CIB Marine Bancshares, Inc. Announces Third Quarter 2023 Results

BROOKFIELD, Wis., Oct. 13, 2023 (GLOBE NEWSWIRE) -- CIB Marine Bancshares, Inc. (the “Company” or “CIBM”) (OTCQX: CIBH), the holding company of CIBM Bank (the “Bank”), announced its unaudited results of operations and financial condition for the quarter and nine months ended September 30, 2023. During the quarter, CIBM Bank grew its commercial loan portfolio, took cost reduction actions, and continued to adjust its mortgage operations at an increasingly challenged time in this interest rate cycle. The Mortgage Division had a nominal operating loss in the third quarter versus a small operating profit in the second quarter of 2023. The Bank’s cost of funds was sharply higher, causing a reduction in Banking Division earnings. Net income for the quarter was $0.4 million, or $0.28 basic and $0.21 diluted earnings per share, compared to $1.0 million, or $0.78 basic and $0.57 diluted earnings per share, for the same period of 2022. Net income for the nine months ended September 30, 2023, was $1.8 million, or $1.34 basic and $0.98 diluted earnings per share, compared to $2.8 million, or $2.16 basic and $1.57 diluted earnings per share, for the same period of 2022.

Financial highlights for the quarter and nine-month period include:

• As of September 30, 2023, non-performing assets, restructured loans, and loans 90 days or more past due and still accruing to total assets and nonaccrual loans to total loans were 0.49% and 0.50%, respectively, compared to 0.20% and 0.16%, respectively, on December 31, 2022, and 0.18% and 0.13%, respectively, on September 30, 2022. Also, as of September 30, 2023, the allowance for credit losses on loans (“ACLL”) to loans was 1.30% compared to an allowance for loan and lease losses of 1.37% at December 31, 2022, and 1.43% at September 30, 2022. The ACLL is down 9 basis points from June 30, 2023, due to improved economic forecasts and other qualitative factors offset in part by slower prepayment speeds, as well as a higher portion of the loan portfolio being in residential loans that generally have a lower expected loss rate than commercial segment loans.
• Net interest income and margins have been declining this year with our banking peers. CIBM’s were $16.3 million and 2.84%, respectively, for the nine months ended September 30, 2023, compared to $17.8 million and 3.25%, respectively, in the same period of 2022. The nine-month period in 2023 had $0.3 million less Paycheck Protection Program loan fee accretion income and $0.1 million more subordinated debt interest expense compared to the same period in 2022. The net interest margin declined 41 basis points compared to the same nine-month period in 2022 due to a 205 basis point increase in the cost of interest-bearing liabilities (“Cost of Funds”) compared to a lower increase in yields on interest earning assets of 126 basis points in part due to growth in generally lower spread residential mortgage loans. Actions taken during the quarter to mitigate some of the interest rate risk in the balance sheet include use of pay-fix receive floating SOFR indexed interest rate swaps totaling $30 million notional with an average term of 3.5 years and issuing longer-term time deposits including those with call options.
• The effects of the Fed’s response to inflation by increasing short term interest rates 525 basis points in roughly 18 months and a deeply inverted yield curve have had a severe effect on deposit mix and related Cost of Funds in the banking industry with the changes accelerated in the year 2023. Cost of Funds is up significantly this year as deposit customers seek higher returns in a rising rate environment and to maximize their FDIC insurance coverage, and as deposit rate competition has intensified dramatically. Total deposits are up $15 million since December 31, 2022, with noninterest-bearing deposits down $27 million, and interest-bearing deposits up $42 million, largely in time deposit products, as balances move from lower to higher interest rate products. Money market deposit balances are relatively unchanged year to date, however, their rates are up significantly due to rising short-term rates and intensifying competition. The remaining funding for loan growth has largely been from other short-term borrowings at the Federal Home Loan Bank of Chicago whose average cost for the quarter was 5.53% on a per annum basis.
• Loan portfolios in the industry have been growing rapidly and CIBM’s growth has exceeded its banking peers’ growth. CIBM’s balances increased $111 million year to date, comprised of $59 million in commercial segment loans and the remaining primarily in residential mortgage loans; and from June 30, 2023, to September 30, 2023, loan portfolio balances increased $41 million primarily from $27 million in commercial segment loans – up from $9 million the prior quarter – and $13 million in residential mortgage loans – down from $30 million the prior quarter. During the first nine months of the year, the Mortgage Division originated $209 million in residential mortgage loans with 79% of the originated loans sold or held for sale, up from 73% the first six months of the year.
• For the nine months ended September 30, 2023, Banking Division net income was $2.9 million and Mortgage Division net loss was $0.5 million. The remaining $0.6 million of net loss was from parent company sub-debt and administration expenses. Residential mortgage loan originations are up $83 million compared to the same nine-month period from 2022. The Mortgage Division has 39 more commission-based loan originators since the end of the third quarter of 2022 and five operations/administration employees, improving the Division’s lending capacity and mix of lending to operations staff. The average number of loans per lender continues to be down as markets remain severely affected by higher mortgage interest rates compared to recent years and tight housing supply. In addition, tighter mortgage loan margins have persisted. Recently hired mortgage lenders are expected to become more fully established and nearly all of the up-front new-hire compensation costs are completed.
  

Reflecting on the past nine months, Mr. J. Brian Chaffin, CIBM’s President and CEO, commented, “Our successes in developing the franchise have been overshadowed by rapid and significant Fed funds rate increases and an inverted yield curve, which have extended over a historically significant period of time and proven to be very challenging as Cost of Funds has spiked higher and mortgage production volumes continue to suffer. In an effort to mitigate some of our interest rate risk and address the impact on our earnings, we have instituted several cost control measures that are projected to reduce our ongoing operating costs by more than $1 million per annum.

“In addition, we closed our Danville, Illinois, branch after selling its retail deposits for a premium during the second quarter; our Retail Division updated lock box deposit and online deposit account opening services as they continue to develop household banking relationships to support funding; and our Mortgage Division has increased production relative to the same period of 2023, and improved efficiencies and future production capacity.”

He concluded, “Finally, our Commercial Loan Division has outperformed budget in generating new loans and deposits. Despite growth in our loan portfolio, we have eased our ACLL rate and provisioning again, thanks to continued moderately strong credit quality coupled with a resilient economy and improved GDP and unemployment rate forecasts from the Federal Reserve this quarter. As of the end of quarter two of 2023, we continued to have an ACLL rate above the median local and national peer banks.”

CIB Marine Bancshares, Inc. is the holding company for CIBM Bank, which operates nine banking offices in Illinois, Wisconsin and Indiana, and has mortgage loan officers and/or offices in nine states. More information on the Company is available at www.cibmarine.com, including recent shareholder letters, links to regulatory financial reports, and audited financial statements.

FORWARD-LOOKING STATEMENTS
CIB Marine has made statements in this release that may 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,” “intend,” “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 that are subject to many uncertainties and factors relating to CIB Marine’s operations and the business environment, which could change at any time.

There are inherent difficulties in predicting factors that may affect the accuracy of forward-looking statements.

Stockholders should note that many factors, some of which are discussed elsewhere in this Earnings Release and in the documents that are incorporated by reference, could affect the future financial results of CIB Marine and could cause those results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document. These factors, many of which are beyond CIB Marine’s control, include but are not limited to:

• operating, legal, execution, credit, market, security (including cyber), and regulatory risks;
• economic, political, and competitive forces affecting CIB Marine’s banking business;
• the impact on net interest income and securities values from changes in monetary policy and general economic and political conditions; and
• the risk that CIB Marine’s analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made. CIB Marine undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements are subject to significant risks and uncertainties and CIB Marine’s actual results may differ materially from the results discussed in forward-looking statements.