Edgar Filing: CENTRUE FINANCIAL CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

Commission File Number: 0-28846

Centrue Financial Corporation

(Exact name of Registrant as specified in its charter)

Delaware		36-3145350
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		Number)

7700 Bonhomme Avenue, St. Louis, Missouri 63105

(Address of principal executive offices including zip code)

(314) 505-5500

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	o	Accelerated filer	o
	Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

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

Class		Shares outstanding at November 14, 2011

Common Stock, Par Value $1.00		6,063,441

Centrue Financial Corporation

Form 10-Q Index

September 30, 2011

		Page
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	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	52

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	[Reserved]	53

Item 5.	Other Information	53

Item 6.	Exhibits	54

SIGNATURES		55

Centrue Financial Corporation

Part I Financial Information

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets

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

	September 30,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents	$	63,296		$	82,945
Securities available-for-sale		236,086			219,475
Restricted securities		9,150			10,470
Loans		620,450			721,871
Allowance for loan losses		(23,314	)		(31,511	)
Net loans		597,136			690,360
Bank-owned life insurance		31,158			30,403
Mortgage servicing rights		2,151			2,425
Premises and equipment, net		24,526			25,687
Other real estate owned		32,912			25,564
Other assets		12,538			17,833

Total assets	$	1,008,953		$	1,105,162
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest-bearing	$	111,263		$	118,667
Interest-bearing		750,854			812,438
Total deposits		862,117			931,105
Federal funds purchased and securities sold under agreements to repurchase		21,364			16,188
Federal Home Loan Bank advances		48,058			71,059
Notes payable		10,533			10,623
Series B mandatory redeemable preferred stock		268			268
Subordinated debentures		20,620			20,620
Other liabilities		13,032			12,378
Total liabilities		975,992			1,062,241

Commitments and contingent liabilities		—			—

Stockholders’ equity
Series A convertible preferred stock (aggregate liquidation preference of $2,762)		500			500
Series C fixed rate, Cumulative Perpetual Preferred Stock (aggregate liquidation preference of $32,668)		31,274			30,810
Common stock, $1 par value, 15,000,000 shares authorized; 7,453,555 shares issued at September 30, 2011 and December 31, 2010		7,454			7,454
Surplus		74,776			74,721
Accumulated Deficit		(59,456	)		(46,861	)
Accumulated other comprehensive income (loss)		527			(1,589	)
		55,075			65,035
Treasury stock, at cost 1,405,150 shares at September 30, 2011 and December 31, 2010		(22,114	)		(22,114	)
Total stockholders’ equity		32,961			42,921

Total liabilities and stockholders’ equity	$	1,008,953		$	1,105,162

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

And Comprehensive Income (Loss)

Three Months and Nine Months Ended September 30, 2011 and 2010

(In Thousands, Except Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Interest income
Loans	$	8,297		$	9,856		$	26,414		$	31,877
Securities
Taxable		1,047			1,377			3,132			4,723
Exempt from federal income taxes		158			247			550			783
Federal funds sold and other		40			28			108			93
Total interest income		9,542			11,508			30,204			37,476

Interest expense
Deposits		1,937			3,416			6,637			11,836
Federal funds purchased and securities sold under agreements to repurchase		11			7			32			37
Federal Home Loan Bank advances		347			573			1,114			1,733
Series B mandatory redeemable preferred stock		4			4			12			12
Subordinated debentures		277			270			821			783
Notes payable		89			99			270			279
Total interest expense		2,665			4,369			8,886			14,680

Net interest income		6,877			7,139			21,318			22,796
Provision for loan losses		2,400			7,250			9,900			24,150
Net interest income (loss) after provision for loan losses		4,477			(111	)		11,418			(1,354	)

Noninterest income
Service charges		1,232			1,215			3,483			3,934
Mortgage banking income		341			628			1,050			1,114
Bank-owned life insurance		256			261			755			773
Electronic banking services		552			516			1,644			1,528
Securities gains		—			899			379			1,913
Total other-than-temporary impairment losses		—			(569	)		(499	)		(4,153	)
Portion of loss recognized in other comprehensive income (before taxes)		—			71			—			131
Net impairment on securities		—			(498	)		(499	)		(4,022	)
Gain (loss) on sale of OREO		(12	)		24			(60	)		34
Gain (loss) on sale of other assets		(16	)		178			47			1,648
Other income		213			204			575			633
		2,566			3,427			7,374			7,555

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Income (Loss)

And Comprehensive Income (Loss)

Three Months and Nine Months Ended September 30, 2011 and 2010

(In Thousands, Except Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Noninterest expenses
Salaries and employee benefits		3,505			3,547			10,598			11,019
Occupancy, net		712			647			2,136			2,378
Furniture and equipment		407			642			1,267			1,685
Marketing		56			91			183			280
Supplies and printing		67			106			208			302
Telephone		229			194			637			567
Data processing		381			388			1,120			1,167
FDIC insurance		323			842			1,997			2,549
Loan processing and collection costs		495			675			1,597			1,789
OREO valuation adjustment		4,473			378			5,770			2,365
Amortization of intangible assets		250			307			789			967
Other expenses		1,499			1,462			4,472			4,307
		12,397			9,279			30,774			29,375

Income (loss) before income taxes	$	(5,354	)	$	(5,963	)	$	(11,982	)	$	(23,174	)
Income tax expense (benefit)		(606	)		10,440			(1,352	)		3,414
Net income (loss)	$	(4,748	)	$	( 16,403	)	$	(10,630	)	$	(26,588	)

Preferred stock dividends		505			484			1,500			1,435
Net income (loss) for common stockholders	$	(5,253	)	$	(16,887	)	$	(12,130	)	$	(28,023	)

Basic earnings (loss) per common share	$	(0.87	)	$	(2.79	)	$	(2.01	)	$	(4.64	)
Diluted earnings (loss) per common share	$	(0.87	)	$	(2.79	)	$	(2.01	)	$	(4.64	)


Total comprehensive income (loss):
Net income (loss)	$	(4,748	)	$	(16,403	)	$	(10,630	)	$	(26,588	)
Change in unrealized gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in earnings		—			(341	)		(80	)		(3,067	)
Change in unrealized gains (losses) on other securities available for sale		1,075			661			3,411			1,557
Reclassification adjustment:
Net impairment loss recognized in earnings		—			498			499			4,022
(Gains) recognized in earnings		—			(899	)		(379	)		(1,913	)
Net unrealized gains (loss)		1,075			(81	)		3,451			599
Tax expense (benefit)		416			(32	)		1,335			232
Other comprehensive income (loss)		659			(49	)		2,116			367
Total comprehensive income (loss)	$	(4,089	)	$	(16,452	)	$	(8,514	)	$	(26,221	)

See Accompanying Notes to Unaudited Financial Statements

Centrue Financial Corporation

Unaudited Consolidated Statements Of Cash Flows

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

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities
Net Income (Loss)	$	(10,630	)	$	(26,588	)

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

See Accompanying Notes to Unaudited Financial Statements

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 nine months ended September 30, 2011 are not necessarily indicative of the results expected for the year ending December 31, 2011. All financial information in the following tables is in thousands (000s), except share and per share data. In the opinion of management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included.

Note 2. Earnings Per Share

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

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 2. Earnings Per Share (Continued)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Basic Earnings (Loss) Per Common Share
Net income (loss) for common shareholders	$	(5,253	)	$	(16,887	)	$	(12,130	)	$	(28,023	)
Weighted average common shares outstanding		6,048			6,046			6,048			6,044

Basic earnings (loss) per common share	$	(0.87	)	$	(2.79	)	$	(2.01	)	$	(4.64	)

Diluted Earnings (Loss) Per Common Share
Weighted average common shares outstanding		6,048			6,046			6,048			6,044
Add: dilutive effect of assumed exercised stock options		—			—			—			—
Add: dilutive effect of assumed exercised common stock warrants		—			—			—			—
Weighted average common and dilutive potential shares outstanding		6,048			6,046			6,048			6,044

Diluted earnings (loss) per common share	$	(0.87	)	$	(2.79	)	$	(2.01	)	$	(4.64	)

There were 464,038 options and 508,320 warrants outstanding for the three and nine months ended September 30, 2011 and 561,069 options and 508,320 warrants outstanding for the three and nine months ended September 30, 2010 that were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price and therefore, were anti-dilutive. In addition, the Company’s convertible preferred stock was not included in the computation of diluted earnings per share as it was anti-dilutive.

Note 3. Securities

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

The following tables represent the fair value of available-for-sale securities and the related, gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at September 30, 2011 and December 31, 2010:

	September 30, 2011
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost
U.S. government agencies	$	3,285	$	99	$	—		$	3,186
States and political subdivisions		21,361		721		—			20,640
U.S. government agency residential mortgage-backed securities		179,098		2,991		(98	)		176,205
Collateralized residential mortgage obligations:
Agency		16,823		257		—			16,566
Private label		2,178		354		(4	)		1,828
Equity securities		2,520		155		—			2,365
Collateralized debt obligations:
Single issue		3,071		25		—			3,046
Pooled		5,763		46		(2,394	)		8,111
Corporate		1,987		—		(13	)		2,000

	$	236,086	$	4,648	$	(2,509	)	$	233,947

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

	December 31, 2010
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gains		Losses			Cost
U.S. government agencies	$	7,085	$	168	$	—		$	6,917
States and political subdivisions		28,348		531		(8	)		27,825
U.S. government agency residential mortgage-backed securities		147,846		2,070		(131	)		145,907
Collateralized residential mortgage obligations:
Agency		20,735		192		—			20,543
Private label		4,936		70		(77	)		4,943
Equity securities		2,254		41		—			2,213
Collateralized debt obligations:
Single issue		3,849		3		—			3,846
Pooled		4,422		42		(4,213	)		8,593

	$	219,475	$	3,117	$	(4,429	)	$	220,787

The amounts below include the activity for available-for-sale securities related to sales, maturities and calls:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011		2010			2011			2010
Proceeds from calls and maturities	$	6,080	$	7,245		$	18,000		$	11,650
Proceeds from sales		—		39,293			19,738			74,152
Realized gains		—		937			379			1,951
Realized losses		—		(38	)		—			(38	)
Net impairment loss recognized in earnings		—		(498	)		(499	)		(4,022	)
Tax benefit (provision) related to net realized gains and losses		—		(155	)		46			814

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

	September 30, 2011
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss

U.S. government agency residential mortgage-backed securities		23,352		(98	)		—		—			23,352		(98	)
Collateralized residential mortgage obligations: private label		860		(4	)		—		—			860		(4	)
Collateralized debt obligations: pooled		—		—			5,667		(2,394	)		5,667		(2,394	)
Corporate		1,987		(13	)		—		—			1,987		(13	)

Total temporarily impaired	$	26,199	$	(115	)	$	5,667	$	(2,394	)	$	31,866	$	( 2,509	)

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

	December 31, 2010
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss

State and political subdivisions	$	664	$	(3	)	$	350	$	(5	)	$	1,014	$	(8	)
U.S. government agency residential mortgage-backed securities		17,216		(131	)		—		—			17,216		(131	)
Collateralized residential mortgage obligations: private label		—		—			2,559		(77	)		2,559		(77	)
Collateralized debt obligations: pooled		—		—			4,330		(4,213	)		4,330		(4,213	)

Total temporarily impaired	$	17,880	$	(134	)	$	7,239	$	(4,295	)	$	25,119	$	(4,429	)

The fair values of securities classified as available-for-sale at September 30, 2011, by contractual maturity, are shown as follows. Securities not due at a single maturity date, including mortgage-backed securities, collateralized mortgage obligations, and equity securities are shown separately.

	Amortized
	Cost		Fair Value
Due in one year or less	$	5,491	$	5,533
Due after one year through five years		12,613		12,959
Due after five years through ten years		6,400		6,740
Due after ten years		12,479		10,235
U.S. government agency residential mortgage-backed securities		176,205		179,098
Collateralized residential mortgage obligations		18,394		19,001
Equity securities		2,365		2,520
	$	233,947	$	236,086

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

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

Ending balance, September 30,	$	20,861	$	19,363

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 3. Securities (Continued)

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

	2011		2010
Beginning balance, January 1,	$	20,362	$	15,341
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		—		—
Additions/Subtractions
Amounts realized for securities sold during the period		—		—
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis		—		—
Reduction for increase in cash flows expected to be collected that are recognized over the remaining life of the security		—		—
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized		499		4,022

Ending balance, September 30,	$	20,861	$	19,363

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

Note 4. Loans

The major classifications of loans follow:

	Aggregate Principal Amount
	September 30,			December 31,
	2011			2010

Commercial	$	73,545		$	87,226
Agricultural & AGRE		37,883			44,289
Construction, land & development		44,230			72,078
Commercial RE		300,169			342,208
1-4 family mortgages		162,019			172,666
Consumer		2,604			3,404
Total loans	$	620,450		$	721,871
Allowance for loan losses		(23,314	)		(31,511	)
Loans, net	$	597,136		$	690,360

There were $2.0 million and $1.7 million of loans held for sale at September 30, 2011 and December 31, 2010, respectively.

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

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

The following table presents the commercial loan portfolio by internal risk rating:

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

Dec. 31, 2010	Commercial						Construction		Commercial Real Estate
Internal Risk Rating	Closed end		Lines of Credit		Agriculture & AG RE		Land & Development		Owner-Occupied		Non-Owner Occupied		Total
1-2	$	2,294	$	331	$	8,527	$	4,700	$	8,559	$	1,479	$	25,890
3		3,935		7,333		10,873		1,237		17,673		23,045		64,096
4		21,225		24,042		16,742		1,500		76,491		61,468		201,468
5		10,483		4,768		3,588		8,720		21,389		42,495		91,443
6		1,217		4,506		42		7,232		3,206		20,821		37,024
7		2,149		4,898		4,517		48,689		25,075		40,507		125,835
8		—		45		—		—		—		—		45
Total	$	41,303	$	45,923	$	44,289	$	72,078	$	152,393	$	189,815	$	545,801

The retail residential loan portfolio is generally unrated. Delinquency is a typical factor in adversely risk rating a credit to a special mention or substandard. The following table presents the retail residential loan portfolio by internal risk rating:

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

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

10.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

An analysis of the activity in the allowance for loan losses for the three months ended September 30, 2011 and 2010 follows:

	Commercial			Agriculture & AGRE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2011

Beginning Balance	$	1,751		$	386		$	6,310		$	13,009		$	2,867		$	35		$	24,358
Charge-offs		(151	)		(21	)		(3,018	)		(961	)		(194	)		(9	)		(4,354	)
Recoveries		17			3			451			12			426			1			910
Provision		509			(362	)		1,372			702			170			9			2,400

Ending Balance	$	2,126		$	6		$	5,115		$	12,762		$	3,269		$	36		$	23,314

September 30, 2010
Beginning Balance	$	42,378
Charge-offs		(6,303	)
Recoveries		65
Provision		7,250
Ending Balance	$	43,390

An analysis of the activity in the allowance for loan losses for the nine months ended September 30, 2011 and 2010 follows:

	Commercial			Agriculture & AGRE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2011

Beginning Balance	$	1,634		$	337		$	12,500		$	13,721		$	3,273		$	46		$	31,511
Charge-offs		(391	)		(674	)		(9,852	)		(6,975	)		(1,489	)		(35	)		(19,416	)
Recoveries		35			6			551			243			462			22			1,319
Provision		848			337			1,916			5,773			1,023			3			9,900

Ending Balance	$	2,126		$	6		$	5,115		$	12,762		$	3,269		$	36		$	23,314

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

11.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

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

Sep. 30, 2011	Commercial		Agriculture & AG RE		Construction, Land & Development		Commercial RE		1-4 Family Residential		Consumer		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	1,156	$	—	$	2,423	$	5,439	$	1,405	$	—	$	10,423
Loans collectively evaluated for impairment		970		6		2,692		7,323		1,864		36		12,891
Total ending allowance balance	$	2,126	$	6	$	5,115	$	12,762	$	3,269	$	36	$	23,314

Loan balances:
Loans individually evaluated for impairment	$	3,427	$	65	$	25,779	$	42,537	$	10,849	$	—	$	82,657
Loans collectively evaluated for impairment		70,118		37,818		18,451		257,632		151,170		2,604		537,793
Loans with an allowance recorded:	$	73,545	$	37,883	$	44,230	$	300,169	$	162,019	$	2,604	$	620,450

Dec. 31, 2010	Commercial		Agriculture & AG RE		Construction, Land & Development		Commercial RE		1-4 Family Residential		Consumer		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	1,175	$	328	$	8,174	$	6,487	$	1,500	$	—	$	17,664
Loans collectively evaluated for impairment		459		9		4,326		7,234		1,773		46		13,847
Total ending allowance balance	$	1,634	$	337	$	12,500	$	13,721	$	3,273	$	46	$	31,511

Loan balances:
Loans individually evaluated for impairment	$	6,858	$	4,516	$	48,535	$	51,652	$	14,602	$	1	$	126,164
Loans collectively evaluated for impairment		80,368		39,773		23,543		290,556		158,064		3,403		595,707
Loans with an allowance recorded:	$	87,226	$	44,289	$	72,078	$	342,208	$	172,666	$	3,404	$	721,871

Troubled Debt Restructurings:

The Company had troubled debt restructurings (“TDRs”) of $7.3 million and $5.3 million as of September 30, 2011 and December 31, 2010, respectively. Specific reserves of $0.7 million and $0.4 million were allocated to TDRs as of September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, nonaccrual TDR loans were $4.5 million, as compared to $5.0 million at December 31, 2010. At September 30, 2011 and December 31, 2010, $2.8 million and $0.3 million of TDRs were on accrual status. The Company has not committed to lend any additional amounts to customers with outstanding loans that are classified as TDRs as of September 30, 2011.

During the period ending September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan to a below market rate or the payment modification to interest only. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 6 months to 16 months.

12.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and nine month period ending September 30, 2011:

	For the Three Months Ended September 30, 2011

	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Provision

Commercial		—	$	—	$	—	$	—
Agricultural & AGRE		—		—		—		—
Construction, land & development		—		—		—		—
Commercial RE		1		872		872		90
1-4 family mortgages		—		—		—		—
Consumer		—		—		—		—
Total		1	$	872	$	872	$	90

	For the Nine Months Ended September 30, 2011

	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Provision

Commercial		—	$	—	$	—	$	—
Agricultural & AGRE		—		—		—		—
Construction, land & development		2		72		72		36
Commercial RE		2		1,073		1,073		671
1-4 family mortgages		1		31		31		23
Consumer		—		—		—		—
Total		5	$	1,176	$	1,176	$	730

The troubled debt restructurings described increased the allowance for loan losses by $0.09 million and $0.7 million and resulted in no charge offs during the three and nine month periods ending September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and nine month periods ending September 30, 2011.

	For the Three Months Ended September 30, 2011

	Number of Loans		Recorded Investment

Commercial		—		—
Agricultural & AGRE		—		—
Construction, land & development		—		—
Commercial RE		—		—
1-4 family mortgages		—		—
Consumer		—		—
Total		—		—

13.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

	For the Nine Months Ended September 30, 2011

	Number of Loans		Recorded Investment

Commercial		—	$	—
Agricultural & AGRE		—		—
Construction, land & development		—		—
Commercial RE		1		664
1-4 family mortgages		—		—
Consumer		—		—
Total		1	$	664

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. The troubled debt restructurings that subsequently defaulted described above did not increase the allowance for loan losses and resulted in charge off’s of $0.0 million and $0.4 million for the three and nine month periods ending September 30, 2011.

The Company evaluates loan modifications to determine if the modification constitutes a troubled debt restructure. A loan modification constitutes a troubled debt restructure if the borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its loans with the Company’s debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting guidelines. TDRs are separately identified for impairment disclosures. If a loan is considered to be collateral dependent loan, the TDR is reported, net, at the fair value of the collateral.

14.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

The following tables present data on impaired loans:

September 30, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Current Quarter Average Recorded Investment		Year-to-Date Average Recorded Investment		Current Quarter Interest Income Recognized			Year-to-Date Interest Income Recognized
Loans with no related allowance recorded:
Commercial
Closed End	$	62	$	153	$	—	$	61	$	83	$	—		$	2
Line of Credit		478		478		—		718		1,493		3			4
Agricultural & AGRE		65		682		—		61		63		—			3
Construction, land & development		6,653		23,495		—		11,937		11.126		3			(95	)
CRE – all other
Owner Occupied		5,908		6,627		—		6,799		6,743		9			57
Non-Owner Occupied		10,958		13,131		—		13,331		13,887		115			385
1-4 family residential
Senior lien		2,140		2,227		—		2,561		2,518		28			66
Junior lien & lines or credit		808		905		—		701		638		10			17
Consumer		1		1		—		—		—		—			—
Subtotal		27,073		47,699		—		36,169		36,551		168			439
Loans with an allowance recorded:
Commercial
Closed End	$	1,806	$	1,806	$	1,060	$	1,436	$	1,370	$	28		$	79
Line of Credit		1,080		2,114		96		2,724		2,045		—			23
Agricultural & AGRE		—		—		—		1,386		2,069		—			—
CRE - Construction, land & development		19,125		26.825		2,423		19,796		22,764		(8	)		122
CRE – all other
Owner Occupied		13,966		14,437		3,147		12,584		12,439		215			654
Non-owner occupied		11,706		11,731		2,292		12,575		12,190		222			444
1-4 family residential
Senior lien		7,450		7,869		1,327		7,950		8,464		160			525
Junior lien & lines of credit		451		598		78		390		357		2			5
Consumer		—		—		—		3		2		—			—
Subtotal		55,584		65,380		10,423		58,844		61,700		619			1,852
Total	$	82,657	$	113,079	$	10,423	$	95,013	$	98,251	$	787		$	2,291

Commercial	$	71,807	$	101,479	$	9,018	$	83,408	$	86,272	$	587		$	1,677
Residential	$	10,849	$	11,599	$	1,405	$	11,602	$	11,977	$	200		$	613
Consumer	$	1	$	1	$	—	$	3	$	2	$	—		$	—

Cash basis interest income recognized during the three and nine months ended September 30, 2011, totaled $0.8 million and $2.1 million, respectively.

15.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Commercial
Closed End	$	151	$	832	$	—	$	63	$	2
Line of Credit		3,816		4,973		—		1,575		131
Agricultural & AGRE		68		685		—		143		86
Construction, land & development		8,695		23,949		—		8,188		(395	)
CRE – all other
Owner Occupied		6,575		6,784		—		4,693		196
Non-Owner Occupied		15,554		19,797		—		11,102		117
1-4 family residential
Senior lien		2,390		2,477		—		2,585		94
Junior lien & lines or credit		447		476		—		484		10
Consumer		1		1		—		—		—
Subtotal		37,699		59,974		—		28,833		241

Loans with an allowance recorded:
Commercial
Closed End	$	1,764	$	1,764	$	1,170	$	4,208	$	86
Line of Credit		1,126		1,126		5		20		54
Agricultural & AGRE		4,448		4,448		328		3,849		155
CRE - Construction, land & development		39,840		51,001		8.175		40,972		914
CRE – all other
Owner Occupied		15,982		16,889		3,981		14,818		648
Non-owner occupied		13,541		17,806		2,505		13,625		(13	)
1-4 family residential
Senior lien		11,205		11,334		1,200		11,192		957
Junior lien & lines of credit		559		1,478		300		289		(101	)
Consumer		—		—		—		11		—
Subtotal		88,465		105,846		17,664		88,984		2,700
Total	$	126,164	$	165,820	$	17,644	$	117,817	$	2,941

Commercial	$	111,561	$	150,055	$	16,164	$	103,256	$	1,981
Residential	$	14,602	$	15,765	$	1,500	$	14,550	$	960
Consumer	$	1	$	1	$	—	$	11	$	—

Due to the economic conditions facing many of its customers, the Company determined that there were $37.5 million and $56.5 million of loans that were classified as impaired but were considered to be performing loans at September 30, 2011 and December 31, 2010, respectively.

16.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

The following tables represent activity related to loan portfolio aging:

September 30, 2011	30 – 59 days past due		60 -89 days past due		90 days past due or nonaccrual		Total Past Due		Current		Total Loans		Recorded Investment 90 days Accruing
Commercial
Closed end	$	68	$	—	$	175	$	244	$	37,574	$	37,817	$	—
Line of credit		48		—		1,559		1,606		34,121		35,728		—
Agricultural & AGRE		—		—		65		65		37,818		37,883		—
CRE – construction, land & develop		—		328		25,407		25,735		18,495		44,230		—
CRE – all other
Owner occupied		1,951		394		6,068		8,414		125,763		134,176		—
Non-owner occupied		5,857		103		8,461		14,420		151,572		165,993		—
Residential – 1-4 family
Senior lien		611		391		2,893		3,895		103,539		107,435		—
Junior lien & lines of credit		556		350		522		1,428		53,157		54,584		—
Consumer		71		—		—		71		2,533		2,604		—
Total	$	9,162	$	1,566	$	45,150	$	55,878	$	564,572	$	620,450	$	—

December 31, 2010	30 – 59 days past due		60 -89 days past due		90 days past due or nonaccrual		Total Past Due		Current		Total Loans		Recorded Investment 90 days Accruing
Commercial
Closed end	$	225	$	1	$	321	$	547	$	40,756	$	41,303	$	—
Line of credit		—		—		4,089		4,089		41,834		45,923		—
Agricultural & AGRE		58		—		89		147		44,142		44,289		—
CRE – construction, land & develop		1,856		2,664		36,355		40,875		31,203		72,078		—
CRE – all other
Owner occupied		633		217		12,361		13,211		139,182		152,393		—
Non-owner occupied		1,194		—		12,765		13,959		175,856		189,815
Residential – 1-4 family
Senior lien		2,111		866		3,143		6,120		108,473		114,593		58
Junior lien & lines of credit		862		300		566		1,728		56,345		58,073		—
Consumer		2		2		—		4		3,400		3,404		—
Total	$	6,941	$	4,050	$	69,689	$	80,680	$	641,191	$	721,871	$	58

17.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 4. Loans (Continued)

The following table represents data for nonaccrual loans. Included in the September 30, 2011 and December 31, 2010 totals are $4.5 million and $5.0 million of TDRs. Excluded are the accruing TDRs of $2.8 million and $0.3 million, respectively:

	For the period ended
	September 30,		December 31,
	2011		2010
Commercial
Closed end	$	175	$	321
Line of credit		1,559		4,088
Agricultural & AGRE		65		89
CRE – construction, land & development		25,407		36,355
CRE – all other
Owner occupied		6,069		12,361
Non-owner occupied		8,460		12,765
Residential – 1-4 family
Senior lien		2,893		3,085
Junior lien & lines of credit		522		567
Consumer		—		—
Total	$	45,150	$	69,631

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

Note 5. Share Based Compensation

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 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.

A summary of the status of the option plans as of September 30, 2011, and changes during the period ended on those dates is presented below:

	September 30, 2011
						Weighted-
				Weighted-		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Life	Value
Outstanding at January 1, 2011		525,969		$	16.68
Granted		—			—
Exercised		—			—
Forfeited		(61,931	)		12.65

Outstanding at end of period		464,038		$	17.21	2.8 years	$	—
Vested or expected to vest		461,716		$	17.23	2.8 years	$	—
Options exercisable at period end		412,438		$	17.72	2.7 years	$	—

18.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 5. Share Based Compensation (Continued)

Options outstanding at September 30, 2011 and December 31, 2010 were as follows:

	Outstanding			Exercisable
			Weighted-
			Average			Weighted-
			Remaining			Average
			Contractual			Exercise
Range of Exercise Prices	Number		Life	Number		Price
September 30, 2011:

$ 5.24 - $ 13.00		90,500	4.4 years		61,400	$	7.43
13.88 - 18.63		152,338	2.3 years		135,938		16.71
19.03 - 23.31		221,200	2.6 years		215,100		21.29

		464,038	2.8 years		412,438	$	17.72

December 31, 2010:

$ 5.24 - $ 13.00		137,331	4.1 years		74,531	$	8.65
13.88 - 18.63		164,738	3.1 years		122,138		16.60
19.03 - 23.31		223,900	3.3 years		211,500		21.33

		525,969	3.5 years		408,169	$	17.60

There were no options exercised for the periods ended September 30, 2011 and 2010. The compensation cost that has been charged against income for the stock options portion of the Option Plans was $(0.01) million and $0.03 million for the three months ended September 30, 2011 and 2010, and $0.05 million and $0.08 million for the nine months ended September 30, 2011 and 2010, respectively.

There were no stock options granted during the 2011 and 2010 periods.

Unrecognized stock option compensation expense related to unvested awards (net of estimated forfeitures) for the remainder of 2011 and beyond is estimated as follows:

	Amount
October, 2011 – December, 2011	$	17
2012		47
2013		20
2014		—

Total	$	84

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’s segment information provided below focuses on its three primary lines of business (Segment(s)): Retail Banking, Commercial Banking and Treasury. The financial information presented was derived from the Company’s internal profitability reporting system that is used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting policies which have been developed to reflect the underlying economics of the Segments and, to the extent practicable, to portray each Segment as if it operated on a stand-alone basis. Thus, each Segment, in addition to its direct revenues, expenses, assets and liabilities, includes an allocation of shared support function expenses and corporate overhead. All Segments also include funds transfer adjustments to appropriately reflect the cost of funds on loans made, funding credits on deposits generated, and the cost of maintaining adequate liquidity. Apart from these adjustments, the accounting policies used are similar to those described in Note 1.

19.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 7. Segment Information (Continued)

Since there are no comprehensive standards for management accounting that are equivalent to accounting principles generally accepted in the United States of America, the information presented may not necessarily be comparable with similar information from other financial institutions. In addition, methodologies used to measure, assign, and allocate certain items may change from time-to-time to reflect, among other things, accounting estimate refinements, changes in risk profiles, changes in customers or product lines, and changes in management structure.

The Retail Banking Segment provides retail banking services including direct and indirect lending, checking, savings, money market and certificate of deposit (“CD”) accounts, safe deposit rental, automated teller machines and other traditional and electronic commerce retail banking services to individual customers through the Bank’s branch locations. The Retail Banking Segment also provides a variety of mortgage lending products to meet customer needs. The majority of the mortgage loans it originates are sold to a third party mortgage services company, which provides private label loan processing and servicing support for both loans sold and loans retained by the Bank.

The Commercial Banking Segment provides commercial banking services including lending, business checking and deposits, treasury management and other traditional as well as electronic commerce commercial banking services to middle market and small business customers through the Bank’s branch locations.

The Treasury segment is responsible for managing the investment portfolio, acquiring wholesale funding for loan activity and assisting in the management of the Company’s liquidity and interest rate risk. Information reported internally for performance assessment follows:

	Three Months Ended
	September 30, 2011
	Retail			Commercial			Treasury			Other			Total
	Segment			Segment			Segment			Operations			Company
Net interest income (loss)	$	1,918		$	5,476		$	(411	)	$	(106	)	$	6,877
Other revenue		2,111			229			—			226			2,566
Other expense		2,607			5,129			45			3,906			11,687
Noncash items
Depreciation		270			—			—			190			460
Provision for loan losses		179			2,221			—			—			2,400
Other intangibles		250			—			—			—			250
Net allocations		1,200			2,489			287			(3,976	)		—
Income tax benefit		13			(597	)		(22	)		—			(606	)
Segment profit (loss)	$	(490	)	$	(3,537	)	$	(721	)	$	—		$	(4,748	)

Segment assets	$	178,774		$	496,275		$	267,110		$	66,794		$	1,008,953

	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 expense (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

20.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 7. Segment Information (Continued)

	Nine Months Ended
	September 30, 2011
	Retail			Commercial			Treasury			Other			Total
	Segment			Segment			Segment			Operations			Company
Net interest income (loss)	$	5,922		$	17,293		$	(1,537	)	$	(360	)	$	21,318
Other revenue		6,008			681			(120	)		805			7,374
Other expense		7,960			7,555			132			12,932			28,579
Noncash items
Depreciation		818			1			—			587			1,406
Provision for loan losses		1,024			8,876			—			—			9,900
Other intangibles		789			—			—			—			789
Net allocations		3,976			8,096			1,002			(13,074	)		—
Income tax benefit		(14	)		(1,181	)		(157	)		—			(1,352	)
Segment profit (loss)	$	(2,623	)	$	(5,373	)	$	(2,634	)	$	—		$	(10,630	)

Segment assets	$	178,774		$	496,275		$	267,110		$	66,794		$	1,008,953

	Nine Months Ended
	September 30, 2010
	Retail			Commercial			Treasury			Other			Total
	Segment			Segment			Segment			Operations			Company
Net interest income (loss)	$	3,420		$	18,844		$	2,252		$	(1,720	)	$	22,796
Other revenue		7,781			1,013			(2,109	)		870			7,555
Other expense		8,263			4,419			158			13,641			26,481
Noncash items
Depreciation		1,162			6			—			759			1,927
Provision for loan losses		—			24,150			—			—			24,150
Other intangibles		967			—			—			—			967
Net allocations		5,170			8,732			1,348			(15,250	)		—
Income tax expense (benefit)		(615	)		4,835			(806	)		—			3,414
Segment profit (loss)	$	(3,746	)	$	(22,285	)	$	(557	)	$	—		$	(26,588	)

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

Note 8. Borrowed Funds and Debt Obligations

As of September 30, 2011, the Company has $10.3 million outstanding per a loan agreement dated March 31, 2008. This original agreement was entered into with Bank of America and consisted 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 $20.3 million. The first credit facility consisted of a $10.0 million secured revolving line of credit which matured on June 30, 2009 and was not renewed by Bank of America. The second credit facility consists of a $0.3 million secured term facility, which will mature in March 31, 2015. The third credit facility consists of $10.0 million in subordinated debt, which also matures in March 31, 2015. On December 14, 2009, Bank of America transferred to Cole Taylor Bank all rights, title, interest in to and under the loan agreements dated March 31, 2008. 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 facility is secured by a pledge of the stock of the Bank. The subordinated debt credit facility is unsecured and is intended to qualify as Tier II capital for regulatory purposes. However, the amount included in Tier II capital has been reduced by 40% as of September 30, 2011 due to a sub-debt phase-out provision and will be further reduced by 20% in each of the next three years. The outstanding balance of the debt agreements was $10.3 million as of September 30, 2011 and December 31, 2010. The Company requires regulatory approval in order to make the quarterly interest payments under our debt agreements as described in Note 13.

On March 7, 2011, the Company entered into an amendment with the lender, which modified the covenant relating to capitalization at the parent and bank level so that the Company returned to full compliance with the terms of its credit agreement. The amendment contains customary covenants, including but not limited to, the Company and the Bank’s maintenance of its status as adequately capitalized and the Bank’s minimum allowance for loan losses to total loans of 3.00%. The Company was in compliance with all covenants, with the exception of the tier 1 leverage ratio, and all payments remain current at September 30, 2011. A covenant waiver was received from the lender as of September 30, 2011, and all other terms and covenants in the loan agreement will remain unchanged.

21.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 8. Borrowed Funds and Debt Obligations (Continued)

Additionally, the Company has a note outstanding to an individual with an imputed interest rate of 5.25% maturing October 24, 2012 from a prior acquisition. The balance as of September 30, 2011 and December 31, 2010 was $0.3 million and $0.4 million, respectively.

Note 9. Fair Value

The Company measures, monitors, and discloses certain of its assets and liabilities on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Fair value guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements and the categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy are defined as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

Securities

Available for Sale 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.

Pooled Trust Preferred Collateralized Debt Obligations (“CDO”). The assets included in Level 3 are CDOs. Due to the decline in the level of observable inputs and market activity for trust preferred CDOs, the Company uses an internal other-than-temporary impairment (“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 each 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.

22.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except 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 issuer in the tranche was analyzed using the Fitch ratings for the quarter and key financial data so that the issuer in each tranche can be divided between a pool of “performing” company and “under-performing” company. A factor is applied to the under-performing company for each quarter to project additional defaults and deferrals to 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 for the upcoming quarters. On average, the additional deferrals for a specific CDO that were factored in to our calculation ranged between 6% and 17% of the performing balance of the instrument between the three scenarios. All of the additional deferrals for the three scenarios are factored in to the cash flow for each tranche. A discount factor to be added to the London Interbank Offered Rate (“LIBOR”) was developed for each specific tranche and incorporated to arrive at the discount rate for the CDO. The factor ranged from 200 basis points to 600 basis points based over LIBOR on the rating of the CDO and its gross-up factor for risk based capital. 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. The scenarios were weighted 35%, 47% and 18%.

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, 2011 using 55% for the internal weighting and 45% for the external one. 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, 2011, the Company held five pooled trust preferred CDOs with an amortized cost of $8.1 million. These securities were rated high quality (A3 and above) at inception, but at September 30, 2011, these securities were rated as Ca, which are defined as highly speculative and/or default, with some recovery; and C, which is the lowest rating. 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 OTTI for each of the five CDOs. During the third quarter of 2011, our model indicated no OTTI was needed for credit impairment. Management has determined that the 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. Specific ratings of our CDOs that have incurred OTTI during 2011 are listed below:

Issue	Tranche	Gross Amortized Cost		Fair Value		Gross Unrealized Gains/(Losses)			Ratings as of Sep 30, 2011 Moody’s/S&P	Ratings as of Dec 31, 2010 Moody’s/S&P
PreTSL XIII	B-3		385		244		(141	)	Ca / NR	Ca / NR
PreTSL XVI	B		—		—		—		Ca / NR	Ca / NR
PreTSL XXIV	C-2		—		—		—		Ca / NR	Ca / NR
		$	385	$	244	$	(141	)

23.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 9. Fair Value (Continued)

Private Label CMOs. Private label CMOs were also evaluated using management’s internal analysis process. These securities were rated high quality (A3 and above) at inception and are primarily supported by prime collateral, although the RAST Series security has some alt-a collateral support. During the third quarter of 2011, our model indicated no OTTI on these CMOs, with an aggregate cost basis of $1.8 million.

Single Issue Trust Preferred. During the third quarter of 2010, the Company purchased $3.8 million of single-issue trust preferred securities that are classified as available for sale. With respect to these securities, the Company looks at rating agency actions, payment history, the capital levels of the banks and the financial performance as filed in regulatory reports. During the quarter, $0.8 million of these securities were called, leaving the Company with an investment of $3.0 million.

The Company’s unrealized losses on other securities relate primarily to its investment in CDO 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. The Company does not intend to sell these securities nor is it more likely than not the Company will be required to sell these securities before its anticipated recovery.

Other Real Estate Owned (“OREO”)

Other real estate owned includes properties acquired in partial or total satisfaction of certain loans. Properties are initially recorded at fair value, which represents the estimated sales price of the properties on the date acquired less estimated selling costs, establishing a new cost basis. Any write-downs in the carrying value of a property at the time of acquisition are charged against the allowance for loan losses. Management periodically reviews the carrying value of other real estate owned. Any write-downs of the properties subsequent to acquisition, as well as gains or losses on disposition and income or expense from the operations of other real estate owned, are recognized in operating results in the period they are realized.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes, by measurement hierarchy, the various assets and liabilities of the Company that are measured at fair value on a recurring basis:

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Carrying		For Identical Assets		Observable Inputs		Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
September 30, 2011
U.S. government agencies	$	3,285	$	—	$	3,285	$	—
State and political subdivisions		21,361		—		21,361		—
U.S. government agency residential mortgage-backed securities		179,098		—		179,098		—
Collateralized mortgage obligations:
Agency		16,823		—		16,823		—
Private Label		2,178		—		—		2,178
Equities		2,520		—		2,520		—
Collateralized debt obligations:
Single Issue		3,071		—		3,071		—
Pooled		5,763		—		—		5,763
Corporate		1,987		—		1,987		—
Available-for-sale securities	$	236,086	$	—	$	228,145	$	7,941

24.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 9. Fair Value (Continued)

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Carrying		For Identical Assets		Observable Inputs		Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
December 31, 2010
U.S. government agencies	$	7,085	$	—	$	7,085	$	—
State and political subdivisions		28,348		—		28,348		—
U.S. government agency residential mortgage-backed securities		147,846		—		147,846		—
Collateralized mortgage obligations:
Agency		20,735		—		20,735		—
Private Label		4,936		—		—		4,936
Equities		2,254		—		2,254		—
Collateralized debt obligations:
Single Issue		3,849		—		3,849		—
Pooled		4,422		—		—		4,422
Available-for-sale securities	$	219,475	$	—	$	210,117	$	9,358

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs

The following table reconciles the beginning and ending balances of the assets of the Company that are measured at fair value on a recurring basis using significant unobservable inputs. There currently are no liabilities of the Company that are measured at fair value on a recurring basis using significant unobservable inputs.

	Securities Available for Sale
	2011						2010
	CDOs			CMOs			CDOs			CMOs
Beginning balance, July 1	$	5,470		$	3,004		$	7,128		$	7,999

Transfers into Level 3		—			—			—			—
Total gains or losses (realized/unrealized) included in earnings
Security impairment		—			—			(498	)		—
Capitalized interest/(payments received)		(1	)		(955	)		30			(1,393	)
Discount/(premium) amortization		—			1			—			1
Included in other comprehensive income		294			128			(234	)		105
Ending Balance, September 30	$	5,763		$	2,178		$	6,426		$	6,712

	Securities Available for Sale
	2011						2010
	CDOs			CMOs			CDOs			CMOs
Beginning balance, January 1	$	4,422		$	4,936		$	9,758		$	11,166

Transfers into Level 3		—			—			—			—
Total gains or losses (realized/unrealized) included in earnings
Security impairment		(499	)		—			(3,883	)		(139	)
Capitalized interest/(payments received)		14			(3,117	)		30			(4,442	)
Discount/(premium) amortization		3			2			71			2
Included in other comprehensive income		1,823			357			450			125
Ending Balance, September 30	$	5,763		$	2,178		$	6,426		$	6,712

25.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 9. Fair Value (Continued)

Assets Measured at Fair Value on a Non-Recurring Basis

The following table summarizes, by measurement hierarchy, financial assets of the Company that are measured at fair value on a non-recurring basis.

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Carrying		For Identical Assets		Observable Inputs		Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
September 30, 2011
Impaired loans
Commercial
Closed End	$	746	$	—	$	—	$	746
Line of Credit		984		—		—		984
Agricultural & AGRE		—		—		—		—
CRE - Construction, land & development		16,702		—		—		16,702
CRE – all other
Owner Occupied		10,819		—		—		10,819
Non-owner occupied		9,414		—		—		9,414
1-4 family residential
Senior lien		6,123		—		—		6,123
Junior lien & lines of credit		373		—		—		373
Consumer		—		—		—		—

OREO property
Commercial
Closed End	$	—	$	—	$	—	$	—
Line of Credit		—		—		—		—
Agricultural & AGRE		—		—		—		—
CRE - Construction, land & development		3,152		—		—		3,152
CRE – all other
Owner Occupied		3,034		—		—		3,034
Non-owner occupied		180		—		—		180
1-4 family residential
Senior lien		710		—		—		710
Junior lien & lines of credit		—		—		—		—
Consumer		—		—		—		—

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Carrying		For Identical Assets		Observable Inputs		Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
December 31, 2010
Impaired loans
Commercial	$	1,715	$	—	$	—	$	1,715
Agricultural & AGRE		4,120		—		—		4,120
Construction, land & development		31,666		—		—		31,666
Commercial RE		23,036		—		—		23,036
1-4 family residential		10,264		—		—		10,264
OREO property
Construction, land & development		9,317		—		—		9,317
Commercial RE		3,284		—		—		3,284
1-4 family residential		178		—		—		178

26.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 9. Fair Value (Continued)

The fair value of impaired loans with specific loan loss allocations is generally based on the most recent real estate appraisals with discounts applied or discounted cash flows. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Judgments used to determine appraised values can be subjective, discounts applied can be significant, as the timing of expected cash flows can be fluid. All of these factors result in a Level 3 classification of the inputs for determining fair value. Impaired loans had a carrying amount of $55.6 million with specific loan loss allocations of $10.4 million in third quarter 2011, resulting in a decrease in specific related allowance for loan losses of $7.2 million when compared to December 31, 2010 and a decrease of $2.2 million compared to June 30, 2011. At December 31, 2010, impaired loans had a carrying amount of $88.5 million with specific loan loss allocations of $17.7 million, which resulted in an increase in specific related allowance for loan losses of $9.1 million in 2010.

At September 30, 2011, OREO properties had a net carrying value of $7.1 million, comprised of $14.2 million with a valuation allowance of $7.1 million. This resulted in a charge to earnings of $4.5 million for the third quarter 2011 and a charge of $5.8 million for the nine months ending September 30, 2011. At December 31, 2010, OREO properties had a net carrying value of $12.8 million, comprised of $17.9 million with a valuation allowance of $5.1 million.

The Methods and Assumptions Used to Estimate Fair Value

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.

27.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 9. Fair Value (Continued)

The estimated fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010 are as follows:

	September 30,				December 31,
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets
Cash and cash equivalents	$	63,296	$	63,296	$	82,945	$	82,945
Securities		236,086		236,086		219,475		219,475
Restricted securities		9,150		N/A		10,470		N/A
Net loans		597,136		580,795		690,360		657,529
Accrued interest receivable		3,417		3,417		3,860		3,860
Financial liabilities
Deposits		862,117		863,885		931,105		935,371
Federal funds purchased and securities sold under agreements to repurchase		21,364		21,364		16,188		16,188
Federal Home Loan Bank advances		48,058		49,843		71,059		73,170
Notes payable		10,533		9,130		10,623		10,796
Subordinated debentures		20,620		13,777		20,620		9,865
Series B mandatory redeemable preferred stock		268		268		268		268
Accrued interest payable		3,832		3,832		3,962		3,962

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. In addition, 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 earning potential of core deposit accounts, the earnings potential of loan servicing rights, customer goodwill and similar items.

Note 10. Participation in the Treasury Capital Purchase Program

On January 9, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the United States Department of the Treasury (“U.S. Treasury”), pursuant to which the Company sold 32,668 shares of newly authorized Fixed Rate Cumulative Perpetual Preferred Stock, Series C, par value $1.00 per share and liquidation value $1,000 per share (the “Series C Preferred Stock”) and also issued warrants (the “Warrants”) to the U.S. Treasury to acquire an additional 508,320 shares of the Company’s common stock at an exercise price of $9.64 per share.

The Series C Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series C Preferred Stock may be redeemed by the Company at any time subject to consultation with the Federal Reserve. The Series C Preferred Stock is not subject to any contractual restrictions on transfer.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its Common Stock will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share $0.14 declared on the Common Stock prior to October 28, 2008. The redemption, purchase or other acquisition of trust preferred securities of the Company or its affiliates also will be restricted. These restrictions will terminate on the earlier of (a) the third anniversary of the date of issuance of the Preferred Stock and (b) the date on which the Preferred Stock has been redeemed in whole or the U.S. Treasury has transferred all of the Preferred Stock to third parties.

28.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 10. Participation in the Treasury Capital Purchase Program (Continued)

On August 10, 2009, the Company announced that it would defer scheduled dividend payments on the Series C, fixed rate cumulative, perpetual preferred stock. Under the Securities Purchase Agreement entered into with the U.S. Treasury under the TARP program, if a company defers six dividend payments payable to the U.S. Treasury, the U.S. Treasury has the right to appoint up to two directors to its board of directors. As of September 30, 2011 one director has been appointed. The Company is accruing the dividends in accordance to GAAP and the terms of the program. At September 30, 2011 and December 31, 2010 the amounts accrued are $4.1 million and $2.7 million, respectively. The Company may, at its option with regulatory concurrence, redeem the deferred securities at their liquidation preference plus accrued and unpaid dividends at any time.

Note 11. Goodwill and Intangible Assets

Goodwill

Goodwill is tested annually for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit, which for the Company is the Bank. The first step is to screen for potential impairment and the second step measures the amount of impairment, if any.

Based upon impairment testing in the fourth quarter of 2010, Centrue Bank indicated potential impairment and was subjected to the second step of goodwill impairment testing. As a result of applying the second step of the impairment test, all remaining goodwill associated with our banking operations was fully impaired, totaling $15.9 million.

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

	September 30,		December 31,
	2011		2010

Beginning of period	$	—	$	15,880
Impairment recorded December 31, 2010		—		(15,880	)

End of period	$	—	$	—

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

	September 30,				December 31,
	2011				2010
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization

Amortized intangible assets:
Core deposit intangibles	$	14,124	$	9,201	$	14,124	$	8,412
Missouri charter		581		—		581		—

Total	$	14,705	$	9,201	$	14,705	$	8,412

The core deposit intangible asset recorded in the 2006 merger with former Centrue Financial Corporation was $13.0 million. Aggregate amortization expense was $0.3 million for the three months ended September 30, 2011 and 2010. Aggregate amortization expense was $0.8 million and $1.0 million for the nine months ended September 30, 2011 and 2010, respectively.

29.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 11. Goodwill and Intangible Assets (Continued)

Estimated amortization expense for subsequent periods is as follows:

Remaining quarters in 2011	$	240
2012		951
2013		951
2014		951
2015		951
Thereafter		879

Note 12. Income Taxes

In accordance with current income tax accounting guidance, the Company assessed whether a valuation allowance should be established against their deferred tax assets (“DTAs”) based on consideration of all available evidence using a “more likely than not” standard. The most significant portions of the deductible temporary differences relate to (1) net operating loss carryforwards (2) the allowance for loan losses and (3) fair value adjustments or impairment write-downs related to securities.

In assessing the need for a valuation allowance, both the positive and negative evidence about the realization of DTAs were evaluated. The ultimate realization of DTAs is based on the Company’s ability to carryback net operating losses to prior tax periods, tax planning strategies that are prudent and feasible, and the reversal of deductible temporary differences that can be offset by taxable temporary differences and future taxable income.

After evaluating all of the factors previously summarized and considering the weight of the positive evidence compared to the negative evidence, the Company determined a full valuation adjustment was necessary as of December 31, 2010 and September 30, 2011. A three year cumulative loss position and continued near-term losses represent negative evidence that cannot be overcome with future taxable income.

Below is a summary of items included in the deferred tax inventory as of September 30, 2011 and December 31, 2010:

	Balance at 09/30/11			Balance at 12/31/10			Change
Allowance for loan loss	$	9,005		$	12,172		$	(3,167	)
Impairment on securities portfolio		8,058			7,865			193
Net operating loss carryforwards		18,577			11,480			7,097
Valuation adjustments on OREO property		2,747			1,989			758
Basis adjustments from merger		(1,392	)		(1,577	)		185
Mortgage servicing rights		(831	)		(937	)		106
All other		(795	)		481			(1,276	)

Net deferred tax before allowance	$	35,369		$	31,473		$	3,896
Valuation allowance		(35,369	)		(31,473	)		(3,896	)
Net deferred tax assets	$	—		$	—		$	—

30.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 13. Regulatory Matters

											To Be Well
											Capitalized Under
						To Be Adequately					Prompt Corrective
	Actual					Capitalized					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2011
Total capital (to risk-weighted assets)
Centrue Financial	$	61,992		8.5	%	$	58,247		8.0	%		N/A		N/A
Centrue Bank		68,428		9.5			57,469		8.0			71,836		10.0

Tier I capital (to risk-weighted assets)
Centrue Financial	$	37,526		5.2			29,124		4.0			N/A		N/A
Centrue Bank		59,272		8.3			28,734		4.0			43,102		6.0

Tier I leverage ratio (to average assets)
Centrue Financial	$	37,526		3.7			40,583		4.0			N/A		N/A
Centrue Bank		59,272		5.9			40,498		4.0			50,623		5.0

As of December 31, 2010
Total capital (to risk-weighted assets)
Centrue Financial	$	76,459	9.4	%	$	65,422	8.0	%	N/A	N/A
Centrue Bank		78,171	9.7			64,535	8.0		80,669	10.0

Tier I capital (to risk-weighted assets)
Centrue Financial	$	57,974	7.1			32,711	4.0		N/A	N/A
Centrue Bank		67,823	8.4			32,268	4.0		48,402	6.0

Tier I leverage ratio (to average assets)
Centrue Financial	$	57,974	5.1			45,683	4.0		N/A	N/A
Centrue Bank		67,823	6.0			45,544	4.0		56,931	5.0

On December 18, 2009, the Bank entered into an Agreement with the Federal Reserve Bank of Chicago (“FRB”) and the Illinois Department of Financial & Professional Regulation (“IDFPR”). The Agreement describes commitments made by the Bank to address and strengthen banking practices relating to credit risk management practices; improving loan underwriting and loan administration; improving asset quality by enhancing the Bank’s position on problem loans through repayment, additional collateral or other means; reviewing and revising as necessary the Bank’s allowance for loan and lease losses policy; maintaining sufficient capital at the Bank, implementing an earnings plan and comprehensive budget to improve and sustain the Bank’s earnings; and improving the Bank’s liquidity position and funds management practices. The Bank has implemented enhancements to its processes to address the matters identified by the FRB and the IDFPR. The Company is in compliance with all the requirements specified in the agreement except for the Capital Plan. Management continues to aggressively pursue capital raising initiatives to comply with this provision; however, until a more definitive capital raise initiative is developed, the Company will continue to be held in noncompliance with this provision. In the meantime, the Agreement results in the Bank’s ineligibility for certain actions and expedited approvals without the prior written consent and approval of the FRB and the IDFPR. These actions include, among other things, the payment of dividends by the Bank to the Company, the Company cannot pay dividends on its common or preferred shares, payments of interest or principal on subordinated debentures, note payable to Cole Taylor, and Trust Preferred securities, the Company may not increase its debt level and the Company cannot redeem or purchase any shares of its stock.

31.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 13. Regulatory Matters (Continued)

The Company has incurred net losses of $10.6 for the first nine months of 2011 and $65.8 million for the full year 2010 due to loan losses, reduced net interest income, security OTTI, establishing a deferred tax valuation allowance, and goodwill impairment. The Company is subject to ongoing monitoring by its regulatory agencies and requires regulatory approval in order to make the quarterly interest payments to Cole Taylor under our debt agreements. Management has sufficient cash at the parent Company and believes regulatory approval will be obtained for the remaining interest payments due in 2011. Should the Company and/or its bank subsidiary capital levels fall below “adequately capitalized”, regulatory actions may be taken including requiring us to have higher capital requirements than those required by Prompt Corrective Action regulations. During the period the Company had its Tier 1 leverage ratio fall to 3.7% which is below the “adequately-capitalized” threshold for that ratio. Management is not aware of any further regulatory actions at this time.

Note 14. Recent Accounting Developments

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-2, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (ASU 2011-2”). ASU 2011-2 clarifies the guidance for determining whether a loan restructuring constitutes a troubled debt restructuring (“TDR”) outlined in Accounting Standards Codification (“ASC”) No. 310-40, “Receivables-Troubled Debt Restructurings by Creditors”, by providing additional guidance to a creditor in making the following required assessments needed to determine whether a restructuring is a TDR: (i) whether or not a concession has been granted in a debt restructuring; (ii) whether a temporary or permanent increase in the contractual interest rate precludes the restructuring from being a TDR; (iii) whether a restructuring results in an insignificant delay in payment; (iv) whether a borrower that is not currently in payment default is experiencing financial difficulties; and (v) whether a creditor can use the effective interest rate test outlined in debtor’s guidance on restructuring of payables (ASC Topic No. 470-60-55-10) when evaluating whether or not a restructuring constitutes a TDR. ASU 2011-2 is effective for interim periods beginning on or after June 15, 2011 and will be applied retrospectively to the beginning of the annual period of adoption. Adoption of ASU 2011-2 has not had a material impact on the Company.

In January 2010, FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-6”). ASU 2010-6 required new disclosures related to transfers in and out of fair value hierarchy Levels 1 and 2, as well as certain activities for assets whose fair value is measured under the Level 3 hierarchy. ASU 2010-6 also provided amendments clarifying the level of disaggregation and disclosures about inputs and valuation techniques along with conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-6 was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of ASU 2010-6 has not had a material impact on the Company.

In May 2011, the FASB issued guidance representing the convergence of FASB and international accounting standards on fair value measurement. The guidance provided was primarily meant to clarify existing guidance; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning on or after December 15, 2011, and should be applied prospectively. Early adoption is not permitted. The adoption of this guidance is not expected to have an effect on the Corporation’s result of operations or financial position but may require expansion of the Corporation’s disclosures.

32.

Centrue Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(Table Amounts In Thousands, Except Share Data)

Note 14. Recent Accounting Developments (Continued)

In June 2011, the FASB amended existing guidance relating to presentation of other comprehensive income in a convergence effort with international accounting standards. This guidance eliminates the option to present the components of comprehensive income as a part of the statement of changes in stockholders’ equity and requires a consecutive presentation of net income and other comprehensive income, and a reconciliation of the components of other comprehensive income. Similar to the requirements of existing guidance, entities are required to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statements where the components of net income and OCI are presented. The amendments in this guidance should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted and the amendments do not require any transition disclosures. The adoption of this guidance will not have an effect on the Corporation’s result of operations or financial position but will require expansion of the Corporation’s financial statement presentation.

33.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

The following management discussion and analysis (“MD&A”) is intended to address the significant factors affecting the Company’s results of operations and financial condition for the three and nine months ended September 30, 2011 as compared to the same period in 2010. 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. 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 MD&A should be read in conjunction with the consolidated financial statements of the Company, and the accompanying notes thereto. Actual results could differ from those estimates. All financial information in the following tables is displayed in thousands (000s), except per share data.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP 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 2010 Annual Report on Form 10-K.

Securities: Securities are classified as available-for-sale when the Company may decide to sell those securities due to changes in market interest rates, liquidity needs, changes in yields on alternative investments, and for other reasons. They are carried at fair value with unrealized gains and losses, net of taxes, reported in other comprehensive income. All of the Company’s securities are classified as available-for-sale. For all securities, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Due to the limited nature of the market for certain securities, the fair value and potential sale proceeds could be materially different in the event of a sale.

Realized securities gains or losses are reported in securities gains (losses), net in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. Declines in the fair value of available for sale securities below their amortized cost are evaluated to determine whether the loss is temporary or other-than-temporary. If the Company (a) has the intent to sell a debt security or (b) is more likely than not will be required to sell the debt security before its anticipated recovery, then the Company recognizes the entire unrealized loss in earnings as an other-than-temporary loss. If neither of these conditions are met, the Company evaluates whether a credit loss exists. The impairment is separated into (a) the amount of the total impairment related to the credit loss and (b) the amount of total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings and the amount related to all other factors is recognized in other comprehensive income.

The Company also evaluates whether the decline in fair value of an equity security is temporary or other-than-temporary. In determining whether an unrealized loss on an equity security is temporary or other-than-temporary, management considers various factors including the magnitude and duration of the impairment, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the equity security to forecasted recovery.

34.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Allowance for Loan Losses: The allowance for loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The allowance for loan losses is based on an estimation computed pursuant to the requirements of Financial Accounting Standards Board guidance and rules stating that the analysis of the allowance for loan losses consists of three components:

	·	Specific Component. The specific credit allocation component is based on an analysis of individual loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification for which the recorded investment in the loan exceeds its fair value. The fair value of the loan is determined based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less cost of sale. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values;

	·	Historical Loss Component. The historical loss component is mathematically based using a modified loss migration analysis that examines historical loan loss experience for each loan category. The loss migration is performed quarterly and loss factors are updated regularly based on actual experience. The general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for concentrations and changes in portfolio mix and volume. The methodology utilized by management to calculate the historical loss portion of the allowance adequacy analysis is based on historical losses. This historical loss period is based on a weighted twelve-quarter average (3 years); and

	·	Qualitative Component. The qualitative component requires qualitative judgment and estimates reserves based on general economic conditions as well as specific economic factors believed to be relevant to the markets in which the Company operates. The process for determining the allowance (which management believes adequately considers all of the potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change.

To the extent actual outcomes differs from management estimates, additional provision for credit losses could be required that could adversely affect the Company’s earnings or financial position in future periods.

Other Real Estate Owned: Other real estate owned includes properties acquired in partial or total satisfaction of certain loans. Properties are recorded at the lower of the recorded investment in the loans for which the properties previously served as collateral or the fair value, which represents the estimated sales price of the properties on the date acquired less estimated selling costs. Any write-downs in the carrying value of a property at the time of acquisition are charged against the allowance for loan losses. Management periodically reviews the carrying value of other real estate owned. Any write-downs of the properties subsequent to acquisition, as well as gains or losses on disposition and income or expense from the operations of other real estate owned, are recognized in operating results in the period they are realized.

35.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

General

Centrue Financial Corporation 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, are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

Results of Operations

Net Income (Loss)

Net income (loss) for the three months ended September 30, 2011 equaled $(4.7) million or $(0.87) per common diluted share as compared to $(2.4) million or $(0.48) per common diluted share in the second quarter of 2011 and $(16.4) million or $(2.79) per common diluted share in the third quarter of 2010. For the first nine months of 2011, net income (loss) was $(10.6) million or $(2.01) per common diluted share as compared to $(26.6) million or $(4.64) per common diluted share for the same period in 2010.

The results for the third quarter 2011 were adversely impacted by a $2.4 million 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 $4.5 million reduction in carrying value of OREO properties reflective of a continued decline in market values and updated appraisals. During the third quarter of 2010, the Company recorded a $7.3 million provision for loan losses, $0.4 million OREO valuation adjustment and $0.5 million non-cash impairment charge on securities.

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 2011 decreased 4.1% to $7.0 million as compared to $7.3 million for the same period in 2010. The decrease in net interest income from 2011 was primarily due to average loan volume decline and higher premium amortization due to increased prepayments and lower coupon income with adjustable resets in the security portfolio. Positively impacting net interest income were lower cost of funds.

36.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

The net interest margin was 3.14% for the third quarter of 2011, representing increases of 1 basis point from 3.13% recorded in the second quarter of 2011 and 45 basis points from 2.69% reported in the third quarter of 2010. The increase in the third quarter 2011 net interest margin, as compared to the same period in 2010, was primarily related to a reduction in the Company’s cost of interest-bearing liabilities due to maturity of higher rate time deposits and the overall decline in market interest rates. Adversely impacting the margin was the cost of retaining surplus liquidity, lower average volume of higher-yielding loans, increased premium amortization due to higher prepayments and lower coupon income with adjustable resets in the securities portfolio. Due largely to the protracted economic downturn, the lost interest income on nonaccrual loans and the Company’s interest rate sensitivity, the margin will likely remain under pressure throughout 2011.

Fully tax equivalent net interest income for the nine months ended September 30, 2011 totaled $21.7 million, representing a decrease of $1.6 million or 6.9% compared to the $23.3 million earned during the same period in 2010. The net interest margin was 3.12% for the nine months ended September 30, 2011, representing an increase of 33 basis points from 2.79% recorded in the same period of 2010. The decrease of net interest income and the increase in net interest margin was driven by the same factors impacting the third quarter.

37.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME

	For the Three Months Ended September 30,
	2011								2010
				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	$	2,803		$	18		2.59	%	$	5,209		$	18		1.39	%	$	(10	)	$	10		$	—
Securities
Taxable		209,010			1,044		1.98			261,093			1,367		2.08			(261	)		(62	)		(323	)
Non-taxable		17,526			243		5.50			29,270			384		5.20			(160	)		19			(141	)

Total securities (tax equivalent)		226,536			1,287		2.26			290,363			1,751		2.39			(421	)		(43	)		(464	)

Federal funds sold		10,675			22		0.80			620			8		5.18			25			(11	)		14

Loans
Commercial		115,924			1,598		5.47			128,435			1,854		5.73			(169	)		(87	)		(256	)
Real estate		524,050			6,649		5.03			647,874			7,935		4.86			(1,509	)		223			(1,286	)
Installment and other		2,710			70		10.21			4,074			92		8.98			(34	)		12			(22	)

Gross loans (tax equivalent)		642,684			8,317		5.13			780,383			9,881		5.02			(1,712	)		148			(1,564	)

Total interest-earnings assets		882,698			9,644		4.34			1,076,575			11,658		4.30			(2,118	)		104			(2,014	)

Noninterest-earning assets
Cash and cash equivalents		55,275								44,545
Premises and equipment, net		24,766								26,688
Other assets		58,230								66,723

Total nonearning assets		138,271								137,956

Total assets	$	1,020,969							$	1,214,531

LIABILITIES & STOCKHOLDERS’ EQUITY

Interest-bearing liabilities
NOW accounts		85,456			50		0.23			99,931			60		0.24			(9	)		(1	)		(10	)
Money market accounts		127,554			205		0.64			133,091			255		0.76			(4	)		(46	)		(50	)
Savings deposits		95,764			36		0.15			91,736			34		0.15			2			—			2
Time deposits		450,130			1,646		1.45			541,171			3,068		2.25			(325	)		(1,097	)		(1,422	)
Federal funds purchased and repurchase
Agreements		17,732			11		0.24			11,697			7		0.25			4			—			4
Advances from FHLB		49,417			347		2.79			75,516			572		3.01			(182	)		(43	)		(225	)
Notes payable		31,944			370		4.61			31,926			373		4.63			1			(4	)		(3	)

Total interest-bearing liabilities		857,997			2,665		1.23			985,068			4,369		1.76			(513	)		(1,191	)		(1,704	)

Noninterest-bearing liabilities
Noninterest-bearing deposits		112,384								115,550
Other liabilities		13,643								13,172
Total noninterest-bearing liabilities		126,027								128,722

Stockholders’ equity		36,945								100,741

Total liabilities and stockholders’ equity	$	1,020,969							$	1,214,531

Net interest income (tax equivalent)				$	6,979							$	7,289				$	(1,605	)	$	1,295		$	(310	)

Net interest income (tax equivalent) to total earning assets							3.14	%							2.69	%
Interest-bearing liabilities to earning assets		97.20	%							91.50	%

(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.

38.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

AVERAGE BALANCE SHEET
AND ANALYIS OF NET INTEREST INCOME

	For the Nine Months Ended September 30,
	2011								2010
				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	$	2,922		$	60		2.75	%	$	4,219		$	55		1.74	%	$	(18	)	$	23		$	5

Securities
Taxable		210,283			3,117		1.98			257,034			4,690		2.44			(753	)		(820	)		(1,573	)
Non-taxable		20,815			849		5.46			30,884			1,219		5.28			(407	)		37			(370	)

Total securities (tax equivalent)		231,098			3,966		2.29			287,918			5,909		2.74			(1,160	)		(783	)		(1,943	)

Federal funds sold		7,424			48		0.86			2,525			37		1.96			38			(27	)		11

Loans
Commercial		133,022			5,392		5.42			136,084			5,726		5.63			(117	)		(217	)		(334	)
Real estate		551,817			20,881		5.06			682,244			25,962		5.09			(4,900	)		(181	)		(5,081	)
Installment and other		2,552			206		10.77			4,051			268		8.85			(66	)		4			(62	)

Gross loans (tax equivalent)		687,391			26,479		5.15			822,379			31,956		5.20			(5,083	)		(394	)		(5,477	)

Total interest-earnings assets		928,835			30,553		4.40			1,117,041			37,957		4.54			(6,223	)		(1,181	)		(7,404	)

Noninterest-earning assets
Cash and cash equivalents		55,630								55,288
Premises and equipment, net		25,106								28,540
Other assets		50,308								65,532

Total nonearning assets		131,044								149,360

Total assets	$	1,059,879							$	1,266,401

LIABILITIES & STOCKHOLDERS’ EQUITY

Interest-bearing liabilities
NOW accounts		85,188			141		0.22			99,646			253		0.34			(23	)		(89	)		(112	)
Money market accounts		129,658			695		0.72			133,892			979		0.98			5			(289	)		(284	)
Savings deposits		97,706			109		0.15			93,577			144		0.21			10			(45	)		(35	)
Time deposits		474,692			5,692		1.60			582,660			10,460		2.40			(1,301	)		(3,467	)		(4,768	)
Federal funds purchased and repurchase
Agreements		17,707			32		0.24			13,492			37		0.37			10			(15	)		(5	)
Advances from FHLB		51,586			1,114		2.89			77,823			1,733		2.98			(563	)		(56	)		(619	)
Notes payable		31,824			1,103		4.64			32,029			1,074		4.48			1			28			29

Total interest-bearing liabilities		888,361			8,886		1.34			1,033,119			14,680		1.90			(1,861	)		(3,933	)		(5,794	)

Noninterest-bearing liabilities
Noninterest-bearing deposits		118,038								115,302
Other liabilities		14,361								12,761
Total noninterest-bearing liabilities		132,399								128,063

Stockholders’ equity		39,119								105,219

Total liabilities and stockholders’ equity	$	1,059,879							$	1,266,401

Net interest income (tax equivalent)				$	21,667							$	23,277				$	(4,362	)	$	2,752		$	(1,610	)
Net interest income (tax equivalent) to total earning assets							3.12	%							2.79	%
Interest-bearing liabilities to earning assets		95.64	%							92.49	%

(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.

39.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Provision for Loan Losses

The amount of the provision for loan losses is based on management’s evaluations of the loan portfolio, with particular attention directed toward nonperforming, impaired and other potential problem loans. During these evaluations, consideration is also given to such factors as management’s evaluation of specific loans, the level and composition of impaired loans, other nonperforming loans, other identified potential problem loans, historical loss experience, results of examinations by regulatory agencies, results of the independent asset quality review process, the market value of collateral, the estimate of discounted cash flows, the strength and availability of guarantees, concentrations of credits and various other factors, including concentration of credit risk in various industries and current economic conditions.

The provision for loan losses for third quarter 2011 was $2.4 million, compared to $3.3 million and $7.3 million for second quarter 2011 and third quarter 2010, respectively. The decline in provision expense was warranted based on decreases in the level of nonperforming loans, decreases in the level of problem loans, and a reduction in the pace of performing loans moving to problem loan classifications. The decline in provision taken during the third quarter of 2011 was driven by:

	●	lowering levels of nonperforming loans and less new credits that migrated to nonperforming status;

	●	current quarter charge-offs decreased significantly from the prior quarter;

	●	declining trend in past due loans;

	●	some stabilization of collateral values.

Management continues to diligently monitor the loan portfolio, paying particular attention to borrowers with land development, residential and commercial real estate, and commercial development exposures. Many of these relationships continued to show duress due to the ongoing economic downturn being experienced for this industry that existed throughout the third quarter 2011 and is projected to continue through the remainder of the year. Should the economic climate deteriorate from current levels, more borrowers may experience repayment difficulty, and the level of nonperforming loans, charge-offs and delinquencies will rise requiring further increases in the provision for loan losses.

Noninterest Income

Noninterest income consists of a wide variety of fee-based revenues from bank-related service charges on deposits, mortgage revenues and increases in cash surrender value on bank-owned life insurance. The following table summarizes the Company’s noninterest income:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Service charges	$	1,232		$	1,215		$	3,483		$	3,934
Mortgage banking income		341			628			1,050			1,114
Electronic banking services		552			516			1,644			1,528
Bank-owned life insurance		256			261			755			773
Other income		302			204			664			858
Subtotal recurring noninterest income		2,683			2,824			7,596			8,207
Securities gains		—			899			379			1,913
Net impairment on securities		—			(498	)		(499	)		(4,022	)
Valuation adjustment mortgage servicing rights		(89	)		—			(89	)		(225	)
Gain on sale of OREO		(12	)		24			(60	)		34
Gain on sale of other assets		(16	)		178			47			1,648
Total noninterest income	$	2,566		$	3,427		$	7,374		$	7,555

40.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Noninterest income totaled $2.6 million for the three months ended September 30, 2011, compared to $3.4 million for the same period in 2010. Excluding credit impairment charges on CDO securities and gains related to the sale of OREO and other assets from both periods, noninterest income decreased $0.1 million or 3.6%. This $0.1 million decrease was primarily related to a decrease in mortgage banking income.

For the nine months ended September 30, 2011, total noninterest income was $7.4 million compared to $7.6 million for the same period in 2010. This was a $0.2 million or 2.6% decrease. Recurring noninterest income decreased $0.6 million or 7.3% primarily in service charges due to reduced consumer spending and its impact on overdraft and NSF fees, along with lower mortgage banking income.

Noninterest Expense

Noninterest expense is comprised primarily of compensation and employee benefits, occupancy and other operating expense. The following table summarizes the Company’s noninterest expense:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Salaries and employee benefits	$	3,505	$	3,547	$	10,598	$	11,019
Occupancy expense, net		712		647		2,136		2,378
Furniture and equipment expenses		407		642		1,267		1,685
Marketing		56		91		183		280
Supplies and printing		67		106		208		302
Telephone		229		194		637		567
Data processing		381		388		1,120		1,167
FDIC insurance		323		842		1,997		2,549
Loan processing and collection costs		495		675		1,597		1,789
Amortization of intangible assets		250		307		789		967
Other expenses		1,499		1,462		4,472		4,307
Subtotal recurring noninterest expenses		7,924		8,901		25,004		27,010
OREO valuation adjustment		4,473		378		5,770		2,365
Total noninterest expense	$	12,397	$	9,279	$	30,774	$	29,375

Total noninterest expense for the third quarter of 2011 was $12.4 million, compared to $9.3 million recorded during the same period in 2010. Excluding OREO valuation adjustments from both periods, noninterest expense levels decreased by $1.0 million, or 11.2%. This $1.0 million decline in expenses was spread over various categories, including salaries and employee benefits, furniture and equipment, marketing, supplies, FDIC expense, loan processing and collection costs and amortization expense.

Noninterest expense totaled $30.8 million for the nine months ended September 30, 2011 increasing by $1.4 million or 4.8% from the same period in 2010. Excluding OREO valuation adjustments from both periods, noninterest levels decreased $2.0 million or 7.4% for the first nine months of 2011 as compared to 2010. The decrease was due mainly to the same reasons as expressed for the third quarter.

Applicable Income Taxes

Income tax expense for the periods included benefits for tax-exempt income, tax-advantaged investments and general business tax credits offset by the effect of nondeductible expenses. The following table shows the Company’s income before income taxes, as well as applicable income taxes and the effective tax rate for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Income (loss) before income taxes	$	(5,354	)	$	(5,963	)	$	(11,982	)	$	(23,174	)
Applicable income taxes		(606	)		10,440			(1,352	)		3,414
Effective tax rates		11.3	%		(175.1	%)		11.3	%		(14.7	%)

41.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

The Company recorded an income tax benefit of $0.6 million and income tax expense of $10.4 million for the three months ended September 30, 2011 and 2010, respectively. Effective tax rates equaled 11.3% and (175.1%) respectively, for such periods. The Company recorded an income tax benefit of $1.4 million and expense of $3.4 million for the nine months ended September 30, 2011 and 2010, respectively. Effective tax rates equaled 11.3% and (14.7%) respectively, for such periods.

The Company recorded a tax benefit of $0.6 million allocated to the loss from continuing operations in the third quarter of 2011 and $1.4 million on a year-to-date basis due to the following GAAP application: The calculation for the income tax provision or benefit generally does not consider the tax effects of changes in other comprehensive income, or OCI, which is a component of shareholders’ equity on the balance sheet. However, an exception is provided in certain circumstances, such as when there is a full valuation allowance against net deferred tax assets, there is a loss from continuing operations and income in other components of the financial statements. In such a case, pre-tax income from other categories, such as changes in OCI, must be considered in determining a tax benefit to be allocated to the loss from continuing operations. Excluding this benefit, no tax benefit was recorded for the quarter and year-to-date due to the full deferred tax valuation allowance established as of December 31, 2010.

The Company recorded a deferred tax valuation adjustment of $12.8 million in September 2010, which is included in the income tax expense for the three and nine months ended September 30, 2010. Excluding this item, the income tax benefit for the three and nine months ended September, 2010 would have been $2.4 million and $9.4 million, respectively, and the effective tax rates would have been 39.9% and 40.6%, respectively. These higher than statutory effective tax rates were due to the taxable losses generating tax benefits at the combined statutory rate of 38.6% and further increased by the tax-exempt items.

Earnings Review by Business Segment

The Company’s internal reporting and planning process focuses on three primary lines of business: Retail, Commercial and Treasury. See Note 7 of the Notes to Unaudited Consolidated Financial Statements for the presentation of the condensed income statement and total assets for each Segment.

The financial information presented was derived from the Company’s internal profitability reporting system that is used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting policies which have been developed to reflect the underlying economics of the Segments and, to the extent practicable, to portray the Segment as if it operated on a stand alone basis. Thus, each Segment, in addition to its direct revenues and expenses, assets and liabilities, includes an allocation of shared support function expenses. The Retail, Commercial and Treasury Segments also include funds transfer pricing adjustments to appropriately reflect the cost of funds on loans made and funding credits on deposits generated. Apart from these adjustments, the accounting policies used are similar to those described in Note 1 of the Notes to Consolidated Financial Statements.

Since there are no comprehensive authorities for management accounting equivalent to GAAP, the information presented is not necessarily comparable with similar information from other financial institutions. In addition, methodologies used to measure, assign and allocate certain items may change from time-to-time to reflect, among other things, accounting estimate refinements, changes in risk profiles, changes in customers or product lines and changes in management structure.

Retail Segment. The Retail Segment (“Retail”) provides retail banking services including direct lending, checking, savings, money market and certificate of deposit (“CD”) accounts, safe deposit rental, automated teller machines and other traditional and electronic commerce retail banking services to individual customers through the Bank’s branch locations in Illinois and Missouri. The Retail Segment also provides a variety of mortgage lending products to meet customer needs. The majority of the mortgage loans originated are sold to a third party mortgage services company, which provides private label loan processing and servicing support for both loans sold and loans retained by the Bank.

42.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Retail generated a loss of $0.5 million, or 10.6% of total Segment loss, in the third quarter 2011 as compared to a loss of $2.0 million, or 12.2% of total Segment loss, during the same period in 2010. Retail assets were $178.8 million at September 30, 2011, $191.4 million at December 31, 2010 and $200.1 million as of September 30, 2010. This represented 17.7%, 17.3% and 17.0% of total consolidated assets, respectively.

Net income results for the third quarter of 2011, when compared to the same period of 2010, was negatively impacted by higher provision and lower mortgage banking revenue offset by improved net interest margin due to a lower cost of funds and lower expense levels.

Commercial Segment. The Commercial Segment (“Commercial”) provides commercial banking services including lending, business checking and deposits, and other traditional as well as electronic commerce commercial banking services to middle market and small business customers through the Bank’s branch locations located in Illinois and Missouri.

Commercial generated a loss of $3.5 million, or 74.5% of total Segment loss, in the third quarter 2011 as compared to a loss of $15.0 million, or 91.5% of total Segment loss, during the same period in 2010. Commercial assets were $496.3 million at September 30, 2011, $576.2 million at December 31, 2010 and $597.2 million as of September 30, 2010. This represented 49.2%, 52.1% and 50.6% of total consolidated assets, respectively.

Net income results for the third quarter of 2011, when compared to the same period of 2010, was positively impacted by lower provision for loan losses and lower loan remediation costs. Offsetting these positive developments were lower net interest income due to average loan volume decline, the impact of nonaccrual loan interest reversals and noninterest expense levels due to OREO valuation adjustments.

Treasury Segment. The Treasury Segment (“Treasury”) is responsible for managing the investment portfolio, acquiring wholesale funding for loan activity and assisting in the management of the Company’s liquidity and interest rate risk.

Treasury generated a loss of $0.7 million, or 14.9% of total Segment net loss, in the third quarter 2011 as compared to net income of $0.6 million, during the same period in 2010. Treasury assets were $267.1 million at September 30, 2011, $218.0 million at December 31, 2010 and $282.1 million at September 30, 2010. This represented 26.5%, 19.7% and 23.9% of total consolidated assets, respectively.

Net income results for the third quarter of 2011, when compared to the same period of 2010, was negatively impacted by lower net interest income due to decreased yields on the security portfolio partially offset by no non-cash impairment charge on CDO securities during the period.

43.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Financial Condition

General

Following are highlights of the September 30, 2011 balance sheet when compared to December 31, 2010:

Securities. The primary strategic objective of the Company’s securities portfolio is to assist with liquidity and interest rate risk management. In managing the securities portfolio, the Company seeks to minimize credit risk and avoid investments in sophisticated and complex investment products. The Company does not hold any securities containing sub-prime mortgages or any Fannie Mae or Freddie Mac equities.

Securities at September 30, 2011 totaled $245.2 million as compared to $229.9 million recorded at December 31, 2010. The $15.3 million, or 6.7%, net increase from year-end 2010 was largely related to enhancing the Company’s liquidity position through reinvesting dollars from the loan portfolio into security instruments with shorter durations.

At quarter-end, the Company held five pooled trust preferred collateralized debt obligations (“CDOs”) involving three hundred issuers with a total book value of $8.1 million and fair value of $5.8 million. The investments in trust-preferred securities receive principal and interest payments from several pools of subordinated capital debentures with each pool containing issuances by a minimum of twenty-three banks or, in a few instances, capital notes from insurance companies. The Company did not record an Other-than-temporary impairment charge during the quarter. Should the economic climate deteriorate from current levels, the underlying credits may experience repayment difficulty, and the level of deferrals and defaults could increase requiring additional impairment charges in future quarters.

Loans. Total loans equaled $620.5 million, representing decreases of $40.4 million, or 6.1% and $101.4 million or 14.0%, from June 30, 2011 and December 31, 2010, respectively. The net decrease during the third quarter 2011 was related to a combination of normal attrition, pay-downs, loan charge-offs, transfers to OREO and strategic initiatives to reduce balance sheet risk. Due to economic conditions, we have also experienced a decrease in loan demand as many borrowers continue to reduce their debt.

Deposit. Total deposits equaled $862.1 million at September 30, 2011 compared to $931.1 million recorded at December 31, 2010 and $866.0 million on record at June 30, 2011. The September 30, 2011 deposit balance represents a decrease of $69.0 million or 7.4% from December 31, 2010 and $3.9 million or 0.5% from June 30, 2011. The net decreases from year-end 2010 were largely related to strategic initiatives to reduce higher costing time deposits and collateralized local public agency deposits. Wholesale funding decreased $26.4 million, as $3.4 million in maturing brokered certificates of deposits and $23.0 million in FHLB advances were not replaced since year-end.

Nonperforming Assets

The Company’s financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on its loan portfolio, unless a loan is placed on nonaccrual status. Loans are placed on nonaccrual status when there are serious doubts regarding the collectibility of all principal and interest due under the terms of the loans. If a loan is placed on nonaccrual status, the loan does not generate current period income for the Company and any amounts received are generally applied first to principal and then to interest. It is the policy of the Company not to renegotiate the terms of a loan because of a delinquent status. Rather, a loan is generally transferred to nonaccrual status if it is not in the process of collection and is delinquent in payment of either principal or interest beyond 90 days.

The classification of a loan as nonaccrual does not necessarily indicate that the principal is uncollectible, in whole or in part. The Bank makes a determination as to collectibility on a case-by-case basis and considers both the adequacy of the collateral and the other resources of the borrower in determining the steps to be taken to collect nonaccrual loans. The final determination as to the steps taken is made based upon the specific facts of each situation. Alternatives that are typically considered to collect nonaccrual loans are foreclosure, collection under guarantees, loan restructuring, or judicial collection actions.

44.

Centrue Financial Corporation

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

(Table Amounts In Thousands, Except Share Data)

Each of the Company’s commercial loans is assigned a rating based upon an internally developed grading system. A separate credit administration department also reviews grade assignments on a quarterly basis. Management continuously monitors nonperforming, impaired, and past due loans in an effort to prevent further deterioration of these loans. The Company has an independent loan review function which is separate from the lending function and is responsible for the review of new and existing loans.

The following table summarizes nonperforming assets and loans past due 90 days or more for the previous five quarters:

	2011									2010
	Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,
Nonaccrual loans	$	40,665		$	45,541		$	58,607		$	64,600		$	78,197
Troubled debt restructurings		7,317			6,374			5,124			5,332			16,899
Loans 90 days past due and still accruing interest		—			—			—			58			—
Total nonperforming loans		47,982			51,915			63,731			69,990			95,096

Other real estate owned		32,912			35,618			28,581			25,564			24,695
Total nonperforming assets	$	80,894		$	87,533		$	92,312		$	95,554		$	119,791

End of period loans	$	620,450		$	660,882		$	710,529		$	721,871		$	764,585

Nonperforming loans to total end of period loans		7.73	%		7.86	%		8.97	%		9.70	%		12.44	%
Nonperforming assets to total end of period loans		13.04	%		13.24	%		12.99	%		13.24	%		15.67	%
Nonperforming assets to total end of period assets		8.02	%		8.56	%		8.60	%		8.65	%		10.15	%

Total nonperforming assets were $80.9 million, or 7.8% of total assets, at September 30, 2011. This included $7.3 million in troubled debt restructurings, $32.9 million of OREO and $40.7 million of nonaccrual loans. The majority of the OREO is comprised of nine parcels (land development and commercial real estate) which account for 68.6% of the balance. The Company updates these appraisals quarterly to ensure that they are properly carried at their fair market value. Approximately 56.3% of total nonaccrual loans at September 30, 2011 were concentrated in land development and construction credits. Additionally, 66.1% of total nonaccrual loans represented loans to 10 borrowers.

The level of nonperforming loans (nonaccrual, 90 days past due, and troubled debt restructurings) at September 30, 2011 decreased $3.9 million, or 7.6%, from June 30, 2011 levels and $47.1 million, or 49.5%, from the $95.1 million that existed at September 30, 2010. The decrease in nonperforming loans was mainly due to the charge-off of nonaccrual loans and the transfer of the property securing the credits into OREO. The level of nonperforming loans to total end of period loans was 7.7% at September 30, 2011, as compared to 7.9% at June 30, 2011 and 12.44% at September 30, 2010. As a result of the decrease in nonperforming loans, the coverage ratio (allowance to nonperforming loan) was reported at 48.6% as of September 30, 2011 as compared to 46.9% as of June 30, 2011.

	Payments Due by Period
	Within 1						After
	Year		1 – 3 Years		4 – 5 Years		5 Years		Total
Contractual Obligations

Short-term debt	$	—	$	—	$	250	$	—	$	250
Long-term debt		186		97		10,000		—		10,283
Certificates of deposit		307,827		112,886		30,647		92		451,452
Operating leases		242		504		504		252		1,502
Series B mandatory redeemable preferred stock		—		268		—		—		268
Subordinated debentures		—		—		—		20,620		20,620
FHLB advances		28,000		15,058		5,000		—		48,058

Total contractual cash obligations	$	336,255	$	128,813	$	46,401	$	20,964	$	532,433

	Amount of Commitment Expiration Per Period
	Within 1						After
	Year		1 – 3 Years		4 – 5 Years		5 Years		Total
Off-Balance Sheet Financial Instruments

Lines of credit	$	91,466	$	6,126	$	2,987	$	23,738	$	124,317
Standby letters of credit		1,302		1,065		40		—		2,407

Total contractual cash obligations	$	92,768	$	7,191	$	3,027	$	23,738	$	126,724

	Centrue Financial						Centrue Bank						Adequately- Capitalized Thresholds
	Sep 30, 2011			Dec 31, 2010			Sep 30, 2011			Dec 31, 2010			Adequately- Capitalized Thresholds
Carrying amounts ($millions):
Total risk-based capital	$	62.0		$	76.5		$	68.4		$	78.2
Tier 1 risk-based capital	$	37.5		$	58.0		$	59.3		$	67.8
Tangible common equity	$	(5.7	)	$	3.5		$	61.1		$	67.5

Capital ratios:
Total risk-based capital		8.5	%		9.4	%		9.5	%		9.7	%		8.0	%
Tier 1 risk-based capital		5.2	%		7.1	%		8.3	%		8.4	%		4.0	%
Tier 1 leverage ratio		3.7	%		5.1	%		5.9	%		6.0	%		4.0	%

	·	management’s ability to reduce and effectively manage interest rate risk and the impact of interest rates in general on the volatility of the Company’s net interest income;
	·	fluctuations in the value of the Company’s investment securities;
	·	the Company’s ability to ultimately collect on any downgraded loan relationships;
	·	the Company’s ability to respond and adapt to economic conditions in our geographic market;
	·	the Company’s ability to adapt successfully to technological changes to compete effectively in the marketplace;
	·	credit risks and risks from concentrations (by geographic area and by industry) within the Company’s loan portfolio and individual large loans;
	·	volatility of rate sensitive deposits;
	·	operational risks, including data processing system failures or fraud;
	·	asset/liability matching risks and liquidity risks;
	·	the ability to successfully acquire low cost deposits or funding;
	·	the ability to successfully execute strategies to increase noninterest income;
	·	the ability to successfully grow non-commercial real estate loans;
	·	the ability of the Company to continue to realize cost savings and revenue generation opportunities in connection with the synergies of centralizing operations;
	·	the ability to adopt and implement new regulatory requirements as dictated by the SEC, FASB or other rule-making bodies which govern our industry;
	·	changes in the general economic or industry conditions, nationally or in the communities in which the Company conducts business;
	·	the Company’s ability to raise additional capital, if available, to sustain growth or operating results;
	·	the Company’s ability to dispose of other real estate owned (“OREO”) at reasonable values in a market that is very volatile.

	Change in Net Interest Income Over One Year Horizon
	September 30, 2011					December 31, 2010
	Change					Change
	$		%			$			%
+ 300 bp	$	2,025		7.11	%	$	(570	)		(1.82	)%
+ 200 bp		1,193		4.19			(1,637	)		(5.23	)
+ 100 bp		363		1.27			(1,376	)		(4.40	)
+ 50 bp		196		0.69			(701	)		(2.24	)

Base		—		—			—			—

- 50bp		155		0.54			568			1.82

	Exhibits:

	10.1	Consulting agreement with Thomas A. Daiber (incorporated by reference from form 8-K filed on Sept. 26, 2011).

	31.1	Certification of Kurt R. Stevenson, President and Principal Executive Officer, required by Rule 13a – 14(a).

	31.2	Certification of Daniel R. Kadolph, Interim Principal Financial and Accounting Officer required by Rule 13a – 14(a).

	32.1(1)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Company’s President and Principal Executive Officer.

	32.2(1)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Company’s Interim Principal Financial and Accounting Officer.

	101(2)	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

	(1)	This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
	(2)	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

	CENTRUE FINANCIAL CORPORATION

Date: November 14, 2011	By:	/s/ Kurt R. Stevenson
		Kurt R. Stevenson
		President and Principal Executive Officer

Date: November 14, 2011	By:	/s/ Daniel R. Kadolph
		Daniel R. Kadolph
		Interim Principal Financial and Accounting Officer