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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, 1999
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 (IRS Employer
of 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)
CENTRAL ILLINOIS BANCORP, INC.
(Former name if changed since last report)
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 15, 1999 CIB Marine had 107,408 shares of $1.00 par value
common stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIB MARINE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks................................... $ 14,192 $ 14,980
Federal Funds Sold........................................ 6,944 7,100
---------- ----------
Total Cash and Cash Equivalents.................... 21,136 22,080
---------- ----------
Loans -- Held for Sale...................................... 1,829 8,900
Securities:
Available for Sale, at fair value......................... 192,409 114,545
Held to Maturity (approximate fair value of $121,888 and
$103,540, respectively)................................. 122,488 101,739
---------- ----------
Total Securities................................... 314,897 216,284
---------- ----------
Loans....................................................... 1,209,281 915,711
Less: Allowance for Loan Loss............................. (14,315) (10,657)
---------- ----------
Net Loans................................................... 1,194,966 905,054
---------- ----------
Premises and Equipment, net................................. 21,210 15,561
Accrued Interest Receivable................................. 11,838 8,839
Deferred Income Taxes....................................... 7,662 4,253
Goodwill and Core Deposit Intangibles, net.................. 14,574 3,727
Foreclosed Properties....................................... 1,100 --
Other Assets................................................ 4,932 1,825
---------- ----------
Total Assets....................................... $1,594,144 $1,186,523
========== ==========
LIABILITIES
Deposits:
Non-Interest Bearing Demand............................... $ 90,122 $ 80,280
Interest Bearing Demand................................... 43,203 40,036
Savings................................................... 205,241 110,055
Time...................................................... 1,059,317 780,662
---------- ----------
Total Deposits..................................... 1,397,883 1,011,033
---------- ----------
Short-term Borrowings....................................... 24,787 3,254
Accrued Interest Payable.................................... 6,455 4,925
Accrued Income Taxes........................................ -- 921
Other Liabilities........................................... 2,947 2,294
Long-term Borrowings........................................ 9,750 20,000
---------- ----------
Total Liabilities.................................. 1,441,822 1,042,427
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $1 par value; 50,000,000 Shares Authorized,
107,492 and 107,153 Issued and Outstanding,
respectively.............................................. 107 107
Treasury Stock (74 shares).................................. (182) --
Capital Surplus............................................. 121,042 120,381
Retained Earnings........................................... 32,508 22,833
Accumulated Other Comprehensive (Loss) Income............... (1,153) 775
---------- ----------
Total Stockholders' Equity......................... 152,322 144,096
---------- ----------
Total Liabilities and Stockholders' Equity......... $1,594,144 $1,186,523
========== ==========
See accompanying Notes to Unaudited Consolidated Financial Statements
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CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
INTEREST AND DIVIDEND INCOME
Loans............................................... $ 25,870 $ 18,309 $ 69,724 $48,688
Loans Held For Sale................................. 47 98 215 303
Securities:
Taxable........................................... 3,917 2,480 10,342 7,100
Tax-exempt........................................ 472 357 1,269 958
Dividends......................................... 58 45 160 149
Federal Funds Sold.................................. 203 170 314 588
-------- -------- -------- -------
Total Interest and Dividend Income........ 30,567 21,459 82,024 57,786
-------- -------- -------- -------
INTEREST EXPENSE
Deposits............................................ 16,015 10,801 41,765 29,495
Short-term Borrowings............................... 318 73 794 296
Long-term Borrowings................................ 164 242 667 702
-------- -------- -------- -------
Total Interest Expense.................... 16,497 11,116 43,226 30,493
-------- -------- -------- -------
Net Interest Income................................. 14,070 10,343 38,798 27,293
Provision for Loan Loss............................. 1,515 1,383 4,485 3,396
-------- -------- -------- -------
Net Interest Income After Provision for
Loan Loss............................... 12,555 8,960 34,313 23,897
-------- -------- -------- -------
NONINTEREST INCOME
Loan Fees........................................... 634 772 1,983 2,177
Deposit Service Charges............................. 352 396 968 1,018
Other Service Fees.................................. 101 91 297 298
Trust............................................... 128 86 391 250
Gain on Sale of Branch.............................. -- -- 805 --
Other............................................... 21 12 46 77
Securities Gains, net............................... -- 133 -- 133
-------- -------- -------- -------
Total Noninterest Income.................. 1,236 1,490 4,490 3,953
-------- -------- -------- -------
NONINTEREST EXPENSE
Salaries and Employee Benefits...................... 5,372 4,193 14,854 12,574
Equipment........................................... 499 416 1,515 1,015
Occupancy and Premises.............................. 812 595 2,191 1,597
Professional Services............................... 245 171 949 411
Advertising/Marketing............................... 200 156 548 437
Amortization of Intangibles......................... 328 94 671 257
Other............................................... 1,095 1,019 3,175 2,770
-------- -------- -------- -------
Total Noninterest Expense................. 8,551 6,644 23,903 19,061
-------- -------- -------- -------
Income Before Income Taxes.......................... 5,240 3,806 14,900 8,789
Income Tax Expense.................................. 1,832 1,304 5,225 2,948
-------- -------- -------- -------
Net Income.......................................... $ 3,408 $ 2,502 $ 9,675 $ 5,841
======== ======== ======== =======
EARNINGS PER SHARE
Basic............................................... $ 31.78 $ 23.36 $ 90.27 $ 59.48
Diluted............................................. $ 31.42 $ 23.12 $ 89.26 $ 59.01
Weighted Average Shares -- Basic.................... 107,222 107,088 107,180 98,199
Weighted Average Shares -- Diluted.................. 108,460 108,206 108,395 98,971
See accompanying Notes to Unaudited Consolidated Financial Statements
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CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ACCUMULATED
--------------- OTHER
PAR CAPITAL RETAINED COMPREHENSIVE TREASURY
SHARES VALUE SURPLUS EARNINGS INCOME (LOSS) STOCK TOTAL
------- ----- -------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE, DECEMBER 31, 1997......... 90,735 $ 91 $ 86,241 $14,179 $ 221 $ -- $100,732
Comprehensive Income:
Net Income......................... 5,841 5,841
Other Comprehensive Income:
Unrealized Securities Holding
Gains Arising During the
Period......................... 1,096 1,096
Reclassification Adjustment for
Gains Included in Net Income... (133) (133)
Income Tax Effect................ (398) (398)
------- ------- --------
5,841 565 6,406
------- ------- --------
Capital Issuance................... 16,320 16 32,583 32,599
Exercise of Stock Options.......... 33 50 50
Non-Cash Compensation.............. 1,435 1,435
------- ---- -------- ------- ------- ----- --------
BALANCE, SEPTEMBER 30, 1998........ 107,088 $107 $120,309 $20,020 $ 786 $ -- $141,222
======= ==== ======== ======= ======= ===== ========
BALANCE, DECEMBER 31, 1998......... 107,153 $107 $120,381 $22,833 $ 775 $ $144,096
Comprehensive Income:
Net Income......................... 9,675 9,675
Other Comprehensive Income:
Unrealized Securities Holding
Losses Arising During the
Period......................... (3,131) (3,131)
Income Tax Effect................ 1,203 1,203
------- ------- --------
9,675 (1,928) 7,747
------- ------- --------
Exercise of Stock Options.......... 339 522 522
Purchase of Treasury Stock......... (74) (182) (182)
Non-Cash Compensation.............. 139 139
------- ---- -------- ------- ------- ----- --------
BALANCE, SEPTEMBER 30, 1999........ 107,418 $107 $121,042 $32,508 $(1,153) $(182) $152,322
======= ==== ======== ======= ======= ===== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
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CIB MARINE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 9,675 $ 5,841
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization........................... 1,626 1,822
Non-Cash Compensation................................... 139 1,435
Provision for Loan Loss................................. 4,485 3,396
Originations of Loans Held for Sale..................... (94,081) (122,121)
Proceeds from Sale of Loans Held for Sale............... 101,152 117,476
Deferred Tax Benefits................................... (3,128) (1,700)
Gain on Sale of Branch.................................. (805) --
Gain on Sale of Other Assets............................ (4) (8)
Gain on Sale of Securities.............................. -- (133)
Increase in Interest Receivable and Other Assets........ (3,379) (1,780)
Increase in Interest Payable and Other Liabilities...... 1,389 1,309
--------- ---------
Net Cash Provided by Operating Activities.......... 17,069 5,537
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of Securities Available for Sale............. 87,426 16,532
Maturities of Securities Held to Maturity............... 46,721 16,077
Purchase of Securities Available for Sale............... (167,268) (51,655)
Purchase of Securities Held to Maturity................. (68,855) (35,258)
Proceeds from Sales of Securities Available for Sale.... -- 8,607
Repayments of Mortgage-Backed Securities Held to
Maturity............................................... 4,419 4,407
Repayments of Mortgage-Backed Securities Available for
Sale................................................... 4,016 1,895
Purchase of Other Equity Securities..................... (898) --
Purchase of Mortgage-Backed Securities Available for
Sale................................................... (4,497) (5,388)
Purchase of Mortgage-Backed Securities Held to
Maturity............................................... (3,034) (1,990)
Investment in Limited Partnerships...................... (2,897) --
Net Increase in Loans................................... (306,232) (206,259)
Proceeds from Sale of Repossessed Property.............. -- 624
Proceeds from Sale of Fixed Assets...................... 7 --
Proceeds from Sale of Branches.......................... 3,085 --
Capital Expenditures.................................... (2,100) (3,283)
Purchase of Branch Assets and Deposits, net of
Goodwill............................................... 124,403 12,143
--------- ---------
Net Cash Used in Investing Activities.............. (285,704) (243,548)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits.................................... 255,499 203,469
Proceeds from Long-term Borrowings...................... -- 23,000
Repayments of Long-term Borrowings...................... (10,250) (5,150)
Proceeds from Issuance of Common Stock.................. -- 32,599
Proceeds from Stock Options Exercised................... 522 50
Purchase of Treasury Stock.............................. (182) --
Net Increase (Decrease) in Short-term Borrowings........ 22,102 (12,391)
--------- ---------
Net Cash Provided by Financing Activities.......... 267,691 241,577
--------- ---------
Net Increase in Cash and Cash Equivalents................... (944) 3,566
Cash and Cash Equivalents, Beginning of Period.............. 22,080 9,774
--------- ---------
Cash and Cash Equivalents, End of Period.................... $ 21,136 $ 13,340
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 41,696 $ 29,345
Income Taxes.............................................. 7,935 4,655
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Transfers of Loans to Other Real Estate Owned............. 1,100 494
See accompanying Notes to Unaudited Consolidated Financial Statements
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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"), formerly known
as Central Illinois Bancorp, Inc., 1998 Annual Report on Form 10 K/A. In the
opinion of management, the unaudited consolidated financial statements included
in this report reflect all adjustments which are necessary to present fairly the
financial condition, results of operations and cash flows as of and for the
three and nine months ended September 30, 1999 and 1998. The results of
operations for the three and nine months ended September 30, 1999 are not
necessarily indicative of results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates used in the
preparation of the financial statements are based on various factors including
the current interest rate environment and the general strength of the local
economy. Changes in these factors can significantly affect CIB Marine's net
interest income and the value of its recorded assets and liabilities.
Reclassifications have been made to certain amounts as of December 31, 1998
and for the three and nine months ended September 30, 1998, to be consistent
with classifications for 1999.
NOTE 2 -- REINCORPORATION AND NAME CHANGE
On August 27, 1999, CIB Marine changed its state of incorporation from
Illinois to Wisconsin and changed its name from Central Illinois Bancorp, Inc.
to CIB Marine Bancshares, Inc. As a result of this reincorporation, the rights
of the stockholders and the internal affairs of CIB Marine Bancshares, Inc. are
governed by the Wisconsin Business Corporation Law rather than the Illinois
Business Corporation Act.
NOTE 3 -- EARNINGS PER SHARE COMPUTATIONS
The following provides a reconciliation of basic and diluted earnings per
share:
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- -------- -------
NET INCOME (in thousands)........................... $ 3,408 $ 2,502 $ 9,675 $ 5,841
======== ======== ======== =======
Weighted average shares outstanding:
Basic............................................. 107,222 107,088 107,180 98,199
Effect of dilutive stock options outstanding... 1,238 1,118 1,215 772
-------- -------- -------- -------
Diluted........................................... 108,460 108,206 108,395 98,971
======== ======== ======== =======
EARNINGS PER SHARE:
Basic............................................. $ 31.78 $ 23.36 $ 90.27 $ 59.48
Effect of dilutive stock options outstanding... (.36) (.24) (1.01) (.47)
-------- -------- -------- -------
Diluted........................................... $ 31.42 $ 23.12 $ 89.26 $ 59.01
======== ======== ======== =======
NOTE 4 -- BUSINESS COMBINATIONS
On September 24, 1999, CIB Marine purchased a banking office in Zion,
Illinois, and in connection with such purchase assumed deposits of $28.2
million. The net purchase price for premises and equipment, and deposit premium
was $2.6 million. The transaction was accounted for as a purchase. The excess of
the
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CIB MARINE BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition cost over the fair market value of net assets acquired and deposit
liabilities assumed in the amount of $2.0 million is being amortized for up to
15 years using the straight-line method.
NOTE 5 -- LONG-TERM BORROWINGS
The following table presents information regarding amounts payable to the
Federal Home Loan Bank of Chicago (the "FHLB") that are included in the
consolidated balance sheets at September 30, 1999 and December 31, 1998:
(dollars in thousands)
SEPTEMBER 30, 1999 DECEMBER 31, 1998
- ------------------ ------------------ SCHEDULED CALLABLE @ ACTUAL EARLY
BALANCE RATE BALANCE RATE MATURITY PAR AFTER CALL DATE
- --------- ------ --------- ------ --------- ---------- ------------
$ -- -- $ 3,000 5.59% 8/2/99 N/A N/A
-- -- 2,000 5.02% 2/20/03 2/20/99 8/20/99
-- -- 3,250 4.70% 1/16/08 1/16/99 7/16/99
3,250 4.95% 3,250 4.95% 1/16/08 1/16/01 N/A
2,500 4.95% 2,500 4.95% 1/16/08 1/16/01 N/A
2,000 4.95% 2,000 4.95% 1/16/08 1/16/01 N/A
-- -- 2,000 4.75% 1/16/08 1/20/99 7/20/99
2,000 5.09% 2,000 5.09% 2/20/08 2/20/01 N/A
------ ---- ------- ----
$9,750 4.98% $20,000 5.01%
====== ==== ======= ====
CIB Marine is required to maintain qualifying collateral as security for
all FHLB borrowings, including the $5.0 million in short-term borrowings with
the FHLB outstanding at September 30, 1999. Under current arrangements, the debt
to collateral ratio for pledged 1-4 family mortgages cannot exceed 60%. The debt
to collateral ratio for securities pledged generally ranges between 70% and 95%,
depending on the type of security. At September 30, 1999, CIB Marine had pledged
collateral of $46.0 million, comprised of $29.2 million in 1-4 family
residential mortgages not more than 90 days delinquent and $16.8 million in
market value of securities.
NOTE 6 -- STOCK OPTION ACTIVITY
On July 29, 1999 CIB Marine granted options to purchase 2,199 shares of
common stock at fair market value of $2,434 each to certain directors, officers
and key employees. These nonqualified options vest annually in 20% installments
commencing 12 months after the grant date and expire in 10 years. The following
is a reconciliation of stock option activity for the nine months ended September
30, 1999:
NUMBER OF RANGE OF OPTION WEIGHTED AVERAGE
SHARES PRICES PER SHARE EXERCISE PRICE
--------- ---------------- ----------------
Shares under option December 31, 1998.............. 5,871 $ 743 - 2,279 $1,691
Granted.......................................... 2,199 2,434 2,434
Lapsed or surrendered............................ (107) 1,275 - 1,961 1,887
Exercised........................................ (339) 743 - 1,961 1,344
----- -------------- ------
Shares under option September 30, 1999............. 7,624 $ 743 - 2,434 $1,917
===== ============== ======
NOTE 7 -- RECENT ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in contracts) be recorded in the balance
sheet as either an asset or liability
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CIB MARINE BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
measured at its fair value. The statement further requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
typically allows a derivative's gains and losses to offset related results in
the hedged item in the income statement and requires that a company must
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting treatment.
In June 1999, the FASB issued SFAS 137 which extended the effective date of
SFAS 133 by one year to apply to fiscal years beginning after September 15,
2000. A company also may implement the statement as of the beginning of any
quarter after issuance. SFAS 133 cannot be applied retroactively. SFAS 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantially
modified after December 31, 1997 (and, at the entity's election, before January
1, 1998).
In the opinion of management, CIB Marine currently has no derivative
instruments. CIB Marine may enter into transactions giving rise to derivative
instruments in the future. See "Item 2. Management's Discussion and Analysis and
Results of Operations -- Results of Operations -- Money Desk Operation". The
adoption of this statement is not expected to have a material effect on CIB
Marine's financial position, liquidity, or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following section is a discussion and analysis of CIB Marine's
consolidated financial condition as of September 30, 1999 and its results of
operations for the three months and nine months then-ended. Unless otherwise
specified, any references to "CIB Marine" means CIB Marine and its subsidiaries.
This discussion and analysis should be read in conjunction with the consolidated
financial statements and footnotes presented in Part I, Item 1 of this report as
well as CIB Marine's 1998 Annual Report on Form 10-K/A, which was filed with the
Securities and Exchange Commission on April 30, 1999.
FORWARD-LOOKING STATEMENTS
CIB Marine has made statements in this Quarterly Report on Form 10-Q that
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. CIB Marine intends these
forward-looking statements to be subject to the safe harbor created thereby and
is including this statement to avail itself of the safe harbor. Forward-looking
statements are identified generally by statements containing words and phrases
such as "may," "project," "are confident," "should be," "will be," "predict,"
"believe," "plan," "expect," "estimate," "anticipate" and similar expressions.
These forward-looking statements reflect CIB Marine's current views with respect
to future events and financial performance, which are subject to many
uncertainties and factors relating to CIB Marine's operations and the business
environment and which could change at any time.
There are inherent difficulties in predicting factors that may affect the
accuracy of forward-looking statements. Potential risks and uncertainties that
may affect CIB Marine's operations, performance, development and business
results include the following:
- adverse changes in business conditions in the banking industry generally
and in the specific Midwestern markets in which CIB Marine's subsidiary
banks operate;
- changes in the legislative and regulatory environment that result in
increased competition or operating expenses;
- changes in interest rates and changes in monetary and fiscal policies
which could negatively effect 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;
- CIB Marine's ability, and the ability of its customers or suppliers, to
achieve year 2000 readiness in a timely manner;
- the competitive impact of technological advances in the banking business;
and
- other risks set forth in this report or in CIB Marine's filings with the
Securities and Exchange Commission (SEC).
These risks and uncertainties should be considered in evaluating
forward-looking statements, and undue reliance should not be placed on such
statements. CIB Marine does not assume any obligation to update or revise any
forward-looking statements subsequent to the date on which they are made,
whether as a result of new information, future events or otherwise.
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RESULTS OF OPERATIONS
For the third quarter of 1999, CIB Marine had net income of $3.4 million,
as compared to $2.5 million for the third quarter of 1998, which represented an
increase of 36.2% from the 1998 to 1999 period. The increase in net income is
primarily due to the growth of CIB Marine. Total assets at September 30, 1999
were $1.6 billion, which represented a 34.4% increase from total assets of $1.2
billion at December 31, 1998 and a 48.7% increase from $1.0 billion at September
30, 1998.
Basic and diluted earnings per share were $31.78 and $31.42, respectively,
for the quarter ended September 30, 1999 as compared to $23.36 and $23.12,
respectively, for the quarter ended September 30, 1998. The return on average
assets for the quarter ended September 30, 1999 was 0.88%, as compared to 0.96%
for the quarter ended September 30, 1998. The return on average equity for the
quarter ended September 30, 1999 was 8.93%, as compared to 7.11% for the quarter
ended September 30, 1998.
For the nine months ended September 30, 1999, CIB Marine had net income of
$9.7 million, as compared to $5.8 million for the nine months ended September
30, 1998, which represented an increase of 65.6% from the 1998 to 1999 period.
Net income for the first nine months of 1999 included a $0.8 million pre-tax, or
$0.5 million after-tax, gain on the sale of a branch facility. The 1998 period
included a $1.4 million pre-tax, or $0.8 million after-tax, non-cash
compensation expense related to the extension of the expiration date of all
previously issued and outstanding stock options granted under CIB Marine's stock
option plans as of February 25, 1998. The related non-cash compensation expense
for the first nine months of 1999 was $0.1 million pre-tax. The remainder of the
increase in net income was primarily due to the growth of CIB Marine.
Basic and diluted earnings per share were $90.27 and $89.26, respectively,
for the nine months ended September 30, 1999, as compared to $59.48 and $59.01,
respectively, for the first nine months of 1998. The return on average assets
for the nine months ended September 30, 1999 was 0.93% as compared to 0.83% for
the nine months ended September 30, 1998. The return on average equity for the
nine months ended September 30, 1999 was 8.70%, as compared to 6.50% for the
nine months ended September 30, 1998.
The following table provides an overview of CIB Marine's growth by
indicating the percentage increase in selected balance sheet and income
statement items from the three and nine month periods ended September 30, 1998
to the comparable periods ended September 30, 1999.
SEPTEMBER 30, 1999 VS.
SEPTEMBER 30, 1998
----------------------
BALANCE SHEET ITEMS
Commercial real estate, construction, agricultural and
commercial loans....................................... 57.28%
Loans, including held for sale............................ 46.64
Total assets.............................................. 48.71
Total deposits............................................ 55.40
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1999 VS.
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
---------------------- ----------------------
INCOME STATEMENT ITEMS
Net interest income after provision for loan loss
(TE).............................................. 39.46% 42.76%
Noninterest income................................... (17.05) 13.58*
Noninterest expense.................................. 28.70 25.40*
Net Income........................................... 36.21 65.64
Diluted earnings per share........................... 35.90 51.26
- ---------------
(TE) Tax-equivalent basis at 35%
* See preceding discussion of gain on sale of branch and non-cash
compensation items included in noninterest income and noninterest expense,
respectively.
CIB Marine achieved this growth by focusing on the development of banking
relationships with small to medium-sized businesses and through the opening of
new banks and branches, internal growth and
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acquisitions. During the first quarter of 1999 CIB Marine purchased two banking
facilities, one in Arlington Heights and one in Mount Prospect, both of which
are in the Chicago metropolitan market. CIB Marine assumed $115.8 million in
deposits as a result of the purchase of these two facilities. In September 1999
CIB Marine purchased a banking facility in Zion, Illinois and assumed $28.2
million of deposits. CIB Marine also sold one branch facility in Charleston,
Illinois in March 1999, along with $14.4 million in loans and $12.2 million in
deposits. In the first nine months of 1999 CIB Marine opened four new branches.
In 1998, CIB Bank Indiana and Marine Trust and Investment Company began
operations, and CIB Marine's bank subsidiaries opened four new branch facilities
and acquired one existing branch facility with $13.2 million in deposits.
CIB MARINE BANCSHARES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information of
CIB Marine. You should read this table in conjunction with the unaudited
consolidated financial statements, and related notes.
AT OR FOR THE NINE
AT OR FOR THE QUARTER MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Selected Statement of Income Data:
Interest and Dividend Income
Loans..................................................... $ 25,870 $ 18,309 $ 69,724 $ 48,688
Loans held for sale....................................... 47 98 215 303
Securities
Taxable................................................. 3,917 2,480 10,342 7,100
Tax-exempt.............................................. 472 357 1,269 958
Dividends............................................... 58 45 160 149
Federal funds sold........................................ 203 170 314 588
---------- ---------- ---------- ----------
Total interest and dividend income.................. 30,567 21,459 82,024 57,786
---------- ---------- ---------- ----------
Interest expense
Deposits.................................................. 16,015 10,801 41,765 29,495
Short-term borrowings..................................... 318 73 794 296
Long-term borrowings...................................... 164 242 667 702
---------- ---------- ---------- ----------
Total interest expense.............................. 16,497 11,116 43,226 30,493
---------- ---------- ---------- ----------
Net interest income................................. 14,070 10,343 38,798 27,293
Provision for loan loss..................................... 1,515 1,383 4,485 3,396
---------- ---------- ---------- ----------
Net interest income after provision for loan loss... 12,555 8,960 34,313 23,897
---------- ---------- ---------- ----------
Noninterest income
Banking and trust service fees............................ 1,215 1,345 3,639 3,743
Gain on sale of branch.................................... -- -- 805 --
Other..................................................... 21 12 46 77
Securities gains, net..................................... -- 133 -- 133
---------- ---------- ---------- ----------
Total noninterest income............................ 1,236 1,490 4,490 3,953
---------- ---------- ---------- ----------
Noninterest expense
Salaries and employee benefits............................ 5,372 4,193 14,854 12,574
Equipment................................................. 499 416 1,515 1,015
Occupancy and premises.................................... 812 595 2,191 1,597
Professional services..................................... 245 171 949 411
Advertising/marketing..................................... 200 156 548 437
Amortization of intangibles............................... 328 94 671 257
Other..................................................... 1,095 1,019 3,175 2,770
---------- ---------- ---------- ----------
Total noninterest expense........................... 8,551 6,644 23,903 19,061
---------- ---------- ---------- ----------
Income before income taxes.................................. 5,240 3,806 14,900 8,789
Income tax expense.......................................... 1,832 1,304 5,225 2,948
---------- ---------- ---------- ----------
Net income.......................................... $ 3,408 $ 2,502 $ 9,675 $ 5,841
========== ========== ========== ==========
Per Share Data:
Basic earnings............................................ $ 31.78 $ 23.36 $ 90.27 $ 59.48
Diluted earnings.......................................... 31.42 23.12 89.26 59.01
Dividends................................................. -- -- -- --
Book Value (at end of period)............................. 1,418.03 1,318.75 1,418.03 1,318.75
11
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AT OR FOR THE NINE
AT OR FOR THE QUARTER MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Selected Financial Condition Data:
Securities................................................ $ 314,897 $ 208,570 $ 314,897 $ 208,570
Loans, including held for sale............................ 1,211,110 825,879 1,211,110 825,879
Total assets.............................................. 1,594,144 1,071,993 1,594,144 1,071,993
Deposits.................................................. 1,397,883 899,548 1,397,883 899,548
Borrowings................................................ 34,537 23,779 34,537 23,779
Stockholders' equity...................................... 152,322 141,222 152,322 141,222
Trust assets under administration......................... 119,030 101,796 119,030 101,796
Selected Financial Ratios and Other Data:(1)
Performance Ratios:
Net interest margin(2).................................. 3.83% 4.21% 3.95% 4.12%
Interest rate spread(3)................................. 3.17 3.29 3.23 3.24
Non-interest income to average assets................... 0.32 0.57 0.43 0.56
Non-interest expense to average assets.................. 2.20 2.54 2.30 2.70
Net overhead ratio(4)................................... 1.88 1.97 1.87 2.14
Efficiency ratio(5)..................................... 54.89 55.66 54.29 59.99
Return on average assets(6)............................. 0.88 0.96 0.93 0.83
Return on average equity(7)............................. 8.93 7.11 8.70 6.50
Asset Quality Ratios:
Nonaccrual loans to loans, including held for sale...... 0.24 0.43 0.24 0.43
Allowances for loan loss to loans, including held for
sale.................................................. 1.18 0.95 1.18 0.95
Allowance for loan loss to nonperforming assets......... 332.29 209.78 332.29 209.78
Net charge-offs to average loans, including held for
sale.................................................. 0.07 0.03 0.10 .06
Nonperforming assets to total assets(8)................. 0.27 0.47 0.27 0.47
Nonaccrual loans and 90+ days past due loans to total
loans, including held for sale........................ 0.71 0.60 0.71 0.60
Nonaccrual loans and 90+ days past due loans to total
assets................................................ 0.54 0.63 0.54 0.63
Nonperforming assets and 90+ days past due loans to
total assets.......................................... 0.62 0.65 0.62 0.65
Allowance for loan loss to nonperforming assets and 90+
days past due loans................................... 144.00 153.29 144.00 153.29
Balance Sheet Ratios:
Average loans to average deposits....................... 85.69 91.49 88.14 89.34
Average interest-earning assets to average
interest-bearing liabilities.......................... 114.96 120.77 116.45 119.70
Capital Ratios:
Total equity to total assets............................ 9.56 13.17 9.56 13.17
Total risk-based capital ratio.......................... 10.02 16.00 10.02 16.00
Tier 1 risk-based capital ratio......................... 9.85 14.94 9.85 14.94
Leverage capital ratio.................................. 9.08 13.32 9.08 13.32
OTHER DATA
Number of full-time equivalent employees................ 468 384 468 384
Number of banking facilities............................ 36 30 36 30
Shares outstanding at the end of period................. 107,418 107,088 107,418 107,088
Weighted average shares outstanding -- basic............ 107,222 107,088 107,180 98,199
Weighted average shares outstanding -- diluted.......... 108,460 108,206 108,395 98,971
- ---------------
(1) Certain financial ratios for interim periods have been annualized.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
(3) Interest rate spread is the yield on average interest-earning assets minus
the rate on average interest-bearing liabilities.
(4) The net overhead ratio is equal to noninterest expense minus noninterest
income divided by average total assets.
(5) The efficiency ratio is equal to noninterest expense divided by the sum of
net interest income (on a tax equivalent basis at 35%) plus noninterest
income, excluding gains and losses on securities.
(6) Return on average assets is equal to net income divided by average total
assets.
(7) Return on average equity is equal to net income divided by average common
equity.
(8) Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed property.
12
13
NET INTEREST INCOME
Net interest income is the most significant component of CIB Marine's
earnings. Net interest income is the difference between interest earned on CIB
Marine's income-producing assets and interest paid on deposits and borrowed
funds. This difference expressed as a percentage of average earning assets is
the net interest margin. The amount of CIB Marine's net interest income is
affected by several factors, including interest rates and the volume and
relative mix of earning assets and liabilities. Although CIB Marine can control
certain of these factors, others, such as the general level of credit demand,
fiscal policy and Federal Reserve Board monetary policy are beyond management's
control.
The following table sets forth information for each of the three-month and
nine month periods ended September 30, 1999 and September 30, 1998 regarding
average balances, interest income and interest expense and average rates earned
or paid, as the case may be, for each of CIB Marine's major asset and liability
categories, and for total liabilities and shareholders' equity. This table
expresses interest income on a tax-equivalent (TE) basis in order to compare the
effective yield on earning assets. This means that interest income on tax-exempt
loans and tax-exempt investment securities has been adjusted to reflect the
income tax savings provided by these assets. The tax-equivalent adjustment was
based on CIB Marine's effective federal income tax rate of 35%.
13
14
QUARTER ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
ASSETS ---------- ----------- ---------- ---------- ----------- ----------
Interest Earning Assets (TE)
Securities
Taxable........................................... $ 276,546 $ 3,975 5.70% $ 165,630 $ 2,525 6.05%
Tax-exempt........................................ 37,612 727 7.67% 27,412 549 7.95%
---------- ------- ---- ---------- ------- ----
Total Securities.................................. 314,158 4,702 5.94% 193,042 3,074 6.32%
Loans(1)
Commercial and agricultural....................... 1,099,307 24,703 8.92% 724,446 16,980 9.30%
Real estate....................................... 38,104 819 8.53% 38,034 849 8.86%
Installment and other consumer.................... 17,090 365 8.47% 24,142 525 8.63%
---------- ------- ---- ---------- ------- ----
Total loans....................................... 1,154,501 25,887 8.90% 786,622 18,354 9.26%
Federal funds sold................................ 15,340 203 5.25% 11,893 170 5.67%
Loans -- held for sale............................ 2,375 47 7.85% 5,464 98 7.12%
---------- ------- ---- ---------- ------- ----
Total Earning Assets (TE)......................... 1,486,374 $30,839 8.23% 997,021 $21,696 8.63%
------- ---- ------- ----
Noninterest Earning Assets
Cash and due from banks........................... 15,867 15,820
Premises and equipment............................ 20,578 14,437
Allowance for loan loss........................... (13,772) (9,084)
Accrued interest receivable....................... 12,030 8,676
Deferred income taxes............................. 7,141 4,019
Goodwill and core deposit intangibles, net........ 12,861 3,797
Foreclosed properties............................. 13 433
Other assets...................................... 3,274 995
---------- ----------
Total Noninterest Earning Assets.................. 57,992 39,093
---------- ----------
TOTAL ASSETS...................................... $1,544,366 $1,036,114
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing demand deposits.................. $ 38,660 $ 242 2.48% $ 31,840 $ 224 2.79%
Money market...................................... 145,731 1,732 4.72% 68,002 776 4.53%
Other savings deposits............................ 35,151 284 3.21% 25,797 204 3.14%
Time Deposits of $100,000 or more................. 337,843 4,494 5.28% 180,332 2,581 5.68%
Time Deposits..................................... 701,846 9,263 5.24% 495,888 7,016 5.61%
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits................... 1,259,231 16,015 5.05% 801,859 10,801 5.34%
Short-term borrowings............................. 20,840 318 6.05% 4,668 73 6.20%
Long-term borrowings.............................. 12,823 164 5.07% 19,022 242 5.05%
---------- ------- ---- ---------- ------- ----
Total borrowed funds.............................. 33,663 482 5.68% 23,690 315 5.28%
Total Interest Bearing Liabilities................ 1,292,894 $16,497 5.06% 825,549 $11,116 5.34%
------- ---- ------- ----
Noninterest Bearing Liabilities
Noninterest-bearing demand deposits............... 90,818 63,946
Accrued interest payable.......................... 6,236 4,157
Accrued income taxes.............................. 712 828
Other liabilities................................. 2,368 2,035
Stockholders' equity.............................. 151,337 139,599
---------- ----------
Total Liabilities and Shareholders' Equity........ $1,544,366 $1,036,114
========== ==========
Net Interest Income (TE) and Interest Rate
Spread(2)....................................... $14,342 3.17% $10,580 3.29%
======= ==== ======= ====
Net Interest Margin (TE)(3)....................... 3.83% 4.21%
==== ====
- ---------------
(TE) -- Tax Equivalent Basis at 35%
(1) Loan balance totals include nonaccruals.
(2) Interest rate spread is the net of the average rate on interest-earning
assets and interest-bearing liabilities.
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets.
14
15
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/COST BALANCE EARNED/PAID YIELD/COST
ASSETS ---------- ----------- ---------- -------- ----------- ----------
Interest Earning Assets (TE)
Securities
Taxable............................................. $ 244,374 $10,502 5.75% $158,414 $ 7,249 6.12%
Tax-exempt.......................................... 33,560 1,953 7.78% 24,903 1,474 7.91%
---------- ------- ---- -------- ------- ----
Total Securities.................................... 277,934 12,455 5.99% 183,317 8,723 6.36%
Loans(1)
Commercial and agricultural......................... 989,313 66,074 8.93% 638,450 44,732 9.37%
Real estate......................................... 40,484 2,481 8.19% 40,661 2,645 8.70%
Installment and other consumer...................... 19,357 1,226 8.47% 22,682 1,453 8.56%
---------- ------- ---- -------- ------- ----
Total loans......................................... 1,049,154 69,781 8.89% 701,793 48,830 9.30%
Federal funds sold.................................. 8,003 314 5.25% 15,786 588 4.98%
Loans -- held for sale.............................. 3,903 215 7.36% 5,618 303 7.21%
---------- ------- ---- -------- ------- ----
Total Earning Assets (TE)........................... 1,338,994 $82,765 8.26% 906,514 $58,444 8.62%
------- ---- ------- ----
Noninterest Earning Assets
Cash and due from banks............................. 14,691 14,238
Premises and equipment.............................. 18,970 13,399
Allowance for loan loss............................. (12,452) (8,132)
Accrued interest receivable......................... 10,722 8,084
Deferred income taxes............................... 5,871 3,347
Goodwill and core deposit intangibles, net.......... 9,791 3,440
Foreclosed properties............................... 30 388
Other assets........................................ 2,078 2,536
---------- --------
Total Noninterest Earning Assets.................... 49,701 37,300
---------- --------
TOTAL ASSETS........................................ $1,388,695 $943,814
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing demand deposits.................... $ 38,637 $ 724 2.51% $ 30,843 $ 640 2.77%
Money market........................................ 120,040 4,153 4.63% 56,951 1,968 4.62%
Other savings deposits.............................. 32,476 780 3.21% 28,827 571 2.65%
Time Deposits of $100,000 or more................... 285,581 11,124 5.21% 153,391 6,588 5.74%
Time Deposits....................................... 636,685 24,984 5.25% 461,910 19,728 5.71%
---------- ------- ---- -------- ------- ----
Total interest-bearing deposits..................... 1,113,419 41,765 5.02% 731,922 29,495 5.39%
Short-term borrowings............................... 18,864 794 5.63% 7,109 296 5.57%
Long-term borrowings................................ 17,582 667 5.07% 18,284 702 5.13%
---------- ------- ---- -------- ------- ----
Total borrowed funds................................ 36,446 1,461 5.36% 25,393 998 5.25%
Total Interest Bearing Liabilities.................. 1,149,865 $43,226 5.03% 757,315 $30,493 5.38%
------- ---- ------- ----
Noninterest Bearing Liabilities
Noninterest-bearing demand deposits................. 81,327 59,887
Accrued interest payable............................ 5,487 3,776
Accrued income taxes................................ 1,193 880
Other liabilities................................... 2,172 1,816
Stockholders' equity................................ 148,651 120,140
---------- --------
Total Liabilities and Shareholders' Equity.......... $1,388,695 $943,814
========== ========
Net Interest Income (TE) and Interest Rate
Spread(2)......................................... $39,539 3.23% $27,951 3.24%
======= ==== ======= ====
Net Interest Margin (TE)(3)......................... 3.95% 4.12%
==== ====
- ---------------
(TE) -- Tax Equivalent Basis at 35%
(1) Loan balance totals include nonaccruals.
(2) Interest rate spread is the net of the average rate on interest-earning
assets and interest-bearing liabilities.
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets.
15
16
For the third quarter of 1999, net interest income on a tax-equivalent
basis was $14.3 million, representing an increase of 35.6% from net interest
income of $10.6 million for the third quarter of 1998. For the first nine months
of the year, net interest income on a tax-equivalent basis increased by 41.5%,
from $28.0 million in 1998 to $39.5 million in 1999. The increase in the volume
of earning assets and the liabilities to fund these assets, accounted for the
majority of the increases in net interest income and were partially offset by 12
and one basis point reductions in the interest rate spread between the
comparable three month and nine month periods respectively.
The following table presents an analysis of changes on a tax-equivalent
(TE) basis in net interest income resulting from changes in average volumes of
interest earning assets and interest bearing liabilities and average rates
earned and paid.
QUARTER ENDED SEPTEMBER 30, 1999 NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO QUARTER ENDED COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998(1) SEPTEMBER 30, 1998
------------------------------------- ----------------------------------------
VOLUME RATE TOTAL % CHANGE VOLUME RATE TOTAL % CHANGE
------- ----- ------ ---------- ------- ------- ------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Interest Income (TE)
Loans (including fees).............. $ 8,278 $(742) $7,536 41.05% $23,191 $(2,240) $20,951 42.90%
Securities -- taxable............... 1,602 (152) 1,450 57.43% 3,721 (465) 3,256 44.90%
Securities -- tax-exempt............ 197 (19) 178 32.42% 502 (26) 476 32.36%
------- ----- ------ ------- ------- ------- ------- -------
Total Securities............ 1,799 (171) 1,628 52.96% 4,223 (491) 3,732 42.78%
Federal funds sold.................. 44 (14) 30 18.24% (304) 30 (274) (46.60%)
Loans -- held for sale.............. (60) 9 (51) (52.04%) (94) 6 (88) (29.04%)
------- ----- ------ ------- ------- ------- ------- -------
Total Interest Income
(TE)...................... 10,061 (918) 9,143 42.14% 27,016 (2,695) 24,321 41.61%
------- ----- ------ ------- ------- ------- ------- -------
Interest Expense
Interest-bearing demand deposits.... 45 (27) 18 8.04% 151 (67) 84 13.13%
Money market........................ 923 33 956 123.20% 2,183 2 2,185 111.03%
Other savings deposits.............. 76 4 80 39.22% 78 130 208 36.60%
Time deposits of 100,000 or more.... 2,107 (194) 1,913 74.12% 5,200 (664) 4,536 68.85%
Other time deposits................. 2,745 (499) 2,246 32.03% 6,967 (1,709) 5,258 26.64%
Borrowings -- short term............ 247 (2) 245 335.62% 494 3 497 167.91%
Borrowings -- long term............. (79) 1 (78) (32.23%) (27) (8) (35) (4.99%)
------- ----- ------ ------- ------- ------- ------- -------
Total Interest Expense.............. 6,064 (684) 5,381 48.41% 15,046 (2,313) 12,733 41.75%
------- ----- ------ ------- ------- ------- ------- -------
Net Interest Income (TE)............ $ 3,397 $(234) $3,762 35.56% $11,970 $ (382) $11,588 41.46%
======= ===== ====== ======= ======= ======= ======= =======
- ---------------
(TE) Tax Equivalent Basis
(1) Variances which were not specifically attributable to volume or rate have
been allocated proportionally between volume and rate using absolute
values as a basis for the allocation. Nonaccruing loans were included in
the average balances used in determining yields.
Interest Income. For the third quarter of 1999 total interest income was
$30.6 million, which was 42.4% higher than the interest income of $21.5 million
for the third quarter of 1998. For the first nine months of 1999 total interest
income was $82.0 million, which was 41.9% higher than the interest income of
$57.8 million for the first nine months of 1998.
The primary reason for these increases was the increases in the volume of
all categories of CIB Marine's average earning assets. Average earning assets
during the third quarter of 1999 increased by 49.1% to $1.5 billion from $997.0
million in the third quarter of 1998, and in the nine month period average
earning assets increased by 47.7% from $906.5 million to $1.3 billion,
respectively. The increase in interest income due to increased volume was
partially offset by 40 and 36 basis point decreases in the average interest
rates earned on interest earning assets from the comparable quarter and nine
month periods of 1998, respectively. The decreases in the average interest rates
earned were primarily the result of an overall decline in market interest rates
during these periods, which resulted in a large portion of CIB Marine's assets
being repriced at a lower rate during these periods, although interest rates did
start to move up again beginning in the latter part of the second quarter of
1999.
16
17
Interest earned on loans was the largest component of total interest earned
and represented 84.8% and 85.8% of total interest earned in the third quarter of
1999 and 1998, and 85.3% and 84.8% for the first nine months of 1999 and 1998,
respectively. Interest earned on securities in CIB Marine's portfolio accounted
for the balance of total interest earned.
Interest Expense. Total interest expense for the third quarter of 1999
increased by 48.4% to $16.5 million from $11.1 million for the third quarter of
1998. Total interest expense for the first nine months of 1999 increased by
41.8% to $43.2 million from $30.5 million for the comparable period in 1998.
These increases were due to increases in the volume of interest bearing
liabilities. The average interest rate paid on interest bearing liabilities
decreased by 28 and 35 basis points for the three and nine month periods,
respectively.
Interest expense on time deposits represents the largest component of total
interest expense. The ratio of interest expense on time deposits to total
interest expense was 83.5% for the first nine months of 1999 and 86.3% for the
first nine months of 1998. The significant level of interest expense on time
deposits resulted from CIB Marine using these types of deposits to fund a large
portion of the growth in its loan portfolio.
CIB Marine's interest rate spread, which is the difference between the
average interest rate earned on interest earning assets and the average interest
rate paid on interest bearing liabilities, was 3.17% and 3.29% for the third
quarter of 1999 and 1998, respectively. The net interest margin was 3.83% and
4.21% for the third quarter of 1999 and 1998, respectively. The interest rate
spread was 3.23% and 3.24%, and the net interest margin was 3.95% and 4.12%, for
the nine month periods ended September 30, 1999 and 1998, respectively.
PROVISION FOR LOAN LOSS AND ALLOWANCE FOR LOAN LOSS
The provision for loan loss represents charges made to earnings in order to
maintain an adequate allowance for estimated losses inherent in the loan
portfolio as of the balance sheet date. The provision for loan loss for the
third quarter of 1999 was $1.5 million, as compared to $1.4 million for the
third quarter of 1998. The provision for loan loss for the first nine months of
1999 was $4.5 million, as compared to $3.4 million for the first nine months of
1998. The increase in the provision and the allowance was primarily due to the
increase in the average loans outstanding. At September 30, 1999 the allowance
for loan loss was $14.3 million, or 1.18 % of total loans outstanding, as
compared to $10.7 million and 1.15%, respectively, at December 31, 1998.
CIB Marine maintains its allowance at a level that CIB Marine considers
sufficient to absorb potential losses in the loan portfolio. CIB Marine
increases the allowance by the amount of the provision for loan loss as well as
recoveries of previously charged off loans and decreases the allowance by the
amount of loan charge-offs. The provision provides for current loan loss and
maintains the allowance at a level commensurate with management's evaluation of
the risks inherent in the loan portfolio. CIB Marine's loan review department
performs a comprehensive analysis of the allowance on a quarterly basis. CIB
Marine considers various factors when determining the amount of the provision
and the adequacy of the allowance. Some of the factors include:
- past due and nonperforming assets;
- specific internal analysis of loans requiring special attention;
- the current level of regulatory classified and criticized assets and the
risk factors associated with each;
- changes in the type and volume of the loan portfolio;
- net charge-offs; and
- review by CIB Marine's internal loan review personnel.
CIB Marine also considers current national and local economic trends, prior
loss history, underlying collateral values, credit concentrations and industry
risks when evaluating the adequacy of the provision. CIB Marine develops an
estimate of loss on specific loans in conjunction with an overall risk
evaluation of the total loan portfolio.
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18
The following table summarizes changes in the allowance for loan loss for
the quarters and nine month periods ended September 30, 1999 and 1998.
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
------- ------ ------- ------
(IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD.................. $13,000 $8,429 $10,657 $6,692
LOANS CHARGED-OFF
Commercial...................................... (202) (32) (641) (332)
Agricultural.................................... -- -- -- --
Real estate
1-4 family.................................... -- (9) (48) (9)
Commercial.................................... (1) (143) --
Construction.................................. (4) -- (31) --
Consumer........................................ (45) (26) (83) (68)
Credit card loans............................... (1) (6) (3) (11)
Other........................................... -- (2) -- (2)
------- ------ ------- ------
TOTAL CHARGED-OFF..................... (253) (75) (949) (422)
------- ------ ------- ------
RECOVERIES OF LOANS CHARGED-OFF
Commercial...................................... 6 8 18 77
Agricultural.................................... -- -- 25 --
Real estate
1-4 family.................................... -- -- 9 --
Commercial.................................... -- -- -- --
Construction.................................. 46 -- 46 --
Consumer........................................ -- -- 22 9
Credit card loans............................... 1 7 2 --
Other........................................... -- -- -- --
------- ------ ------- ------
TOTAL RECOVERIES...................... 53 15 122 86
------- ------ ------- ------
NET LOANS CHARGED-OFF........................... (200) (60) (827) (336)
Provision....................................... 1,515 1,383 4,485 3,396
------- ------ ------- ------
BALANCE AT END OF PERIOD........................ $14,315 $9,752 $14,315 $9,752
======= ====== ======= ======
Net charge-offs for the quarter and nine months ended September 30, 1999
were $0.2 million and $0.8 million, respectively, as compared to net charge-offs
of $0.01 million and $0.3 million for the comparable periods of 1998. The ratio
of net loan charge-offs to average loans was .07% and .10%, annualized for the
third quarter and first nine months of 1999, and .03% and .06% for the similar
periods of 1998. Net charge-offs to average loans were .10% for all of calendar
1998.
Although CIB Marine monitors and maintains the allowance at a level that it
considers to be adequate to provide for the inherent risk of loss in the loan
portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions will not be required in the
future. In addition, CIB Marine's determination as to the adequacy of the
allowance is subject to review by federal and state banking regulators, as part
of their examination process, which could result in an additional provision to
the allowance upon completion of their periodic examinations.
For information regarding a recent adverse change in the status of one of
CIB Marine's large borrowing relationships, see "Financial
Condition -- Loans -- Concentrations of Credit".
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19
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 it is determined that it is
probable that principal and interest amounts will not be collected according to
the terms of the loan agreement. A loan is classified as restructured when the
interest rate is reduced or the term is extended beyond the original maturity
date because of the inability of the borrower to service the loan under the
original terms. Foreclosed property represents properties acquired by CIB Marine
through loan defaults by customers.
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The following table summarizes the composition of CIB Marine's
nonperforming assets, loans that are 90 days or more past due and still accruing
and related asset quality ratios as of the dates indicated.
AS OF OR FOR THE QUARTER ENDED
-------------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
NONACCRUAL LOANS
Commercial.................................................. $ 1,460 $ 718
Agricultural................................................ 30 --
Real estate
1-4 family................................................ 301 110
Commercial................................................ 864 2,213
Construction.............................................. 185 281
Consumer.................................................... 111 75
Credit card loans........................................... -- --
Other....................................................... -- 611
---------- --------
Total nonaccrual loans............................ 2,951 4,008
---------- --------
Foreclosed property......................................... 1,100 --
Restructured loans.......................................... 257 --
---------- --------
TOTAL NONPERFORMING ASSETS........................ 4,308 4,008
========== ========
90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Commercial.................................................. 4,156 3,440
Agricultural................................................ -- --
Real estate
1-4 family................................................ 324 250
Commercial................................................ 240 787
Construction.............................................. 850 992
Consumer.................................................... 14 87
Credit card loans........................................... 34 25
Other....................................................... 15 3
---------- --------
TOTAL 90 DAYS OR MORE PAST DUE AND STILL
ACCRUING........................................ $ 5,633 $ 5,584
========== ========
Allowance for loan loss..................................... 14,315 10,657
Loans at end of period, including held for sale............. 1,211,110 924,611
Average loans, including held for sale...................... 1,156,876 746,319
RATIOS
Ratio of allowance to loans, including held for sale........ 1.18% 1.15%
Ratio of net loans charged-off to average loans, including
held for sale(1).......................................... 0.07% 0.23%
Ratio of recoveries to loans charged-off.................... 20.95% 14.62%
Nonaccrual loans to loans, including held for sale.......... 0.24% 0.43%
Nonperforming assets to total assets........................ 0.27% 0.34%
Foreclosed properties to loans, including held for sale..... 0.09% 0.00%
Allowance as a percent of nonaccrual loans.................. 485.09% 265.89%
Allowance as a percent of nonperforming assets.............. 332.29% 265.89%
Nonaccrual loans and 90+ days past due loans to loans,
including held for sale................................... 0.71% 1.04%
Nonaccrual loans and 90+ days past due loans to total
assets.................................................... 0.54% 0.81%
Nonperforming assets and 90+ days past due loans to total
assets.................................................... 0.62% 0.81%
Allowance as a percent of nonperforming assets and 90+ days
past due loans............................................ 144.00% 111.10%
- ---------------
(1) Presented on an annualized basis
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Total nonaccrual loans at September 30, 1999 decreased to $3.0 million from
$4.0 million at December 31, 1998. The ratio of nonaccrual loans to total loans
was 0.24% at September 30, 1999 and 0.43% at December 31, 1998. CIB Marine had a
restructured loan balance of $0.3 million and foreclosed property balance of
$1.1 million at September 30, 1999.
The foreclosed property of $1.1 million at September 30, 1999 represents
one property acquired after the default of a $1.6 million commercial real estate
loan. The loan was secured by the property and by a personal guarantee of one of
the principals. The $1.1 million represents the fair market value of the
property. The loan carrying value was written down by $0.3 million in 1998 and
the remaining $0.2 million write-down was recorded upon foreclosure in 1999.
Both of these write-downs were posted against the allowance for loan loss. CIB
Marine did not have any restructured loans or foreclosed property at December
31, 1998. Impaired loans were $2.0 million and $3.4 million at September 30,
1999 and December 31, 1998, respectively.
Loans 90 days past due or more and still accruing are delinquent loans with
regard to which management has determined it is probable that all contractual
principal and interest amounts due will be collected. CIB Marine had $5.6
million in loans that were at least 90 days past due or more and still accruing
at September 30, 1999 and at December 31, 1998. Accrued interest on loans 90
days past due or more and still accruing as of September 30, 1999 was $0.08
million. The ratio of nonperforming assets and loans 90 days past due or more
and still accruing to total assets was .62% at September 30, 1999, as compared
to .81% at December 31, 1998.
NONINTEREST INCOME
Noninterest income for the third quarter of 1999 was $1.2 million,
representing a decrease of $0.3 million, or 17.0%, from the third quarter of
1998. This decrease was primarily a result of decreases of $0.1 million in loan
fees and $0.1 million in securities gains. The decrease in loan fees was due to
a $0.2 million decrease in fees associated with the origination and subsequent
sales of residential first mortgage loans as a result of reduced volumes due to
higher interest rates, and was partially offset by an increase in fees from
standby letters of credit of $0.1 million.
Deposit service charge income decreased 11.0% and 4.9% from the quarter and
the nine month period ended September 30, 1998 to the same periods in 1999
although total deposits grew by 55.4% over that period. Most of the deposit
growth was in certificates of deposit or money market accounts which generally
do not produce fee income. Most of the reduction in deposit service charges was
due to a decrease in demand deposit non-sufficient fund fees.
Noninterest income for the nine months ended September 30, 1999 was $4.5
million, representing an increase of $0.5 million, or 13.6%, from the nine
months ended September 30, 1998. The first nine months of 1999 included a $0.8
million gain on the sale of a branch facility in Charleston, Illinois. Trust fee
income increased by $0.1 million due to increased sales initiatives. Loan fee
income and securities gains decreased $0.2 million and $0.1 million,
respectively.
NONINTEREST EXPENSE
Total noninterest expense for the third quarter of 1999 was $8.6 million,
representing an increase of $2.0 million, or 28.7%, from the third quarter 1998
total noninterest expense of $6.6 million. Total noninterest expense for the
first nine months of 1999 was $23.9 million, representing an increase of $4.8
million, or 25.4%, from the first nine months of 1998 total noninterest expense
of $19.1 million. These increases were primarily a result of CIB Marine's
growth, including internal growth and the acquisition and opening of new branch
facilities and banks.
Salaries and employee benefits represent the largest component of
noninterest expense. Total salaries and benefits for the third quarter of 1999
were $5.4 million, representing a 28.1% increase over the $4.2 million for the
third quarter of 1998. For the nine month period, salaries and benefits were
$14.9 million for 1999, representing an 18.1% increase over the $12.6 million
for 1998. Non-cash compensation expense related to the extension of the
expiration date of all previously issued and outstanding stock options granted
under CIB
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Marine's stock option plans as of February 25, 1998 was $0.1 million and $1.4
million, in the first nine months of 1999 and 1998, respectively. Equipment and
occupancy expenses increased by 20.0% and 36.4%, respectively, from the third
quarter of 1998 to the third quarter of 1999, and by 49.3% and 37.2%,
respectively, from the first nine months of 1998 to the first nine months of
1999, primarily as a result of the new bank and branch facilities. Professional
services expense increased by $0.1 million, or 43.3% for the quarter and by $0.5
million, or 130.7% for the nine month period, mostly due to the use of
additional legal and accounting services in conjunction with quarterly and
annual filings with the Securities and Exchange Commission that have been
required since 1998 and in conjunction with corporate projects and transactions.
Amortization of intangible assets expense was $0.3 million and $0.7 million for
the quarter and nine months ended September 30, 1999, respectively, representing
increases of 247.8% and 161.7% from the comparable periods of 1998. These
increases were mostly due to intangible assets increases of $8.9 million
relating to the two branches purchased in March 1999. Other noninterest expense
for the nine months ended September 30, 1999 was $0.4 million higher than the
comparable period in 1998 mostly due to increases in telephone and postage and
delivery expenses.
Overhead efficiency ratios were 54.89% and 54.29% for the quarter and nine
month periods ended September 30, 1999, respectively, and 55.66% and 59.99% for
the comparable periods of 1998.
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 timing differences between financial statement and income tax
reporting.
The effective tax rate for the nine months ended September 30, 1999 was
35.1%, compared to an effective tax rate of 33.5% for the nine months ended
September 30, 1998. In the second quarter of 1999, the adjustment of the
applicable tax rate used for valuing deferred tax assets resulted in the
recognition of a $0.1 million tax benefit. The 1999 increase in the income tax
provision was primarily due to increases in taxable income in each of the
corresponding periods and a larger proportion of investment income being
taxable. Tax exempt income was approximately the same amount for the nine months
ended September 30, 1999 as the nine months ended September 30, 1998, even
though income before income taxes grew by 69.5%.
MONEY DESK OPERATION
In August 1999, CIB Marine hired a small staff of experienced professionals
to develop a money desk operation to provide commercial paper, Eurodollar
deposit and repurchase agreement services to its subsidiaries and customers,
primarily corporations, other financial institutions, municipalities and high
net worth individuals. Applications to allow CIB Marine to handle Eurodollar
transactions have been filed with various regulatory agencies. The long-term
objectives of this new operation include generating new funding sources designed
to reduce CIB Marine's cost of funds and producing fee income through the sale
of commercial paper and other liability products.
FINANCIAL CONDITION
LOANS HELD FOR SALE
Loans held for sale decreased 79.5% to $1.8 million at September 30, 1999,
from $8.9 million at December 31, 1998. These are residential first mortgage
loans, and this decrease follows a reduction in originations of this type of
loans as a result of the higher interest rate environment in the fall of 1999.
SECURITIES
CIB Marine seeks to manage its investment portfolio in a manner that
promotes the achievement of its liquidity goals, optimizes after-tax net income,
provides collateral to secure borrowings, assists CIB Marine in meeting various
regulatory requirements and is consistent with its interest rate risk policies.
CIB Marine manages the maturity structure of the investment portfolio to provide
a stream of cash flows, to complement
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the interest rate risk management of CIB Marine, and to promote the long-term
after-tax earnings of CIB Marine.
The carrying value and tax-equivalent yield of CIB Marine's securities are
set forth in the following table.
AT SEPTEMBER 30, 1999 AT DECEMBER 31, 1998
--------------------- ---------------------
YIELD TO YIELD TO
AMOUNT MATURITY AMOUNT MATURITY
--------- --------- --------- ---------
(IN THOUSANDS)
SECURITIES HELD TO MATURITY
U.S. Government & Agencies........................... $ 74,607 6.18% $ 62,731 5.85%
States and political subdivisions.................... 36,711 7.25% 26,445 7.37%
Other notes and bonds................................ 450 7.10% 450 7.10%
Mortgage backed securities........................... 10,720 6.65% 12,113 6.56%
-------- ----- -------- -----
Total Securities Held To Maturity.......... 122,488 6.54% 101,739 6.34%
-------- ----- -------- -----
SECURITIES AVAILABLE FOR SALE
U.S. Government & Agencies........................... 166,039 5.53% $ 86,533 6.71%
States and political subdivisions.................... 3,771 11.16% 3,572 11.17%
Other notes and bonds................................ 2,109 5.82% 2,264 6.07%
Mortgage backed securities........................... 18,280 5.97% 17,831 5.95%
Federal Home Loan Bank stock......................... 3,955 6.50% 3,057 6.63%
Other Equities....................................... 134 N/A 37 N/A
-------- ----- -------- -----
Securities Available for Sale Before Market Value
Adjustment......................................... 194,288 5.70% 113,294 5.84%
-------- ----- -------- -----
TOTAL SECURITIES BEFORE MARKET VALUE ADJUSTMENT...... $316,776 6.02% $215,033 6.08%
===== =====
Available for Sale Market Value Adjustment (SFAS
115)............................................... (1,879) 1,251
-------- --------
TOTAL SECURITIES..................................... $314,897 $216,284
======== ========
Total securities outstanding at September 30, 1999 were $314.9 million, an
increase of 45.6%, as compared to $216.3 million at December 31, 1998. The
increase in the securities portfolio was directly related to CIB Marine's growth
during this period. Because the securities portfolio is one of CIB Marine's
primary sources of liquidity, CIB Marine has increased the size of its portfolio
as total assets have increased. The ratio of total securities to total assets
was 19.8% at September 30, 1999 as compared to 18.2% at December 31, 1998.
CIB Marine has classified certain of its securities as held to maturity and
certain of its securities as available for sale. Securities classified as held
to maturity are those that CIB Marine has both the positive intent and ability
to hold to maturity, and are reported at amortized cost. Securities classified
as available for sale are those CIB Marine has not classified as held to
maturity or as trading securities. CIB Marine does not currently maintain any
securities for trading purposes. CIB Marine may sell securities classified as
available for sale if it believes the sale is necessary for liquidity,
asset/liability management or other reasons.
Securities available for sale are reported at fair value with unrealized
gains and losses, net of taxes included as a separate component of accumulated
other comprehensive income (or loss) in equity. On September 30, 1999, net
unrealized losses were $1.9 million. On December 31, 1998, net unrealized gains
were $1.3 million. The loss in unrealized value of these securities over the
first nine months of the year was a direct result of increases in market
interest rates offered on similar investments.
As of September 30, 1999, $192.4 million or 61.1% of the securities
portfolio was classified as available for sale and $122.5 million or 38.9% of
the portfolio was classified as held to maturity. These ratios were 53.0% and
47.0%, respectively at December 31, 1998. CIB Marine's designation of securities
between available for sale and held to maturity is based on a number of factors,
including CIB Marine's current and projected
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liquidity position and current and projected loan to deposit ratio. The increase
in the percentage of securities classified as available for sale reflects CIB
Marine's decision, based on such factors, to make a larger percentage of its
securities portfolio available to meet CIB Marine's liquidity needs, if
necessary, and to allow CIB Marine the opportunity to react to changes in market
interest rates and changes in the yield relationship between alternative
investments.
In September 1999, CIB Marine purchased limited partnership interests in
three private investment funds. See "Other Assets" for additional information.
LOANS
General
CIB Marine offers a broad range of loan products, including commercial
loans, commercial real estate loans, commercial and residential real estate
construction loans, one to four family residential real estate loans, and
various types of consumer loans. CIB Marine's underwriting standards, as
contained within CIB Marine's loan policy, are based on the general assumption
that the primary source of repayment should be the regular operating cash flows
of the borrower and the secondary source should be the liquidation and
disposition of collateral.
At September 30, 1999, loans, net of the allowance for loan loss, were $1.2
billion, an increase of $289.9 million, or 32.0%, from $905.1 million at
December 31, 1998, and represented 75.0% of CIB Marine's total assets at
September 30, 1999. Substantially all of the increase was in the areas of
commercial real estate loans, commercial loans and construction loans, which in
the aggregate represented 93.7% of gross loans at September 30, 1999 and 89.3%
of gross loans at December 31, 1998. The loan increase is consistent with CIB
Marine's strategy to focus on establishing banking relationships with small to
medium-sized businesses and has been achieved by hiring lenders who have
experience and expertise in making loans to these customers in the markets
served by CIB Marine.
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, 1999 DECEMBER 31, 1998
------------------ ------------------
(IN THOUSANDS)
Commercial............................................. $ 365,471 30.1% $273,331 29.8%
Agricultural........................................... 6,217 0.5% 8,283 0.9%
Real estate
1-4 family........................................... 49,916 4.1% 52,348 5.7%
Commercial........................................... 628,872 51.9% 428,252 46.7%
Construction......................................... 141,822 11.7% 117,703 12.8%
Consumer............................................... 13,738 1.1% 17,652 1.9%
Credit card loans...................................... 1,598 0.1% 1,454 0.2%
Other.................................................. 4,706 0.5% 17,929 2.0%
---------- ----- -------- -----
GROSS LOANS............................................ 1,212,340 100.0% 916,952 100.0%
===== =====
Deferred Loan Fees..................................... (3,059) (1,241)
Allowance for loan loss................................ (14,315) (10,657)
---------- --------
NET LOANS.............................................. $1,194,966 $905,054
========== ========
Concentration of Credits
Credit risk, the risk that one or more of CIB Marine's borrowers will not
be able to repay some or all of their obligations to CIB Marine, is inherent in
CIB Marine's business. Concentration of credits occur when the aggregate amount
of direct, indirect and/or contingent obligations to one borrower, a related
group of
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borrowers or borrowers within or dependent upon a related industry or group,
represent a relatively large percentage of credit extended by CIB Marine.
Although each loan in a concentration may be of sound quality and profitable,
concentrations of credit create special risks that are not present when the same
loan amount is extended to a group of unrelated borrowers. Loans concentrated in
one borrower are, to a large degree, dependent upon the financial capability and
character of the individual borrower. Loans to a related group of borrowers are
susceptible to a domino effect if financial problems are experienced by one or a
few members of the group. Concentrations within or dependent upon an industry
are subject to the additional risk factors of external economic conditions and
market acceptance, which might equally affect all members of the group.
At September 30, 1999, CIB Marine had two borrowing relationships with
individual borrowers or related groups of borrowers that exceeded 25% of its
capital. The total outstanding lending commitment associated with these two
borrowing relationships, including lines of credit which have not been fully
drawn as of September 30, 1999, was approximately $96.2 million. The aggregate
principal amount actually drawn and outstanding at September 30, 1999, with
respect to these borrowing relationships was approximately $84.2 million, or
6.9% of CIB Marine's gross loans outstanding, or 55.3% of CIB Marine's
stockholders' equity balance as of that date. CIB Marine's largest commitment at
September 30, 1999, was approximately $57.1 million, of which approximately
$49.3 million was outstanding as of that date.
In July 1999, one of CIB Marine's largest borrowers, who is also a
stockholder of CIB Marine, experienced a substantial decline in net worth as a
result of a similar decline in the market value of a publicly traded common
stock comprising a large part of this borrower's net worth. The decline in the
value of this security has caused liquidity problems for this borrower with
respect to its current obligations to CIB Marine and to other lenders. As of
September 30, 1999, the total outstanding lending commitment associated with
this borrowing relationship, including lines of credit which have not been fully
drawn, was approximately $39.1 million. The aggregate principal amount actually
drawn and outstanding at September 30, 1999, with respect to this borrowing
relationship was approximately $34.9 million and all such loans were current
with respect to the payment of principal and interest.
Since July 1999, CIB Marine has closely monitored this borrowing
relationship including the collateral margins and cash flows. This borrower has
worked with CIB Marine by providing additional collateral for these borrowings
and updated financial information so that CIB Marine can continue to evaluate
the credit risk of this relationship. In order to assess this borrower's
liquidity needs, CIB Marine also evaluated and continues to monitor, primarily
through information provided by the borrower, the borrower's obligations to
other lenders and their collateral positions. In November 1999, two of these
lenders filed lawsuits to recover amounts due to them. This borrower has also
engaged in the disposition of certain assets to satisfy various obligations to
CIB Marine and other lenders and to strengthen its liquidity position.
In working with this borrower to address its liquidity problems, management
determined that it was in the best interests of CIB Marine to provide this
borrower with additional cash to help it meet its current obligations both to
CIB Marine and to other lenders. On September 9, 1999, CIB Marine purchased from
this borrower limited partnership interests in three private investment funds. A
description of this investment is included below under "Other Assets". CIB
Marine originally paid $2.4 million for the limited partnership interests. Of
this amount, $1.0 million was used by the borrower to repay a loan from CIB
Marine that was previously secured by an interest in one of these limited
partnerships, $1.3 million was invested in a certificate of deposit at CIB
Marine which was pledged to CIB Marine as additional collateral and $0.1 million
was paid to another lender.
CIB Marine has neither suffered nor currently anticipates any losses with
respect to its loans to this borrower and has determined that an additional
provision to its allowance for loan loss is not currently required. CIB Marine
cannot provide assurances that an additional provision will not be required in
the future or that there will not be future losses with respect to loans to this
borrower. Management of CIB Marine will continue to closely monitor its loans to
this borrower in order to assess its ongoing exposure to the credit risk posed
by this borrower and will take additional action when deemed appropriate.
At September 30, 1999, CIB Marine also had total borrowings within three
industries or industry groups that exceeded 25% of its capital as of that date.
The total outstanding balance to commercial and residential
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real estate developers, investors and contractors was approximately $471.0
million, or 38.8% of gross loans, or 309.2% of stockholders' equity; the total
outstanding balance of loans made in the motel and hotel industry was
approximately $76.1 million, or 6.3% of gross loans, or 49.9% of stockholders'
equity; and the total outstanding balance of loans made in the
nursing/convalescent home industry was approximately $54.7 million, or 4.5% of
gross loans outstanding, or 35.9% of stockholders' equity.
The loans and lines of credit described in this section are generally
collateralized by commercial or multi-family real estate, other business
collateral and/or personal property. Management has no reason to believe that
these loans represent any greater risk of loss than CIB Marine's other loans
that are similarly collateralized and underwritten.
OTHER ASSETS
Other assets increased 170.3% to $4.9 million at September 30, 1999, from
$1.8 million at December 31, 1998. The majority of the increase was the result
of a $2.8 million investment in three limited partnerships.
On September 9, 1999, CIB Marine purchased, at the holding company level,
limited partnership interests in three private investment funds from one of its
largest borrowers, who is also a stockholder of CIB Marine. CIB Marine engaged
in this transaction primarily to provide this borrower with cash to meet its
current obligations to CIB Marine. Additional information about this borrower
and its loans from CIB Marine are discussed above under "Loans -- Concentration
of Credits."
CIB Marine originally paid $2.4 million for the limited partnership
interests. The purchase price for the limited partnership interests was based on
the value of the underlying portfolio securities held by the private investment
funds as of June 30, 1999. Under the terms of the purchase, this price will be
adjusted to reflect the value of the funds as of September 9, 1999 once the
Valuation is made available by the general partner of the funds. These funds are
currently invested in both public and private equity securities. Two of the
funds are focused on the environmental and waste-related industries and the
other fund is focused on the health care, pharmaceutical, media and
communication industries. Under the capital call provisions of one of the
limited partnerships, CIB Marine contributed an additional $0.4 million on
September 10, 1999. CIB Marine may also be required to invest up to an
additional $2.4 million over the next 3 1/2 years.
There is currently no public market for the limited partnership interests
in these private investment funds, and it's unlikely that such a market will
develop. Because of its illiquidity and the effect of market volatility on
equity investments such as this, this investment involves a higher risk of loss
than other securities in CIB Marine's portfolio and CIB Marine cannot provide
assurances that it will not suffer losses with respect to any of the limited
partnership interests. In order to attempt to manage the risk in this
investment, CIB Marine has negotiated a put option to require the borrower to
repurchase the limited partnership interests at any time for the greater of the
fair market value of the limited partnership interests as of the date that the
put option is exercised or the amount originally paid by CIB Marine to the
borrower (as adjusted for additional investments by CIB Marine in the funds and
distributions by the funds to CIB Marine). The value of this put option,
however, is dependent on the future financial ability of the borrower to satisfy
its obligations under the put option. Due to the borrower's liquidity problems
as discussed above under " Loans -- Concentration of Credits", no assurances can
be provided that the borrower will have the financial ability to satisfy the put
option obligations.
DEPOSITS
CIB Marine has experienced significant growth in deposits, which represent
the major source of funding for CIB Marine's earning assets. Total deposits
increased $386.8 million, or 38.3%, to $1.4 billion during the first nine months
of 1999. A significant portion of the deposit growth was a result of the
acquisition of three branch facilities in the Chicago metropolitan market. The
deposits assumed as a result of these purchases accounted for $144.0 million, or
37.2%, of the deposit growth during 1999.
Time deposits represent the largest component of interest bearing deposit
liabilities. The percentage of time deposits to total deposits was 75.8% at
September 30, 1999 and 77.2% at December 31, 1998. These
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percentages reflect CIB Marine's significant reliance on time deposits as a
source of funding. Time deposits of $100,000 and over were $342.3 million at
September 30, 1999 and $222.9 million at December 31, 1998, and represented
32.3% and 28.6% of total time deposits, respectively. Brokered time deposits
were $58.6 million, or 5.53%, of total time deposits at September 30, 1999, and
$58.7 million, or 7.5%, of total time deposits at December 31, 1998. Brokered
time deposits included in time deposits of $100,000 and over were $46.9 million
at September 30, 1999.
At September 30, 1999, noninterest bearing demand deposits were equal to
$90.1 million, interest bearing demand deposits were equal to $43.2 million and
savings deposits were equal to $205.2 million. These numbers were $80.3 million,
$40.0 million and $110.1 million, respectively, at December 31, 1998. Of the
$95.1 million, or 86.5%, increase in savings from December 31, 1998 to September
30, 1999, $50.6 million was due to the branch acquisitions mentioned above.
These branches had higher deposit concentrations in savings products.
BORROWINGS
The following table sets forth information regarding selected categories of
borrowings:
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- -------------------
BALANCE AVG. RATE BALANCE AVG. RATE
------- --------- ------- ---------
(IN THOUSANDS)
Federal funds purchased.............................. $ 125 5.45% $ 100 4.67%
Repurchase agreements................................ 5,550 5.17% 2,871 5.11%
Treasury, tax and loan note.......................... 402 2.42% 283 3.16%
Revolving Line of Credit............................. 13,710 7.40% -- --
Federal Home Loan Bank -- short term................. 5,000 4.75% -- --
------- ---- ------- ----
TOTAL SHORT TERM BORROWINGS................ 24,787 6.28% 3,254 4.93%
------- ---- ------- ----
Federal Home Loan Bank -- long term.................. 9,750 4.98% 20,000 5.01%
------- ---- ------- ----
TOTAL BORROWINGS........................... $34,537 5.91% $23,254 5.00%
======= ==== ======= ====
At September 30, 1999, total borrowings were $34.5 million compared to
$23.3 million at December 31, 1998, representing 2.2% and 2.0% of total assets,
respectively. FHLB advances accounted for $14.8 million of total borrowings at
September 30, 1999 and $20.0 million at December 31, 1998, representing 42.7%
and 86.0% of total borrowings, respectively. FHLB borrowings decreased in the
third quarter of 1999 through $7.3 million in long-term advances that were
called before their scheduled maturity, $3.0 million in advances that matured
and the decrease of $8.5 million in short-term advances. CIB Marine had a $25.0
million revolving line of credit with an unaffiliated commercial bank with an
outstanding balance of $13.7 million at September 30, 1999. No amount was
outstanding on the line of credit as of December 31, 1998.
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, 1999 and
December 31, 1998 is contained in the following table. The capital levels of CIB
Marine and the subsidiary banks are, and have been, substantially in excess of
the required regulatory minimum during the periods indicated. CIB Marine intends
to maintain its capital level and the capital levels of its banks at or above
levels sufficient to support
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future growth and maintain sufficiently high lending limits to permit CIB
Marine's subsidiary banks to meet the credit needs of medium-sized commercial
borrowers.
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS)
RISK WEIGHTED ASSETS (RWA).................................. $1,409,888 $1,028,322
========== ==========
AVERAGE ASSETS(1)........................................... $1,529,792 $1,110,753
========== ==========
CAPITAL COMPONENTS
Stockholders' equity...................................... $ 152,322 $ 144,096
Less: Disallowed intangibles.............................. (14,574) (3,727)
Add/less: Unrealized loss/(gain) on securities............ 1,153 (775)
---------- ----------
TIER 1 CAPITAL.............................................. 138,901 139,594
Allowable allowance for loan loss......................... 14,315 10,657
---------- ----------
TOTAL RISK BASED CAPITAL.......................... $ 153,216 $ 150,251
========== ==========
SEPTEMBER 30, 1999
-------------------------------------------------------
FOR CAPITAL
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
Total Capital (to RWA).................. 153,216 10.87% 112,791 8.00% 140,898 10.00%
Tier 1 Capital (to RWA)................. 138,901 9.85% 56,396 4.00% 84,593 6.00%
Tier 1 Leverage (to Avg Assets)......... 138,901 9.08% 61,192 4.00% 76,490 5.00%
DECEMBER 31, 1998
------------------------------------------------------
FOR CAPITAL
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- -------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- -------- ------
Total Capital (to RWA)................... 150,251 14.61% 82,265 8.00% 102,832 10.00%
Tier 1 Capital (to RWA).................. 139,594 13.57% 41,132 4.00% 61,699 6.00%
Tier 1 Leverage (to Avg Assets).......... 139,594 12.57% 44,430 4.00% 51,416 5.00%
- ---------------
(1) Average assets as calculated for risk-based Capital (deductions include
current period balances for goodwill and other intangibles).
Under Illinois law, CIB Marine's shareholders were entitled to dissent from
the plan to reincorporate in the state of Wisconsin and receive payment of the
"fair value" of their shares from the corporation if the reincorporation is
completed. Two shareholders exercised these rights and were paid $2,454.97 per
share for 74 shares received in September 1999 and 10 shares received in October
1999. The shares purchased by CIB Marine Bancshares Inc. are being held as
treasury stock.
In September 1999, dividends totaling $2.7 million were paid to the holding
company by its subsidiaries and the proceeds were used to purchase the limited
partnership interests in the private investment funds described in "Other
Assets".
LIQUIDITY
The objective of liquidity risk management is to ensure that CIB Marine has
adequate funds available to fund various commitments, including loan demand,
deposit withdrawals and other obligations and opportunities, in a timely manner.
CIB Marine's Asset/Liability Management Committee actively manages CIB Marine's
liquidity position by estimating, measuring and monitoring its sources and uses
of funds and its liquidity position. CIB Marine's sources of funding and
liquidity include both asset and liability components. CIB Marine's funding
requirements are primarily met by the inflow of funds from deposits and, to a
much lesser extent, from other borrowings, including CIB Marine's $25.0 million
line of credit, as discussed under "Borrowings." Additional funding is provided
by the maturation and repayment of loans and securities.
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Additional sources of liquidity include cash and cash equivalents, federal
funds, loans held for sale and the sale of securities.
The following discussion should be read in conjunction with the statements
of cash flows for the nine months ended September 30, 1999, and September 30,
1998, contained in the consolidated financial statements.
For the nine months ended September 30, 1999, net cash provided by
operating activities was $17.1 million, compared to $5.5 million for the nine
months ended September 30, 1998. The increase in net cash provided by operating
activities was primarily due to higher net income and an increase in net
proceeds from loans held for sale. For the nine months ended September 30, 1999,
net cash used in investing activities in 1999 was $285.7 million, compared to
$243.5 million for the nine months ended September 30, 1998. The increase in
cash used for investing activities during both periods was primarily due to the
net increase in loans and securities purchases, net of sales and maturities.
During 1999 and 1998 the purchase of branch assets and deposits provided $124.4
million and $12.1 million in cash, respectively. Net cash provided by financing
activities was $267.7 million and $241.6 million for the nine months ended
September 30, 1999 and 1998, respectively. Increases in deposits provided $255.5
million, or 95.4% of the net cash provided by financing activities for 1999.
Short-term borrowings provided $22.1 million.
CIB Marine was able to meet its liquidity needs during the third quarter of
1999 and expects that these needs will be met throughout the remainder of 1999
and 2000.
YEAR 2000
CIB Marine depends upon information technology in substantially all aspects
of its ongoing operations. Accordingly, successfully addressing Year 2000
concerns to protect CIB Marine from risks associated with it is of highest
importance to management. Because the nature of the Year 2000 problem is such
that there can be no complete assurance that it will be successfully resolved, a
risk mitigation program is well under way.
In order to adequately assess the impact of the Year 2000 problem, CIB
Marine created a "Year 2000 Committee". The committee reports to the Boards of
Directors of CIB Marine and its banks and non-bank subsidiaries on a monthly
basis with regard to the status of Year 2000 testing, progress achieved in
connection with Year 2000 assessments, contingency plans, and other matters
related to risk mitigation and analysis.
The committee completed the inventory and assessment phase of the program
in March 1998. This inventory categorized each "system" based upon its
importance to CIB Marine. "System" includes any hardware, software, or service,
either internal or external, that is required to operate CIB Marine's business.
Of the 182 systems identified, 53 were deemed to be "mission critical." Testing
and validation of all internal mission critical systems was completed in January
1999, and all mission critical systems were determined to be Year 2000 ready.
Internal certification and implementation of all systems which are Year 2000
ready was completed by March 31, 1999.
As part of the assessment phase, CIB Marine also attempted to identify and
establish controls for the risks posed by the possible lack of Year 2000
preparedness by its customers. Between May and July 1998, CIB Marine sent
surveys to their current commercial customers with loans that exceeded a certain
threshold and, since that time, requires Year 2000 assessments be completed with
respect to new commercial customers. CIB Marine's Loan Policy requires that a
Year 2000 worksheet and assessment be completed for each new or renewed loan.
The Credit Administration Department has analyzed the responses and assessments
that have been received from customers and loan officers to assess potential
risk exposure. Based on the analysis as of September 30, 1999, no high risk
assessments have been assigned and reserve allocations have not been impacted by
down grading or classification arising out of such analysis. Notwithstanding CIB
Marine continues to monitor their potential economic downside risks arising out
of Year 2000 in considering its allowance for loan loss. In addition, CIB
Marine's Loan Policy requires that Year 2000 contingencies be addressed in all
loan commitments and requires the inclusion in all loan documents of additional
covenants and provisions to address Year 2000 requirements. CIB Marine has also
adopted a policy to manage risks posed by its funds providers and capital
market/asset management counter-parties.
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CIB Marine is also assessing liquidity risk in connection with the Year
2000 readiness of its major loan and deposit customers. Year 2000 problems of
CIB Marine's major loan customers could affect their ability to make loan
payments when due to CIB Marine and therefore negatively impact CIB Marine's
short-term liquidity. Similarly, Year 2000 problems could affect the cash flows
of some of CIB Marine's major business depositors resulting in their inability
to maintain historical deposit balance levels in their accounts, also creating a
negative impact on short-term liquidity. In addition, CIB Marine may experience
other unusual deposit outflows before December 31, 1999 as a result of increased
currency demands of its customers. These potential negative effects on
short-term liquidity have been considered by CIB Marine in analyzing and
planning for its future liquidity needs.
The renovation phase of the program involves the correction of any Year
2000 related deficiencies. Since the majority of the systems used by CIB Marine
are provided by vendors, this process has consisted primarily of regular
communication with such vendors to ascertain their readiness. The core banking
system in use by CIB Marine is already Year 2000 ready and was designed that way
by CIB Marine's software provider in the late 1980's. The hardware platform and
associated operating system that CIB Marine's core banking system runs on is
also Year 2000 ready. Although vendor-supplied, a vast majority of the systems
in use by CIB Marine are run internally on CIB Marine-owned platforms. All such
internal systems were renovated by December 31, 1998.
Another aspect of the renovation phase was to prepare contingency plans in
the event that systems are not Year 2000 ready. All contingency plans have been
developed and reviewed and are periodically being updated by the Year 2000
Committee. Remediation contingency plans revolve around trigger dates that will
cause CIB Marine to replace systems for which significant progress toward
renovation has not been made. Each contingency plan will be tested for validity
during 1999. The Year 2000 Committee has also compiled a business impact
analysis for each core business process within CIB Marine. This analysis
considered all systems that are required to support each business function,
focusing on the services that will be necessary if there is a business
disruption, such as a power failure, due to Year 2000 problems. The business
impact analysis also encompasses the determination of the "most reasonably
likely Year 2000 worst case scenario" and the development of a business
resumption contingency plan to cope with such scenario. For example, CIB Marine
has an onsite twenty-four hour battery backup at the data processing facility in
case there is a power interruption. If that fails, CIB Marine has made
arrangements for backup data processing services with a third party vendor.
The business resumption contingency plans provide for operational
procedures in case systems that appear to be renovated and validated fail to
work. CIB Marine is in process of testing and/or validating such plans and will
modify the same based upon the results of such testing and validation. The
initial testing of these plans was completed on or about October 26, 1999. These
plans are important in light of the fact that some outside servicers, such as
utility and telecommunication companies, are difficult to monitor for
compliance. The contingency plans therefore include building in as much
redundancy as possible and being prepared to switch to compliant vendors. CIB
Marine is in the process of preparing year-end planning provision for
determining any Y2K problems and is training employees with respect to the
implementation of the business resumption contingency plans.
The estimated expense of CIB Marine's Year 2000 project is $160,000, which
will not have a material impact on earnings. These expenses are for system
upgrades and dedicated personnel costs. Approximately $100,000 of these costs
had been incurred as of September 30, 1999. The use of outside consultants has
been limited to a validation study of CIB Marine's core banking system testing
methodology.
This discussion of Year 2000 issues includes numerous forward-looking
statements reflecting management's current assessment and estimates with respect
to CIB Marine's Year 2000 compliance efforts and the impact of Year 2000 issues
on CIB Marine's business and operations. Various factors could cause actual
results to differ materially from those contemplated by such assessment,
estimates, and forward-looking statements, including many factors that are
beyond the control of CIB Marine. These factors include, but are not limited to,
inaccurate representations by vendors and customers, technological changes,
economic conditions, and competitive considerations.
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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, 1998. For information regarding CIB Marine's market risks,
refer to its 1998 Annual Report on Form 10K/A, which was filed with the
Securities and Exchange Commission on April 30, 1999.
The following table illustrates the period and cumulative interest rate
sensitivity gap for September 30, 1999:
0-3 4-6 7-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
-------- --------- --------- -------- -------- ----------
(IN THOUSANDS)
September 30, 1999
Interest earning assets:
Loans........................ $679,252 $ 30,182 $ 76,228 $371,717 $ 51,902 $1,209,281
Securities................... 18,648 7,504 30,536 207,579 50,630 314,897
Federal funds sold........... 6,944 -- -- -- -- 6,944
-------- --------- --------- -------- -------- ----------
Total interest earning
assets................ 704,844 37,686 106,764 579,296 102,532 1,531,122
-------- --------- --------- -------- -------- ----------
Interest bearing liabilities:
Time deposits................ 333,319 256,465 279,007 190,406 120 1,059,317
Savings and interest bearing
demand deposits........... 248,444 -- -- -- -- 248,444
Short-Term Borrowings........ 23,350 527 910 -- -- 24,787
Long-Term Borrowings......... -- -- -- -- 9,750 9,750
-------- --------- --------- -------- -------- ----------
Total interest bearing
liabilities........... $605,113 $ 256,992 $ 279,917 $190,406 $ 9,870 $1,342,298
-------- --------- --------- -------- -------- ----------
Interest sensitivity GAP (by
period)...................... 99,731 (219,306) (173,153) 388,890 92,662 188,824
Interest sensitivity GAP
(cumulative)................. 99,731 (119,575) (292,728) 96,162 188,824 188,824
Cumulative Gap as a % of Total
Assets....................... 6.26% (7.50)% (18.36)% 6.03% 11.84%
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, 1999 and December 31, 1998:
BASIS POINT CHANGES
-----------------------------
+200 +100 -100 -200
---- ---- ------ ------
SEPTEMBER 30, 1999
Net Interest Income change over one year.................. 1.23% .62% (1.29)% (2.92)%
==== ==== ====== ======
DECEMBER 31, 1998
Net Interest Income change over one year.................. 1.48% .88% (1.95)% (4.03)%
==== ==== ====== ======
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CIB Marine and its subsidiaries are parties to legal actions that arise in
the normal course of their business activities. In the opinion of management,
after consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a materially adverse effect on the consolidated
financial condition, results of operations, or liquidity of CIB Marine.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
- Exhibit 11 -- Statement Re Computation of Earnings Per Share
- Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
On August 27, 1999, CIB Marine reported it had changed its state of
incorporation from Illinois to Wisconsin and changed its name from Central
Illinois Bancorp, Inc. to CIB Marine Bancshares, Inc. As a result of this
reincorporation, the rights of the stockholders and the internal affairs of CIB
Marine Bancshares, Inc. are governed by the Wisconsin Business Corporation Law
rather than the Illinois Business Corporation Act.
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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 15th day of November 1999.
CIB MARINE BANCSHARES, INC.
(Registrant)
/s/ STEVEN T. KLITZING
------------------------------------
Steven T. Klitzing
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
The following exhibits have been filed herewith:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
11 -- Computation of Earnings Per Share
27 -- Financial Data Schedule