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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
   FORM 10-Q (Mark One)  þ
    Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the
Quarterly Period Ended March 31, 2005. or  o
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the
Transition Period From
 to . Commission File Number 1-15025 CENTRUE FINANCIAL CORPORATION    Delaware
    
    36-3846489(State or Other Jurisdiction of Incorporation
    
    (I.R.S. Employer Identification Number)or Organization)
 310 South Schuyler Avenue, Kankakee, Illinois
    
    60901(Address of Principal Executive Offices)
    
    (Zip Code)
 (815) 937-4440    Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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 is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ As of May 11, 2005, there were 2,437,260 issued and outstanding shares of the Issuers common
stock.




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CENTRUE FINANCIAL CORPORATION INDEX PageNumberPart I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5 - 6Notes to Consolidated Financial Statements
    
    
    7 - 12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12 - 23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23 - 24Item 4. Controls and Procedures
    
    
    25Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26 - 27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28Amendment No.1 to 2003 Stock Incentive PlanAddendum to Incentive Stock Option AgreementCertification of Principal Executive OfficerCertification of Chief Financial OfficerCertification of Corporate ControllerSection 906 Certification of Principal Executive OfficerSection 906 Certification of Chief Financial OfficerSection 906 Certification of Corporate Controller
  2




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PART I.  FINANCIAL INFORMATION 
 ITEM 1. Consolidated Financial Statements (Unaudited) 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY March 31
    
    
    December 312005
    
    
    2004(dollars in thousands)AssetsCash and due from banks
    
    $
    10,912
    
    
    $
    10,760Interest bearing due from banks and other
    
    
    3,828
    
    
    
    2,526Cash and cash equivalents
    
    
    14,740
    
    
    
    13,286Certificates of Deposit
    
    
    50
    
    
    
    149Investment Securities available-for-sale, at fair value:
    
    
    117,459
    
    
    
    124,763Loans, net of allowance for loan losses of ($5,840 and $5,475)
    
    
    418,237
    
    
    
    418,963Loans held for sale
    
    
    318
    
    
    
    416Premises and equipment
    
    
    19,156
    
    
    
    18,267Goodwill
    
    
    12,446
    
    
    
    12,446Life insurance contracts
    
    
    9,201
    
    
    
    9,110Non-marketable equity securities
    
    
    4,260
    
    
    
    4,211Accrued interest receivable
    
    
    2,757
    
    
    
    2,570Intangible assets
    
    
    1,713
    
    
    
    1,774Real estate held for sale
    
    
    3,156
    
    
    
    3,002Other assets
    
    
    3,624
    
    
    
    2,896Total Assets
    
    $
    607,117
    
    
    $
    611,853LiabilitiesDeposits:Noninterest bearing
    
    $
    58,627
    
    
    $
    53,919Interest bearing
    
    
    407,213
    
    
    
    441,858Total Deposits
    
    
    465,840
    
    
    
    495,777Short-term borrowings
    
    
    32,174
    
    
    
    14,188Long-term borrowings
    
    
    61,990
    
    
    
    55,473Other liabilities
    
    
    3,801
    
    
    
    3,239Total Liabilities
    
    
    563,805
    
    
    
    568,677Stockholders EquityPreferred stock, $.01 par value  500,000 shares authorized
and unissued
    
    
    
    
    
    
    Common stock, $.01 par value  5,500,000 authorized;
4,200,300 shares issued
    
    
    42
    
    
    
    42Additional paid-in capital
    
    
    29,024
    
    
    
    28,998Retained income, partially restricted
    
    
    45,162
    
    
    
    43,925Accumulated other comprehensive income (loss)
    
    
    (1,003
    )
    
    
    27Unearned restricted stock (20,400 and 26,400 shares)
    
    
    (492
    )
    
    
    (512
    )Treasury stock, (1,822,799 and 1,819,634 shares), at cost
    
    
    (29,421
    )
    
    
    (29,304
    )Total Stockholders Equity
    
    
    43,312
    
    
    
    43,176Total Liabilities and Stockholders Equity
    
    $
    607,117
    
    
    $
    611,853
 See notes to the accompanying consolidated financial statements 3




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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY Three Months EndedMarch 312005
    
    
    2004(dollars in thousands)Interest income:Loans
    
    $
    6,185
    
    
    $
    6,293InvestmentsTaxable
    
    
    994
    
    
    
    861Tax-exempt
    
    
    173
    
    
    
    79Deposits with banks and other
    
    
    8
    
    
    
    75FHLB stock dividends
    
    
    49
    
    
    
    57Total interest and dividend income
    
    
    7,409
    
    
    
    7,365Interest expense:Deposits
    
    
    1,927
    
    
    
    2,099Short-term borrowings
    
    
    55
    
    
    
    Long-term borrowings
    
    
    742
    
    
    
    693Total interest expense
    
    
    2,724
    
    
    
    2,792Net interest income
    
    
    4,685
    
    
    
    4,573Provision for loan losses
    
    
    250
    
    
    
    300Net interest income after provision for loan losses
    
    
    4,435
    
    
    
    4,273Noninterest income:Fee income
    
    
    1,099
    
    
    
    892Net gain on sale of securities
    
    
    183
    
    
    
    89Net gain (loss) on sale of real estate held for sale
    
    
    1
    
    
    
    (7
    )Net gain on sale of loans
    
    
    131
    
    
    
    106Increase in cash surrender value of life insurance
    
    
    91
    
    
    
    100Other
    
    
    60
    
    
    
    69Total noninterest income
    
    
    1,565
    
    
    
    1,249Noninterest expense:Compensation and benefits
    
    
    2,287
    
    
    
    2,263Occupancy, net
    
    
    387
    
    
    
    394Furniture and equipment
    
    
    329
    
    
    
    335Advertising
    
    
    80
    
    
    
    64Data processing
    
    
    158
    
    
    
    163Telephone and postage
    
    
    171
    
    
    
    129Amortization of intangibles
    
    
    61
    
    
    
    46Legal and professional fees
    
    
    142
    
    
    
    236Other
    
    
    660
    
    
    
    679Total noninterest expense
    
    
    4,275
    
    
    
    4,309Income before income taxes
    
    
    1,725
    
    
    
    1,213Income tax expense
    
    
    488
    
    
    
    368Net income
    
    $
    1,237
    
    
    $
    845Other comprehensive income (loss):Change in unrealized gains on available for sale securities, net
of related income taxes
    
    
    (899
    )
    
    
    313Less: reclassification adjustment for gains included in net income
net of related income taxes
    
    
    131
    
    
    
    59Other comprehensive income (loss)
    
    
    (1,030
    )
    
    
    254Comprehensive income
    
    $
    207
    
    
    $
    1,099Basic earnings per share
    
    $
    0.52
    
    
    $

    0.33Diluted earnings per share
    
    $
    0.52
    
    
    $
    0.33Dividends per share
    
    $
    
    
    
    $
    .075
 See notes to the accompanying consolidated financial statements 4




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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY Three Months EndedMarch 312005
    
    
    2004(dollars in thousands)Operating activitiesNet income
    
    
    1,237
    
    
    $
    845Adjustments to reconcile net income to net cash provided
by operating activities:Provision for loan losses
    
    
    250
    
    
    
    300Depreciation and amortization
    
    
    429
    
    
    
    381Net amortization on investments
    
    
    62
    
    
    
    (37
    )Amortization of intangibles
    
    
    61
    
    
    
    46Deferred income taxes
    
    
    (74
    )
    
    
    828Origination of loans held for sale
    
    
    (6,162
    )
    
    
    (5,985
    )Proceeds from sales of loans held for sale
    
    
    6,391
    
    
    
    5,024Gain on sale of loans
    
    
    (131
    )
    
    
    (106
    )Gain on sale of securities, net
    
    
    (183
    )
    
    
    (89
    )(Gain) loss on sale of real estate held for sale
    
    
    (1
    )
    
    
    7Compensation expense for restricted stock
    
    
    20
    
    
    
    98Increase in cash surrender value of life insurance
    
    
    (91
    )
    
    
    (100
    )Federal Home Loan Bank stock dividends
    
    
    (49
    )
    
    
    (53
    )Changes in:Accrued interest receivable
    
    
    (187
    )
    
    
    (125
    )Other assets and other liabilities, net
    
    
    496
    
    
    
    1,104Net cash provided by operating activities
    
    
    2,068
    
    
    
    2,138Investing activitiesPurchases of available for sale securities
    
    
    (9,786
    )
    
    
    (28,289
    )Proceeds from sales of available for sale securities
    
    
    11,014
    
    
    
    3,948Proceeds from maturities of available for sale securities
    
    
    4,578
    
    
    
    6,580Proceeds from maturities of held-to-maturity securities
    
    
    
    
    
    
    210Proceeds from maturities of certificates of deposit
    
    
    99
    
    
    
    Proceeds from sales of real estate held for sale
    
    
    42
    
    
    
    197Purchase of Parish Bank and Trust Company
    
    
    
    
    
    
    38Net decrease in loans
    
    
    281
    
    
    
    7,494Purchases of bank premises and equipment
    
    
    (1,318
    )
    
    
    (249
    )Net cash provided by (used) in investing activities
    
    
    4,910
    
    
    
    (10,071
    )Financing activitiesNet decrease in deposits
    
    
    (29,936
    )
    
    
    (5,375
    )Net change in short term borrowings
    
    
    17,986
    
    
    
    Proceeds of long-term borrowings
    
    
    19,905
    
    
    
    Repayments of long-term borrowings
    
    
    (13,388
    )
    
    
    (12,488
    )Proceeds from exercise of stock options
    
    
    61
    
    
    
    94Dividends paid
    
    
    
    
    
    
    (195
    )Purchase of treasury stock
    
    
    (152
    )
    
    
    (89
    )Net cash used by financing activities
    
    
    (5,524
    )
    
    
    (18,053
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,454
    
    
    
    (25,986
    )Cash and cash equivalents  beginning of year
    
    
    13,286
    
    
    
    45,605Cash and cash equivalents  end of period
    
    $
    14,740
    
    
    $
    19,619
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY Three Months EndedMarch 312005
    
    
    2004(dollars in thousands)Supplemental disclosure of cash flow informationInterest paid
    
    $
    2,584
    
    
    $
    2,602Income taxes paid
    
    
    
    
    
    
    Real estate acquired in settlement of loans
    
    
    195
    
    
    
    519Acquisition of Parish Bank and Trust Company:Cash paid
    
    
    
    
    
    $
    4,400Cost incurred
    
    
    
    
    
    
    123Total cost
    
    
    
    
    
    $
    4,523Assets acquired:Cash and cash equivalents
    
    
    
    
    
    $
    (4,561
    )Certificates of Deposit
    
    
    
    
    
    
    (298
    )Investments
    
    
    
    
    
    
    (8,616
    )Nonmarketable equity securities
    
    
    
    
    
    
    (85
    )Loans, net
    
    
    
    
    
    
    (7,342
    )Interest receivable
    
    
    
    
    
    
    (104
    )Premises and equipment
    
    
    
    
    
    
    (269
    )Goodwill
    
    
    
    
    
    
    (1,013
    )Intangibles
    
    
    
    
    
    
    (774
    )Other assets
    
    
    
    
    
    
    (72
    )Liabilities assumed:Non-interest bearing deposits
    
    
    
    
    
    
    5,462Interest-bearing deposits
    
    
    
    
    
    
    13,062Other liabilities
    
    
    
    
    
    
    87Net assets acquired
    
    
    
    
    
    $
    (4,523
    )Cash acquired, net of cash paid
    
    
    
    
    
    $
    38
 See notes to the accompanying consolidated financial statements 6




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CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2005 Note 1  Basis of Presentation The consolidated financial statements of Centrue Financial Corporation (the Company) have
been prepared in accordance with accounting principles generally accepted in the United States of
America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The December 31, 2004 balance sheet has been derived from
the audited financial statements at that date, but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for
complete financial statements. Operating results for the three-month period ended March 31, 2005
are not necessarily indicative of the results that may be expected for the year ending December 31,
2005. For further information, refer to the consolidated financial statements and footnotes
thereto included in the annual report for the Company on Form 10-K for the year ended December 31,
2004. The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiary Centrue Bank (the Bank), an Illinois chartered commercial bank. All material
intercompany transactions and balances are eliminated. The Company is a financial holding company
that engages in its business through its sole subsidiary, in a single significant business segment. In preparing the consolidated financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the
consolidated balance sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses, valuation of mortgage servicing rights, goodwill,
and real estate acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and the valuation of real estate
acquired by foreclosure, management obtains independent appraisals for significant properties. Certain 2004 amounts have been reclassified where appropriate to conform to the consolidated
financial statement presentation used in 2005. The Company has a stock-based employee compensation plan, which is described more fully in the
Companys annual report on Form 10-K for the year ended December 31, 2004. The Company accounts
for this plan under the recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying common stock on the
grant date. The following table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation: 7




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Three Months EndedMarch 312005
    
    
    2004(dollars in thousands, except pershare data)Net income, as reported
    
    $
    1,237
    
    
    $
    845Less: Total stock-based employee
compensation cost determined under the fair
value based method, net of income taxes
    
    
    49
    
    
    
    39Pro forma net income
    
    $
    1,188
    
    
    $
    806Earnings per share:Basic  as reported
    
    $
    0.52
    
    
    $
    0.33Basic  pro forma
    
    
    0.50
    
    
    
    0.31Diluted  as reported
    
    
    0.52
    
    
    
    0.33Diluted  pro forma
    
    
    0.50
    
    
    
    0.31
 There have been no options granted during the first quarter of 2005. The fair value of options
granted in the first quarter of 2004 have been estimated using the Black-Scholes option-pricing
model with the following weighted average assumptions. Three Months EndedMarch 31, 2004Number of options granted
    
    
    5,500Risk-free interest rate
    
    
    4.06
    %Expected life, in years
    
    
    10Expected volatility
    
    
    21.99
    %Expected dividend yield
    
    
    1.25
    %Estimated weighted average fair value per option
    
    $
    9.36
 Note 2  Earnings Per Share Basic earnings per share of common stock have been determined by dividing net income for the
period by the average number of shares of common stock outstanding. Diluted earnings per share of
common stock have been determined by dividing net income for the period by the average number of
shares of common stock and common stock equivalents outstanding. Average unearned restricted stock
shares have been excluded from common shares outstanding for both basic and diluted earnings per
share. Common stock equivalents assume exercise of stock options, and the purchase of treasury
stock with the option proceeds at the average market price for the period (when dilutive). The
Company has an incentive stock option plan for the benefit of directors, officers and employees.
Diluted earnings per share have been determined considering the stock options granted, net of stock
options which have been exercised. 8




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Three Months EndedMarch 312005
    
    
    2004(Dollars in thousands, except per sharedata)BasicNet Income
    
    $
    1,237
    
    
    $
    845Average common shares outstanding
    
    
    2,359,235
    
    
    
    2,580,331Net income per common share  basic
    
    $
    0.52
    
    
    $
    0.33DilutedNet Income
    
    $
    1,237
    
    
    $
    845Average common shares outstanding
    
    
    2,359,235
    
    
    
    2,580,331Dilutive potential due to stock options
    
    
    10,014
    
    
    
    9,678Average common shares outstanding
    
    
    2,369,249
    
    
    
    2,590,009Net income per common share  diluted
    
    $
    0.52
    
    
    $
    0.33
 Note 3  Liquidity and Capital Resources The Company maintains a certain level of cash and other liquid assets to fund normal volumes
of loan commitments, deposit withdrawals and other obligations. The following table summarizes
significant contractual obligations and other commitments at March 31, 2005 (in thousands): Time
    
    
    Long-termYears Ended December 31,
    
    Deposits
    
    
    Borrowings (1)
    
    
    Total2005
    
    $
    142,836
    
    
    $
    30,239
    
    
    $
    173,0752006
    
    
    54,661
    
    
    
    9,341
    
    
    
    64,0022007
    
    
    17,036
    
    
    
    11,449
    
    
    
    28,4852008
    
    
    10,776
    
    
    
    156
    
    
    
    10,9322009
    
    
    4,544
    
    
    
    10,165
    
    
    
    14,709thereafter
    
    
    1,899
    
    
    
    640
    
    
    
    2,539Total
    
    $
    231,752
    
    
    $
    61,990
    
    
    $
    293,742Financial instruments whose
contract amounts represent credit
risk:Commitment to originate loans
    
    
    
    
    
    
    
    
    
    $
    13,359Commitments to extend credit
    
    
    
    
    
    
    
    
    
    
    61,295Standby letters of credit
    
    
    
    
    
    
    
    
    
    
    9,227Total
    
    
    
    
    
    
    
    
    
    $
    377,623
   (1)
    
    Fixed rate callable borrowings are included in the period of their modified duration
rather than in the period in which they are due. Borrowings include fixed rate callable
advances of $5 million and $2 million maturing in years 2008 and 2011 which are callable in
2005 and variable rate prepayable advances of $20 million maturing in 2006. Trust preferred debentures of
$10 million mature in both 2032 and 2034, but are callable in 2007 and 2009. 9




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Note 4  Investments Continuous gross unrealized losses of investments in debt and equity securities as of March 31,
2005 (in thousands) which are classified as temporary were as follows: Continuous unrealized losses
    
    
    Continuous unrealized lossesexisting for less than 12
    
    
    existing greater thanmonths
    
    
    12 months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    losses
    
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    lossesDescription of
SecuritiesU.S. government
agencies
    
    $
    64,392
    
    
    $
    1,008
    
    
    $
    
    
    
    $
    
    
    
    $
    64,392
    
    
    $
    1,008Municipals
    
    
    13,031
    
    
    
    338
    
    
    
    8,155
    
    
    
    267
    
    
    
    21,186
    
    
    
    605Mortgage backed
securities
    
    
    5,048
    
    
    
    62
    
    
    
    4,142
    
    
    
    25
    
    
    
    9,190
    
    
    
    87Corporate
    
    
    
    
    
    
    
    
    
    
    1,951
    
    
    
    120
    
    
    
    1,951
    
    
    
    120Total temporarily
impaired securities
    
    $
    82,471
    
    
    $
    1,408
    
    
    $
    14,258
    
    
    $
    412
    
    
    $
    96,719
    
    
    $
    1,733
 The unrealized losses on investment securities that have been in a continuous loss position
for more than 12 consecutive months are generally due to changes in interest rates and, as such,
are considered to be temporary, by the Company. Note 5  Junior Subordinated Debt Owed to Unconsolidated Trusts The Company issued $10.0 million in each of April 2002 and April 2004 in cumulative trust
preferred securities through newly formed special-purpose trusts, Kankakee Capital Trust I (Trust
I) and Centrue Statutory Trust II (Trust II). The proceeds of the offerings were invested by the
trusts in junior subordinated deferrable interest debentures of Trust I and Trust II. Trust I and
Trust II are wholly-owned unconsolidated subsidiaries of the Company, and their sole assets are the
junior subordinated deferrable interest debentures. Distributions are cumulative and are payable
quarterly at a variable rate of 3.70% and 2.65% over the LIBOR rate, respectively, (at a rate of
6.00% and 5.68% at March 31, 2005) per annum of the stated liquidation amount of $1,000 per
preferred security. Interest expense on the trust preferred securities was $299,000 and $238,000
for the three months ended March 31, 2005 and 2004, respectively. The obligations of the trusts are
fully and unconditionally guaranteed, on a subordinated basis, by the Company. The trust preferred
securities for Trust I are mandatorily redeemable upon the maturity of the debentures on April 7,
2032, or to the extent of any earlier redemption of any debentures by the Company, and are callable
beginning April 7, 2007. The trust preferred securities for Trust II are mandatorily redeemable
upon the maturity of the debentures on April 22, 2034, or to the extent of any earlier redemption
of any debentures by the Company, and are callable beginning April 22, 2009. Holders of the
capital securities have no voting rights, are unsecured, and rank junior in priority of payment to
all of the Companys indebtedness and senior to the Companys capital stock. For regulatory
purposes, the trust preferred securities qualify as Tier I capital subject to certain provisions. On March 1, 2005, the Board of Governors of the Federal Reserve System issued a final rule
regarding the continued inclusion of trust preferred securities in the Tier 1 capital of bank
holding companies, subject to stricter standards. As a result of the final rule, the Federal
Reserve will limit the aggregate amount of a bank holding companys cumulative perpetual preferred
stock, trust preferred securities and other minority interests to 25% of a companys core capital
elements, net of goodwill. Regulations in place at the time the Company placed its currently
outstanding trust preferred securities did not require the deduction of goodwill. The
final rule also provides that amounts of qualifying trust preferred securities and certain minority
interests in excess of the 25% limit may be included in Tier 2 capital but will be limited,
together 10




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with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital
effective March 31, 2009. The final rule provides a five-year transition period for bank holding
companies to meet these quantitative limitations. While management does not anticipate that the
final rule will have an impact on the Company when the five-year transition period expires, it is
not possible to predict the final impact of the rule at the present time. Note 6  Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) published FASB Statement No.
123 (revised 2004), Share-Based Payment (FAS 123(R) or the Statement). FAS 123(R) requires that
the compensation cost relating to share-based payment transactions, including grants of employee
stock options, be recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) permits entities to use any
option-pricing model that meets the fair value objective in the Statement. (Modifications of
share-based payments will be treated as replacement awards with the cost of the incremental value
recorded in the financial statements.) On April 14, 2005, the Securities and Exchange Commission (SEC) adopted a new rule that amends
the compliance dates for Financial Accounting Standards Boards Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R). Under the new rule, the
Company is required to adopt SFAS No. 123R in the first quarter of fiscal 2006, beginning January
1, 2006. The Company has not yet determined the method of adoption or the effect of adopting SFAS
No. 123R, and it has not determined whether the adoption will result in amounts that are similar to
the current pro forma disclosures under SFAS No. 123. On September 30, 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) Issue No. 03-1-1 delaying the effective date of
paragraphs 10-20 of EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments, which provides guidance for determining the meaning of
other-than-temporarily impaired and its application to certain debt and equity securities within
the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
investments accounted for under the cost method. The guidance requires that investments which have
declined in value due to credit concerns or solely due to changes in interest rates must be
recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its
intention to hold the security for a period of time sufficient to allow for a recovery of fair
value up to or beyond the cost of the investment which might mean maturity. The delay of the
effective date of EITF 03-1 will be superceded concurrent with the final issuance of proposed FSP
Issue 03-1-a. Proposed FSP Issue 03-1-a is intended to provide implementation guidance with respect
to all securities analyzed for impairment under paragraphs 10-20 of EITF 03-1. Management continues
to closely monitor and evaluate how the provisions of EITF 03-1 and proposed FSP Issue 03-1-a will
affect the Company. 11




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##### Table of Contents



Note 7.  Subsequent Events On April 8, 2005, the Company acquired for cash and stock all of the outstanding shares of
Illinois Community Bancorp, Inc. (ICB) for a total cost of $3.3 million. The acquisition will be
accounted for using the purchase method of accounting. As such, the results of operations of the
acquired entity will be excluded from the consolidated financial statements of income for the
periods prior to the acquisition date. At closing, ICB had assets of $29.9 million, including $17.9
million of loans, deposits of $27.7 million and stockholders equity of $1.4 million. This
acquisition is not considered material to the Company as a whole and therefore, proforma
information will not be included. It is anticipated that Illinois Community Bank, will be run as
a separate banking subsidiary until merged into Centrue Bank during the third quarter of 2005. 
  ITEM 2.
    Managements Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company serves the financial needs of families and local businesses in its primary market
areas through the main office of Centrue Bank at 310 South Schuyler Avenue, Kankakee, Illinois and
nineteen branch offices, as well as through its newly acquired subsidiary, Illinois Community Bank,
located in Effingham, Illinois. The Companys market areas include western Indiana, central and
southern Illinois, and the metropolitan St. Louis, Missouri markets. The Companys business
involves attracting deposits from the general public and using such deposits to originate
commercial business, commercial real estate, consumer, multi-family, construction loans and
residential mortgage loans in its market areas. The Company also invests in investment securities
and various types of short term liquid assets. The Company has approximately 172 full time
equivalent employees. FINANCIAL CONDITION The Companys total assets were $607.1 million at March 31, 2005, a decrease of $4.8 million,
or 0.8%, from $611.9 million at December 31, 2004. The decrease in total assets was primarily due
to funds used for repayments on higher rate borrowings and reductions of higher rate certificates
of deposit. Fluctuations in asset accounts included an increase in cash and cash equivalents of
$1.5 million, premises and equipment of $889,000 and other assets of $728,000. These increases
were partially offset by a decrease in investment securities of $7.3 million and a decrease in net
loans including loans held for sale of $824,000. Cash and cash equivalents increased $1.5 million, or 11.3%, to $14.7 million from $13.3
million. Investment securities decreased $7.3 million, or 5.9%, to $117.5 million from $124.8
million. The increase in cash and cash equivalents and the decrease in investment securities was
primarily a result of short-term funding and liquidity needs. Premises and equipment increased $889,000, or 4.9%, primarily due to costs associated with the
construction of the Companys new facility in Fairview Heights, Illinois. The facility is expected
to be completed in the second quarter of 2005. Other assets increased $728,000, or 25.2%, to $3.6 million from $2.9 million. The increase in
other assets was primarily due to an increase in deferred taxes. The increase in deferred taxes
was primarily due to temporary changes in the Companys tax position as well as unrealized losses
on available for sale securities. 12




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Deposits decreased $29.9 million or 6.0% to $465.8 million from $495.8 million. The decrease
in deposits was primarily attributable to a $26.7 million reduction in certificates of deposit
partially offset by an increase in DDA accounts of $4.7 million. The decrease in certificates of
deposit is partially due to efforts by the Company to restructure its deposit mix as well as a
decrease in public fund deposits. Short-term borrowings increased $18.0 million, or 126.8%, to $32.2 million from $14.2 million.
Short-term borrowings include customer repurchase agreements, federal funds purchased, and
open-line borrowings from the Federal Home Loan Bank of Chicago (FHLB). The increase in short-term
borrowings was primarily due to an increase in customer repurchase agreements of $4.6 million,
federal funds purchased of $3.5 million, and open-line borrowings from the FHLB of $9.9 million.
The increase in short-term borrowings was primarily due to short-term liquidity needs. Long-term borrowings increased $6.5 million, or 11.7%, to $62.0 million from $55.5 million.
Long-term borrowings include advances from the FHLB, term repurchase agreements, junior
subordinated debt owed to unconsolidated trusts, and notes payable. The increase in long-term
borrowings was due to an increase in FHLB advances, partially offset by a decrease in term
repurchase agreements. Stockholders equity increased $136,000 or 0.3% to $43.3 million from $43.2 million at
December 31, 2004. The increase in stockholders equity was primarily due to net income, partially
offset by a decrease in accumulated other comprehensive income of $1.0 million. Equity per share
of common stock increased by $0.08 to $18.22 at March 31, 2005 from $18.14 at December 31, 2004. ASSET QUALITY The Companys asset quality management program, particularly with regard to loans, is designed
to analyze potential risk elements and to support the growth of a high quality loan portfolio. The
existing loan portfolio is monitored via the Companys loan rating system. The loan rating system
is used to determine the adequacy of the allowance for loan losses. The Companys loan analysis
process proactively identifies, monitors and works with borrowers for whom there are indications of
future repayment difficulties. The Companys lending philosophy is to invest in the communities
served by its banking centers so that it can effectively monitor and control credit risk. During the first quarter, non-accrual loans decreased $837,000 and accruing loans delinquent
90 days or more increased $809,000. These fluctuations were primarily due to one large commercial
borrower that was brought back to accrual status due to a pending sale of property which would
repay all principal and interest due. The sale was completed in early April. During the quarter,
the Company entered into a contract to sell its primary foreclosed asset which had a book value of
$2.9 million at March 31, 2005. The contract allows the Bank to sell the property and receive net
proceeds approximately equal to its carrying value and redeploy these funds into earning assets.
The sale is expected to close in the third quarter. Management is in various stages of workout or
liquidation with the remaining nonperforming loans. 13




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March 31
    
    
    December 312005
    
    
    2004
    
    
    Change(dollars in thousands)Non-accruing loans
    
    $
    5,932
    
    
    $
    6,769
    
    
    $
    (837
    )Accruing loans delinquent 90
days or more
    
    
    1,031
    
    
    
    222
    
    
    
    809Total nonperforming loans
    
    
    6,963
    
    
    
    6,991
    
    
    
    (28
    )Foreclosed assets
    
    
    3,156
    
    
    
    3,002
    
    
    
    154Troubled debt restructuring
    
    
    41
    
    
    
    42
    
    
    
    (1
    )Total nonperforming assets
    
    $
    10,160
    
    
    $
    10,035
    
    
    $
    125Allowance for loan losses to total loans
    
    
    1.37
    %
    
    
    1.29
    %Allowance for loan losses to
nonperforming loans
    
    
    83.87
    %
    
    
    78.32
    %Nonperforming loans to total loans
    
    
    1.64
    %
    
    
    1.65
    %Nonperforming assets to total loans
and foreclosed property
    
    
    2.37
    %
    
    
    2.35
    %Nonperforming assets to total assets
    
    
    1.67
    %
    
    
    1.64
    %
 One measure of the adequacy of the allowance for loan losses is the ratio of the allowance for
loan losses to total loans. The ratio of the allowance for loan losses to total loans was 1.37%
and 1.29% at March 31, 2005 and December 31, 2004, respectively. The ratio of the allowance for
loan losses to non-performing loans increased to 83.87% as of March 31, 2005 compared to 78.32% at
December 31, 2004. The increase in this ratio, which excludes foreclosed assets and restructured
troubled debt, was the result of an increase of $365,000 in the allowance for loan losses. Total classified loans at March 31, 2005 decreased to $18.1 million compared to $19.4 million
at December 31, 2004. The Company has adopted a new loan policy and implemented new loan approval,
documentation and monitoring processes. The Company has also recruited and employed an experienced
commercial lending team including three new regional presidents, each of whom is an experienced
commercial lender, as well as two other seasoned commercial lenders. In 2004, the Company
recruited a Chief Credit Officer to strengthen our monitoring of credit quality and the overall
loan portfolio. His duties include responsibility for all credit administration activities and to
oversee an independent review of new and existing loans in the portfolio. These initiatives have
already had a positive impact on the monitoring of the loan portfolio. The Company will continue
to attempt to improve the loan monitoring processes. The Company recognized charge offs in the amount of $77,000 during the first quarter of 2005
and had no chargeoffs during the first quarter of 2004. Recoveries totaled $192,000 for 2005 and
no recoveries were recorded for 2004. The provision for loan losses totaled $250,000 and $300,000
during the first quarters of 2005 and 2004. 14




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The allowance for loan losses is maintained at a level believed adequate by management to
absorb probable losses in the loan portfolio. Managements methodology to determine the adequacy of
the allowance for loan losses considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth and composition of the loan portfolio. Based
upon the Companys quarterly analysis of the adequacy of the allowance for loan losses, considering
remaining collateral of loans with more than a normal degree of risk, historical loan loss
percentages and economic conditions, it is managements belief that the allowance for loan losses
at March 31, 2005 was adequate. However, there can be no assurance that the allowance for loan
losses will be adequate to cover all losses. Each credit on the Companys internal loan watch list is evaluated periodically to estimate
potential losses. In addition, minimum loss estimates for each category of watch list credits are
provided for based on managements judgment which considers past loan loss experience and other
factors. For installment and real estate mortgage loans, specific allocations are based on past
loss experience adjusted for recent portfolio growth and economic trends. The total of the
estimated loss exposure resulting from the analysis is considered the allocated portion of the
allowance for loan losses. The amounts specifically provided for individual loans and pools of
loans are supplemented by an unallocated portion of the allowance for loan losses. This unallocated
amount is determined based on managements judgment which considers, among other things, the risk
of error in the specific allocations, other potential exposure in the loan portfolio, economic
conditions and trends, and other factors. The allowance for loan losses is charged when management determines that the prospects of
recovery of the principal of a loan have significantly diminished. Subsequent recoveries, if any,
are credited to the allowance for loan losses. All installment loans that are 90 to 120 days past
due are charged off monthly unless the loans are insured for credit loss or where scheduled
payments are being received. Real estate mortgage loans are written down to fair value upon
foreclosure. Commercial and other loan charge-offs are made based on managements on-going
evaluation of non-performing loans. CRITICAL ACCOUNTING POLICIES In the ordinary course of business, the Company has made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in preparing its
financial statements in conformity with accounting principles generally accepted in the United
States of America. Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes the following discussion, including the allowance
for loan losses, goodwill, real estate held for sale and mortgage servicing rights, addresses the
Companys most critical accounting policies, which are those that are most important to the
portrayal of the Companys financial condition and results and require managements most difficult,
subjective and complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Allowance for Loan Losses  The allowance for loan losses is a material estimate that
is particularly susceptible to significant changes in the near term and is established through a
provision for loan losses. The allowance is based upon past loan experience and other factors
which, in managements judgment, deserve current recognition in estimating loan losses. The
evaluation includes a review of all loans on which full collectibility may not be reasonably
assured. Other factors considered by management include the size and character of the loan
portfolio, concentrations of loans to specific borrowers or industries, existing economic
conditions and historical losses on each portfolio category. In connection with the determination
of the allowance for loan losses, management obtains independent appraisals for significant
properties, which collateralize loans. Management believes it uses the best information available
to make such determinations. If circumstances differ substantially from the 15




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assumptions used in making determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be affected. While the Company believes it has
established its existing allowance for loan losses in conformity with accounting principles
generally accepted in the United States of America, there can be no assurance that regulators, in
reviewing the Banks loan portfolio, will not request an increase in the allowance for loan losses.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there
can be no assurance that increases to the allowance will not be necessary if loan quality
deteriorates. Goodwill  Costs in excess of the estimated fair value of identified net assets
acquired through purchase transactions are recorded as an asset by the Company. The Company
performs an annual impairment assessment as of September 30. No impairment of goodwill has been
identified as a result of these tests. In making these impairment assessments, management must
make subjective assumptions regarding the fair value of the Companys assets and liabilities. It
is possible that these judgments may change over time as market conditions or Company strategies
change, and these changes may cause the Company to record impairment charges to adjust the goodwill
to its estimated fair value. Real Estate Held for Sale  Real estate held for sale is recorded at the
propertys fair value at the date of foreclosure (cost). Initial valuation adjustments, if any,
are charged against the allowance for loan losses. Property is evaluated to ensure the recorded
amount is supported by its current fair value. Subsequent declines in estimated fair value are
charged to expense when incurred. Mortgage Servicing Rights  The Company recognizes as a separate asset the rights to
service mortgage loans for others. The value of mortgage servicing rights is amortized in relation
to the servicing revenue expected to be earned. Mortgage servicing rights are periodically
evaluated for impairment based upon the fair value of those rights. Estimating the fair value of
the mortgage servicing rights involves judgment, particularly of estimated prepayments speeds of
the underlying mortgages serviced. Net income could be affected if managements assumptions and
estimates differ from actual prepayments. The above listing is not intended to be a comprehensive list of all the Companys accounting
policies. In many cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States of America, with no need
for managements judgment in their application. There are also areas in which managements
judgment in selecting any available alternative would not produce a materially different result. 16




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##### Table of Contents



RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004 For the three months ended March 31, 2005, net income increased $392,000 to $1.2 million from
$845,000 for the three months ended March 31, 2004. The increase in net income was primarily due
to an increase in net interest income of $112,000 and noninterest income of $316,000, partially
offset by an increase in income tax expense of $120,000. Net interest income for the quarter increased $112,000 or 2.4% to $4.7 million, from $4.6
million in 2004. Interest income increased by $44,000 and interest expense decreased by $68,000.
Net interest margin increased to 3.56% compared to 3.32% for 2004. The increase in the net
interest margin was primarily a result of the Companys effort to replace lower earning assets,
such as federal funds sold, with commercial loans and tax-advantaged investments as well as a
disciplined strategy to improve our deposit mix. 17




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##### Table of Contents



NET INTEREST INCOME ANALYSIS (UNAUDITED)
CENTRUE FINANCIAL CORPORATION AND SUBSIDIARY Three Months Ended March 31,2005
    
    
    2004Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(Dollars in Thousands)Interest-earning assets:Loans receivable (1) (3)
    
    $
    418,584
    
    
    $
    6,206
    
    
    
    6.01
    %
    
    $
    430,213
    
    
    $
    6,315
    
    
    
    5.93
    %Investments securities (2) (3)
    
    
    118,761
    
    
    
    1,237
    
    
    
    4.22
    %
    
    
    94,588
    
    
    
    976
    
    
    
    4.13
    %Other interest-earning assets
    
    
    2,370
    
    
    
    8
    
    
    
    1.37
    %
    
    
    33,658
    
    
    
    75
    
    
    
    0.90
    %FHLB stock
    
    
    3,612
    
    
    
    49
    
    
    
    5.50
    %
    
    
    3,323
    
    
    
    57
    
    
    
    6.81
    %Total interest-earning assets
    
    
    543,327
    
    
    
    7,500
    
    
    
    5.60
    %
    
    
    561,782
    
    
    
    7,423
    
    
    
    5.33
    %Other assets
    
    
    57,770
    
    
    
    
    
    
    
    
    
    
    
    49,038Total assets
    
    $
    601,097
    
    
    
    
    
    
    
    
    
    
    $
    610,820Interest-bearing liabilities:Certificate accounts
    
    $
    243,751
    
    
    
    1,576
    
    
    
    2.62
    %
    
    $
    272,039
    
    
    
    1,759
    
    
    
    2.60
    %Savings deposits
    
    
    88,721
    
    
    
    133
    
    
    
    0.61
    %
    
    
    87,635
    
    
    
    147
    
    
    
    0.68
    %Demand and NOW deposits
    
    
    88,476
    
    
    
    218
    
    
    
    1.00
    %
    
    
    87,441
    
    
    
    193
    
    
    
    0.89
    %Customer repurchase agreements
    
    
    11,814
    
    
    
    55
    
    
    
    1.89
    %
    
    
    
    
    
    
    
    
    
    
    Borrowings
    
    
    64,148
    
    
    
    742
    
    
    
    4.69
    %
    
    
    62,586
    
    
    
    693
    
    
    
    4.51
    %Total interest-bearing liabilities
    
    
    496,910
    
    
    
    2,724
    
    
    
    2.22
    %
    
    
    509,701
    
    
    
    2,792
    
    
    
    2.21
    %Non-interest bearing demand deposits
    
    
    58,018
    
    
    
    
    
    
    
    
    
    
    
    50,368Other liabilities
    
    
    2,438
    
    
    
    
    
    
    
    
    
    
    
    4,662Total liabilities
    
    
    557,366
    
    
    
    
    
    
    
    
    
    
    
    564,731Stockholders equity
    
    
    43,731
    
    
    
    
    
    
    
    
    
    
    
    46,089Total liabilities and stockholders equity
    
    $
    601,097
    
    
    
    
    
    
    
    
    
    
    $
    610,820Net interest income
    
    
    
    
    
    $
    4,776
    
    
    
    
    
    
    
    
    
    
    $
    4,631Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %Net earning assets
    
    $
    46,417
    
    
    
    
    
    
    
    
    
    
    $
    52,081Net yield on average interest-earning
assets (net interest margin)
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    3.32
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    109.34
    %
    
    
    
    
    
    
    
    
    
    
    110.22
    %
   (1)
    
    Calculated including loans held for sale, and net of deferred loan fees, loan discounts,
loans in process and the allowance for losses on loans.(2)
    
    Calculated including investment securities available-for-sale and certificates of deposit.(3)
    
    Presented on a fully tax-equivalent basis, assuming a tax rate of 34%. Interest income increased $44,000, to $7.4 million. The increase was primarily
attributable to an increase in interest rates, partially offset by a decrease in average earning
assets. Average earning assets decreased $18.5 million to $543.3 million from $561.8 million in
2004. The average tax equivalent rate earned on earning assets increased 27 basis points to 5.60%
from 5.33%. The increase in the yield earned on interest-earning assets was the result of the 18




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gradual change in the loan mix from real estate loans to commercial loans. Average real estate
loans decreased $44.5 million and average commercial loans increased $33.4 million. The decrease
in the average balance of interest-earning assets was primarily due to $20.2 million of long-term
fixed rate mortgage loans which were sold during 2004. The loans were sold as part of the
Companys asset liability policy. Interest expense decreased $68,000 to $2.7 million from $2.8 million in 2004. The decrease
was primarily attributable to a decrease in the average balance of interest bearing liabilities,
partially offset by an increase in the rate paid on average interest bearing liabilities. The rate
paid on interest bearing liabilities increased 1 basis point to 2.22% from 2.21% in 2004. Average
interest-bearing liabilities decreased $12.8 million to $496.9 million from $509.7 million. The
decrease in average interest-bearing liabilities was primarily attributable to a decrease in
certificates of deposit. The Company has been actively working to reduce its cost of funds through
improving the overall deposit mix, which has included decreasing the level of certificates of
deposit. The increase in the average yield on interest-bearing liabilities resulted from
increasing market interest rates. Three Months EndedMarch 31
    
    
    Change2005
    
    
    2004
    
    
    Amount
    
    
    Percent(dollars in thousands)Noninterest income:Fee income
    
    $
    1,099
    
    
    $
    892
    
    
    $
    207
    
    
    
    23.2
    %Net gain (loss) on sale of securities
    
    
    183
    
    
    
    89
    
    
    
    94
    
    
    
    105.6Net gain on sale of real estate held for sale
    
    
    1
    
    
    
    (7
    )
    
    
    8
    
    
    
    114.3Net gain on sale of loans
    
    
    131
    
    
    
    106
    
    
    
    25
    
    
    
    23.6Increase in cash surrender value of life insurance
    
    
    90
    
    
    
    100
    
    
    
    (10
    )
    
    
    (10.0
    )Other
    
    
    61
    
    
    
    69
    
    
    
    (8
    )
    
    
    (11.6
    )Total
    
    $
    1,565
    
    
    $
    1,249
    
    
    $
    316
    
    
    
    25.3
    %
 Noninterest income increased $316,000 to $1.6 million from $1.2 million in 2004. The
increase was primarily attributable to an increase in fee income of $207,000 and gain on sale of
securities of $94,000. The increase in fee income was primarily due to the overdraft protection
program that was implemented during the third quarter of 2004. The gain on sale of securities was
part of our asset liability management. Three Months EndedMarch 31
    
    
    Change2005
    
    
    2004
    
    
    Amount
    
    
    Percent(dollars in thousands)Noninterest expense:Compensation and benefits
    
    $
    2,287
    
    
    $
    2,263
    
    
    $
    24
    
    
    
    1.1
    %Occupancy, net
    
    
    387
    
    
    
    394
    
    
    
    (7
    )
    
    
    (1.8
    )Furniture and equipment
    
    
    329
    
    
    
    335
    
    
    
    (6
    )
    
    
    (1.8
    )Advertising
    
    
    80
    
    
    
    64
    
    
    
    16
    
    
    
    25.0Data processing
    
    
    158
    
    
    
    163
    
    
    
    (5
    )
    
    
    (3.1
    )Telephone and postage
    
    
    171
    
    
    
    129
    
    
    
    42
    
    
    
    32.6Amortization of Intangibles
    
    
    61
    
    
    
    46
    
    
    
    15
    
    
    
    32.6Legal and professional fees
    
    
    142
    
    
    
    236
    
    
    
    (94
    )
    
    
    (39.8
    )Other
    
    
    660
    
    
    
    679
    
    
    
    (19
    )
    
    
    (2.8
    )Total
    
    $
    4,275
    
    
    $
    4,309
    
    
    $
    (34
    )
    
    
    (0.8
    )%
 Noninterest expense remained stable with a decrease of $34,000 compared to 2004. There
were no significant changes in any of the major noninterest expense categories. Several cost
control initiatives were instituted in late 2003 and early 2004 which have helped us control our 19




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##### Table of Contents



costs and maintain our level of noninterest expense. Income tax expense increased $120,000 to $488,000 from $368,000 in 2004, although the
effective income tax rate decreased to 28.3% from 30.3%. The decrease in the effective rate was
primarily due to an increase in tax-exempt income from municipal securities. REGULATORY CAPITAL REQUIREMENTS The Company and the Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory  and possibly additional discretionary  actions by
regulators that, if undertaken, could have a direct material effect on the Company and the Banks
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company and the Banks capital amounts and
classifications are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company
and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1
capital (as defined by the regulations) to average assets (as defined) and Total and Tier I capital
(as defined) to risk-weighted assets (as defined). Management believes, as of March 31, 2005, that
the Company and the Bank meet all capital adequacy requirements to which it is subject. As of March 31, 2005, the most recent notification from the Banks primary regulators,
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have changed the Banks
category. To be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)As of March 31, 2005Tier 1 Capital to Average AssetsCentrue Financial
    
    
    44,929
    
    
    
    7.31
    %
    
    
    24,575
    
    
    
    4.00
    %
    
    
    N/ACentrue Bank
    
    
    46,418
    
    
    
    8.01
    %
    
    
    23,171
    
    
    
    4.00
    %
    
    
    28,964
    
    
    
    5.00
    %Tier I Capital to Risk Weighted AssetsCentrue Financial
    
    
    44,929
    
    
    
    10.76
    %
    
    
    16,702
    
    
    
    4.00
    %
    
    
    N/ACentrue Bank
    
    
    46,418
    
    
    
    11.24
    %
    
    
    16,522
    
    
    
    4.00
    %
    
    
    24,783
    
    
    
    6.00
    %Total Capital to Risk Weighted AssetsCentrue Financial
    
    
    55,384
    
    
    
    13.26
    %
    
    
    33,404
    
    
    
    8.00
    %
    
    
    N/ACentrue Bank
    
    
    51,589
    
    
    
    12.49
    %
    
    
    33,044
    
    
    
    8.00
    %
    
    
    41,305
    
    
    
    10.00
    %As of December 31, 2004Tier 1 Capital to Average AssetsCentrue Financial
    
    
    43,312
    
    
    
    7.32
    %
    
    
    23,674
    
    
    
    4.00
    %
    
    
    N/ACentrue Bank
    
    
    45,656
    
    
    
    7.81
    %
    
    
    23,382
    
    
    
    4.00
    %
    
    
    29,227
    
    
    
    5.00
    %Tier I Capital to Risk Weighted AssetsCentrue Financial
    
    
    43,312
    
    
    
    11.01
    %
    
    
    15,742
    
    
    
    4.00
    %
    
    
    N/ACentrue Bank
    
    
    45,656
    
    
    
    11.32
    %
    
    
    16,136
    
    
    
    4.00
    %
    
    
    24,204
    
    
    
    6.00
    %Total Capital to Risk Weighted AssetsCentrue Financial
    
    
    53,857
    
    
    
    13.69
    %
    
    
    31,483
    
    
    
    8.00
    %
    
    
    N/ACentrue Bank
    
    
    50,703
    
    
    
    12.57
    %
    
    
    32,272
    
    
    
    8.00
    %
    
    
    40,340
    
    
    
    10.00
    %
 20




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##### Table of Contents



SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS This document contains, and future oral and written statements of the Company and its
management may contain, forward-looking statements, within the meaning of such term in the Private
Securities Litigation Reform Act of 1995, with respect to the financial condition, results of
operations, plans, objectives, future performance and business of the Company. Forward-looking
statements, which may be based upon beliefs, expectations and assumptions of the Companys
management and on information currently available to management, are generally identifiable by the
use of words such as believe, expect, anticipate, plan, intend estimate, may, will,
would, could, should or other similar expressions. Additionally, all statements in this
document, including forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new information or future
events. The Companys ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the operations and
future prospects of the Company and its subsidiaries include, but are not limited to, the
following:  
    The strength of the United States economy in general and the strength of the local
economies in which the Company conducts its operations which may be less favorable than
expected and may result in, among other things, a deterioration in the credit quality
and value of the Companys assets.
    The economic impact of past and any future terrorist threats and attacks, acts of
war or threats thereof, and the response of the United States to any such threats and
attacks.
    The effects of, and changes in, federal, state and local laws, regulations and
policies affecting banking, securities, insurance and monetary and financial matters.
    The effects of changes in interest rates (including the effects of changes in the
rate of prepayments of the Companys assets) and the policies of the Board of Governors
of the Federal Reserve System.
    The ability of the Company to compete with other financial institutions as
effectively as the Company currently intends due to increases in competitive pressures
in the financial services sector.
    The inability of the Company to obtain new customers and to retain existing
customers.
    The timely development and acceptance of products and services, including products
and services offered through alternative delivery channels such as the Internet.
    Technological changes implemented by the Company and by other parties, including
third party vendors, which may be more difficult or more expensive than anticipated or
which may have unforeseen consequences to the Company and its customers.
    The ability of the Company to develop and maintain secure and reliable electronic
systems.
    The ability of the Company to retain key executives and employees and the difficulty
that the Company may experience in replacing key executives and employees in an
effective manner.
    Consumer spending and saving habits which may change in a manner that affects the
Companys business adversely.
    Business combinations and the integration of acquired businesses which may be more
difficult or expensive than expected.
    The costs, effects and outcomes of existing or future litigation. 21




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##### Table of Contents




    Changes in accounting policies and practices, as may be adopted by state and federal
regulatory agencies and the Financial Accounting Standards Board. The ability of the Company to manage the risks associated with the foregoing as well as
anticipated. These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Additional information
concerning the Company and its business, including other factors that could materially affect
the Companys financial results, is included in the Companys filings with the Securities and
Exchange Commission. 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ASSET/LIABILITY MANAGEMENT In an attempt to manage its exposure to changes in interest rates, management closely monitors
the Companys interest rate risk. The Bank has a funds management committee, which meets monthly
and reviews the Banks interest rate risk position and evaluates its current asset/liability
pricing and strategies. This committee adjusts pricing and strategies as needed and makes
recommendations to the Banks board of directors regarding significant changes in strategy. In
addition, on a quarterly basis the board reviews the Banks asset/liability position, including
simulations of the effect on the Banks capital of various interest rate scenarios. In managing its asset/liability mix, the Company, at times, depending on the relationship
between long-term and short-term interest rates, market conditions and consumer preferences, may
place somewhat greater emphasis on maximizing its net interest margin than on better matching the
interest rate sensitivity of its assets and liabilities in an effort to improve its net income.
While the Company does have some exposure to changing interest rates, management believes that the
Company is positioned to protect earnings throughout changing interest rate environments. The Company currently does not enter into derivative financial instruments, including futures,
forwards, interest rate risk swaps, option contracts, or other financial instruments with similar
characteristics. However, the Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers such as commitments
to extend credit and letters of credit. Commitments to extend credit and letters of credit are not
recorded as an asset by the Company until the commitment is accepted and funded or the letter of
credit is exercised. The Companys net income and economic value of equity (EVE), in the normal course of
business, are exposed to interest rate risk, and can vary based on changes in the general level of
interest rates. All financial products carry some amount of interest rate risk, and substantial
portions of both the Companys assets and liabilities are financial products. These include
investment securities, loans, deposits and borrowed money. Off-balance sheet items, such as loan
commitments, letters of credit, commitments to buy or sell loans or securities, and derivative
financial instruments, also carry some amount of interest rate risk. The funds management committee generally uses three types of analysis in measuring and
reviewing the Companys interest rate sensitivity. These are static GAP analysis, dynamic gap
analysis and economic value of equity. The static GAP analysis measures assets and liabilities as
they reprice in various time periods and is discussed under the heading of Asset/Liability
Management on page 21 of the 2004 Annual Report to Shareholders. The economic value of equity calculation uses information about the Companys assets,
liabilities and off-balance sheet items, market interest rate levels and assumptions about the 22




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##### Table of Contents



behavior of the assets and liabilities, to calculate the Companys equity value. The economic
value of equity is the market value of assets minus the market value of liabilities, adjusted for
off-balance sheet items divided by the market value of assets. The economic value of equity is
then subjected to immediate and permanent upward changes of 300 basis points in market interest
rate levels, in 100 basis point increments, and a downward change of 100 basis points. The
resulting changes in equity value and net interest income at each increment are measured against
pre-determined, minimum EVE ratios for each incremental rate change, as approved by the board in
the interest rate risk policy. The following table presents the Banks EVE ratios for the various rate change levels at March
31, 2005 and December 31, 2004: EVE RatiosMarch 31,
    
    
    December 31,Changes in Interest Rates
    
    2005
    
    
    2004300 basis point rise
    
    
    7.84
    %
    
    
    7.54
    %200 basis point rise
    
    
    8.08
    %
    
    
    7.88
    %100 basis point rise
    
    
    8.13
    %
    
    
    8.06
    %Base rate scenario
    
    
    7.87
    %
    
    
    7.91
    %100 basis point decline
    
    
    6.49
    %
    
    
    6.60
    %
 The preceding table indicates that in the event of an immediate and permanent increase in
prevailing market interest rates, the Banks EVE ratio, would be expected to increase and that in
the event of an immediate and permanent decrease in prevailing market interest rates, the Banks
EVE ratio would be expected to decrease. The EVE increases in a rising rate scenario because the Company is asset sensitive and would
have more interest earning assets repricing than interest-bearing liabilities. This effect is
increased by periodic and lifetime limits on changes in rate on most adjustable-rate,
interest-earning assets. The EVE decreases in a falling rate scenario because of the limits on the
Companys ability to decrease rates on some of its deposit sources, such as money market accounts
and NOW accounts, and by the ability of borrowers to repay loans ahead of schedule and refinance at
lower rates. The EVE ratio is calculated by the Companys fixed income investment advisor, and reviewed by
management, on a quarterly basis utilizing information about the Companys assets, liabilities and
off-balance sheet items, which is provided by the Company. The calculation is designed to estimate
the effects of hypothetical rate changes on the EVE, utilizing projected cash flows, and is based
on numerous assumptions, including relative levels of market interest rates, loan prepayment speeds
and deposit decay rates. Actual changes in the EVE, in the event of market interest rate changes
of the type and magnitude used in the calculation, could differ significantly. Additionally, the
calculation does not account for possible actions taken by the funds management committee to
mitigate the adverse effects of changes in market interest rates. 23




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##### Table of Contents



ITEM 4. Controls and Procedures An evaluation was performed under the supervision and with the participation of the Companys
management, including the Chief Executive Officer, Chief Financial Officer and Corporate
Controller, of the effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of
1934, as amended) as of March 31, 2005. Based on that evaluation, the Companys management,
including the Chief Executive Officer, Chief Financial Officer and Corporate Controller, concluded
that the Companys disclosure controls and procedures were effective. There have been no changes in
the Companys internal controls or in other factors that have materially affected or that are
reasonably likely to materially affect internal controls. 24




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##### Table of Contents



CENTRUE FINANCIAL CORPORATION 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings There are no material pending legal proceedings to which the
Company or the Bank is a party other than ordinary routine
litigation incidental to their respective businesses. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table sets forth information about our stock repurchases for the three
months ended March 31, 2005: Total Number ofSharesPurchased as
    
    
    Maximum Number ofPart of Publicly
    
    
    Shares that MayAnnounced
    
    
    Yet Be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Plans or
    
    
    Under the Plans orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsJanuary 1  January 31, 2005
    
    
    5,365
    
    
    $
    28.35
    
    
    
    45,365
    
    
    
    439,298February 1  February 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439,298March 1 - March 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439,298Total
    
    
    5,365
    
    
    $
    28.35
    
    
    
    45,365
    
    
    
    439,298
   (1) The Company announced its current stock repurchase program on October 21, 2004,
which authorizes the Company to purchase up to 20% of the shares outstanding, or 484,663
shares. The plan will expire on December 31, 2005. The Company purchased all of the shares
listed above on the open market and under the repurchase program. 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on April 22, 2005. At the
meeting, stockholders voted to approve the election of Michael J. Hejna as a director of the
Company until 2008. Thomas A. Daiber, Mark L. Smith and Wesley E. Walker will continue to
serve as directors until 2006 and Michael A. Griffith will continue to serve as a director
until 2007. Stockholders also voted to approve the appointment of McGladrey & Pullen LLP as
the Companys auditors for the year ending December 31, 2005. The matters approved by stockholders at the meeting and the number of votes cast for,
against or withheld (as well as the number of abstentions) as to each matter are set forth
below: 1. For the election of one (1) director of the Company: NOMINEE: Michael J. Hejna 25




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##### Table of Contents



FOR
    
    
    WITHHELD2,255,303
    
    
    32,552
  2.
    To approve the appointment of McGladrey & Pullen LLP as the Companys
auditors for the year ending December 31, 2005. FOR
    
    
    AGAINST
    
    
    ABSTAIN
    
    
    BROKER NON-VOTES2,279,577
    
    
    4,862
    
    
    3,416
    
    
    
 
 Item 5. Other Information None 
 Item 6. Exhibits a.
    
    Exhibits10.1
    
    
    Amendment No. 1 to the Centrue
Financial Corporation 2003 Stock Incentive Plan10.2
    
    
    Addendum to Incentive Stock Option
Agreement between Centrue Financial Corporation and Keith M. Roseland31.1
    
    
    Certification of Principal Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)31.2
    
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)31.3
    
    
    Certification of Corporate Controller Pursuant to Rule 13a-14(a)/15d-14(a)32.1
    
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    
    Certification of Corporate Controller Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 26




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##### Table of Contents



CENTRUE FINANCIAL CORPORATION 
 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRUE FINANCIAL CORPORATIONRegistrantDate: May 12, 2005
    
    /s/ THOMAS A. DAIBERPresident and Chief Executive OfficerDate: May 12, 2005
    
    /s/ JAMES M. LINDSTROMChief Financial Officer andSenior Vice PresidentDate: May 12, 2005
    
    /s/ JOHN A. BETTSVice President andCorporate Controller
 27