UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2011

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to ________

Commission file number 000-24149

CIB MARINE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Wisconsin		37-1203599
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1930 W. Bluemound Road, Suite D, Waukesha, Wisconsin		53186
(Address of principal executive offices)		(Zip Code)

(262) 695-6010

(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 R No £

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £	Accelerated filer £	Non-accelerated filer £	Smaller reporting company R
		(Do not check if a smaller reporting company)

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R No £

As of October 31, 2011 there were 18,346,391 shares issued and 18,135,344 shares outstanding of the registrant’s common stock, $1.00 par value per share.

EXPLANATORY NOTE

This document is intended to speak as of September 30, 2011, except as otherwise noted.

FORM 10-Q TABLE OF CONTENTS

	Page #
Part I – Financial Information
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010		3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010		4
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2011 and 2010		5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3 Quantitative and Qualitative Disclosures About Market Risk		58
Item 4 Controls and Procedures		58
Part II – Other Information
Item 1 Legal Proceedings		58
Item 1A Risk Factors		58
Item 6 Exhibits		58
Signatures		59

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CIB MARINE BANCSHARES, INC.

Consolidated Balance Sheets

	September 30, 2011 (Unaudited)			December 31, 2010
	(Dollars in thousands, except share data)
Assets
Cash and due from banks	$	41,502		$	27,267
Securities available for sale		95,655			126,878
Loans held for sale		4,145			6,628
Loans		363,274			415,778
Allowance for loan losses		(15,461	)		(14,645	)
Net loans		347,813			401,133
Federal Home Loan Bank stock		11,555			11,555
Premises and equipment, net		4,762			5,057
Accrued interest receivable		1,821			2,293
Other real estate owned		7,291			5,314
Assets of company held for disposal		1,070			1,090
Other assets		1,796			1,818
Total assets	$	517,410		$	589,033
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	53,866		$	54,547
Interest-bearing demand		28,049			31,140
Savings		156,200			146,806
Time		194,923			261,034
Total deposits		433,038			493,527
Short-term borrowings		9,845			12,761
Long-term borrowings		5,000			10,000
Accrued interest payable		410			705
Liabilities of company held for disposal		1,070			1,090
Other liabilities		1,435			2,197
Total liabilities		450,798			520,280
Commitments and contingent liabilities (Note 10)		—			—
Stockholders’ Equity
Preferred stock, $1 par value; 5,000,000 authorized shares; 7% fixed noncumulative perpetual issued-55,624 shares of Series A and 4,376 shares of Series B convertible; aggregate liquidation preference-$60,000		51,000			51,000
Common stock, $1 par value; 50,000,000 authorized shares;18,346,391 issued shares; 18,135,344 outstanding shares		18,346			18,346
Capital surplus		158,473			158,458
Accumulated deficit		(157,323	)		(153,874	)
Accumulated other comprehensive income related to available for sale securities		2,477			944
Accumulated other comprehensive loss related to non-credit other-than-temporary impairments		(5,832	)		(5,592	)
Accumulated other comprehensive loss, net		(3,355	)		(4,648	)
Treasury stock 218,499 shares at cost		(529	)		(529	)
Total stockholders’ equity		66,612			68,753
Total liabilities and stockholders’ equity	$	517,410		$	589,033

See accompanying Notes to Consolidated Financial Statements

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Operations

(Unaudited)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Interest and Dividend Income
Loans	$	4,998		$	5,294		$	15,312		$	16,483
Loans held for sale		167			106			371			305
Securities		1,189			1,878			3,920			6,194
Federal funds sold		24			31			70			76
Total interest and dividend income		6,378			7,309			19,673			23,058
Interest Expense
Deposits		1,173			2,090			4,155			6,882
Short-term borrowings		5			6			11			24
Long-term borrowings		79			139			284			434
Total interest expense		1,257			2,235			4,450			7,340
Net interest income		5,121			5,074			15,223			15,718
Provision for loan losses		1,610			6,602			4,378			11,710
Net interest income (loss) after provision for loan losses		3,511			(1,528	)		10,845			4,008
Noninterest Income
Deposit service charges		165			201			496			623
Other service fees		48			25			123			82
Other income		56			22			97			91
Total other-than-temporary impairment losses
Total impairment loss		(99	)		(1,155	)		(226	)		(1,703	)
Loss recognized in other comprehensive income		43			997			95			1,490
Net impairment loss recognized in earnings		(56	)		(158	)		(131	)		(213	)
Net gains on sale of securities		—			—			—			153
Gains on sale of assets		391			19			433			134
Total noninterest income		604			109			1,018			870
Noninterest Expense
Compensation and employee benefits		2,460			2,715			7,216			7,654
Equipment		239			249			742			751
Occupancy and premises		311			749			1,291			1,817
Data processing		133			187			571			565
Federal deposit insurance		250			450			930			1,457
Professional services		364			535			1,352			1,572
Telephone and data communications		117			134			368			424
Insurance		218			147			524			511
Write downs and losses on assets		—			353			1,012			1,107
Other expense		636			827			1,685			2,071
Total noninterest expense		4,728			6,346			15,691			17,929
Loss from continuing operations before income taxes		(613	)		(7,765	)		(3,828	)		(13,051	)
Income tax expense		—			—			—			—
Loss from continuing operations		(613	)		(7,765	)		(3,828	)		(13,051	)
Discontinued Operations:
Pretax income from discontinued operations		—			—			379			—
Income tax expense		—			—			—			—
Income from discontinued operations		—			—			379			—
Net Loss		(613	)		(7,765	)		(3,449	)		(13,051	)
Preferred stock dividends		—			—			—			—
Net loss attributable to common stockholders	$	(613	)	$	(7,765	)	$	(3,449	)	$	(13,051	)
Earnings (Loss) Per Share
Basic:
Loss from continuing operations	$	(0.03	)	$	(0.43	)	$	(0.21	)	$	(0.72	)
Discontinued operations		—			—		$	0.02			—
Net loss	$	(0.03	)	$	(0.43	)	$	(0.19	)	$	(0.72	)
Diluted:
Loss from continuing operations	$	(0.03	)	$	(0.43	)	$	(0.21	)	$	(0.72	)
Discontinued operations		—			—			0.02			—
Net loss	$	(0.03	)	$	(0.43	)	$	(0.19	)	$	(0.72	)
Weighted average shares-basic		18,127,892			18,127,892			18,127,892			18,127,892
Weighted average shares-diluted		18,127,892			18,127,892			18,127,892			18,127,892

See accompanying Notes to Consolidated Financial Statements

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock												Accumulated Other
	Shares		Par Value		Preferred Stock		Capital Surplus			Accumulated Deficit			Comprehensive Income (Loss)			Treasury Stock			Total
	(Dollars in thousands, except share data)
Balance at January 1, 2010		18,346,391	$	18,346	$	51,000	$	158,682		$	(136,621	)	$	(6,183	)	$	(529	)	$	84,695
Comprehensive loss:
Change in unrealized losses on securities available for sale for which a portion of OTTI has been recognized in earnings		—		—		—		—			—			(1,386	)		—			(1,386	)
Change in unrealized losses on securities available for sale		—		—		—		—			—			3,506			—			3,506
Net realized gains on available for sale securities		—		—		—		—			—			(153	)		—			(153	)
Net loss		—		—		—		—			(13,051	)		—			—			(13,051	)
Total comprehensive loss																				(11,084	)
Reversal of stock option compensation due to stock option forfeitures		—		—		—		(167	)		—			—			—			(167	)
Balance at September 30, 2010		18,346,391	$	18,346	$	51,000	$	158,515		$	(149,672	)	$	(4,216	)	$	(529	)	$	73,444

Balance at January 1, 2011		18,346,391	$	18,346	$	51,000	$	158,458		$	(153,874	)	$	(4,648	)	$	(529	)	$	68,753
Comprehensive loss:
Change in unrealized losses on securities available for sale for which a portion of OTTI has been recognized in earnings		—		—		—		—			—			(240	)		—			(240	)
Change in unrealized losses on securities available for sale		—		—		—		—			—			1,533			—			1,533
Net loss		—		—		—		—			(3,449	)		—			—			(3,449	)
Total comprehensive loss																				(2,156	)
Stock option expense		—		—		—		15			—			—			—			15
Balance at September 30, 2011		18,346,391	$	18,346	$	51,000	$	158,473		$	(157,323	)	$	(3,355	)	$	(529	)	$	66,612

See accompanying Notes to Consolidated Financial Statements

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
	(Dollars in thousands)
Cash Flows from Operating Activities
Net loss from continuing operations	$	(3,828	)	$	(13,051	)
Net income from discontinued operations		379			—
Net loss		(3,449	)		(13,051	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred loan fee amortization		29			62
Depreciation and other amortization		184			17
Provision for loan losses		4,378			11,710
Net decrease in loans held for sale		2,826			6,841
Gains on sale of assets		(433	)		(134	)
Net gain on sale of securities		—			(153	)
Write down and losses on assets		1,012			1,107
Impairment loss on investment securities		131			213
Decrease (increase) in interest receivable and other assets		458			(212	)
Decrease in accrued interest payable and other liabilities		(1,057	)		(699	)
Net cash provided by operating activities		4,079			5,701
Cash Flows from Investing Activities
Maturities of securities available for sale		6,207			5,155
Proceeds from sale of securities available for sale		—			1,107
Repayments of mortgage-backed securities available for sale		26,281			36,931
Net decrease in other investments		50			68
Net decrease in loans		44,999			32,082
Proceeds from sale of other real estate owned		1,123			814
Premises and equipment expenditures		(99	)		(714	)
Net cash provided by investing activities		78,561			75,443
Cash Flows from Financing Activities
Decrease in deposits		(60,489	)		(52,884	)
Net decrease in short-term borrowings		(2,916	)		(1,211	)
Repayment of long-term borrowings		(5,000	)		(5,000	)
Net cash used in financing activities		(68,405	)		(59,095	)
Net increase in cash and cash equivalents		14,235			22,049
Cash and cash equivalents, beginning of period		27,267			35,735
Cash and cash equivalents, end of period	$	41,502		$	57,784
Supplemental Cash Flow Information
Cash paid (received) during the period for:
Interest expense	$	4,745		$	7,630
Income taxes		(64	)		182
Supplemental Disclosures of Noncash Activities
Transfer of loans to other real estate owned		3,914			5,815
Transfer of loans to loans held for sale		—			4,715
Transfer loans held for sale to foreclosed properties		—			186

See accompanying Notes to Consolidated Financial Statements

CIB MARINE BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1-Basis of Presentation

Nature of Operations

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States (“U.S.”) for interim financial information. Certain information and footnote disclosures have been omitted or abbreviated. These unaudited consolidated financial statements should be read in conjunction with CIB Marine Bancshares, Inc.’s (“CIB Marine” or “Company”) 2010 Annual Report on Form 10-K (“2010 Form 10-K”). References to “CIB Marine” include CIB Marine’s subsidiaries unless otherwise specified. In the opinion of management, the unaudited consolidated financial statements included in this Form 10-Q reflect all adjustments necessary to present fairly CIB Marine’s financial condition, results of operations and cash flows. The results of operations for the quarter and nine-month periods ended September 30, 2011 are not necessarily indicative of results for the entire year. The consolidated financial statements include the accounts of CIB Marine and its wholly-owned and majority-owned subsidiaries, including companies which are held for disposal. All significant intercompany balances and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities including the allowance for loan losses, valuation of investments and impairment, if any, and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates used in the preparation of the consolidated financial statements are based on various factors, including the current interest rate environment, value of collateral securing loans and investments, assessed probabilities of default of obligors in loans and investment securities, recent sales of investments and foreclosed collateral in the marketplace and economic conditions, both locally and nationally. Changes in these factors can significantly affect CIB Marine’s net interest income and the value of its recorded assets and liabilities.

Assets held for disposal are carried at the lower of cost or current fair value, less estimated selling costs. The aggregate assets and liabilities are shown as separate categories on the consolidated balance sheets. All intercompany balances and transactions have been eliminated in the assets and liabilities of companies held for disposal and net income or loss from discontinued operations as presented on the consolidated financial statements.

Regulatory Actions

CIB Marine is subject to a Written Agreement (“Written Agreement”) entered into with the Federal Reserve Bank of Chicago (“Federal Reserve Bank”) in the second quarter of 2004. The Written Agreement requires CIB Marine, among other things, to obtain Federal Reserve Bank approval before incurring additional borrowings or debt and also requires CIB Marine to maintain a sufficient capital position for the consolidated organization, including the current and future capital requirements of its subsidiary bank, nonbank subsidiaries and the consolidated organization. The Company is prohibited from paying any dividends without Federal Reserve Bank consent pursuant to the Written Agreement.

CIB Marine’s wholly-owned subsidiary bank, CIBM Bank (“Bank”), is under a Consent Order (“Consent Order”) with the Federal Deposit Insurance Corporation (“FDIC”) and the Illinois Department of Financial and Professional Regulation, Division of Banking (“IDFPR”). The Consent Order requires CIBM Bank, among other things, to take certain corrective actions focused on reducing exposure to nonaccrual loans, restricting lending to credits with existing nonaccrual loans, restricting the payment of dividends without regulatory approval, requiring the maintenance of a minimum Tier 1 leverage ratio of 10% and a minimum total risk-based capital ratio of 12%, the development of a management plan and implementation of its recommendations, the need for board compliance and monitoring of the provisions of the Consent Order, and the maintenance of and a plan for reducing and managing credit concentrations. Also, CIBM Bank is restricted from issuing or renewing brokered deposits unless it obtains permission from the FDIC to do so. Generally, enforcement actions such as the Consent Order can be lifted only after subsequent examinations and evaluations by the regulatory agencies determine that the issues covered by the Consent Order have been satisfactorily and sustainably resolved.

At September 30, 2011 and December 31, 2010, CIB Marine’s capital ratios were above the minimum levels required by the Written Agreement. At September 30, 2011 and December 31, 2010, CIBM Bank was in compliance with the minimum capital requirements as set forth in the Consent Order and believes it is in substantial compliance with the other requirements set forth in the Consent Order. CIBM Bank was classified as “adequately capitalized” as of September 30, 2011. See also Note 8-Stockholders’ Equity.

Reclassifications

Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform to the current period’s presentation.

Significant Accounting Policies

A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable incurred losses in the loan portfolio in accordance with U.S. GAAP. Any changes in impairment on loans, including loans evaluated based on the present value of cash flow, are charged against the allowance for loan losses or as an additional provision for loan losses.

The calculation of the allowance for loan losses is revised based on management’s review of relevant environmental factors and economic conditions, including borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience and ability of lending management; national and local economic conditions; industry conditions; effects of change in credit concentrations; and off-balance sheet positions. National and local economic conditions affecting interest rates, government spending, production, unemployment, real estate values, vacancy rates for residential and commercial properties factor into the Company’s judgment regarding any subjective adjustments for each portfolio segment that may be warranted.

Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and on-going review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Credit risk is managed in a similar manner for commercial real estate and construction and development loans by employing sound underwriting guidelines, lending primarily to borrowers in local markets (at the date of origination) and businesses with established track records of quality construction, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis. The credit risk associated with commercial real estate and construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. Construction and development loans are subject to progress inspections and controlled advances. Speculative construction loans are maintained at a minimum, with a majority of such loans requiring pre-sale contracts or specified lease-up thresholds prior to construction commencement. Personal guarantees by principals of borrowing entities are a standard requirement and loans are typically variable rate with the rate set as a spread to either the prime lending rate or the 1-to-12 month U.S. Dollar London Interbank Offered Rate (“LIBOR”) for construction and development loans and fixed or variable rates with maturities of typically five years or less for commercial real estate. Risks inherent in managing a commercial real estate portfolio relate to either sudden or gradual drops in property values as a result of a general or local economic downturn. A decline in real estate values can cause the loan-to-value ratio (“LTV”) to increase and diminish CIB Marine’s or the Bank’s equity cushion on both an individual and portfolio basis.

Generally, the Bank requires a LTV ratio of 80% of the lesser of cost or appraised value for owner-occupied transactions. A borrower’s ability to repay is analyzed and policy calls for a minimum ongoing cash flow to debt service requirement of 1.20 to 1, although many loans exceed this. A board approved list of licensed commercial real estate appraisers is maintained. Each appraisal is scrutinized in an effort to ensure compliance with established appraisal guidelines and conformity with current comparable market values. The Bank generally requires personal guarantees on loans to closely-held entities as a matter of policy. Borrowers are required to provide, at a minimum, annual business and personal financial statements. Interest rate risk to the Bank is mitigated by using either floating interest rates or by fixing rates for an intermediate period of time, generally less than five years. In addition, loan amortization terms may be approved for up to a maximum number of months depending on the type of credit but not greater than 360 months for any loan, and maturity dates are generally five years or less, although exceptions are made. When the maturity term is less than the amortization term, the loan generally has a balloon payment due at the end of the term.

Credit risk for residential real estate, home equity and other consumer loans is generally influenced by general economic conditions, the income and employment of individual borrowers and the type and market value of loan collateral. Risks of loss are generally on smaller average balances per loan compared to commercial purpose loans and spread over many borrowers. Once charged-off, there is usually less opportunity for recovery on home equity and other consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions. Residential loans have amortization terms up to 360 months with maturity dates up to ten years, and interest rates can be either fixed rate or adjustable annually as a spread to the one-year U.S. Treasury or LIBOR rates after an initial period that can be from one to ten years. Home equity loans are either lines of credit with interest rates that are adjustable monthly and set as a spread to the prime lending rate or fixed rate with amortization terms up to 360 months and maturity dates up to 15 months. Consumer loans are generally variable rate lines of credit, overdraft protection accounts, or fixed rate with terms, depending on the collateral and type, of up to six years.

Credit risk for the purchased home equity pool loans is greatly influenced by local and national economic trends, including unemployment rates and home prices.

Nontraditional Residential Real Estate. Residential real estate loans do not include nontraditional mortgage loans (i.e. pay-option, reverse mortgages or interest only). The home equity loans and the purchased home equity pools include some loans with interest only periods, but none with pay option or reverse mortgage terms, and loans where the LTV at origination were greater than 90% but less than or equal to 100% without private mortgage insurance.

Subprime Loans. Consistent with the Company’s loan policy, none of the residential real estate loans, home equity loans, purchased home equity pools or other consumer loans include sub-prime originated loans (i.e. loans originated with a Fair Isaac Corporation (“FICO”) score less than 640). A limited amount (less than 10%) of residential real estate, home equity and purchased home equity pools were originated with FICO scores between 640 and 660 but none of these were originated with an LTV above 100% and other credit conditions were required to be met.

Purchased Home Equity Pools. At such time that the purchased home equity pools were acquired in 2006 and 2007, the underlying loans were newly originated with current FICO scores and appraised values, and were performing and not past due. Based on CIB Marine’s analysis at time of purchase, there were no identifiable incurred losses for any of the loans and full contractual payment was expected (consistent with the premium paid to acquire the loans). As a result, it was determined that the acquired loans individually or on a pool basis did not indicate evidence of credit deterioration and as such Accounting Standards Codification (“ASC”) 310-30 did not apply at the dates of acquisition. In determining the appropriateness under U.S. GAAP of the reserve level, probable incurred losses that are reasonably estimable are calculated using loss rates derived from recent experience of delinquent loans charge-offs and loss rates assigned to performing loans. The loan loss reserves are set within a range of the loan loss reserve estimates based on current trending net charge-off rates for the segment and after considering other environmental factors, including housing and labor market conditions.

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) amended existing guidance to improve disclosure requirements related to fair value measurements. The guidance, among other things, requires new disclosures on the roll forward of activities on purchases, sales, issuances, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance for the disclosure on the roll forward activities for Level 3 fair value measurements became effective with the reporting period beginning January 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on CIB Marine’s financial condition, results of operations or liquidity.

In April 2011, the FASB amended existing guidance and clarified when creditors such as banks should classify loan modifications as troubled debt restructurings (“TDRs”). Banks will now need to consider all available evidence when evaluating whether a loan modification is a TDR. In addition to the required new disclosures, the guidance provides criteria to evaluate if a TDR exists based on whether (1) the restructuring constitutes a concession by the creditor, and (2) the debtor is experiencing financial difficulty. This new guidance was applied retrospectively to restructurings occurring after the beginning of the year and the disclosures became effective with this reporting period. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on CIB Marine’s financial condition, results of operations or liquidity.

Note 2-Securities Available for Sale

The amortized cost, gross unrealized gains and losses and fair values of securities at September 30, 2011 and December 31, 2010 are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in thousands)
September 30, 2011
U.S. government agencies	$	7,013	$	141	$	—	$	7,154
States and political subdivisions		28,695		1,830		461		30,064
Trust preferred collateralized debt obligations		8,310		—		4,975		3,335
Other debt obligation		150		—		—		150
Residential mortgage-backed securities (agencies)		28,015		1,559		—		29,574
Residential mortgage-backed securities (non-agencies (1))		26,827		151		1,600		25,378
Total securities available for sale	$	99,010	$	3,681	$	7,036	$	95,655
December 31, 2010
U.S. government agencies	$	12,527	$	389	$	—	$	12,916
States and political subdivisions		29,306		984		842		29,448
Trust preferred collateralized debt obligations		8,359		—		5,374		2,985
Other debt obligation		150		—		—		150
Residential mortgage-backed securities (agencies)		43,106		2,081		—		45,187
Residential mortgage-backed securities (non-agencies (1))		38,078		266		2,152		36,192
Total securities available for sale	$	131,526	$	3,720	$	8,368	$	126,878

(1)	Residential mortgage-backed securities (non-agencies) comprise non-agency issued mortgage-backed securities and collateralized mortgage obligations secured by residential real estate mortgage loans.

Securities available for sale with a carrying value of $55.5 million and $74.1 million at September 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits, Federal Home Loan Bank of Chicago (“FHLBC”) advances, repurchase agreements, federal reserve discount window advances, a federal funds and letter of credit guidance facility at a correspondent bank, and for other purposes as required or permitted by law.

The amortized cost and fair value of securities at September 30, 2011, by contractual maturity, are shown below. Certain securities, other than mortgage-backed securities, may be called earlier than their maturity date. Expected maturities may differ from contractual maturities in mortgage-backed securities, because certain mortgages may be prepaid without penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following contractual maturity schedule.

	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	7,250	$	7,391
Due after one year through five years		9,346		9,948
Due after five years through ten years		15,102		15,494
Due after ten years		12,470		7,870
		44,168		40,703
Residential mortgage-backed securities (agencies)		28,015		29,574
Residential mortgage-backed securities (non-agencies)		26,827		25,378
Total securities available for sale	$	99,010	$	95,655

The following tables represent gross unrealized losses and the related fair value of securities aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010:

	Less than 12 months in an unrealized loss position				12 months or longer in an unrealized loss position				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2011
States and political subdivisions	$	—	$	—	$	2,003	$	461	$	2,003	$	461
Trust preferred collateralized debt obligations		—		—		3,335		4,975		3,335		4,975
Residential mortgage-backed securities (non-agencies)		4,460		49		11,614		1,551		16,074		1,600
Total securities with unrealized losses	$	4,460	$	49	$	16,952	$	6,987	$	21,412	$	7,036
Securities without unrealized losses										74,243
Total securities									$	95,655

December 31, 2010
States and political subdivisions	$	5,553	$	842	$	—	$	—	$	5,553	$	842
Trust preferred collateralized debt obligations		—		—		2,985		5,374		2,985		5,374
Residential mortgage-backed securities (non-agencies)		1,495		48		23,898		2,104		25,393		2,152
Total securities with unrealized losses	$	7,048	$	890	$	26,883	$	7,478	$	33,931	$	8,368
Securities without unrealized losses										92,947
Total securities									$	126,878

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis and more frequently when economic or market conditions warrant. For those securities with fair value less than cost at September 30, 2011, because CIB Marine does not intend to sell the investment nor is it more likely than not that CIB Marine will be required to sell the investments before recovery of their respective amortized cost bases, which may be maturity, CIB Marine does not consider those securities to have been OTTI at quarter end or prior, except for the following: (1) seven residential mortgage-backed securities (non-agencies) (“Non-agency MBS”) with $0.1 million and $0.2 million credit-related OTTI recognized during the first nine months of 2011 and 2010, respectively, and (2) two trust preferred collateralized debt obligations with no credit-related OTTI recognized during the first nine months of 2011 and 2010.

There were no sales of securities available for sale during the first nine months of 2011. Proceeds from the sales of securities available for sale during the first nine months of 2010 totaled $1.1 million and CIB Marine realized a $0.2 million gain on the sale.

Net unrealized losses on investment securities at September 30, 2011 were $3.4 million compared to $4.6 million at December 31, 2010. At September 30, 2011, trust preferred collateralized debt obligations accounted for $5.0 million in net unrealized losses. The remaining securities had net unrealized gains of $1.6 million at September 30, 2011.

Trust Preferred Collateralized Debt Obligations. At September 30, 2011, CIB Marine held trust preferred collateralized debt obligations (“TPCDOs”) of $8.6 million par value with an amortized cost of $8.3 million and fair value of $3.3 million. The fair value of those securities was $3.0 million at December 31, 2010. To a limited extent those securities are protected against credit loss by credit enhancements, such as over-collateralization and subordinated securities. Unless they are the most senior class security in the structure, however, they also may be subordinated to more senior classes as identified later in this section. All the TPCDOs have collateral pools and are not single-issuer securities. Preferred Term Securities, LTD (“PreTSLs”) 27 A-1 and 28 A-1 are the most senior classes where all other classes issued in those pools are subordinated to them, and PreTSLs 23 C-FP and 26 B-1 are mezzanine or subordinated classes - but not the most deeply subordinated classes of securities in their pools.

Due to uncertainties related to timing and amounts of future payments for Class C-FP of PreTSL 23 and Class B-1 of PreTSL 26 TPCDOs, CIB Marine considers them to be OTTI and has previously recorded $0.2 million total-to-date credit-related OTTI and placed them on nonaccrual status. There has been no new credit-related OTTI for the quarter or nine months ending September 30, 2011. Further deterioration in the financial industry beyond what is currently expected could result in additional OTTI related to credit loss that would be recognized through a reduction in earnings. The $5.0 million of unrealized loss recorded in the accumulated other comprehensive income (“AOCI”) at September 30, 2011 is largely related to deteriorations in credit quality of many of the issuers represented in the collateral pools and high liquidity premiums for securities of this type and quality. For CIB Marine’s holdings in PreTSL 23 and 26 at September 30, 2011, the deferrals and defaults of issuers in the collateral pools have risen to a level that holders of those securities began receiving “payments-in-kind” (“PIK”) at the June 2009 payment date. Taken in combination with expected future deferrals and defaults given the deterioration in the financial industry, the two securities are considered to be OTTI. At this time, CIB Marine expects that the cash payments will be restored at some time in the future and CIB Marine will be paid all amounts due under the contractual arrangement except for the total-to-date credit-related OTTI of $0.2 million. With the exception of the contractual PIK process, the TPCDOs were performing as to full and timely payments at September 30, 2011, as required under the respective contractual arrangements.

To determine whether or not OTTI is evident, the projected cash flows are discounted using the Index Rate plus the original discount margin. The Index Rate for each security is the 3-Month US Dollar LIBOR rate. The discount rates are as follows: LIBOR + 0.73% for PreTSL 23 C-FP, LIBOR + 0.56% for PreTSL 26 B-1, LIBOR + 0.30% for PreTSL 27 A-1 and LIBOR + 0.90% for PreTSL 28 A-1. Other key assumptions used in deriving cash flows for the pool of collateral for determining whether OTTI exists include default rate scenarios with annualized default rate vectors starting at 2.5% and declining towards 0.25% by year 2014, loss severity rates of approximately 85%, or a recovery rate of 15%, and prepayment speeds of approximately 1% per annum. All current defaults are applied a loss severity of 100%, or a recovery rate of 0%, and all current deferrals are applied a loss severity of 85%, or a recovery rate of 15%, with a two to five year recovery lag and all future deferral or default events are considered to be defaults with a two year recovery lag and loss severity of 85%, or a recovery rate of 15%.

The excess subordination as a percentage of the remaining performing collateral is calculated by taking the difference of total performing collateral less the current class balances of senior classes divided by the current class balances of those senior to and including the respective class for which the measure is applicable. The higher the ratio the more collateral protection against future credit loss and the lower the ratio the greater the probability of future loss. A negative ratio does not necessarily mean there will be a loss since a class may be senior to other classes and have priority over the collateral and related payments, and payment waterfall mechanisms are designed to correct the deficiency over time with sufficient performance from the underlying collateral. The table below shows the affects of class seniority in the coverage ratio and the amount of additional collateral defaults that would be required to break the yield of the class after accounting for the affects of the payment waterfalls on a class through maturity of the class. These payment waterfall mechanisms are used in the analyses to determine the amount of credit-related OTTI, if any.

Additional information related to the TPCDOs and related OTTI as of September 30, 2011 is provided in the table below:

	PreTSL 23			PreTSL 26			PreTSL 27			PreTSL 28
	(Dollars in thousands)
Class	C-FP				B-1			A-1			A-1
Seniority	Mezzanine			Mezzanine			Senior			Senior
Amortized cost	$	747		$	3,846		$	1,836		$	1,881
Fair value		95			594			1,300			1,346
Unrealized loss		(652	)		(3,252	)		(536	)		(535	)
Total Credit-Related OTTI Recognized in Earnings (1)		(66	)		(103	)		—			—
Moody’s /S&P /Fitch Ratings	C/NR/C			Ca/NR/CC			Baa3/CCC/BB			Baa3/CCC/BB
Percent of Current Deferrals and Defaults to Total Collateral Balances		28	%		28	%		28	%		25	%
Break in Yield (2)		11			21			38			37
Coverage (3)		(21	)		(19	)		17			23
Number of issues in performing collateral		92			48			33			39
Percent of expected deferrals & defaults to performing collateral (4)		11	%		11	%		11	%		11	%
Percent of excess subordination to performing collateral (5)		(15	%)		(4	%)		45	%		51	%

(1)	Total OTTI recognized in earnings and AOCI reflect results since the acquisition date of the securities by CIB Marine.

(2)

The percent of additional immediate defaults of performing collateral at a 85% loss severity rate that would cause a break in yield, meaning that the security would not receive all its contractual cash flows through maturity even though a class could enter a period where payments received are PIK but later paid in cash in addition to any accrued interest on the PIKs. Based on a collateral level analysis, PreTSL 23 and 26 projected deferrals and defaults indicate there would be a break in yield resulting in credit component OTTI.

(3)

The percentage points by which the class is over or (under) collateralized with respect to its collateral ratio thresholds at which cash payments are to be received from lower classes or directed to higher classes (i.e., if the coverage actual over (under) is negative). A current positive (negative) coverage ratio by itself does not necessarily mean that there will be a full receipt (shortfall) of contractual cash flows through maturity as actual results realized with respect to future defaults, default timing, loss severities, recovery timing, redirections of payments in other classes and other factors could act to cause (correct) a deficiency at a future date.

(4)	A point within a range of estimates for the percent of future deferrals and defaults to performing collateral used in assessing credit-related OTTI.

(5)

Residential Mortgage-Backed Securities (Non-agencies). The unrealized losses in Non-agency MBS are primarily the result of deteriorated asset quality and financial market liquidity conditions. This has impacted the market prices to varying degrees for each respective security based upon the relative credit quality and liquidity premiums applicable to each security. At September 30, 2011, CIB Marine had Non-agency MBS holdings of $27.9 million par value with a fair value of $25.4 million, down from holdings at December 31, 2010 of $39.3 million par value with a fair value of $36.2 million. The decline of $11.4 million in par value was primarily due to the repayment of principal.

At September 30, 2011, securities with a par value of $19.2 million and unrealized losses of $1.5 million were below investment grade compared to securities with a par value of $26.1 million and unrealized losses of $1.9 million at December 31, 2010. The decline of $6.9 million in par value was primarily due to the repayment of principal. CIB Marine’s principal and interest payments received on these securities from the purchase date through September 30, 2011 have all been timely and in full except for two securities with credit-related OTTI, where payments received have been timely but with amounts reduced by losses previously recognized as credit-related OTTI where subordinated tranches are no longer able to absorb the loss. The table below displays the current composition of the Non-agency MBS portfolio as of September 30, 2011, based on the lowest credit rating assigned by any of the rating agencies.

Total Residential Mortgage-Backed Securities (non-agency) Credit Ratings
Credit Rating	Par		Amortized Cost		Unrealized Gain (Loss)
	(Dollars in thousands)
AAA	$	5,421	$	5,389	$	124
AA		1,223		1,176		(2	)
A		2,108		2,097		(78	)
BB or below (1)		19,173		18,165		(1,493	)
Total	$	27,925	$	26,827	$	(1,449	)

(1)	BB and lower credit ratings are considered to be below investment grade. All securities were originally rated AAA.

CIB Marine does not intend to sell nor is it more likely than not that it will be required to sell any of its Non-agency MBS before recovery of their amortized cost bases, which may be at maturity. For seven Non-agency MBS, credit-related OTTI is evident and $0.1 million has been recognized in earnings during the first nine months of 2011 and $0.5 million during the year ended December 31, 2010. Additional OTTI may be recognized in the future if performance of the underlying collateral deteriorates more or for a longer period than currently projected, or if CIB Marine decides that it intends to sell, sells or determines that it is more likely than not that it will become required to sell the securities prior to full recovery of their respective amortized cost bases.

The table below summarizes the Non-agency MBS in which OTTI has been recognized during the current or prior periods. In making estimates of credit losses for those securities with OTTI, some of the key assumptions for the underlying residential mortgage loan collateral for September 30, 2011 included annualized prepayment speeds ranging between 5.5% and 12.0%, future cumulative default rates ranging between 22% and 51%, weighted average loss severity rates ranging between 45% and 57%, and resulting future cumulative collateral loss rates ranging between 10% and 29%. Resulting cash flows were projected considering the affects of related securities sharing an interest in the same pool of collateral to derive expected credit loss outcomes through maturity.

At September 30, 2011
Total Residential Mortgage-Backed Securities (non-agency) with OTTI
Credit Category	Amortized Cost		Fair Value		Total credit-related OTTI Recognized in Earnings			Total OTTI Recognized in AOCI			Range of Nonperforming Loans to Total Loans (2)			Range of Mean Original LTVs (2)			Issue Date		Range of Current Levels of Credit Support from Subordination
	(dollars in thousands)
Investment Grade	$	—	$	—	$	—		$	—		NA			NA			NA		NA
Below Investment Grade (1)		10,312		8,972		(1,152	)		(1,340	)		10 – 35	%		64 - 72	%		2005-2006		0 – 9	%
Total	$	10,312	$	8,972	$	(1,152	)	$	(1,340	)		10 – 35	%		64 - 72	%		2005-2006		0 – 9	%

(1)	BB and lower credit ratings are considered to be below investment grade. All securities were originally rated AAA.

(2)

Ranges represent the high and low measures for each security’s respective loan collateral pool for securities with OTTI recognized. Nonperforming loans here means past due 60 or more days, in foreclosure or held as OREO. The full amount of nonperforming loans are not expected to translate into a dollar-for-dollar loss to the collateral pool due to borrower efforts to bring the loans current or sell the mortgage residential properties or collection activities of the servicing agents that includes liquidation of collateral and the pursuit of deficiencies where available from the borrowers.

Roll Forward of OTTI Related to Credit Loss. The following table is a roll forward of the amount of OTTI related to credit losses that have been recognized in earnings for which a portion of OTTI was recognized in AOCI for the three- and nine-month periods ended September 30, 2011 and 2010:

	Quarters Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Beginning of period balance of the amount related to credit losses on debt securities held by the entity at the beginning of the period for which a portion of OTTI was recognized in AOCI	$	1,265	$	658	$	1,190	$	603
Additions for the amount related to credit loss for which an OTTI was not previously recognized		0		145		11		170
Additional increase to the amount related to the credit loss for which OTTI was previously recognized when the entity does not intend to sell the security nor is it more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis		56		13		120		43
End of period balance of credit losses related to OTTI for which a portion was recognized in AOCI	$	1,321	$	816	$	1,321	$	816

Note 3- Loans and Allowance for Loan Losses

Loans

The components of loans were as follows:

	September 30, 2011						December 31, 2010
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Commercial	$	43,809			12.1	%	$	53,971			13.0	%
Commercial real estate		223,957			61.8			240,491			58.0
Construction and development		17,795			4.9			35,816			8.6
Residential real estate		16,532			4.6			16,005			3.9
Home equity		34,231			9.5			38,896			9.4
Purchased home equity pools		23,664			6.5			26,975			6.5
Other consumer		2,327			0.6			2,620			0.6
Gross loans		362,315			100.0	%		414,774			100.0	%
Deferred loan costs		959						1,004
Loans		363,274						415,778
Allowance for loan losses		(15,461	)					(14,645	)
Loans, net	$	347,813					$	401,133

The following table presents the aging of the recorded investment in past due loans at September 30, 2011 and December 31, 2010:

	September 30, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Accruing Loans
Commercial	$	5,156	$	—	$	—	$	5,156	$	38,074	$	43,230
Commercial real estate:
Owner occupied		—		—		—		—		56,572		56,572
Non-owner occupied		1,391		—		—		1,391		152,320		153,711
Construction and development		23		—		—		23		9,899		9,922
Residential real estate:
Owner occupied		—		515		—		515		11,164		11,679
Non-owner occupied		—		—		—		—		4,250		4,250
Home equity		282		140		—		422		32,811		33,233
Purchased home equity pools		911		427		—		1,338		22,326		23,664
Other consumer		—		—		—		—		2,327		2,327
Deferred loan costs		22		3		—		25		934		959
Total	$	7,785	$	1,085	$	—	$	8,870	$	330,677	$	339,547

Nonaccrual Loans
Commercial	$	—	$	—	$	513	$	513	$	66	$	579
Commercial real estate:
Owner occupied		—		—		—		—		—		—
Non-owner occupied		264		—		11,170		11,434		2,240		13,674
Construction and development		—		—		2,921		2,921		4,952		7,873
Residential real estate:
Owner occupied		—		363		105		468		135		603
Non-owner occupied		—		—		—		—		—		—
Home equity		53		13		55		121		877		998
Purchased home equity pools		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Deferred loan costs		—		—		—		—		—		—
Total	$	317	$	376	$	14,764	$	15,457	$	8,270	$	23,727

Total loans
Commercial	$	5,156	$	—	$	513	$	5,669	$	38,140	$	43,809
Commercial real estate:
Owner occupied		—		—		—		—		56,572		56,572
Non-owner occupied		1,655		—		11,170		12,825		154,560		167,385
Construction and development		23		—		2,921		2,944		14,851		17,795
Residential real estate:
Owner occupied		—		878		105		983		11,299		12,282
Non-owner occupied		—		—		—		—		4,250		4,250
Home equity		335		153		55		543		33,688		34,231
Purchased home equity pools		911		427		—		1,338		22,326		23,664
Other consumer		—		—		—		—		2,327		2,327
Deferred loan costs		22		3		—		25		934		959
Total	$	8,102	$	1,461	$	14,764	$	24,327	$	338,947	$	363,274

	At December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Accruing Loans
Commercial	$	90	$	—	$	—	$	90	$	51,313	$	51,403
Commercial real estate:
Owner occupied		—		—		—		—		58,061		58,061
Non-owner occupied		4,617		—		—		4,617		162,058		166,675
Construction and development		2,267		—		—		2,267		21,023		23,290
Residential real estate:
Owner occupied		239		121		—		360		10,901		11,261
Non-owner occupied		—		—		—		—		3,430		3,430
Home equity		413		282		—		695		36,938		37,633
Purchased home equity pools		158		602		—		760		26,215		26,975
Other consumer		1		—		—		1		2,619		2,620
Deferred loan costs		20		3		—		23		981		1,004
Total	$	7,805	$	1,008	$	—	$	8,813	$	373,539	$	382,352

Nonaccrual Loans
Commercial	$	—	$	17	$	215	$	232	$	2,336	$	2,568
Commercial real estate:
Owner occupied		—		—		—		—		6,433		6,433
Non-owner occupied		—		110		6,545		6,655		2,667		9,322
Construction and development		2,925		1,281		5,654		9,860		2,666		12,526
Residential real estate:
Owner occupied		55		48		30		133		1,180		1,313
Non-owner occupied		—		—		1		1		—		1
Home equity		101		—		472		573		690		1,263
Purchased home equity pools		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Deferred loan costs		—		—		—		—		—		—
Total	$	3,081	$	1,456	$	12,917	$	17,454	$	15,972	$	33,426

Total Loans
Commercial	$	90	$	17	$	215	$	322	$	53,649	$	53,971
Commercial real estate:
Owner occupied		—		—		—		—		64,494		64,494
Non-owner occupied		4,617		110		6,545		11,272		164,725		175,997
Construction and development		5,192		1,281		5,654		12,127		23,689		35,816
Residential real estate:
Owner occupied		294		169		30		493		12,082		12,575
Non-owner occupied		—		—		1		1		3,429		3,430
Home equity		514		282		472		1,268		37,628		38,896
Purchased home equity pools		158		602		—		760		26,215		26,975
Other consumer		1		—		—		1		2,619		2,620
Deferred loan costs		20		3		—		23		981		1,004
Total	$	10,886	$	2,464	$	12,917	$	26,267	$	389,511	$	415,778

Although total past due loans decreased overall, nonaccrual loans past due greater than 90 days increased by $1.8 million from December 31, 2010 to September 30, 2011, primarily due to deterioration in the commercial real estate non-owner occupied loan segment. Nonaccrual loans that are not past due often represent loans with deep collateral depreciation, and significantly deteriorated financial condition with weakened guarantors, where applicable, but have been able to make payments or bring loans current.

The following table lists information on nonaccrual, restructured and certain past due loans:

	September 30, 2011		December 31, 2010
	(Dollars in thousands)
Nonaccrual-loans	$	23,727	$	33,426
Nonaccrual-loans held for sale		734		1,112
Restructured loans accruing		10,838		5,544
90 days or more past due and still accruing-loans and loans held for sale		—		—

The following table presents the recorded investment in nonaccrual and loans past due over 90 days on accrual by class of loans:

	September 30, 2011		December 31, 2010
	(Dollars in thousands)
Commercial	$	579	$	2,568
Commercial real estate:
Owner occupied		—		6,433
Non-owner occupied		13,674		9,322
Construction and development		7,873		12,526
Residential real estate:
Owner occupied		603		1,313
Non-owner occupied		—		1
Home equity		998		1,263
Total	$	23,727	$	33,426

Nonaccrual loans decreased $9.7 million from December 31, 2010 to September 30, 2011, primarily due to charge-offs and improvements in construction and development and commercial loans, offset by increases in the commercial real estate non-owner occupied class. Most nonaccrual loans are considered to be impaired. However, in 2011, there has been an increase in the amount of troubled debt restructurings that are accounted for as impaired loans that have experienced improved performance and have met the criteria to restore to accrual status thereby accounting for the increased difference between impaired and nonaccrual loans.

	September 30, 2011		December 31, 2010
	(Dollars in thousands)
Impaired loans without a specific allowance	$	16,684	$	24,536
Impaired loans with a specific allowance		23,850		12,507
Total impaired loans	$	40,534	$	37,043
Specific allowance related to impaired loans	$	5,369	$	3,877

	Quarters Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Average recorded investment in total impaired loans	$	42,068	$	50,534	$	41,420	$	50,789
Gross income that would have been recognized had such loans been performing in accordance with their original terms		469		492		1,391		1,460
Interest income recognized on total impaired loans		53		13		193		36

The following table presents loans individually evaluated for impairment by class of loans at September 30, 2011 and December 31, 2010:

	Unpaid Principal Balance		Recorded Investment		Specific Allowance for Loan Losses Allocated		Average Recorded Investment for the Quarter Ended		Average Recorded Investment for the Nine Months Ended		Interest Income Recognized for the Quarter Ended		Interest Income Recognized for the Nine Months Ended
	(Dollars in thousands)
September 30, 2011
With no related allowance:
Commercial	$	492	$	190	$	—	$	265	$	277	$	—	$	19
Commercial real estate:
Owner occupied		—		—		—		3,136		4,756		—		—
Non-owner occupied		13,065		10,483		—		9,021		7,474		11		17
Construction and development		11,278		5,290		—		6,508		9,671		—		43
Residential real estate:
Owner occupied		339		339		—		343		414		1		1
Non-owner occupied		—		—		—		—		—		—		—
Home equity		298		298		—		278		290		—		—
Purchased home equity pools		—		—		—		—		—		—		—
Other consumer		84		84		—		87		94		—		—
	$	25,556	$	16,684	$	—	$	19,638	$	22,976	$	12	$	80

With an allowance recorded:
Commercial	$	337	$	337	$	101	$	1,256	$	1,706	$	—	$	9
Commercial real estate:
Owner occupied		4,440		4,440		460		2,220		1,110		18		18
Non-owner occupied		14,497		14,244		4,221		14,036		11,514		21		75
Construction and development		2,289		2,289		284		2,289		1,313		—		—
Residential real estate:
Owner occupied		428		424		62		427		542		—		6
Non-owner occupied		—		—		—		—		—		—		—
Home equity		1,674		1,674		159		1,737		1,780		2		5
Purchased home equity pools		434		434		76		457		470		—		—
Other consumer		8		8		6		8		9		—		—
		24,107		23,850		5,369		22,430		18,444		41		113

Total	$	49,663	$	40,534	$	5,369	$	42,068	$	41,420	$	53	$	193

	Unpaid Principal Balance		Recorded Investment		Specific Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized for the Year Ended
	(Dollars in thousands)
December 31, 2010
With no related allowance:
Commercial	$	654	$	352	$	—	$	288	$	—
Commercial real estate:
Owner occupied		8,953		6,423		—		7,063		—
Non-owner occupied		7,506		4,280		—		3,963		18
Construction and development		20,872		12,494		—		20,564		70
Residential real estate:
Owner occupied		616		616		—		749		7
Non-owner occupied		—		—		—		532		—
Home equity		267		267		—		163		—
Purchased home equity pools		—		—		—		—		—
Other consumer		104		104		—		66		—
	$	38,972	$	24,536	$	—	$	33,388	$	95

With an allowance recorded:
Commercial	$	2,190	$	2,190	$	1,028	$	2,408	$	—
Commercial real estate:
Owner occupied		—		—		—		—		—
Non-owner occupied		7,392		7,140		2,541		8,939		—
Construction and development		—		—		—		759		—
Residential real estate:
Owner occupied		845		841		121		841		11
Non-owner occupied		—		—		—		—		—
Home equity		1,843		1,843		131		1,285		—
Purchased home equity pools		483		483		49		411		—
Other consumer		10		10		7		9		—
		12,763		12,507		3,877		14,652		11

Total	$	51,735	$	37,043	$	3,877	$	48,040	$	106

Impaired loans increased $3.5 million from December 31, 2010 to September 30, 2011, primarily attributable to deterioration in the commercial real estate, non-owner occupied class.

Allowance for Loan Losses

Changes in the allowance for loan losses were as follows:

	Quarters Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Balance at beginning of period	$	14,965		$	15,696		$	14,645		$	16,240
Charge-offs		(4,155	)		(7,440	)		(8,285	)		(14,245	)
Recoveries		3,041			305			4,723			1,458
Net loan charge-offs		(1,114	)		(7,135	)		(3,562	)		(12,787	)
Provision for loan losses		1,610			6,602			4,378			11,710
Balance at end of period	$	15,461		$	15,163		$	15,461		$	15,163
Allowance for loan losses as a percentage of loans		4.26	%		3.65	%		4.26	%		3.65	%

A summary of the changes in the allowance for loan losses by portfolio segment for the periods ended September 30, 2011 and 2010 is as follows.

	Commercial			Commercial Real Estate			Construction and Development			Residential Real Estate			Home Equity			Purchased Home Equity Pools			Other Consumer			Total
	(Dollars in thousands)
Balance at beginning of quarter	$	2,208		$	8,376		$	1,104		$	313		$	943		$	1,972		$	49		$	14,965
Provision for loan losses		(721	)		2,942			540			27			418			(1,605	)		9			1,610
Charge-offs		—			(2,037	)		(1,203	)		—			(333	)		(571	)		(11	)		(4,155	)
Recoveries		4			84			336			—			10			2,607			—			3,041
Balance at September 30, 2011	$	1,491		$	9,365		$	777		$	340		$	1,038		$	2,403		$	47		$	15,461

Balance at beginning of year	$	2,691		$	7,466		$	873		$	351		$	856		$	2,349		$	59		$	14,645
Provision for loan losses		(1,346	)		5,659			884			(10	)		847			(1,658	)		2			4,378
Charge-offs		—			(4,230	)		(1,316	)		(1	)		(715	)		(2,009	)		(14	)		(8,285	)
Recoveries		146			470			336			—

CIB MARINE BANCSHARES INC 10-Q