ 1,931   $ 1,194   $ 4,324   $ 3,982   $ 4,711   $ 845   $ 16,987  
3     3,612     5,382     12,418     1,157     11,986     20,729     55,284  
4     19,047     26,350     14,954     1,267     78,661     51,401     191,680  
5     10,492     3,791     3,047     7,938     23,158     45,866     94,292  
6     1,118     5,118     1,821     5,852     6,464     16,348     36,721  
7     2,253     4,381     85     33,220     20,272     38,331     98,542  
8     —     —     —     —     —     —     —  
Total
   $ 38,453   $ 46,216   $ 36,649   $ 53,416   $ 145,252   $ 173,520   $ 493,506  

Dec. 31, 2010
  
Commercial
      
Construction
  
Commercial Real Estate
      
Internal Risk Rating
  
Closed end
  
Lines of Credit
  
Agriculture & AGRE
  
Land & Development
  
Owner-Occupied
  
Non-Owner Occupied
  
Total
  
1-2   $ 2,294   $ 331   $ 8,527   $ 4,700   $ 8,559   $ 1,479   $ 25,890  
3     3,935     7,333     10,873     1,237     17,673     23,045     64,096  
4     21,225     24,042     16,742     1,500     76,491     61,468     201,468  
5     10,483     4,768     3,588     8,720     21,389     42,495     91,443  
6     1,217     4,506     42     7,232     3,206     20,821     37,024  
7     2,149     4,898     4,517     48,689     25,075     40,507     125,835  
8     —     45     —     —     —     —     45  
Total
   $ 41,303   $ 45,923   $ 44,289   $ 72,078   $ 152,393   $ 189,815   $ 545,801  
 
The retail residential loan portfolio is generally unrated. Delinquency is a typical factor in adversely risk rating a credit to a special mention or substandard. The following table presents the retail residential loan portfolio by internal risk rating:
 
   
Residential – 1-4 family
  
 
  
Senior Lien
    
JR Lien & Lines of Credit
    
Total
  
Jun. 30, 2011
                  
Unrated
   $ 98,487     $ 52,239     $ 150,726  
Special mention
     1,065       1,426       2,491  
Substandard
     9,885       1,488       11,373  
Total
   $ 109,437     $ 55,153     $ 164,590  

   
Residential – 1-4 family
  
   
Senior Lien
    
JR Lien & Lines of Credit
    
Total
  
Dec. 31, 2010
            
Unrated
   $ 99,852     $ 55,147     $ 154,999  
Special mention
     1,034       1,769       2,803  
Substandard
     13,707       1,157       14,864  
Total
   $ 114,593     $ 58,073     $ 172,666  
 
 
10.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

An analysis of the activity in the allowance for loan losses for the three months ended June 30, 2011 and 2010 follows:
 
   
Commercial
    
Agriculture & AGRE
    
Construction, Land & Development
    
Commercial RE
    
1-4 Family Residential
    
Consumer
    
Total
  
June 30, 2011
                                          
Beginning Balance
   $ 1,759     $ 315     $ 8,655     $ 15,269     $ 3,055     $ 36     $ 29,089  
Charge-offs
     (176 )     (654 )     (2,333 )     (4,296 )     (667 )     (6 )     (8,132 )
Recoveries
     12       2       99       14       8       16       151  
Provision
     156       723       (111 )     2,022       471       (11 )     3,250  
Ending Balance
   $ 1,751     $ 386     $ 6,310     $ 13,009     $ 2,867     $ 35     $ 24,358  
 
June 30, 2010
                                                        
Beginning Balance
                                                   $ 41,845  
Charge-offs
                                                     (7,059 )
Recoveries
                                                     42  
Provision
                                                     7,550  
Ending Balance
                                                   $ 42,378  

An analysis of the activity in the allowance for loan losses for the six months ended June 30, 2011 and 2010 follows:
 
   
Commercial
    
Agriculture & AGRE
    
Construction, Land & Development
    
Commercial RE
    
1-4 Family Residential
    
Consumer
    
Total
  
June 30, 2011
                                          
Beginning Balance
   $ 1,634     $ 337     $ 12,500     $ 13,721     $ 3,273     $ 46     $ 31,511  
Charge-offs
     (241 )     (654 )     (6,834 )     (6,014 )     (1,293 )     (26 )     (15,062 )
Recoveries
     18       3       100       231       36       21       409  
Provision
     340       700       544       5,071       851       (6 )     7,500  
Ending Balance
   $ 1,751     $ 386     $ 6,310     $ 13,009     $ 2,867     $ 35     $ 24,358  
 
June 30, 2010
                                                        
Beginning Balance
                                                   $ 40,909  
Charge-offs
                                                     (15,595 )
Recoveries
                                                     164  
Provision
                                                     16,900  
Ending Balance
                                                   $ 42,378  
 
 
11.
 
 
Centrue Financial Corporation
Notes to Unaudited Consolidated Financial Statements
(Table Amounts In Thousands, Except Share Data)
 
Note 4. Loans (Continued)

The following is an analysis on the balance and allowance for loan loss for impaired loans as of June 30, 2011 and December 31, 2010:
 
Jun. 30, 2011
  
Commercial
    
Agriculture & AGRE
    
Construction, Land & Development
    
Commercial RE
    
1-4 Family Residential
    
Consumer
    
Total
  
Allowance for loan losses:
                                          
Loans individually evaluated for impairment
   $ 1,074     $ 8     $ 4,138     $ 6,634     $ 841     $ 3     $ 12,698  
Loans collectively evaluated for impairment
     677