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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 SEPTEMBER 30, 2002
COMMISSION FILE NUMBER 000-24149
CIB MARINE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 37-1203599
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
N27 W24025 PAUL COURT, PEWAUKEE, WISCONSIN 53072
(Address of principal executive offices, Zip Code)
(262) 695-6010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
At November 8, 2002 CIB Marine had 18,312,242 shares of common stock
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIB MARINE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks................................... $ 58,388 $ 29,686
Federal Funds Sold........................................ 18,145 29,314
---------- ----------
Total Cash and Cash Equivalents....................... 76,533 59,000
---------- ----------
Loans Held for Sale......................................... 112,659 34,295
Securities:
Available for Sale, at fair value......................... 359,635 322,766
Held to maturity (approximate fair value of $84,677 and
$98,759, respectively).................................. 81,383 96,609
---------- ----------
Total Securities...................................... 441,018 419,375
---------- ----------
Loans....................................................... 2,661,371 2,389,482
Less: Allowance for Loan Losses........................... (50,424) (34,078)
---------- ----------
Net Loans............................................... 2,610,947 2,355,404
---------- ----------
Premises and Equipment, net................................. 28,031 27,807
Accrued Interest Receivable................................. 16,425 16,993
Intangible Assets, net...................................... 14,969 11,434
Foreclosed Properties....................................... 1,603 3,168
Other Assets................................................ 34,023 21,010
---------- ----------
Total Assets.......................................... $3,336,208 $2,948,486
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand................................ $ 209,167 $ 148,696
Interest-Bearing Demand................................... 52,671 60,671
Savings................................................... 491,148 300,331
Time...................................................... 1,960,075 1,760,012
---------- ----------
Total Deposits........................................ 2,713,061 2,269,710
---------- ----------
Short-term Borrowings....................................... 232,171 319,883
Accrued Interest Payable.................................... 9,594 11,335
Other Liabilities........................................... 14,648 8,429
Long-term Borrowings........................................ 46,945 61,987
Guaranteed Trust Preferred Securities....................... 60,000 40,000
---------- ----------
Total Liabilities..................................... 3,076,419 2,711,344
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock, $1 Par Value; 5,000,000 Shares Authorized,
None Issued............................................... -- --
Common Stock, $1 Par Value; 50,000,000 Shares Authorized,
18,275,554 and 17,876,752 Issued and Outstanding,
respectively.............................................. 18,275 17,877
Capital Surplus............................................. 157,264 148,972
Retained Earnings........................................... 81,657 67,270
Accumulated Other Comprehensive Income, net................. 2,593 3,023
---------- ----------
Total Stockholders' Equity............................ 259,789 237,142
---------- ----------
Total Liabilities and Stockholders' Equity............ $3,336,208 $2,948,486
========== ==========
See accompanying Notes to Unaudited Consolidated Financial Statements
1
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INTEREST AND DIVIDEND INCOME
Loans.............................................. $ 45,493 $ 43,435 $ 131,943 $ 132,125
Loans Held for Sale................................ 746 502 1,608 1,408
Securities:
Taxable.......................................... 4,511 4,805 15,020 17,837
Tax-exempt....................................... 648 677 1,909 2,154
Dividends........................................ 96 77 268 220
Federal Funds Sold................................. 144 213 485 942
----------- ----------- ----------- -----------
Total Interest and Dividend Income............. 51,638 49,709 151,233 154,686
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits........................................... 21,886 23,974 63,917 79,255
Short-term Borrowings.............................. 1,459 1,973 4,480 6,664
Long-term Borrowings............................... 332 698 1,050 2,025
Guaranteed Trust Preferred Securities.............. 1,071 1,062 3,195 2,962
----------- ----------- ----------- -----------
Total Interest Expense......................... 24,748 27,707 72,642 90,906
----------- ----------- ----------- -----------
Net Interest Income................................ 26,890 22,002 78,591 63,780
Provision for Loan Losses.......................... 11,713 3,061 23,476 9,004
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan
Losses....................................... 15,177 18,941 55,115 54,776
----------- ----------- ----------- -----------
NONINTEREST INCOME
Loan Fees.......................................... 1,062 1,159 3,167 2,487
Mortgage Banking Revenue........................... 2,655 2,078 6,022 5,156
Deposit Service Charges............................ 813 728 2,407 2,004
Other Service Fees................................. 149 140 362 384
Other Income....................................... 70 445 1,531 676
Gain on Investment Securities, net................. 1,031 1,591 3,127 3,144
----------- ----------- ----------- -----------
Total Noninterest Income....................... 5,780 6,141 16,616 13,851
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and Employee Benefits................. 10,053 8,654 30,047 24,208
Equipment.......................................... 1,112 799 2,876 2,243
Occupancy and Premises............................. 1,348 1,300 4,240 3,771
Professional Services.............................. 846 596 2,198 1,452
Advertising/Marketing.............................. 332 228 1,097 684
Amortization of Intangibles........................ 125 331 338 994
Telephone & Data Communications.................... 463 383 1,518 1,031
Litigation Settlements............................. 1,762 25 1,752 25
Merger-related Charges............................. -- 477 -- 477
Other Expense...................................... 2,706 1,589 7,057 4,414
----------- ----------- ----------- -----------
Total Noninterest Expense...................... 18,747 14,382 51,123 39,299
----------- ----------- ----------- -----------
Income Before Income Taxes......................... 2,210 10,700 20,608 29,328
Income Tax Expense (Benefit)....................... (15) 3,880 6,221 10,266
----------- ----------- ----------- -----------
NET INCOME..................................... $ 2,225 $ 6,820 $ 14,387 $ 19,062
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic.............................................. $ 0.12 $ 0.38 $ 0.79 $ 1.08
Diluted............................................ 0.12 0.37 0.78 1.06
Weighted Average Shares -- Basic................... 18,241,287 17,876,203 18,118,695 17,709,627
Weighted Average Shares -- Diluted................. 18,636,777 18,212,012 18,505,571 18,032,676
See accompanying Notes to Unaudited Consolidated Financial Statements
2
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ACCUMULATED
-------------------- OTHER
PAR CAPITAL RETAINED COMPREHENSIVE
SHARES VALUE SURPLUS EARNINGS INCOME TOTAL
---------- ------- -------- -------- ------------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE, DECEMBER 31, 2000............... 17,578,135 $17,578 $143,194 $40,353 $2,242 $203,367
Comprehensive Income:
Net Income............................... -- -- -- 19,062 -- 19,062
Other Comprehensive Income:
Unrealized Securities Holding Gains
Arising During the Period............ -- -- -- -- 7,751 7,751
Reclassification Adjustment for Gains
Included in Net Income............... -- -- -- -- (3,144) (3,144)
Income Tax Effect...................... -- -- -- -- (1,786) (1,786)
--------
Total Comprehensive Income......... 21,883
Common Stock Issuance.................... 287,038 287 5,704 -- -- 5,991
Payments to Dissenters and for Fractional
Shares................................. (10,659) (10) (228) -- (238)
Non-cash Compensation.................... -- -- 17 -- -- 17
Exercise of Stock Options................ 22,238 22 285 -- -- 307
---------- ------- -------- ------- ------ --------
BALANCE, SEPTEMBER 30, 2001.............. 17,876,752 $17,877 $148,972 $59,415 $5,063 $231,327
========== ======= ======== ======= ====== ========
BALANCE, DECEMBER 31, 2001............... 17,876,752 $17,877 $148,972 $67,270 $3,023 $237,142
Comprehensive Income:
Net Income............................... -- -- -- 14,387 -- 14,387
Other Comprehensive Income:
Unrealized Securities Holding Gains
Arising During the Period............ -- -- -- -- 2,373 2,373
Reclassification Adjustment for Gains
Included in Net Income............... -- -- -- -- (3,127) (3,127)
Income tax effect...................... -- -- -- -- 324 324
--------
Total Comprehensive Income......... 13,957
Common Stock Issuance.................... 341,772 342 7,594 -- -- 7,936
Exercise of Stock Options................ 57,030 56 698 -- -- 754
---------- ------- -------- ------- ------ --------
BALANCE, SEPTEMBER 30, 2002.............. 18,275,554 $18,275 $157,264 $81,657 $2,593 $259,789
========== ======= ======== ======= ====== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
3
CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2002 2001
---- ----
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................................. $ 14,387 $ 19,062
Adjustments to Reconcile Net Income to Net Cash Provided by
(Used in) Operating Activities:
Deferred Loan Fee Amortization.......................... (7,954) (6,778)
Depreciation and Other Amortization..................... 4,625 2,261
Non-Cash Compensation................................... -- 17
Provision for Loan Losses............................... 23,476 9,004
Originations of Loans Held for Sale..................... (198,913) (151,907)
Purchases of Loans Held for Sale........................ (555,907) (485,633)
Proceeds from Sale of Loans Held for Sale............... 682,267 635,647
Deferred Tax Expense (Benefit).......................... (8,682) 8,389
Loss on the Sale of Other Assets........................ 19 504
Gain on Sale of Securities.............................. (3,127) (3,144)
Decrease in Interest Receivable and Other Assets........ 7,201 3,770
Increase (Decrease) in Interest Payable and Other
Liabilities........................................... (5,448) 1,600
--------- ---------
Net Cash Provided by (Used In) Operating
activities........................................... (48,056) 32,792
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of Securities Available for Sale............. 241,361 919,028
Maturities of Securities Held to Maturity............... 20,775 55,345
Purchase of Securities Available for Sale............... (352,041) (807,432)
Purchase of Securities Held to Maturity................. (11,362) (29,597)
Proceeds from Sales of Securities Available for sale.... 127,528 68,803
Repayments of Mortgage Backed Securities Held to
Maturity.............................................. 5,972 4,733
Repayments of Mortgage Backed Securities Available for
Sale.................................................. 46,211 21,224
Purchase of Mortgage Backed Securities Available for
Sale.................................................. (98,136) (127,624)
Purchase of Mortgage Backed Securities Held to
Maturity.............................................. -- (1,676)
Net Increase in Other Equities (Including FHLB Stock)... (660) (1,003)
Net Increase in Limited and Low Income Housing
Partnership Investments............................... (1,961) (893)
Net Increase in Loans................................... (276,184) (347,532)
Proceeds from Sale of Foreclosed Properties............. 2,744 1,540
Capital Expenditures.................................... (2,949) (4,473)
--------- ---------
Net Cash Used in Investing Activities................ (298,702) (249,557)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Deposits.................................... 441,329 82,210
Proceeds from Long-Term Borrowings...................... -- 29,232
Proceeds from Issuance of Guaranteed Trust Preferred
Securities............................................ 19,550 14,550
Proceeds from Issuance of Common Stock.................. 7,936 5,991
Proceeds from Stock Options Exercised................... 754 307
Cash Paid to Dissenters and for Fractional Shares....... -- (238)
Net Increase (Decrease) in Short-Term Borrowings........ (105,278) 83,435
--------- ---------
Net Cash Provided by Financing Activities............ 364,291 215,487
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........ 17,533 (1,278)
Cash and Cash Equivalents, Beginning of Period.............. 59,000 52,683
--------- ---------
Cash and Cash Equivalents, End of Period.................... $ 76,533 $ 51,405
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest................................................ $ 74,383 $ 93,514
Income Taxes............................................ 13,952 3,308
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Transfer of Loans to Foreclosed Properties.............. 1,206 3,867
See accompanying Notes to Unaudited Consolidated Financial Statements
4
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") 2001 Annual
Report on Form 10-K. In the opinion of management, the unaudited consolidated
financial statements included in this report reflect all adjustments which are
necessary to present fairly CIB Marine's financial condition, results of
operations and cash flows as of and for the three and nine-month periods ended
September 30, 2002 and 2001. The results of operations for the three and
nine-month periods ended September 30, 2002 are not necessarily indicative of
results to be expected for the entire year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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, 2001
and for the three and nine-month periods ended September 30, 2001, to be
consistent with classifications for 2002. Prior period financial information for
the three months ended March 31, 2002 and June 30, 2002 has been restated in
connection with the adoption of a new accounting pronouncement. See Note 6 to
the Consolidated Financial Statements for a further discussion.
NOTE 2 -- EARNINGS PER SHARE COMPUTATIONS
The following provides a reconciliation of basic and diluted earnings per
share.
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net income.............................. $ 2,225 $ 6,820 $ 14,387 $ 19,062
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic................................. 18,241,287 17,876,203 18,118,695 17,709,627
Effect of dilutive stock options
outstanding...................... 395,490 335,809 386,876 323,049
----------- ----------- ----------- -----------
Diluted............................... 18,636,777 18,212,012 18,505,571 18,032,676
=========== =========== =========== ===========
Earnings per share:
Basic................................. $ 0.12 $ 0.38 $ 0.79 $ 1.08
Effect of dilutive stock options
outstanding...................... -- (0.01) (0.01) (0.02)
----------- ----------- ----------- -----------
Diluted............................... $ 0.12 $ 0.37 $ 0.78 $ 1.06
=========== =========== =========== ===========
5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- LONG-TERM BORROWINGS
The following table presents information regarding amounts payable to the
Federal Home Loan Bank of Chicago that are included in the consolidated balance
sheets as long-term borrowings at September 30, 2002 and December 31, 2001.
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------- ----------------- SCHEDULED CALLABLE @
BALANCE RATE BALANCE RATE MATURITY PAR AFTER
------- ---- ------- ---- --------- ----------
(DOLLARS IN THOUSANDS)
$ -- --% $ 7,500 5.45% 1/16/03 N/A
-- -- 2,500 5.45 1/16/03 N/A
-- -- 7,500 5.51 2/08/03 N/A
-- -- 67 5.76 4/26/03 N/A
3,500 5.12 3,500 5.12 5/01/04 N/A
5,000 5.12 5,000 5.12 5/01/04 N/A
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
2,000 5.09 2,000 5.09 2/20/08 2/20/01
23,765 7.07 23,635 7.07 6/30/08 N/A
------- ----- ------- -----
42,015 6.19% 59,452 5.98%
Effect of interest rate swap.......... 4,930 (3.31) 2,535 (2.05)
------- ----- ------- -----
Total................................. $46,945 2.88% $61,987 3.93%
======= ===== ======= =====
CIB Marine is required to maintain qualifying collateral as security for
these borrowings. The debt to collateral ratio is dependent upon the type of
collateral pledged and ranges from 60% on loans held for sale to 90% on certain
types of government securities. CIB Marine had collateral of $235.2 million and
$93.4 million at September 30, 2002, and December 31, 2001, respectively. As of
September 30, 2002, this collateral consisted of securities with a fair market
value of $98.5 million and 1-4 family residential mortgages not more than 90
days delinquent of $136.7 million. During the first nine months of 2002, $17.6
million of long-term borrowings were reclassified to short-term borrowings
because their due dates were less than one year.
NOTE 4 -- STOCK OPTION ACTIVITY
The following is a reconciliation of stock option activity for the nine
months ended September 30, 2002.
WEIGHTED
RANGE OF OPTION AVERAGE
NUMBER OF SHARES PRICES PER SHARE EXERCISE PRICE
---------------- ---------------- --------------
Shares under option December 31, 2001............. 1,657,643 $4.95-$22.89 $15.8093
Granted......................................... 10,932 23.22-23.66 23.5820
Lapsed or surrendered........................... (40,515) 10.87-22.89 18.8842
Exercised....................................... (57,030) 4.95-16.23 7.7064
--------- ------------ --------
Shares under option September 30, 2002............ 1,571,030 $4.95-$23.66 $16.0783
========= ============ ========
Shares exercisable at September 30, 2002.......... 873,388 $4.95-$22.07 $13.3428
========= ============ ========
NOTE 5 -- DERIVATIVE AND HEDGING ACTIVITIES
CIB Marine had eleven interest rate swaps outstanding as of September 30,
2002, which are being utilized to hedge the fair value of financial instruments
in the balance sheet. The financial instruments being hedged include $35.0
million in callable negotiable certificates of deposit, $65.0 million in
non-callable certificates of deposit and a $25.0 million FHLB Advance. The final
maturity, interest payment dates and option features, where applicable, are
matched between the swaps and the certificates of deposit or the FHLB Advance.
The interest rate swaps are floating pay-fixed receive instruments and, as such,
effectively convert
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DERIVATIVE AND HEDGING ACTIVITIES -- CONTINUED
the fixed rate payments on the financial instruments to a floating rate and
hedge their fair value from changes in interest rates. These swaps are accounted
for as fair value hedges under Statement of Financial Accounting Standard (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). Market value changes in the derivatives and the hedged liabilities during
the period are reflected in the income statement.
CIB Marine's mortgage banking activities include the issuance of
commitments to extend or purchase mortgage loans to be held for sale with
interest rate locks and the utilization of conditional forward contracts to
hedge the changes in fair value of these loan commitments due to changes in
interest rates. CIB Marine does not formally designate a hedging relationship
under SFAS 133 between these loan commitments and the conditional forward
contracts. CIB Marine is in a short position with the conditional forward
contracts whereby CIB Marine agrees to sell a residential mortgage loan at a
pre-established price at some future date, which is used to hedge exposure to
changes in the prices of residential mortgage loans from the time CIB Marine
issues the loan commitments to the time the loan sale actually occurs.
Residential mortgage loans held for sale are primarily those originated or
purchased by CIB Marine in its mortgage banking activities and, from the time a
residential mortgage loan held for sale is originated or purchased, CIB Marine
uses forward contracts to hedge the changes in the fair market value of such
loans due to changes in interest rates and designates a hedging relationship
under SFAS 133. The notional amount of forward contracts outstanding varies and
is a function of the balance of current loans held for sale and commitments to
extend mortgage loans to be held for sale. At September 30, 2002, CIB Marine had
$506.7 million in forward sale agreements outstanding with a fair market value
of approximately $(7.7) million, and $400.8 million outstanding in commitments
to extend mortgage loans with interest rate locks with a fair market value of
approximately $1.9 million. Market value changes during the period are reflected
in other noninterest income in the income statement.
In addition, CIB Marine has various agreements arising out of certain
credit relationships under which it may earn other forms of contingent
compensation in addition to interest. The contingent compensation is typically
based upon, or determined by, the financial performance of the borrower. At
September 30, 2002, CIB Marine determined these agreements did not have any fair
value.
NOTE 6 -- GOODWILL AND OTHER INTANGIBLE ASSETS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations (SFAS 141), and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001, to be accounted for using the purchase method.
Poolings initiated prior to June 30, 2001, are grandfathered effective January
1, 2002. SFAS 142 replaces the requirement to amortize intangible assets with
indefinite lives and goodwill with a requirement for an impairment test.
Intangible assets with definite lives will continue to be amortized. SFAS 142
also requires an evaluation of intangible assets and their useful lives, and a
transitional impairment test for goodwill and certain intangible assets. CIB
Marine adopted SFAS 142 on January 1, 2002, and has performed its transitional
impairment tests, which indicated no impairment.
On October 1, 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions (SFAS 147). SFAS 147 expands the scope of SFAS 141 and
142 to include unidentifiable intangible assets established in the acquisition
of bank branches. Under SFAS 147 goodwill associated with these acquisitions
will not be subject to amortization and will be tested for impairment. CIB
Marine had $8.0 million of such unidentifiable intangible assets at December 31,
2001. CIB Marine adopted SFAS 147 on September 30, 2002 and in accordance with
its provisions, reversed previously recorded goodwill amortization recorded in
2002. Amortization of intangibles included in noninterest expense for the nine
months ended September 30, 2002 included an adjustment of $0.3 million to
reverse expense recorded in the first six months of 2002. Prior period
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- GOODWILL AND OTHER INTANGIBLE ASSETS -- CONTINUED
financial information for the first and second quarters of 2002 have been
restated in connection with the adoption of SFAS 147.
CIB Marine's intangible asset values at September 30, 2002 are as follows:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET INTANGIBLE
-------------- ------------ --------------
(DOLLARS IN THOUSANDS)
Amortizing intangible assets:
Core deposits....................................... $3,959 $2,499 $ 1,460
Customer base of factoring business................. 390 19 371
Mortgage servicing rights........................... 24 8 16
------ ------ -------
Total amortizing intangible assets.................... $4,373 $2,526 1,847
====== ======
Nonamortizing goodwill................................ 13,122
-------
Total intangibles, net................................ $14,969
=======
The current and estimated amortization expense is as follows:
Aggregate amortization expense
For the nine months ended 9/30/02......................... $338
Estimated amortization expense
For the remainder of 2002................................. 142
For the year ended 12/31/03............................... 499
For the year ended 12/31/04............................... 341
For the year ended 12/31/05............................... 237
For the year ended 12/31/06............................... 211
In accordance with SFAS 142 and 147, CIB Marine discontinued the
amortization of goodwill and continues to amortize core deposit intangibles and
other identifiable intangibles with definite lives. A reconciliation of
previously reported net income adjusted for the discontinuance of the
amortization of the goodwill is as follows:
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- ---------------------
2002 2001 2002 2001
------ ------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income:
Net income as reported............................. $2,225 $6,820 $14,387 $19,062
Add back: discontinued goodwill amortization....... N/A 154 N/A 461
------ ------ ------- -------
Adjusted net income................................ $2,225 $6,974 $14,387 $19,523
====== ====== ======= =======
Basic earnings per share:
Reported basic earnings per share.................. $ 0.12 $ 0.38 $ 0.79 $ 1.08
Add back: discontinued goodwill amortization per
share............................................ -- 0.01 -- 0.03
------ ------ ------- -------
Adjusted basic earnings per share.................. $ 0.12 $ 0.39 $ 0.79 $ 1.11
====== ====== ======= =======
Diluted earnings per share:
Reported diluted earnings per share................ $ 0.12 $ 0.37 $ 0.78 $ 1.06
Add back: discontinued goodwill amortization per
share............................................ -- 0.01 -- 0.03
------ ------ ------- -------
Adjusted diluted earnings per share................ $ 0.12 $ 0.38 $ 0.78 $ 1.09
====== ====== ======= =======
8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- SIGNIFICANT NONACCRUAL LOANS TO ONE BORROWER
In July 1999, one of CIB Marine's borrowers (the "Borrower") experienced a
substantial decline in net worth as a result of a similar decline in the market
value of a publicly traded common stock which comprised a large part of the
Borrower's net worth. The decline in the value of this security caused liquidity
problems for the Borrower with respect to its obligations to CIB Marine and
other lenders. CIB Marine engaged in various transactions with this borrower and
commenced certain legal proceedings to strengthen its collateral position and
collect amounts owed by this Borrower.
At September 30, 2002, the outstanding lending commitment to the Borrower
and its related interests, including lines of credit which have not been fully
drawn, was approximately $59.8 million, and the aggregate principal amount
actually drawn and outstanding was approximately $53.3 million. A substantial
amount of collateral held by CIB Marine related to loans made to the Borrower
and its related interests includes certain of the assets of, and the Borrower's
approximately 84% interest in, a closely held steel company (the "Steel
Company").
On April 25, 2002, the Borrower filed for bankruptcy reorganization. On
August 21, 2002, the bankruptcy court entered a settlement order which
established CIB Marine's claim at $15.5 million, and provided that in the event
the Borrower fails to pay CIB Marine $13.3 million on or before October 30,
2002, CIB Marine would become the owner of the Borrower's 84% interest in the
Steel Company subject to an option of the Borrower to acquire the 84% interest
in the Steel Company from CIB Marine on or before December 31, 2002. The
settlement also resulted in the transfer of the Borrower's interest in a
condominium development in exchange for a $0.8 million reduction in the amount
of CIB Marine's claim, and a release and dismissal of any claims that the
Borrower and CIB Marine may have against the other. The Borrower failed to pay
CIB Marine the $13.3 million on or before October 30, 2002, and CIB Marine
became the owner of the Borrower's 84% interest in the Steel Company. On October
31, 2002, CIB Marine recognized a $1.8 million charge-off related to the loans
that were secured by the stock in the Steel Company, and transferred $11.5
million to Other Assets, which represents CIB Marine's estimate of the fair
market value of the Steel Company. CIB Marine is in the process of developing a
strategy to dispose of the Steel Company stock and its interest in the
condominium development to maximize their sales price. The investment in the
Steel Company is accounted for as an asset held for sale and therefore it is not
expected that the Steel Company's financial statements will be consolidated with
CIB Marine's consolidated financial statements. The Steel Company will be
accounted for on the equity method and CIB Marine's proportionate share of
income will be recorded in other income. Additional information about the
Borrower and its loans from CIB Marine are discussed in Item 2 in
"Loans -- Nonperforming Assets and Loans 90 Days or More Past Due and Still
Accruing."
9
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," ("SFAS 145"). SFAS 145 rescinds Statement No. 4 ("SFAS 4"), which
required all gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of the related income tax effect, if material in the
aggregate. Due to the rescission of SFAS 4, the criteria in Opinion 30 will now
be used to classify those gains and losses. Statement No. 64 amended SFAS 4, and
is no longer necessary because of the rescission of SFAS 4. Statement No. 44,
which established accounting requirements for the effects of transition
provisions of the Motor Carrier Act of 1980, is no longer necessary because the
transition has been completed. SFAS 145 also amends Statement No. 13 ("SFAS 13")
to require that certain lease modifications that have economic effects similar
to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS 145 also makes technical
corrections to existing pronouncements which are generally not substantive in
nature. The provisions of SFAS 145 related to the rescission of SFAS 4 are
effective for fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria for classification as an
extraordinary item will be reclassified. The provisions of SFAS 145 related to
SFAS 13 are effective for transactions occurring after May 15, 2002. All other
provisions of SFAS 145 shall be effective for financial statements issued on or
after May 15, 2002. The adoption had no effect on CIB Marine's financial
position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146). Under previous accounting guidance,
a company recognized a liability for an exit cost when it committed to an exit
plan. Under SFAS 146, expenses related to exit, disposal or restructuring
activities initiated after December 31, 2002, will be recorded when such costs
are incurred and can be measured at fair value. Any recorded liability would be
adjusted for future changes in estimated cash flows. The future impact to CIB
Marine will be determined by any future activities in these areas. CIB Marine
does not currently have plans in any of these areas, but has occasionally
conducted these types of activities in the past.
NOTE 9 -- ACQUISITIONS
CIB Marine acquired in the third quarter of 2002 a factored receivable
lending business and certain related assets from a borrower in connection with a
loan workout situation. A loan charge-off of $2.1 million was recorded based
upon an independent valuation of the acquired business. Total assets of this
subsidiary were $10.1 million at September 30, 2002 and included $3.9 million of
intangible assets.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis presents CIB Marine's consolidated
financial condition as of September 30, 2002 and results of operations for the
three and nine months ended September 30, 2002. This discussion should be read
together with the consolidated financial statements and accompanying notes
contained in Part I, Item 1 of this report as well as CIB Marine's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
FORWARD-LOOKING STATEMENTS
CIB Marine has made statements in this report and documents that are
incorporated by reference 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, 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 markets in which CIB Marine operates;
- Changes in the legislative and regulatory environment which adversely
affect CIB Marine;
- Changes in accounting policies and practices;
- 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;
- The costs and effects of unanticipated litigation and of unexpected or
adverse outcomes in such litigations; and
- Other risks set forth from time to time in CIB Marine's filings with the
Securities and Exchange Commission.
These risks and uncertainties should be considered in evaluating
forward-looking statements, and undue reliance should not be placed on such
statements. CIB Marine does not assume any obligation to update or
11
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
OVERVIEW
CIB Marine's net income decreased $4.6 million, or 67.4%, from $6.8 million
in the third quarter of 2001 to $2.2 million in the third quarter of 2002. The
decrease in net income is primarily the result of a $8.7 million increase in the
provision for loan losses and a $1.8 million litigation settlement. This
decrease was partially offset by higher net interest income, which increased
$4.9 million from the previous year. The increase in the provision for loan
losses is due primarily to an increase in loan charge-offs and nonperforming
loans. Additional information about nonperforming loans is discussed in Item 2
"Loans -- Nonperforming Assets and Loans 90 Days or More Past Due and Still
Accruing."
Diluted earnings per share decreased $0.25, or 67.6%, from $0.37 for the
third quarter of 2001 to $0.12 for the third quarter of 2002. The return on
average assets was 0.27% in the third quarter of 2002 as compared to 1.03% in
the third quarter of 2001. The return on average equity was 3.37% in the third
quarter of 2002, as compared to 11.85% in the third quarter of 2001.
CIB Marine's net income decreased $4.7 million, or 24.5%, from $19.1
million for the nine-month period ended September 30, 2001 to $14.4 million for
the nine-month period ended September 30, 2002. The decrease in net income is
primarily the result of a $14.5 million increase in the provision for loan
losses and higher noninterest expense of $11.8 million. These increases were
partially offset by a $14.8 million increase in net interest income and a $2.7
million increase in noninterest income. The increase in the provision for loan
losses is due primarily to an increase in loan charge-offs and nonperforming
loans. Additional information about nonperforming loans is discussed in Item 2
"Loans -- Nonperforming Assets and Loans 90 Days or More Past Due and Still
Accruing." See also Footnote 6 for disclosures related to SFAS 142 and 147 and
their impact on net income.
Diluted earnings per share decreased $0.28, or 26.4%, from $1.06 for the
nine months ended September 30, 2001 to $0.78 for the nine months ended
September 30, 2002. In addition to the previously mentioned factors affecting
net income, increased average shares outstanding reduced diluted earnings per
share by two cents in the nine months ended September 30, 2002 compared to the
same period of last year. The return on average assets was 0.61% for the
nine-month period ended September 30, 2002 as compared to 0.98% for the
nine-month period ended September 30, 2001. The return on average equity was
7.59% for the nine-month period ended September 30, 2002, as compared to 11.70%
for the nine-month period ended September 30, 2001.
12
The following table sets forth the percentage change in the average balance
sheet or income statement items represented from the three and nine-month
periods ended September 30, 2001 to the comparable periods ended September 30,
2002.
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2002
VS. SEPTEMBER 30, 2001 VS. SEPTEMBER 30, 2001
---------------------- ----------------------
SELECTED AVERAGE BALANCE SHEET ITEMS
Total loans, including held for sale................... 24.61% 26.25%
Total interest-earning assets.......................... 24.62 22.83
Total assets........................................... 24.53 22.09
Total deposits......................................... 28.35 22.75
Total interest-bearing liabilities..................... 24.67 22.52
SELECTED INCOME STATEMENT ITEMS
Net interest income after provision for loan losses
(TE)................................................. (19.20)% 0.80%
Noninterest income..................................... (5.88) 19.96
Noninterest expense.................................... 30.35 30.09
Net income............................................. (67.38) (24.53)
Diluted earnings per share............................. (67.57) (26.42)
- -------------------------
(TE) Tax-equivalent basis at 35%
CIB Marine's asset growth has been largely attributable to the
implementation of its business strategy, which includes focusing on the
development of banking relationships with small to medium-sized businesses,
offering more personalized service to banking customers, hiring experienced
personnel and expanding in both new and existing markets. During the first nine
months of 2002, CIB Marine established two new branch facilities. During 2001,
CIB Marine established four new branch facilities and acquired Citrus Financial
Services, Inc., including its banking subsidiary Citrus Bank, which at the time
had total assets of $84.2 million and three banking facilities located along
central Florida's Atlantic coast. CIB Marine has raised a significant portion of
the capital necessary to facilitate this growth through the sale of its common
stock in private placement offerings and through the issuance of guaranteed
trust preferred securities, which qualify, subject to certain limitations, as
Tier 1 Capital for regulatory purposes. CIB Marine raised $7.9 million during
the first nine months of 2002 through the sale of common stock and $6.0 million
during the same period in 2001. In addition, CIB Marine raised $19.6 million
during the first nine months of 2002 and $14.6 million in the first nine months
of 2001 through the issuance of guaranteed trust preferred securities. CIB
Marine had 51 banking facilities and 825 full-time equivalent employees at
September 30, 2002, as compared to 46 banking facilities and 731 full-time
equivalent employees at September 30, 2001.
The following table sets forth selected unaudited consolidated financial
data. The selected financial data should be read in conjunction with the
Unaudited Consolidated Financial Statements, including the related notes.
13
SELECTED CONSOLIDATED FINANCIAL DATA
AT OR FOR THE QUARTER ENDED AT OR FOR THE NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA
Interest and dividend income... $ 51,638 $ 49,709 $ 151,233 $ 154,686
Interest expense............... 24,748 27,707 72,642 90,906
----------- ----------- ----------- -----------
Net interest income............ 26,890 22,002 78,591 63,780
Provision for loan losses...... 11,713 3,061 23,476 9,004
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses..................... 15,177 18,941 55,115 54,776
Noninterest income(1).......... 5,780 6,141 16,616 13,851
Noninterest expense............ 18,747 14,382 51,123 39,299
----------- ----------- ----------- -----------
Income before income taxes..... 2,210 10,700 20,608 29,328
Income tax expense
(benefit).................. (15) 3,880 6,221 10,266
----------- ----------- ----------- -----------
Net income............... $ 2,225 $ 6,820 $ 14,387 $ 19,062
=========== =========== =========== ===========
COMMON SHARE DATA
Basic earnings per share....... $ 0.12 $ 0.38 $ 0.79 $ 1.08
Diluted earnings per share..... 0.12 0.37 0.78 1.06
Dividends...................... -- -- -- --
Book value per share........... $ 14.22 $ 12.94 $ 14.22 $ 12.94
Weighted average shares
outstanding -- basic......... 18,241,287 17,876,203 18,118,695 17,709,627
Weighted average shares
outstanding -- diluted....... 18,636,777 18,212,012 18,505,571 18,032,676
FINANCIAL CONDITION DATA
Total assets................... $ 3,336,208 $ 2,708,730 $ 3,336,208 $ 2,708,730
Loans, including held for
sale......................... 2,774,030 2,198,077 2,774,030 2,198,077
Securities..................... 441,018 410,068 441,018 410,068
Deposits....................... 2,713,061 2,123,802 2,713,061 2,123,802
Borrowings, including
guaranteed trust preferred
securities................... 339,116 332,566 339,116 332,566
Stockholders' equity........... 259,789 231,327 259,789 231,327
FINANCIAL RATIOS AND OTHER DATA
Performance ratios:
Net interest margin(2)....... 3.41% 3.48% 3.46% 3.45%
Net interest spread(3)....... 2.99 2.90 3.04 2.82
Noninterest income to average
assets(4).................. 0.58 0.69 0.57 0.55
Noninterest expense to
average assets............. 2.27 2.17 2.16 2.03
Efficiency ratio(5).......... 58.40 53.33 54.69 51.86
Return on average
assets(6).................. 0.27 1.03 0.61 0.98
Return on average
equity(7).................. 3.37 11.85 7.59 11.70
Asset quality ratios:
Nonaccrual loans,
restructured and 90 days or
more past due and still
accruing loans to total
loans, including held for
sale....................... 2.07% 1.76% 2.07% 1.76%
Nonperforming assets and 90
days or more past due and
still accruing loans to
total assets............... 1.77 1.56 1.77 1.56
Allowance for loan losses to
total loans, including held
for sale................... 1.82 1.41 1.82 1.41
Allowance for loan losses to
nonaccrual, restructured
and 90 days or more past
due and still accruing
loans...................... 87.65 80.27 87.65 80.27
Net charge-offs annualized to
average total loans,
including held for sale.... 0.49 0.10 0.38 0.13
Capital ratios:
Total equity to total
assets..................... 7.79% 8.54% 7.79% 8.54%
Total risk-based capital
ratio...................... 10.94 11.27 10.94 11.27
Tier 1 risk-based capital
ratio...................... 9.69 10.04 9.69 10.04
Leverage capital ratio....... 9.28 9.73 9.28 9.73
Other data:
Number of employees
(full-time equivalent)..... 825 731 825 731
Number of banking
facilities................. 51 46 51 46
14
- ---------------
(1) Noninterest income includes pre-tax gains on investment securities of $1.0
million for the quarter ended September 30, 2002, $1.6 million for the
quarter ended September 30, 2001, $3.1 million for the nine months ended
September 30, 2002 and $3.1 million for the nine months ended September 30,
2001.
(2) Net interest margin is the ratio of annualized net interest income, on a
tax-equivalent basis, to average interest-earning assets.
(3) Net interest spread is the yield on average interest-earning assets less the
rate on average interest-bearing liabilities.
(4) Annualized noninterest income excluding gains and losses on securities to
average assets.
(5) The efficiency ratio is noninterest expense divided by the sum of net
interest income, on a tax-equivalent basis, plus noninterest income,
excluding gains and losses on securities.
(6) Return on average assets is annualized net income divided by average total
assets.
(7) Return on average equity is annualized net income divided by average common
equity.
NET INTEREST INCOME
The following tables sets forth information regarding average balances,
interest income and interest expense, and the average rates earned or paid for
each of CIB Marine's major asset, liability and stockholders' equity categories
as applicable. The tables express interest income on a tax-equivalent basis in
order to compare the effective yield on earning assets. This means that the
interest income on tax-exempt loans and tax-exempt investment securities has
been adjusted to reflect the income tax savings provided by these assets. The
tax-equivalent adjustment was based on CIB Marine's effective federal income tax
rate of 35%.
15
QUARTER ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ---------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
------- ----------- ---------- ------- ----------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
INTEREST-EARNING ASSETS (TE)
Securities:
Taxable.................................. $ 422,437 $ 4,607 4.36% $ 330,673 $ 4,882 5.91%
Tax-exempt............................... 62,055 938 6.04 58,590 1,042 7.11
---------- ------- ----- ---------- ------- -----
Total securities......................... 484,492 5,545 4.58 389,263 5,924 6.09
Loans(1) (2):
Commercial and agricultural.............. 2,562,898 44,646 6.91 2,047,777 41,989 8.14
Real estate.............................. 53,439 888 6.59 58,929 1,204 8.11
Installment and other consumer........... 6,206 132 8.44 14,911 292 7.77
---------- ------- ----- ---------- ------- -----
Total loans............................ 2,622,543 45,666 6.91 2,121,617 43,485 8.13
Federal funds sold......................... 29,150 144 1.96 22,699 213 3.72
Loans held for sale........................ 49,965 746 5.92 23,036 502 8.65
---------- ------- ----- ---------- ------- -----
Total interest-earning assets (TE)..... 3,186,150 52,101 6.49 2,556,615 50,124 7.79
------- ----- ------- -----
NONINTEREST-EARNING ASSETS
Cash and due from banks.................... 45,805 26,911
Premises and equipment..................... 28,055 26,044
Allowance for loan losses.................. (43,786) (29,993)
Accrued interest receivable and other
assets................................... 57,724 49,434
---------- ----------
Total noninterest-earning assets......... 87,798 72,396
---------- ----------
Total assets........................... $3,273,948 $2,629,011
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits:
Interest-bearing demand deposits......... $ 57,685 $ 150 1.03% $ 54,083 $ 270 1.98%
Money market............................. 299,837 1,689 2.23 265,831 2,186 3.26
Other savings deposits................... 142,232 924 2.58 46,299 299 2.56
Time deposits............................ 1,970,193 19,123 3.85 1,569,695 21,219 5.36
---------- ------- ----- ---------- ------- -----
Total interest-bearing deposits........ 2,469,947 21,886 3.52 1,935,908 23,974 4.91
Borrowings -- short-term................... 248,638 1,459 2.33 212,695 1,973 3.68
Borrowings -- long-term.................... 45,242 332 2.91 61,175 698 4.53
Guaranteed trust preferred securities...... 40,869 1,071 10.48 40,000 1,062 10.62
---------- ------- ----- ---------- ------- -----
Total borrowed funds................... 334,749 2,862 3.40 313,870 3,733 4.73
Total interest-bearing liabilities..... 2,804,696 24,748 3.50 2,249,778 27,707 4.89
------- ----- ------- -----
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits........ 184,612 132,254
Accrued interest and other liabilities..... 22,316 18,706
---------- ----------
Total noninterest-bearing
liabilities.......................... 206,928 150,960
---------- ----------
Stockholders' equity....................... 262,324 228,273
---------- ----------
Total liabilities and stockholders'
equity................................... $3,273,948 $2,629,011
========== ==========
NET INTEREST INCOME (TE) AND NET
INTEREST SPREAD(3)....................... $27,353 2.99% $22,417 2.90%
======= ===== ======= =====
NET INTEREST MARGIN (TE)(4)................ 3.41% 3.48%
===== =====
- -------------------------
(TE) Tax-equivalent basis of 35%
(1) Loan balance totals include nonaccrual loans.
(2) Interest earned on loans include amortized loan fees of $2.1 million and
$2.5 million for the quarters ended September 30, 2002 and 2001,
respectively.
(3) Net interest spread is the yield on average interest-earning assets less the
rate on average interest-bearing liabilities.
(4) Net interest margin is the ratio of annualized net interest income, on a
tax-equivalent basis, to average interest-earning assets.
16
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ---------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
------- ----------- ---------- ------- ----------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
INTEREST-EARNING ASSETS (TE)
Securities:
Taxable............................. $ 428,750 $ 15,288 4.75% $ 395,949 $ 18,057 6.08%
Tax-exempt.......................... 59,221 2,937 6.61 59,409 3,314 7.44
---------- -------- ----- ---------- -------- -----
Total securities.................... 487,971 18,225 4.98 455,358 21,371 6.26
Loans(1)(2):
Commercial and agricultural......... 2,474,884 129,170 6.98 1,938,222 127,491 8.79
Real estate......................... 54,806 2,730 6.66 59,406 3,722 8.38
Installment and other consumer...... 6,790 411 8.09 16,591 1,040 8.38
---------- -------- ----- ---------- -------- -----
Total loans....................... 2,536,480 132,311 6.97 2,014,219 132,253 8.78
Federal funds sold.................... 33,460 485 1.94 25,823 942 4.88
Loans held for sale................... 33,878 1,608 6.35 21,667 1,408 8.69
---------- -------- ----- ---------- -------- -----
Total interest-earning assets
(TE)............................ 3,091,789 152,629 6.60 2,517,067 155,974 8.28
-------- ----- -------- -----
NONINTEREST-EARNING ASSETS:
Cash and due from banks............... 34,655 25,077
Premises and equipment................ 27,934 25,339
Allowance for loan losses............. (39,525) (27,666)
Accrued interest receivable and other
assets.............................. 51,217 53,370
---------- ----------
Total noninterest-earning assets...... 74,281 76,120
---------- ----------
Total assets.......................... $3,166,070 $2,593,187
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand deposits.... $ 57,944 $ 446 1.03% $ 53,170 $ 871 2.19%
Money market........................ 262,909 3,997 2.03 239,053 7,182 4.02
Other savings deposits.............. 102,684 1,798 2.34 44,731 777 2.32
Time deposits....................... 1,952,437 57,676 3.95 1,603,336 70,425 5.87
---------- -------- ----- ---------- -------- -----
Total interest-bearing deposits... 2,375,974 63,917 3.60 1,940,290 79,255 5.46
Borrowings -- short-term.............. 266,557 4,480 2.25 194,550 6,664 4.58
Borrowings -- long-term............... 46,202 1,050 3.04 55,453 2,025 4.88
Guaranteed trust preferred
securities.......................... 40,293 3,195 10.57 37,143 2,962 10.63
---------- -------- ----- ---------- -------- -----
Total borrowed funds.................. 353,052 8,725 3.30 287,146 11,651 5.42
Total interest-bearing liabilities.... 2,729,026 72,642 3.56 2,227,436 90,906 5.46
-------- ----- -------- -----
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits... 164,196 129,076
Accrued interest and other
liabilities......................... 19,346 18,919
---------- ----------
Total noninterest-bearing
liabilities..................... 183,542 147,995
---------- ----------
Stockholders' equity.................. 253,502 217,756
---------- ----------
Total liabilities and stockholders'
equity.............................. $3,166,070 $2,593,187
========== ==========
NET INTEREST INCOME (TE) AND NET
INTEREST SPREAD(3).................. $ 79,987 3.04% $ 65,068 2.82%
======== ===== ======== =====
NET INTEREST MARGIN (TE)(4)........... 3.46% 3.45%
===== =====
- -------------------------
(TE) Tax-equivalent basis of 35%
(1) Loan balance totals include nonaccrual loans.
(2) Interest earned on loans include amortized loan fees of $7.0 million and
$6.1 million for the nine months ended September 30, 2002 and 2001,
respectively.
(3) Net interest spread is the yield on average interest-earning assets less the
rate on average interest-bearing liabilities.
(4) Net interest margin is the ratio of annualized net interest income, on a
tax-equivalent basis, to average interest-earning assets.
17
Net interest income on a tax-equivalent basis increased $5.0 million, or
22.0%, from $22.4 million for the third quarter of 2001 to $27.4 million for the
third quarter of 2002. Net interest income on a tax-equivalent basis increased
$14.9 million, or 22.9%, from $65.1 million for the first nine months of 2001 to
$80.0 million for the same period in 2002. The increase in net interest income
was primarily volume related as CIB Marine's average interest-earning assets
grew by $629.5 million, or 24.6%, from the third quarter of 2001 to the third
quarter of 2002, and $574.7 million, or 22.8%, from the first nine months of
2001 to the first nine months of 2002. The principal source of this growth
occurred in CIB Marine's commercial loans and commercial real estate loans.
Asset growth was primarily funded by increases in deposit liabilities and
short-term borrowings.
CIB Marine's interest rate spread increased nine basis points from 2.90%
for the quarter ended September 30, 2001, to 2.99% for the quarter ended
September 30, 2002, as a result of funding costs decreasing more rapidly than
earning asset yields in the declining interest rate environment. CIB Marine's
net interest margin declined by seven basis points during the same period from
3.48% to 3.41%. While interest rate spreads improved during the third quarter,
the contribution to net interest margin attributable to interest free funds
supporting earning assets was an offsetting factor. The higher interest rate
environment of last year created a higher value on these interest-free funds.
CIB Marine's interest rate spread increased 22 basis points from 2.82% for
the nine months ended September 30, 2001, to 3.04% for the nine months ended
September 30, 2002, as a result of funding costs decreasing more rapidly than
earning asset yields in the declining rate environment. CIB Marine's net
interest margin increased one basis point from 3.45% for the first nine months
ended September 30, 2001 to 3.46% for the same period in 2002. While interest
rate spreads improved during the third quarter, the contribution to net interest
margin attributable to interest free funds supporting earning assets was an
offsetting factor. The higher interest rate environment of last year created a
higher value on these interest-free funds.
18
The following table presents an analysis of changes in net interest income,
on a tax-equivalent basis, resulting from changes in average volumes of
interest-earning assets and interest-bearing liabilities and average rates
earned and paid.
QUARTER ENDED SEPTEMBER 30, 2002 NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO COMPARED TO
QUARTER ENDED SEPTEMBER 30, 2001 (1) NINE MONTHS ENDED SEPTEMBER 30, 2001 (1)
-------------------------------------- ----------------------------------------
VOLUME RATE TOTAL % CHANGE VOLUME RATE TOTAL % CHANGE
------- ------- ------- -------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
INTEREST INCOME (TE)
Securities -- taxable............. $1,173 $(1,448) $ (275) (5.63)% $1,406 $ (4,175) $ (2,769) (15.33)%
Securities -- tax-exempt.......... 59 (163) (104) (10.02) (10) (367) (377) (11.38)
------- ------- ------- ------ ------- -------- -------- ------
Total securities.............. 1,232 (1,611) (379) (6.40) 1,396 (4,542) (3,146) (14.72)
Commercial and agricultural....... 9,568 (6,911) 2,657 6.33 31,124 (29,445) 1,679 1.32
Real estate....................... (105) (211) (316) (26.25) (272) (720) (992) (26.65)
Installment and other consumer.... (183) 23 (160) (54.79) (594) (35) (629) (60.48)
------- ------- ------- ------ ------- -------- -------- ------
Total loans (including
fees)....................... 9,280 (7,099) 2,181 5.02 30,258 (30,200) 58 0.04
Federal funds sold................ 50 (119) (69) (32.39) 224 (681) (457) (48.51)
Loans held for sale............... 441 (197) 244 48.61 649 (449) 200 14.20
------- ------- ------- ------ ------- -------- -------- ------
Total interest income (TE)...... 11,003 (9,026) 1,977 3.94 32,527 (35,872) (3,345) (2.14)
------- ------- ------- ------ ------- -------- -------- ------
INTEREST EXPENSE
Interest-bearing demand
deposits........................ 17 (137) (120) (44.44) 72 (497) (425) (48.79)
Money market...................... 255 (752) (497) (22.74) 657 (3,842) (3,185) (44.35)
Other savings deposits............ 623 2 625 209.03 1,015 6 1,021 131.40
Time deposits..................... 4,689 (6,785) (2,096) (9.88) 13,329 (26,078) (12,749) (18.10)
------- ------- ------- ------ ------- -------- -------- ------
Total deposits................ 5,584 (7,672) (2,088) (8.71) 15,073 (30,411) (15,338) (19.35)
Borrowings -- short term.......... 295 (809) (514) (26.05) 1,937 (4,121) (2,184) (32.77)
Borrowings -- long term........... (155) (211) (366) (52.44) (299) (676) (975) (48.15)
Guaranteed trust preferred
securities...................... 23 (14) 9 0.85 250 (17) 233 7.87
------- ------- ------- ------ ------- -------- -------- ------
Total borrowed funds.......... 163 (1,034) (871) (23.33) 1,888 (4,814) (2,926) (25.11)
------- ------- ------- ------ ------- -------- -------- ------
Total interest expense.......... 5,747 (8,706) (2,959) (10.68) 16,961 (35,225) (18,264) (20.09)
------- ------- ------- ------ ------- -------- -------- ------
NET INTEREST INCOME (TE)...... $5,256 $ (320) $ 4,936 22.02% $15,566 $ (647) $ 14,919 22.93%
======= ======= ======= ====== ======= ======== ======== ======
- -------------------------
(TE) Tax-equivalent basis of 35%
(1) Variances which were not specifically attributable to volume or rate have
been allocated proportionally between volume and rate using absolute values
as a basis for the allocation. Nonaccrual loans were included in the average
balances used in determining yields.
NONINTEREST INCOME
The following table presents the significant components of our noninterest
income.
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Loan fees......................................... $1,062 $1,159 $ 3,167 $ 2,487
Mortgage banking revenue.......................... 2,655 2,078 6,022 5,156
Deposit service charges........................... 813 728 2,407 2,004
Other service fees................................ 149 140 362 384
Other income...................................... 70 445 1,531 676
Gain on investment securities, net................ 1,031 1,591 3,127 3,144
------ ------ ------- -------
Total noninterest income........................ $5,780 $6,141 $16,616 $13,851
====== ====== ======= =======
Noninterest income decreased $0.4 million, or 5.9%, from $6.1 million in
the third quarter of 2001 to $5.8 million in the third quarter 2002. This
decrease was primarily due to lower securities gains and other investment income
partially offset by increased mortgage banking revenue.
Mortgage banking revenue increased $0.6 million, or 27.8%, from $2.1
million in the third quarter of 2001 to $2.7 million in the third quarter of
2002. This increase was due to substantially higher mortgage lending volumes
from the prior period.
19
Deposit service charges increased $0.1 million, or 11.7%, from $0.7 million
in the third quarter of 2001 to $0.8 million in the third quarter of 2002. This
increase was primarily the result of an increase in the number of deposit
accounts between the two periods.
Other income decreased $0.3 million, from $0.4 million in the third quarter
of 2001 to $0.1 million in the third quarter of 2002. The decline in other
income was due primarily to reductions in equity income recognized from CIB
Marine's limited partnerships and MICR, Inc. Additional information about these
investments is included in "Other Assets".
Securities gains declined $0.6 million from $1.6 million in the third
quarter of 2001 to $1.0 million in the third quarter of 2002. CIB Marine
repositioned its securities portfolio through sales after market rate decreases
to promote long-term earnings.
Noninterest income increased $2.7 million, or 20.0%, from $13.9 million for
the nine months ended September 30, 2001 to $16.6 million for the first nine
months of 2002.
Loan fee income rose by $0.7 million, or 27.3%, from $2.5 million from the
nine months ended September 30, 2001 to $3.2 million for the nine months ended
September 30, 2002. The increase in loan fees was due primarily to the receipt
of a loan syndication fee, a non-compliance loan fee from a borrower and
increased letter of credit fees.
Mortgage banking revenue increased $0.9 million, or 16.8%, from $5.2
million for the nine months ended September 30, 2001 to $6.0 million for the
nine months ended September 30, 2002. This increase was due to substantially
higher mortgage lending volumes from a year earlier.
Deposit service charges increased $0.4 million, or 20.1%, from $2.0 million
for the nine months ended September 30, 2001 to $2.4 million for the nine months
ended September 30, 2002. This increase was primarily the result of an increase
in the number of deposit accounts between the two periods.
Other income increased $0.8 million, or 126.5%, from $0.7 million for the
nine months ended September 30, 2001 to $1.5 million for the nine months ended
September 30, 2002. This increase was primarily the result of higher equity
income from CIB Marine's limited partnerships and MICR, Inc investments during
the first six months of 2002.
NONINTEREST EXPENSE
The following table presents the significant components of our noninterest
expense.
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2002 2001 2002 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Compensation and employee benefits.............. $10,053 $ 8,654 $30,047 $24,208
Equipment....................................... 1,112 799 2,876 2,243
Occupancy and premises.......................... 1,348 1,300 4,240 3,771
Professional services........................... 846 596 2,198 1,452
Advertising/marketing........................... 332 228 1,097 684
Amortization of intangibles..................... 125 331 338 994
Telephone & data communications................. 463 383 1,518 1,031
Litigation settlements.......................... 1,762 25 1,752 25
Merger-related charges.......................... -- 477 -- 477
Other expense................................... 2,706 1,589 7,057 4,414
------- ------- ------- -------
Total noninterest expense..................... $18,747 $14,382 $51,123 $39,299
======= ======= ======= =======
Total noninterest expense increased $4.4 million, or 30.4%, from $14.4
million in the third quarter of 2001 to $18.7 million in the third quarter of
2002. The increase was primarily the result of our growth, including internal
growth and the opening of new branch facilities, and litigation settlements.
20
Compensation and employee benefits expense is the largest component of our
noninterest expense and represented 59.1% of total noninterest expense,
excluding the litigation settlement, for the third quarter of 2002 compared to
60.2% for the third quarter of 2001. Compensation and employee benefits expense
increased $1.4 million, or 16.2%, from $8.7 million in the third quarter of
2001, to $10.1 million in the third quarter of 2002. The increase in
compensation and employee benefits is the result of a number of factors,
including the hiring of personnel to staff the new banking facilities, the
hiring of additional management personnel and increases in the salaries of
existing personnel. Excluding employees of MICR, Inc., the total number of full-
time equivalent employees increased 13.6% from 691 at September 30, 2001 to 785
at September 30, 2002. Compensation and employee benefits related to employees
of MICR, Inc. are not included in compensation and employee benefits expense
because MICR, Inc. is accounted for on the equity method.
Equipment, occupancy and premises expense increased $0.4 million, or 17.2%,
from $2.1 million in the third quarter of 2001 to $2.5 million in the third
quarter of 2002. Telephone and data communications expense increased $0.1
million, or 20.9%, from $0.4 million in the third quarter of 2001 to $0.5
million in the third quarter of 2002. The increases in these expenditures were
primarily attributable to the addition of banking facilities, increases in the
number of full-time equivalent employees and the number of customers served by
CIB Marine.
Professional services expense increased $0.2 million, or 41.9%, from $0.6
million in the third quarter of 2001 to $0.8 million in the third quarter of
2002. The increase in other professional services expense was due primarily to
increases in legal and other professional expenses including various loan and
loan collection activities.
Amortization of intangibles expense declined with the adoption of SFAS 142
and 147, which eliminated the amortization of certain intangible assets. See
Note 6 to the Consolidated Financial Statements for additional information.
Litigation settlements expense was $1.8 million during the third quarter of
2002. The majority of this expense was related to the settlement of two separate
but related lawsuits, which arose in the ordinary course of CIB Marine's
business. Pursuant to the terms of the settlement, CIB Marine denies any
wrongdoing in connection with the actions taken by CIB Marine giving rise to
such litigation matters.
Merger-related charges of $0.5 million were incurred in the third quarter
of 2001 related to the Citrus Financial acquisition. These merger-related
charges included asset write-downs, contract cancellations and professional
fees.
Other noninterest expense increased $1.1 million, or 68.4% from $1.6
million in the third quarter of 2001 to $2.7 million in the third quarter of
2002. The increase in other noninterest expense resulted primarily from
increases in collection expenses along with higher underwriting, appraisal,
recording, and other closing expenses resulting from the increase in residential
mortgage lending volume.
The efficiency ratio was 58.4% for the third quarter of 2002, compared to
53.3% for the third quarter 2001. Total noninterest expense as a percentage of
average assets was 2.3% for the third quarter of 2002 and 2.2% for the third
quarter of 2001.
Total noninterest expense increased $11.8 million, or 30.1%, from $39.3
million for the nine months ended September 30, 2001 to $51.1 million for the
nine months ended September 30, 2002. The increase in noninterest expense was
primarily attributable to our growth, including internal growth and the opening
of new branch facilities.
Compensation and employee benefits expense increased $5.8 million, or
24.1%, from $24.2 million for the nine months ended September 30, 2001 to $30.0
million for the nine months ended September 30, 2002. The increase in
compensation and employee benefits during this period is the result of the
hiring of personnel to staff new banking facilities, the hiring of additional
management personnel and increases in the salaries of existing personnel.
Equipment and occupancy expenses increased $1.1 million, or 18.3%, from
$6.0 million for the nine months ended September 30, 2001 to $7.1 million for
the nine months ended September 30, 2002. The
21
increases in these expenditures were primarily attributable to the addition of
banking facilities and increases in the number of full-time equivalent employees
and the number of customers served by CIB Marine.
Professional services expense increased $0.7 million, or 51.4%, from $1.5
million for the nine months ended September 30, 2001 to $2.2 million for the
nine months ended September 30, 2002. The increase in professional services
expense during this period is the result of increases in the legal, consulting,
and other professional expenses primarily related to various loan and loan
collection activities.
Amortization of intangibles expense declined with the adoption of SFAS 142
and 147, which eliminated the amortization of certain intangible assets. See
Note 6 to the Consolidated Financial Statements for a further discussion.
Litigation settlements expense was $1.8 million during the third quarter of
2002. The majority of this expense was related to the settlement of two separate
but related lawsuits, which arose in the ordinary course of CIB Marine's
business. Pursuant to the terms of the settlement, CIB Marine denies any
wrongdoing in connection with the actions taken by CIB Marine giving rise to
such litigation matters.
Merger-related charges of $0.5 million were incurred in the third quarter
of 2001 related to the Citrus Financial acquisition. These merger-related
charges included asset write-downs, contract cancellations and professional
fees.
Other noninterest expense increased $2.7 million, or 59.0%, from $4.4
million for the nine months ended September 30, 2001, to $7.1 million for the
nine months ended September 30, 2002. The increase in noninterest expense was
primarily the result of increased expenses related to the origination and sale
of mortgage loans, operating losses related to our investment in low-income
housing tax credit partnerships, and an increase in collection expenses.
The efficiency ratio was 54.7% for the nine months ended September 30,
2002, as compared to 51.9% for the nine months ended September 30, 2001. Total
noninterest expense as a percentage of average assets was 2.2% for the nine
months ended September 30, 2002 and 2.0% for the nine months ended September 30,
2001.
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.
A tax benefit was recorded in the quarter ended September 30, 2002 due to a net
loss for tax purposes. The effective tax rate for the nine-month period ended
September 30, 2002 was 30.2% compared to 35.0% for the same period in 2001. The
decrease in the effective tax rates was primarily due to lower income before
income taxes, the increase in the percentage of tax-exempt municipal interest as
compared to pre-tax income, as well as various tax planning strategies
implemented by CIB Marine.
FINANCIAL CONDITION
OVERVIEW
CIB Marine's total assets increased $387.7 million, or 13.1%, from $2.9
billion at December 31, 2001 to $3.3 billion at September 30, 2002. Asset growth
occurred primarily in loans, which increased $271.9 million, or 11.4%, from $2.4
billion at December 31, 2001 to $2.7 billion at September 30, 2002.
Additionally, loans held for sale increased $78.4 million as a result of
increased mortgage lending volumes. This growth was primarily funded by
deposits, which increased $442.7 million, or 19.5%, from $2.3 billion at
December 31, 2001 to $2.7 billion at September 30, 2002.
LOANS HELD FOR SALE
Loans held for sale, which are comprised primarily of residential first
mortgage loans, increased $78.4 million, or 228.5%, from $34.3 million at
December 31, 2001 to $112.7 million at September 30, 2002. CIB Marine originated
$198.9 million, purchased $555.9 million and sold $682.3 million of loans held
for sale in the first nine months of 2002, compared to $151.9 million
originated, $485.6 million purchased, and
22
$635.6 million sold, in the first nine months of 2001. The increase in volume
was primarily due to a lower interest rate environment during the first nine
months of 2002.
SECURITIES
The carrying value and tax-equivalent yield of CIB Marine's securities are
set forth in the following table.
AT SEPTEMBER 30, 2002 AT DECEMBER 31, 2001
--------------------------------- ---------------------------------
FAIR MARKET YIELD TO FAIR MARKET YIELD TO
AMOUNT VALUE MATURITY AMOUNT VALUE MATURITY
------ ----------- -------- ------ ----------- --------
(DOLLARS IN THOUSANDS)
HELD TO MATURITY
U.S. Government & Agencies......... $ 8,485 $ 8,602 6.81% $ 21,484 $22,150 6.63%
States and political
subdivisions..................... 62,119 64,810 6.39 59,527 60,570 6.88
Other notes and bonds.............. 450 450 7.10 450 450 7.10
Mortgage-backed securities......... 10,329 10,815 7.32 15,148 15,589 7.11
-------- -------- --- -------- ------- ---
Total securities held to
maturity.................... 81,383 84,677 6.55 96,609 98,759 6.86
-------- -------- --- -------- ------- ---
AVAILABLE FOR SALE
U.S. Government & Agencies......... 113,592 114,901 3.57 104,601 107,729 5.47
States and political
subdivisions..................... 7,934 8,043 3.96 2,629 2,838 9.18
Other notes and bonds.............. 600 600 6.63 600 600 6.63
Commercial paper................... 8,800 8,804 2.12 6,999 7,007 2.30
Mortgage-backed securities......... 215,745 218,526 5.22 195,386 196,999 5.81
Federal Home Loan Bank stock....... 7,256 7,256 5.01 6,575 6,575 5.78
Other equities..................... 1,505 1,505 N/A 1,018 1,018 N/A
-------- -------- --- -------- ------- ---
Total securities available for
sale........................ 355,432 359,635 4.56 317,808 322,766 5.63
-------- -------- --- -------- ------- ---
Total securities before market
value adjustment............ 436,815 4.93% 414,417 5.92%
=== ===
Available for sale market value
adjustment (SFAS 115)............ 4,203 4,958
-------- --------
TOTAL SECURITIES.............. $441,018 $419,375
======== ========
Total securities outstanding at September 30, 2002, were $441.0 million, an
increase of $21.6 million, or 5.2%, compared to $419.4 million at December 31,
2001. The ratio of total securities to total assets was 13.2% at September 30,
2002, as compared to 14.2% at December 31, 2001.
At September 30, 2002, 28.0% of the portfolio consisted of U.S. Treasury
and Government Agency securities, compared to 30.4% at December 31, 2001.
Mortgage-backed securities represented 51.9% of the portfolio at September 30,
2002, and 50.8% at December 31, 2001. Obligations of states, and political
subdivisions of states, represented 15.9% of the portfolio at September 30,
2002, and 15.0% at December 31, 2001. Most of these obligations were general
obligations of states, or political subdivisions of states, in which CIB
Marine's subsidiaries are located. Commercial paper accounted for 2.0% of the
portfolio at September 30, 2002, as compared to 1.7% at December 31, 2001.
As of September 30, 2002, excluding the effect of the net unrealized gain,
$355.4 million, or 81.4%, of the securities portfolio were classified as
available for sale, and $81.4 million, or 18.6%, of the portfolio were
classified as held to maturity. At December 31, 2001, 76.7% were classified as
available for sale and 23.3% were classified as held to maturity. The increase
in the percentage of securities classified as available for sale reflects CIB
Marine's decision to make a larger percentage of the securities portfolio
available to meet its liquidity needs, if necessary, and to provide the
opportunity to react to changes in market interest rates and changes in the
spread relationship between alternative investments.
At September 30, 2002, the net unrealized gain of the available for sale
securities was $4.2 million, compared to $5.0 million at December 31, 2001. The
reduction in the unrealized gain since December 31, 2001 was due in part to the
sale of securities during the first nine months of 2002 and the recognition of
$3.1 million in realized gains.
23
LOANS
Loans, net of the allowance for loan losses, were $2.6 billion at September
30, 2002, an increase of $255.5 million, or 10.8%, from $2.4 billion at December
31, 2001, and represented 78.3% of CIB Marine's total assets at September 30,
2002, and 80.0% at December 31, 2001. Most of the increase was in commercial
real estate and construction loans, which in the aggregate represented 60.2% of
gross loans at September 30, 2002 and 57.1% at December 31, 2001.
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.
AS OF SEPTEMBER 30, 2002 AS OF DECEMBER 31, 2001
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
Commercial........................................ $ 895,269 33.5% $ 899,488 37.6%
Agricultural...................................... 4,502 0.2 4,154 0.2
Factored receivables.............................. 5,576 0.2 -- --
Real estate:
1-4 family...................................... 111,181 4.2 89,661 3.7
Commercial...................................... 1,121,715 42.0 975,904 40.7
Construction.................................... 484,815 18.2 394,081 16.4
Consumer.......................................... 5,461 0.2 8,041 0.3
Credit card loans................................. 389 -- 428 --
Other............................................. 40,166 1.5 25,409 1.1
---------- ----- ---------- -----
Gross loans..................................... 2,669,074 100.0% 2,397,166 100.0%
===== =====
Deferred loan fees................................ (7,703) (7,684)
Allowance for loan losses......................... (50,424) (34,078)
---------- ----------
Net loans.................................. $2,610,947 $2,355,404
========== ==========
CIB Marine acquired in the third quarter of 2002 a factored receivables
lending business and certain related assets from a borrower in connection with a
loan workout situation. This transaction resulted in a $2.1 million charge-off
of loans to the borrower and the recording of $3.9 million of intangible assets
associated with the value of the acquired company and its existing customer
base.
CREDIT CONCENTRATIONS
Pursuant to CIB Marine's loan policy, a concentration of credit is deemed
to exist when the total credit relationship to one borrower, a related group of
borrowers, or borrowers within or dependent upon a related industry, exceeds 25%
of the stockholders' equity of CIB Marine.
At September 30, 2002, CIB Marine had four secured borrowing relationships
with unrelated individual borrowers that exceeded 25% of stockholders' equity.
These relationships include:
1. Loans to a borrower, and its related interests, whose total outstanding
lending commitment, including lines of credit which have not been fully
drawn, as of September 30, 2002, was $111.3 million or 42.8% of CIB
Marine's stockholders' equity and 4.2% of gross loans. The aggregate
principal amount actually drawn and outstanding was $105.5 million at
September 30, 2002. The majority of these loans are in the
nursing/convalescent home industry. These loans are primarily secured by
first mortgages on commercial real estate and security interests in
other business assets including stock in a community bank. At September
30, 2002, all of the loans to this borrower and its related interests
were current.
2. Loans to a borrower, and its related interests, whose total outstanding
lending commitment, including lines of credit which have not been fully
drawn, as of September 30, 2002, was $109.6 million or 42.2% of CIB
Marine's stockholders' equity and 4.1% of gross loans. The aggregate
principal amount actually drawn and outstanding was $77.1 million at
September 30, 2002. The majority of these loans are
24
commercial real estate and construction loans. These loans are primarily
secured by first mortgages on commercial real estate. At September 30,
2002, all of the loans to this borrower and its related interests were
current.
3. Loans to a borrower, and its related interests, whose total outstanding
lending commitment, including lines of credit which have not been fully
drawn, as of September 30, 2002, was $74.0 million or 28.5% of CIB
Marine's stockholders' equity and 2.8% of gross loans. The aggregate
principal amount actually drawn and outstanding was $65.7 million at
September 30, 2002. The majority of these loans are in the commercial
real estate development and the nursing/convalescent home industries.
These loans are primarily secured by first mortgages on commercial real
estate and security interests in other business assets. At September 30,
2002, all of the loans to this borrower and its related interests were
current.
4. Loans to a borrower, and its related interests, whose total outstanding
lending commitment, including lines of credit which have not been fully
drawn, as of September 30, 2002, was $74.0 million, or 28.5% of CIB
Marine's stockholders' equity and 2.8% of gross loans. The aggregate
principal amount actually drawn and outstanding was $44.6 million at
September 30, 2002. The majority of these loans are commercial real
estate and construction loans. These loans are primarily secured by
first mortgages on commercial real estate. In January 2002, a commercial
real estate loan to a related interest of this borrower with an
outstanding balance of $3.2 million was classified as restructured. CIB
Marine does not believe that there will be any loss with respect to this
restructured loan. At September 30, 2002, all of the loans to this
borrower and its related interests were current.
Approximately $10.1 million of the above described outstanding loan
balances are counted in more than one of the described relationships.
At September 30, 2002, CIB Marine also had credit relationships within five
industries or industry groups that exceeded 25% of its stockholders' equity. The
total outstanding balance to commercial real estate developers, investors and
contractors was approximately $593.2 million, or 22.3% of total loans and 228.3%
of stockholders' equity. The total outstanding balance to residential real
estate developers, investors and contractors was approximately $591.4 million,
or 22.2% of total loans and 227.6% of stockholders' equity. The total
outstanding balance of loans made in the motel and hotel industry was
approximately $207.7 million, or 7.8% of total loans and 80.0% of stockholders'
equity. The total outstanding balance of loans made in the nursing/convalescent
home industry was approximately $136.0 million, or 5.1% of total loans and 52.3%
of stockholders' equity. The total outstanding balance of loans made in the
health care facility industry was approximately $85.2 million, or 3.2% of total
loans and 32.8% of stockholders' equity.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents charges against earnings in order
to maintain an allowance for loan losses. CIB Marine monitors and maintains an
allowance for loan losses to absorb an estimate of probable losses inherent in
the loan portfolio. The allowance is increased by the amount of the provision
for loan losses and recoveries of previously charged-off loans, and is decreased
by the amount of loan charge-offs. The provision for loan losses was $11.7
million for the third quarter of 2002, compared to $3.1 million for the third
quarter of 2001. The provision for loan losses for the nine-month period ended
September 30, 2002, was $23.5 million, as compared to $9.0 million for the
nine-month period ended September 30, 2001. The increase in the provision was
primarily the result of an increase in the amount of net loan charge-offs,
nonperforming loans, and the credit risk associated with certain borrowing
relationships. Total charge-offs for the third quarter of 2002 and 2001 were
$3.7 million and $0.6 million, respectively, while recoveries were $0.4 million
and $0.04 million, respectively. Total charge-offs for the nine-month periods
ended September 30, 2002 and 2001 were $7.9 million and $2.3 million, while
recoveries were $0.6 million and $0.3 million, respectively. The increase in
charge-offs was primarily the result of three lending relationships. At
September 30, 2002, the allowance for loan losses was $50.4 million, or 1.82% of
total loans outstanding, as compared to $34.1 million and 1.41%, respectively,
at December 31, 2001. As a result of the increase in nonperforming loans, the
ratio of the allowance to nonaccrual, restructured and 90 days or more past due
and still accruing loans decreased from 94.1% at December 31, 2001 to 87.7% at
September 30, 2002.
25
Although CIB Marine believes that the allowance for loan losses is adequate
to absorb probable losses on existing loans, there can be no assurance that the
allowance will prove sufficient to cover actual losses in the future. In
addition, our various banking regulatory agencies, as part of their normal
examination process, periodically review the adequacy of the allowance. Such
agencies may require CIB Marine to make additional provisions to the allowance
based upon their judgments about information available to them at the time of
their examinations.
The following table summarizes changes in the allowance for loan losses for
the three and nine-month periods ended September 30, 2002 and 2001.
QUARTER ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD............... $ 41,905 $ 28,509 $ 34,078 $ 23,988
Loans charged-off:
Commercial................................. (2,812) (225) (5,856) (1,338)
Real estate
1-4 Family.............................. (17) (12) (90) (22)
Commercial.............................. (823) (171) (1,833) (615)
Construction............................ -- (100) -- (100)
Consumer................................... -- (75) (71) (163)
Credit card................................ (20) (10) (28) (18)
---------- ---------- ---------- ----------
Total charged-off..................... (3,672) (593) (7,878) (2,256)
---------- ---------- ---------- ----------
Recoveries of loans charged-off:
Commercial................................. 55 9 281 180
Real estate
1-4 Family.............................. 5 -- 19 16
Commercial.............................. 291 6 292 37
Construction............................ -- -- -- --
Consumer................................... 5 20 28 42
Credit card................................ -- 1 6 2
---------- ---------- ---------- ----------
Total recoveries...................... 356 36 626 277
---------- ---------- ---------- ----------
Net loans charged-off........................ (3,316) (557) (7,252) (1,979)
Allowance acquired........................... 122 -- 122 --
Provision for loan losses.................... 11,713 3,061 23,476 9,004
---------- ---------- ---------- ----------
BALANCE AT END OF PERIOD..................... $ 50,424 $ 31,013 $ 50,424 $ 31,013
========== ========== ========== ==========
Percentage of loans to gross loans
receivable:
Commercial loans........................... 35.4% 36.6% 35.4% 36.6%
Real estate loans.......................... 64.4 62.9 64.4 62.9
Consumer loans............................. 0.2 0.5 0.2 0.5
---------- ---------- ---------- ----------
Total................................. 100.0% 100.0% 100.0% 100.0%
RATIOS
Allowance for loan losses to total loans,
including held for sale.................... 1.82% 1.41% 1.82% 1.41%
Allowance for loan losses to nonaccrual,
restructured and 90 days or more past due
and still accruing loans................... 87.65 80.27 87.65 80.27
Net charge-offs annualized to average total
loans, including average held for sale..... 0.49 0.10 0.38 0.13
Ratio of recoveries to loans charged-off..... 9.69 6.07 7.95 12.28
Total loans, including held for sale......... $2,774,030 $2,198,077 $2,774,030 $2,198,077
Average total loans, including held for
sale....................................... 2,672,508 2,144,653 2,570,358 2,035,886
26
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 documentation. A loan is classified as
restructured when a concession is granted to a borrower for economic or legal
reasons related to the borrower's financial difficulties, that would not
otherwise be considered. CIB Marine may restructure the loan by modifying the
terms to reduce or defer cash payments required of the borrower, reduce the
interest rate below current market rates for new debt with similar risk, reduce
the face amount of the debt, or reduce the accrued interest. Foreclosed property
represents properties acquired by CIB Marine as a result of loan defaults by
customers.
The following table summarizes the composition of CIB Marine's
nonperforming assets, loans 90 days past due or more and still accruing, and
related asset quality ratios as of the dates indicated.
AT OR FOR THE QUARTER ENDED
--------------------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2002 2001 2001
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
NONPERFORMING ASSETS
Nonaccrual Loans
Commercial............................................. $ 22,080 $ 17,746 $ 19,003
Real estate
1-4 family.......................................... 1,533 1,017 1,052
Commercial.......................................... 18,350 15,491 15,686
Construction........................................ 5,019 -- --
Consumer............................................... 25 110 99
Credit card............................................ -- -- --
Other.................................................. -- -- --
---------- ---------- ----------
Total nonaccrual loans............................ 47,007 34,364 35,840
---------- ---------- ----------
Foreclosed property.................................... 1,603 3,168 3,680
Restructured loans..................................... 3,523 309 661
---------- ---------- ----------
Total nonperforming assets........................ $ 52,133 $ 37,841 $ 40,181
========== ========== ==========
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Commercial............................................. $ 1,282 $ 758 $ 828
Real estate
1-4 family........................................ 277 408 4
Commercial........................................ 5,380 195 1,095
Construction...................................... -- 152 152
Consumer............................................... 57 22 28
Credit card............................................ -- -- 30
Other.................................................. -- -- --
---------- ---------- ----------
Total loans 90 days or more past due and still
accruing....................................... $ 6,996 $ 1,535 $ 2,137
========== ========== ==========
Allowance for loan losses................................ $ 50,424 $ 34,078 $ 31,013
Loans at end of period, including held for sale.......... 2,774,030 2,423,777 2,198,077
RATIOS
Nonaccrual loans to total loans, including held for
sale................................................... 1.69% 1.42% 1.63%
Foreclosed properties to total assets.................... 0.05 0.11 0.14
Nonperforming assets to total assets..................... 1.56 1.28 1.48
Nonaccrual loans, restructured and 90 days or more past
due and still accruing loans to total loans, including
held for sale.......................................... 2.07 1.49 1.76
Nonperforming assets and 90 days or more past due and
still accruing loans to total assets................... 1.77 1.34 1.56
27
Total nonaccrual loans were $47.0 million at September 30, 2002, $34.4
million at December 31, 2001, and $35.8 million at September 30, 2001. The ratio
of nonaccrual loans to total loans was 1.69% at September 30, 2002, 1.42% at
December 31, 2001, and 1.63% at September 30, 2001.
At September 30, 2002, $38.8 million, or 82.5%, of nonaccrual loans
consisted of the following seven lending relationships:
(1) Commercial loans to the Borrower, as defined and described below, with
an aggregate outstanding balance of $14.9 million as of September 30,
2002.
(2) Commercial real estate loans to a related group of borrowers with an
aggregate outstanding balance of $8.7 million as of September 30, 2002,
secured by first mortgages on two assisted living facilities which are
under construction. Of this total, $3.8 million was transferred to
nonaccrual in December 2000, and $4.9 million was transferred to
nonaccrual in June 2001. Although CIB Marine allocated $3.0 million as
a specific reserve to the allowance for loan losses for these loans
during the third quarter of 2002, CIB Marine cannot provide assurances
that the value will be maintained or that there will not be additional
losses with respect to this relationship.
(3) A commercial real estate loan and a construction loan with an aggregate
outstanding balance of $5.1 million as of September 30, 2002, secured
by a first mortgage on a income producing commercial property. This
loan was transferred to nonaccrual during the second quarter of 2002.
Although CIB Marine allocated $1.0 million as a specific reserve to the
allowance for loan losses for these loans during the third quarter of
2002, CIB Marine cannot provide assurances that the value of the
collateral will be maintained or that there will not be additional
losses with respect to this relationship.
(4) A commercial real estate loan with an outstanding balance of $3.3
million as of September 30, 2002, secured by a first mortgage on an
improved commercial property, The loan was transferred to nonaccrual
during the third quarter of 2002. While the value of the property
securing the loan approximates the amount owed, CIB Marine cannot
provide assurances that the value will be maintained or that there will
not be losses with respect to this relationship.
(5) A commercial real estate loan with an outstanding balance of $2.7
million as of September 30, 2002, secured by a commercial development.
The loan was transferred to nonaccrual during the fourth quarter of
2000. While the value of the property securing the obligation
approximates the amount owed, CIB Marine cannot provide assurances that
the value will be maintained or that there will not be losses with
respect to this relationship.
(6) Commercial and commercial real estate loans with an aggregate
outstanding balance of $2.1 million as of September 30, 2002, secured
by a first mortgage on commercial property and a security interest in
all business assets. The loans were transferred to nonaccrual during
the second quarter of 2002. Although CIB Marine allocated $0.4 million
as a specific reserve to the allowance for loan losses during the third
quarter of 2002, CIB Marine cannot provide assurances that the value
will be maintained or that there will not be additional losses with
respect to this relationship.
(7) A commercial real estate loan with an outstanding balance of $2.0
million as of September 30, 2002, secured by a first mortgage on a
hotel. The loan was transferred to nonaccrual during the first quarter
of 2001. In August of 2002, a partial charge-off of $0.6 million was
taken. While the value of the property securing the obligation
approximates the amount owed net of the partial charge-off, CIB Marine
cannot provide assurances that the value will be maintained or that
there will not be further losses with respect to this relationship.
Foreclosed properties were $1.6 million at September 30, 2002, and
consisted of two commercial properties acquired through foreclosure, one
commercial property acquired through a voluntary transfer of assets by a
borrower and two one-to-four family properties acquired through foreclosure.
Restructured loans were $3.5 million at September 30, 2002, of which $3.2
million is a commercial real estate loan that was restructured in January 2002.
This loan is current with respect to scheduled payments.
28
While CIB Marine believes that the value of the collateral securing these
obligations approximates the amounts owed, we cannot provide assurances that the
values will be maintained or that there will not be future losses with respect
to any of these relationships.
Loans 90 days or more past due and still accruing are loans which are
delinquent with respect to the payment of principal and/or interest, but which
management believes all contractual principal and interest amounts due will be
collected. CIB Marine had $7.0 million in loans that were 90 days or more past
due and still accruing at September 30, 2002, $1.5 million at December 31, 2001,
and $2.1 million at September 30, 2001. Accrued interest on these loans was
$0.19 million as of September 30, 2002, $0.07 million as of December 31, 2001,
and $0.10 million as of September 30, 2001.
A loan is considered impaired when, based on current information and
events, it is probable that CIB Marine will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment records and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent. Large groups
of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, CIB Marine does not separately identify individual consumer and
residential loans for impairment disclosures.
The following table sets forth information regarding impaired loans:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN THOUSANDS)
Impaired loans without a specific allowance but evaluated
collectively for impairment............................... $16,583 $ 5,723
Impaired loans with a specific allowance.................... 27,536 18,237
------- -------
Total impaired loans................................. $44,119 $23,960
======= =======
Total allowance related to impaired loans................... $ 9,796 $ 4,671
======= =======
In July 1999, one of CIB Marine's borrowers (the "Borrower") experienced a
substantial decline in net worth as a result of a similar decline in the market
value of a publicly traded common stock which comprised a large part of the
Borrower's net worth. The decline in the value of this security caused liquidity
problems for the Borrower with respect to its obligations to CIB Marine and
other lenders. CIB Marine has closely monitored this borrowing relationship,
including the collateral position of CIB Marine and other lenders, and engaged
in various transactions with this borrower and commenced certain legal
proceedings to strengthen its collateral position and collect amounts owed by
this Borrower.
At September 30, 2002, the outstanding lending commitment to the Borrower
and its related interests was approximately $59.8 million, including lines of
credit which have not been fully drawn, and the aggregate principal amount
actually drawn and outstanding was approximately $53.3 million of which $14.9
million was in nonaccrual. A substantial amount of collateral held by CIB Marine
related to this borrowing relationship includes certain of the assets of, and
the Borrower's approximately 84% interest in, a closely held steel company (the
"Steel Company"). Certain directors and/or officers of CIB Marine own, in the
aggregate, approximately 1.6% of the Steel Company. The loans in nonaccrual
status consist primarily of direct loans to the Borrower which are secured, in
whole or in part, by the Borrower's equity in the Steel Company. These
nonaccrual loans are also considered to be impaired and $3.9 million was
allocated as a specific reserve to the allowance for loan losses during the
third quarter of 2001.
29
On August 3, 2001, CIB Marine commenced a non-judicial foreclosure on one
lot and 21 single-family residential homes constructed in a real estate
development of the Borrower. CIB Marine acquired the properties for $2.3 million
on September 14, 2001, and subsequently transferred them to foreclosed property
at $2.2 million, their estimated market value, resulting in a $0.1 million
write-down. At September 30, 2002 and December 31, 2001, the balance of these
foreclosed properties was $0.5 million and $1.6 million, respectively. The $1.1
million reduction resulted from sales of homes.
The following table summarizes CIB Marine's borrowing relationship with the
Borrower, the Steel Company and the Lender as described below, as of September
30, 2002.
COMMITTED/ NON TOTAL TOTAL
AVAILABLE PERFORMING PERFORMING OUTSTANDING EXPOSURE
---------- ---------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
Loans directly to Borrower............... $ -- $ -- $14,854 $14,854 $14,854
Loans to Steel Company................... 6,495 38,460 -- 38,460 44,955
Loans to Lender and its related
interests.............................. -- 32,074 -- 32,074 32,074
------ ------- ------- ------- -------
$6,495 $70,534 $14,854 $85,388 $91,883
====== ======= ======= ======= =======
On April 24, 2002, the Borrower filed a lawsuit against CIB Marine and
certain of its officers seeking damages and to rescind the Borrower's pledge of
the Steel Company stock as collateral. On April 25, 2002, the Borrower filed for
bankruptcy reorganization and CIB Marine filed an action to lift the bankruptcy
stay to take possession and control of the Borrower's interest in the Steel
Company.
On August 21, 2002, CIB Marine and the Borrower agreed upon a settlement of
all claims and demands between the parties. The settlement order entered in the
Bankruptcy Court established CIB Marine's claim at $15.5 million and provided
that in the event the Borrower fails to pay CIB Marine $13.3 million on or
before October 30, 2002, CIB Marine would become the owner of the Borrower's 84%
interest in the Steel Company. The Borrower also has an option to acquire the
84% interest in the Steel Company from CIB Marine on or before December 31, 2002
for $14.5 million, plus any funds contributed by CIB Marine to the Steel Company
after October 30, 2002. In addition, the settlement resulted in the transfer of
the Borrower's interest in a condominium development in exchange for a $0.8
million reduction in the amount of CIB Marine's claim, and a release and
dismissal by CIB Marine and the Borrower of any claims that each may have
against the other.
The Borrower failed to pay CIB Marine the $13.3 million on or before
October 30, 2002, and CIB Marine became the owner of the Borrower's 84% interest
in the Steel Company. On October 31, 2002, CIB Marine recognized a $1.8 million
charge-off related to the loans that were secured by the stock in the Steel
Company, and transferred $11.5 million to Other Assets, which represents CIB
Marine's estimate of the fair market value of its ownership in the Steel
Company. CIB Marine is in the process of developing a strategy to dispose of the
Steel Company stock and its interest in the condominium development to maximize
their sales price.
While CIB Marine now owns 84% of the Steel Company, and has a security
interest in the assets of the Steel Company, CIB Marine cannot provide assurance
that its interests in, or loans to, the Steel Company will not become impaired
in the future or that there will not be any future losses with respect to these
assets.
In April and December 2000, lawsuits were filed against the Borrower and
the Steel Company by a lender (the "Lender"), and one of its related interests,
to recover amounts due them. The Lender dismissed its lawsuit in November 2002.
The Lender and this related interest also have an approximately 11.3% equity
interest in the Steel Company. The Lender and certain of its related interests
are also customers of, and have secured borrowing relationships with, CIB
Marine. As of September 30, 2002, the total outstanding lending commitment
associated with this relationship, including lines of credit which have not been
fully drawn, was approximately $32.1 million and the aggregate principal amount
actually drawn and outstanding was approximately $32.1 million, of which $2.0
million is 90 days or more past due and still accruing. A portion of the loans
to this Lender is also secured by the customer's equity interest in the Steel
Company, which is estimated to be worth $1.5 million. CIB Marine does not
consider these loans impaired because of the financial condition of the Lender
and its related interests, and its belief that the loans are adequately
collateralized pursuant to CIB Marine's loan policy.
30
OTHER ASSETS
The following table sets forth information regarding other assets:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN THOUSANDS)
Prepaid expenses............................................ $ 1,360 $ 966
Accounts receivable......................................... 1,156 1,247
Fair value of derivatives................................... 7,986 4,870
Trust preferred securities underwriting fee, net of
amortization.............................................. 1,569 1,150
Investment in MICR, Inc. -- asset held for sale............. 6,191 6,628
Other investments........................................... 7,228 5,359
Current tax receivable...................................... 1,527 --
Deferred tax assets......................................... 6,461 --
Other....................................................... 545 790
------- -------
$34,023 $21,010
======= =======
Other assets increased $13.0 million from $21.0 million at December 31,
2001 to $34.0 million at September 30, 2002. The majority of this increase was
due to income tax accounts currently in a receivable or benefit position. The
increases in the income tax assets resulted from deferred taxes associated with
the higher loan loss provisions and lower than projected pre-tax income.
MICR, Inc., a wholly-owned subsidiary of CIB-Chicago, was previously
acquired in lieu of foreclosure and is classified as a held for sale asset in
the Consolidated Balance Sheet. MICR, Inc. had income before income tax of $0.2
million for the quarter ended September 30, 2002, and $1.0 million for the
nine-month period ended September 30, 2002, which is included in noninterest
income in the Consolidated Statements of Income.
The following table summarizes the composition of MICR, Inc.'s balance
sheet as of the dates indicated.
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN THOUSANDS)
Assets:
Accounts receivable....................................... $ 698 $ 657
Inventory................................................. 1,021 981
Other current assets...................................... 315 979
Property and equipment, net............................... 457 482
Goodwill, net............................................. 4,157 4,212
------ ------
Total assets......................................... $6,648 $7,311
====== ======
Liabilities and shareholders' equity:
Current liabilities....................................... 457 683
Shareholders' equity...................................... 6,191 6,628
------ ------
Total liabilities and shareholders' equity........... $6,648 $7,311
====== ======
Other investments include investments in three limited partnerships which
were purchased by CIB Marine in September 1999 from the Borrower. Equity in
these investments was $3.2 million at September 30, 2002 and $2.6 million at
December 31, 2001. During the nine-month period ended September 30, 2002, equity
income in the partnerships increased CIB Marine's investment balance by $0.3
million and CIB Marine invested an additional $0.3 million pursuant to required
capital calls. There is currently no public market for the limited partnership
interests in these private investment funds, and it is unlikely that such a
market will develop. Because of its illiquidity and the effect of market
volatility on equity investments such as this, this investment involves a higher
risk of loss than other securities usually held in CIB Marine's investment
portfolio.
Other investments at September 30, 2002, also include a $1.6 million
investment in the common stock of a closely held information services company,
which represents less than a 5% interest in the company. In
31
December 2001, CIB Marine purchased 230,770 shares of the common stock of the
company at a public sale from one of its subsidiary banks. The common stock was
owned by the Borrower and held as collateral for certain loans made to the
Borrower by the subsidiary bank. The proceeds were used by the subsidiary bank
to pay off two loans and reduce the principal balance of a third loan. The
amount of this investment reflects the purchase price of $1.6 million and is
carried at approximately the lower of cost or estimated fair market value.
Additional information about the Borrower and its loans from CIB Marine are
discussed in "Loans -- Nonperforming Assets and Loans 90 Days or More Past Due
and Still Accruing."
Other investments at September 30, 2002, also include investments in three
affordable housing partnerships of $2.3 million. CIB Marine engaged in these
transactions to provide additional qualified investments under the Community
Reinvestment Act and to receive related income tax credits. The partnerships
will provide affordable housing to low-income residents of central Illinois,
Wisconsin, Arizona, Indianapolis, Nebraska and other locations. CIB Marine has a
commitment to provide an additional $0.8 million to these partnerships over the
next ten years.
On October 30, 2002, CIB Marine acquired an 84% interest in the Steel
Company pursuant to an agreed upon settlement order with the Borrower.
Additional information about the Steel Company and the Borrower are discussed in
"Loans -- Nonperforming Assets and Loans 90 Days or More Past Due and Still
Accruing".
The following table summarizes the composition of the Steel Company's
balance sheet as of the dates indicated. The Steel Company's net income was $280
thousand for the nine months ended September 30, 2002 and $1.4 million for the
year ended December 31, 2001.
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN THOUSANDS)
Assets:
Accounts receivable....................................... $44,281 $ 46,830
Inventory and work in progress............................ 7,733 17,575
Property and equipment, net............................... 24,355 25,487
Other assets.............................................. 19,471 11,356
------- --------
Total assets......................................... $95,840 $101,248
======= ========
Liabilities and stockholders' equity:
Borrowed funds from CIB Marine............................ $35,669 $ 36,612
Other borrowed funds...................................... 1,814 1,813
Other liabilities......................................... 44,733 49,390
Stockholders' equity...................................... 13,624 13,433
------- --------
Total liabilities and stockholders' equity........... $95,840 $101,248
======= ========
DEPOSIT LIABILITIES
Total deposits increased $443.4 million, or 19.5%, from $2.3 billion at
December 31, 2001 to $2.7 billion at September 30, 2002. This increase was
primarily due to a $200.0 million increase in time deposits and a $190.8 million
increase in savings deposits. Time deposits represent the largest component of
deposits. The percentage of time deposits to total deposits was 72.2% at
September 30, 2002 and 77.5% at December 31, 2001. These percentages reflect CIB
Marine's reliance on time deposits as a primary source of funding. At September
30, 2002 time deposits of $100,000 or more amounted to $679.9 million, or 34.7%,
of total time deposits, compared to $629.4 million and 35.8% at December 31,
2001. 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 $194.6 million, or 9.9%,
of total time deposits at September 30, 2002, and $166.5 million, or 9.5% of
total time deposits at December 31, 2001. Brokered time deposits included in
time deposits of $100,000 or more were $176.1 million at September 30, 2002 and
$148.9 million at December 31, 2001.
32
At September 30, 2002, noninterest-bearing demand deposits were $209.2
million, interest-bearing demand deposits were $52.7 million, and savings
deposits were $491.1 million. At December 31, 2001, non-interest bearing demand
deposits were $148.7 million, interest-bearing demand deposits were $60.7
million and savings deposits were $300.3 million. The increase in money market
and other savings deposits is a result of marketing and pricing strategies
implemented during 2002 to attract these type of deposits.
The following table sets forth the average amount of, and average rate paid
on, deposit categories for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- ------------------------------- -------------------------------
2002 2002 2001
------------------------------- ------------------------------- -------------------------------
% OF % OF % OF
AVERAGE TOTAL AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-bearing demand..... $ 57,685 2.17% 1.03% $ 57,944 2.28% 1.03% $ 53,670 2.57% 1.91%
Money market................ 299,837 11.30 2.23 262,909 10.35 2.03 245,754 11.74 3.51
Other savings............... 142,232 5.36 2.58 102,684 4.04 2.34 45,893 2.19 2.12
Time deposits............... 1,970,193 74.22 3.85 1,952,437 76.86 3.95 1,615,016 77.16 5.57
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Total Interest-Bearing
Deposits............ 2,469,947 93.05 3.52 2,375,974 93.53 3.60 1,960,333 93.66 5.13
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Noninterest-bearing......... 184,612 6.95 -- 164,196 6.47 -- 132,731 6.34 --
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Total Deposits........ $2,654,559 100.00% 3.27% $2,540,170 100.00% 3.36% $2,093,064 100.00% 4.81%
========== ====== ==== ========== ====== ==== ========== ====== ====
BORROWINGS
CIB Marine utilizes various types of borrowings to meet liquidity needs,
fund asset growth and/or when the pricing of these borrowings are more favorable
than deposits.
The following table sets forth information regarding selected categories of
borrowings.
AS OF SEPTEMBER 30, 2002 AS OF DECEMBER 31, 2001
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
BALANCE RATE BORROWINGS BALANCE RATE BORROWINGS
------- ---- ---------- ------- ---- ----------
(DOLLARS IN THOUSANDS)
SHORT-TERM BORROWINGS
Fed funds purchased..................... $162,155 1.98% 47.82% $232,119 1.51% 55.02%
Securities sold under repurchase
agreements............................ 9,376 2.30 2.76 29,649 1.77 7.03
Treasury, tax and loan note............. 2,170 1.51 0.64 1,128 1.51 0.27
Federal Home Loan Bank -- short term.... 32,500 3.91 9.58 27,325 2.04 6.48
Commercial paper........................ 780 2.23 0.23 4,677 2.26 1.11
Other borrowings short-term............. 25,190 3.58 7.43 24,985 3.62 5.92
-------- ----- ------ -------- ----- ------
Total short-term borrowings........ 232,171 2.43 68.46 319,883 1.75 75.83
-------- ----- ------ -------- ----- ------
LONG-TERM BORROWINGS
Federal Home Loan Bank -- long term..... 42,015 6.19 12.39 59,452 5.98 14.09
Effect of interest rate swap............ 4,930 (3.31) 1.46 2,535 (2.05) 0.60
-------- ----- ------ -------- ----- ------
Total Long-Term FHLB Borrowings.... 46,945 2.88 13.85 61,987 3.93 14.69
Guaranteed trust preferred securities... 60,000 8.75 17.69 40,000 10.52 9.48
-------- ----- ------ -------- ----- ------
Total long-term borrowings......... 106,945 6.17 31.54 101,987 6.51 24.17
-------- ----- ------ -------- ----- ------
Total borrowings................... $339,116 3.61% 100.00% $421,870 2.90% 100.00%
======== ===== ====== ======== ===== ======
CIB Marine has $47.0 million of revolving lines of credit with
non-affiliated commercial banks collateralized by the common stock of three of
its banking subsidiaries. At September 30, 2002, the outstanding balance on
these lines of credit were $20.7 million. At December 31, 2001, the outstanding
33
balance was $25.0 million. CIB Marine has guaranteed a $12.0 revolving line of
credit obtained by a subsidiary to support its operating needs. At September 30,
2002, the outstanding balance on this line was $4.5 million.
GUARANTEED TRUST PREFERRED SECURITIES
At September 30, 2002, CIB Marine had $60.0 million outstanding in
guaranteed trust preferred securities. During the third quarter of 2002, CIB
Marine issued $20.0 million of securities, which pay a variable rate of interest
based upon three-month LIBOR plus 3.40%. The interest rate was 5.21% at
September 30, 2002. The remaining $40.0 million of securities carry a fixed
interest rate averaging 10.52%. CIB Marine issued the guaranteed trust preferred
securities through wholly-owned special-purpose trusts. Distributions are
cumulative and are payable to the security holders either quarterly or
semi-annually. CIB Marine fully and unconditionally guarantees the obligations
of the trusts on a subordinated basis. The securities are mandatorily redeemable
upon their maturity and are callable under certain circumstances at a premium,
which declines ratably to par. Issuance costs incurred in connection with all
guaranteed trust preferred securities, net of amortization, were $1.6 million at
September 30, 2002, and are included in Other Assets. CIB Marine used the net
proceeds to reduce its debt with the non-affiliated commercial bank and for
other corporate purposes. Though presented in the balance sheets as debt, these
securities qualify, subject to certain limitations, as Tier 1 equity capital for
regulatory purposes.
CAPITAL
CIB Marine and its subsidiary banks are subject to various regulatory
capital guidelines. In general, these guidelines define the various components
of core capital and assign risk weights to various categories of assets. The
risk-based capital guidelines require financial institutions to maintain minimum
levels of capital as a percentage of risk-weighted assets.
The risk-based capital information of CIB Marine at September 30, 2002 and
December 31, 2001 is contained in the following table. The capital levels of CIB
Marine and its subsidiary banks are, and have been, in excess of the required
regulatory minimums during the periods indicated. At September 30, 2002, CIB
Marine and each of its subsidiary banks had sufficient capital to be categorized
as well capitalized. CIB Marine intends to maintain its capital level and the
capital levels of its subsidiary banks at or above levels sufficient to support
future growth.
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
(DOLLARS IN THOUSANDS)
Risk weighted assets (RWA).................................. $3,120,561 $2,790,669
Average assets(1)........................................... 3,258,993 2,818,577
Capital components
Stockholders' equity...................................... $ 259,789 $ 237,142
Guaranteed trust preferred securities and minority
interest(2)............................................ 60,133 40,133
Less: Disallowed intangibles.............................. (14,955) (11,420)
Less: Unrealized gain on securities....................... (2,593) (3,023)
---------- ----------
Tier 1 capital.............................................. 302,374 262,832
Allowable allowance for loan losses(3).................... 39,148 34,078
---------- ----------
Total risk based capital.................................... $ 341,522 $ 296,910
========== ==========
SEPTEMBER 30, 2002
--------------------------------------
MINIMUM REQUIRED
TO BE ADEQUATELY
ACTUAL CAPITALIZED
----------------- -----------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
Total Capital (to RWA)..................................... $341,522 10.94% $249,645 8.00%
Tier 1 Capital (to RWA).................................... 302,374 9.69 124,822 4.00
Tier 1 Leverage (to average assets)........................ 302,374 9.28 130,360 4.00
34
DECEMBER 31, 2001
--------------------------------------
MINIMUM REQUIRED
TO BE ADEQUATELY
ACTUAL CAPITALIZED
----------------- -----------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
Total Capital (to RWA)..................................... $296,910 10.64% $223,254 8.00%
Tier 1 Capital (to RWA).................................... 262,832 9.42 111,627 4.00
Tier 1 Leverage (to average assets)........................ 262,832 9.32 112,743 4.00
- ---------------
(1) Average assets as calculated for risk-based capital (deductions include
current period balances for goodwill and other intangibles).
(2) For regulatory capital purposes, the guaranteed trust preferred securities
qualify as Tier 1 equity capital. For additional information on these
securities see "Guaranteed Trust Preferred Securities."
(3) The allowance for loan losses is net of the disallowed portion of the
allowance for loan losses in excess of 1.25% of risk-weighted assets.
CIB Marine sold 270,056 shares of its common stock during the first quarter
of 2002 in a private placement offering that commenced in February 2002, for
proceeds of $6.3 million. During April 2002, an additional 71,716 shares of
common stock were sold in this offering for proceeds of $1.6 million.
LIQUIDITY
The objective of liquidity risk management is to ensure that CIB Marine has
adequate funding capacity to fund commitments to extend credit, deposit account
withdrawals, maturities of borrowings and other obligations in a timely manner.
CIB Marine's Asset/Liability Management Committee actively manages CIB Marine's
liquidity position by estimating, measuring and monitoring its sources and uses
of funds and its liquidity position. CIB Marine's sources of funding and
liquidity include both asset and liability components. CIB Marine's funding
requirements are primarily met by the inflow of funds from deposits. CIB Marine
also makes use of noncore deposit funding sources in a manner consistent with
its liquidity, funding and market risk policies. Noncore deposit funding sources
are used to meet funding needs and/or when the pricing and continued
availability of these sources presents lower funding cost opportunities.
Short-term funding sources utilized by CIB Marine include federal funds
purchased, securities sold under agreements to repurchase, Eurodollar deposits,
short-term borrowings from the Federal Home Loan Bank, and short-term brokered
and negotiable time deposits. We have also established borrowing lines with the
Federal Reserve Bank and with unaffiliated banks. Long-term funding sources,
other than core deposits, include long-term brokered and negotiable time
deposits and long-term borrowings from the Federal Home Loan Bank. Additional
sources of liquidity include cash and cash equivalents, federal funds sold,
sales of 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 nine months ended September 30, 2002 and 2001, contained
in the consolidated financial statements.
Net cash used by operating activities was $48.1 million, for the nine-month
period ended September 30, 2002 compared with net cash provided by operating
activities of $32.8 million for the nine-month period ended September 30, 2001.
The increase in cash used was primarily the result of an increase in
originations and purchases of loans held for sale. For the nine months ended
September 30, 2002, net cash used in investing activities was $298.7 million,
compared to $249.6 million for the nine months ended September 30, 2001. The
increase in cash used for investing activities was caused primarily by an
increase in the purchases of investment securities in relationship to the sales
and maturities of investment securities during the periods. In addition, loan
growth was somewhat lower during 2002 lessening the need for net cash. Net cash
provided by financing activities was $364.3 million for the nine-month period
ended September 30, 2002 and $215.5 million for the nine-month period ended
September 30, 2001. The increase in cash provided by financing activities was
primarily attributable to growth in deposits which was partially offset by
repayment of short-term borrowings.
35
CIB Marine was able to meet its liquidity needs during the third quarter of
2002 and expects to meet these needs for the remainder of 2002.
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, 2001. For additional information regarding CIB Marine's
market risks, refer to its 2001 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 September 30, 2002.
SEPTEMBER 30, 2002
------------------------------------------------------------------------
0-3 4-6 7-12 2-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Loans............................... $1,741,121 $ 93,996 $ 86,345 $703,838 $ 36,071 $2,661,371
Securities.......................... 99,432 40,962 124,995 144,048 31,581 441,018
Loans held for sale................. 112,659 -- -- -- -- 112,659
Federal funds sold.................. 18,145 -- -- -- -- 18,145
---------- -------- -------- -------- -------- ----------
Total interest-earning assets......... 1,971,357 134,958 211,340 847,886 67,652 3,233,193
---------- -------- -------- -------- -------- ----------
INTEREST-BEARING LIABILITIES
Time deposits....................... 417,271 387,167 429,513 674,027 52,097 1,960,075
Savings and interest-bearing demand
deposits.......................... 543,819 -- -- -- -- 543,819
Short-term borrowings............... 212,476 17,500 395 1,800 -- 232,171
Long-term borrowings................ 4,930 -- -- 8,500 33,515 46,945
Guaranteed trust preferred
securities........................ -- -- -- -- 60,000 60,000
---------- -------- -------- -------- -------- ----------
Total interest-bearing liabilities.... $1,178,496 $404,667 $429,908 $684,327 $145,612 $2,843,010
---------- -------- -------- -------- -------- ----------
Interest sensitivity gap (by
period)............................. 792,861 (269,709) (218,568) 163,559 (77,960) 390,183
Interest sensitivity gap
(cumulative)........................ 792,861 523,152 304,584 468,143 390,183 390,183
Adjusted for derivatives:
Derivatives (notional, by period)... (125,000) -- 65,000 -- 60,000 --
Derivatives (notional,
cumulative)....................... (125,000) (125,000) (60,000) (60,000) -- --
Interest sensitivity gap (by
period)............................. 667,861 (269,709) (153,568) 163,559 (17,960) 390,183
Interest sensitivity gap
(cumulative)........................ 667,861 398,152 244,584 408,143 390,183 390,183
Cumulative gap as a % of Total
Assets.............................. 20.02% 11.93% 7.33% 12.23% 11.70%
The following table illustrates the expected percentage change in net
interest income over a one year period due to the immediate change in short term
U.S. prime rate of interest as of September 30, 2002, and December 31, 2001.
BASIS POINT CHANGES
-----------------------------------------
+200 +100 -100 -200
---- ---- ---- ----
SEPTEMBER 30, 2002
Net interest income change over one year.............. (5.11)% (5.52)% (2.35)% (4.46)%
===== ===== ===== =====
DECEMBER 31, 2001
Net interest income change over one year.............. (7.61)% (4.85)% 4.73% 8.35%
===== ===== ===== =====
36
ITEM 4. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures.
CIB Marine's chief executive officer and its chief financial officer after
evaluating the effectiveness of CIB Marine's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) on November 12, 2002,
have concluded that, as of such date, CIB Marine's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to CIB Marine and its consolidated subsidiaries would be made known to
them by others within those entities.
b. Changes in Internal Controls.
There were no significant changes in CIB Marine's internal controls or in
other factors that could significantly affect CIB Marine's disclosure controls
and procedures subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in CIB Marine's internal
controls. As a result, no corrective actions were required or undertaken.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CIB Marine is not currently involved in any material pending legal
proceedings other than ordinary routine litigation incidental to our business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not Applicable
b. Not Applicable
c. Not Applicable
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. Exhibit 99.1 -- Certificate of J. Michael Straka, Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Exhibit 99.2 -- Certificate of Steven T. Klitzing, Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
b. Reports on Form 8-K -- None
37
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 14th day of November 2002.
CIB MARINE BANCSHARES, INC.
(Registrant)
By: /s/ STEVEN T. KLITZING
--------------------------------------
Steven T. Klitzing
Senior Vice President and Chief
Financial Officer
38
CERTIFICATIONS
I, J. Michael Straka, Chief Executive Officer of CIB Marine Bancshares, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of CIB Marine
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report ( the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based upon our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent valuation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditor's any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ J. MICHAEL STRAKA
--------------------------------------
J. Michael Straka
Chief Executive Officer
November 14, 2002
39
CERTIFICATIONS
I, Steven T. Klitzing, Chief Financial Officer, of CIB Marine Bancshares, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of CIB Marine
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report ( the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based upon our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent valuation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditor's any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ STEVEN T. KLITZING
--------------------------------------
Steven T. Klitzing
Chief Financial Officer
November 14, 2002
40