Fair Value

12 Months Ended

Dec. 31, 2011

Note 20-Fair Value

The following tables present information about CIB Marine's assets measured at fair value on a recurring basis at December 31, 2011 and 2010, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that CIB Marine has the ability to access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.


			Fair Value for Measurements Made on a Recurring Basis
			Quoted Prices in			Significant
			Active Markets for			Other		Significant
			Identical Assets			Observable		Unobservable
Description		Fair Value	(Level 1)			Inputs (Level 2)		Inputs (Level 3)
			(Dollars in thousands)
December 31, 2011
Assets
U.S. government agencies	$	7,071	$	—	$	7,071		$	—
States and political subdivisions		29,944		—		29,944			—
Trust preferred securities collateralized debt obligations		3,234		—		—			3,234
Other debt obligations		150		—		150			—
Residential mortgage-backed securities (agencies)		26,510		—		26,510			—
Residential mortgage-backed securities (non-agencies)		22,100		—		22,100			—
Total	$	89,009	$	—	$	85,775	$	3,234

December 31, 2010
Assets
U.S. government agencies	$	12,916	$	—	$	12,916		$	—
States and political subdivisions		29,448		—		29,448			—
Trust preferred securities collateralized debt obligations		2,985		—		—			2,985
Other debt obligations		150		—		150			—
Residential mortgage-backed securities (agencies)		45,187		—		45,187			—
Residential mortgage-backed securities (non-agencies)		36,192		—		36,192			—
Total	$	126,878	$	—	$	123,893	$	2,985

The following table presents a roll forward of fair values measured on a recurring basis using significant unobservable inputs (Level 3) for the periods presented.


		For Years Ended December 31,
		2011				2010
		(Dollars in thousands)
Available for Sale Securities
Beginning of year balance	$	2,985			$	3,662
Total gains (losses) (realized/unrealized)
Included in earnings			—				(103	)
Included in other comprehensive income			273				(543	)
Settlements			(24	)			(31	)
End of year balance		$	3,234			$	2,985
The amount of total gains (losses) for the year included in other comprehensive income
attributable to the change in unrealized gains or losses relating to assets still held at end of year		$	273			$	(646	)

The following table presents information about CIB Marine's assets and liabilities measured at fair value on a non-recurring basis at December 31, 2011 and 2010.


				Fair Value for Measurements Made on a Nonrecurring Basis
				Quoted Prices in				Significant
				Active Markets		Significant Other		Unobservable		Total Gains
				for Identical		Observable		Inputs		(Losses)
Description		Fair Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Year-to-Date
						(Dollars in thousands)
December 31, 2011
Loans held for sale:
Commercial real estate	$	166	$	—	$	—	$	166	$	818
Construction and
development		1,954		—		—		1,954		(139	)
Impaired loans (1)
Commercial		—		—		—		—		848
Commercial real estate		6,126		—		6,126		—		(2,406	)
Construction and
development		4,752		—		4,752		—		(474	)
Residential real estate		43		—		43		—		18
Home equity		259		—		259		—		(71	)
Purchased home equity
pools		—		—		—		—		—
Other consumer		111		—		111		—		(31	)


		Fair Value for Measurements Made on a Nonrecurring Basis
				Quoted Prices in				Significant
				Active Markets		Significant Other		Unobservable		Total Gains
				for Identical		Observable		Inputs		(Losses)
Description		Fair Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Year-to-Date
		(Dollars in thousands)
Total impaired loans		11,291		—		11,291		—		(2,116	)
Other real estate owned:
Commercial real estate		41		—		41		—		(47	)
Construction and
development		5,688		—		5,688		—		(1,594	)
Residential real estate		1,359		—		1,359		—		—
Other equity investments		—		—		—		—		(69	)
Total	$	20,499	$	—	$	18,379	$	2,120	$	(3,147	)

December 31, 2010
Assets
Loans held for sale:
Commercial real estate	$	3,366	$	—	$	—	$	3,366	$	111
Construction and
development		3,262		—		—		3,262		(1,172	)
Impaired loans (1)
Commercial		1,351		—		1,351		—		(191	)
Commercial real estate		5,115		—		5,115		—		(4,246	)
Construction and
development		10,094		—		10,094		—		(6,172	)
Residential real estate		1,022		—		1,022		—		69
Home equity		340		—		340		—		(28	)
Purchased home equity
pools		—		—		—		—		—
Other consumer		107		—		107		—		16
Total impaired loans		18,029		—		18,029		—		(10,552	)
Other real estate owned:
Commercial		100		—		100		—		—
Commercial real estate		453		—		453		—		30
Construction and
development		3,431		—		3,431		—		(335	)
Residential real estate		1,330		—		1,330		—		—
Other equity investments		65		—		—		65		292
Total	$	30,036	$	—	$	23,343	$	6,693	$	(11,626	)

____________

(1) Impaired loans gains (losses) include only those attributable to the loans represented in the fair value measurements for December 31, 2011 and 2010. Total impaired loans at December 31, 2011 and 2010 were $36.3 million and $37.0 million, respectively.

Gains and losses (realized and unrealized) for assets and liabilities reported at fair value on a recurring basis included in earnings for the year ended December 31, 2011 and 2010 (above) are reported in other revenues as follows:


	For the Years Ended December 31,
	2011		2010
		(Dollars in thousands)
Other Revenues
Total gains or losses in earnings (or changes in net assets) for the period	$	—	$	(103	)
Change in unrealized gains or losses relating to assets still held at reporting date	$	273	$	(543	)

The following section describes the valuation methodologies used to measure recurring financial instruments at fair value, including the classification of related pricing inputs.

Securities Available for Sale. Where quoted market prices are available from active markets with high volumes of frequent trades for identical securities, the security is presented as a Level 1 input security. These would include predominantly U.S. Treasury Bills, Notes and Bonds. Securities classified under Level 2 inputs include those where quoted market prices are available from an active market of similar but not identical securities, where pricing models use the U.S. Treasury or LIBOR swap yield curves, where market quoted volatilities are used, and where correlated or market corroborated inputs are used such as prepayment speeds, expected default and loss severity rates. Securities with predominantly Level 2 inputs and using a market approach to valuation include U.S.

government agency and government sponsored enterprise issued securities and mortgage-backed securities, certain corporate or foreign sovereign debt securities, private issue mortgage-backed securities, other asset-backed securities, equity securities with quoted market prices but low or infrequent trades and debt obligations of states and political subdivisions. Where Level 1 or Level 2 inputs are either not available, or are significantly adjusted, the securities are classified under Level 3 inputs. The available for sale securities using Level 3 inputs were TPCDOs with fair values measured using predominantly the income valuation approach (present value technique), where expected future cash flows less expected losses were discounted using a discount rate consisting of benchmark interest rates plus credit, liquidity and option premium spreads from similar and comparable, but not identical, types of debt instruments and from models. The credit and liquidity premium spreads used in the discount rates and the credit factors used in deriving cash flows represent significant unobservable inputs.

Loans Held for Sale. The fair value of loans held for sale, consisting primarily of commercial real estate loans, is estimated based on indicative and general sale price levels for commercial real estate loans of similar quality and current prices for similar residential real estate loans offered by mortgage correspondent banks. Residential real estate loans originated as held for sale are valued using predominantly Level 2 inputs, including loan prices as provided by correspondent mortgage banks which are closely correlated with broader market prices for newly-originated residential real estate loans subject to Fannie Mae underwriting guidelines. Due to limited market activity in specific loan assets, all other loans designated as held for sale are valued predominantly using unobservable inputs classified under Level 3 inputs. These inputs include indicative prices, loan discount rates and general loan market price level information for loans of similar type and quality. A market approach is the primary valuation technique used to measure the fair value of loans held for sale.

Impaired Loans. Impairment losses are included in the allowance for loan losses. The impairment loss is based on Level 2 quoted market price inputs, a discounted cash flow analysis, or a fair value estimate of the collateral using Level 2 inputs, including primarily the appraised value of the real estate with certain other market correlated or corroborated information. The fair value of impaired loans represented in the fair value table includes only those loans that are carried at their fair value and at this time would only include those with an impairment loss either reserved for as a specific reserve or charged-off where that impairment loss was determined using a market approach to valuation based upon a fair value estimate of the collateral. For real estate collateral, that is done using an appraised value of the real estate with certain other market correlated or corroborated information.

Other Real Estate Owned. The fair value of OREO is generally determined based upon outside appraisals using observable market data for the same or similar real estate (Level 2). Adjustments to the appraised values are largely related to market correlated or corroborated information such as observed changes in local real estate prices and broker costs. These were deemed to be Level 2 inputs since in general, the market-based information was considered to be the primary determinant of the value after market correlated and corroborated information and the brokerage costs are largely fixed percentages that do not vary or change other than nominally. The carrying value of a foreclosed asset is immediately adjusted down when new information is obtained. This new information may include a new appraisal, a potentially acceptable offer, the sale of a similar property in the vicinity of one of the

Company's assets and/or a change in the price the property is being listed for based on market forces.

Other Equity Investments. Other equity investments are those equity investments represented in Other Assets on the Consolidated Balance Sheet that are carried at fair value when it is below CIB Marine's cost. The fair value is estimated using Level 3 inputs based primarily on an estimate of CIB Marine's respective ownership share in the net worth of the entity.

The table below summarizes fair value of financial assets and liabilities at December 31, 2011 and 2010.


		At December 31, 2011				At December 31, 2010
		Carrying		Estimated		Carrying		Estimated
		Amount		Fair Value		Amount		Fair Value
				(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	44,828	$	44,828	$	27,267	$	27,267
Loans held for sale		2,120		2,120		6,628		6,628
Securities available for sale		89,009		89,009		126,878		126,878
Loans, net		341,504		325,945		401,133		378,832
Accrued interest receivable		1,648		1,648		2,293		2,293


	At December 31, 2011		At December 31, 2010
	Carrying	Estimated	Carrying	Estimated
	Amount	Fair Value	Amount	Fair Value
		(Dollars in thousands)
Financial liabilities:
Deposits	422,586	425,559	493,527	497,639
Short-term borrowings	9,784	9,784	12,761	12,761
Federal Home Loan Bank advances	5,000	5,130	10,000	10,413
Accrued interest payable	376	376	705	705


		At December 31, 2011								At December 31, 2010
		Contractual								Contractual
		or Notional	Carrying			Estimated				or Notional	Carrying			Estimated
		Amount	Amount			Fair Value				Amount	Amount			Fair Value
						(Dollars in thousands)
Off-balance sheet items:
Commitments to extend credit
Fixed	$	1,724	$	—		$	—		$	1,160	$	—		$	—
Variable		30,110		—			—		$	34,951	$	—		$	—
Standby letters of credit		2,385		(6	)		(6	)		2,040		(4	)		(4	)

Fair value amounts represent estimates of value at a point in time. Significant estimates regarding economic conditions, loss experience, risk characteristics associated with particular financial instruments and other factors were used for the purposes of this disclosure. These estimates are subjective in nature and involve matters of judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could have a material impact on the amounts estimated.

While these estimated fair value amounts are designed to represent estimates of the amounts at which these instruments could be exchanged in a current transaction between willing parties, it is CIB Marine's intent to hold most of its financial instruments to maturity. Therefore, it is not probable that the fair values shown will be realized in a current transaction.

The estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments. In addition, the value of long-term relationships with depositors (core deposit intangibles) is not reflected. The value of this item may be significant.

Because of the wide range of valuation techniques and the numerous estimates that must be made, it may be difficult to make reasonable comparisons of CIB Marine's fair value to that of other financial institutions. It is important that the many uncertainties discussed above be considered when using the estimated fair value disclosures and to realize that because of these uncertainties the aggregate fair value should in no way be construed as representative of the underlying value of CIB Marine.

The following describes the methodology and assumptions used to estimate fair value of financial instruments.

Cash and Cash Equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates their fair value. For purposes of this disclosure only, cash equivalents include cash and due from banks, Federal Funds sold and repurchase agreements.

Loans Receivable. The fair values of loans receivable were estimated using the income approach to valuation by discounting the expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and maturities. The carrying value of loans receivable is net of the allowance for loan losses.

Federal Home Loan Bank. There is no market for FHLBC stock and it may only be sold back to the FHLBC or another member institution at par with the FHLBC and the FHFA approval. As a result, its cost, and its par amount at this time represents its carrying amount. The carrying amount of FHLBC stock was $11.6 million at both December 31, 2011 and 2010.

Accrued Interest Receivable. The carrying amount of accrued interest receivable approximates its fair value.

Deposit Liabilities. The carrying value of deposits with no stated maturity approximates their fair value as they are payable on demand. The fair value of fixed time deposits was estimated using the income approach to valuation by discounting expected future cash flows. The discount rates used in these analyses are based on market rates of alternative funding sources currently available for similar remaining maturities.

Short-term Borrowings. The carrying value of short-term borrowings payable within three months or less approximates their fair value. The estimated fair value of borrowed funds with a maturity greater than three months is based on quoted market prices, when available. Borrowed funds with a maturity greater than three months for which quoted prices were not available were valued using the income approach to valuation by discounting expected future cash flows a current market rate for similar types of debt. For purposes of this disclosure, short-term borrowings are those borrowings with stated final maturities of less than or equal to one year, including securities sold under agreements to repurchase, U.S. Treasury tax and loan notes, lines of credit, commercial paper and other similar borrowings.

Federal Home Loan Bank Advances. The fair market value of long-term borrowings payable was estimated using the income approach to valuation by discounting the expected future cash flows using current interest rates for instruments with similar terms.

Accrued Interest Payable. The carrying amount of accrued interest payable is used to approximate its fair value.

Off-Balance Sheet Instruments. The fair value and carrying value of letters of credit and unused and open ended lines of credit have been estimated based on the unearned fees charged for those commitments, net of accrued liability for probable losses.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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+ Details

CIB MARINE BANCSHARES INC 10-K