<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
<TABLE>
<S> <C> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 000-24149
</TABLE>
CIB MARINE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WISCONSIN 37-1203599
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
N27 W24025 PAUL COURT,
PEWAUKEE, WISCONSIN 53072
(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 [X] No [ ]
At November 10, 2000, CIB Marine had 16,915,141 shares of common stock
outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIB MARINE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks................................... $ 19,652 $ 21,941
Federal Funds Sold........................................ 1,800 2,157
---------- ----------
Total Cash and Cash Equivalents................... 21,452 24,098
---------- ----------
Loans Held for Sale......................................... 4,019 2,148
Securities:
Available for Sale, at fair value......................... 326,866 216,460
Held to Maturity (approximate fair value of $132,556 and
$145,122, respectively)................................ 133,484 146,890
---------- ----------
Total Securities.................................. 460,350 363,350
---------- ----------
Loans....................................................... 1,690,656 1,387,831
Less: Allowance for Loan Loss............................. (21,440) (15,813)
---------- ----------
Net Loans................................................... 1,669,216 1,372,018
---------- ----------
Premises and Equipment, net................................. 21,906 21,499
Accrued Interest Receivable................................. 19,211 13,141
Deferred Income Taxes....................................... 11,057 9,018
Goodwill and Core Deposit Intangibles, net.................. 13,096 14,171
Foreclosed Properties....................................... 100 1,099
Other Assets................................................ 6,215 4,298
---------- ----------
Total Assets......................................... $2,226,622 $1,824,840
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing Demand................................ $ 112,675 $ 98,642
Interest-bearing Demand................................... 45,760 45,107
Savings................................................... 222,554 209,333
Time...................................................... 1,489,324 1,175,374
---------- ----------
Total Deposits....................................... 1,870,313 1,528,456
---------- ----------
Short-term Borrowings....................................... 98,217 113,219
Accrued Interest Payable.................................... 11,065 8,228
Accrued Income Taxes........................................ 1,168 824
Other Liabilities........................................... 3,710 3,028
Long-term Borrowings........................................ 33,185 9,750
Guaranteed Trust Preferred Securities....................... 25,000 --
---------- ----------
Total Liabilities.................................... 2,042,658 1,663,505
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $1 par value; 50,000,000 Shares Authorized,
16,845,000 and 16,469,250 Issued and Outstanding,
respectively.............................................. 16,845 16,469
Capital Surplus............................................. 133,415 126,891
Retained Earnings........................................... 34,240 20,009
Accumulated Other Comprehensive Loss........................ (536) (2,034)
---------- ----------
Total Stockholders' Equity........................... 183,964 161,335
---------- ----------
Total Liabilities and Stockholders' Equity........... $2,226,622 $1,824,840
========== ==========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
2
<PAGE> 3
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans................................. $ 40,468 $ 25,870 $ 112,116 $ 69,724
Loans Held For Sale................... 86 47 207 215
Securities:
Taxable............................. 6,329 3,917 16,243 10,342
Tax-exempt.......................... 629 472 2,131 1,269
Dividends........................... 66 58 244 160
Federal Funds Sold.................... 418 203 664 314
----------- ----------- ----------- -----------
Total Interest and Dividend
Income.................... 47,996 30,567 131,605 82,024
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits.............................. 26,425 16,015 70,425 41,765
Short-term Borrowings................. 1,840 318 4,880 794
Long-term Borrowings.................. 499 164 1,269 667
Guaranteed Trust Preferred
Securities.......................... 373 -- 673 --
----------- ----------- ----------- -----------
Total Interest Expense...... 29,137 16,497 77,247 43,226
----------- ----------- ----------- -----------
Net Interest Income......... 18,859 14,070 54,358 38,798
Provision for Loan Loss............... 1,975 1,515 6,250 4,485
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Loan Loss... 16,884 12,555 48,108 34,313
----------- ----------- ----------- -----------
NONINTEREST INCOME
Loan Fees............................. 751 634 2,041 1,983
Deposit Service Charges............... 541 383 1,421 968
Other Service Fees.................... 319 106 639 297
Trust................................. 224 128 548 391
Gain on Sale of Branch................ -- -- -- 805
Other................................. 72 21 453 46
Securities Gains, net................. 9 -- 9 --
----------- ----------- ----------- -----------
Total Noninterest Income....... 1,916 1,272 5,111 4,490
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and Employee Benefits.... 6,534 5,372 19,058 14,854
Equipment............................. 639 499 1,790 1,515
Occupancy and Premises................ 945 818 2,851 2,191
Professional Services................. 203 245 1,268 949
Advertising / Marketing............... 226 200 712 548
Amortization of Intangibles........... 348 328 1,047 671
Other................................. 1,488 1,125 4,189 3,175
----------- ----------- ----------- -----------
Total Noninterest Expense...... 10,383 8,587 30,915 23,903
----------- ----------- ----------- -----------
Income Before Income Taxes............ 8,417 5,240 22,304 14,900
Income Tax Expense.................... 2,928 1,832 7,698 5,225
----------- ----------- ----------- -----------
NET INCOME....................... $ 5,489 $ 3,408 $ 14,606 $ 9,675
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic................................. $ 0.33 $ 0.21 $ 0.88 $ 0.60
Diluted............................... 0.32 0.21 0.86 0.60
Weighted Average Shares -- Basic...... 16,845,000 16,083,232 16,680,794 16,077,019
Weighted Average Shares -- Diluted.... 17,087,026 16,269,054 16,902,892 16,252,850
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE> 4
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
--------------------- COMPREHENSIVE
PAR CAPITAL RETAINED INCOME TREASURY
SHARES VALUE SURPLUS EARNINGS (LOSS) STOCK TOTAL
---------- ------- -------- -------- ------------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998............. 16,072,950 $16,073 $120,381 $ 6,867 $ 775 $ -- $144,096
Comprehensive Income:
Net Income............................. 9,675 9,675
Other Comprehensive Income:
Unrealized Securities Holding Losses
Arising During the Year............ (3,131) (3,131)
Income Tax Effect.................... 1,203 1,203
------- ------- --------
9,675 (1,928) 7,747
------- ------- --------
Common Stock Issuance..................
Exercise of Stock Options.............. 50,850 51 522 (51) 522
Purchase of Treasury Stock............. (11,100) (11) 11 (182) (182)
Non-Cash Compensation.................. 139 139
---------- ------- -------- ------- ------- ----- --------
BALANCE, SEPTEMBER 30, 1999............ 16,112,700 $16,113 $121,042 $16,502 $(1,153) $(182) $152,322
========== ======= ======== ======= ======= ===== ========
BALANCE, DECEMBER 31, 1999............. 16,469,250 $16,469 $126,891 $20,009 $(2,034) $ -- $161,335
Comprehensive Income:
Net Income............................. 14,606 14,606
Other Comprehensive Income:
Unrealized Securities Holding Gains
Arising During the Year............ 2,419 2,419
Income Tax Effect.................... (921) (921)
------- ------- --------
14,606 1,498 16,104
------- ------- --------
Exercise of Stock Options.............. 15,900 16 172 (16) 172
Common Stock Issuance.................. 359,850 360 6,302 (359) 6,303
Non-Cash Compensation.................. 50 50
---------- ------- -------- ------- ------- ----- --------
BALANCE, SEPTEMBER 30, 2000............ 16,845,000 $16,845 $133,415 $34,240 $ (536) $ -- $183,964
========== ======= ======== ======= ======= ===== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 5
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)}
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 14,606 $ 9,675
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization............................. (754) 1,626
Non-Cash Compensation..................................... 50 139
Provision for Loan Loss................................... 6,250 4,485
Originations of Loans Held for Sale....................... (60,731) (94,081)
Purchases of Loans Held for Sale.......................... (72,590) --
Proceeds from Sale of Loans Held for Sale................. 131,450 101,152
Deferred Tax Benefits..................................... (2,616) (3,128)
Gain on Sale of Branch.................................... -- (805)
Gain on Sale of Other Assets.............................. (380) (4)
Gain on Sale of Securities................................ (9) --
Decrease in Interest Receivable and Other Assets.......... (6,727) (3,379)
Increase in Interest Payable and Other Liabilities........ 3,519 1,389
--------- ---------
Net Cash Provided by Operating Activities............. 12,068 17,069
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of Securities Available for Sale............... 287,945 87,426
Maturities of Securities Held to Maturity................. 31,822 46,721
Purchase of Securities Available for Sale................. (373,737) (167,268)
Purchase of Securities Held to Maturity................... (14,409) (68,855)
Proceeds from Sales of Securities Available for Sale...... 347 --
Repayments of Mortgage-Backed Securities Held to
Maturity................................................ 3,784 4,419
Repayments of Mortgage-Backed Securities Available for
Sale.................................................... 5,076 4,016
Net Decrease (Increase) in other equities (including FHLB
stock).................................................. 1,134 (898)
Purchase of Mortgage-Backed Securities Available for
Sale.................................................... (28,507) (4,497)
Purchase of Mortgage-Backed Securities Held to Maturity... (7,715) (3,034)
Investment in Limited Partnerships........................ (400) (2,897)
Net Increase in Loans..................................... (305,781) (306,232)
Proceeds from Sale of Foreclosed Properties............... 7,162 --
Proceeds from Sale of Fixed Assets........................ -- 7
Proceeds from Sale of Branch and Trust Company............ 167 3,085
Capital Expenditures...................................... (2,265) (2,100)
Purchase of Branch Assets and Deposits, net of Goodwill... -- 124,403
--------- ---------
Net Cash Used in Investing Activities................. (395,377) (285,704)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits...................................... 341,690 255,499
Proceeds from Long-term Borrowings........................ 23,300 --
Repayments of Long-term Borrowings........................ -- (10,250)
Proceeds from Issuance of Guaranteed Trust Preferred
Securities.............................................. 24,200 --
Proceeds from Issuance of Common Stock.................... 6,303 --
Proceeds from Stock Options Exercised..................... 172 522
Purchase/Sale of Treasury Stock........................... -- (182)
Net (Decrease) Increase in Short-term Borrowings.......... (15,002) 22,102
--------- ---------
Net Cash Provided by Financing Activities............. 380,663 267,691
--------- ---------
Net Decrease in Cash and Cash Equivalents................... (2,646) (944)
Cash and Cash Equivalents, Beginning of Period.............. 24,098 22,080
--------- ---------
Cash and Cash Equivalents, End of Period.................... $ 21,452 $ 21,136
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 74,410 $ 41,696
Income Taxes.............................................. 10,254 7,935
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Transfers of Loans to Foreclosed Properties............... 5,937 1,100
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE> 6
CIB MARINE BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements should be read
in conjunction with CIB Marine Bancshares, Inc.'s ("CIB Marine") 1999 Annual
Report on Form 10-K. In the opinion of management, the unaudited consolidated
financial statements included in this report reflect all adjustments which are
necessary to present fairly CIB Marine's financial condition, results of
operations and cash flows as of and for the three and nine-month periods ended
September 30, 2000 and 1999. The results of operations for the three and
nine-month periods ended September 30, 2000, are not necessarily indicative of
results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates used in the
preparation of the financial statements are based on various factors, including
the current interest rate environment and the general strength of the local
economy. Changes in these factors can significantly affect CIB Marine's net
interest income and the value of its recorded assets and liabilities.
Reclassifications have been made to certain amounts as of December 31, 1999
and for the three and nine-month periods ended September 30, 1999, to be
consistent with classifications for 2000.
NOTE 2 -- STOCK SPLIT
On June 19, 2000, CIB Marine announced that its Board of Directors approved
a 150-for-1 split of its outstanding shares of common stock. The stock split was
effected in the form of a stock dividend and each shareholder of record at the
close of business on July 1, 2000, received 149 additional shares of common
stock for every share of common stock held. The stock dividends resulting from
the stock split were distributed by CIB Marine's transfer agent on or about July
25, 2000. All share and per share data contained in this document have been
restated to reflect the effect of this stock split.
NOTE 3 -- EARNINGS PER SHARE COMPUTATIONS
The following table provides a reconciliation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
NET INCOME.................................... $ 5,489 $ 3,408 $ 14,606 $ 9,675
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic....................................... 16,845,000 16,083,232 16,680,794 16,077,019
Effect of dilutive stock options
outstanding............................ 242,023 185,822 222,098 175,831
----------- ----------- ----------- -----------
Diluted..................................... 17,087,026 16,269,054 16,902,892 16,252,850
EARNINGS PER SHARE
Basic....................................... $ 0.33 $ 0.21 $ 0.88 $ 0.60
Effect of dilutive stock options
outstanding............................ (0.01) -- (0.02) --
----------- ----------- ----------- -----------
Diluted..................................... $ 0.32 $ 0.21 $ 0.86 $ 0.60
=========== =========== =========== ===========
</TABLE>
NOTE 4 -- BUSINESS COMBINATIONS
On February 26, 1999, CIB Marine sold a branch facility in Charleston,
Illinois, including $14.4 million of loans and $12.2 million of deposits
attributable to the facility. The transaction was accounted for as a sale,
6
<PAGE> 7
resulted in net proceeds of $3.1 million and an $0.8 million gain which is
reflected as a component of noninterest income in the Unaudited Consolidated
Statements of Income.
On March 29, 1999, CIB Marine purchased two branch facilities, one each in
Arlington Heights and Mount Prospect, Illinois, and assumed deposits of $115.8
million. The net purchase price for premises and equipment and deposit premium
was $14.5 million. The transaction was accounted for as a purchase. The excess
of the acquisition cost over the fair value of net assets acquired and deposit
liabilities assumed was $9.5 million, of which $1.4 million is a core deposit
intangible being amortized over the 11 year expected lives of the related
deposits based upon a level-yield amortization method. Goodwill of $8.1 million
is being amortized over 15 years using the straight-line method.
On September 24, 1999, CIB Marine purchased a branch facility in Zion,
Illinois, and assumed deposits of $28.2 million. The net purchase price for
premises and equipment and deposit premium was $2.6 million. The transaction was
accounted for as a purchase. The excess of the acquisition cost over the fair
value of net assets acquired and deposit liabilities assumed was $2.0 million,
of which $1.1 million is core deposit intangible being amortized over the 11
year expected lives of the related deposits based upon a level-yield
amortization method. Goodwill of $0.9 million is being amortized for 15 years
using the straight-line method.
NOTE 5 -- SALE OF TRUST COMPANY
On September 26, 2000 CIB Marine completed the sale of the business of
Marine Trust and Investment Company ("Marine Trust"), a wholly-owned subsidiary.
As part of this transaction, CIB Marine formed a strategic alliance with the
purchaser whereby CIB Marine will receive a commission on both new and existing
trust accounts referred to and accepted by the purchaser. Gross proceeds from
the sale totaled $0.2 million and resulted in a pre-tax gain of approximately
$0.2 million which is included in other non-interest income for the quarter
ended September 30, 2000.
NOTE 6 -- LONG-TERM BORROWINGS AND RELATED INTEREST RATE SWAP
The following table presents information regarding amounts payable to the
Federal Home Loan Bank of Chicago that are included in the balance sheets as
long-term borrowings at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ ------------------ SCHEDULED CALLABLE AT
BALANCE RATE BALANCE RATE MATURITY PAR AFTER
------- ---- ------- ---- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$3,250.. 4.95% $3,250 4.95% 1/16/08 1/16/01
2,500.. 4.95 2,500 4.95 1/16/08 1/16/01
2,000.. 4.95 2,000 4.95 1/16/08 1/16/01
23,435.. 7.07 -- -- 6/30/08 N/A
2,000.. 5.09 2,000 5.09 2/20/08 2/20/01
------- ---- ------ ----
$33,185.. 6.46% $9,750 4.98%
======= ==== ====== ====
</TABLE>
CIB Marine is required to maintain qualifying collateral as security for
Federal Home Loan Bank borrowings including letters of credit. CIB Marine had
eligible collateral of $91.7 million and $46.4 million at September 30, 2000 and
December 31, 1999, respectively. As of September 30, 2000, this collateral
consisted of securities with a fair market value of $63.7 million, and 1-4
family residential mortgages not more than 90 days delinquent of $28.0 million.
On February 25, 2000, CIB Marine assumed a $25.0 million Federal Home Loan
Bank of Chicago advance due June 30, 2008 with a net cost, including premium, of
7.07%. The premium amount of $1.7 million is being amortized to interest expense
over the life of the borrowing. As of September 30, 2000, the unamortized
balance related to this premium was $1.6 million. Simultaneously with this
advance, CIB Marine entered into an interest rate swap with the Federal Home
Loan Bank of Chicago with a $25.0 million notional value and maturing on June
30, 2008, whereby CIB Marine pays a variable rate of interest at the 1 month
7
<PAGE> 8
LIBOR rate and earns a fixed rate of interest at 7.08%. As of September 30,
2000, the fair market value of the swap was approximately $0.7 million and the
net cash received from the hedging relationship for the nine-month period ended
September 30, 2000 was approximately $0.1 million. CIB Marine's management
believes the swap transaction will reduce interest rate risk by converting the
fixed rate on the advance to a variable rate similar to the loans funded with
the proceeds of these borrowings.
NOTE 7 -- GUARANTEED TRUST PREFERRED SECURITIES
In March and September 2000, CIB Marine issued $10.0 million and $15.0
million, respectively, in guaranteed trust preferred securities through wholly
owned special-purpose trusts. These securities qualify as Tier I equity capital
for regulatory capital purposes. The securities are classified in the liability
section of the Consolidated Balance Sheets, and the distributions on the
securities are classified as interest expense in the Consolidated Statements of
Income. Such distributions are cumulative and are payable to the security
holders semi-annually at rates of 10.875% and 10.60% per annum, respectively.
CIB Marine fully and unconditionally guarantees the obligations of the trusts on
a subordinated basis. The securities from the March issuance are mandatorily
redeemable upon their maturity on March 8, 2030 and are callable beginning March
8, 2010 at a premium, which declines ratably to par by 2020. The securities from
the September issuance are mandatorily redeemable upon their maturity on
September 7, 2030 and are callable beginning September 7, 2010 at a premium,
which declines ratably to par by 2020. Issuance costs of $0.3 million and $0.5
million related to the securities issued in March and September, respectively,
are classified as other assets on the balance sheets and are being amortized
over the expected life of the securities as an adjustment to interest expense.
CIB Marine used the net proceeds of $9.7 million and $14.5 million to reduce its
debt at a non-affiliated bank and for other corporate financing purposes.
NOTE 8 -- STOCK OPTION ACTIVITY
The following table is a reconciliation of stock option activity for the
nine months ended September 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF RANGE OF OPTION WEIGHTED AVERAGE
SHARES PRICES PER SHARE EXERCISE PRICE
---------- ---------------- ----------------
<S> <C> <C> <C>
Shares under option December 31, 1999........... 1,108,050 $4.95 - $16.79 $12.80
Granted....................................... 332,009 18.40 18.40
Lapsed or surrendered......................... (17,910) 10.87 - 16.79 14.56
Exercised..................................... (15,900) 8.50 - 13.07 9.19
---------- -------------- ------
Shares under option September 30, 2000.......... 1,406,249 $4.95 - $18.40 $14.14
========== ============== ======
</TABLE>
NOTE 9 -- RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, CIB Marine will be required to adopt statement of
financial accounting standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, and SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. Under these statements every
derivative instrument (including certain derivative instruments embedded in
contracts) must be recorded in the balance sheet as either an asset or liability
measured at its fair value. These statements also require that changes in a
derivative's fair value be recognized in earnings, unless the derivative meets
specific hedge accounting criteria. Generally, gains and losses related to
qualifying hedges offset gains and losses in the asset or liability hedged. CIB
Marine will be required to formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment. The
adoption of these statements on January 1, 2001 are not expected to have a
material effect on CIB Marine's financial position, liquidity or its subsequent
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following section is a discussion and analysis of CIB Marine's
consolidated financial condition as of September 30, 2000 and its results of
operations for the three and nine-month periods then-ended. References
8
<PAGE> 9
in the discussion below to "CIB Marine" include CIB Marine's subsidiaries unless
otherwise specified. This discussion and analysis should be read in conjunction
with the consolidated financial statements and notes contained in Part I, Item 1
of this report as well as CIB Marine's Annual Report on Form 10-K for fiscal
year ended December 31, 1999, which was filed with the Securities and Exchange
Commission. All share and per share data contained in this document have been
restated to reflect the effect of the 150-for-1 stock split. See Part I, Item
1 -- "Note 2 -- Stock Split."
FORWARD-LOOKING STATEMENTS
CIB Marine has made statements in this Form 10-Q that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. CIB Marine intends these forward-looking
statements to be subject to the safe harbor created thereby and is including
this statement to avail itself of the safe harbor. Forward-looking statements
are identified generally by statements containing words and phrases such as
"may," "project," "are confident," "should be," "will be," "predict," "believe,"
"plan," "expect," "estimate," "anticipate" and similar expressions. These
forward-looking statements reflect CIB Marine's current views with respect to
future events and financial performance, which are subject to many uncertainties
and factors relating to CIB Marine's operations and the business environment and
which could change at any time.
There are inherent difficulties in predicting factors that may affect the
accuracy of forward-looking statements. Potential risks and uncertainties that
may affect CIB Marine's operations, performance, development and business
results include the following:
-- Adverse changes in business conditions in the banking industry generally
and in the specific Midwestern markets in which CIB Marine's subsidiary
banks operate;
-- Changes in the legislative and regulatory environment that result in
increased competition or operating expenses;
-- Changes in interest rates and changes in monetary and fiscal policies
which could negatively affect net interest margins, asset valuations and
expense expectations;
-- Increased competition from other financial and non-financial
institutions;
-- CIB Marine's ability to generate or obtain the funds necessary to
achieve its future growth objectives;
-- CIB Marine's ability to manage its future growth;
-- CIB Marine's ability to identify attractive acquisition and growth
opportunities;
-- CIB Marine's ability to attract and retain key personnel;
-- Adverse changes in CIB Marine's loan and investment portfolios;
-- Changes in the financial condition or operating results of one or more
borrowers or related groups of borrowers or borrowers within a single
industry or small geographic region where CIB Marine has a concentration
of credit extended to those borrowers or related groups or to borrowers
within that single industry or small geographic region;
-- The competitive impact of technological advances in the banking
business; and
-- Other risks set forth from time to time in CIB Marine's filings with the
Securities and Exchange Commission.
These risks and uncertainties should be considered in evaluating
forward-looking statements, and undue reliance should not be placed on such
statements. CIB Marine does not assume any obligation to update or revise any
forward-looking statements subsequent to the date on which they are made,
whether as a result of new information, future events or otherwise.
9
<PAGE> 10
RESULTS OF OPERATIONS
OVERVIEW
CIB Marine's net income was $5.5 million for the third quarter of 2000, as
compared to $3.4 million for the same period in 1999, an increase of 61.0%. The
increase in net income is primarily due to the growth of CIB Marine. Total
assets at September 30, 2000 were $2.2 billion, a 22.0% increase from total
assets of $1.8 billion at December 31, 1999, and a 39.7% increase from $1.6
billion at September 30, 1999.
Basic earnings per share were $0.33 and $0.21 for the three-month periods
ended September 30, 2000 and September 30, 1999, respectively, an increase of
57.1%. Diluted earnings per share were $0.32 and $0.21 for the same periods,
respectively, an increase of 52.4%. The return on average assets for the
three-month period ended September 30, 2000 was 1.00%, as compared to 0.88% for
the same period in 1999. The return on average equity for the three-month period
ended September 30, 2000 was 12.09%, as compared to 8.93% for the same period in
1999.
CIB Marine's net income for the nine months ended September 30, 2000 was
$14.6 million, as compared to $9.7 million for the same period in 1999, an
increase of 51.0%. Net income for the first nine months of 2000 included a $0.2
million pre-tax, or $0.1 million after-tax, gain on the sale of the business of
Marine Trust. Net income for the first nine months of 1999 included a $0.8
million pre-tax, or $0.5 million after-tax, gain on the sale of a branch
facility. Excluding the effects of these gains, net income for the first nine
months of 2000 and 1999 would have been $14.5 million and $9.2 million,
respectively, representing an increase of 57.6%. The increase in net income is
primarily due to the growth of CIB Marine.
Basic earnings per share were $0.88 and $0.60 for the nine-month periods
ended September 30, 2000 and September 30, 1999, respectively, an increase of
46.7%. Diluted earnings per share were $0.86 and $0.60 for the same periods,
respectively, an increase of 43.3%. The return on average assets for the
nine-month period ended September 30, 2000 was 0.95%, as compared to 0.93% for
the same period in 1999. The return on average equity for the nine-month period
ended September 30, 2000 was 11.33%, as compared to 8.70% for the same period in
1999.
10
<PAGE> 11
The following table provides an overview of CIB Marine's growth. The table
indicates the percentage increase in the average balance sheet or income
statement items from the three and nine-month periods ended September 30, 1999
to the comparable periods ended September 30, 2000.
<TABLE>
<CAPTION>
NINE MONTHS
QUARTER ENDED ENDED
SEPT. 30, 2000 SEPT. 30, 2000
VS. SEPT. 30, 1999 VS. SEPT. 30, 1999
------------------ ------------------
<S> <C> <C>
AVERAGE BALANCE SHEET ITEMS:
Commercial real estate, construction agriculture &
commercial loans....................................... 42.70% 49.35%
Total assets.............................................. 41.91 47.71
Total deposits............................................ 36.60 45.05
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 2000 VS. SEPT. 30, 2000 VS.
SEPT. 30, 1999 SEPT. 30, 1999
QUARTER ENDED (INCLUDING GAIN ON (EXCLUDING GAIN ON
SEPT. 30, 2000 VS. SALE OF TRUST CO. SALE OF TRUST CO.
SEPT. 30, 1999 AND BRANCH FACILITY) AND BRANCH FACILITY)
------------------ -------------------- --------------------
<S> <C> <C> <C>
INCOME STATEMENT ITEMS:
Net interest income after provision
for loan loss (TE)................ 34.55% 40.79% 40.79%
Noninterest income................... 50.63 13.81 30.84
Noninterest expense.................. 20.92 29.33 29.33
Net income........................... 61.06 50.97 58.95
Diluted earnings per share........... 52.38 43.33 50.88
</TABLE>
---------------
(TE) Tax-equivalent basis of 35%.
CIB Marine achieved this growth by focusing on the development of banking
relationships with small to medium-sized businesses and through the opening of
new banks and branch facilities, internal growth and acquisitions. During 1999
and the first nine-months of 2000, CIB Marine established Marine Bank-Omaha,
opened 11 branch facilities and purchased three branch facilities. On March 29,
1999, CIB Marine purchased two branch facilities in the Chicago metropolitan
market, one in Arlington Heights and one in Mount Prospect. CIB Marine assumed
$115.8 million in deposits as a result of the purchase of these two facilities.
On September 24, 1999, CIB Marine purchased a branch facility in Zion, Illinois
and assumed $28.2 million of deposits. CIB Marine had 43 branch facilities and
547 full-time equivalent employees on September 30, 2000, as compared to 36
branch facilities and 468 full-time equivalent employees at September 30, 1999.
11
<PAGE> 12
The following table sets forth selected unaudited consolidated financial
data. The selected financial data should be read in conjunction with the
Unaudited Consolidated Financial Statements, including the related notes.
CIB MARINE BANCSHARES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30,} ENDED SEPTEMBER 30,
------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
{(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)}
<S> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA
Interest and dividend income:
Loans..................................................... $ 40,468 $ 25,870 $ 112,116 $ 69,724
Loans held for sale....................................... 86 47 207 215
Securities:
Taxable................................................. 6,329 3,917 16,243 10,342
Tax-exempt.............................................. 629 472 2,131 1,269
Dividends............................................... 66 58 244 160
Federal funds sold........................................ 418 203 664 314
----------- ----------- ----------- -----------
Total interest and dividend income.................... 47,996 30,567 131,605 82,024
----------- ----------- ----------- -----------
Interest expense:
Deposits.................................................. 26,425 16,015 70,425 41,765
Short-term borrowings..................................... 1,840 318 4,880 794
Long-term borrowings...................................... 499 164 1,269 667
Guaranteed trust preferred securities..................... 373 -- 673 --
----------- ----------- ----------- -----------
Total interest expense................................ 29,137 16,497 77,247 43,226
----------- ----------- ----------- -----------
Net interest income................................... 18,859 14,070 54,358 38,798
Provision for loan loss..................................... 1,975 1,515 6,250 4,485
----------- ----------- ----------- -----------
Net interest income after provision for loan loss..... 16,884 12,555 48,108 34,313
----------- ----------- ----------- -----------
Noninterest income:
Banking and trust service fees............................ 1,844 1,251 4,658 3,639
Gain on sale of branch.................................... -- -- -- 805
Other..................................................... 72 21 453 46
----------- ----------- ----------- -----------
Total noninterest income.............................. 1,916 1,272 5,111 4,490
----------- ----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits............................ 6,534 5,372 19,058 14,854
Equipment................................................. 639 499 1,790 1,515
Occupancy and premises.................................... 945 818 2,851 2,191
Professional services..................................... 203 245 1,268 949
Advertising / marketing................................... 226 200 712 548
Amortization of intangibles............................... 348 328 1,047 671
Other..................................................... 1,488 1,125 4,189 3,175
----------- ----------- ----------- -----------
Total noninterest expense............................. 10,383 8,587 30,915 23,903
----------- ----------- ----------- -----------
Income before income taxes.................................. 8,417 5,240 22,304 14,900
Income tax expense........................................ 2,928 1,832 7,698 5,225
----------- ----------- ----------- -----------
Net income............................................ $ 5,489 $ 3,408 $ 14,606 $ 9,675
=========== =========== =========== ===========
PER SHARE DATA
Basic earnings............................................ $ 0.33 $ 0.21 $ 0.88 $ 0.60
Diluted earnings.......................................... 0.32 0.21 0.86 0.60
Dividends................................................. -- -- -- --
Book value (at end of period)............................. 10.92 9.45 10.92 9.45
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30,} ENDED SEPTEMBER 30,
------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
{(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)}
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA
Securities................................................ $ 460,350 $ 314,897 $ 460,350 $ 314,897
Loans, including held for sale............................ 1,694,675 1,211,110 1,694,675 1,211,110
Total assets.............................................. 2,226,622 1,594,144 2,226,622 1,594,144
Deposits.................................................. 1,870,313 1,397,883 1,870,313 1,397,883
Borrowings, including guaranteed trust preferred
securities.............................................. 156,402 34,537 156,402 34,537
Stockholders' equity...................................... 183,964 152,322 183,964 152,322
SELECTED FINANCIAL RATIOS AND OTHER DATA
Performance Ratios:
Net Interest Margin (1)................................. 3.61% 3.83% 3.75% 3.95%
Net Interest Spread (2)................................. 2.92 3.17 3.09 3.23
Noninterest income to average assets.................... 0.35 0.33 0.33 0.43
Noninterest expense to average assets................... 1.88 2.21 2.01 2.30
Net overhead ratio (3).................................. 1.54 1.88 1.68 1.87
Efficiency ratio (4).................................... 49.09 55.00 50.92 54.29
Return on average assets (5)............................ 1.00 0.88 0.95 0.93
Return on average equity (6)............................ 12.09 8.93 11.33 8.70
Asset Quality Ratios:
Nonaccrual loans to loans, including held for sale...... 0.34% 0.24% 0.34% 0.24%
Allowance for loan loss to loans, including held for
sale.................................................. 1.27 1.18 1.27 1.18
Allowance for loan loss to nonperforming assets......... 363.76 332.29 363.76 332.29
Net chargeoffs to average loans including held for sale
(7)................................................... 0.03 0.07 0.03 0.07
Nonperforming assets to total assets (8)................ 0.26 0.27 0.26 0.27
Nonaccrual loans and 90+ days past due loans to loans,
including held for sale............................... 0.70 0.71 0.70 0.71
Nonaccrual loans and 90+ days past due loans to total
assets................................................ 0.53 0.54 0.53 0.54
Nonperforming assets and 90+ days past due to total
assets................................................ 0.54 0.62 0.54 0.62
Allowance as a percent of nonperforming assets and 90+
days past due loans................................... 178.86 144.00 178.86 144.00
Balance Sheet Ratios:
Average loans to average deposits....................... 88.85% 85.69% 89.69% 88.14%
Average interest-earning assets to average
interest-bearing liabilities.......................... 112.68 114.96 112.68 116.45
Capital Ratios:
Total equity to total assets............................ 8.26% 9.56% 8.26% 9.56%
Total risk-based capital ratio.......................... 10.87 10.87 10.87 10.87
Tier 1 risk-based capital ratio......................... 9.80 9.85 9.80 9.85
Leverage capital ratio.................................. 9.02 9.08 9.02 9.08
Other Data:
Number of employees (full-time equivalent).............. 547 468 547 468
Number of banking facilities............................ 43 36 43 36
Shares outstanding at the end of period................. 16,845,000 16,112,700 16,845,000 16,112,700
Weighted average shares outstanding basic............... 16,845,000 16,083,232 16,680,794 16,077,019
Weighted average shares outstanding diluted............. 17,087,026 16,269,054 16,902,892 16,252,850
</TABLE>
---------------
(1) Net interest margin is net interest income divided by average
interest-earning assets.
(2) Net interest rate spread is the yield on average interest-earning assets
less rate on average interest-bearing liabilities.
(3) The net overhead ratio is noninterest expense minus noninterest income
divided by average total assets.
(4) The efficiency ratio is noninterest expense divided by the sum of net
interest income (on a tax equivalent basis of 35%) plus noninterest income
excluding gains and losses on securities.
(5) Return on average assets is net income divided by average total assets.
(6) Return on average equity is net income divided by average common equity.
(7) Presented on an annualized basis.
(8) Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed property.
13
<PAGE> 14
NET INTEREST INCOME
Net interest income is the most significant component of CIB Marine's
earnings. Net interest income is the difference between interest earned on CIB
Marine's income-producing assets and interest paid on deposits and other
borrowed funds. The amount of CIB Marine's net interest income is affected by
several factors, including interest rates and the volume and relative mix of
earning assets and interest-bearing liabilities. Although management of CIB
Marine can control certain of these factors, others, such as the general level
of credit demand, fiscal policy and Federal Reserve Board monetary policy, are
beyond management's control.
The following tables set forth information for the three and nine-month
periods ended September 30, 2000 and 1999 regarding average balances, interest
income and interest expense and average rates earned or paid for each of CIB
Marine's major asset and liability categories, and for total liabilities and
stockholders' equity. These tables express interest income on a tax-equivalent
basis in order to compare the effective yield on earning assets. This means that
interest income on tax-exempt loans and tax-exempt investment securities has
been adjusted to reflect the income tax savings provided by these tax-exempt
assets. The tax-equivalent adjustment was based on an effective federal income
tax rate of 35%.
14
<PAGE> 15
QUARTERLY SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
---------- ----------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning Assets (TE):
Securities
Taxable.......................... $ 406,104 $ 6,395 6.26% $ 276,546 $ 3,975 5.70%
Tax-exempt....................... 49,479 968 7.78 37,612 727 7.67
---------- ------- ----- ---------- ------- ----
Total Securities..................... 455,583 7,363 6.43 314,158 4,702 5.94
Loans (1)
Commercial and agricultural...... 1,583,838 39,335 9.88 1,099,307 24,703 8.92
Real estate...................... 39,272 922 9.34 38,104 819 8.53
Installment and other consumer... 12,085 261 8.59 17,090 365 8.47
---------- ------- ----- ---------- ------- ----
Total loans.......................... 1,635,195 40,518 9.86 1,154,501 25,887 8.90
Federal funds sold................. 24,146 418 6.89 15,340 203 5.25
Loans held for sale................ 3,355 72 8.54 2,375 47 7.85
---------- ------- ----- ---------- ------- ----
Total interest-earning assets (TE)... 2,118,279 $48,371 9.08% 1,486,374 $30,839 8.23%
======= ===== ======= ====
Noninterest-earning Assets:
Cash and due from banks............ 20,042 15,867
Premises and equipment............. 21,494 20,578
Allowance for loan loss............ (20,522) (13,772)
Accrued interest receivable and
other assets..................... 52,346 35,319
---------- ----------
Total noninterest-earning assets..... 73,360 57,992
---------- ----------
Total Assets......................... $2,191,639 $1,544,366
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
Deposits:
Interest-bearing demand
deposits....................... $ 43,998 $ 288 2.60% $ 38,660 $ 242 2.48%
Money market..................... 182,160 2,637 5.76 145,731 1,732 4.72
Other savings deposits........... 35,307 280 3.15 35,151 284 3.21
Time deposits.................... 1,467,778 23,220 6.29 1,039,689 13,757 5.25
---------- ------- ----- ---------- ------- ----
Total interest-bearing deposits...... 1,729,243 26,425 6.08 1,259,231 16,015 5.05
Borrowings -- short-term........... 103,625 1,840 7.06 20,840 318 6.05
Borrowings -- long-term............ 33,189 499 5.98 12,823 164 5.07
Guaranteed trust preferred
securities....................... 13,913 373 10.67 -- -- --
---------- ------- ----- ---------- ------- ----
Total borrowed funds................. 150,727 2,712 7.16 33,663 482 5.68
Total interest-bearing liabilities... 1,879,970 $29,137 6.17% 1,292,894 $16,497 5.06%
======= ===== ======= ====
Noninterest-bearing Liabilities:
Noninterest-bearing demand
deposits......................... 114,879 90,818
Accrued interest and other
liabilities...................... 16,123 9,317
---------- ----------
Total noninterest-bearing
liabilities........................ 131,002 100,135
---------- ----------
Stockholders' Equity................. 180,667 151,337
---------- ----------
Total Liabilities and Stockholders'
Equity............................. $2,191,639 $1,544,366
========== ==========
NET INTEREST INCOME (TE) AND INTEREST
RATE SPREAD (2).................... $19,234 2.92% $14,342 3.17%
======= ===== ======= ====
NET INTEREST MARGIN (TE) (3)......... 3.61% 3.83%
===== ====
</TABLE>
---------------
(TE) Tax-equivalent basis of 35%
(1) Loan balance totals include nonaccrual loans.
(2) Interest rate spread is the net of the average rate on interest-earning
assets and interest-bearing liabilities.
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets.
15
<PAGE> 16
NINE MONTH SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
---------- ----------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning Assets (TE):
Securities
Taxable.......................... $ 355,563 $ 16,487 6.19% $ 244,374 $10,502 5.75%
Tax-exempt....................... 56,905 3,278 7.70 33,560 1,953 7.78
---------- -------- ----- ---------- ------- ----
Total Securities..................... 412,468 19,765 6.40 277,934 12,455 5.99
Loans(1)
Commercial and agricultural...... 1,500,691 108,858 9.69 989,313 66,074 8.93
Real estate...................... 37,289 2,520 9.03 40,484 2,481 8.19
Installment and other consumer... 13,390 857 8.55 19,357 1,226 8.47
---------- -------- ----- ---------- ------- ----
Total loans.......................... 1,551,370 112,235 9.66 1,049,154 69,781 8.89
Federal funds sold................. 13,160 664 6.74 8,003 314 5.25
Loans held for sale................ 2,858 184 8.55 3,903 215 7.36
---------- -------- ----- ---------- ------- ----
Total interest-earning assets (TE)... 1,979,856 $132,848 8.96% 1,338,994 $82,765 8.26%
======== ===== ======= ====
Noninterest-earning Assets:
Cash and due from banks............ 19,542 14,691
Premises and equipment............. 22,007 18,970
Allowance for loan loss............ (19,113) (12,452)
Accrued interest receivable and
other assets..................... 48,936 28,492
---------- ----------
Total noninterest-earning assets..... 71,372 49,701
---------- ----------
Total Assets......................... $2,051,228 $1,388,695
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
Deposits:
Interest-bearing demand
deposits....................... $ 45,384 $ 900 2.65% $ 38,637 $ 724 2.51%
Money market..................... 176,178 7,179 5.44 120,040 4,153 4.63
Other savings deposits........... 36,500 858 3.14 32,476 780 3.21
Time deposits.................... 1,363,226 61,488 6.01 922,266 36,108 5.23
---------- -------- ----- ---------- ------- ----
Total interest-bearing deposits...... 1,363,226 70,425 5.79 1,113,419 41,765 5.02
Borrowings -- short-term........... 95,090 4,880 6.86 18,864 794 5.63
Borrowings -- long-term............ 28,481 1,269 5.95 17,582 667 5.07
Guaranteed trust preferred
securities....................... 8,321 673 10.80 -- -- --
---------- -------- ----- ---------- ------- ----
Total borrowed funds................. 131,892 6,822 6.91 36,446 1,461 5.36
Total interest-bearing liabilities... 1,757,136 $ 77,247 5.87% 1,149,865 $43,226 5.03%
======== ===== ======= ====
Noninterest-bearing Liabilities:
Noninterest-bearing demand
deposits......................... 107,734 81,327
Accrued interest and other
liabilities...................... 14,165 8,852
---------- ----------
Total noninterest-bearing
liabilities........................ 121,899 90,179
---------- ----------
Stockholders' Equity................. 172,149 148,651
---------- ----------
Total Liabilities and Stockholders'
Equity............................. $2,051,228 $1,388,695
========== ==========
NET INTEREST INCOME (TE) AND INTEREST
RATE SPREAD(2)..................... $ 55,601 3.09% $39,539 3.23%
======== ===== ======= ====
NET INTEREST MARGIN (TE)(3).......... 3.75% 3.95%
===== ====
</TABLE>
---------------
(TE) Tax-equivalent basis of 35%
(1) Loan balance totals include nonaccrual loans.
(2) Interest rate spread is the net of the average rate on interest-earning
assets and interest-bearing liabilities.
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets.
16
<PAGE> 17
Net interest income on a tax-equivalent basis was $19.2 million for the
quarter ended September 30, 2000, representing an increase of $4.9 million, or
34.1%, from net interest income of $14.3 million for the same period in 1999.
For the first nine months of 2000, net interest income on a tax-equivalent basis
was $55.6 million, an increase of $16.1 million, or 40.6%, over the same period
in 1999. The increase in the volume of earning assets, and the liabilities to
fund these assets, accounted for the majority of the increases in net interest
income. These increases were partially offset by 25 and 14 basis point
reductions in the interest rate spreads between the comparable three and
nine-month periods, respectively.
The following table presents an analysis of changes, on a tax-equivalent
basis, in net interest income resulting from changes in average volumes of
interest-earning assets and interest-bearing liabilities and average rates
earned or paid.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 2000 NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO QUARTER ENDED COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999(1) SEPTEMBER 30, 1999 (1)
------------------------------------- ---------------------------------------
VOLUME RATE TOTAL % CHANGE VOLUME RATE TOTAL % CHANGE
------- ------ ------- -------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME (TE)
Securities -- taxable........... $ 1,999 $ 421 $ 2,420 60.88% $ 5,109 $ 876 $ 5,985 56.99%
Securities -- tax-exempt........ 230 11 241 33.11 5,501 (4,176) 1,325 67.87
------- ------ ------- ------ -------- ------- ------- ------
Total Securities............ 2,229 432 2,661 56.59 10,610 (3,300) 7,310 58.69
Commercial and agricultural..... 11,748 2,884 14,632 59.23 36,735 6,049 42,784 64.75
Real estate..................... 24 79 103 12.58 (22,056) 22,095 39 1.57
Installment and other
consumer...................... (1,071) 967 (104) (28.49) (2,643) 2,274 (369) (30.10)
------- ------ ------- ------ -------- ------- ------- ------
Total Loans (including
fees)..................... 10,701 3,930 14,631 56.52 12,036 30,418 42,454 60.84
Federal funds sold.............. 140 75 215 105.91 242 108 350 111.46
Loans held for sale............. 21 4 25 53.19 (4,352) 4,320 (32) (14.88)
------- ------ ------- ------ -------- ------- ------- ------
TOTAL INTEREST INCOME
(TE)...................... 13,091 4,441 17,532 56.85 18,536 31,546 50,082 60.51
------- ------ ------- ------ -------- ------- ------- ------
INTEREST EXPENSE
Interest-bearing demand
deposits...................... 34 12 46 19.01 132 44 176 24.31
Money market.................... 480 425 905 52.25 2,197 829 3,026 72.86
Other savings deposits.......... 196 (200) (4) (1.41) 3,003 (2,925) 78 10.00
Time deposits................... 6,381 3,082 9,463 68.79 19,434 5,948 25,380 70.29
------- ------ ------- ------ -------- ------- ------- ------
Total Deposits.............. 7,091 3,319 10,410 65.00 24,764 3,896 28,660 68.62
Borrowings -- short term........ 1,461 61 1,522 478.62 3,876 210 4,086 514.61
Borrowings -- long term......... 301 34 335 204.27 470 132 602 90.25
Guaranteed trust preferred
securities.................... 373 -- 373 N/A 673 -- 673 N/A
------- ------ ------- ------ -------- ------- ------- ------
Total Borrowed Funds........ 2,135 95 2,230 462.66 5,019 342 5,361 366.94
------- ------ ------- ------ -------- ------- ------- ------
TOTAL INTEREST EXPENSE...... 9,226 3,414 12,640 76.62 29,785 4,238 34,021 78.70
------- ------ ------- ------ -------- ------- ------- ------
NET INTEREST INCOME (TE).... $ 3,865 $1,027 $ 4,892 34.11% $(11,249) $27,308 $16,061 40.62%
======= ====== ======= ====== ======== ======= ======= ======
</TABLE>
---------------
(TE) Tax-equivalent basis, of 35%
(1) Variances which were not specifically attributable to volume or rate have
been allocated proportionally between volume and rate using absolute values
as a basis for the allocation. Nonaccruing loans were included in the
average balances used in determining yields.
Interest Income. For the third quarter of 2000, total interest income on a
tax-equivalent basis was $48.4 million, which represented an increase of 56.9%
from the same period in 1999. For the nine-month period ended September 30,
2000, total interest income on a tax-equivalent basis was $132.8 million, which
represented a 60.5% increase from the same period in 1999. The principal reason
for these increases was an increase in the volume of CIB Marine's average
earning assets. Average earning assets increased by $631.9 million, or 42.5%,
from the third quarter of 1999 as compared to the third quarter of 2000, and
$640.9 million, or 47.9%, from the first nine months of 1999 as compared to the
first nine months of 2000. Also
17
<PAGE> 18
contributing to the increases in interest income were 85 and 70 basis point
increases in the average interest rates earned from the comparable periods in
1999, which were primarily the result of an increase in market interest rates
between the periods.
Interest earned on loans was the largest component of total interest income
and represented 84.5% and 84.8% of total interest income in the third quarters
of 2000 and 1999, respectively, and 83.9% and 84.1% of total interest income for
the first nine months of 2000 and 1999, respectively. Interest income on
securities in CIB Marine's portfolio accounted for the majority of the remaining
balance in total interest income.
Interest Expense. Total interest expense for the third quarter of 2000
increased by $12.6 million, or 76.6%, from the same period in 1999. For the
nine-month period ended September 30, 2000, total interest expense increased by
$34.0 million, or 78.7%, from the same period in 1999. These increases were
primarily due to growth in average interest-bearing liabilities. Average
interest-bearing liabilities increased $587.1 million, or 45.4%, from the third
quarter of 1999 to the third quarter of 2000, and $607.3 million, or 52.8%, from
the first nine months of 1999 to the first nine months of 2000. Also
contributing to the increase in interest expense were 111 and 84 basis point
increases in the average interest rate paid on interest-bearing liabilities from
the three and nine-month periods ended September 30, 1999 to the same periods in
2000, respectively. The increase in the average interest rates paid were caused
primarily by an increase in market interest rates and the issuance of guaranteed
trust preferred securities in March and September of 2000. Average interest-
bearing deposits represented $470.0 million, or 80.1%, and $511.8 million, or
84.3%, of the increase in average interest-bearing liabilities for the three and
nine-month periods ended September 30, 2000, as compared to the same period in
1999.
Interest expense on time deposits represents the largest component of total
interest expense. The ratio of interest expense on time deposits to total
interest expense was 79.7% and 83.4% for the third quarters of 2000 and 1999,
respectively, and 79.6% and 83.5% for the nine-month periods ended September 30,
2000 and 1999, respectively. The increase in the interest expense on time
deposits was a result of increases in average balances and interest rates paid.
The average balance of time deposits increased by $428.1 million, or 41.2%, from
the third quarter of 1999 as compared to the third quarter of 2000, and $444.9
million, or 48.2%, from the first nine months of 1999 as compared to the first
nine months of 2000. The weighted average interest rate paid on these deposits
increased by 104 basis points from the third quarter of 1999 as compared to the
third quarter of 2000, and 78 basis points from the first nine months of 1999 as
compared to the first nine months of 2000. The increase in the interest rates
paid was primarily due to an increasing interest rate environment.
CIB Marine's interest rate spread was 2.92% and 3.17% for the third
quarters of 2000 and 1999, respectively, and 3.09% and 3.23% for the nine-month
periods ended September 30, 2000, and 1999, respectively. CIB Marine's net
interest margin was 3.61% and 3.83% for the third quarters of 2000 and 1999,
respectively, and 3.75% and 3.95% for the nine-month periods ended September 30,
2000 and 1999, respectively.
PROVISION FOR LOAN LOSS AND ALLOWANCE FOR LOAN LOSS
The provision for loan loss represents charges made to earnings in order to
maintain an adequate allowance for loan loss. CIB Marine maintains an allowance
for loan loss to absorb an estimate of probable losses in the loan and lease
portfolio. The provision for loan loss was $2.0 million for the third quarter of
2000 as compared to $1.5 million for the third quarter of 1999. The provision
for loan loss for the nine-month periods ended September 30, 2000 and 1999 was
$6.3 million and $4.5 million, respectively. At September 30, 2000, the
allowance for loan loss was $21.4 million, or 1.27% of total loans outstanding,
as compared to $15.8 million and 1.16%, respectively, at December 31, 1999. CIB
Marine increases the allowance by the amount of the provision for loan loss as
well as recoveries of previously charged-off loans and decreases the allowance
by the amount of loan charge-offs. The methodology for assessing the adequacy of
the allowance consists of several key elements, which include estimates for
general, specific and unallocated reserves.
The general reserves are calculated by applying a general loss ratio to
outstanding loans and leases. The general loss ratios vary by loan type and the
internal credit risk grade. Changes in internal credit risk grades and in
general loss ratios affect the amount of the general reserves. General loss
ratios are based on historical
18
<PAGE> 19
loss experience of CIB Marine and the industry. These ratios may be adjusted for
significant factors that, in CIB Marine's judgment, affect the collectibility of
the portfolio as of the evaluation date, including general changes in the loan
and lease portfolio and in economic conditions.
Specific reserves are estimated losses in loans that have been identified
as impaired within the meaning of SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures. The sum of the general and the
specific reserves represent an estimate of the loan and lease losses inherent in
the portfolio at any given point in time.
The unallocated reserves represent that portion of the reported allowance
that has not been allocated through the general or specific reserves. The
unallocated reserves are a variable component of the allowance. This variability
is based on various factors, including economic and regulatory conditions,
credit underwriting practices, collateral values, and industry and borrower
concentrations. The unallocated reserves are reviewed periodically to determine
whether they are at a level that CIB Marine believes are adequate, yet not
excessive.
The following table summarizes changes in the allowance for loan loss for
the three and nine-month periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD......................... $19,607 $13,000 $15,813 $10,657
Loans Charged-Off:
Commercial........................................... (28) (202) (223) (641)
Agricultural......................................... -- -- -- --
Real estate:
1-4 family........................................ -- -- (14) (48)
Commercial........................................ (5) (1) (217) (143)
Construction...................................... -- (4) -- (31)
Consumer............................................. (139) (45) (202) (83)
Credit card.......................................... (10) (1) (52) (3)
Other................................................ -- -- -- --
------- ------- ------- -------
TOTAL CHARGED-OFF............................... (182) (253) (708) (949)
------- ------- ------- -------
Recoveries of Loans Charged-Off:
Commercial........................................... 21 6 26 18
Agricultural......................................... -- -- -- 25
Real estate:
1-4 family........................................ -- -- -- 9
Commercial........................................ -- -- 20 --
Construction...................................... -- 46 -- 46
Consumer............................................. 9 -- 29 22
Credit card.......................................... 10 1 10 2
Other................................................ -- -- -- --
------- ------- ------- -------
TOTAL RECOVERIES................................ 40 53 85 122
------- ------- ------- -------
NET LOANS CHARGED-OFF.................................. (142) (200) (623) (827)
Provision for loan loss................................ 1,975 1,515 6,250 4,485
------- ------- ------- -------
BALANCE AT END OF PERIOD............................... $21,440 $14,315 $21,440 $14,315
======= ======= ======= =======
</TABLE>
The increases in the provision and the allowance were primarily related to
the increase in average loans outstanding and increases in the balances of
nonperforming loans and loans over 90 days past due and still accruing. Total
charge-offs for the third quarter of 2000 were $0.2 million as compared to $0.3
million for the
19
<PAGE> 20
third quarter of 1999. Total charge-offs during the nine-month periods ended
September 30, 2000 and 1999 amounted to $0.7 million and $0.9 million,
respectively. Recoveries during all of these periods were $0.1 million or less.
NONPERFORMING ASSETS AND LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
The level of nonperforming assets is an important element in assessing CIB
Marine's asset quality and the associated risk in its loan portfolio.
Nonperforming assets include nonaccrual loans, restructured loans and foreclosed
property. Loans are placed on nonaccrual status when CIB Marine determines that
the collection of principal and interest is uncertain. A loan is classified as
restructured when the terms of the loan are modified because of the inability of
the borrower to repay the loan under the original terms. Foreclosed property
represents properties acquired by CIB Marine through loan defaults by its
customers.
The following table summarizes the composition of CIB Marine's
nonperforming assets, loans 90 days or more past due and still accruing, and
related asset quality ratios as of the dates indicated.
20
<PAGE> 21
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
-----------------------------------------------------------
SEPTEMBER 30, 2000 DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------ ----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NONPERFORMING ASSETS
Nonaccrual Loans:
Commercial................................. $ 888 $ 1,298 $ 1,460
Agricultural............................... -- -- 30
Real estate:
1-4 family............................... 459 566 301
Commercial............................... 2,568 798 864
Construction............................. 1,788 180 185
Consumer................................... 81 161 111
Credit card................................ -- -- --
Other...................................... -- -- --
---------- ---------- ----------
Total nonaccrual loans................ 5,784 3,003 2,951
---------- ---------- ----------
Foreclosed property........................... 100 1,099 1,100
Restructured loans (1)........................ 10 268 257
---------- ---------- ----------
TOTAL NONPERFORMING ASSETS............ $ 5,894 $ 4,370 $ 4,308
========== ========== ==========
LOANS 90 DAYS OR MORE PAST DUE AND STILL
ACCRUING
Commercial................................. $ 2,968 $ 1,079 $ 4,156
Agricultural............................... -- -- --
Real estate:
1-4 family............................... 380 126 324
Commercial............................... 379 1,421 240
Construction............................. 192 850 850
Consumer................................... 31 16 14
Credit card................................ 3 9 34
Other...................................... 2,140 13 15
---------- ---------- ----------
TOTAL 90 DAYS OR MORE PAST DUE AND STILL
ACCRUING................................... $ 6,093 $ 3,514 $ 5,633
========== ========== ==========
Allowance for loan loss......................... $ 21,440 $ 15,813 $ 14,315
Loans at end of period, including held for
sale.......................................... 1,694,675 1,389,979 1,211,110
Average loans, including held for sale.......... 1,638,550 1,308,044 1,156,876
RATIOS
Ratio of allowance to loans..................... 1.27% 1.14% 1.18%
Ratio of net loans charged-off to average
loans......................................... 0.03 0.04 0.07
Ratio of recoveries to loans charged-off........ 21.98 12.06 20.95
Nonaccrual loans as a percent of loans.......... 0.34 0.22 0.24
Nonperforming assets as a percent of total
assets........................................ 0.26 0.24 0.27
Foreclosed properties as a percent of loans..... 0.01 0.08 0.09
Allowance as a percent of nonaccrual loans...... 370.68 526.57 485.09
Allowance as a percent of nonperforming
assets........................................ 363.76 361.85 332.29
Nonaccrual loans and 90+ days past due loans as
a percent of loans............................ 0.70 0.47 0.71
Nonaccrual loans and 90+ days past due loans as
a percent of total assets..................... 0.53 0.36 0.54
Nonperforming assets and 90+ days past due loans
as a percent of total assets.................. 0.54 0.43 0.62
Allowance as a percent of nonperforming assets
and 90+ days past due loans................... 178.86 200.57 144.00
</TABLE>
---------------
(1) $629 of Restructured Loans are included in nonaccrual loans at September 30,
2000.
Total nonaccrual loans were $5.8 million at September 30, 2000, $3.0
million at December 31, 1999, and $3.0 million at September 30, 1999. The ratio
of nonaccrual loans to total loans was 0.34%, 0.22% and 0.24% at September 30,
2000, December 31, 1999 and September 30, 1999, respectively.
21
<PAGE> 22
Foreclosed properties were $0.1 million at September 30, 2000, and $1.1
million at both December 31, 1999 and September 30, 1999. During the nine-month
period ended September 30, 2000, $5.9 million was transferred into foreclosed
properties and $6.9 million was sold.
Impaired loans were $2.2 million, $1.9 million and $2.0 million at
September 30, 2000, December 31, 1999 and September 30, 1999, respectively.
Nonaccrual loans represented approximately 40.4% of the impaired loan balance at
September 30, 2000, and 100.0% of the impaired loan balances at both December
31, 1999 and September 30, 1999.
Loans 90 days or more past due and still accruing are delinquent loans with
respect to the payment of principal and/or interest and which management
believes all contractual principal and interest amounts due will be collected.
CIB Marine had $6.1 million in loans 90 days or more past due and still accruing
at September 30, 2000, $3.5 million at December 31, 1999, and $5.6 million at
September 30, 1999. Accrued interest on loans 90 days past due or more and still
accruing as of September 30, 2000 was $0.1 million. The ratio of nonperforming
assets and loans 90 days or more past due and still accruing to total assets was
0.54% at September 30, 2000, 0.43% at December 31, 1999, and 0.62% at September
30, 1999.
On October 16, 2000, CIB Marine acquired and/or assumed, through a wholly
owned subsidiary, the business and certain assets and liabilities of a
manufacturer of payment processing systems. The business was acquired in lieu of
foreclosure or other legal action from a borrower who was in default of its
obligations to CIB Marine, including $4.7 million which was 90 days or more past
due and still accruing at September 30, 2000. The primary business of this
manufacturer is the design, development, assembly, distribution and servicing of
magnetic ink character recognition check encoders and related embedded software
to small and mid-sized financial institutions, as well as to large retailers and
independent remittance processors. This business will be classified as a held
for sale asset and included in other assets on CIB Marine's Consolidated Balance
Sheets at $6.5 million, which represents the appraised value of the business,
less estimated costs to sell, and also approximates the borrower's obligations
to CIB Marine, including accrued interest and late fees. Income related to this
business will be classified in other noninterest income on CIB Marine's
Statements of Income. Although this business has generated profits in each of
the prior three years, CIB Marine cannot provide assurances that these profits
will continue or that there will not be losses with respect to this business in
the future. The borrower has an option to repurchase the business under certain
conditions. This option expires upon the earlier of the divestiture of the
business or October 16, 2003.
NONINTEREST INCOME
Noninterest income for the third quarter of 2000 was $1.9 million,
representing an increase of $0.6 million, or 50.6%, from the third quarter of
1999. This increase was primarily a result of a $0.2 million increase in service
fees and loan fees caused primarily by an increase in lending volume, and a $0.2
million increase in deposit service charges due primarily to an increase in the
per-item charge for overdrafts on checking accounts. Also contributing to the
increase was the $0.2 million gain on the sale of the business of Marine Trust.
For the nine-month period ended September 30, 2000, noninterest income was
$5.1 million, representing an increase of $0.6 million, or 13.8%, from the same
period in 1999. Noninterest income for the first nine months of 2000 included a
$0.2 million gain on the sale of Marine Trust. Noninterest income for the first
nine months of 1999 included an $0.8 million gain on the sale of a branch
facility. Excluding the effects of these gains, noninterest income for the first
nine months of 2000 and 1999 would have been $5.0 million and $3.7 million,
respectively, representing an increase of $1.3 million or 34.6%.
NONINTEREST EXPENSE
Total noninterest expense increased $1.8 million, or 20.9%, from the third
quarter of 2000, as compared to the same period in 1999. For the nine-month
period ended September 30, 2000, total noninterest expense increased $7.0
million, or 29.3%, as compared to the same period in 1999. These increases were
primarily the result of CIB Marine's growth, including internal growth and the
acquisition and opening of a new bank and branch facilities.
22
<PAGE> 23
Compensation and employee benefits expense was $6.5 million in the third
quarter of 2000, as compared to $5.4 million in the third quarter of 1999, an
increase of 21.6%. For the nine-month period ended September 30, 2000,
compensation and benefits expense was $19.1 million, as compared to $14.9
million for the same period in 1999, an increase of 28.3%. These increases were
primarily due to the hiring of additional personnel as a result of CIB Marine's
growth, including the staffing of new facilities and annual merit increases. The
total number of full-time equivalent employees increased to 547 at September 30,
2000 from 503 and 468 at December 31, 1999 and September 30, 1999, respectively,
representing increases of 8.7% and 16.9% for the nine and twelve-month periods,
respectively.
Equipment, occupancy and premises expense increased $0.3 million, or 20.3%,
from the third quarter of 1999 to the third quarter of 2000, and $0.9 million,
or 25.2%, from the nine-month period ended September 30, 1999 to the nine-month
period ended September 30, 2000. These increases were primarily the result of
the opening of a new bank and branch facilities.
Professional service expense decreased by $42,000, or 17.1%, from the third
quarter of 1999 to the third quarter of 2000, but increased $0.3 million, or
33.7%, from the nine-month period ended September 30, 1999 to the nine-month
period ended September 30, 2000. The decrease in the quarterly comparison was
primarily due to the recovery of certain legal fees associated with commercial
loan workouts, while the increase in the nine-month period comparison was
primarily attributable to increased expenditures for outside accounting
services.
Amortization of intangible assets expense increased $20,000, or 6.0%, from
the third quarter of 1999 to the third quarter of 2000, and by $0.4 million, or
55.9%, from the nine-month period ended September 30, 1999 to the nine-month
period ended September, 30 2000. These increases were primarily attributable to
intangible asset increases of $9.5 million relating to the two branch facilities
purchased in March, 1999 and $2.0 million for the branch facility purchased in
September 1999.
Other noninterest expense increased $0.4 million, or 32.3%, from the third
quarter of 1999 to the third quarter of 2000, and $1.0 million, or 31.9%, from
the nine-month period ended September 30, 1999 to the nine-month period ended
September 30, 2000. These increases were primarily due to increases in
expenditures for telephone and data lines, office supplies, postage, and FDIC
and state assessments, resulting primarily from CIB Marine's growth.
CIB Marine's efficiency ratios were 49.1% and 55.0% for the third quarters
ended September 30, 2000 and 1999, respectively, and 50.9% and 54.3% for the
nine-month periods ended September 30, 2000 and 1999, respectively. Excluding
the effect of the sale of the business of Marine Trust, the efficiency ratio for
the third quarter and nine-month period ended September 30, 2000 would have been
49.5% and 51.1%, respectively. Excluding the effect of the gain on the sale of
the branch facility, the efficiency ratio for the first nine months of 1999
would have been 58.0%. Total noninterest expense as a percentage of average
assets was 1.88% and 2.21% for the quarters ended September 30, 2000 and 1999,
respectively, and 2.01% and 2.30% for the nine-month periods ended September 30,
2000 and 1999, respectively.
INCOME TAXES
CIB Marine records a provision for income taxes currently payable, along
with a provision for income taxes payable in the future. Deferred taxes arise
from temporary differences between financial statement and income tax reporting.
The effective tax rates for the three and nine-months ended September 30, 2000
were 34.8% and 34.5%, respectively, as compared to 35.0% and 35.1% for the same
periods in 1999.
FINANCIAL CONDITION
OVERVIEW
CIB Marine's total assets increased $401.8 million, or 22.0%, during the
nine months ended September 30, 2000. This increase was primarily the result of
CIB Marine's growth and acquisition strategy. Gross loans increased by $302.8
million, or 21.8%, and investment securities increased by $97.0 million, or
26.7%, during the first nine months of 2000. These increases were primarily
funded by a $341.9 million, or 22.4%,
23
<PAGE> 24
increase in deposit liabilities, the issuance of $25.0 million in guaranteed
trust preferred securities, and a $23.4 million, or 240.4%, increase in
long-term FHLB borrowings.
INVESTMENT SECURITIES
The carrying value and tax-equivalent yield of CIB Marine's securities are
set forth in the following table.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000 AT DECEMBER 31, 1999
---------------------- --------------------
YIELD TO YIELD TO
AMOUNT MATURITY AMOUNT MATURITY
--------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government & Agencies........................ $ 66,286 6.26% $ 73,940 6.10%
Obligations of states and political
subdivisions.................................... 46,745 7.41 57,679 7.04
Other notes and bonds............................. 450 7.10 450 7.11
Mortgage backed securities........................ 20,003 7.07 14,821 6.97
-------- ----- -------- -----
Total Securities Held To Maturity....... 133,484 6.79 146,890 6.56
-------- ----- -------- -----
AVAILABLE FOR SALE
U.S. Government & Agencies........................ 259,502 6.15 190,585 5.83
Obligations of states and political
subdivisions.................................... 4,310 11.00 3,735 10.49
Other notes and bonds............................. 18,115 6.70 2,107 6.80
Mortgage backed securities........................ 42,268 7.04 18,821 6.04
Federal Home Loan Bank stock...................... 3,522 7.63 4,482 6.50
Other equities.................................... 37 N/A 37 N/A
-------- ----- -------- -----
Total Securities Available for Sale
Before
SFAS 115 Adjustment................... 327,754 6.37 219,767 5.95
-------- ----- -------- -----
Total Securities Before SFAS 115
Adjustment............................ 461,238 6.49% 366,657 6.20%
===== =====
SFAS 115 Available For Sale Market Value
Adjustment...................................... (888) (3,307)
-------- --------
TOTAL SECURITIES.................................. $460,350 $363,350
======== ========
</TABLE>
Total securities outstanding at September 30, 2000 were $460.4 million as
compared to $363.4 million at December 31, 1999, representing an increase of
26.7%. The increase in the securities portfolio was directly related to CIB
Marine's growth during this period. The ratio of total securities to total
assets was 20.7% at September 30, 2000, as compared to 19.9% at December 31,
1999. Because CIB Marine's securities portfolio is one of its sources of
liquidity, the size of its portfolio has been increased as total assets have
increased.
The mix of securities in CIB Marine's portfolio has remained relatively
constant during the past three years. Ignoring SFAS No. 115 market value
adjustments, at September 30, 2000 and December 31, 1999, U.S. Government and
Agency securities represented 70.6% and 72.1% of the portfolio, respectively;
mortgage backed securities represented 13.5% and 9.2% of the portfolio,
respectively; and obligations of states and political subdivisions, most of
which are general obligations of states or political subdivisions of states in
which CIB Marine's subsidiaries are located, represented 11.1% and 16.7% of the
portfolio, respectively.
As of September 30, 2000, $326.9 million, or 71.0% of the portfolio, was
classified as available for sale, and $133.5 million, or 29.0% of the portfolio,
was classified as held to maturity. At December 31, 1999, these ratios were
59.6% and 40.4%, respectively. Securities available for sale increased $110.4
million, or 51.0%, from December 31, 1999 to September 30, 2000, while
securities held to maturity decreased $13.4 million, or 9.1%.
On September 30, 2000, the net unrealized loss of the available for sale
securities was $0.9 million, as compared to a net unrealized loss of $3.3
million at December 31, 1999. The increase in the unrealized value of these
securities over the first nine months of 2000 was a direct result of decreases
in market interest rates.
24
<PAGE> 25
LOANS
Loans, net of the allowance for loan loss, were $1.7 billion at September
30, 2000, an increase of $297.2 million, or 21.7%, from December 31, 1999. Net
loans represented 75.0% and 75.2% of CIB Marine's total assets at September 30,
2000 and December 31, 1999, respectively. Most of the increase in CIB Marine's
loan portfolio was in commercial real estate loans, commercial loans and
construction loans, which in the aggregate represented 95.0% of gross loans at
September 30, 2000 and 94.5% of gross loans at December 31, 1999. These
increases are consistent with CIB Marine's strategy to focus on establishing
banking relationships with small to medium-sized businesses and has been
achieved by hiring lenders who have experience and expertise in making loans to
these customers.
The following table sets forth a summary of CIB Marine's loan portfolio by
category for each of the periods indicated. The data for each category is
presented in terms of total dollars outstanding and as a percentage of the total
loans outstanding.
LOAN PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------------ ------------------------ ------------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL BALANCE % OF TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and insurance.... $ 558,981 33.0% $ 454,438 32.7% $ 365,471 30.1%
Agricultural................ 5,033 0.3 5,973 0.4 6,217 0.5
Real estate:
1-4 family................ 58,843 3.5 50,292 3.6 49,916 4.1
Commercial................ 766,894 45.2 646,484 46.5 628,872 51.9
Construction.............. 284,839 16.8 214,251 15.4 141,822 11.7
Consumer.................... 9,751 0.5 13,152 0.9 13,738 1.1
Credit card loans........... 1,640 0.1 1,436 0.1 1,598 0.1
Other....................... 9,392 0.6 5,486 0.4 4,706 0.5
---------- ----- ---------- ----- ---------- -----
Total loans....... 1,695,373 100.0% 1,391,512 100.0% 1,212,340 100.0%
===== ===== =====
Deferred Loan Fees.......... (4,717) (3,681) (3,059)
Allowance for Loan (Loss)... (21,440) (15,813) (14,315)
---------- ---------- ----------
NET LOANS......... $1,669,216 $1,372,018 $1,194,966
========== ========== ==========
</TABLE>
CREDIT CONCENTRATIONS
Pursuant to CIB Marine's loan policy, a concentration of credit is deemed
to exist when the total credit relationship to one borrower, a related group of
borrowers, or borrowers within or dependent upon a related industry exceeds 25%
of the capital of CIB Marine. At September 30, 2000, CIB Marine did not have any
borrowing relationships with individual borrowers or related groups of borrowers
that exceeded 25% of capital.
In July 1999, one of CIB Marine's borrowers, who is also a stockholder of
CIB Marine and whose total borrowing relationship exceeded 25% of capital at
that time, experienced a substantial decline in net worth as a result of a
similar decline in the market value of a publicly traded common stock comprising
a large part of this borrower's net worth. The decline in the value of this
security has caused liquidity problems for this borrower with respect to its
current obligations to CIB Marine and other lenders. Since March 2000, the total
outstanding lending commitment associated with this borrowing relationship has
represented less than 25% of the capital of CIB Marine. As of September 30,
2000, the total outstanding lending commitment associated with this borrowing
relationship, including lines of credit which have not been fully drawn, was
approximately $37.5 million. The aggregate principal amount actually drawn and
outstanding at September 30, 2000, with respect to this borrowing relationship
was approximately $35.2 million and all such loans were current with respect to
principal and interest. CIB Marine has renewed certain loans and extended new
loans to this borrower since July 1999 based upon a credit evaluation at the
time of origination or renewal. As loans to this
25
<PAGE> 26
borrower become due, CIB Marine will evaluate the credit relationship at that
time to determine whether to renew such loans.
Since July 1999, CIB Marine has closely monitored this borrowing
relationship including the collateral margins and cash flows. This borrower
continues to work with CIB Marine to improve this borrowing relationship,
including providing updated financial information so that CIB Marine can monitor
and evaluate the credit risk of this relationship. Although CIB Marine estimates
the value of the collateral securing this borrowing relationship currently
exceeds the outstanding principal balance to this borrower, this borrowing
relationship has been under-collateralized pursuant to the collateral
requirements of CIB Marine's loan policy since the first quarter of 2000.
In order to assess this borrower's liquidity needs, CIB Marine continues to
monitor the borrower's obligations to other lenders and their collateral
positions. In November 1999, two of these other lenders filed lawsuits to
recover amounts due to them. During February 2000 one of these lawsuits was
dismissed. In April 2000, CIB Marine became aware of another lawsuit, which was
filed in March 2000 by a third lender, to recover amounts due to them. This
lawsuit was dismissed in July 2000. In August 2000, another lawsuit was served
on the borrower by another lender to recover amounts due. The borrower is
engaging in a voluntary and orderly disposition of certain of its assets to
satisfy various obligations to CIB Marine and other lenders and to strengthen
its liquidity position.
CIB Marine has neither suffered nor currently anticipates any losses with
respect to its loans to this borrower and has determined that an additional
provision to its allowance for loan loss is not currently required. CIB Marine
cannot provide assurances that an additional provision will not be required in
the future or that there will not be future losses with respect to loans to this
borrower. Management of CIB Marine will continue to closely monitor its loans to
this borrower in order to assess its ongoing exposure to the credit risk posed
by this borrower and will take additional action if deemed appropriate.
In working with this borrower to address its liquidity problems, management
determined that it was in the best interest of CIB Marine to provide this
borrower with additional cash to help it meet its current obligations both to
CIB Marine and to other lenders. On September 9, 1999, CIB Marine purchased from
this borrower-limited partnership interests in three private investment funds.
CIB Marine paid $2.4 million for these limited partnership interests, of which
$1.0 million was used by the borrower to repay a loan from CIB Marine that was
previously secured by an interest in one of these limited partnerships, $1.3
million was invested in a certificate of deposit at CIB Marine which was pledged
to CIB Marine as additional collateral and to be used as a reserve account for
future interest payments, and $0.1 million was paid to another lender. The
certificate of deposit was reduced by $0.5 million during the fourth quarter of
1999 to reflect an adjustment to the purchase price of the limited partnership
interests. Since the fourth quarter of 1999, $0.7 million of this account has
been used to make required interest payments to CIB Marine. As of September 30,
2000 the account balance had been depleted to less than $0.1 million. Since
September 30, 2000 the borrower added $0.3 million to this account from proceeds
gained through the sale of certain assets. Payments to CIB Marine continue to be
made timely and CIB Marine has requested the borrower to replenish the interest
reserve. A description of this investment and the purchase price adjustment is
included below under "Other Assets".
At September 30, 2000, CIB Marine also had total borrowings within three
industries or industry groups that exceeded 25% of its capital as of that date.
The total outstanding balance to commercial and residential real estate
developers, investors and contractors was approximately $727.4 million, or 42.9%
of gross loans and 395.4% of stockholders' equity. The total outstanding balance
of loans made in the motel and hotel industry was approximately $134.3 million,
or 7.9% of gross loans and 73.0% of stockholders' equity. The total outstanding
balance of loans made in the nursing/convalescent home industry was
approximately $95.7 million, or 5.6% of gross loans outstanding and 52.0% of
stockholders' equity.
Commercial or multi-family real estate, other business collateral and/or
personal property generally collateralize the loans and lines of credit
described in this section. Additionally, most of the loans are personally
guaranteed by the principals. Management has no reason to believe that each loan
within these concentrations represent any greater risk of loss than CIB Marine's
other loans that are similarly collateralized and underwritten.
26
<PAGE> 27
OTHER ASSETS
During the first nine months of 2000, other assets increased $1.9 million,
or 44.6%, to $6.2 million, from $4.3 million at December 31, 1999. Capitalized
underwriting fees incurred with the issuance of $25.0 million in guaranteed
trust preferred securities accounted for $0.8 million of the increase.
Additional information regarding these securities is discussed in "Borrowings"
and "Guaranteed Trust Preferred Securities".
Other assets at September 30, 2000 includes a $2.7 million investment in
three limited partnerships. In September 1999, CIB Marine purchased, at the
holding company level, limited partnership interests in three private investment
funds from one of its largest borrowers. These funds are currently invested in
both public and private equity securities. Two of the funds are focused on the
environmental and waste-related industries and the other fund is focused on the
health care, pharmaceutical, media and communication industries. CIB Marine
engaged in this transaction primarily to provide this borrower, who is also a
stockholder of CIB Marine, with cash to meet current obligations to CIB Marine.
Additional information about this borrower and its loans from CIB Marine are
discussed in "Loans-Credit Concentrations."
The amount of this investment reflects the adjusted purchase price of $1.9
million and capital calls of $0.8 million subsequent to purchase. These
partnership investments are included in other assets and are carried at the
lower of cost or fair market value. CIB Marine may also be required to invest up
to an additional $2.0 million over the next 2 1/2 years pursuant to further
capital call commitments.
There is currently no public market for the limited partnership interests
in these private investment funds, and it is unlikely that such a market will
develop. Because of its illiquidity and the effect of market volatility on
equity investments such as this, this investment involves a higher risk of loss
than other securities in CIB Marine's portfolio. In order to reduce the risk in
this investment, CIB Marine has negotiated a put option to require the borrower
to repurchase the limited partnership interests at any time for the greater of
the fair market value of the limited partnership interests as of the date that
the put option is exercised or the amount originally paid by CIB Marine to the
borrower (as adjusted for additional investments by CIB Marine in the funds and
distributions by the funds to CIB Marine). The value of this put option,
however, is dependent on the future financial ability of the borrower to perform
as discussed above in "Credit Concentrations." CIB Marine believes that this
investment will provide an adequate return, however it cannot provide assurances
that this return will be adequate or there will not be future losses with
respect to the limited partnership interests.
DEPOSIT LIABILITIES
CIB Marine has experienced significant growth in deposits, which are the
primary funding source for asset growth. Total deposits increased 22.4% to $1.9
billion at September 30, 2000, from $1.5 billion at December 31, 1999.
Management attributes this growth to a number of factors, including a
competitive product offering, prior new branch establishments, and various
deposit promotional efforts.
Time deposits represent the largest component of interest bearing deposit
liabilities. The percentage of time deposits to total deposits was 79.6% at
September 30, 2000, and 76.9% at December 31, 1999. These percentages reflect
CIB Marine's significant reliance on time deposits as a source of funding. Time
deposits of $100,000 and over of $515.8 million at September 30, 2000, and
$415.9 million at December 31, 1999, represented 34.4% and 35.4% of total time
deposits, respectively. CIB Marine issues brokered time deposits periodically to
meet short term funding needs and/or when their related costs are at or below
those being offered on other deposits. Brokered time deposits were $70.1
million, or 4.7%, of total time deposits at September 30, 2000, and $80.7
million, or 6.9%, of total time deposits at December 31, 1999. Brokered time
deposits of $100,000 and over were $64.7 million at September 30, 2000 as
compared to $71.8 million at December 31, 1999.
At September 30, 2000, noninterest-bearing demand deposits were $112.7
million or 6.0% of total deposits, interest-bearing demand deposits were $45.8
million or 2.4% of total deposits, and savings deposits were $222.6 million or
11.9% of total deposits. At December 31, 1999 these deposits were $98.6 million
or 6.5%, $45.1 million or 3.0%, and $209.3 million or 13.7%, respectively.
27
<PAGE> 28
BORROWINGS
The following table sets forth information regarding selected categories of
borrowings.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- -------------------
BALANCE AVG RATE BALANCE AVG RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SHORT-TERM BORROWINGS
Fed funds purchased................................ $ 38,815 6.77% $ 29,575 5.21%
Securities sold under repurchase agreements........ 40,166 6.38 27,129 5.49
Treasury, tax and loan note........................ 177 6.39 405 4.01
Federal Home Loan Bank -- short term............... -- -- 26,400 5.16
Commercial paper................................... 809 6.81 -- --
Other borrowings -- short term..................... 18,250 8.13 29,710 8.48
-------- ----- -------- ----
Total Short-Term Borrowings................... 98,217 6.86% 113,219 6.12%
-------- ----- -------- ----
LONG-TERM BORROWINGS
Federal Home Loan Bank............................. 33,185 6.46% 9,750 4.98
Guaranteed trust preferred securities.............. 25,000 10.71 -- --
-------- ----- -------- ----
Total Long-Term Borrowings................. 58,185 8.28% 9,750 4.98%
-------- ----- -------- ----
TOTAL BORROWINGS........................... $156,402 7.40% $122,969 6.03%
======== ===== ======== ====
</TABLE>
Total borrowings increased $33.4 million, or 27.2%, to $156.4 million
during the nine-month period ended September 30, 2000, from $123.0 million at
December 31, 1999. Fed Funds purchased accounted for $38.8 million, or 24.8%, of
total borrowings at September 30, 2000, as compared to $29.6 million, or 24.1%,
of total borrowings at December 31, 1999. Repurchase agreements accounted for
$40.2 million, or 25.7%, of total borrowings at September 30, 2000, as compared
to $27.1 million, or 22.1%, of total borrowings at December 31, 1999. Federal
Home Loan Bank advances accounted for $33.2 million, or 21.2% of total
borrowings at September 30, 2000, as compared to $36.2 million, or 29.4%, at
December 31, 1999. Guaranteed trust preferred securities accounted for $25.0
million, or 16.0% of total borrowings at September 30, 2000. There were no
guaranteed trust preferred securities outstanding at December 31, 1999. CIB
Marine utilized short and long-term borrowings during the first nine months of
2000 in order to meet its funding needs or when the terms on these products were
more favorable than other types of funding.
During the first quarter of 2000, CIB Marine assumed a $25.0 million
Federal Home Loan Bank of Chicago advance due June 30, 2008 with an effective
rate, including premium, of 7.07%. The $1.7 million premium is being amortized
over the life of the borrowing. CIB Marine also entered into an interest rate
swap with the Federal Home Loan Bank of Chicago with a $25.0 million notional
value and maturing on June 30, 2008. CIB Marine pays a variable rate of interest
at the one month LIBOR rate and earns a fixed rate of interest at 7.08%. CIB
Marine believes the swap transaction will reduce interest rate risk by
converting the fixed rate on the advance to a variable rate similar to the loans
funded with the proceeds of these borrowings.
CIB Marine also has a $30.0 million revolving line of credit with an
unaffiliated commercial bank. At September 30, 2000, there was an outstanding
balance on this line of credit in the amount of $18.3 million, as compared to
$29.7 million at December 31, 1999. These funds were used to provide capital
support for the growth of the subsidiary banks, acquire branch facilities and
for working capital.
GUARANTEED TRUST PREFERRED SECURITIES
In March and September 2000, CIB Marine issued $10.0 million and $15.0
million, respectively, in guaranteed trust preferred securities through wholly
owned special-purpose trusts. These securities qualify as Tier I equity capital
for regulatory capital purposes. The securities are classified in the liability
section of the Consolidated Balance Sheets, and the distributions on the
securities are classified as interest expense on the Consolidated Statements of
Income. Such distributions are cumulative and are payable to the security
holders semi-annually at rates of 10.875% and 10.60 % per annum, respectively.
CIB Marine fully and unconditionally
28
<PAGE> 29
guarantees the obligations of the trusts on a subordinated basis. The securities
from the March issuance are mandatorily redeemable upon their maturity on March
8, 2030 and are callable beginning March 8, 2010 at a premium, which declines
ratably to par by 2020. The securities from the September issuance are
mandatorily redeemable upon their maturity on September 7, 2030 and are callable
beginning September 7, 2010 at a premium, which declines ratably to par by 2020.
Issuance costs of $0.3 million and $0.5 million, respectively, related to the
securities are classified as other assets on the Consolidated Balance Sheets and
are being amortized over the expected life of the securities as an adjustment to
interest expense. CIB Marine used the net proceeds of $9.7 million and $14.5
million to reduce its debt at a non-affiliated bank and for other corporate
financing purposes.
CAPITAL
CIB Marine and its subsidiary banks are subject to various regulatory
capital guidelines. In general, these guidelines define the various components
of core capital and assign risk weights to various categories of assets. The
risk-based capital guidelines require financial institutions to maintain minimum
levels of capital as a percentage of risk-weighted assets.
The risk-based capital information of CIB Marine at September 30, 2000 and
December 31, 1999 is contained in the following table. The capital levels of CIB
Marine and the subsidiary banks are, and have been, in excess of the required
regulatory minimums during the periods indicated. CIB Marine intends to maintain
its capital level and the capital levels of its banks at or above levels
sufficient to support future growth and maintain sufficiently high lending
limits to permit CIB Marine's subsidiary banks to meet the credit needs of
medium-sized commercial borrowers.
29
<PAGE> 30
RISK-BASED CAPITAL
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
RISK WEIGHTED ASSETS (RWA)................................. $2,004,419 $1,618,852
========== ==========
AVERAGE ASSETS (QUARTER ONLY)(1)........................... 2,178,544 1,667,517
========== ==========
CAPITAL COMPONENTS
Stockholders' equity..................................... $ 183,964 $ 161,335
Guaranteed trust preferred securities.................... 25,000 --
Less: Disallowed intangibles............................. (13,098) (14,171)
Add: Unrealized loss on securities....................... 536 2,034
---------- ----------
TIER 1 CAPITAL............................................. 196,402 149,198
Allowable allowance for loan loss........................ 21,440 15,813
---------- ----------
TOTAL RISK-BASED CAPITAL................................... $ 217,842 $ 165,011
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------------------
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
-------------------- --------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Total Capital (to RWA).............................. $217,842 10.87% $160,354 8.00%
Tier 1 Capital (to RWA)............................. 196,402 9.80 80,177 4.00
Tier 1 Leverage (to Avg Assets)..................... 196,402 9.02 87,142 4.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
-------------------- --------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Total Capital (to RWA).............................. 165,011 10.19% 129,508 8.00%
Tier 1 Capital (to RWA)............................. 149,198 9.22 64,754 4.00
Tier 1 Leverage (to Avg Assets)..................... 149,198 8.95 66,701 4.00
</TABLE>
---------------
(1) Average assets as calculated for risk-based capital (deductions include
current period balances for goodwill and other intangibles).
In March and September 2000, CIB Marine issued $10.0 million and $15.0
million, respectively, in guaranteed trust preferred securities. These
securities qualify as Tier I equity capital for regulatory capital purposes. In
March and April 2000, CIB Marine also raised $3.9 million of capital pursuant to
a private placement offering of its common stock. In June 2000, CIB Marine
raised $2.4 million in capital pursuant to another private placement offering of
its common stock. In September and October 2000, CIB Marine held another private
placement offering. No funds were received prior to September 30, 2000.
Approximately $1.3 million was received in October and November. For additional
information regarding these transactions see "Guaranteed Trust Preferred
Securities" and Part II, Item 2 -- "Changes in Securities and Use of Proceeds."
LIQUIDITY
The objective of liquidity risk management is to ensure that CIB Marine has
adequate funds available to fund various commitments, including loan demand,
deposit withdrawals and other obligations in a timely manner. CIB Marine's
Asset/Liability Management Committee actively manages CIB Marine's liquidity
position by estimating, measuring and monitoring its sources and uses of funds
and its liquidity position. CIB Marine's sources of funding and liquidity
include both asset and liability components. CIB Marine's funding requirements
are primarily met by the inflow of funds from deposits, borrowings, and loan
repayments.
30
<PAGE> 31
The following discussion should be read in conjunction with the
Consolidated Statements of Cash Flows for the nine months ended September 30,
2000 and 1999, contained in the Consolidated Financial Statements.
For the nine months ended September 30, 2000, net cash provided by
operating activities was $12.1 million, as compared to $17.1 million for the
same period in 1999. The decrease in net cash provided by operating activities
was primarily due to the purchase of loans held for sale. For the nine months
ended September 30, 2000, net cash used in investing activities was $395.4
million, as compared to $285.7 million for the same period in 1999. The increase
in cash used for investing activities was due in part to a net increase in
purchases of investment securities and $124.4 million in cash provided during
the nine-month period in 1999 as a result of the purchase of branch assets and
deposits in cash. Net cash provided by financing activities was $380.7 million
and $267.7 million for the nine-month periods ended September 30, 2000 and 1999,
respectively. Increases in deposit liabilities provided $341.7 million, or 89.8%
of the net cash provided by financing activities for the first nine months of
2000.
CIB Marine was able to meet its liquidity needs during the first nine
months of 2000 and expects to meet these needs for the remainder of 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SENSITIVITY
There have been no material changes in the market risks faced by CIB Marine
since December 31, 1999. For information regarding CIB Marine's market risks,
refer to its 1999 Annual Report on Form 10-K, which is on file with the
Securities and Exchange Commission.
The following table illustrates the period and cumulative interest rate
sensitivity for September 30, 2000.
REPRICING INTEREST RATE SENSITIVITY ANALYSIS & SPREAD
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------------------------
0-3 4-6 7-12 2-5 OVER
MONTHS MONTHS MONTHS YEARS 5 YEARS TOTAL
---------- --------- --------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans........................................ $1,013,607 $ 45,785 $ 98,397 $483,492 $ 53,394 $1,694,675
Securities................................... 35,595 29,311 33,401 312,214 49,829 460,350
Federal funds sold........................... 1,800 -- -- -- -- 1,800
---------- --------- --------- -------- -------- ----------
TOTAL INTEREST-EARNING ASSETS.......... 1,051,002 75,096 131,798 795,706 103,223 2,156,825
---------- --------- --------- -------- -------- ----------
Interest-bearing liabilities:
Time deposits................................ 514,928 354,189 459,943 160,148 116 1,489,324
Savings and interest-bearing demand
deposits................................... 268,314 -- -- -- -- 268,314
Short-term borrowings........................ 97,399 457 361 -- -- 98,217
Long-term borrowings......................... -- -- -- -- 33,185 33,185
Impact of interest rate swap................. 25,000 -- -- -- (25,000) --
Guaranteed trust preferred securities........ -- -- -- -- 25,000 25,000
---------- --------- --------- -------- -------- ----------
TOTAL INTEREST-BEARING LIABILITIES..... $ 905,641 $ 354,646 $ 460,304 $160,148 $ 33,301 $1,914,040
---------- --------- --------- -------- -------- ----------
Interest sensitivity GAP (by period)........... 145,361 (279,550) (328,506) 635,558 69,922 242,785
Interest sensitivity GAP (cumulative).......... 145,361 (134,189) (462,695) 172,863 242,785 242,785
Cumulative Gap as a % of Total Assets.......... 6.53% (6.03)% (20.78)% 7.76% 10.90%
</TABLE>
31
<PAGE> 32
The following table illustrates the expected percentage change in net
interest income over a one year period due to the immediate change in short term
U.S. prime rate of interest as of September 30, 2000, and December 31, 1999:
<TABLE>
<CAPTION>
BASIS POINT CHANGES
----------------------------------------
+200 +100 -100 -200
------- ------- ------- -------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 2000
Net Interest Income change over one year........ (2.61)% (1.30)% 1.04% 1.20%
======= ======= ======= =======
DECEMBER 31, 1999
Net Interest Income change over one year........ (3.53)% (1.77)% 1.54% 2.01%
======= ======= ======= =======
</TABLE>
32
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CIB Marine and its subsidiaries are parties to legal actions that arise in
the normal course of their business activities. In the opinion of management,
after consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material adverse effect on the consolidated financial
condition, results of operations or liquidity of CIB Marine.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not Applicable
b. Not Applicable
c. On March 24, 2000, CIB Marine commenced a $5.0 million offering of its
common stock at $17.29 per share pursuant to a private placement offering
which terminated on April 7, 2000. During March, CIB Marine sold 192,955
shares in this offering for a total of $3.3 million. In April, CIB Marine
sold an additional 30,750 shares for a total of $0.5 million in this
offering. On June 24, 2000, CIB Marine commenced a $3.0 million offering
of its common stock at $17.90 per share pursuant to a private placement
offering which terminated on June 30, 2000. CIB Marine sold 134,850
shares in this offering for a total of $2.4 million. On September 19,
2000, CIB Marine commenced a $2.0 million offering of its common stock at
$18.80 per share pursuant to a private placement offering which
terminated on November 10, 2000. Although no funds were received in
September, CIB Marine sold 68,731 shares in this offering in October and
November for a total of $1.3 million.
All of the aforementioned offerings, which were made pursuant to Rule
506 of Regulation D under the Securities Act of 1933, were made to a
limited number of accredited investors. The March and June offerings
were also made to CIB Marine's employee stock ownership plan. CIB Marine
incurred no commissions or underwriting discounts in any of these
offerings.
d. Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
- Exhibit 11 -- Statement Re Computation of Earnings Per Share
- Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
On August 3, 2000, CIB Marine filed a Form 8-K. Under this filing and
pursuant to Rule 416(b) under the Securities Act of 1933, the number of
shares of common stock of the Registrant registered for sale under the
Securities Act by the Registration Statement on Form S-8 (Reg. No.
333-85173) filed with the SEC on August 13, 1999 and the Registration
Statement on Form S-8 (Reg. No. 333-72949) filed with the SEC on
February 25, 1999, which remain unsold as of July 1, 2000, have been
deemed to be increased to reflect the one hundred and fifty-for-one
stock split effected in the form of a stock dividend to shareholders of
record at the close of business on July 1, 2000. The dividend shares
were issued on or about July 25, 2000.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on this 13th day of November 2000.
CIB MARINE BANCSHARES, INC.
(Registrant)
/s/ STEVEN T. KLITZING
--------------------------------------
Steven T. Klitzing
Senior Vice President and
Chief Financial Officer
34
<PAGE> 35
EXHIBIT INDEX
The following exhibits have been filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
35
