<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 000-24149
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 May 12, 2000 CIB Marine had 111,401 shares of common stock outstanding.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIB MARINE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks................................... $ 17,671 $ 21,941
Federal Funds Sold........................................ 16,757 2,157
---------- ----------
Total Cash and Cash Equivalents.................... 34,428 24,098
---------- ----------
Loans Held for Sale......................................... 1,554 2,148
Securities:
Available for Sale, at fair value......................... 240,937 216,460
Held to Maturity (approximate fair value of $149,369 and
$145,122, respectively)................................. 151,801 146,890
---------- ----------
Total Securities................................... 392,738 363,350
---------- ----------
Loans....................................................... 1,528,102 1,387,831
Less: Allowance for Loan Loss............................. (17,925) (15,813)
---------- ----------
Net Loans................................................... 1,510,177 1,372,018
---------- ----------
Premises and Equipment, net................................. 22,528 21,499
Accrued Interest Receivable................................. 15,364 13,141
Deferred Income Taxes....................................... 10,388 9,018
Goodwill and Core Deposit Intangibles, net.................. 13,793 14,171
Foreclosed Properties....................................... 1,097 1,099
Other Assets................................................ 6,884 4,298
---------- ----------
Total Assets....................................... $2,008,951 $1,824,840
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing Demand................................ $ 98,159 $ 98,642
Interest-bearing Demand................................... 46,507 45,107
Savings................................................... 209,018 209,333
Time...................................................... 1,338,767 1,175,374
---------- ----------
Total Deposits..................................... 1,692,451 1,528,456
---------- ----------
Short-term Borrowings....................................... 88,897 113,219
Accrued Interest Payable.................................... 8,642 8,228
Accrued Income Taxes........................................ 3,215 824
Other Liabilities........................................... 2,611 3,028
Long-term Borrowings........................................ 34,750 9,750
Guaranteed Trust Preferred Securities....................... 10,000 --
---------- ----------
Total Liabilities.................................. 1,840,566 1,663,505
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $1 par value; 50,000,000 Shares Authorized,
111,196 and
109,795 Issued and Outstanding, respectively.............. 111 110
Capital Surplus............................................. 130,438 126,891
Retained Earnings........................................... 40,299 36,368
Accumulated Other Comprehensive Loss........................ (2,463) (2,034)
---------- ----------
Total Stockholders' Equity......................... 168,385 161,335
---------- ----------
Total Liabilities and Stockholders' Equity......... $2,008,951 $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 MARCH 31,
------------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans....................................................... $ 33,753 $ 20,662
Loans Held For Sale......................................... 40 90
Securities:
Taxable................................................... 4,716 2,782
Tax-exempt................................................ 789 382
Dividends................................................. 125 51
Federal Funds Sold.......................................... 92 48
-------- --------
Total Interest and Dividend Income................... 39,515 24,015
-------- --------
INTEREST EXPENSE:
Deposits.................................................... 20,810 11,979
Short-term Borrowings....................................... 1,507 144
Long-term Borrowings........................................ 266 250
Guaranteed Trust Preferred Securities....................... 27 --
-------- --------
Total Interest Expense............................. 22,610 12,373
-------- --------
Net Interest Income......................................... 16,905 11,642
Provision for Loan Loss..................................... 2,360 1,486
-------- --------
Net Interest Income After Provision for Loan
Loss............................................. 14,545 10,156
-------- --------
NONINTEREST INCOME:
Loan Fees................................................... 561 617
Deposit Service Charges..................................... 390 296
Other Service Fees.......................................... 122 84
Trust....................................................... 155 133
Gain on Sale of Branch...................................... -- 805
Other....................................................... 149 6
-------- --------
Total Noninterest Income........................... 1,377 1,941
-------- --------
NONINTEREST EXPENSE:
Salaries and Employees Benefits............................. 6,049 4,685
Equipment................................................... 571 511
Occupancy and Premises...................................... 966 644
Professional Services....................................... 344 219
Advertising / Marketing..................................... 276 152
Amortization of Intangibles................................. 349 101
Other....................................................... 1,344 927
-------- --------
Total Noninterest Expense.......................... 9,899 7,239
-------- --------
Income Before Income Taxes.................................. 6,023 4,858
Income Tax Expense.......................................... 2,092 1,736
-------- --------
Net Income......................................... $ 3,931 $ 3,122
======== ========
EARNINGS PER SHARE:
Basic....................................................... $ 35.77 $ 29.14
Diluted..................................................... 35.35 28.82
Weighted Average Shares -- Basic............................ 109,899 107,153
Weighted Average Shares -- Diluted.......................... 111,189 108,327
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE> 4
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------- OTHER
PAR CAPITAL RETAINED COMPREHENSIVE
SHARES VALUE SURPLUS EARNINGS INCOME (LOSS) TOTAL
------- ----- -------- -------- ------------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998......... 107,153 $107 $120,381 $22,833 $ 775 $144,096
Comprehensive Income:
Net Income......................... 3,122 3,122
Other Comprehensive Income:
Unrealized Securities Holding
Losses Arising During the
Year.......................... (786) (786)
Income Tax Effect................ 294 294
------- ------- --------
3,122 (492) 2,630
------- ------- --------
Non-Cash Compensation.............. 46 46
------- ---- -------- ------- ------- --------
BALANCE, MARCH 31, 1999............ 107,153 $107 $120,427 $25,955 $ 283 $146,772
======= ==== ======== ======= ======= ========
BALANCE, DECEMBER 31, 1999......... 109,795 $110 $126,891 $36,368 $(2,034) $161,335
Comprehensive Income:
Net Income......................... 3,931 3,931
Other Comprehensive Income:
Unrealized Securities Holding
Losses Arising During the
Year.......................... (697) (697)
Income Tax Effect................ 268 268
------- ------- --------
3,931 (429) 3,502
------- ------- --------
Exercise of Stock Options.......... 106 172 172
Common Stock Issuance.............. 1,295 1 3,358 3,359
Non-Cash Compensation.............. 17 17
------- ---- -------- ------- ------- --------
BALANCE, MARCH 31, 2000............ 111,196 $111 $130,438 $40,299 $(2,463) $168,385
======= ==== ======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 5
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,931 $ 3,122
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization........................... 2,165 723
Non-Cash Compensation................................... 17 46
Provision for Loan loss................................. 2,360 1,486
Originations of Loans Held for Sale..................... (16,055) (33,572)
Proceeds from Sale of Loans Held for Sale............... 16,649 37,154
Deferred Tax Benefits................................... 1,289 1,355
Gain on Sale of Branch.................................. -- (805)
Gain on Sale of Other Assets............................ -- (4)
Increase in Interest Receivable and Other Assets........ (2,855) (1,327)
Decrease in Interest Payable and Other Liabilities...... (3) (745)
--------- ---------
Net Cash Provided by Operating Activities.......... 7,498 7,433
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of Securities Available for Sale............. 5,000 3,061
Maturities of Securities Held to Maturity............... 7,350 13,378
Purchase of Securities Available for Sale............... (32,696) (75,521)
Purchase of Securities Held to Maturity................. (13,074) (6,888)
Repayments of Mortgage-Backed Securities Held to
Maturity............................................... 829 1,618
Repayments of Mortgage-Backed Securities Available for
Sale................................................... 1,429 1,176
Net Decrease in other equities (including FHLB stock)... 1,087 --
Purchase of Mortgage-Backed Securities Available for
Sale................................................... -- (1,508)
Net Increase in Loans................................... (141,699) (105,081)
Proceeds from Sale of Fixed Assets...................... -- 7
Proceeds from Sale of Branch............................ -- 3,085
Capital Expenditures.................................... (1,644) (504)
Purchase of Branch Assets and Deposits, net of
Goodwill............................................... -- 101,491
--------- ---------
Net Cash Used in Investing Activities.............. (173,418) (65,686)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits.................................... 163,995 59,613
Proceeds from Long-term Borrowings...................... 23,346 --
Net Increase in Guaranteed Trust Preferred Securities... 9,700 --
Proceeds from Issuance of Common Stock.................. 3,359 --
Proceeds from Stock Options Exercised................... 172 --
Net Increase (Decrease) in Short-term Borrowings........ (24,322) 8,149
--------- ---------
Net Cash Provided by Financing Activities.......... 176,250 67,762
--------- ---------
Net Increase in Cash and Cash Equivalents................... 10,330 9,509
Cash and Cash Equivalents, Beginning of Period.............. 24,098 22,080
--------- ---------
Cash and Cash Equivalents, End of Period.................... $ 34,428 $ 31,589
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 22,196 $ 12,271
Income Taxes.............................................. 742 520
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Transfers of Loans to Foreclosed Properties............... 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 months ended March 31, 2000
and 1999. The results of operations for the three months ended March 31, 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 months ended March 31, 1999, to be consistent with
classifications for 2000.
NOTE 2 -- EARNINGS PER SHARE COMPUTATIONS
The following provides a reconciliation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
NET INCOME (in thousands)................................... $ 3,931 $ 3,122
======== ========
Weighted average shares outstanding:
Basic..................................................... 109,899 107,153
Effect of dilutive stock options outstanding........... 1,290 1,174
-------- --------
Diluted................................................... 111,189 108,327
======== ========
EARNINGS PER SHARE:
Basic..................................................... $ 35.77 $ 29.14
Effect of dilutive stock options outstanding........... (.42) (0.32)
-------- --------
Diluted................................................... $ 35.35 $ 28.82
======== ========
</TABLE>
NOTE 3 -- BUSINESS COMBINATIONS
On February 26, 1999, CIB Marine sold a banking office in Charleston,
Illinois along with loans and deposits with net book values of $14.4 million and
$12.2 million, respectively. The transaction was accounted for as a sale. The
net proceeds were $3.1 million and the gain on the transaction was $0.8 million
which is reflected as a component of noninterest income in the Unaudited
Consolidated Statements of Income.
On March 29, 1999, CIB Marine purchased two banking offices, 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.
6
<PAGE> 7
CIB MARINE BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 24, 1999, CIB Marine purchased a banking office 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 4 -- 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 March 31, 2000 and December 31, 1999: (dollars in
thousands)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
- -------------- ------------------ SCHEDULED CALLABLE @
BALANCE RATE BALANCE RATE MATURITY PAR AFTER
- ------- ---- --------- ------ --------- ----------
<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
25,000 6.01% -- -- 6/30/08 N/A
2,000 5.09% 2,000 5.09% 2/20/08 2/20/01
- ------- ---- ------ ----
$34,750 5.72% $9,750 4.98%
======= ==== ====== ====
</TABLE>
CIB Marine is required to maintain qualifying collateral as security for
these borrowings and the $25.6 million in short-term borrowings with the FHLB
outstanding at March 31, 2000. CIB Marine had eligible collateral of $85.0
million and $46.4 million at March 31, 2000 and December 31, 1999, respectively.
As of March 31, 2000 this collateral consisted of securities with a fair market
value of $58.8 million and $26.2 million of 1-4 family residential mortgages not
more than 90 days delinquent.
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
7.05%. The premium amount was $1.7 million which 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, whereby CIB Marine pays a variable rate of interest
at the 1 month LIBOR rate and earns a fixed rate of interest at 7.08%.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.
Interest rate swap agreements generally involve the exchange of fixed and
variable rate interest rate payments without the exchange of the underlying
notional amount on which the interest rate payments are calculated. The notional
amounts of these agreements represent the amounts on which interest payments are
exchanged between the counterparties. The notional amounts do not represent
direct credit exposures. CIB Marine is however exposed to credit related losses
in the event of nonperformance by the counterparties on interest rate payments,
but does not expect any counterparty to fail to meet their obligations.
Agreements to receive a fixed interest rate and pay a floating interest rate are
entered into as hedges of the interest rates on fixed rate certificates or
borrowings. Interest receivable or payable on interest rate swaps is recognized
using the accrual method. The use of interest rate swaps enables CIB Marine to
synthetically alter the repricing characteristics of designated interest-bearing
liabilities.
7
<PAGE> 8
CIB MARINE BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- GUARANTEED TRUST PREFERRED SECURITIES
In March 2000, CIB Marine issued $10.0 million in cumulative guaranteed
trust preferred securities through a wholly owned special-purpose trust. These
securities qualify as Tier I equity capital for regulatory and risk-based
capital purposes. Distributions on the securities are cumulative and are payable
to the security holders semi-annually at a rate of 10.875% per annum. The
obligations of the trust are fully and unconditionally guaranteed on a
subordinated basis by CIB Marine. These securities are mandatorily redeemable
upon their maturity on March 8, 2030 and are callable beginning March 8, 2010 at
a premium, which premium declines ratably to par by 2020. Issuance costs of $0.3
million related to the securities are classified as other assets on the balance
sheet 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
to reduce its debt at a non-affiliated bank.
NOTE 6 -- STOCK OPTION ACTIVITY
The following is a reconciliation of stock option activity for the three
months ended March 31, 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.............. 7,387 $ 743 - 2,519 $1,920
Granted.......................................... -- -- --
Lapsed or surrendered............................ (9) 1,631 - 1,961 1,924
Exercised........................................ (106) 1,275 - 1,961 1,378
----- -------------- ------
Shares under option March 31, 2000................. 7,272 $ 743 - 2,519 $1,928
===== ============== ======
</TABLE>
NOTE 7 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges typically allows a derivative's gains and losses to offset
related results in the hedged item in the income statement and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment.
In June 1999, the FASB issued SFAS 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of Effective Date of FASB
Statement No. 133, which extended the effective date of SFAS 133 by one year to
apply to fiscal years beginning after June 15, 2000. A company also may
implement the statement as of the beginning of any quarter after issuance. SFAS
133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired or substantially modified after December 31, 1997
(and, at the entity's election, before January 1, 1998). The adoption of this
statement is not expected to have a material effect on CIB Marine's financial
position, liquidity or results of operations.
8
<PAGE> 9
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 March 31, 2000 and its results of
operations for the three months then-ended. References 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 unaudited
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.
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
SEC.
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.
RESULTS OF OPERATIONS
CIB Marine had net income of $3.9 million for the first quarter of 2000, as
compared to $3.1 million for the first quarter of 1999, which represented an
increase of 25.9%. Net income for the first quarter of 1999
9
<PAGE> 10
included a $0.8 million pre-tax, or $0.5 million after-tax, gain on the sale of
a branch facility. Excluding this branch sale, net income for the first quarter
of 1999 would have been $2.6 million and the increase in year 2000 would have
been 49.1%. The increase in net income is primarily due to the growth of CIB
Marine. Total assets at March 31, 2000 were $2.0 billion, which represented a
10.1% increase from total assets of $1.8 billion at December 31, 1999 and a
47.6% increase from $1.4 billion at March 31, 1999.
Basic and diluted earnings per share were $35.77 and $35.35, respectively,
for the quarter ended March 31, 2000 as compared to $29.14 and $28.82,
respectively, for the quarter ended March 31, 1999. Excluding the branch sale,
basic and diluted earnings per share for the first quarter of 1999 would have
been $24.60 and $24.33, respectively. The return on average assets for the
quarter ended March 31, 2000 was 0.82%, as compared to 1.04% for the quarter
ended March 31, 1999. The return on average equity for the quarter ended March
31, 2000 was 9.65%, as compared to 8.71% for the quarter ended March 31, 1999.
The following tables provide an overview of CIB Marine's recent growth. The
tables indicate the percentage increase in the average balance sheet or income
statement items represented for the three month period ended March 31, 2000 as
compared to the similar period ended March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, 2000
VS. MARCH 31, 1999
------------------
<S> <C>
AVERAGE BALANCE SHEET ITEMS
Commercial real estate, construction, agricultural and
commercial loans....................................... 58.25%
Loans, including held for sale............................ 52.81
Total assets.............................................. 57.20
Total deposits............................................ 57.56
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 2000
VS. MARCH 31, 1999
----------------------------------
EXCLUDING GAIN ACTUAL WITH GAIN
ON SALE OF ON SALE OF
BRANCH IN 1999* BRANCH IN 1999
--------------- ----------------
<S> <C> <C>
INCOME STATEMENT ITEMS
Net interest income after provision for loan loss (TE).... 44.26% 44.26%
Noninterest income........................................ 21.21 (29.06)
Noninterest expense....................................... 36.75 36.75
Net income................................................ 49.13 25.91
Diluted earnings per share................................ 45.28 22.67
</TABLE>
- ---------------
(TE) Tax-equivalent basis at 35%
* See preceding discussion of gain on sale of branch included in noninterest
income in the quarter ended March 1999.
CIB Marine achieved this growth by focusing on the development of banking
relationships with small to medium-sized businesses, through the opening of new
banks and branches, and through the completion of certain acquisitions. In 1999
CIB Marine established Marine Bank-Omaha, opened five banking facilities and
purchased three banking facilities. On March 29, 1999 CIB Marine purchased two
banking facilities, one in Arlington Heights and one in Mount Prospect, both of
which are in the Chicago metropolitan market. 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 banking facility in Zion, Illinois and assumed
$28.2 million of deposits. CIB Marine also sold one branch facility in
Charleston, Illinois on February 26, 1999, along with $14.4 million in loans and
$12.2 million in deposits.
10
<PAGE> 11
The table below and on the following page 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 ENDED
-------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Interest and dividend income:
Loans..................................................... $ 33,753 $ 20,662
Loans held for sale....................................... 40 90
Securities:
Taxable................................................. 4,716 2,782
Tax-exempt.............................................. 789 382
Dividends............................................... 125 51
Federal funds sold........................................ 92 48
---------- ----------
Total interest and dividend income................. 39,515 24,015
---------- ----------
Interest expense:
Deposits.................................................. 20,810 11,979
Short-term borrowings..................................... 1,507 144
Long-term borrowings...................................... 266 250
Guaranteed trust preferred securities..................... 27 --
---------- ----------
Total interest expense............................. 22,610 12,373
---------- ----------
Net interest income................................ 16,905 11,642
Provision for loan loss..................................... 2,360 1,486
---------- ----------
Net interest income after provision for loan
loss............................................. 14,545 10,156
---------- ----------
Noninterest income
Banking and trust service fees............................ 1,228 1,130
Gain on sale of branch.................................... -- 805
Other..................................................... 149 6
---------- ----------
Total noninterest income........................... 1,377 1,941
---------- ----------
Noninterest expense:
Salaries and employee benefits............................ 6,049 4,685
Equipment................................................. 571 511
Occupancy and premises.................................... 966 644
Professional services..................................... 344 219
Advertising/marketing..................................... 276 152
Amortization of intangibles............................... 349 101
Other..................................................... 1,344 927
---------- ----------
Total noninterest expense.......................... 9,899 7,239
---------- ----------
Income before income taxes.................................. 6,023 4,858
Income tax expense.......................................... 2,092 1,736
---------- ----------
Net income......................................... $ 3,931 $ 3,122
========== ==========
PER SHARE DATA:
Basic earnings............................................ $ 35.77 $ 29.14
Diluted earnings.......................................... 35.35 28.82
Dividends................................................. -- --
Book value (at end of period)............................. 1,514.31 1,369.74
SELECTED FINANCIAL CONDITION DATA:
Securities................................................ $ 392,738 $ 280,081
Loans, including held for sale............................ 1,529,656 1,011,244
Total assets.............................................. 2,008,951 1,361,342
Deposits.................................................. 1,692,451 1,173,791
Borrowings, including trust preferred securities.......... 133,647 30,835
Stockholders' equity...................................... 168,385 146,772
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
-------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Net interest margin(1).................................. 3.78% 4.07%
Net interest rate spread(2)............................. 3.16 3.27
Noninterest income to average assets.................... 0.29 0.65
Noninterest expense to average assets................... 2.08 2.41
Net overhead ratio(3)................................... 1.78 1.76
Efficiency ratio(4)..................................... 52.85 52.36
Return on average assets(5)............................. 0.82 1.04
Return on average equity(6)............................. 9.65 8.71
ASSET QUALITY RATIOS:
Nonaccrual loans to loans, including held for sale...... 0.50% 0.43%
Allowance for loan loss to loans, including held for
sale................................................... 1.17 1.15
Allowance for loan loss to nonperforming assets......... 204.36 270.79
Net charge-offs to average loans including held for
sale................................................... 0.02 0.05
Nonperforming assets to total assets(7)................. 0.44 0.32
Nonaccrual loans and 90+ days past due loans to loans,
including held
for sale.............................................. 0.68 0.88
Nonaccrual loans and 90+ days past due loans to total
assets................................................. 0.52 0.65
Nonperforming assets and 90+ days past due loans to
total assets........................................... 0.57 0.65
Allowance as a percent of nonperforming assets and 90+
days past
due loans............................................. 155.19 131.22
BALANCE SHEET RATIOS:
Average loans to average deposits....................... 89.63% 92.42%
Average interest-earning assets to average
interest-bearing liabilities........................... 112.64 119.00
CAPITAL RATIOS:
Total equity to total assets............................ 8.38% 10.78%
Total risk-based capital ratio.......................... 10.32 12.66
Tier 1 risk-based capital ratio......................... 9.32 11.65
Leverage capital ratio.................................. 8.78 11.10
OTHER DATA
Number of employees (FTE)............................... 536 435
Number of banking facilities............................ 40 31
Trust assets under administration....................... $ 136,873 $ 114,234
Shares outstanding at the end of period................. 111,196 107,153
Weighted average shares outstanding -- basic............ 109,899 107,153
Weighted average shares outstanding -- diluted.......... 111,189 108,327
</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: 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) Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed property.
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.
12
<PAGE> 13
The following table sets forth information for the three-month periods
ended March 31, 2000 and March 31, 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. The following table expresses 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 CIB Marine's
effective federal income tax rate of 35%.
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
---------- ----------- ---------- ---------- ----------- ----------
ASSETS (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS (TE)
Securities
Taxable....................................... $ 318,712 $ 4,841 6.11% $ 193,574 $ 2,833 5.94%
Tax-exempt.................................... 64,041 1,213 7.62 30,303 588 7.87
---------- ------- ----- ---------- ------- ----
Total securities.............................. 382,753 6,054 6.36 223,877 3,421 6.20
Loans(1)
Commercial and agricultural................... 1,406,008 32,696 9.35 888,450 19,368 8.84
Real estate................................... 36,583 773 8.50 39,017 847 8.80
Installment and other consumer................ 14,786 309 8.41 22,212 479 8.75
---------- ------- ----- ---------- ------- ----
Total loans................................... 1,457,377 33,778 9.32 949,679 20,694 8.84
Federal funds sold.............................. 6,078 92 6.09 3,775 48 5.16
Loans held for sale............................. 1,836 40 8.76 5,235 90 6.97
---------- ------- ----- ---------- ------- ----
Total interest-earning assets (TE).............. 1,848,044 $39,964 8.70% 1,182,566 $24,253 8.32%
------- ----- ------- ----
NONINTEREST-EARNING ASSETS
Cash and due from banks......................... 19,163 12,047
Premises and equipment.......................... 21,969 15,410
Allowance for loan loss......................... (16,856) (11,138)
Accrued interest and other assets............... 44,246 20,299
---------- ----------
Total noninterest-earning assets.............. 68,522 36,618
---------- ----------
Total Assets.................................. $1,916,566 $1,219,184
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand deposits.............. $ 46,521 $ 310 2.68% $ 37,282 $ 237 2.58%
Money market.................................. 171,418 2,163 5.08 84,790 934 4.47
Other savings deposits........................ 37,320 290 3.13 28,390 225 3.21
Time Deposits of $100,000 or more............. 452,902 6,927 6.15 245,439 3,186 5.26
Time Deposits................................. 819,976 11,120 5.45 566,479 7,397 5.30
---------- ------- ----- ---------- ------- ----
Total interest-bearing deposits............... 1,528,137 20,810 5.48 962,380 11,979 5.05
Borrowings -- short-term........................ 91,890 1,507 6.60 10,828 144 5.39
Borrowings -- long-term......................... 19,625 266 5.45 20,533 250 4.94
Guaranteed trust preferred securities........... 989 27 10.98 -- -- --
---------- ------- ----- ---------- ------- ----
Total borrowed funds.......................... 112,504 1,800 6.43 31,361 394 5.10
Total interest-bearing liabilities............ 1,640,641 $22,610 5.54 993,741 $12,373 5.05
------- ----- ------- ----
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits............. 99,843 70,860
Accrued interest and other liabilities.......... 12,319 9,202
---------- ----------
Total noninterest-bearing liabilities......... 112,162 80,062
---------- ----------
STOCKHOLDERS' EQUITY............................ 163,763 145,381
---------- ----------
Total liabilities and stockholders' equity.... $1,916,566 $1,219,184
========== ==========
NET INTEREST INCOME (TE) AND INTEREST RATE
SPREAD(2)..................................... $17,354 3.16 $11,880 3.27
======= ----- ======= ----
NET INTEREST MARGIN (TE)(3)..................... 3.78% 4.07%
===== ====
</TABLE>
- ---------------
(TE) - Tax Equivalent Basis, 35%
(1) Loan balance totals include non-accrual loans.
(2) Net interest rate spread is the yield on average interest-earning assets
less rate on average interest-bearing liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
13
<PAGE> 14
Net interest income on a tax-equivalent basis was $17.4 million for the
quarter ended March 31, 2000, representing an increase of 46.1% from net
interest income of $11.9 million for the first quarter of 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 and was
partially offset by an 11 basis point reduction in the interest rate spread
between the comparable three month periods.
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 and paid.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 2000 COMPARED TO
QUARTER ENDED MARCH 31, 1999 (1)
-----------------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN
-------------------
VOLUME RATE TOTAL % CHANGE
------ ------ ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME (TE)
Securities -- taxable................................... $1,921 $ 87 $2,008 70.88%
Securities -- tax-exempt................................ 644 (19) 625 106.29
------ ------ ------ ------
Total Securities............................... 2,565 68 2,633 76.97
Commercial and agricultural............................. 12,123 1,205 13,328 68.81
Real estate............................................. (48) (26) (74) (8.74)
Installment and other consumer.......................... (152) (18) (170) (35.49)
------ ------ ------ ------
Total Loans (including fees)................... 11,923 1,161 13,084 63.23
Federal funds sold...................................... 34 10 44 91.67
Loans held for sale..................................... (69) 19 (50) (55.56)
------ ------ ------ ------
TOTAL INTEREST INCOME (TE)..................... 14,453 1,258 15,711 64.78%
------ ------ ------ ------
INTEREST EXPENSE
Interest-bearing demand deposits........................ 63 10 73 30.80%
Money market............................................ 1,084 145 1,229 131.58
Other savings deposits.................................. 71 (6) 65 28.89
Time deposits of $100,000 or more....................... 3,119 622 3,741 117.42
Other time deposits..................................... 3,489 234 3,723 50.33
------ ------ ------ ------
Total Deposits................................. 7,826 1,005 8,831 73.72
Borrowings -- short term................................ 1,324 39 1,363 946.53
Borrowings -- long term................................. (11) 27 16 6.40
Guaranteed trust preferred securities................... 27 -- 27 N/A
------ ------ ------ ------
Total Borrowed Funds........................... 1,340 66 1,406 356.85
------ ------ ------ ------
TOTAL INTEREST EXPENSE......................... 9,166 1,071 10,237 82.74
------ ------ ------ ------
NET INTEREST INCOME (TE)................................ $5,287 $ 187 $5,474 46.08%
====== ====== ====== ======
</TABLE>
- ---------------
(TE) Tax Equivalent Basis
(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 first quarter of 2000 total interest income was
$39.5 million, which was 64.5% higher than the interest income of $24.0 million
for the first quarter of 1999. The primary reason for the increase in interest
income was the increase in the volume of CIB Marine's average earning assets.
Average earning assets during the first quarter of 2000 increased by 56.3% to
$1.9 billion from $1.2 billion in the first quarter of 1999. A 38 basis point
increase in the average interest rates earned on interest-earning assets also
contributed to the increase in interest income from the comparable quarter of
1999. The increase in the average interest rates earned was primarily the result
of a gradual increase in market interest rates beginning in the second quarter
of 1999.
14
<PAGE> 15
Interest earned on loans is the largest component of total interest earned
and represented 85.5% and 86.4% of total interest earned in the first quarters
of 2000 and 1999, respectively. Interest earned on securities in CIB Marine's
portfolio accounted for the majority of the remaining balance in total interest
earned.
Interest Expense. Total interest expense for the first quarter of 2000
increased by 82.7% to $22.6 million from $12.4 million for the first quarter of
1999. This increase was due to a $646.9 million, or 65.1%, increase in the
volume of average interest-bearing liabilities and a 49 basis point increase in
the average interest rate paid on interest-bearing liabilities. Average
interest-bearing deposits represented $565.8 million or, 87.5%, of the increase
in interest-bearing liabilities and the remaining increase was primarily due to
an $81.1 million increase in average short-term borrowings.
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 79.8% and 85.5% for the first three months of 2000 and
1999, respectively. The increase in interest expense on time deposits, including
time deposits of $100,000 or more, is primarily due to a $461.0 million or 56.8%
increase in the average outstanding balance of these deposits during the first
quarter of 2000 as compared to the same period in the previous year. Also
contributing to the increase was a 41 basis point increase in the weighted
average interest rate paid on these deposits, due primarily to an increasing
interest rate environment. CIB Marine has used these types of deposits to fund a
large portion of the growth in its loan portfolio.
CIB Marine's interest rate spread, was 3.16% and 3.27% for the first
quarters of 2000 and 1999, respectively. The net interest margin was 3.78% and
4.07% for the first quarters of 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 inherent in the loan and
lease portfolio. The provision for loan loss was $2.4 million for the first
quarter of 2000 as compared to $1.5 million for the first quarter of 1999. At
March 31, 2000 the allowance for loan loss was $17.9 million, or 1.17% of total
loans outstanding, as compared to $15.8 million and 1.14%, respectively, at
December 31, 1999. A significant portion of the increase in the provision was
the result of the growth in the loan portfolio. 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 loss experience of CIB Marine and the industry.
These ratios may be adjusted for significant factors that, in CIB Marine's
judgment, affects 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.
15
<PAGE> 16
The following table summarizes the changes in the allocation of the
allowance for loan loss.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD.............................. $15,813 $10,657
LOANS CHARGED-OFF
Commercial.................................................. (33) (333)
Agricultural................................................ -- --
Real estate
1-4 family................................................ (14) (47)
Commercial................................................ (150) (100)
Construction.............................................. -- --
Consumer.................................................... (43) (27)
Credit card................................................. (20) (2)
Other....................................................... -- --
------- -------
TOTAL CHARGED-OFF................................. (260) (509)
------- -------
RECOVERIES OF LOANS CHARGED-OFF
Commercial.................................................. 4 10
Agricultural................................................ -- --
Real estate
1-4 family................................................ -- --
Commercial................................................ -- --
Construction.............................................. -- 8
Consumer.................................................... 8 19
Credit card................................................. -- --
Other....................................................... -- --
------- -------
TOTAL RECOVERIES.................................. 12 37
------- -------
NET LOANS CHARGED-OFF....................................... (248) (472)
Provision for loan loss..................................... 2,360 1,486
------- -------
BALANCE AT END OF PERIOD.................................... $17,925 $11,671
======= =======
</TABLE>
Increases in the provision and the allowance were primarily related to the
increase in average loans outstanding between the periods. Total charge-offs for
the first quarter of 2000 were $0.3 million as compared to $0.5 million for the
first quarter of 1999. Recoveries for each of these quarters were below $0.1
million. Commercial real estate loans accounted for $0.2 million, or 57.7%, of
the charge-offs in the quarter ended in March 31, 2000 and $0.1 million or,
19.6%, of the charge-offs in the first quarter of 1999. Commercial loans
accounted for $0.03 million, or 12.7%, of the charge-offs in the quarter ended
in March 31, 2000 and $0.3 million, or 65.4%, of the charge-offs in the first
quarter of 1999.
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
it is probable that principal and interest amounts will not be collected
according to the terms of the loan. A loan is classified as restructured when
the interest rate is reduced or the term is extended beyond the original
maturity date because of the inability of the borrower to service the loan under
the original terms. Foreclosed property represents properties acquired by CIB
Marine through loan defaults by customers.
16
<PAGE> 17
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.
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
----------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NONPERFORMING ASSETS
Nonaccrual Loans
Commercial.......................................... $ 2,141 $ 1,298 $ 1,276
Agricultural........................................ -- -- --
Real estate
1-4 family....................................... 456 566 110
Commercial....................................... 1,975 798 2,181
Construction..................................... 2,967 180 280
Consumer............................................ 124 161 102
Credit card......................................... -- -- --
Other............................................... -- -- 361
---------- -------- ----------
Total nonaccrual loans......................... 7,663 3,003 4,310
---------- -------- ----------
Foreclosed property................................... 1,097 1,099 --
Restructured loans.................................... 11 268 --
---------- -------- ----------
Total nonperforming assets..................... $ 8,771 $ 4,370 $ 4,310
========== ======== ==========
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Commercial.......................................... $ 2,562 $ 1,079 $ 2,474
Agricultural........................................ -- -- --
Real estate
1-4 family....................................... 134 126 393
Commercial....................................... 41 1,421 767
Construction..................................... -- 850 850
Consumer............................................ 19 16 54
Credit card......................................... 23 9 20
Other............................................... -- 13 26
---------- -------- ----------
Total 90 days or more past due and still
accruing.................................... $ 2,779 $ 3,514 $ 4,584
========== ======== ==========
Allowance for loan loss............................... $ 17,925 $ 15,813 $ 11,671
Loans at end of period, including held for sale....... 1,529,656 1,389,979 1,011,244
Average loans, including held for sale................ 1,459,213 1,106,742 954,914
RATIOS
Ratio of allowance to loans........................... 1.17% 1.14% 1.15%
Ratio of net loans charged-off to average loans....... 0.02 0.09 0.05
Ratio of recoveries to loans charged-off.............. 4.50 12.48 7.27
Nonaccrual loans as a percent of loans................ 0.50 0.22 0.43
Nonperforming assets as a percent of total assets..... 0.44 0.24 0.32
Foreclosed properties as a percent of loans........... 0.07 0.08 0.00
Allowance as a percent of nonaccrual loans............ 233.91 526.57 270.79
Allowance as a percent of nonperforming assets........ 204.36 361.85 270.79
Nonaccrual loans and 90 (LOGO) days past due loans as
a percent of loans.................................. 0.68 0.47 0.88
Nonaccrual loans and 90 (LOGO) days past due loans as
a percent of total assets........................... 0.52 0.36 0.65
Nonperforming assets and 90 (LOGO) days past due loans
as a percent of total assets........................ 0.57 0.43 0.65
Allowance as a percent of nonperforming assets and 90
(LOGO) days past due loans.......................... 155.19 200.57 131.22
</TABLE>
17
<PAGE> 18
Total nonaccrual loans were $7.7 million at March 31, 2000, $3.0 million at
December 31, 1999, and $4.3 million at March 31, 1999. The increase from
December 31, 1999 to March 31, 2000 was primarily the result of a $3.8 million
borrowing relationship being placed on nonaccrual after December 31, 1999 and
loans with outstanding balances of approximately $2.0 million which were
classified as over 90 days and still accruing as of December 31, 1999 placed in
nonaccrual status at March 31, 2000.
The $3.8 million borrowing relationship classified as nonaccrual included
commercial real estate loans to an entity with outstanding balances of $3.0
million and real estate and equipment loans totaling $0.8 million. These loans
were over 60 days past due as of December 31, 1999. This start up company has
not yet become profitable or generated positive cash flows as anticipated. Prior
to December 31, 1999, the entity's losses were voluntarily funded by equity
contributions by the principals. As of February 29, 2000 the loans were over 90
days past due and the principals indicated they did not intend to make further
equity contributions. In March of 2000, CIB Marine increased the loan balance by
$0.3 million in order to cure other borrower defaults relating to the collateral
and charged off $0.2 million of this loan. In April 2000, CIB Marine completed a
voluntary asset turnover and transferred the balance, the approximate net
realizable value, to foreclosed properties.
The ratio of nonaccrual loans to total loans was 0.50%, 0.22% and 0.43% at
March 31, 2000, December 31, 1999 and March 31, 1999, respectively. Foreclosed
property was $1.1 million at both March 31, 2000 and December 31, 1999, the
majority of which represented one property acquired after the default of a $1.6
million commercial real estate loan. CIB Marine did not have any foreclosed
property at March 31, 1999. Impaired loans were $6.0 million, $1.9 million and
$3.8 million at March 31, 2000, December 31, 1999 and March 31, 1999,
respectively. Nonaccrual loans represented approximately 85.2%, 100.0% and
100.0% of the impaired loan balances at March 31, 2000, December 31, 1999 and
March 31, 1999, respectively.
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 still
believes all contractual principal and interest amounts due will be collected.
CIB Marine had $2.8 million in loans 90 days or more past due and still accruing
at March 31, 2000, $3.5 million at December 31, 1999 and $4.6 million at March
31, 1999. Accrued interest on loans 90 days past due or more and still accruing
as of March 31, 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 0.57% at
March 31, 2000, 0.43% at December 31, 1999 and 0.65% at March 31, 1999.
NONINTEREST INCOME
Noninterest income for the first quarter of 2000 was $1.4 million,
representing a 29.1% decrease from the first quarter of 1999. Excluding the $0.8
million gain on the sale of a branch facility in Charleston, Illinois in March
1999, noninterest income in the first quarter of 2000 increased $0.2 million, or
21.2%, from the first quarter of 1999. This increase was primarily a result of a
$0.1 million increase in deposit service charges and a $0.1 million increase in
other noninterest income which was primarily due to reimbursement of collection-
related expenses incurred in prior years.
Loan fee income decreased $0.1 million from the first quarter of 1999 to
the first quarter of 2000. Fees associated with the origination and subsequent
sales of residential first mortgage loans decreased $0.2 million, or 52.1%, as a
result of a 52.2% reduction in origination volumes due to higher market interest
rates. Fees from standby letters of credit increased by $0.1 million due to an
increase in volume. Late charges increased $0.1 million mostly due to unaccrued
fees received on two previously delinquent loans which were paid off in the
quarter.
NONINTEREST EXPENSE
Total noninterest expense increased $2.7 million, or 36.8% to $9.9 million
in the first quarter of 2000 from $7.2 million in the first quarter of 1999.
This increase was primarily a result of CIB Marine's growth, including internal
growth and the acquisition and opening of new branch facilities and banks.
18
<PAGE> 19
Salaries and employee benefits expense was $6.0 million in the first
quarter of 2000, as compared to $4.7 million in the first quarter of 1999, an
increase of 29.1%. The increase in salaries and benefits is the result of a
number of factors, including the hiring of personnel to staff the new
facilities, the hiring of additional personnel and increases in the salaries of
existing personnel. As a result of CIB Marine's growth, the total number of
full-time equivalent employees increased to 536 at March 31, 2000 from 503 at
December 31, 1999 and 435 at March 31, 1999, representing increases of 6.6% and
23.2% for the three and twelve month periods, respectively.
Occupancy and premises expense increased by $0.3 million, or 50.1%, from
the first quarter of 1999 to the first quarter of 2000, primarily as a result of
the new bank and branch facilities. Amortization of intangible assets expense
increased $0.2 million, or 244.3%, from the first quarter of 1999 to the first
quarter of 2000. This increase was mostly due to intangible asset increases of
$9.5 million relating to the two banking offices purchased in March 1999 and
$2.0 million for the banking office purchased in September 1999.
CIB Marine's efficiency ratios were 52.85% and 52.36% for the first
quarters of 2000 and 1999, respectively. Excluding the gain on the branch sale,
the efficiency ratio for the first quarter of 1999 would have been 55.60%. Total
noninterest expense as a percentage of average assets was 2.08% for the quarter
ended March 31, 2000 and 2.41% for the quarter ended March 31, 1999.
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.
FINANCIAL CONDITION
SECURITIES
The carrying value and tax-equivalent yield of CIB Marine's securities are
set forth in the following table.
<TABLE>
<CAPTION>
AT MARCH 31, 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........................... $ 71,893 6.27% $ 73,940 6.10%
Obligations of states and political subdivisions..... 62,459 7.26 57,679 7.04
Other notes and bonds................................ 450 7.10 450 7.11
Mortgage backed securities........................... 16,999 6.68 14,821 6.97
-------- ----- -------- -----
Total Securities Held To Maturity.......... 151,801 6.72 146,890 6.56
-------- ----- -------- -----
AVAILABLE FOR SALE
U.S. Government & Agencies........................... 216,768 5.85 190,585 5.83
Obligations of states and political subdivisions..... 3,738 11.19 3,735 10.49
Other notes and bonds................................ 3,606 6.02 2,107 6.80
Mortgage backed securities........................... 17,397 6.01 18,821 6.04
Federal Home Loan Bank stock......................... 3,395 7.00 4,482 6.50
Other equities....................................... 37 N/A 37 N/A
-------- ----- -------- -----
Securities Available for Sale Before SFAS 115
Adjustment......................................... 244,941 5.96 219,767 5.95
-------- ----- -------- -----
TOTAL SECURITIES BEFORE SFAS 115 ADJUSTMENT.......... 396,742 6.25% 366,657 6.20%
===== =====
SFAS 115 Available For Sale Market Value
Adjustment......................................... (4,004) (3,307)
-------- --------
TOTAL SECURITIES..................................... $392,738 $363,350
======== ========
</TABLE>
19
<PAGE> 20
Total securities outstanding at March 31, 2000 were $392.7 million, an
increase of 8.1%, as compared to $363.4 million at December 31, 1999. 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 19.5% at
March 31, 2000 as compared to 19.9% at December 31, 1999. Because CIB Marine's
securities portfolio is one of its sources of liquidity, CIB Marine has
increased the size of its portfolio as total assets have increased. The ratio of
available for sale securities to total assets was 12.0% at March 31, 2000, as
compared to 11.9% at December 31, 1999.
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 March 31, 2000 and December 31, 1999, U.S. Government and Agency
securities represented 72.8% and 72.1% of the portfolio, respectively, mortgage
backed securities represented 8.7% 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 16.7% of the portfolio at both dates.
As of March 31, 2000, $240.9 million, or 61.3%, of the securities portfolio
was classified as available for sale and $151.8 million, or 38.7%, 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
$24.5 million, or 11.3%, from December 31, 1999 to March 31, 2000, while
securities held to maturity increased $4.9 million, or 3.3%.
On March 31, 2000, the net unrealized loss of the available for sale
securities was $4.0 million, as compared to a net unrealized loss of $3.3
million at December 31, 1999. The decrease in the unrealized value of these
securities over the first three months of 2000 was a direct result of increases
in market interest rates offered on similar investments.
LOANS
Loans, net of the allowance for loan loss, were $1.5 billion at March 31,
2000, an increase of $138.2 million, or 10.1%, from $1.4 billion at December 31,
1999, and represented 75.2% of CIB Marine's total assets at both March 31, 2000
and December 31, 1999. Most of the increase was in commercial real estate loans,
commercial loans and construction loans, which in the aggregate represented
94.9% of gross loans at March 31, 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.
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial............ $ 500,613 32.7% $ 454,438 32.7% $ 284,771 28.3%
Agricultural......................... 4,973 0.3 5,973 0.4 7,032 0.7
Real estate
1-4 family......................... 50,084 3.3 50,292 3.6 47,117 4.7
Commercial......................... 703,616 45.9 646,484 46.5 514,479 51.1
Construction....................... 249,544 16.3 214,251 15.4 125,019 12.4
Consumer............................. 12,185 0.8 13,152 0.9 15,763 1.6
Credit card loans.................... 1,521 0.1 1,436 0.1 1,343 0.1
Other................................ 9,721 0.6 5,486 0.4 12,131 1.2
---------- ----- ---------- ----- ---------- -----
Total loans................ 1,532,257 100.0% 1,391,512 100.0% 1,007,655 100.0%
===== ===== =====
Deferred Loan Fees................... (4,155) (3,681) (1,729)
Allowance for loan loss.............. (17,925) (15,813) (11,671)
---------- ---------- ----------
Net loans.................. $1,510,177 $1,372,018 $ 994,255
========== ========== ==========
</TABLE>
20
<PAGE> 21
Credit Concentrations
Pursuant to CIB Marine's loan policy, generally 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 March 31, 2000, CIB Marine had
three borrowing relationships with individual borrowers or related groups of
borrowers that exceeded 25% of the capital of CIB Marine. The total outstanding
lending commitment associated with these three borrowing relationships,
including lines of credit which have not been fully drawn as of March 31, 2000,
was approximately $155.3 million. The aggregate principal amount actually drawn
and outstanding at March 31, 2000, with respect to these borrowing relationships
was approximately $113.5 million, or 7.4%, of CIB Marine's gross loans
outstanding and 67.4% of CIB Marine's stockholders' equity balance as of that
date. CIB Marine's largest commitment at March 31, 2000, was approximately $56.7
million, of which approximately $50.6 million was outstanding as of that date.
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. As of March 31, 2000, the
total outstanding lending commitment associated with this borrowing
relationship, including lines of credit which have not been fully drawn, was
approximately $37.8 million, which does not currently represent 25% of the
capital of CIB Marine. The aggregate principal amount actually drawn and
outstanding at March 31, 2000, with respect to this borrowing relationship was
approximately $31.8 million and all such loans were current with respect to
principal and interest. CIB Marine has renewed certain loans to this borrower
since July 1999 based upon a credit evaluation at the time of renewal. As loans
to this 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 recently become under-collateralized pursuant to the collateral
requirements of CIB Marine's loan policy.
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. On February 10, 2000, one of the lawsuits was
dismissed. In April 2000, CIB Marine became aware of another lawsuit which was
filed on March 28, 2000 by a third lender, to recover amounts due to them. 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 when 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
21
<PAGE> 22
$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. A description of this investment and the purchase price
adjustment is included below under "Other Assets".
At March 31, 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 $660.0 million, or 43.1%
of gross loans and 391.9% of stockholders' equity. The total outstanding balance
of loans made in the motel and hotel industry was approximately $125.7 million,
or 8.2% of gross loans and 74.7% of stockholders' equity. The total outstanding
balance of loans made in the nursing/convalescent home industry was
approximately $98.6 million, or 6.4% of gross loans outstanding and 58.6% of
stockholders' equity.
The loans and lines of credit described in this section are generally
collateralized by commercial or multifamily real estate, other business
collateral and/or personal property. 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.
OTHER ASSETS
Other assets increased $2.6 million to $6.9 million at March 31, 2000 from
$4.3 million at December 31, 1999. The majority of the increase was the result
of a $1.7 million premium paid in February 2000 on a $25.0 million, FHLB advance
and a $0.3 million capitalized underwriting fee incurred in the issuance of
$10.0 million in trust preferred securities. Additional information regarding
these items and the transactions that gave rise to them is available in the
Borrowings and Trust Preferred Securities sections of this document.
Other assets at March 31, 2000 and December 31, 1999 included a $2.3
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, who is also a
stockholder of CIB Marine. CIB Marine engaged in this transaction primarily to
provide this borrower with cash to meet its current obligations to CIB Marine.
Additional information about this borrower and its loans from CIB Marine are
discussed in "Loans-Credit Concentration."
CIB Marine originally paid $2.4 million for the limited partnership
interests based on the value of the underlying portfolio securities held by the
private investment funds as of June 30, 1999. Pursuant to the terms of the
purchase agreement, the price was to be adjusted to reflect the value of the
investments as of September 30, 1999. During the fourth quarter of 1999, CIB
Marine received from the borrower a $0.5 million purchase price adjustment.
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. Under the capital call provisions of one of the
limited partnerships, CIB Marine contributed an additional $0.4 million on
September 10, 1999. CIB Marine may also be required to invest up to an
additional $2.4 million over the next 3 years pursuant to further capital calls.
There is currently no public market for the limited partnership interests
in these private investment funds, and it's 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 Concentration." 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.
22
<PAGE> 23
DEPOSITS
CIB Marine has experienced significant growth in deposits. Total deposits
increased 10.7% to $1.7 billion on March 31, 2000, compared to $1.5 billion as
of December 31, 1999.
Time deposits represent the largest component of interest-bearing deposit
liabilities. The percentage of time deposits to total deposits was 79.1% at
March 31, 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 were $470.2 million at March 31, 2000 and $415.9
million at December 31, 1999, and represented 35.1% 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 $94.0
million, or 7.2%, of total time deposits at March 31, 2000, and $80.7 million,
or 6.9%, of total time deposits at December 31, 1999. Brokered time deposits
included in time deposits of $100,000 and over were $86.6 million at March 31,
2000.
At March 31, 2000, noninterest-bearing demand deposits were $98.2 million,
interest-bearing demand deposits were $46.5 million and savings deposits were
$209.0 million. These deposits were $98.6 million, $45.1 million and $209.3
million, respectively, at December 31, 1999.
BORROWINGS
The following table sets forth information regarding selected categories of
borrowings:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
------------------- --------------------
BALANCE AVG RATE BALANCE AVG RATE
-------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term borrowings:
Fed funds purchased................................. $ 19,033 6.25% $ 29,575 5.21%
Securities sold under repurchase agreements......... 17,058 5.88 27,129 5.49
Treasury, tax and loan note......................... 356 4.06 405 4.01
Federal Home Loan Bank.............................. 25,600 5.84 26,400 5.16
Other borrowings.................................... 26,850 7.93 29,710 8.48
-------- ----- -------- ----
Total short-term borrowings............... 88,897 6.56 113,219 6.12
-------- ----- -------- ----
Long-term borrowings:
Federal Home Loan Bank.............................. 34,750 5.72 9,750 4.98
Guaranteed trust preferred securities............... 10,000 10.88 -- --
-------- ----- -------- ----
Total long-term borrowings................ 44,750 6.87 9,750 4.98
-------- ----- -------- ----
Total borrowings.......................... $133,647 6.66% $122,969 6.03%
======== ===== ======== ====
</TABLE>
At March 31, 2000, total borrowings were $133.6 million compared to $123.0
million at December 31, 1999, each representing 6.7% of total assets,
respectively. Fed Funds purchased accounted for $19.0 million, or 14.2%, of
total borrowings at March 31, 2000 and $29.6 million, or 24.1%, of total
borrowings at December 31, 1999. Repurchase agreements accounted for $17.1
million, or 12.8%, of total borrowings at March 31, 2000, as compared to and
$27.1 million, or 22.1%, of total borrowings at December 31, 1999. Federal Home
Loan Bank advances accounted for $60.4 million, or 45.2%, as compared to $36.2
million, or 29.4%, of total borrowings at December 31, 1999. CIB Marine
increased its utilization of these borrowings during 2000 in order to meet its
short-term funding needs or when the terms on these products were more favorable
than other types of funding.
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
7.05%. The premium amount was $1.7 million which 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 management
believes the swap transaction will reduce interest rate risk by converting
23
<PAGE> 24
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 March 31, 2000, there was an outstanding
balance on this line of credit in the amount of $26.9 million, as compared to
$29.7 million at December 31, 1999. Substantially all of these funds were used
to capitalize the subsidiary banks, to acquire branch facilities and to provide
capital support for the internal growth of the subsidiary banks. The remaining
funds were used for working capital.
GUARANTEED TRUST PREFERRED SECURITIES
In March 2000, CIB Marine issued $10.0 million in cumulative guaranteed
trust preferred securities through a wholly owned special-purpose trust. These
securities qualify as Tier I equity capital for regulatory and risk-based
capital purposes. Distributions on the securities are cumulative and are payable
to the security holders semi-annually at a rate of 10.875% per annum. The
obligations of the trust are fully and unconditionally guaranteed on a
subordinated basis by CIB Marine. These securities are mandatorily redeemable
upon their maturity on March 8, 2030 and are callable beginning March 8, 2010 at
a premium, which premium declines ratably to par by 2020. Issuance costs of $0.3
million related to the securities are classified as other assets on the balance
sheet 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
to reduce its debt at a non-affiliated bank.
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.
As described in a previous section, CIB Marine issued $10.0 million in
trust preferred securities on March 23, 2000. For capital purposes, these
securities qualify as Tier 1 equity capital for all regulatory and risk-based
capital ratios.
The risk-based capital information of CIB Marine at March 31, 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.
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
RISK WEIGHTED ASSETS (RWA).................................. $1,792,293 $1,618,852
========== ==========
AVERAGE ASSETS (QUARTER ONLY) (1)........................... $1,902,769 $1,667,517
========== ==========
CAPITAL COMPONENTS
Stockholders' equity...................................... $ 168,385 $ 161,335
Guaranteed trust preferred securities..................... 10,000 --
Less: disallowed intangibles.............................. (13,793) (14,171)
Add: unrealized loss on securities........................ 2,462 2,034
---------- ----------
TIER 1 CAPITAL.............................................. 167,054 149,198
Allowable allowance for loan loss......................... 17,925 15,813
---------- ----------
TOTAL RISK BASED CAPITAL.......................... $ 184,979 $ 165,011
========== ==========
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------------
FOR CAPITAL
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to RWA).................. 184,979 10.32% 143,383 8.00% 179,229 10.00%
Tier 1 Capital (to RWA)................. 167,054 9.32% 71,692 4.00% 107,538 6.00%
Tier 1 Leverage (to Avg Assets)......... 167,054 8.78% 76,111 4.00% 95,138 5.00%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------
FOR CAPITAL
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to RWA).................. 165,011 10.19% 129,508 8.00% 161,885 10.00%
Tier 1 Capital (to RWA)................. 149,198 9.22% 64,754 4.00% 97,131 6.00%
Tier 1 Leverage (to Avg Assets)......... 149,198 8.95% 66,701 4.00% 83,376 5.00%
</TABLE>
- ---------------
(1) Average assets as calculated for risk-based capital (deductions include
current period balances for goodwill and other intangibles).
In March 2000, CIB Marine raised $3.4 million in additional capital
pursuant to a private placement offering of its common stock. During April 2000,
an additional $0.5 million was raised in this offering. The offering was closed
on April 7, 2000. For additional information regarding this transaction, see
Part II "Other Information, 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 and opportunities 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 and, to a
much lesser extent, from other borrowings as discussed under "Borrowings."
Additional sources of liquidity include cash and cash equivalents, federal
funds, loans held for sale and the sale of securities.
The following discussion should be read in conjunction with the statements
of cash flows for the three months ended March 31, 2000, and March 31, 1999,
contained in the unaudited consolidated financial statements.
For the three months ended March 31, 2000, net cash provided by operating
activities was $7.5 million, compared to $7.4 million for the three months ended
March 31, 1999. For the three months ended March 31, 2000, net cash used in
investing activities was $173.4 million, as compared to $65.7 million for the
three months ended March 31, 1999. The increase in cash used for investing
activities during both periods was primarily due to the net increase in loans
and securities purchases. During the first quarter of 1999 the purchase of
branch assets and deposits provided $124.4 million in cash. Net cash provided by
financing activities was $176.3 million and $67.8 million for the three months
ended March 31, 2000 and 1999, respectively. Increases in deposits provided
$164.0 million, or 92.0% of the net cash provided by financing activities for
2000.
CIB Marine was able to meet its liquidity needs during the first quarter of
2000 and expects to meet these needs for the remainder of 2000.
25
<PAGE> 26
YEAR 2000
CIB Marine depends upon information technology in substantially all aspects
of its ongoing operations and addressing Year 2000 concerns to protect CIB
Marine from risks associated with it were of the highest importance. Because of
the nature of the Year 2000 problem was such that there could be no complete
assurance that it would be successfully resolved, a risk mitigation program was
implemented, including a business resumption plan. The date change from 1999 to
2000 resulted in no known Year 2000 related issues that had a material effect on
the operations or financial position of CIB Marine. CIB Marine is not aware of
any significant problems experienced by its customers regarding year 2000 issues
which resulted in financial deficiencies that could result in a customer's
inability to repay their loans. Nevertheless, CIB Marine will continue to
monitor its customers and suppliers, and other critical dates throughout the
year.
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 gap for March 31, 2000:
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------------------------
0-3 4-6 7-12 2-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
-------- --------- --------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.......................... $819,979 $ 70,307 $ 112,477 $479,485 $ 45,854 $1,528,102
Securities..................... 19,608 30,858 38,308 258,541 45,423 392,738
Federal funds sold............. 16,757 -- -- -- -- 16,757
-------- --------- --------- -------- -------- ----------
Total interest-earning
assets................ 856,344 101,165 150,785 738,026 91,277 1,937,597
-------- --------- --------- -------- -------- ----------
Interest-bearing liabilities:
Time deposits.................. 424,560 243,776 445,122 225,236 73 1,338,767
Savings and interest bearing
demand deposits.............. 255,525 -- -- -- -- 255,525
Short-term borrowings.......... 86,996 576 1,325 -- -- 88,897
Long-term borrowings........... -- -- -- -- 34,750 34,750
Impact of interest rate swap... 25,000 -- -- -- (25,000) --
Guaranteed trust preferred
securities..................... -- -- -- -- 10,000 10,000
-------- --------- --------- -------- -------- ----------
Total interest-bearing
liabilities........... $792,081 $ 244,352 $ 446,447 $225,236 $ 19,823 $1,727,939
Interest sensitivity GAP (by
period)........................ 64,263 (143,187) (295,662) 512,790 71,454 209,658
Interest sensitivity GAP
(cumulative)................... 64,263 (78,924) (374,586) 138,204 209,658 209,658
Cumulative Gap as a % of Total
Assets......................... 3.20% (3.93)% (18.65)% 6.88% 10.44%
</TABLE>
The following table illustrates the expected percentage change in net
interest income over a one year period due to the immediate change in the short
term U.S. prime rate of interest as of March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
BASIS POINT CHANGES
---------------------------------------
+200 +100 -100 -200
----- ----- ---- ----
<S> <C> <C> <C> <C>
MARCH 31, 2000
Net Interest Income change over one year.............. (2.99)% (1.49)% 1.40% 2.06%
===== ===== ==== ====
DECEMBER 31, 1999
Net Interest Income change over one year.............. (3.53)% (1.77)% 1.54% 2.01%
===== ===== ==== ====
</TABLE>
26
<PAGE> 27
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 materially 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. During March 2000, CIB Marine sold 1,295 shares of its common stock at
$2,593.77 per share for a total of $3.4 million pursuant to a private
placement offering which commenced on March 24, 2000 and terminated on
April 7, 2000. An additional 205 shares were sold during April 2000 in
this offering for $0.5 million. The offering was made to a limited
number of accredited investors and to CIB Marine's employee stock
ownership plan, pursuant to Rule 506 of Regulation D under the
Securities Act of 1933. The aggregate offering amount was $5.0 million
and no commissions or underwriting discounts were incurred by CIB
Marine.
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
No reports on Form 8-K were filed by CIB Marine during the quarter ended
March 31, 2000.
27
<PAGE> 28
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 12th day of May 2000.
CIB Marine Bancshares, Inc.
(Registrant)
/s/ STEVEN T. KLITZING
------------------------------------
Steven T. Klitzing
Senior Vice President and
Chief Financial Officer
28
<PAGE> 29
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>
<PAGE> 1
EXHIBIT 11 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(In thousands, except share data)
<TABLE>
<CAPTION>
03/31/00 03/31/99
------------------- ----------------
<S> <C> <C>
Net income $ 3,931 $ 3,122
=================== ================
Weighted average shares outstanding:
Basic 109,899 107,153
=================== ================
Diluted 111,189 108,327
=================== ================
Earnings per common share - Basic $ 35.77 $ 29.14
Effect of stock options (0.42) (0.32)
------------------- ----------------
Earnings per common share - Diluted $ 35.35 $ 28.82
=================== ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,671
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,757
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 240,937
<INVESTMENTS-CARRYING> 151,801
<INVESTMENTS-MARKET> 149,369
<LOANS> 1,528,102
<ALLOWANCE> (17,925)
<TOTAL-ASSETS> 2,008,951
<DEPOSITS> 1,692,451
<SHORT-TERM> 88,897
<LIABILITIES-OTHER> 14,468
<LONG-TERM> 44,750
0
0
<COMMON> 111
<OTHER-SE> 168,274
<TOTAL-LIABILITIES-AND-EQUITY> 2,008,951
<INTEREST-LOAN> 33,753
<INTEREST-INVEST> 5,722
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 39,515
<INTEREST-DEPOSIT> 20,810
<INTEREST-EXPENSE> 22,610
<INTEREST-INCOME-NET> 16,905
<LOAN-LOSSES> 2,360
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,899
<INCOME-PRETAX> 6,023
<INCOME-PRE-EXTRAORDINARY> 6,023
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,931
<EPS-BASIC> 35.77
<EPS-DILUTED> 35.35
<YIELD-ACTUAL> 3.78
<LOANS-NON> 7,663
<LOANS-PAST> 2,779
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,813
<CHARGE-OFFS> (260)
<RECOVERIES> 12
<ALLOWANCE-CLOSE> (17,925)
<ALLOWANCE-DOMESTIC> (17,925)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,103
</TABLE>
