CIB Marine Bancshares, Inc. Announces 2023 Results

BROOKFIELD, Wis., Jan. 26, 2024 (GLOBE NEWSWIRE) — CIB Marine Bancshares, Inc. (the “Company” or “CIB Marine”) (OTCQX: CIBH), the holding company of CIBM Bank (the “Bank”), announced its unaudited results of operations and financial condition for the quarter and year ended December 31, 2023. During the year, CIBM Bank grew its commercial loan portfolio and, to a lesser extent, residential loan portfolio; took cost reduction actions; and expanded the foundations of its mortgage operations during a very challenging mortgage operating environment. The Mortgage Division had an operating loss of $0.7 million for the year of 2023 and $0.9 million for the year of 2022 due to higher interest rates and housing supply shortages. The Bank’s cost of funds was sharply higher for the year 2023, causing a reduction in Banking Division earnings. In addition, there was a tax provision of $1.6 million during the year 2023. During the second half of 2023, the State of Wisconsin enacted a new tax law exempting interest income from commercial loans under $5 million dollars made to Wisconsin borrowers. The result was a reduction in forecasted future Wisconsin taxable income, causing a $1.1 million provision to adjust the valuation allowance for deferred tax assets related to State of Wisconsin net operating loss carryforwards.

Income before tax was $0.2 million for the fourth quarter of 2023 compared to $1.3 million for the same period of 2022. The primary reason for the difference was lower net interest income due to higher cost of funds. Net loss for the fourth quarter of 2023 was $0.9 million or $0.67 basic and $0.67 diluted net loss per share, compared to net income of $0.9 million or $0.81 basic and $0.59 diluted net loss per share for the same period of 2022. Income before tax was $2.5 million for the twelve months ended December 31, 2023, compared to $5.0 million for the same period of 2022. Net income was $0.9 million or $0.66 basic and $0.49 diluted net income per share for the twelve months ended December 31, 2023, compared to $3.7 million or $2.97 basic and $2.16 diluted net income per share for the same period of 2022.  

Financial highlights for the quarter and year include:

• As of December 31, 2023, non-performing assets, modified loans to borrowers experiencing financial difficulty, and loans 90 days or more past due and still accruing to total assets and nonaccrual loans to total loans were 0.90% and 0.50%, respectively, compared to 0.20% and 0.16%, respectively, on December 31, 2022. Also, as of December 31, 2023, the allowance for credit losses on loans (“ACLL”) to loans was 1.27% compared to an allowance for loan and lease losses of 1.37% on December 31, 2022. The ACLL qualitative factors, including in the assessment of the ACLL, include economic forecasts obtained from third parties. Over the course of 2023, gross domestic product and unemployment forecasts have generally improved with declining recession risk resulting in a lower ACLL ratio to loans.
• Net interest income improved $0.2 million in the fourth quarter from the third quarter of 2023. Net interest income for the fourth quarter of 2023 declined $1.0 million compared to the same period of 2022, and declined $2.5 million for the twelve months ended December 31, 2023, compared to the same period of 2022. The net interest margin for the fourth quarter of 2023 was 2.41% compared to 3.32% for the same period of 2022, and for the year 2023 was 2.72% compared to 3.27% for the same period of 2022. The primary reason for the declines was a 231 basis point increase in the cost of interest bearing liabilities (“Cost of Funds”) compared to a 109 basis point increase in the yield on earning assets from the fourth quarter of 2022 to the same period of 2023, and a 214 basis point increase in the cost of interest bearing liabilities compared to a 122 basis point increase in interest earning assets from the year 2022 to the year 2023. Actions taken during the second half of 2023 to mitigate some of the interest rate risk in the balance sheet include: use of pay-fixed/receive-floating SOFR indexed interest rate swaps totaling $60 million notional with an average term of 3.5 years at origination and 3.2 years remaining term at the end of 2023; and issuing longer-term time deposits, including those with call options. In addition, CIBM Bank raised more than $50 million dollars in new time and money market deposits on a combined basis in the fourth quarter of 2023 to pay down short-term Federal Home Loan Bank of Chicago (“FHLB Chicago”) borrowings, which were initially used to fund loan growth.
• 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 past year. Cost of Funds increased significantly during 2023 as deposit customers sought higher returns in a rising rate environment and to maximize their FDIC insurance coverage. Furthermore, deposit rate competition intensified dramatically during the year. Total deposits were up $99 million since December 31, 2022, with noninterest-bearing deposits down $26 million, and interest-bearing deposits up $125 million, largely in time deposit products, as balances move from lower to higher interest rate products. Money market deposit balances were relatively unchanged for the year; however, money market rates were up significantly due to rising short-term rates and intensifying competition. The remaining funding for loan growth was largely from short-term borrowings at the FHLB Chicago whose average cost for the quarter was 5.44% on a per annum basis. By growing deposits during the fourth quarter of 2023, CIB Marine was able to bring its loan to deposit ratio back below 100% to 99%.
• During 2023, CIB Marine’s loan portfolio balances increased $145 million, consisting of $89 million in commercial segment loans and the remaining primarily in residential mortgage loans. During the fourth quarter of 2023, loan portfolio balances increased $34 million primarily from $30 million in commercial segment loans and $2 million in residential mortgage loans. Commercial and residential mortgage loan portfolio growth were down $7 million and $11 million, respectively over the prior quarter. During 2023, the Mortgage Division originated $269 million in residential mortgage loans with 73% of the originated loans sold or held for sale, compared to $183 million and 87%, respectively, in 2022. The increase in mortgage loans originated in a very difficult mortgage environment was largely attributable to the addition of mortgage sales employees in the last month of 2022 and the first half of 2023.
• For the year ended December 31, 2023, Banking Division net income was $2.4 million and Mortgage Division net loss was $0.7 million. The remaining $0.8 million net loss from parent company sub-debt and administration expenses. Banking Division income was down primarily due to increased Cost of Funds. Mortgage Division net loss improved due to higher residential mortgage loan originations, which were up $86 million in 2023 compared to 2022.   The Mortgage Division has 36 more commission-based loan originators since the end of the third quarter of 2022 and 8 additional operations/administration employees, improving the Division’s lending capacity and mix of lending to operations staff. Pricing margins for mortgage loans continue to be very tight compared to the prior 10 years.
• During the second quarter of 2023, CIB Marine sold $23 million in retail deposits from the Bank’s Danville, Illinois, branch for a gain of $1.5 million, net of conversion related data processing costs. In addition, approximately $0.2 million in added costs were incurred related to the deposit sale and the subsequent closure of the Danville branch so that the combined effect was $1.3 million in total income and $1.0 million on a tax adjusted basis.
• CIB Marine took a $1.1 million tax provision charge to increase its valuation allowance for its Wisconsin deferred tax assets related to the exclusion of commercial interest income from borrowers that reside in Wisconsin for loans with balances less than $5 million, due to a Wisconsin statute that was signed into law and became effective in the later half of 2023.

Reflecting on the past year, Mr. J. Brian Chaffin, CIB Marine’s President and CEO, commented, “Our successes have been overshadowed by the effects of the rapid and significant Fed funds rate increases over the past year and an inverted yield curve. As a result, our Cost of Funds has surged higher and mortgage production volumes continue to suffer. In an effort to mitigate some of our interest rate risk, we have increased our use of interest rate swaps and callable CDs, and in support of earnings we have put in place 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 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 Corporate Banking Division continued to outperform budget in generating new loans and deposits for the year. At the same time, we have eased our ACLL rate over the year, thanks to continued moderately strong credit quality coupled with a resilient economy and improved GDP and unemployment rate forecasts from the Federal Reserve over the year.”

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.