Unlikely Survivor CIB Marine Charts Course for Recovery

It took nearly 10 years, a bankruptcy and three CEOs to pull CIB Marine Bancshares (CIBH) from the brink.

No wonder considering the Waukesha, Wis., company was suffering long before the financial crisis began. It lost $288 million between 2003 to 2011. Losses also prevented it from covering payments on millions of dollars in trust-preferred securities.

But CIB shed nearly 90% of its assets over the last decade and is still around. In mid-March the Federal Deposit Insurance Corp. lifted a three-year-old order against the $495 million-asset company's bank. Once again profitable, CIB is set to play offense, Chief Executive Charles Ponicki says.

"We've managed to turn the company around substantially," says Ponicki, who joined CIB in 2007 and became its CEO in early 2011. "We're continuing to work on our company and make improvements. We've come a long way, obviously."

CIB recently hired some commercial lenders and is planning to offer mobile banking by the end of June. It is getting more active in the mortgage and home equity markets and is looking to introduce a new debit card. CIB refreshed its website, "and internally, we're offering a lot more training on the retail side," he says. "We're repairing the company and moving it forward."

Such efforts were unthinkable just a few years earlier as CIB battled huge losses, a negative capital position and a debt crisis. Its rescue had three phases, each defined by a CEO with a purpose. Stanley Calderon shrank the company, John Hickey guided it through bankruptcy and Ponicki is leading the recovery.

"There were times when I thought they had reached the end, and they always came back fighting," says Kenneth Kohler, a securities lawyer at Morrison Foerster who closely followed CIB's turnaround. "It is safe to say that, at one point in time, their survival seemed questionable. To see the FDIC order lifted is an important milestone. It is pretty heartening."

CIB, like many Midwestern banks, initially got into trouble by expanding into growth markets. Under J. Michael Straka, the former Central Illinois Bancorp entered Chicago, bought a bank in southeastern Florida and opened offices in Las Vegas and Phoenix. By late 2002, nearly half of CIB's assets were in Chicago.

Entering Chicago proved disastrous, leading to sizable hits from loan losses that included a $42 million loss tied to a real estate development loan. Straka left in February 2004 and was shortly replaced with Calderon. CIB entered into a written agreement with the Federal Reserve weeks after Calderon started work. As losses piled up, the new CEO started shrinking the company, selling the troubled Chicago operations and unloading assets tied to a mortgage origination unit.

Its other problems were still there. CIB, which had just $13 million in cash at the end of 2008, had also been deferring payments on $62 million of trust-preferred securities. By early 2009 the company had reached the maximum time allowed to set aside payments.

"The Chicago bank was sold, but there were legacy issues that we retained," recalls Ponicki, who was an outside consultant to CIB before becoming an employee. "There was a lot of baggage that came from the expansion."

Hickey arrived in early 2007. As the trust-preferred issue loomed, CIB hired an investment bank to help it sell itself. A potential deal for the whole company fell through, but CIB was able to sell its operations in Florida and Arizona.

CIB tackled the trust-preferred issue by asking debtholders to accept a new form of preferred stock. Management failed to secure enough backing for the conversion, so it took CIB through Chapter 11 bankruptcy, which required a smaller number of holders to back the switch. CIB, which suffered from negative capital ratios, had a total risk-based capital ratio of 16.75% after emerging from bankruptcy protection in January 2010.

"They were certainly the pioneer of the pre-packaged bankruptcy approach where the holding company structure remains intact," says Kohler, who represented AmericanWest Bancorp when it used a different section of the bankruptcy code to sell and recapitalize its bank in 2010. "Their management should be congratulated for pushing ahead," says Kohler, who was not involved with CIB.

"The debt load was just going to severely constrain the company," Ponicki says. With the help of bankruptcy, "the debtholders decided to do the conversion and live to fight another day. Since then, our turnaround has been a matter of a lot of hard work by a lot of dedicated people."

CIB still has to closely monitor its capital. It met the conditions in the FDIC order from 2010 to improve capital and lending issues, but this year promised regulators that its bank would maintain a Tier 1 capital leverage ratio of 8% and a total risk-based capital ratio of 12%.

Moreover, certain restrictions on dividends remain, and the Fed's written agreement still exists.

Still, CIB is finally able to compete for business. "It is a lot more fun" to focus on lending and training, Ponicki says. "We are starting to see the fruits of our efforts now, but we're still pinching our pennies and watching our costs."

More work has to be done to expand the balance sheet. Total loans fell 3% from the third quarter and 11% from a year earlier, to $318 million at Dec. 31, as CIB scaled back commercial real estate loans. Commercial and industrial loans rose 5% at yearend compared with Sept. 30 and were flat from a year earlier.

CIB has plenty of competition in Wisconsin, including Chicago banks that are also under pressure to book loans. Taylor Capital Group (TAYC), where Ponicki was a business banking executive before joining CIB, is "a name that comes to mind" after it recently opened an office in a Milwaukee suburb, he says. Bank of Montreal's BMO Harris Bank, which bought Marshall & Ilsley in 2011, and Fifth Third (FITB) are also keen on the market.

"Customer defection has been inconsequential, and we're seeing good demand," Ponicki says. "It is not easy, by any stretch. There's a lot of competition. But that's good. My priority is that we have steady growth rather than a ramp-up. My only fear is maintaining that slow growth. … I am going to keep my fingers crossed."