CIB Marine Bancshares: growth obscured by overhead

CIB Marine Bancshares (CIBH) is a small town branch bank located in Illinois, Wisconsin and Indiana. In the face of a low interest rate environment, the company has continued to grow their assets, reverted to profitability, and is trading significantly below book. Finally, with the recent up-listing to the OTCQB and discount to book, we believe that CIBH could make for a decent acquisition target and/or mean reversion to book value.

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Assets growing with the bulk in Loans

CIB Marine Bancshares continues to grow their assets quarterly. What’s even better is that the bulk of their asset growth comes directly from an increase in loans or leases.

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Backing up the story a bit, in the year of 2009, CIB Marine Bancshares hit an inflection point, in which total assets continued to fall from a high of $696,018m in 2009, to a low of $454,468m in 2013. In further context, net loans and leases fell from a high of $457,607 in 2009 to a low of $306,337 in 2012.

Moving forward, despite the historical low asset and loan portfolio, 2012-2013 was an inflection point in it of itself. Since the bottomed out low, total assets and net loans and leases have grown by 11.98% and 13.57% annualized, respectively.

Using our data at CompleteBankData, we can easily look at the historical loan summary, to determine where the bank’s growth is coming from.

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From the picture above, we can see that a large portion of their loan growth is from 1-4 family loans. From 2012-2015, 1-4 family loans has increased at an annualized rate of 28.96%. This above average growth in 1-4 family loans suggests that the economic environment for the average middle class family is improving in the Illinois area.

A further suggestion that the economic environment is improving is when we take a look at their commercial real estate loan portfolio. From 2013-2015, their commercial real estate loan portfolio has grown at an annualized 13.44% rate.

As the economic environment they operate in continues to improve, CIB Marine Bancshares should directly benefit from consumer lending growth. In addition, banks looking to easily grow their assets in a recovering economic environment may look into the market in which CIBH operates, or look at how CIB Marine Bancshares operates differently from peers.

Profitability is anything to ‘Pound the Table’ about

While it’s great that CIB Marine Bancshares has been growing their asset base and loan portfolio at an above average rate the banks current profitability situation may be what is holding the bank back from trading at book value.

The company has an unimpressive ROE and ROA ratios of 0.48% and 0.05%, respectively. Furthermore, CIB Marine Bancshares’ expense structure isn’t optimized, which has pushed their efficiency ratio to 98.20%.

When comparing the company to its local peers, we can see that they have some of the lowest profitability ratios in their operating area.

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Despite their absolute and relative low profitability ratios, the company has a respectable loan portfolio and has continued to de-risk itself in the past few years.

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Given the company’s growing asset base, non-risky loan portfolio and sub-par profitability ratios, it’s possible that the company could make for a great acquisition target. In addition with a P/B ratio of 0.17x, a P/TBV ratio of .81 and the majority of their expenses classified as non-interest expense, a company focused on four-wall cost control could easily revert CIB Marine Bancshares back into a better state of profitability.

Takeaway

According to CompleteBankData, CIB Marine Bancshares is a cheap and growing bank. The bank trades for 81% of tangible common equity has a growing asset base and sub-par profitability ratios (weighted down by an overly burdened cost structure), another bank focused on profitability could swoop in, cut costs, grow their asset base and make a great return.

In short, we believe that CIB Marine Bancshares is a compelling investment case, which should get more investor visibility from the recent OTCQB up-listing. Finally, their undervaluation to their book value should grab the attention from an acquiring bank.

-Nick Bodnar (Analyst)

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