Centrue Financial (TRUE)

Mortgage servicing rights

Servicing rights are recognized separately when they are acquired through sales of loans. For sales of mortgage loans prior to January 1, 2007, a portion of the cost of the loan was allocated to the servicing right based on relative fair values. The Company adopted SFAS No. 156 on January 1, 2007, and for sales of mortgage loans beginning in 2007, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions.

All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with noninterest expense in the other expense line on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income which is reported on the income statement as mortgage banking income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $442, $478 and $743 for the years ended December 31, 2008, 2007 and 2006. Late fees and ancillary fees related to loan servicing are not material.

67.

Mortgage
servicing rights

Servicing rights are
recognized separately when they are acquired through sales of loans. For sales
of mortgage loans prior to January 1, 2007, a portion of the cost of the loan
was allocated to the servicing right based on relative fair values. The Company
adopted SFAS No. 156 on January 1, 2007, and for sales of mortgage loans
beginning in 2007, servicing rights are initially recorded at fair value with
the income statement effect recorded in gains on sales of loans. Fair value is
based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on a valuation model that calculates the
present value of estimated future net servicing income. The valuation model
incorporates assumptions that market participants would use in estimating
future net servicing income, such as the cost to service, the discount rate,
the custodial earnings rate, an inflation rate, ancillary income, prepayment
speeds and default rates and losses. The Company compares the valuation model
inputs and results to published industry data in order to validate the model
results and assumptions.

All classes of servicing
assets are subsequently measured using the amortization method which requires
servicing rights to be amortized into non-interest income in proportion to, and
over the period of, the estimated future net servicing income of the underlying
loans.

Servicing assets are
evaluated for impairment based upon the fair value of the rights as compared to
carrying amount. Impairment is determined by stratifying rights into groupings
based on predominant risk characteristics, such as interest rate, loan type and
investor type. Impairment is recognized through a valuation allowance for an
individual grouping, to the extent that fair value is less than the carrying amount.
If the Company later determines that all or a portion of the impairment no
longer exists for a particular grouping, a reduction of the allowance may be
recorded as an increase to income. Changes in valuation allowances are reported
with noninterest expense in the other expense line on the income statement. The
fair values of servicing rights are subject to significant fluctuations as a
result of changes in estimated and actual prepayment speeds and default rates
and losses.

Servicing fee income which
is reported on the income statement as mortgage banking income is recorded for
fees earned for servicing loans. The fees are based on a contractual percentage
of the outstanding principal; or a fixed amount per loan and are recorded as
income when earned. The amortization of mortgage servicing rights is netted
against loan servicing fee income. Servicing fees totaled $442, $478 and $743
for the years ended December 31, 2008, 2007 and 2006. Late fees and ancillary
fees related to loan servicing are not material.

67.