CIB Marine Bancshares (CIBH) 10-Q 2004 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

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 of	(IRS Employer Identification No.)
incorporation or organization)

N27 W24025 Paul Court, Pewaukee, Wisconsin 53072
(Address of principal executive offices, Zip Code)

(262) 695-6010
(Registrant’s telephone number, including area code)

     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. Yeso     Noþ

     At November 30, 2006 CIB Marine had 18,346,442 shares of common stock outstanding.

CIB MARINE BANCSHARES, INC.
INDEX — FORM 10-Q

		Page #
Part I — Financial Information
Item 1	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		3
	Consolidated Statements of Operations for the Quarter and Nine Months Ended September 30, 2004 and 2003		4
	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2004 and 2003		6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		7
	Notes to Unaudited Consolidated Financial Statements		8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3	Quantitative and Qualitative Disclosures About Market Risk Sensitivity		56
Item 4	Controls and Procedures		57
Part II — Other Information
Item 1	Legal Proceedings		58
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 3	Defaults Upon Senior Securities		61
Item 4	Submission of Matters to a Vote of Security Holders		61
Item 5	Other Information		61
Item 6	Exhibits		62
Signatures			63
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CIB MARINE BANCSHARES, INC.

Consolidated Balance Sheets

	September 30,			December 31,
	2004			2003
	(Unaudited)
	(Dollars in thousands, except share data)
Assets
Cash and cash equivalents:
Cash and due from banks	$	44,233		$	60,149
Federal funds sold		88,025			59,655
Total cash and cash equivalents		132,258			119,804
Loans held for sale		—			16,735
Securities available for sale, at fair value		364,765			637,356
Loans		895,336			2,360,041
Allowance for loan losses		(42,859	)		(109,872	)
Net loans		852,477			2,250,169
Premises and equipment, net		14,663			29,138
Accrued interest receivable		5,491			12,762
Goodwill		982			982
Other intangible assets		—			1,807
Foreclosed properties		2,938			40,715
Assets of companies held for disposal		1,250,282			29,056
Other assets		21,767			47,713
Total assets	$	2,645,623		$	3,186,237
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	122,122		$	219,905
Interest-bearing demand		64,993			78,641
Savings		295,544			687,607
Time		753,469			1,835,065
Total deposits		1,236,128			2,821,218
Short-term borrowings		40,934			92,601
Long-term borrowings		7,250			46,276
Junior subordinated debentures		61,857			61,857
Accrued interest payable		8,890			9,399
Liabilities of companies held for disposal		1,203,936			17,381
Other liabilities		6,277			28,982
Total liabilities		2,565,272			3,077,714
Stockholders’ Equity
Preferred stock, $1 par value; 5,000,000 shares authorized, none issued		—			—
Common stock, $1 par value; 50,000,000 shares authorized, 18,346,442 issued and outstanding		18,346			18,346
Capital surplus		158,163			158,163
Accumulated deficit		(92,208	)		(62,759	)
Accumulated other comprehensive income, net		328			2,184
Receivables from sale of stock		(1,787	)		(5,208	)
Treasury stock at cost, 152,613 and 86,611 shares		(2,491	)		(2,203	)
Total stockholders’ equity		80,351			108,523
Total liabilities and stockholders’ equity	$	2,645,623		$	3,186,237

See accompanying Notes to Unaudited Consolidated Financial Statements

3

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Operations
(Unaudited)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands, except share and per share data)
Interest and Dividend Income
Loans	$	13,587		$	21,559		$	46,027		$	67,150
Loans held for sale		46			—			213			—
Securities:
Taxable		2,082			1,528			6,194			5,603
Tax-exempt		224			307			680			942
Dividends		155			112			432			309
Federal funds sold		237			25			486			175
Total interest and dividend income		16,331			23,531			54,032			74,179
Interest Expense
Deposits		7,016			9,343			22,852			30,311
Short-term borrowings		384			293			1,021			843
Long-term borrowings		92			203			424			604
Junior subordinated debentures/guaranteed trust preferred securities		1,441			1,279			4,205			3,902
Total interest expense		8,933			11,118			28,502			35,660
Net interest income		7,398			12,413			25,530			38,519
Provision for credit losses		(738	)		25,514			15,253			42,314
Net interest income (loss) after provision for credit losses		8,136			(13,101	)		10,277			(3,795	)
Noninterest Income
Loan fees		252			342			746			944
Deposit service charges		415			506			1,310			1,430
Other service fees		128			41			222			135
Other income		364			1,011			1,030			1,916
Total noninterest income		1,159			1,900			3,308			4,425
Noninterest Expense
Compensation and employee benefits		6,800			7,631			22,425			23,000
Equipment		1,005			1,090			3,260			3,164
Occupancy and premises		803			726			2,426			2,197
Professional services		2,317			394			4,237			1,354
Goodwill impairment loss		—			—			1,921			—
Write down and losses on assets		584			2,416			1,783			2,530
Other expense		2,136			2,002			6,174			5,590
Total noninterest expense		13,645			14,259			42,226			37,835
Loss from continuing operations before income taxes		(4,350	)		(25,460	)		(28,641	)		(37,205	)
Income tax expense (benefit)		(1,069	)		2,272			(3,427	)		(2,258	)
Loss from continuing operations		(3,281	)		(27,732	)		(25,214	)		(34,947	)
Discontinued operations:
Pretax income (loss) from discontinued operations		3,319			(43,819	)		(637	)		(64,869	)
Pretax loss on sale of discontinued operations		(736	)		—			(501	)		—
Total pretax income (loss) from discontinued operations		2,583			(43,819	)		(1,138	)		(64,869	)
Income tax expense (benefit)		1,091			5,618			3,097			(1,725	)
Income (loss) from discontinued operations		1,492			(49,437	)		(4,235	)		(63,144	)
Net loss	$	(1,789	)	$	(77,169	)	$	(29,449	)	$	(98,091	)

See accompanying Notes to Unaudited Consolidated Financial Statements

4

	Quarter Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands, except share and per share data)
Earnings (Loss) Per Share
Basic
Loss from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)
Discontinued operations		0.08			(2.71	)		(0.23	)		(3.46	)
Net loss	$	(0.10	)	$	(4.23	)	$	(1.62	)	$	(5.37	)
Diluted
Loss from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)
Discontinued operations		0.08			(2.71	)		(0.23	)		(3.46	)
Net loss	$	(0.10	)	$	(4.23	)	$	(1.62	)	$	(5.37	)
Weighted average shares — basic		18,232,450			18,259,831			18,250,637			18,295,555
Weighted average shares — diluted		18,232,450			18,259,831			18,250,637			18,295,555

See accompanying Notes to Unaudited Consolidated Financial Statements

5

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Stockholders’ Equity

													Stock
										Accumulated			Receivables
							Retained			Other			and
	Common Stock				Capital		Earnings			Comprehensive			Treasury
	Shares		Par Value		Surplus		(Deficit)			Income (Loss)			Stock			Total
	(Dollars in thousands, except share data)
Balance, December 31, 2002		18,312,242	$	18,312	$	157,783	$	74,889		$	4,516		$	(7,937	)	$	247,563
Comprehensive income (loss):
Net loss		—		—		—		(98,091	)		—			—			(98,091	)
Other comprehensive income (loss):
Unrealized securities holding gains arising during the period		—		—		—		—			(5,319	)		—			(5,319	)
Income tax effect		—		—		—		—			2,849			—			2,849
Foreign currency translation adjustment		—		—		—		—			91			—			91
Total comprehensive loss																	(100,470	)
Exercise of stock options		34,200		34		380		—			—			—			414
Reduction in receivables from sale of stock		—		—		—		—			—			2,729			2,729
Acquisition of treasury stock (86,611 shares)		—		—		—		—			—			(2,203	)		(2,203	)
Balance, September 30, 2003 (unaudited)		18,346,442	$	18,346	$	158,163	$	(23,202	)	$	2,137		$	(7,411	)	$	148,033
Balance, December 31, 2003		18,346,442	$	18,346	$	158,163	$	(62,759	)	$	2,184		$	(7,411	)	$	108,523
Comprehensive loss:
Net loss		—		—		—		(29,449	)		—			—			(29,449	)
Other comprehensive loss:
Unrealized securities holding losses arising during the period		—		—		—		—			(1,856	)		—			(1,856	)
Total comprehensive loss																	(31,305	)
Reduction in receivables from sale of stock		—		—		—		—			—			3,421			3,421
Acquisition of treasury stock (66,002 shares)		—		—		—		—			—			(288	)		(288	)
Balance, September 30, 2004 (unaudited)		18,346,442	$	18,346	$	158,163	$	(92,208	)	$	328		$	(4,278	)	$	80,351

See accompanying Notes to Unaudited Consolidated Financial Statements

6

CIB MARINE BANCSHARES, INC.

Consolidated Statements of Cash Flows
(Unaudited)

	Nine Months EndedSeptember 30,
	2004			2003
	(Dollars in thousands)
Cash Flows from Operating Activities
Net loss from continuing operations	$	(25,214	)	$	(34,947	)
Net loss from discontinued operations		(4,235	)		(63,144	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred loan fee amortization		(1,384	)		(3,680	)
Depreciation and other amortization		4,645			2,502
Provision for credit losses		15,253			42,314
Proceeds from sale of loans held for sale		3,144			—
Deferred tax expense (benefit)		10,483			(856	)
Impairment of goodwill		1,921			—
Write down and losses on assets		1,783			2,530
Increase in interest receivable and other assets		(11,853	)		(2,782	)
Increase in interest payable and other liabilities		4,993			1,250
Operating cash flows of discontinued operations		21,861			285,427
Net cash provided by operating activities		21,397			228,614
Cash Flows from Investing Activities
Maturities of securities available for sale		406,877			81,930
Purchase of securities available for sale		(430,217	)		(122,001	)
Proceeds from sales of securities available for sale		—			999
Repayments of mortgage-backed securities available for sale		39,788			99,862
Purchase of mortgage-backed securities available for sale		(30,983	)		(100,972	)
Net decrease in other investments		2,219			77
Net decrease in loans		296,372			16,465
Decrease (increase) in net assets of companies held for sale		6,923			(2,037	)
Proceeds from sale of foreclosed properties		704			16,604
Capital expenditures		(682	)		(3,438	)
Investing cash flows of discontinued operations		269,900			(4,958	)
Net cash provided by (used in) investing activities		560,901			(17,469	)
Cash Flows from Financing Activities
Increase (decrease) in deposits		(264,225	)		201,987
Repayments of long-term borrowings		(8,500	)		—
Proceeds from stock options exercised		—			414
Net increase (decrease) in short-term borrowings		6,832			(128,422	)
Financing cash flows of discontinued operations		(303,951	)		(286,211	)
Net cash used in financing activities		(569,844	)		(212,232	)
Net increase (decrease) in cash and cash equivalents		12,454			(1,087	)
Cash and cash equivalents, beginning of period		119,804			93,991
Cash and cash equivalents, end of period	$	132,258		$	92,904
Supplemental Cash Flow Information
Cash paid (received) during the period for:
Interest expense-continuing operations	$	26,334		$	39,935
Interest expense-discontinued operations		23,980			29,642
Income taxes-continuing operations		(2,487	)		2,166
Income taxes-discontinued operations		(7,282	)		4,193
Supplemental Disclosures of Noncash Activities
Transfer of loans to foreclosed properties-continuing operations		1,132			18,791
Transfer of loans to foreclosed properties-discontinued operations		—			1,850
Increase in foreclosed properties and short-term borrowings from first mortgage assumed-discontinued operations		—			26,687
Decrease in foreclosed properties and short-term borrowings satisfied by the transfer of real estate		25,120			—

See accompanying Notes to Unaudited Consolidated Financial Statements

7

CIB MARINE BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Certain information and footnote disclosures have been omitted or abbreviated. These unaudited consolidated financial statements should be read in conjunction with CIB Marine Bancshares, Inc.’s (“CIB Marine”) 2003 Annual Report on Form 10-K. In the opinion of management, the unaudited consolidated financial statements included in this report reflect all adjustments which are necessary to present fairly CIB Marine’s financial condition, results of operations, and cash flows as of and for the quarter and nine months ended September 30, 2004 and 2003. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of results for the entire year. The consolidated financial statements include the accounts of CIB Marine and its wholly-owned and majority-owned subsidiaries, including companies which are held for disposal. All significant intercompany balances and transactions have been eliminated.

     The preparation of financial statements in conformity with U.S. 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.

     The assets and liabilities of companies held for disposal at September 30, 2004 include the assets and liabilities of Mortgage Services, Inc. (“MSI”), CIB Construction, LLC including Canron Corporation (“Canron”) (collectively referred to as “CIB Construction”), MICR, Inc. (“MICR”), and Hillside Investors, LTD (“Hillside”). MICR and CIB Construction were also held for disposal at December 31, 2003. During the third quarter of 2004, CIB Marine management, which had the authority to do so, implemented a plan to sell Hillside, a one bank holding company, including Hillside’s banking subsidiary CIB Bank (“CIB — Chicago”). Accordingly, the assets and liabilities of CIB - Chicago are included in assets and liabilities of companies held for disposal at September 30, 2004. In the second quarter of 2004, CIB Marine sold CIB Marine Commercial Finance, LLC (“Commercial Finance”) and in the third quarter of 2004, CIB Marine sold substantially all the assets and operations of its mortgage banking segment, MSI. The operating results of Commercial Finance, MSI and CIB — Chicago, including its subsidiary CIB Construction, are included in discontinued operations for the quarter and nine months ended September 30, 2004 and 2003. The operating results of MICR are included in continuing operations. All intercompany balances and transactions have been eliminated in the assets and liabilities of companies held for disposal and net income from discontinued operations as presented on the consolidated financial statements. See Note 6-Companies Held for Disposal for further information.

     At September 30, 2004, CIB Marine has determined it has one reportable continuing business segment. CIB Marine, through the bank branch network of its subsidiaries, provides a broad range of financial services to companies and individuals in Illinois, Wisconsin, Indiana, Florida, Arizona, Nevada and Nebraska. These services include commercial and retail lending and deposits. While CIB Marine’s chief operating decision maker monitors the revenue streams of the various products and services, operations in all areas are managed and financial performance is evaluated on a corporate-wide basis.

Note 2 — Stock Option Plans

     CIB Marine has a nonqualified stock option and incentive plan for its employees and directors. At September 30, 2004, options to purchase 744,270 shares were available for future grant. The plan provides for the options to be exercisable over a ten-year period beginning one year from the date of the grant, provided the participant has remained in the employ of, or on the Board of Directors of CIB Marine and/or one of its subsidiaries. The plan also provides that the exercise price of the options granted may not be less than 100% of fair market value on the option grant date. Options vest over five years.

8

     The following is a reconciliation of stock option activity for the nine months ended September 30, 2004:

						Weighted
				Range of		Average
	Number			Option Prices per		Exercise
	of Shares			Share		Price
Shares under option at December 31, 2003		1,439,850		$	8.50-25.08	$	16.45
Granted		—			—		—
Lapsed or surrendered		(562,385	)		8.50-25.08		16.45
Exercised		—			—		—
Shares under option at September 30, 2004		877,465		$	8.50-23.66	$	16.45
Share exercisable at September 30, 2004		732,877		$	8.50-23.66	$	15.42

     CIB Marine applies Accounting Principles Board Opinion (APB) No. 25,Accounting for Stock Issued to Employees(APB 25), and related interpretations in accounting for its stock-based compensation plans. Under SFAS No. 123,Accounting for Stock-Based Compensation(SFAS No. 123), companies may elect to recognize stock-based compensation expense based on the fair value method of the awards or continue to account for stock-based compensation under APB 25. CIB Marine has elected to continue to apply the provisions of APB 25.

     In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised),Share-Based Payment (SFAS 123 (R)).The objective of the revised statement No. 123 is to recognize in an entity’s financial statements the cost of employee services received in exchange for valuable equity instruments issued to employees in share-based payment transactions. A key provision of the statement requires public companies to adopt Statement 123’s fair-value method of accounting. Under this method, the cost of employee services received in exchange for equity instruments would be measured based on the grant-date fair value of these instruments. The cost would be recognized over the requisite service period. The Statement was applied by CIB Marine prospectively as of January 1, 2006 and is not expected to result in a significant adjustment to the consolidated financial statements.There were no options granted in 2004 or 2003.

     Had compensation expense for these plans been determined based on the fair value method at the grant dates for awards under those plans consistent with the methodology in SFAS No. 123, CIB Marine’s net loss per share would have been the pro forma amounts indicated below:

		Quarter Ended September 30,						Nine Months Ended September 30,
		2004			2003			2004			2003
		(Dollars in thousands, except per share data)
Net loss	As reported	$	(1,789	)	$	(77,169	)	$	(29,449	)	$	(98,091	)
	Assumed compensation cost, net of tax (1)		(163	)		(314	)		(684	)		(941	)
	Pro forma	$	(1,952	)	$	(77,483	)	$	(30,133	)	$	(99,032	)
Basic loss per share	As reported	$	(0.10	)	$	(4.23	)	$	(1.62	)	$	(5.37	)
	Pro forma		(0.11	)		(4.24	)		(1.65	)		(5.41	)
Diluted loss per share	As reported		(0.10	)		(4.23	)		(1.62	)		(5.37	)
	Pro forma		(0.11	)		(4.24	)		(1.65	)		(5.41	)

(1) Assumed compensation costs are net of tax for 2003, but not for 2004. Due to the substantial losses incurred in 2004, tax benefits for 2004 and later years may not be realized. Also, CIB Marine did not have the ability to carryback losses from 2004 to previous years because the 2003 carrybacks covered all available taxable income for these years.

     Fair value has been estimated using the minimum value method as defined in SFAS 123. Key assumptions used were zero percent volatility, zero percent dividend yield, expected lives of ten years and risk-free interest rates averaging 5.04% for 2002. There were no options granted in 2004 or 2003. The per share weighted average fair value of stock options granted during 2002 was $9.94 on the date of grant. Because the options vest over a five-year period, the pro forma disclosures are not necessarily representative of the effects on reported net income for future years.

     Under APB 25, stock based compensation expense includes the excess, if any, of the market price of the stock at grant date or other measurement date, over the exercise price. This expense is recognized over the vesting period of the options. If stock options had an exercise price less than the market price at the measurement date, compensation expense associated with those options would be included in salaries and employee benefits expense with a corresponding increase in capital surplus.

9

     CIB Marine records amounts received upon the exercise of options by crediting common stock and capital surplus. Income tax benefits from the exercise of stock options result in a decrease in current income taxes payable and, to the extent not previously recognized as a reduction in income tax expense, result in an additional increase in capital surplus.

Note 3 — Securities

     The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:

				Gross			Gross
	Amortized			Unrealized			Unrealized
	Cost			Gains			Losses			Fair Value
	(Dollars in thousands)
September 30, 2004
U.S. Treasuries	$	10,011		$	—		$	32		$	9,979
U.S. government agencies		473,268			264			624			472,908
Obligations of states and political subdivisions		44,163			1,771			20			45,914
Other notes and bonds		600			—			1			599
Corporate commercial paper		14,457			9			1			14,465
Mortgage-backed securities		216,500			891			1,929			215,462
Federal Home Loan Bank and Federal Reserve Bank stock		11,645			—			—			11,645
		770,644			2,935			2,607			770,972
Securities included in assets of companies held for disposal		(406,047	)		(1,320	)		(1,160	)		(406,207	)
	$	364,597		$	1,615		$	1,447		$	364,765
December 31, 2003
U.S. Treasuries	$	20,070		$	17		$	—		$	20,087
U.S. government agencies		291,000			1,122			122			292,000
Obligations of states and political subdivisions		56,816			2,256			81			58,991
Other notes and bonds		1,050			—			1			1,049
Corporate commercial paper		7,369			4			—			7,373
Mortgage-backed securities		247,736			1,332			2,343			246,725
Federal Home Loan Bank and Federal Reserve Bank stock		11,131			—			—			11,131
	$	635,172		$	4,731		$	2,547		$	637,356

     Securities with a carrying value and fair value of $318.6 million and $176.7 million at September 30, 2004 and December 31, 2003, respectively, were pledged to secure public deposits, Federal Home Loan Bank advances, repurchase agreements, and other purposes as required, and beginning in the first quarter of 2004 for federal funds purchased and borrowings from the federal discount window. Included in pledged securities for September 30, 2004 were $144.2 million in assets of companies held for disposal.

Note 4 — Loans

     The components of loans are as follows:

	September 30, 2004					December 31, 2003
			% of					% of
	Amount		Total			Amount		Total
	(Dollars in thousands)
Commercial	$	425,418		26.2	%	$	708,252		29.9	%
Factored receivables		—		—			11,447		0.5
Commercial real estate		906,056		55.9			1,184,542		50.1
Commercial real estate construction		234,830		14.4			363,822		15.4
Residential real estate		44,662		2.8			85,893		3.6
Home equity		10,284		0.6			12,272		0.5
Consumer		2,619		0.2			3,554		0.2

10

	September 30, 2004						December 31, 2003
				% of						% of
	Amount			Total			Amount			Total
	(Dollars in thousands)
Receivables from sale of stock		(1,787	)		(0.1	)		(5,208	)		(0.2	)
Gross loans		1,622,082			100.0	%		2,364,574			100.0	%
Deferred loan fees		(1,945	)					(4,533	)
Total loans		1,620,137						2,360,041
Loans included in assets of companies held for disposal		(724,801	)					—
Total loans, net		895,336						2,360,041
Allowance for loan losses-total company		(81,064	)					(109,872	)
Allowance for loan losses included in assets of companies held for disposal		38,205						—
Allowance for loan losses, net		(42,859	)					(109,872	)
Loans, net	$	852,477					$	2,250,169

     Certain directors and principal officers of CIB Marine and its subsidiaries, and companies with which they are affiliated, are customers of and have banking transactions with the subsidiary banks in the ordinary course of business. Such loans totaled $22.3 million, including $6.0 million in assets of companies held for disposal, and $60.5 million at September 30, 2004 and December 31, 2003, respectively.

     At September 30, 2004 and December 31, 2003, CIB Marine had $7.7 million, including $3.7 million in assets of companies held for disposal, and $22.7 million, respectively, in outstanding principal balances on loans secured or partially secured by CIB Marine stock. Specific reserves on these loans were $0.1 million at both September 30, 2004 and December 31, 2003. Loans made specifically to enable the borrower to purchase CIB Marine stock and not adequately secured by collateral other than the stock which have been classified as receivables from sale of stock and recorded as contra-equity have not been included in this balance.

Note 5 — Goodwill and Other Intangible Assets

     CIB Marine’s intangible asset values are as follows:

	September 30, 2004									December 31, 2003
	Gross						Net			Gross				Net
	Carrying			Accumulated			Carrying			Carrying		Accumulated		Carrying
	Amount			Amortization			Amount			Amount		Amortization		Amount
	(Dollars in thousands)
Amortizing Intangible Assets:
Core deposit intangibles	$	2,426		$	1,642		$	784		$	3,959	$	2,977	$	982
Other identifiable intangibles		—			—			—			1,221		396		825
Mortgage servicing rights		—			—			—			19		19		—
		2,426			1,642			784			5,199		3,392		1,807
Amortizing intangibles included in assets of companies held for disposal		(2,426	)		(1,642	)		(784	)		—		—		—
	$	—		$	—			—		$	5,199	$	3,392		1,807
Non amortizing goodwill								982							982
Total intangible assets, net							$	982						$	2,789

Note 6 — Companies Held For Disposal

     Assets and liabilities of companies held for disposal, as shown on the consolidated balance sheets, are comprised of CIB — Chicago, CIB Construction, MICR and MSI at September 30, 2004 and CIB Construction and MICR at December 31, 2003.

     Loss or income from discontinued operations, as shown on the consolidated statement of operations is comprised of CIB — Chicago, CIB Construction, Commercial Finance and MSI for the quarter and nine months ended September 30, 2004 and 2003.

11

     Banking regulations limit the holding period for assets not considered to be permissible banking activities and which have been acquired in satisfaction of debt previously contracted to five years, unless extended. Both MICR and CIB Construction are subject to this restriction.

Reconciliation of Assets/Liabilities of companies held for disposal

	September 30,			December 31,
	2004			2003
	(Dollars in thousands)
Assets of companies held for disposal:
MICR	$	2,788		$	4,555
CIB Construction		14,344			28,964
CIB — Chicago (1)		1,239,210			N/A
MSI (1)		2,344			N/A
Other (2)		(8,404	)		(4,463	)
Total assets of companies held for disposal	$	1,250,282		$	29,056
Liabilities of companies held for disposal:
MICR	$	699		$	590
CIB Construction		11,326			28,459
CIB — Chicago (1)		1,193,951			N/A
MSI (1)		2,973			N/A
Other (2)		(5,013	)		(11,668	)
Total liabilities of companies held for disposal	$	1,203,936		$	17,381

(1)	CIB — Chicago and MSI were not classified as held for disposal at December 31, 2003.
(2)	Includes mortgage banking assets/liabilities held by affiliates and elimination of intercompany transactions between subsidiaries and affiliates.

Reconciliation of (Loss) Income from Discontinued Operations for the quarters and nine months ended September 30, 2004 and 2003:

	Pretax
	income/(loss)
	before
	gain/(loss) on												Net
	sale of assets			Gain									income/(loss)
	and other			(loss)			Income tax			Other			net of
	income			on sale			expense			income			intercompany
	(expense)			of assets			(benefit)			(expense)(1)			transactions
	(Dollars in thousands)
Quarter Ended September 30, 2004
MSI	$	(1,178	)	$	(738	)	$	(77	)	$	498		$	(1,341	)
Commercial Finance		(17	)		2			53			—			(68	)
CIB — Chicago		(1,779	)		—			916			1,180			(1,515	)
CIB Construction		3,759			—			199			856			4,416
Total	$	785		$	(736	)	$	1,091		$	2,534		$	1,492
Nine Months Ended September 30, 2004
MSI	$	(4,394	)	$	(738	)	$	(335	)	$	804		$	(3,993	)
Commercial Finance		(222	)		237			24			141			132
CIB — Chicago		(5,761	)		—			2,273			4,193			(3,841	)
CIB Construction		3,648			—			1,135			954			3,467
Total	$	(6,729	)	$	(501	)	$	3,097		$	6,092		$	(4,235	)
Quarter Ended September 30, 2003
MSI	$	191		$	—		$	671		$	1,684		$	1,204
Commercial Finance		(5	)		—			157			84			(78	)
CIB — Chicago		(45,295	)		—			4,145			2,845			(46,595	)
CIB Construction		172			—			645			(3,495	)		(3,968	)
Total	$	(44,937	)	$	—		$	5,618		$	1,118		$	(49,437	)
Nine Months Ended September 30, 2003
MSI	$	2,869		$	—		$	2,966		$	4,772		$	4,675

12

	Pretax
	income/(loss)
	before
	gain/(loss) on											Net
	sale of assets			Gain								income/(loss)
	and other			(loss)		Income tax			Other			net of
	income			on sale		expense			income			intercompany
	(expense)			of assets		(benefit)			(expense)(1)			transactions
	(Dollars in thousands)
Commercial Finance		(34	)		—		223			275			18
CIB — Chicago		(70,486	)		—		(5,525	)		4,785			(60,176	)
CIB Construction		(4,434	)		—		611			(2,616	)		(7,661	)
Total	$	(72,085	)	$	—	$	(1,725	)	$	7,216		$	(63,144	)

(1) Includes intercompany transactions, impairment losses recorded by the parent and mortgage banking income/expense recognized by affiliates.

CIB Construction (includes Canron)

     CIB Construction, a wholly owned subsidiary of CIB Marine, acquired 84% of the outstanding stock of Canron through loan collection activities in 2002. During the third quarter of 2003, CIB Construction commenced a wind down of its affairs and a voluntary liquidation of its assets. The gross assets and liabilities of CIB Construction and its subsidiaries are reported on the consolidated balance sheet as assets or liabilities of companies held for disposal. Intercompany loan and cash balances and interest income and expense between CIB Construction and CIB Marine have been eliminated from the totals shown on the consolidated financial statements. The net income or loss associated with CIB Construction is presented as discontinued operations in CIB Marine’s consolidated statement of operations.

     In conjunction with the liquidation, Canron, a subsidiary of CIB Construction, established an accrual for employee severance and retention costs. Under Canadian law, employees are generally entitled to one week’s salary for every year of service with the company, up to a maximum of twenty-six years. For the nine months ended September 30, 2004, Canron recognized a $0.04 million recovery of prior period provisions for employee severance and retention costs. At September 30, 2004, Canron had an accrued severance liability of $0.8 million. During the first nine months of 2004, Canron sold certain of its properties and equipment for approximately $6.7 million. Substantially all of the proceeds were used to reduce secured debt to CIB Marine.

     Excluding $0.7 million in recoveries of previously charged-off amounts recorded by its parent, the net income attributable to Canron for the nine months ended September 30, 2004 was $2.6 million which resulted mainly from gains on sales of certain properties and equipment and collection of off-balance sheet receivables.

     The following table summarizes the composition of CIB Construction’s balance sheets. The balance sheets reflect estimated liquidation values less costs to sell:

	September 30,		December 31,
	2004 (1)		2003 (1)
	(Dollars in thousands)
Assets:
Cash on deposit at CIB Marine	$	1,660	$	2,407
Accounts receivable		2,589		12,807
Inventories and contracts in progress		—		1,438
Other assets		1,613		—
Current assets		5,862		16,652
Property and equipment, net		8,482		12,312
Total assets	$	14,344	$	28,964
Liabilities and stockholder’s equity:
Current portion of loans payable to CIB Marine	$	2,700	$	11,625
Other liabilities		8,626		14,697
Current liabilities		11,326		26,322
Loans payable to unaffiliated banks		—		2,137
Total liabilities		11,326		28,459
Stockholder’s equity		3,018		505
Total liabilities and stockholder’s equity	$	14,344	$	28,964

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

MICR

     In 2000, CIB Marine acquired and/or assumed, through MICR, a wholly owned subsidiary of CIB — Chicago, the business and

13

certain assets and liabilities of a manufacturer of payment processing systems. The gross assets and liabilities of MICR are reported on the consolidated balance sheet as assets or liabilities of companies held for disposal. At September 30, 2004 and at December 31, 2003, MICR had assets of $2.8 million and $4.6 million, respectively, and liabilities of $0.7 million and $0.6 million, respectively. The net aftertax income of MICR was $0.6 million for both nine months ended September 30, 2004 and 2003 and is included in continuing operations on the consolidated statement of operations. Dividends totaling $0.5 million and $0.8 million were paid by MICR to CIB — Chicago, its parent, during the nine months ended September 30, 2004 and 2003, respectively. CIB Marine management, which has authority to do so, has developed and is implementing a plan to sell this business.

     The following table summarizes the composition of MICR’s balance sheet:

	September 30,		December 31,
	2004 (1)		2003 (1)
	(Dollars in thousands)
Assets:
Cash and cash equivalents non-affiliates	$	634	$	622
Accounts receivable		628		571
Inventory		940		857
Other current assets		67		16
Property and equipment, net		284		333
Goodwill, net		235		2,156
Total assets	$	2,788	$	4,555
Liabilities and stockholder’s equity:
Liabilities	$	699	$	590
Stockholder’s equity		2,089		3,965
Total liabilities and stockholder’s equity	$	2,788	$	4,555

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

MSI

     In September 1995, CIB Marine acquired Mortgage Services of Illinois, Inc., a mortgage origination and mortgage brokerage services company. In 1998, CIB Marine changed the name of this subsidiary to Mortgage Services, Inc. (“MSI”). MSI sold substantially all of these mortgage loans in the secondary market with servicing rights released. Due to the underperformance of this subsidiary, CIB Marine management, which had the authority to do so, developed and implemented a plan to sell this business in the first quarter of 2004. During the third quarter of 2004, CIB Marine sold to an unrelated party substantially all of the assets and operations of MSI. The sale of the operations was accomplished through two separate transactions and resulted in a $0.7 million loss. CIB Marine is in the process of winding down the remaining affairs of this company and has incurred certain liabilities with respect to the operations of the mortgage company. These liabilities include repurchase obligations relative to certain mortgage loans as a result of borrower fraud and/or documentation issues, and potential tax liabilities.

     The followings table summarizes the compositions of MSI’s balance sheet:

	September 30,			December 31,
	2004 (1)			2003
	(Dollars in thousands)
Assets:
Cash on deposit at CIB Marine	$	268		$	12
Loans held for sale		375			148
Net loans		590			202
Property and equipment, net		42			1,019
Other intangibles		—			825
Other assets		1,069			766
Total assets	$	2,344		$	2,972
Liabilities and stockholder’s equity:
Liabilities		2,973			1,434
Stockholder’s equity		(629	)		1,538
Total liabilities and stockholder’s equity	$	2,344		$	2,972

14

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

     During the first quarter of 2004, based on the expected market value of this subsidiary, management determined the value of customer base intangibles, including $0.3 million of additional contingent consideration due under the original purchase agreement, was impaired and an impairment loss of $1.0 million was recognized. The $1.0 million impairment loss and the $0.7 million loss on the sale of substantially all the assets and operations of MSI are presented as discontinued operations on CIB Marine’s consolidated statements of operations.

Commercial Finance

     In August 2002, CIB Marine acquired certain of the assets of a receivables factoring business through Commercial Finance, an Illinois limited liability company and a wholly-owned subsidiary of CIB — Chicago. The assets were acquired from a borrower who was in default of its obligations to CIB Marine and other lenders. Commercial Finance provides the factoring of receivables and other asset-based lending products to borrowers. In the first quarter of 2004, CIB Marine management, which has the authority to do so, developed and implemented a plan to sell this business. In June 2004, CIB Marine sold to an unrelated party substantially all of the business assets and the business of Commercial Finance. The gain on the sale of this operation was $0.2 million, and is included in discontinued operations. Total assets at the time of sale were $10.9 million.

     Commercial Finance’s operating results are presented as discontinued operations in CIB Marine’s consolidated statement of operations.

Hillside (includes CIB — Chicago)

     The Board of Directors of CIB Marine evaluated a wide range of alternatives to improve the capital and liquidity position of CIB Marine, including the sale of additional common stock, sale of the company, sale of one or more of the bank subsidiaries and other asset reduction strategies. An investment banker was hired to assist in evaluating the financial condition of the company and various strategic alternatives. Upon evaluation, the Board determined that under the circumstances the sale of CIB — Chicago, its Chicago banking subsidiary, was the most prudent course of action for the company and its shareholders. During the third quarter of 2004, CIB Marine management, which had the authority to do so, implemented a plan to sell Hillside, including its subsidiary CIB — Chicago. Accordingly, the assets and liabilities of Hillside, including CIB — Chicago are included in assets and liabilities of companies held for disposal as of September 30, 2004.

     The following table summarizes the composition of CIB — Chicago’s balance sheet:

	September 30,			December 31,
	2004 (1)			2003
	(Dollars in thousands)
Assets
Cash and cash equivalents:
Cash and due from banks	$	14,268		$	18,232
Federal funds sold		97,616			2,470
Total cash and cash equivalents		111,884			20,702
Securities available for sale, at fair value		406,207			283,602
Loans (2)		724,740			1,134,013
Allowance for loan losses		(38,115	)		(55,146	)
Net loans		686,625			1,078,867
Premises and equipment, net		11,579			12,026
Accrued interest receivable		4,352			6,128
Other intangible assets		784			982
Foreclosed properties		1,884			37,688
Other assets		15,895			25,061
Total assets	$	1,239,210		$	1,465,056
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	57,363		$	86,832
Interest-bearing demand		23,927			24,567
Savings		195,594			275,269

15

	September 30,		December 31,
	2004 (1)		2003
	(Dollars in thousands)
Time		866,279		927,398
Total deposits		1,143,163		1,314,066
Short-term borrowings		7,637		42,367
Long-term borrowings		30,008		30,526
Accrued interest payable		3,307		3,367
Other liabilities		9,836		23,308
Total liabilities		1,193,951		1,413,634
Stockholders’ Equity		45,259		51,422
Total liabilities and stockholders’ equity	$	1,239,210	$	1,465,056

(1)	Included in assets and liabilities of companies held for disposal in the consolidated balance sheets.
(2)	September 30, 2004 and December 31, 2003, include $0.6 million and $3.7 million, respectively, in loans which on a consolidated CIB Marine basis are classified as receivable from sale of stock.

     CIB — Chicago’s operating results are presented as discontinued operations in CIB Marine’s consolidated statement of operations.

Note 7 — Other Assets

     The following table summarizes the composition of CIB Marine’s other assets:

	September 30,		December 31,
	2004		2003
	(Dollars in thousands)
Prepaid expenses	$	1,430	$	1,616
Accounts receivable		2,298		1,531
Fair value of derivatives		—		3,945
Trust preferred securities underwriting fee, net of amortization		1,459		1,500
Investment in trust common securities		2,439		2,310
Other investments		3,381		9,572
Other		10,760		27,239
	$	21,767	$	47,713

The major components of other investments are as follows:

• Investments in limited partnership interests in various affordable housing partnerships with a carrying value of $4.9 million at September 30, 2004, including $2.7 million in assets of companies held for disposal, and $5.7 million at December 31, 2003. CIB Marine has engaged in these transactions to provide additional qualified investments under the Community Reinvestment Act and to receive related income tax credits. The partnerships provide affordable housing to low income residents within CIB Marine’s markets and other locations.

• Interests in two companies operating as small business investment companies under the Small Business Investment Act of 1958, as amended. CIB Marine committed to a $1.1 million investment in these companies and as of September 30, 2004 has invested $1.0 million. The carrying value of these investments is at the lower of cost or estimated fair market value which was estimated to be $0.8 million at both September 30, 2004 and December 31, 2003.

• Investment in shares of the common stock of a closely held information services company, which represents less than a 5% interest in the company. The amount of this investment is carried at the lower of cost or estimated fair market value, which was estimated to be $0.2 million at September 30, 2004 and $0.5 million at December 31, 2003. For the nine months ended September 30, 2004, the asset was deemed impaired and an impairment loss of $0.3 million was recorded. The loss is included in write down and losses on assets in the consolidated statement of operations.

• Interests in three limited partnerships which had a carrying value of $2.2 million at December 31, 2003. These interests were sold during the first quarter of 2004 at a $0.2 million loss. The loss is included in write down and losses on assets in the consolidated statement of operations.

• Shares of the common stock of a non-publicly traded manufacturer, which represented less than a 5% interest in the company. CIB Marine deemed its entire investment was impaired, and a impairment loss for the carrying amount of $0.2 million was recorded during the second quarter of 2004. At December 31, 2003, the carrying value of this investment, net of a $0.1 million impairment loss recognized in 2003 was $0.2 million. The impairment losses are included in write down and losses on assets in the consolidated statement of operations.

16

Note 8 — Short-term Borrowings

     The following table presents information regarding short-term borrowings:

	September 30, 2004						December 31, 2003
	Balance			Rate			Balance		Rate
	(Dollars in thousands)
Federal funds purchased and securities sold under repurchase agreements	$	22,217			1.60	%	$	21,967		1.09	%
Revolving lines of credit		23,961			5.77			30,848		3.75
Treasury, tax, and loan notes		2,759			1.51			13,099		0.73
Mortgage payable		—			—			26,687		10.00
		48,937			3.64			92,601		4.49
Short-term borrowings included in liabilities of companies held for disposal		(8,003	)		1.36			—		—
	$	40,934			4.08	%	$	92,601		4.49	%

     CIB Marine had a revolving line of credit at a nonaffiliated commercial bank collateralized by the common stock of all of its subsidiaries. At September 30, 2004 and December 31, 2003, CIB Marine was not in compliance with the capital requirement debt covenant of its revolving lines of credit. Additionally, at December 31, 2003, CIB Marine’s factoring subsidiary had a line of credit to support its operating needs. The line of credit for CIB Marine’s factoring subsidiary was paid off upon the sale of the factoring subsidiary in June 2004.

     At September 30, 2004 and December 31, 2003, CIB Marine was not in compliance with certain asset quality, earnings and capital maintenance debt covenants of certain financial standby letters of credit it participated in with other banks. CIB Marine pledged securities to collateralize its obligation for these participated standby letters of credit and entered into forbearance agreements. The total value of securities pledged to other parties related to those participated standby letters of credit was $15.8 million at September 30, 2004.

     During the first quarter of 2004, CIB — Chicago was required to pledge securities for access to the federal discount window, and in the second quarter of 2004, Central Illinois Bank and CIB — Indiana were also required to pledge securities. In the third quarter of 2004, all of CIB Marine’s subsidiary banks were required to pledge securities for access to the federal discount window. As of September 30, 2004, the market value of securities pledged for the federal discount window was $59.7 million.

     Beginning in the first quarter of 2004, CIB Marine’s subsidiary banks were required to pledge securities to collateralize federal funds purchased from banks. At September 30, 2004, the market value of the securities pledged was $48.5 million, including $21.6 million in assets of companies held for disposal.

Note 9 — Long-term Borrowings

     The following table presents information regarding amounts payable to the Federal Home Loan Bank of Chicago that are included in the consolidated balance sheets as long-term borrowings:

										Scheduled		Callable at
September 30, 2004					December 31, 2003					Maturity		Par After
Balance		Rate			Balance		Rate
		(Dollars in thousands)
$	—		—	%	$	3,500		5.12	%		05/01/04		N/A
	—		—			5,000		5.12			05/01/04		N/A
	3,250		4.95			3,250		4.95			01/16/08		01/16/01
	2,500		4.95			2,500		4.95			01/16/08		01/16/01
	2,000		4.95			2,000		4.95			01/16/08		01/16/01
	2,000		5.09			2,000		5.09			02/20/08		02/20/01

17

												Scheduled		Callable at
	September 30, 2004						December 31, 2003					Maturity		Par After
	Balance			Rate			Balance		Rate
				(Dollars in thousands)
		24,146			7.07			23,997		7.07			06/30/08		N/A
		33,896			6.47	%		42,247		6.20	%
Fair value hedge basis adjustment		3,362						4,029
		37,258						46,276
Long-term borrowings included in liabilities of companies held for disposal		(30,008	)					—
Total	$	7,250					$	46,276

     CIB Marine is required to maintain qualifying collateral as security for FHLB borrowings. The debt to collateral ratio is dependent upon the type of collateral pledged. At September 30, 2004 and December 31, 2003, the assets pledged as security for CIB Marine’s FHLB borrowings had a collateral value of $72.0 million and $59.9 million, respectively. These assets consisted of securities with a market value of $77.7 million and $53.8 million and 1-4 family residential mortgages with balances outstanding of zero and $17.7 million at September 30, 2004 and December 31, 2003, respectively.

Note 10 — Other Liabilities

	September 30,		December 31,
	2004		2003
	(Dollars in thousands)
Accounts payable	$	283	$	4,328
Accrual for unfunded commitments and standby letters of credit		725		15,747
Accrued real estate taxes		191		2,680
Accrued compensation and employee benefits		1,393		2,483
Accrued professional fees		2,113		1,449
Accrued other expenses		880		850
Fair value of derivatives		108		294
Other liabilities		584		1,151
	$	6,277	$	28,982

     Changes in the accrual for unfunded standby letters of credit for the nine months ended September 30, 2004 are as follows (dollars in thousands):

Balance at December 31, 2003	$	15,747
Transfer to allowance for loan losses for funded standby letters of credit		(5,000	)
Charge-offs		(5,500	)
Provision for losses on unfunded commitments and standby letters of credit:
continuing operations		725
discontinued operations		(1,900	)
Total continuing and discontinued operations provision for losses on unfunded commitments and standby letters of credit		(1,175	)
Total company unfunded loan commitments and standby letters of credit		4,072
Transfer of accrual for unfunded loan commitments and standby letters of credit losses to liabilities of companies held for disposal		(3,347	)
Balance at September 30, 2004	$	725

18

Note 11 — Stockholders’ Equity

Receivables from Sale of Stock

     Loans not sufficiently collateralized by assets other than CIB Marine stock and made by CIB Marine’s subsidiary banks to borrowers who used the proceeds to acquire CIB Marine Stock are accounted for as a reduction of stockholders’ equity until such loans have been repaid or are charged-off. During the first nine months of 2004, CIB Marine charged-off $2.1 million of such loans to the allowance for loan losses and received payments on such loans of $1.3 million. Such loans outstanding at September 30, 2004 and December 31, 2003 totaled $1.8 million and $5.2 million, respectively. Interest earned on these loans was $0.2 million for the nine months ended September 30, 2004. Of the $0.2 million, $0.1 million is included in interest and dividend income-loans and $0.1 million in discontinued operations.

Treasury Stock

     Certain subsidiary banks of the Company acquired shares of CIB Marine stock through collection efforts when the borrowers defaulted on loans. These shares are included in treasury stock at the lower of the loan balance or the estimated fair market value of CIB Marine’s stock at time of acquisition. Any loan balance in excess of the estimated fair market value of the stock and other collateral received was charged to the allowance for loan losses.

Regulatory Capital

     CIB Marine and its subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Pursuant to federal holding company and bank regulations, CIB Marine and each bank subsidiary is assigned to a capital category. The assigned capital category is largely determined by three ratios that are calculated in accordance with specific instructions included in the regulations: total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank subsidiaries must meet specific capital guidelines that involve quantitative measures of the bank’s assets and certain off-balance sheet items as calculated under regulatory accounting practices. The banks’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. To be categorized as well capitalized, pursuant to FDIC guidelines in 12 C.F.R. Part 325, the bank subsidiaries must maintain total risk adjusted capital, Tier 1 capital and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively.

     There are five capital categories defined in the regulations: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Classification of a subsidiary bank in any of the undercapitalized categories can result in certain mandatory and possible additional discretionary actions by regulators that could have a direct material effect on the consolidated financial statements.

     At September 30, 2004, pursuant to FDIC guidelines in 12 C.F.R. Part 325, Marine FSB was categorized as well capitalized. Central Illinois Bank, Citrus Bank, Marine — Wisconsin, and CIB — Indiana were categorized as adequately capitalized. While Citrus Bank, Marine — Wisconsin, and CIB — Indiana met the capital ratio criteria of a well capitalized bank at September 30, 2004, they were subject to regulatory orders or agreements as of that date, and pursuant to the FDIC regulations, a bank that is subject to any written agreement or order to meet and maintain a specific capital level for any capital measure cannot be classified as well capitalized. CIB — Chicago was categorized as undercapitalized. In the second quarter of 2004, CIB — Chicago submitted to the FDIC a capital restoration plan which was accepted by the FDIC on August 9, 2004.

     On January 30, 2003, CIB Marine’s bank subsidiary, CIB — Chicago, entered into a Memorandum of Understanding (the “Memorandum”) with the Division of Banks and Real Estate of the Illinois Department of Financial and Professional Regulation (the “DBRE”) and the FDIC. The Memorandum was entered into as a result of the deterioration in the credit quality of the loan portfolio, the level of concentrations of credit, and weaknesses in the credit administration process identified during the DBRE’s regular examination of CIB — Chicago, which commenced on August 31, 2002.

     Pursuant to the Memorandum, CIB — Chicago agreed to take certain actions to correct the deficiencies noted within the examination report. In addition, during the period in which the Memorandum was in effect, CIB — Chicago agreed to maintain a Tier 1 leverage capital level equal to or exceeding 8% of the bank’s total assets. In the event such ratio is less than 8% as of June 30 or December 31 of each calendar year the Memorandum was in effect, the bank was required within 30 days thereof to submit to the regulators a plan for the augmentation of the bank’s capital accounts. Also, unless prior written consent was received from the

19

regulators, CIB — Chicago agreed to restrict its loan growth to no more than 2% during any consecutive three month period and suspend the declaration or payment of dividends. The Memorandum was superseded by a Cease and Desist Order.

     In the second quarter of 2004, CIB Marine entered into a Written Agreement with the Federal Reserve Bank and CIB — Chicago, Central Illinois Bank, Marine — Wisconsin and CIB — Indiana each consented to the issuance of Cease and Desist Orders with banking regulatory authorities. Additionally, in the third quarter of 2004, Citrus Bank entered into a Written Agreement with the Office of the Comptroller of the Currency. Among other items, the Orders and Agreement restrict the payment of cash dividends without prior written consent from the regulators and require the banks to maintain a Tier 1 leverage Capital level equal to or exceeding 8% of the bank’s total assets. The Agreement with the OCC also requires Citrus Bank to maintain a total capital ratio of not less than 14%. These restrictions are in force until such Orders and Agreements are terminated. In the event the capital ratio at any calendar quarter end with respect to each such bank is less than required under the Orders and Agreement, the bank is required within 90 days to increase its capital ratio as of the end of that preceding quarterly period to the minimum stated in the Orders and Agreement. Failure to comply with the Orders or Agreements could have a material adverse effect on CIB Marine and its operations. As of September 30, 2004, only CIB — Chicago had capital below the minimum required by the Orders and Agreement.

Note 12 — Loss Per Share Computations

     The following provides a reconciliation of basic and diluted earnings per share from continuing operations:

	Quarter Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands, except share and per share data)
Loss from continuing operations	$	(3,281	)	$	(27,732	)	$	(25,214	)	$	(34,947	)
Weighted average shares outstanding:
Basic		18,232,450			18,259,831			18,250,637			18,295,555
Effect of dilutive stock options outstanding		—			—			—			—
Diluted		18,232,450			18,259,831			18,250,637			18,295,555
Per share loss:
Basic	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)
Effect of dilutive stock options outstanding		—			—			—			—
Diluted	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)

Note 13 — Subsequent Events

Sale of CIB — Chicago

     In November 2004, CIB Marine sold CIB — Chicago to an unrelated banking organization. The final sale price was $67.4 million in cash, of which $5.4 million was used by CIB Marine to repay a short-term loan from the purchaser. The purpose of the loan was to fund the purchase by CIB Marine of CIB — Chicago’s interest in MICR, CIB Construction, including Canron, and the loans and related claims against the borrowers in a Chicago condominium development loan. In connection with the sale of CIB — Chicago, CIB Marine pledged the stock of Central Illinois Bank to the purchaser to secure certain indemnification obligations with respect to CIB Marine’s trust preferred securities. CIB Marine also represented to the purchaser that for the 2004 tax year, the sum of certain tax benefits, such as gross built-in losses and Federal net operating loss carry forwards, would not be less than $60.0 million for CIB — Chicago. CIB Marine agreed to indemnify the purchaser for any losses arising out of a breach of this representation and certain other customary representations and warranties. No claims have been made by the purchaser related to this indemnification obligation. At the time of sale, CIB — Chicago operated 16 banking facilities in the Chicago metropolitan area and had approximately $1.2 billion in assets and $1.1 billion in deposits. The sale of CIB — Chicago reduced consolidated loan totals by $682.8 million, nonaccrual loans by $60.3 million and the allowance for loan loss by $38.1 million.

     CIB Marine used $23.6 million of the proceeds to repay all indebtedness under CIB Marine’s revolving line of credit and injected $15.0 million of new capital into Central Illinois Bank. The balance of the proceeds is being utilized to help fund ongoing operations. The sale resulted in a pre-tax gain for financial statement purposes of approximately $15.6 million. The total consolidated assets of CIB Marine immediately after the sale were approximately $1.4 billion. The Grand Cayman Islands branch banking facility of CIB — Chicago, which was established to accept Eurodollar deposits, was closed in conjunction with the sale of the bank.

20

Sale and Wind Down of Nonbank Subsidiaries

     During 2004, 2005, and 2006, CIB Marine divested itself of certain nonbank subsidiaries and commenced and/or continued the wind down of certain other nonbank subsidiaries in order to more narrowly focus its resources on its core commercial and retail banking strategies.

     CIB Marine Capital, LLC.During 2004, 2005 and 2006, CIB Marine continued to wind down its mezzanine lending company, CIB Marine Capital, LLC. At December 31, 2004, total loans outstanding were $3.4 million as compared to $19.0 million at December 31, 2003. At September 30, 2006, total loans outstanding were $0.7 million.

     Canron.In 2002, CIB Construction LLC, a wholly owned subsidiary of CIB — Chicago, acquired 84% of Canron, a steel fabrication company in foreclosure. During 2003, Canron commenced a voluntary liquidation and wind down of its affairs. During 2004 and since that date, Canron continued this plan and sold several of its properties and operations. At December 31, 2004 and December 31, 2005, Canron had assets of approximately $14.6 million and $6.1 million, respectively and liabilities of $9.3 million and $3.1 million, respectively. In August 2005, Canron authorized and began liquidation distributions to its shareholders. In 2005, Canron paid $2.1 million in capital distributions to its parent, CIB Construction, and CIB Construction paid dividends totaling $2.6 million to CIB Marine, which CIB Marine recorded as a reduction of its investment in CIB Construction. In 2006 through September, Canron paid $1.0 million in capital distributions to CIB Construction and CIB Construction paid $1.6 million in capital distributions to CIB Marine. As of December 31, 2005 and September 30, 2006, CIB Marine’s net investment in CIB Construction was approximately $(0.6) million and $(1.2) million, respectively.

     MICR, Inc.(“MICR”) In January 2005, CIB Marine retained the services of an investment banker to assist in the marketing and sale of MICR, a manufacturer of payment processing systems that was acquired from a borrower in lieu of foreclosure in 2000. At December 31, 2004, MICR had assets of approximately $2.7 million and liabilities of approximately $0.9 million. During 2004 and 2003 MICR generated income before income tax expenses of $1.3 million and $1.1 million, respectively. During 2004 and 2003, impairment write downs of CIB Marine’s investment in MICR were $1.9 million and $2.0 million, respectively. In November 2005, CIB Marine sold substantially all of the assets of MICR. No gain or loss was recorded on the sale.

Regulatory Orders and Agreements

     In April 2005, the Cease and Desist Orders at Marine — Wisconsin and CIB — Indiana, which was merged into Marine — Wisconsin in August 2006, were each released as a result of improvements at such banks and replaced with Memoranda of Understanding, which were entered into in March 2005. Pursuant to the Memoranda, the banks agreed to maintain minimum capital levels, correct loan administration deficiencies, reduce concentrations and problem credits and not declare or pay cash dividends without regulatory approval. In April 2005, Central Illinois Bank, Marine — Wisconsin and CIB — Indiana each entered into a Memorandum of Understanding with the FDIC and applicable state banking regulators as a result of deficiencies in information technology. The banks agreed to take certain actions to document and fully implement an information security program, exercise appropriate diligence in overseeing service providers arrangements, and assess, develop and implement security standards and procedures. These Memoranda were terminated in January 2006. In September 2006, the Written Agreement with Citrus Bank was terminated. Management believes that CIB Marine, Central Illinois Bank and Marine — Wisconsin have complied with the majority of the provisions of the respective Orders and Agreement and are in the process of complying with the remaining provisions.

Liquidity

     During 2004, 2005 and into 2006, some of the borrowing sources customarily utilized by CIB Marine were restricted or were contingent on subsidiary bank pledges of fixed income investment securities.

FDIC Deposit Insurance Premiums

     FDIC deposit insurance premiums represented $0.5 million of the $0.9 million in FDIC and state assessments in 2003. Due to the increase in the risk profile of CIB Marine’s subsidiary banks, deposit insurance premiums significantly increased to $4.7 million in 2004. Excluding CIB — Chicago, deposit insurance premiums were $0.3 million, $1.4 million, $1.5 million, and $0.8 million in 2003, 2004, 2005 and for the nine months ended September 30, 2006, respectively.

21

     In October 2006 the FDIC Board of Directors approved a One-Time Assessment Credit. This credit, totaling $0.6 million for CIB Marine’s subsidiary banks, will be recorded as a credit against regular FDIC insurance premium expense beginning in January 2007 and continue until the credit is exhausted. Of the $0.6 million, an estimated $0.2 million will be used to offset the FDIC insurance premium during 2007.

Credit Concentrations

     At December 31, 2003, CIB Marine had fifteen secured borrowing relationships (loans to one borrower or a related group of borrowers) and loans to ten industries or industry groups that exceeded 25% of stockholders’ equity. As of December 31, 2004, CIB Marine had one secured borrowing relationship and loans to seven industries or industry groups that exceeded 25% of stockholders’ equity. The decreases were due to the sale of CIB — Chicago, management’s strategy to reduce these types of exposures and, to a lesser extent, the increase in stockholders’ equity from the $15.6 million pre-tax gain on the sale of CIB — Chicago on November 30, 2004. At September 30, 2006, there were no loans to one borrower or a related group of borrowers that exceeded 25% of stockholders’ equity.

Stock Options

     As a result of retirements, resignations and other management and Board of Directors changes, the volume of lapsed and surrendered stock options increased substantially in 2004 and 2005 and the first nine months of 2006. During this period, 1,164,539 shares previously granted pursuant to stock options lapsed and/or were surrendered and became available for future grants under CIB Marine’s 1999 Stock Option and Incentive Plan. In September and October 2005, 523,750 options were granted to various employees of the company at an exercise price of $4.10 per share. In March 2006, 83,000 options were granted at an exercise price of $4.10 per share, and on November 16, 2006, 400,750 options were granted also at an exercise price of $4.10 per share. As of November 16, 2006, there were 1,277,993 options outstanding with a weighted average exercise price of $8.45.

Treasury Stock and Receivables from Sale of Stock

     As a result of the sale of CIB — Chicago, receipt of additional collateral and other actions, the balance of loans classified as receivables from sale of stock has been reduced to $0.2 million as of September 30, 2006.

     At September 30, 2006, treasury stock held by CIB Marine was $0.2 million and included 12,663 shares.

FHLB Stock Investment Activity

     At December 31, 2004, CIB Marine held $13.2 million of FHLB Chicago stock. In January 2005, CIB Marine invested an additional $17.0 million because of the attractive dividend yield that had been paid in the past. Although the FHLB Chicago continued to pay dividends, the yields began to fall and in April 2005, CIB Marine sold $5.0 million of its holdings. Subsequently the FHLB Chicago Board disclosed its decision to discontinue redemption of excess, or voluntary, capital stock. Voluntary stock is stock held by members beyond the amount required as a condition of membership or to support advance borrowings. As of December 31, 2005, CIB Marine had FHLB Chicago stock with a carrying value of $25.8 million of which $25.2 million was categorized as excess or “voluntary” and $0.6 million was categorized as required.

     In April 2006, the FHLB Chicago announced plans to facilitate limited stock redemption requests from its members by issuing bonds. In June 2006, the FHLB Chicago issued a limited amount of bonds to facilitate voluntary capital stock redemptions and CIB Marine sold back $9.7 million or 37% of its holdings. This represented approximately 40% of the stock CIB Marine requested to be redeemed at that time. As of September 30, 2006, CIB Marine had $16.4 million in FHLB Chicago stock, of which $0.6 million was categorized as required. The FHLB Chicago plans to facilitate the redemption of a limited amount of additional voluntary stock by December 2006 and again in 2007 and 2008, as necessary to meet member demand

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis presents CIB Marine’s consolidated financial condition as of September 30, 2004 and results of operations for the quarter and nine months ended September 30, 2004. This discussion should be read together with the consolidated financial statements and accompanying notes contained in Part I, Item 1 of this report, as well as CIB Marine’s Annual

22

Report on Form 10-K for the year ended December 31, 2003.

FORWARD-LOOKING STATEMENTS

     CIB Marine has made statements in this quarterly report on Form 10-Q and documents that are incorporated by reference 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, 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 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 to maintain adequate capital;

• CIB Marine’s ability to operate profitably;

• CIB Marine’s ability to originate loans;

• CIB Marine’s ability to comply with regulatory orders and agreements;

• The costs and effects of outstanding and/or potential litigation and of unexpected or adverse outcomes in such litigations;

• CIB Marine’s ability to bring current its delinquent filings of periodic reports with the Securities and Exchange Commission and other regulators;

• CIB Marine’s ability to bring current the deferred interest payments on its trust preferred securities;

• CIB Marine’s ability to submit a timely filing of its federal and state income tax returns;

• CIB Marine’s ability to attract and retain key personnel;

• CIB Marine’s ability to attract and retain core deposits;

• Adverse changes in business conditions in the banking industry generally and in the markets in which CIB Marine operates;

• Changes in the legislative and regulatory environment which adversely affect CIB Marine;

• Changes in accounting policies and practices;

• Changes in interest rates and changes in monetary and fiscal policies which could negatively affect net interest margins, asset valuations and expense expectations;

• Increased competition from other financial and nonfinancial institutions;

• Adverse changes in the valuation of assets held for disposal and/or additional losses resulting from operations or disposition thereof;

• The competitive impact of technological advances in the banking industry; and

• Other risks set forth from time to time in CIB Marine’s filings with the Securities and Exchange Commission.

     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.

Results of Operations

Overview

     Due to the underperformance of Commercial Finance, its factoring receivables subsidiary, and MSI, its mortgage banking subsidiary, CIB Marine sold the operations and substantially all of the assets of these subsidiaries during the second and third quarters of 2004, respectively. During the third quarter of 2004, to improve capital and strengthen the organization, CIB Marine implemented a plan to sell Hillside, including its subsidiary, CIB — Chicago. The net income or loss from discontinued operations, for all periods presented on the consolidated statements of operations, is comprised of impairment losses or recoveries on net assets held for disposal, gains or losses on sales of assets held for disposal and the operating results of CIB — Chicago, CIB Construction (which was

23

previously in discontinued operations), Commercial Finance and MSI, excluding intercompany transactions.

     CIB Marine had a net loss of $1.8 million and diluted loss per share of $0.10 in the third quarter of 2004 compared to a net loss of $77.2 million and diluted loss per share of $4.23 in the third quarter of 2003. The decrease in net loss of $75.4 million from the third quarter of 2003 compared to the third quarter of 2004 was due to a $24.5 million decrease in net loss from continuing operations and a $50.9 million improvement in net income from discontinued operations for the third quarter of 2004 as compared to the same period in 2003. The decrease in loss from continuing operations was driven by a $26.2 million reduction in the provision for credit losses, from a ($0.7) million provision to a $25.5 million provision for the quarters ended September 30, 2003 and 2004, respectively, and a $1.8 million decrease in write down and losses on assets, partially offset by a $5.0 million decrease in net interest income and a $1.9 million increase in professional services. The change in discontinued operations was primarily due to a $48.5 million decrease in provision for credit losses, a $4.5 million decrease in taxes, and a $3.1 million impairment loss in the third quarter of 2003 as compared to none in the third quarter of 2004. These amounts were partially offset by a $6.9 million decrease in net interest income.

     The provision for credit losses from continuing operations was ($0.7) million during the third quarter of 2004 as compared to $25.5 million during the third quarter of 2003. The provision for credit losses included in discontinued operations decreased from $49.5 million to $1.0 million during the same period. The large provision for credit losses for the third quarter of 2003 was the result of the deterioration in the credit quality the loan portfolio noted during a comprehensive review of the adequacy of the allowance for loan loss. During the last half of 2003 and in 2004, CIB Marine focused on improving the quality of its loan portfolio and enhancing its lending, credit and management culture. Additional information about nonperforming loans is discussed in “Loans-Nonperforming Assets and Loans 90 Days or More Past Due and Still Accruing Interest”. The problems associated with the credit portfolio noted in 2003 and the declining rate environment contributed to the decrease in net interest income for both continuing and discontinued operations. Due to the rate environment, write offs, and lower loan originations resulting from management’s focus on improving the quality of its loan portfolio, the average balance outstanding and the overall average yield on loans both decreased during the third quarter of 2004 as compared to the same period in 2003.

     CIB Marine records a provision for income taxes currently payable, along with a provision for income taxes payable or receivable in the future. Deferred taxes arise from temporary differences between financial statement and income tax reporting of assets and liabilities. The effective tax rates of continuing operations for the nine months ended September 30, 2004 and 2003 were (12.0%) and (6.1%), respectively. The change in the effective tax rate was primarily due to a provision for a valuation allowance against the majority of the net deferred tax asset during 2003. Due to the significant losses in 2003 and 2004, CIB Marine determined that it was not more likely than not that the net deferred tax assets would be realized in their entirety.

     CIB Marine had a net loss of $29.4 million and diluted loss per share of $1.62 for the nine months ended September 30, 2004 compared to a net loss of $98.1 million and diluted loss per share of $5.36 for the nine months ended September 30, 2003. The $68.6 million decrease in loss for the nine months ended September 30, 2004 compared to the same period of 2003 was due to a decrease of $9.7 million in loss from continuing operations and a $58.9 million decrease in loss from discontinued operations. The majority of the $9.7 million decrease in net loss from continuing operations was due to a $27.1 million decrease in the provision for credit losses, partially offset by a $13.0 million decrease in net interest income, a $2.9 million increase in professional services and a $1.9 million impairment loss on CIB Marine’s investment in MICR. The majority of the $58.9 million decrease in net loss from discontinued operations was due to an $86.9 million decrease in provision for credit losses and a $5.1 million decrease in impairment losses. These decreases to the net loss were partially offset by a $20.0 million decrease in net interest income, a $4.8 million increase in taxes and a $2.2 million increase in professional services.

     The following table sets forth selected unaudited consolidated financial data. The selected financial data should be read in conjunction with the Unaudited Consolidated Financial Statements, including the related notes.

24

Selected Consolidated Financial Data

TOTAL COMPANY-CONTINUING AND DISCONTINUED OPERATIONS:

	At or For the Quarter Ended						At or For the Nine Months Ended
	September 30,						September 30,
	2004			2003			2004				2003
	(Dollars in thousands, except share and per share data)
Selected Statements of Operations Data
Interest and dividend income	$	16,331		$	23,531		$	54,032			$	74,179
Interest expense		8,933			11,118			28,502				35,660
Net interest income		7,398			12,413			25,530				38,519
Provision for credit losses		(738	)		25,514			15,253				42,314
Net interest income after provision for credit losses		8,136			(13,101	)		10,277				(3,795	)
Noninterest income		1,159			1,900			3,308				4,425
Noninterest expense		13,645			14,259			42,226				37,835
Loss from continuing operations before income taxes		(4,350	)		(25,460	)		(28,641	)			(37,205	)
Income tax expense (benefit)		(1,069	)		2,272			(3,427	)			(2,258	)
Net loss from continuing operations		(3,281	)		(27,732	)		(25,214	)			(34,947	)
Discontinued operations:
Pretax income (loss) from discontinued operations		2,583			(43,819	)		(1,138	)			(64,869	)
Income tax expense (benefit)		1,091			5,618			3,097				(1,725	)
Net income (loss) from discontinued operations		1,492			(49,437	)		(4,235	)			(63,144	)
Net loss	$	(1,789	)	$	(77,169	)	$	(29,449	)		$	(98,091	)
Common Share Data
Basic earnings (loss) per share:
Loss from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)		$	(1.91	)
Discontinued operations		0.08			(2.71	)		(0.23	)			(3.46	)
Net loss	$	(0.10	)	$	(4.23	)	$	(1.62	)		$	(5.37	)
Diluted earnings(loss) per share:
Loss from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)		$	(1.91	)
Discontinued operations		0.08			(2.71	)		(0.23	)			(3.46	)
Net loss	$	(0.10	)	$	(4.23	)	$	(1.62	)		$	(5.37	)
Dividends		—			—			—				—
Book value per share	$	4.30		$	5.93		$	4.30			$	5.93
Weighted average shares outstanding-basic		18,232,450			18,259,831			18,250,637				18,295,555
Weighted average shares outstanding-diluted		18,232,450			18,259,831			18,250,637				18,295,555
Financial Condition Data
Total assets	$	2,645,623		$	3,361,800		$	2,645,623			$	3,361,800
Loans		1,620,137			2,566,312			1,620,137				2,566,312
Allowance for loan losses		(81,064	)		(126,999	)		(81,064	)			(126,999	)
Securities		770,972			585,245			770,972				585,245
Deposits		2,377,855			2,898,702			2,377,855				2,898,702
Borrowings, including junior subordinated debentures		148,052			256,638			148,052				256,638
Stockholders’ equity		80,351			147,992			80,351				147,992
Financial Ratios and Other Data
Performance ratios:
Net interest margin (1)		1.87	%		2.93	%		2.18	%			3.19	%
Net interest spread (2)		1.58			2.64			1.92		��		2.88
Noninterest income to average assets (3)		0.46			0.54			0.52				0.59
Noninterest expense to average assets		3.20			2.28			3.28				2.12
Efficiency ratio (4)		138.66			68.19			123.39				58.06
Return on average assets (5)		(0.26	)		(8.62	)		(1.32	)			(3.66	)
Return on average equity (6)		(9.83	)		(135.68	)		(42.55	)			(54.18	)
Asset quality ratios:
Nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing to total loans		10.55	%		8.35	%		10.55	%			8.35	%
Nonperforming assets and loans 90 days or more past due and still accruing to total assets		6.64			6.54			6.64				6.54
Allowance for loan losses to loans		5.00			4.95			5.00				4.95
Allowance for loan losses to nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing		47.42			59.25			47.42				59.25
Net charge-offs annualized to average loans		6.73			4.83			3.59				2.86
Capital ratios:
Total equity to total assets		3.04	%		4.40	%		3.04	%			4.40	%
Total risk-based capital ratio		8.46			7.63			8.46				7.63
Tier 1 risk-based capital ratio		5.45			5.90			5.45				5.90
Leverage capital ratio		3.85			4.96			3.85				4.96
Other data:
Number of employees (full-time equivalent) (7)		653			885			653				885
Number of banking facilities		57			57			57				57

(1)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets. For 2003, the effective tax rate used to calculate the tax-equivalent basis was 35%. Beginning in 2004, CIB Marine does not expect to realize all the tax benefits associated with tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, the 2004 interest income on tax-exempt earning assets has not been adjusted to reflect the tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 1.93% for the quarter ended and 2.23% for the nine months ended September 30, 2004, respectively.
(2)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(3)	Noninterest income to average assets excludes gains and losses on securities.
(4)	The efficiency ratio is noninterest expense divided by the sum of net interest income, on a tax-equivalent basis, plus noninterest income, excluding gains and losses on securities.

25

(5)	Return on average assets is annualized net income divided by average total assets.
(6)	Return on average equity is annualized net income divided by average common equity.
(7)	Does not include employees (full-time equivalent) of companies acquired from borrowers who were in default of their obligations to CIB Marine as follows:

	September 30,
	2004		2003
MICR		33		30
Canron		4		691
		37		721

CIB MARINE-CONTINUING OPERATIONS ONLY:

	At or For the Quarter Ended						At or For the Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands, except share and per share data)
Selected Statements of Operations Data
Interest and dividend income	$	16,331		$	23,531		$	54,032		$	74,179
Interest expense		8,933			11,118			28,502			35,660
Net interest income		7,398			12,413			25,530			38,519
Provision for credit losses		(738	)		25,514			15,253			42,314
Net interest income after provision for credit losses		8,136			(13,101	)		10,277			(3,795	)
Noninterest income		1,159			1,900			3,308			4,425
Noninterest expense		13,645			14,259			42,226			37,835
Loss from continuing operations before income taxes		(4,350	)		(25,460	)		(28,641	)		(37,205	)
Income tax expense (benefit)		(1,069	)		2,272			(3,427	)		(2,258	)
Net loss from continuing operations	$	(3,281	)	$	(27,732	)	$	(25,214	)	$	(34,947	)
Common Share Data
Basic loss per share from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)
Diluted loss per share from continuing operations	$	(0.18	)	$	(1.52	)	$	(1.39	)	$	(1.91	)
Dividends		—			—			—			—
Book value per share	$	4.30		$	5.93		$	4.30		$	5.93
Weighted average shares outstanding-basic		18,232,450			18,259,831			18,250,637			18,295,555
Weighted average shares outstanding-diluted		18,232,450			18,259,831			18,250,637			18,295,555
Financial Condition Data
Total assets	$	1,395,341		$	1,873,763		$	1,395,341		$	1,873,763
Loans		895,336			1,369,422			895,336			1,369,422
Allowance for loan losses		(42,859	)		(58,209	)		(42,859	)		(58,209	)
Securities		364,765			307,368			364,765			307,368
Deposits		1,236,128			1,639,523			1,236,128			1,639,523
Borrowings, including junior subordinated debentures		110,041			119,697			110,041			119,697
Stockholders’ equity		80,351			147,992			80,351			147,992
Financial Ratios and Other Data
Performance ratios:
Net interest margin (1)		2.09	%		3.02	%		2.25	%		3.11	%
Net interest spread (2)		1.79			2.71			1.95			2.78
Noninterest income to average assets (3)		0.32			0.43			0.29			0.34
Noninterest expense to average assets		3.80			3.26			3.67			2.87
Efficiency ratio (4)		159.46			97.28			146.42			85.99
Return on average assets (5)		(0.50	)		(17.62	)		(2.56	)		(7.44	)
Return on average equity (6)		(9.83	)		(135.68	)		(42.55	)		(54.18	)
Asset quality ratios:
Nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing to total loans		8.37	%		5.31	%		8.37	%		5.31	%
Nonperforming assets and loans 90 days or more past due and still accruing to total assets		5.58			4.08			5.58			4.08
Allowance for loan losses to loans		4.79			4.25			4.79			4.25
Allowance for loan losses to nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing		57.17			80.12			57.17			80.12
Net charge-offs annualized to average loans		5.47			2.72			3.20			1.52
Capital ratios:
Total equity to total assets		5.76	%		7.90	%		5.76	%		7.90	%
Total risk-based capital ratio		8.46			7.63			8.46			7.63
Tier 1 risk-based capital ratio		5.45			5.90			5.45			5.90
Leverage capital ratio		3.85			4.96			3.85			4.96
Other data:
Number of employees (full-time equivalent) (7)		505			583			505			583
Number of banking facilities		41			41			41			41

26

(1)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets. For 2003, the effective tax rate used to calculate the tax-equivalent basis was 35%. Beginning in 2004, CIB Marine does not expect to realize all the tax benefits associated with tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, the 2004 interest income on tax-exempt earning assets has not been adjusted to reflect the tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 2.17% for the quarter ended and 2.32% for the nine months ended September 30, 2004, respectively.
(2)	Net interest rate spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(3)	Noninterest income to average assets excludes gains and losses on securities.
(4)	The efficiency ratio is noninterest expense divided by the sum of net interest income, on a tax-equivalent basis, plus noninterest income, excluding gains and losses on securities.
(5)	Return on average assets is annualized net income divided by average total assets.
(6)	Return on average equity is annualized net income divided by average common equity.
(7)	Does not include employees (full-time equivalent) of companies in discontinued operations as follows:

	At September 30,
	2004		2003
CIB — Chicago		149		176
MICR		33		30
Commercial Finance		—		13
MSI		—		114
Canron		4		691
		186		1,024

Net Interest Income

     The following tables set forth information regarding average balances, interest income, or interest expense, and the average rates earned or paid for each of CIB Marine’s major asset, liability and stockholders’ equity categories. For 2003, the tables express interest income on a tax-equivalent basis in order to compare the effective yield on earning assets. This means that the interest income on tax-exempt loans and tax-exempt securities has been adjusted to reflect the income tax savings at a federal income tax rate of 35% provided by these tax-exempt assets. Beginning in 2004, CIB Marine does not expect to realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004. Accordingly, interest income on tax-exempt loans and tax-exempt securities for 2004 has not been adjusted to reflect the tax-equivalent basis. See the income tax section of this Form 10-Q for additional information.

TOTAL COMPANY-CONTINUING AND DISCONTINUED OPERATIONS:

	Quarter Ended September 30,
	2004								2003
	Average			Interest		Average			Average			Interest		Average
	Balance			Earned/Paid		Yield/Cost			Balance			Earned/ Paid		Yield/Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	744,817		$	4,219		2.27	%	$	516,291		$	2,696		2.09	%
Tax-exempt (1)		44,867			439		3.91			59,812			855		5.72
Total securities		789,684			4,658		2.36			576,103			3,551		2.47
Loans(2)(3):
Commercial		488,975			5,799		4.72			750,311			10,992		5.81
Commercial real estate		1,230,547			17,134		5.54			1,845,146			28,608		6.15
Consumer		34,496			555		6.40			49,279			781		6.29
Total loans		1,754,018			23,488		5.33			2,644,736			40,381		6.06
Federal funds sold		137,043			494		1.43			16,026			45		1.11
Loans held for sale		19,585			344		6.99			168,390			2,202		5.19
Total interest-earning assets		2,700,330			28,984		4.27			3,405,255			46,179		5.38
Noninterest-earning assets
Cash and due from banks		50,383								53,328
Premises and equipment		27,778								29,958
Allowance for loan losses		(110,639	)							(91,730	)
Receivables from sale of stock		(4,068	)							(7,907	)
Accrued interest receivable and other assets		67,614								163,377
Total noninterest-earning assets		31,068								147,026
Total assets	$	2,731,398							$	3,552,281
Liabilities and Stockholders’ Equity
Interest-bearing liabilities

27

	Quarter Ended September 30,
	2004								2003
	Average			Interest		Average			Average			Interest		Average
	Balance			Earned/Paid		Yield/Cost			Balance			Earned/ Paid		Yield/Cost
	(Dollars in thousands)
Deposits:
Interest-bearing demand deposits	$	89,127		$	270		1.21	%	$	72,259		$	193		1.06	%
Money market		328,564			1,137		1.38			452,560			1,773		1.55
Other savings deposits		188,600			627		1.32			267,927			1,116		1.65
Time deposits(4)		1,668,047			12,127		2.89			1,936,710			15,575		3.19
Total interest-bearing deposits		2,274,338			14,161		2.48			2,729,456			18,657		2.71
Borrowings — short-term		52,140			483		3.69			215,830			852		1.57
Borrowings — long-term (4)		36,896			215		2.32			46,624			285		2.43
Junior subordinated debentures/ guaranteed trust preferred securities		61,857			1,441		9.32			60,000			1,280		8.53
Total borrowed funds		150,893			2,139		5.66			322,454			2,417		2.99
Total interest-bearing liabilities		2,425,231			16,300		2.69			3,051,910			21,074		2.74
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		184,359								212,695
Accrued interest and other liabilities		49,403								62,034
Total noninterest-bearing liabilities		233,762								274,729
Total liabilities		2,658,993								3,326,639
Stockholders’ equity		72,405								225,642
Total liabilities and stockholders’ equity	$	2,731,398							$	3,552,281
Net interest income and interest rate spread (1)(5)				$	12,684		1.58	%				$	25,105		2.64	%
Net interest-earning assets	$	275,099							$	353,345
Net interest margin (1)(6)							1.87	%							2.93	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.11	%							1.12	%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 1.93%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $0.6 million and $2.6 million for the quarters ended September 30, 2004 and 2003, respectively.
(4)	Interest rate and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.
(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.

     TOTAL COMPANY-CONTINUING AND DISCONTINUED:

	Nine Months Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	681,483		$	11,606		2.27	%	$	487,254		$	9,967		2.73	%
Tax-exempt (1)		47,565			1,354		3.80			61,022			2,627		5.74
Total securities		729,048			12,960		2.37			548,276			12,594		3.06
Loans (2)(3):
Commercial		590,611			22,503		5.09			770,951			35,218		6.11
Commercial real estate		1,410,331			60,951		5.77			1,886,635			92,267		6.54
Consumer		40,118			1,767		5.88			53,244			2,552		6.41
Total loans		2,041,060			85,221		5.58			2,710,830			130,037		6.41
Federal funds sold		109,981			980		1.19			27,740			317		1.53
Loans held for sale		31,950			1,466		6.13			147,240			5,861		5.32
Total interest-earning assets		2,912,039			100,627		4.61			3,434,086			148,809		5.79
Noninterest-earning assets
Cash and due from banks		49,942								50,256
Premises and equipment		28,586								29,246
Allowance for loan losses		(109,347	)							(78,574	)
Receivables from sale of stock		(4,572	)							(7,927	)
Accrued interest receivable and other assets		94,887								153,074
Total noninterest-earning assets		59,496								146,075
Total assets	$	2,971,535							$	3,580,161
Liabilities and Stockholders’ Equity Interest-bearing liabilities
Deposits:

28

	Nine Months Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Interest-bearing demand deposits	$	87,768		$	741		1.13	%	$	67,694		$	535		1.06	%
Money market		367,876			3,813		1.38			417,775			5,364		1.72
Other savings deposits		212,378			2,180		1.37			241,702			3,401		1.88
Time deposits (4)		1,797,846			39,422		2.93			1,998,695			49,905		3.34
Total interest-bearing deposits		2,465,868			46,156		2.50			2,725,866			59,205		2.90
Borrowings — short-term		67,675			2,082		4.11			239,514			2,904		1.62
Borrowings — long-term (4)		40,938			698		2.28			46,940			873		2.49
Junior subordinated debentures/ guaranteed trust preferred securities		61,857			4,205		9.06			60,000			3,903		8.67
Total borrowed funds		170,470			6,985		5.47			346,454			7,680		2.96
Total interest-bearing liabilities		2,636,338			53,141		2.69			3,072,320			66,885		2.91
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		193,484								204,388
Accrued interest and other liabilities		49,262								61,414
Total noninterest-bearing liabilities		242,746								265,802
Total liabilities		2,879,084								3,338,122
Stockholders’ equity		92,451								242,039
Total liabilities and stockholders’ equity	$	2,971,535							$	3,580,161
Net interest income and interest rate spread (1)(5)				$	47,486		1.92	%				$	81,924		2.88	%
Net interest-earning assets	$	275,701							$	361,766
Net interest margin (1)(6)							2.18	%							3.19	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.10	%							1.12	%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 2.23%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $2.5 million and $7.7 million for the nine months ended September 30, 2004 and 2003, respectively.
(4)	Interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.
(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.

Reconciliation of Net Interest Income

	Quarter ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Interest Income reported in margin table (1)	$	28,984		$	46,179		$	100,627		$	148,809
Taxable equivalent adjustment continuing operations — tax-exempt securities		N/A			(166	)		N/A			(508	)
Taxable equivalent adjustment continuing operations — tax-exempt loans		N/A			(167	)		N/A			(507	)
Taxable equivalent adjustment — discontinued operations		N/A			(133	)		N/A			(412	)
Interest income included in discontinued operations		(12,653	)		(22,182	)		(46,595	)		(73,203	)
Interest income as reported in consolidated statement of operations		16,331			23,531			54,032			74,179
Interest expense reported in margin table		16,300			21,074			53,141			66,885
Interest expense included in discontinued operations		(7,367	)		(9,956	)		(24,639	)		(31,225	)
Interest expense as reported in consolidated statement of operations		8,933			11,118			28,502			35,660
Net interest income reported in margin table		12,684			25,105			47,486			81,924
Tax equivalent adjustment		N/A			(466	)		N/A			(1,427	)
Net discontinued operations		(5,286	)		(12,226	)		(21,956	)		(41,978	)
Net interest income continuing operations, net of adjustments reported in consolidated statement of operations	$	7,398		$	12,413		$	25,530		$	38,519

(1) Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis.

29

     CIB MARINE-CONTINUING OPERATIONS ONLY:

	Quarter Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	354,058		$	2,236		2.53	%	$	263,249		$	1,639		2.49	%
Tax-exempt (1)		20,767			224		4.31			32,605			473		5.80
Total securities		374,825			2,460		2.63			295,854			2,112		2.86
Loans(2)(3):
Commercial		274,152			3,403		4.94			437,750			6,185		5.61
Commercial real estate		665,185			9,696		5.80			899,597			14,978		6.61
Consumer		29,337			488		6.62			35,139			563		6.36
Total loans		968,674			13,587		5.58			1,372,486			21,726		6.28
Federal funds sold		65,132			237		1.45			9,710			26		1.06
Loans held for sale		1,413			47		13.23			—			—		—
Total interest-earning assets (1)		1,410,044			16,331		4.61			1,678,050			23,864		5.65
Noninterest-earning assets
Cash and due from banks		35,294								30,469
Premises and equipment		14,995								16,658
Allowance for loan losses		(57,258	)							(43,471	)
Receivables from sale of stock		(3,448	)							(4,229	)
Accrued interest receivable and other assets		29,259								59,884
Total noninterest-earning assets		18,842								59,311
Total assets of continuing operations		1,428,886								1,737,361
Assets of companies held for disposal		1,302,512								1,814,920
Total assets	$	2,731,398							$	3,552,281
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Deposits:
Interest-bearing demand deposits	$	65,180		$	205		1.25	%	$	50,766		$	131		1.02	%
Money market		270,441			941		1.38			387,204			1,582		1.62
Other savings deposits		41,527			126		1.21			29,131			88		1.20
Time deposits (4)		781,108			5,743		2.92			923,073			7,541		3.24
Total interest-bearing deposits		1,158,256			7,015		2.41			1,390,174			9,342		2.67
Borrowings — short-term		34,794			384		4.39			34,562			293		3.36
Borrowings — long-term (4)		7,250			93		5.10			15,750			203		5.11
Junior subordinated debentures/ guaranteed trust preferred securities		61,857			1,441		9.32			60,000			1,280		8.53
Total borrowed funds		103,901			1,918		7.37			110,312			1,776		6.43
Total interest-bearing liabilities		1,262,157			8,933		2.82			1,500,486			11,118		2.94
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		121,708								137,044
Accrued interest and other liabilities		19,398								10,718
Total noninterest-bearing liabilities		141,106								147,762
Total liabilities of continuing operations		1,403,263								1,648,248
Liabilities of companies held for disposal		1,255,730								1,678,391
Total liabilities		2,658,993								3,326,639
Stockholders’ equity		72,405								225,642
Total liabilities and stockholders’ equity	$	2,731,398							$	3,552,281
Net interest income and interest rate spread(1)(5)				$	7,398		1.79	%				$	12,746		2.71	%
Net interest-earning assets	$	147,887							$	177,564
Net interest margin (1)(6)							2.09	%							3.02	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.12	%							1.12	%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004 and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 2.17%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $0.3 million and $1.2 million for the quarters ended September 30, 2004 and 2003, respectively.
(4)	Interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.

30

(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.
(7)	For comparative purposes, assets and liabilities of companies held for disposal include MSI and Hillside, including MICR, CIB Construction and CIB-Chicago for all periods presented.

CIB MARINE-CONTINUING OPERATIONS ONLY:

	Nine Months Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	355,376		$	6,625		2.49	%	$	261,601		$	5,912		3.01	%
Tax-exempt (1)		20,836			680		4.35			32,660			1,449		5.92
Total securities		376,212			7,305		2.59			294,261			7,361		3.34
Loans(2)(3):
Commercial		321,528			11,975		4.97			457,534			20,866		6.10
Commercial real estate		732,280			32,598		5.95			895,859			44,946		6.71
Consumer		32,158			1,455		6.04			38,346			1,845		6.43
Total loans		1,085,966			46,028		5.66			1,391,739			67,657		6.50
Federal funds sold		53,772			486		1.21			15,456			176		1.52
Loans held for sale		2,154			213		13.21			—			—		—
Total interest-earning assets		1,518,104			54,032		4.75			1,701,456			75,194		5.91
Noninterest-earning assets
Cash and due from banks		32,065								28,515
Premises and equipment		15,508								16,127
Allowance for loan losses		(53,777	)							(36,512	)
Receivables from sale of stock		(2,414	)							(2,430	)
Accrued interest receivable and other assets		27,179								54,630
Total noninterest-earning assets		18,561								60,330
Total assets of continuing operations		1,536,665								1,761,786
Assets of companies held for disposal		1,434,870								1,818,375
Total assets	$	2,971,535							$	3,580,161
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Deposits:
Interest-bearing demand deposits	$	62,975		$	545		1.16	%	$	48,759		$	381		1.04	%
Money market		311,711			3,287		1.41			359,227			4,829		1.80
Other savings deposits		39,224			353		1.20			26,808			267		1.33
Time deposits(4)		840,818			18,667		2.97			973,102			24,833		3.41
Total interest-bearing deposits		1,254,728			22,852		2.43			1,407,896			30,310		2.88
Borrowings — short-term		31,600			1,021		4.32			39,564			843		2.85
Borrowings — long-term (4)		11,004			424		5.15			15,750			604		5.13
Junior subordinated debentures/ guaranteed trust preferred securities		61,857			4,205		9.06			60,000			3,903		8.67
Total borrowed funds		104,461			5,650		7.21			115,314			5,350		6.19
Total interest-bearing liabilities		1,359,189			28,502		2.80			1,523,210			35,660		3.13
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		124,346								130,676
Accrued interest and other liabilities		11,740								12,322
Total noninterest-bearing liabilities		136,086								142,998
Total liabilities of continuing operations		1,495,275								1,666,208
Liabilities of companies held for disposal		1,383,809								1,671,914
Total liabilities		2,879,084								3,338,122
Stockholders’ equity		92,451								242,039
Total liabilities and stockholders’ equity	$	2,971,535							$	3,580,161
Net interest income and interest rate spread(1)(5)				$	25,530		1.95	%				$	39,534		2.78	%
Net interest-earning assets	$	158,915							$	178,246
Net interest margin (1)(6)							2.25	%							3.11	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.12	%							1.12	%

31

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 2.32%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $1.2 million and $3.4 million for the nine months ended September 30, 2004 and 2003, respectively.
(4)	Interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.
(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.

     Net interest income decreased $5.3 million, or 42.0%, from $12.7 million for the third quarter of 2003, on a tax-equivalent basis, to $7.4 million for the third quarter of 2004. The decrease was primarily due to a $0.3 billion, or a 16.0% decrease in the average balance of interest-earning assets and a 104 basis point reduction in the average yield on these assets. The principal source of this decrease occurred in commercial and commercial real estate loans.

     Net interest income decreased $14.0 million, or 35.4%, from $39.5 million for the nine months ended September 30, 2003, on a tax-equivalent basis, to $25.5 million for the nine months ended September 30, 2004. The decrease in net interest income was primarily due a $0.2 billion, or 10.8% reduction in the average balance and a 116 basis point reduction in the average yields on interest-earning assets for the first nine months of 2004 as compared to the same period in 2003. The principal source of this decrease occurred in commercial, commercial real estate loans and loans held for sale.

     CIB Marine’s net interest spread declined by 92 basis points from 2.71% for the third quarter of 2003 to 1.79% for the third quarter of 2004. The net interest spread for the nine months ended September 30, 2004 as compared to the same period in 2003 declined by 83 basis points. The net interest margin declined 93 basis points from 3.02% for the third quarter of 2003 to 2.09% for the third quarter of 2004 and decreased by 86 basis points from 3.11% for the nine months ended September 30, 2003 to 2.25% for the nine months ended September 30, 2004. These declines were the result of the reduction in loans as a percentage of total earning assets, high levels of nonaccrual loans and holding short-term liquid assets in a steep yield curve environment. To reduce liquidity risk, management increased the percentage of short-term liquid assets to total assets. Short-term liquid assets include cash and due from banks, federal funds, reverse repurchase agreements and investment securities.

     Total interest income decreased $7.5 million, or 31.6%, from $23.9 million, on a tax equivalent basis, in the third quarter of 2003 to $16.3 million in the third quarter of 2004. The decrease was primarily the result of a decline in the average balance of interest-earning assets and a 104 basis point decline in the yield on these assets. Interest income on loans, the largest component of interest-earning assets, decreased by $8.1 million, or 37.5% due to a $0.4 billion decrease in the average balance and a 70 basis point decrease in the loan yield. This decrease was partially offset by a $0.3 million increase in interest income on securities driven by an increase in the average balance.

     Total interest income decreased $21.2 million, or 28.1%, from $75.2 million, on a tax equivalent basis, for the nine months ended September 30, 2003 to $54.0 million for the nine months ended September 30, 2004. The decrease was primarily the result of the 116 basis point decline in the yield on average earning assets and lower average earning asset balances. Loan income decreased $21.6 million, or 32.0%, due to lower average balances and lower rates earned. The yield on loans decreased from 6.50% for the nine months ended September 30, 2003 to 5.66% for the same period in 2004.

     Total interest expense decreased $2.2 million, or 19.7%, from $11.1 million in the third quarter of 2003 to $8.9 million in the third quarter of 2004. This reduction was primarily the result of the decrease in the average balance of interest-bearing liabilities of $0.2 billion. Interest expense on deposits decreased 24.9% due to lower average deposit balances and interest rates paid.

     For the nine-month period ended September 30, 2004, total interest expense decreased $7.2 million, or 20.1%, from $35.7 million for the nine months ended September 30, 2003 to $28.5 million in 2004. This reduction was primarily the result of the decrease in the average balance of interest-bearing liabilities of $0.2 billion and a 33 basis point decline in the rate paid. Interest expense on deposits decreased by 24.6% due to lower interest rates paid and decreased average deposit balances. The average balance on interest-bearing deposits decreased $0.2 billion and the yield decreased 45 basis points.

     The following table presents an analysis of changes in net interest income, on a tax-equivalent basis, resulting from changes in average volumes of interest-earning assets and interest-bearing liabilities and average rates earned and paid:

32

TOTAL COMPANY-CONTINUING AND DISCONTINUED OPERATIONS:

	Quarter Ended September 30, 2004 Compared to												Nine Months Ended September 30, 2004 Compared to
	Quarter Ended September 30, 2003(2)												Nine Months Ended September 30, 2003 (2)
										%												%
	Volume			Rate			Total			Change			Volume			Rate			Total			Change
	(Dollars in thousands)
Interest Income
Securities — taxable	$	1,278		$	245		$	1,523			56.49	%	$	3,505		$	(1,866	)	$	1,639			16.44	%
Securities — tax-exempt (1)		(183	)		(233	)		(416	)		(48.65	)		(502	)		(771	)		(1,273	)		(48.46	)
Total securities		1,095			12			1,107			31.17			3,003			(2,637	)		366			2.91
Commercial		(3,371	)		(1,822	)		(5,193	)		(47.24	)		(7,424	)		(5,291	)		(12,715	)		(36.10	)
Commercial real estate		(8,835	)		(2,639	)		(11,474	)		(40.11	)		(21,393	)		(9,923	)		(31,316	)		(33.94	)
Consumer		(240	)		14			(226	)		(28.94	)		(590	)		(195	)		(785	)		(30.76	)
Total loans (including fees)		(12,446	)		(4,447	)		(16,893	)		(41.83	)		(29,407	)		(15,409	)		(44,816	)		(34.46	)
Federal funds sold		433			16			449			997.78			748			(85	)		663			209.15
Loans held for sale		(2,429	)		571			(1,858	)		(84.38	)		(5,173	)		778			(4,395	)		(74.99	)
Total interest income (1)		(13,347	)		(3,848	)		(17,195	)		(37.24	)		(30,829	)		(17,353	)		(48,182	)		(32.38	)
Interest Expense
Interest-bearing demand deposits		49			28			77			39.90			168			38			206			38.50
Money market		(449	)		(187	)		(636	)		(35.87	)		(592	)		(959	)		(1,551	)		(28.91	)
Other savings deposits		(293	)		(196	)		(489	)		(43.82	)		(377	)		(844	)		(1,221	)		(35.90	)
Time deposits		(2,060	)		(1,388	)		(3,448	)		(22.14	)		(4,721	)		(5,762	)		(10,483	)		(21.01	)
Total deposits		(2,753	)		(1,743	)		(4,496	)		(24.10	)		(5,522	)		(7,527	)		(13,049	)		(22.04	)
Borrowings — short-term		(959	)		590			(369	)		(43.31	)		(3,104	)		2,282			(822	)		(28.31	)
Borrowings — long-term		(57	)		(13	)		(70	)		(24.56	)		(106	)		(69	)		(175	)		(20.05	)
Junior subordinated debentures/guaranteed trust preferred securities		40			121			161			12.58			123			179			302			7.74
Total borrowed funds		(976	)		698			(278	)		(11.50	)		(3,087	)		2,392			(695	)		(9.05	)
Total interest expense		(3,729	)		(1,045	)		(4,774	)		(22.65	)		(8,609	)		(5,135	)		(13,744	)		(20.55	)
Net interest income (1)	$	(9,618	)	$	(2,803	)	$	(12,421	)		(49.48)	%	$	(22,220	)	$	(12,218	)	$	(34,438	)		(42.04	)%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis.
(2)	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. Nonaccrual loans were included in the average balances used in determining yields.

CIB MARINE-CONTINUING OPERATIONS ONLY:

	Quarter Ended September 30, 2004 Compared to												Nine Months Ended September 30, 2004 Compared to
	Quarter Ended September 30, 2003(2)												Nine Months Ended September 30, 2003 (21
										%												%
	Volume			Rate			Total			Change			Volume			Rate			Total			Change
	(Dollars in thousands)
Interest Income
Securities — taxable	$	573		$	24		$	597			36.42	%	$	1,870		$	(1,157	)	$	713			12.06	%
Securities — tax-exempt (2)		(146	)		(103	)		(249	)		(52.64	)		(445	)		(324	)		(769	)		(53.07	)
Total securities		427			(79	)		348			16.48			1,425			(1,481	)		(56	)		(0.76	)
Commercial		(2,111	)		(671	)		(2,782	)		(44.98	)		(5,490	)		(3,401	)		(8,891	)		(42.61	)
Commercial real estate		(3,596	)		(1,686	)		(5,282	)		(35.27	)		(7,613	)		(4,735	)		(12,348	)		(27.47	)
Consumer		(97	)		22			(75	)		(13.32	)		(284	)		(106	)		(390	)		(21.14	)
Total loans (including fees)		(5,804	)		(2,335	)		(8,139	)		(37.46	)		(13,387	)		(8,242	)		(21,629	)		(31.97	)
Federal funds sold		198			13			211			811.54			353			(43	)		310			176.14
Loans held for sale		47			—			47			—			213			—			213			—
Total interest income (1)		(5,132	)		(2,401	)		(7,533	)		(31.57	)		(11,396	)		(9,766	)		(21,162	)		(28.14	)
Interest Expense
Interest-bearing demand deposits		41			33			74			56.49			120			44			164			43.04
Money market		(432	)		(209	)		(641	)		(40.52	)		(586	)		(956	)		(1,542	)		(31.93	)
Other savings deposits		37			1			38			43.18			114			(28	)		86			32.21
Time deposits		(1,100	)		(698	)		(1,798	)		(23.84	)		(3,142	)		(3,024	)		(6,166	)		(24.83	)
Total deposits		(1,454	)		(873	)		(2,327	)		(24.91	)		(3,494	)		(3,964	)		(7,458	)		(24.61	)
Borrowings — short-term		2			89			91			31.06			(194	)		372			178			21.12
Borrowings — long-term		(110	)		—			(110	)		(54.19	)		(182	)		2			(180	)		(29.80	)
Junior subordinated debentures		40			121			161			12.58			123			179			302			7.74
Total borrowed funds		(68	)		210			142			8.00			(253	)		553			300			5.61
Total interest expense		(1,522	)		(663	)		(2,185	)		(19.65	)		(3,747	)		(3,411	)		(7,158	)		(20.07	)
Net interest income (1)	$	(3,610	)	$	(1,738	)	$	(5,348	)		(41.96	)%	$	(7,649	)	$	(6,355	)	$	(14,004	)		(35.42	)%

(1) Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004, and as of December 31, 2004, no US federal or state loss carryback potential remains. Accordingly, 2004 is not presented on a tax-equivalent basis.

33

(2) 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. Nonaccrual loans were included in the average balances used in determining yields.

Provision for Credit Losses

     The provision for credit losses represents charges made to earnings in order to maintain an adequate allowance for loan losses and losses on unfunded commitments and standby letters of credit. The provision for credit losses was a negative $0.7 million for the third quarter of 2004, as compared to $25.5 million expense for the same period of 2003. For the nine-month period ended September 30, 2004, the provision for credit losses was $15.3 million, as compared to $42.3 million for the same period of 2003, representing a decrease of 64.0%. The decrease in the provision is primarily due to a decline in the amount of loans outstanding and a higher provision in 2003 resulting from credit risk associated with certain borrowing relationships and certain risks associated with the growth of the loan portfolio. Charge-offs taken in the third quarter of 2004 were mostly on loans with previously recorded specific reserves. Nonaccrual loans for companies included in continuing operations decreased 14.6% in the third quarter of 2004 as compared to June 30, 2004.

Noninterest Income

     The following table presents the significant components of noninterest income:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Loan fees	$	252	$	342	$	746	$	944
Deposit service charges		415		506		1,310		1,430
Other service fees		128		41		222		135
Other income		364		1,011		1,030		1,916
	$	1,159	$	1,900	$	3,308	$	4,425

     Noninterest income decreased $0.7 million or 39.0%, from $1.9 million for the third quarter of 2003 to $1.2 million for the third quarter of 2004 mainly due to a $0.6 million decrease in other noninterest income. The decrease in other noninterest income was primarily due to $0.4 million in equity income of limited partnerships during the third quarter of 2003 as compared to none during the same period in 2004. CIB Marine sold its interest in these limited partnerships during the first quarter of 2004. Additionally, the fair value adjustment on derivatives decreased $0.2 million during the third quarter of 2004 as compared to the third quarter of 2003.

     Noninterest income decreased $1.1 million, or 25.2%, from $4.4 million for the nine months ended September 30, 2003 to $3.3 million for nine months ended September 30 2004. The decrease was primarily due to $0.8 million equity income of limited partnerships recognized during the first nine months of 2003 as compared to none in 2004. CIB Marine sold its interest in these limited partnerships during the first quarter of 2004. Additionally, loan fees decreased $0.2 million during the first nine months of 2004 as compared the same period in 2003 due to lower loan originations as CIB Marine focused its resources from that of growth to improving the quality of its credit portfolio.

Noninterest Expense

     The following table presents the significant components of noninterest expense:

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Compensation and employee benefits	$	6,800	$	7,631	$	22,425	$	23,000
Equipment		1,005		1,090		3,260		3,164
Occupancy and premises		803		726		2,426		2,197
Professional services		2,317		394		4,237		1,354
Goodwill impairment loss		—		—		1,921		—
Write down and losses on assets		584		2,416		1,783		2,530
Other expense:
Payroll and other processing charges		29		28		96		99
Correspondent bank charges		92		103		296		281

34

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Advertising/marketing		134		176		463		486
Communications		278		360		881		1,101
Supplies and printing		81		90		280		331
Shipping and handling		202		191		609		510
Collection expense		26		16		99		58
FDIC and state assessments		427		132		1,302		372
Recording and filing fees		33		39		90		94
Foreclosed property		9		77		107		373
Other expense		825		790		1,951		1,885
Total other expense		2,136		2,002		6,174		5,590
Total noninterest expense	$	13,645	$	14,259	$	42,226	$	37,835

     Total noninterest expense decreased $0.6 million, or 4.3%, from $14.3 million for the third quarter of 2003 to $13.6 million for the third quarter of 2004. The decrease was primarily due to a reduction in compensation and employee benefits and reduced write down and losses on assets. These decreases were partially offset by increases in professional fees and FDIC and state assessments.

     Compensation and employee benefits expense is the largest component of noninterest expense and represented 49.8% of total noninterest expense for the third quarter of 2004 compared to 53.5% for the third quarter of 2003. Compensation and employee benefits expense decreased $0.8 million, or 10.9%, from $7.6 million for the third quarter of 2003, to $6.8 million for the third quarter of 2004. The decrease in compensation and benefit expense is primarily due to an overall cost savings program begun by CIB Marine in June 2004. The program included a reduction in force program, restrictions on salaries and hiring, tight expense controls and some executive management salary reductions. The total number of full-time equivalent employees of companies included in continuing operations decreased from 583 at September 30, 2003 to 505 at September 30, 2004.

     Net write downs and losses on assets decreased $1.8 million, or 75.8%, from $2.4 million for the third quarter of 2003 to $0.6 million for the third quarter of 2004. During the third quarter of 2004, CIB Marine sold a limited amount of loans held by its mezzanine lending company as part of the restructuring of its loan portfolio and recognized a $0.6 million loss related to the sale. During 2003, CIB Marine recognized a $1.2 million market value loss relating to the unconsolidated interest CIB Marine has in a closely held information services company. There were no such impairment losses in the third quarter of 2004. Additionally, in the third quarter of 2003, CIB Marine recognized a net $1.2 million loss on sales and impairments of foreclosed properties as compared to none during the same period in 2004.

     Professional services expense increased $1.9 million from $0.4 million to $2.3 million for the quarters ended September 30, 2003 and 2004, respectively, primarily due to an independent investigation and strategic planning. In October 2003, a Special Review Committee of the Board of Directors of CIB Marine was established to evaluate credit and other issues which had come to the attention of the Board of Directors. The committee engaged the assistance of outside advisors, including independent legal counsel and an external loan review firm, to conduct an independent investigation of developments. During the third quarter of 2004, $1.4 million of legal fees relating to the independent investigation were incurred. In early 2004 the Board of Directors also engaged a consulting firm to investigate various strategic alternatives to strengthen the capital position of the Company. Professional services costs related to this process were approximately $0.3 million for the third quarter of 2004.

     Total noninterest expense increased $4.4 million, or 11.6%, from $37.8 million for the nine months ended September 30, 2003 to $42.2 million for the nine months ended September 30, 2004. The increase was primarily due a $1.9 million impairment loss recognized on CIB’s investment in MICR and an increase in professional fees and FDIC and state assessments. These amounts were partially offset by decreases in compensation and employee benefits and write down and losses on other assets.

     Professional services expense increased $2.9 million from $1.3 million to $4.2 million for the nine months ended September 30, 2003 and 2004, respectively, primarily due to an independent investigation and strategic planning. In October 2003, a Special Review Committee of the Board of Directors of CIB Marine was established to evaluate credit and other issues which had come to the attention of the Board of Directors. The committee engaged the assistance of outside advisors, including independent legal counsel and an external loan review firm, to conduct an independent investigation of developments. During the nine months ended September 30, 2004, $1.7 million of legal fees relating to the independent investigation were incurred. In early 2004 the Board of Directors also engaged a consulting firm to investigate various strategic alternatives to strengthen the capital position of the company. Professional services costs related to this process were approximately $0.8 million for the nine months ended September 30, 2004.

35

     FDIC and state assessments increased $0.9 million, from $0.4 million for the nine months ended September 30, 2003 to $1.3 million for the same period in 2004. The increase was driven by higher FDIC insurance premiums which are assessed based on the risk each financial institution poses to the FDIC insurance funds as measured by the capital category and supervisory category assigned to each institution. During 2004, certain of CIB Marine’s subsidiary banks were assigned a higher risk assessment classification than in 2003, resulting in a higher assessment rate imposed by the FDIC.

     Compensation and employee benefits expense represented 53.1% of total noninterest expense for the nine months ended September 30, 2004 compared to 60.8% for the same period of 2003. Compensation and employee benefits expense decreased $0.6 million, or 2.5%, from $23.0 million for the nine months ended September 30, 2003, to $22.4 million for the same period in 2004. The decrease in compensation and benefit expense is primarily due to an overall cost savings program begun by CIB Marine in June 2004. The program included a reduction in force program, restrictions on salaries and hiring, tight expense controls and some executive management salary reductions. The total number of full-time equivalent employees of companies included in continuing operations decreased from 583 at September 30, 2003 to 505 at September 30, 2004. Additionally, CIB Marine’s total contribution to its employee 401(k) plan and employee stock ownership plan decreased $0.3 million during the nine months ended September 30, 2004 as compared to the same period in 2003. During 2004, CIB Marine did not make any contributions to its employee stock ownership plan and during the first quarter of 2004, CIB Marine suspended the matching contribution to the 401(k) plan.

     Net write downs and losses on assets decreased $0.7 million from $2.5 million for the nine months ended September 30, 2003 to $1.8 million for the nine months ended September 30, 2004. The decrease was mainly due to a net decrease in the market value adjustment of two closely held investment interests and a decrease in loss on foreclosed properties, partially offset by loss on loan sales. During the first nine months of 2003, CIB Marine recognized a $1.2 million market value loss relating to the unconsolidated interest CIB Marine had in a closely held information services company as compared to a $0.3 million loss during the same period of 2004. Additionally, net loss on foreclosed properties decreased $0.6 million from $1.2 million to $0.6 million for the nine months ended September 30, 2003 and 2004, respectively. These decreases in losses were partially offset by a $0.2 million market value loss on a closely held manufacturing company as compared to none during the same period of 2003 and a $0.6 million loss on loans sold during the nine months ended September 30, 2004. During the third quarter of 2004, CIB Marine sold a limited amount of loans held by its mezzanine lending company as part of the restructuring of its loan portfolio. There were no such loan sales during the nine months ended September 30, 2003.

Discontinued Operations

     Overview-discontinued operations

     Loss from discontinued operations is comprised of impairment losses on assets held for disposal, gains and losses on sale of assets held for disposal and the consolidated operating results of MSI and CIB — Chicago, including its subsidiaries CIB Construction and Commercial Finance. During the third quarter of 2004, to improve capital and strengthen the organization, CIB Marine implemented a plan to sell Hillside, including its subsidiary, CIB — Chicago. The net income or loss of Hillside, CIB Construction, Commercial Finance and CIB Marine’s mortgage banking segment are included in loss from discontinued operations on the consolidated statements of income for the quarter and nine months ended September 30, 2004.

     Net income from discontinued operations was $1.4 million for the quarter ended September 30, 2004 as compared to a net loss of $49.4 million for the same period in 2003. The $50.9 million change in discontinued operations was primarily due to a $48.5 million decrease in provision for credit losses, a $4.5 million decrease in taxes and a $3.1 million impairment loss on net assets of companies held for disposal in the third quarter of 2003 as compared to none in the third quarter of 2004. These amounts were partially offset by a $6.9 million decrease in net interest income.

     Net loss from discontinued operations decreased from $63.1 million for the nine months ended September 30, 2003 to $4.2 million during the same period of 2004. The $58.9 million decrease was primarily due to an $86.9 million decrease in provision for credit losses and a $4.8 million decrease in impairment losses on assets of companies held for disposal. These decreases to the net loss were partially offset by a $20.0 million decrease in net interest income, a $4.8 million increase in taxes and a $2.2 million increase in professional services. Due to the rate environment, write offs, and lower loan originations resulting from management’s focus on improving the quality of its loan portfolio, the average balance outstanding and the overall average yield on loans decreased during the third quarter of 2004 as compared to the same period in 2003.

36

Net Interest Income-discontinued operations

     Net interest income from discontinued operations for the quarter ended September 2004 as compared to the tax-equivalent basis for 2003, decreased $7.1 million, or 57.2%, from $12.4 million, in 2003, to $5.3 million in 2004. The decline was driven by a $9.7 million decrease in interest income. The decrease in interest income was primarily due to a $8.8 million decrease in interest income on loans resulting from a decrease in the average balance and yield on these assets and a $1.9 million decrease in interest income on loans held for sale. The average balance of loans declined $486.9 million from $1.3 billion during the third quarter of 2003 to $785.3 million during the same period in 2004. Due to the rate environment, write offs, and lower loan originations resulting from management’s focus on improving the quality of its loan portfolio, the average balance outstanding and the overall average yield on loans decreased during the third quarter of 2004 as compared to the same period in 2003. The decrease in interest income on loans and loans held for sale was partially offset by a $0.8 million increase in interest income on securities due to an increase in the average balance of securities during the third quarter of 2004 as compared to the third quarter of 2003. Additionally, interest expense decreased $2.6 million during the third quarter of 2004 as compared to the same period in 2003 mainly due to the decline in the average balance and yields on time and other savings deposits. The decrease in these deposits was driven by the rate environment and less competitive pricing by CIB as a result of its risk management policy.

     Net interest income from discontinued operations for the nine months ended September 2004 as compared to the tax-equivalent basis for 2003 decreased $20.4 million, or 48.2%, from $42.4 million to $22.0 million in 2004. The decline was driven by a $27.0 million decrease in tax-equivalent interest income due to a decrease in the average balance and rate of interest-earning assets. The average balance of interest-earning assets declined $338.7 million and the average yield on these assets declined 122 basis points. Loans accounted for the majority of the decrease in both the average balance and yield on interest-earning assets. The average balance of loans declined $364.0 million and the average loan yield declined 84 basis points, resulting in a $23.2 million decrease in interest income on loans. The decrease in interest income was partially offset by a $6.6 million decrease in interest expense driven by a decline in both the yield and average balance of deposits.

     The following tables set forth information regarding average balances, interest income, or interest expense, and the average rates earned or paid for each major asset and liability for discontinued operations as applicable. For 2003, the tables express interest income on a tax-equivalent basis in order to compare the effective yield on earning assets. This means that the interest income on tax-exempt loans and tax-exempt investment securities has been adjusted to reflect the income tax savings at a federal income tax rate of 35% provided by these tax-exempt assets. Beginning in 2004, CIB Marine does not expect to realize all of the tax benefits associated with these tax-exempt assets due to substantial losses incurred in 2004. Accordingly, interest income on tax-exempt loans and tax-exempt securities for 2004 has not been adjusted to reflect the tax equivalent basis.

     DISCONTINUED OPERATIONS:

	Quarter Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	390,759		$	1,983		2.03	%	$	253,042		$	1,057		1.67	%
Tax-exempt (1)		24,100			215		3.57			27,207			382		5.62
Total securities		414,859			2,198		2.12			280,249			1,439		2.05
Loans(2)(3):
Commercial		214,823			2,396		4.44			312,561			4,807		6.10
Commercial real estate		565,362			7,438		5.23			945,549			13,630		5.72
Consumer		5,159			67		5.17			14,140			218		6.12
Total loans		785,344			9,901		5.02			1,272,250			18,655		5.82
Federal funds sold		71,911			257		1.42			6,316			19		1.19
Loans held for sale		18,172			297		6.50			168,390			2,202		5.19
Total interest-earning assets		1,290,286			12,653		3.90			1,727,205			22,315		5.13
Noninterest-earning assets
Cash and due from banks		15,089								22,859
Premises and equipment		12,783								13,300
Allowance for loan losses		(53,381	)							(48,259	)
Receivables from sale of stock		(620	)							(3,678	)
Accrued interest receivable and other assets		38,355								103,493
Total noninterest-earning assets		12,226								87,715
Total assets	$	1,302,512							$	1,814,920

37

	Quarter Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Deposits:
Interest-bearing demand deposits	$	23,947		$	65		1.08	%	$	21,493		$	62		1.14	%
Money market		58,123			196		1.34			65,356			191		1.16
Other savings deposits		147,073			501		1.36			238,796			1,028		1.71
Time deposits(4)		886,939			6,384		2.86			1,013,637			8,034		3.14
Total interest-bearing deposits		1,116,082			7,146		2.55			1,339,282			9,315		2.76
Borrowings — short-term		17,346			99		2.27			181,268			559		1.22
Borrowings — long-term (4)		29,646			122		1.64			30,874			82		1.05
Total borrowed funds		46,992			221		1.87			212,142			641		1.20
Total interest-bearing liabilities		1,163,074			7,367		2.53			1,551,424			9,956		2.55
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		62,651								75,651
Accrued interest and other liabilities		30,005								51,316
Total noninterest-bearing liabilities		92,656								126,967
Total liabilities		1,255,730								1,678,391
Stockholders’ equity		47,402								140,207
Receivables from sale of stock		(620	)							(3,678	)
Total liabilities and stockholders’ equity	$	1,302,512							$	1,814,920
Net interest income and interest rate spread (1)(5)				$	5,286		1.37	%				$	12,359		2.58	%
Net interest-earning assets	$	127,212							$	175,781
Net interest margin (1)(6)							1.63	%							2.84	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.11	%							1.11	%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004. Accordingly, 2004 is not presented on a tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 1.67%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $0.3 million and $1.4 million for the quarters ended September 30, 2004 and 2003, respectively.
(4)	Interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.
(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.

DISCONTINUED OPERATIONS:

	Nine Months Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Assets
Interest-earning assets
Securities:
Taxable	$	326,107		$	4,981		2.04	%	$	225,653		$	4,055		2.40	%
Tax-exempt (1)		26,729			674		3.36			28,362			1,178		5.54
Total securities		352,836			5,655		2.14			254,015			5,233		2.75
Loans(2)(3):
Commercial		269,083			10,528		5.23			313,417			14,352		6.12
Commercial real estate		678,051			28,353		5.59			990,776			47,321		6.39
Consumer		7,960			312		5.24			14,898			707		6.34
Total loans		955,094			39,193		5.48			1,319,091			62,380		6.32
Federal funds sold		56,209			494		1.17			12,284			141		1.53
Loans held for sale		29,796			1,253		5.62			147,240			5,861		5.32
Total interest-earning assets		1,393,935			46,595		4.46			1,732,630			73,615		5.68
Noninterest-earning assets
Cash and due from banks		17,877								21,741
Premises and equipment		13,078								13,119
Allowance for loan losses		(55,570	)							(42,062	)
Receivables from sale of stock		(2,158	)							(5,497	)
Accrued interest receivable and other assets		67,708								98,444
Total noninterest-earning assets		40,935								85,745
Total assets	$	1,434,870							$	1,818,375

38

	Nine Months Ended September 30,
	2004								2003
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Cost			Balance			Paid		Cost
	(Dollars in thousands)
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Deposits:
Interest-bearing demand deposits	$	24,793		$	196		1.06	%	$	18,935		$	154		1.09	%
Money market		56,165			526		1.25			58,548			535		1.22
Other savings deposits		173,154			1,827		1.41			214,894			3,134		1.95
Time deposits(4)		957,028			20,755		2.90			1,025,593			25,072		3.27
Total interest-bearing deposits		1,211,140			23,304		2.57			1,317,970			28,895		2.93
Borrowings — short-term		36,075			1,061		3.93			199,950			2,061		1.38
Borrowings — long-term (4)		29,934			274		1.22			31,190			269		1.15
Total borrowed funds		66,009			1,335		2.70			231,140			2,330		1.35
Total interest-bearing liabilities		1,277,149			24,639		2.58			1,549,110			31,225		2.69
Noninterest-bearing liabilities
Noninterest-bearing demand deposits		69,138								73,712
Accrued interest and other liabilities		37,522								49,092
Total noninterest-bearing liabilities		106,660								122,804
Total liabilities		1,383,809								1,671,914
Stockholders’ equity		53,219								151,958
Receivables from sale of stock		(2,158	)							(5,497	)
Total liabilities and stockholders’ equity	$	1,434,870							$	1,818,375
Net interest income and interest rate spread(1)(5)				$	21,956		1.88	%				$	42,390		2.99	%
Net interest-earning assets	$	116,786							$	183,520
Net interest margin (1)(6)							2.10	%							3.27	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.09	%							1.12	%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004. Accordingly, 2004 is not presented on a tax-equivalent basis. If 2004 had been shown on a tax equivalent basis of 35%, the net interest margin would have been 2.14%.
(2)	Loan balance totals include nonaccrual loans.
(3)	Interest earned on loans includes amortized loan fees of $1.3 million and $4.3 million for the nine months ended September 30, 2004 and 2003, respectively.
(4)	Interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges.
(5)	Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
(6)	Net interest margin is the ratio of annualized net interest income, on a tax-equivalent basis, to average interest-earning assets.

     The following table presents an analysis of changes in net interest income, on a tax-equivalent basis, resulting from changes in average volumes of interest-earning assets and interest-bearing liabilities and average rates earned and paid:

DISCONTINUED OPERATIONS:

	Quarter Ended September 30, 2004 Compared to												Nine Months Ended September 30, 2004 Compared to
	Quarter Ended September 30, 2003 (2)												Nine Months Ended September 30, 2003 (2)
										%												%
	Volume			Rate			Total			Change			Volume			Rate			Total			Change
	(Dollars in thousands)
Interest Income
Securities — taxable	$	664		$	262		$	926			87.61	%	$	1,602		$	(676	)	$	926			22.84	%
Securities — tax-exempt (1)		(40	)		(127	)		(167	)		(43.72	)		(65	)		(439	)		(504	)		(42.78	)
Total securities		624			135			759			52.74			1,537			(1,115	)		422			8.06
Commercial		(1,288	)		(1,123	)		(2,411	)		(50.16	)		(1,879	)		(1,945	)		(3,824	)		(26.64	)
Commercial real estate		(5,113	)		(1,079	)		(6,192	)		(45.43	)		(13,578	)		(5,390	)		(18,968	)		(40.08	)
Consumer		(121	)		(30	)		(151	)		(69.27	)		(287	)		(108	)		(395	)		(55.87	)
Total loans (including fees)		(6,522	)		(2,232	)		(8,754	)		(46.93	)		(15,744	)		(7,443	)		(23,187	)		(37.17	)
Federal funds sold		233			5			238			1,252.63			393			(40	)		353			250.35
Loans held for sale		(2,350	)		445			(1,905	)		(86.51	)		(4,917	)		309			(4,608	)		(78.62	)
Total interest income(1)		(8,015	)		(1,647	)		(9,662	)		(43.30	)		(18,731	)		(8,289	)		(27,020	)		(36.70	)
Interest Expense
Interest-bearing demand deposits		7			(4	)		3			4.84			46			(4	)		42			27.27
Money market		(23	)		28			5			2.62			(22	)		13			(9	)		(1.68	)
Other savings deposits		(343	)		(184	)		(527	)		(51.26	)		(539	)		(768	)		(1,307	)		(41.70	)
Time deposits		(963	)		(687	)		(1,650	)		(20.54	)		(1,599	)		(2,718	)		(4,317	)		(17.22	)
Total deposits		(1,322	)		(847	)		(2,169	)		(23.29	)		(2,114	)		(3,477	)		(5,591	)		(19.35	)
Borrowings — short-term		(726	)		266			(460	)		(82.29	)		(2,651	)		1,651			(1,000	)		(48.52	)
Borrowings — long-term		(3	)		43			40			48.78			(11	)		16			5			1.86

39

	Quarter Ended September 30, 2004 Compared to												Nine Months Ended September 30, 2004 Compared to
	Quarter Ended September 30, 2003 (2)												Nine Months Ended September 30, 2003 (2)
										%												%
	Volume			Rate			Total			Change			Volume			Rate			Total			Change
	(Dollars in thousands)
Total borrowed funds		(729	)		309			(420	)		(65.52	)		(2,662	)		1,667			(995	)		(42.70	)
Total interest expense		(2,051	)		(538	)		(2,589	)		(26.00	)		(4,776	)		(1,810	)		(6,586	)		(21.09	)
Net Interest Income (1)	$	(5,964	)	$	(1,109	)	$	(7,073	)		(57.23	)%	$	(13,955	)	$	(6,479	)	$	(20,434	)		(48.20	)%

(1)	Tax-equivalent basis of 35% for 2003. In the future, CIB Marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004. Accordingly, 2004 is not presented on a tax-equivalent basis.
(2)	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. Nonaccrual loans were included in the average balances used in determining yields.

Provision for credit losses-discontinued operations

     Included in discontinued operations is provision for credit losses which represents provision for loan losses and losses on unfunded commitments and standby letters of credit. The provision included in discontinued operations for the quarter ended September 30, 2004 was $1.0 million as compared to $49.5 million during the same period in 2003 and $5.3 million for the first nine months of 2004 as compared to $92.2 million for the first nine months of 2003. During 2003, as a result of regular examinations, an increase in net loan charge-offs and the deterioration in the quality of the loan portfolio, CIB — Chicago significantly increased its provision for credit losses.

     The following table summarizes changes in the allowance for loan losses for discontinued operations:

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	51,629		$	47,907		$	55,490		$	33,366
Loans charged-off
Commercial		(8,882	)		(10,028	)		(21,413	)		(18,583	)
Factored receivables		—			—			—			(95	)
Commercial real estate		(9,639	)		(4,277	)		(10,309	)		(13,787	)
Commercial real estate construction		(522	)		(8,858	)		(522	)		(10,144	)
Residential real estate		—			—			—			—
Consumer		(6	)		(8	)		(39	)		(7	)
Total loans charged-off		(19,049	)		(23,171	)		(32,283	)		(42,616	)
Recoveries of loans charged-off
Commercial		1,392			402			1,637			527
Factored receivables		—			—			—			1
Commercial real estate		1,332			1			1,719			11
Commercial real estate construction		—			—			113			—
Residential real estate		—			—			—			—
Consumer		1			—			7			—
Total loan recoveries		2,725			403			3,476			539
Net loans charged-off		(16,324	)		(22,768	)		(28,807	)		(42,077	)
Transfer from accrual for unfunded standby letters of credit for funded standby letters of credit		—			—			5,000			—
Provision for loan losses (2)		2,900			43,650			7,234			77,500
Allowance on loans sold (1)		—			—			(712	)		—
Ending Balance	$	38,205		$	68,789		$	38,205		$	68,789
Total loans	$	724,801		$	1,196,890		$	724,801		$	1,196,890
Average total loans		785,344			1,272,250			955,094			1,319,091
Ratios
Allowance for loan losses to total loans		5.27	%		5.75	%		5.27	%		5.75	%
Allowance for loan losses to nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing		39.80			48.55			39.80			48.55
Net charge-offs annualized to average total loans:
Commercial		13.87			12.22			9.82			7.74
Commercial real estate		6.21			5.51			1.77			3.23
Consumer		0.39			0.17			0.54			0.04
Total loans		8.27			7.10			4.03			4.26
Ratio of recoveries to loans charged-off		14.31			1.74			10.77			1.27

40

(1)	Commercial Finance loan loss allowance. Commercial Finance was sold in the second quarter of 2004.
(2)	The provision for credit losses from discontinued operations consisted of the following:

	Quarter Ended					Nine Months Ended
	September 30,					September 30,
	2004			2003		2004			2003
	(Dollars in thousands)
Provision for loan losses-discontinued operations	$	2,900		$	43,650	$	7,234		$	77,500
Provision for losses on unfunded loan commitments and standby letters of credit-discontinued operations		(1,900	)		5,846		(1,900	)		14,746
Total provision for credit losses-discontinued operations	$	1,000		$	49,496	$	5,334		$	92,246

Financial Condition

Overview

     CIB Marine’s total assets decreased $540.6 million, or 17.0%, from $3.2 billion at December 31, 2003 to $2.6 billion at September 30, 2004. The reduction in total assets was primarily due to CIB Marine’s shift in its strategic focus from business development to improving its credit culture, asset quality, liquidity and capital position in response to a significant deterioration in the credit quality of its loan portfolio identified by regulators. The largest decrease was in net loans which, including $686.6 million of loans classified as assets held for disposal at September 30, 2004, declined $711.1 million at September 30, 2004 as compared to December 31, 2003. Foreclosed properties also decreased $37.8 million during the same period mainly due to the transfer of one acquired property to the first lienholder and the sale of a second property. These decreases were partially offset by the cash and federal funds sold and securities available for sale which, including $514.0 million classified as assets of companies held for disposal at September 30, 2004, increased by a total of $254.0 million at September 30, 2004 as compared to December 31, 2003. During the first nine months of 2004, CIB Marine sold two of its nonbanking subsidiaries and implemented a plan to sell CIB — Chicago. In the second and third quarters, respectively, CIB Marine sold substantially all the business assets and the business of its factoring subsidiary, Commercial Finance and its mortgage banking subsidiary, MSI. At December 31, 2003, Commercial Finance and MSI accounted for $11.7 million and $3.0 million, respectively, of the consolidated assets of CIB Marine. The assets and liabilities of Hillside including CIB — Chicago, CIB Construction and MICR, and the remaining assets of MSI are included in assets and liabilities of companies held for disposal at September 30, 2004.

Loans Held for Sale

     Loans held for sale, which comprise primarily residential first mortgage loans, was $16.7 million at December 31, 2003 as compared to none at September 30, 2004, excluding $2.0 million in assets of companies held for disposal. This decrease was due to CIB Marine’s sale of substantially all the assets and operations of MSI, its mortgage banking subsidiary during the third quarter of 2004.

Securities

     Total securities available for sale at September 30, 2004 decreased $272.6 million, or 42.8%, as compared to total securities at December 31, 2003. The decrease in the securities portfolio was primarily due to the transfer of securities held by CIB — Chicago to assets of companies held for disposal. CIB — Chicago accounted for $283.6 million of the consolidated CIB Marine securities at December 31, 2003.

     The net unrealized gain on available for sale securities, as presented in the consolidated balance sheet, was $0.2 million at September 30, 2004, compared to a net unrealized gain of $2.2 million at December 31, 2003, which included a $0.5 million net unrealized gain on securities held by CIB — Chicago.

Loans

     Loans, net of the allowance for loan losses, represented 61.1% and 71.3% of CIB Marine’s total assets, excluding assets of companies held for disposal at September 30, 2004 and December 31, 2003, respectively. Net loans as presented on the consolidated balance sheets decreased $1.4 billion from $2.3 billion at December 31, 2003 to $0.9 billion at September 30, 2004. The majority of the decrease related to the transfer of loans held by CIB — Chicago to assets of companies held for disposal at September 30, 2004. At December 31, 2003, CIB — Chicago had $1.1 billion of net loans. The $0.3 billion decrease in net loans,

41

excluding CIB — Chicago, was mainly due to CIB Marine’s shift in focus from business development to improving the asset quality of the credit portfolio and reducing risk intensive assets as part of the capital restoration plan. This resulted in attrition of the portfolio as loan reductions exceeded new loan originations and renewals.

Credit Concentrations

     At September 30, 2004, CIB Marine had seventeen secured borrowing relationships, including loans classified as assets of companies held for disposal, to one borrower or a related group of borrowers that exceeded 25.0% of stockholders’ equity as compared to fifteen at December 31, 2003. The increase in the number of concentrations is largely due to a significant decrease in stockholders’ equity, which resulted in a lower threshold for determining credit concentrations. The threshold at December 31, 2003 was $27.1 million as compared to $20.1 million at September 30, 2004. The total outstanding commitments at September 30, 2004, including lines of credit not fully drawn on these loans, ranged from 25% to 79% of equity and from 1% to 4% of total loans, including loans classified as assets of companies held for disposal. The principal drawn and outstanding on these loans ranged from $20.1 million to $61.8 million and the aggregate balance outstanding on these seventeen relationships was $504.1 million, including loans classified as assets held for disposal. Six of these relationships, with an aggregate principal drawn and outstanding of $188.3 million, including $133.2 million in assets held for sale, included loans that were 90 days or more past due and still accruing, on nonaccrual status and/or impaired. The outstanding balance of the 90 days or more past due and still accruing, nonaccrual and/or impaired loans within these six relationships at September 30, 2004 was $72.1 million, including $52.7 million in assets of companies held for disposal, and the specific loss allowance provided on these loans was $18.5 million, including $9.8 million in assets of companies held for disposal. See further discussion of these loans under “Nonperforming Assets and Loans 90 Days or More Past Due and Still Accruing”.

     Excluding loans held by CIB — Chicago, which are included in assets of companies held for disposal, CIB Marine had six secured borrowing relationships to one borrower or a related group of borrowers that exceeded 25.0% of stockholders’ equity at September 30, 2004. The total outstanding commitments on these six borrowing relationships, including lines of credit not fully drawn, ranged from 26% to 36% of equity and from 1% to 2% of total loans. The principal drawn and outstanding on these loans ranged from $20.1 million to $29.1 million and the aggregate balance outstanding on these six relationships was $133.9 million. One of these relationships, with an aggregate principal drawn and outstanding of $29.1 million, included loans that were impaired. The outstanding balance of the impaired loans within this one relationship was $15.7 million and the specific loss allowance provided on these loans was $8.6 million.

     At September 30, 2004, CIB Marine had the following credit relationships within industries or industry groups that exceeded 25% of its stockholders’ equity:

     TOTAL COMPANY-CONTINUING AND DISCONTINUED OPERATIONS:

	September 30, 2004								December 31, 2003
						% of								% of
	Outstanding		% of			Stockholders’			Outstanding		% of			Stockholders’
INDUSTRY	Balance		Loans			Equity			Balance		Loans			Equity
	(Dollars in millions)
Commercial Real Estate Developers	$	422.4		26	%		526	%	$	527.3		22	%		486	%
Residential Real Estate Developers		299.3		19			372			465.7		20			429
Motel and Hotel		159.3		10			198			217.1		9			200
Manufacturing		114.6		7			143			184.8		8			170
Nursing/Convalescent Home		121.5		8			151			133.2		6			123
Health Care Facility		87.5		5			109			120.6		5			111
Retail Trade		69.6		4			87			100.6		4			93
Administrative, Support, Waste Management and Remediation Services		40.9		3			51			46.0		2			42
Arts, Entertainment and Recreation		32.4		2			40			40.1		2			37
Educational Services		27.6		2			34			8.3		1			8
Finance and Insurance		26.4		2			33			58.2		2			54

42

     CIB MARINE-CONTINUING OPERATIONS ONLY:

	September 30, 2004
						% of
	Outstanding		% of			Stockholders’
INDUSTRY	Balance		Loans			Equity
	(Dollars in Millions)
Commercial Real Estate Developers	$	251.7		28	%		313	%
Residential Real Estate Developers		126.9		14			158
Motel and Hotel		90.1		10			112
Manufacturing		77.6		9			97
Health Care Facility		57.9		7			72
Nursing/Convalescent Home		43.6		5			54
Retail Trade		39.5		4			49
Finance and Insurance		21.2		2			26
Administrative, Support, Waste Management and Remediation Services		22.3		2			28

Allowance for Loan Losses

     CIB Marine monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio. At September 30, 2004 the allowance for loan losses was $42.9 million, or 4.8% of total loans, compared to $109.9 million, or 4.7% of total loans at December 31, 2003. The majority of the $67.0 million decrease in the allowance for loan losses related to the transfer of CIB — Chicago’s allowance to assets of companies held for disposal at September 30, 2004. At December 31, 2003, CIB — Chicago had $55.1 million in allowance for loan losses. The remaining decrease in the allowance was primarily due to a decrease in the amount of loans outstanding at September 30, 2004 as compared to December 31, 2003, excluding CIB — Chicago. The allowance is increased by the amount of provision for loan losses and recoveries of previously charged-off loans, and is decreased by the amount of loan charge-offs. Excluding CIB — Chicago, total charge-offs for the third quarter of 2004 were $13.9 million, while recoveries were $0.6 million, as compared to $9.6 million and $0.2 million, respectively, for the same period of 2003. During the first nine months, excluding CIB — Chicago, total charge-offs for 2004 and 2003 were $26.9 million and $17.0 million, respectively, while total recoveries were $0.9 million and $1.2 million, respectively.

     The ratio of the allowance to nonaccrual, restructured and loans 90 days or more past due and still accruing, excluding CIB — Chicago, was 57.2% at September 30, 2004 compared to 96.9% at December 31, 2003. Although CIB Marine believes that the allowance for loan losses is adequate to absorb probable losses on existing loans that may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the quality of loans and the adequacy of the allowance for loan losses. Such agencies may require CIB Marine to make additional provisions to the allowance or may downgrade loan ratings, which may result in additional provisions to the allowance based upon their judgments about information available to them at the time of their examination.

     The following table summarizes changes in the allowance for loan losses:

     TOTAL COMPANY-CONTINUING AND DISCONTINUED OPERATIONS:

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	108,555		$	90,024		$	109,872		$	65,122
Loans charged-off
Commercial		(15,854	)		(16,259	)		(41,153	)		(29,627	)
Factored receivables		—			—			—			(95	)
Commercial real estate		(16,511	)		(5,816	)		(17,402	)		(17,946	)
Commercial real estate construction		(622	)		(10,666	)		(622	)		(11,952	)
Residential real estate		(2	)		—			(2	)		(6	)
Consumer		(7	)		(14	)		(46	)		(31	)
Total loans charged-off		(32,996	)		(32,755	)		(59,225	)		(59,657	)
Recoveries of loans charged-off
Commercial		1,899			499			2,294			1,595
Factored receivables		—			—			—			1

43

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Commercial real estate		1,438			57			1,933			80
Commercial real estate construction		—			—			113			—
Residential real estate		—			—			—			3
Consumer		6			10			27			41
Total loan recoveries		3,343			566			4,367			1,720
Net loans charged-off		(29,653	)		(32,189	)		(54,858	)		(57,937	)
Transfer to allowance for loan loss for unfunded standby letters of credit for funded standby letters of credit		—			—			5,000			—
Allowance on loans sold (1)		—			—			(712	)		—
Provision for loan losses (2):
Continuing operations		(738	)		25,514			14,528			42,314
Discontinued operations		2,900			43,650			7,234			77,500
Provision for loan loss-total company		2,162			69,164			21,762			119,814
Allowance for loan loss-total company		81,064			126,999			81,064			126,999
Total loans	$	1,620,137		$	2,566,312		$	1,620,137		$	2,566,312
Average total loans		1,754,018			2,644,736			2,041,060			2,710,830
Ratios
Allowance for loan losses to total loans		5.00	%		4.95	%		5.00	%		4.95	%
Allowance for loan losses to nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing		47.42			59.25			47.42			59.25
Net charge-offs annualized to average total loans:
Commercial		11.35			8.33			8.79			4.88
Commercial real estate		5.07			3.53			1.51			2.11
Consumer		0.03			0.03			0.07			(0.02	)
Total loans		6.73			4.83			3.59			2.86
Ratio of recoveries to loans charged-off		10.13			1.73			7.37			2.88

(1)	Commercial Finance loan loss allowance. Commercial Finance was sold in the second quarter of 2004.
(2)	The provision for credit losses from continuing and discontinued operations on the consolidated statements of operations consisted of the following:

	Quarter Ended					Nine Months Ended
	September 30,					September 30,
	2004			2003		2004			2003
	(Dollars in thousands)
Provision for loan losses-continuing operations	$	(738	)	$	25,514	$	14,528		$	42,314
Provision for loan losses-discontinued operations		2,900			43,650		7,234			77,500
Provision for losses on unfunded loan commitments and standby letters of credit-continuing operations		—			—		725			—
Provision for losses on unfunded loan commitments and standby letters of credit-discontinued operations		(1,900	)		5,846		(1,900	)		14,746
Total provision for credit losses-total company	$	262		$	75,010	$	20,587		$	134,560

CIB MARINE-CONTINUING OPERATIONS ONLY:

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	56,926		$	42,117		$	54,382		$	31,756
Loans charged-off
Commercial		(6,971	)		(6,231	)		(19,741	)		(11,044	)
Factored receivables		—			—			—			—
Commercial real estate		(6,872	)		(1,539	)		(7,093	)		(4,159	)
Commercial real estate construction		(100	)		(1,808	)		(100	)		(1,808	)
Residential real estate		(2	)		—			(2	)		(6	)
Consumer		(2	)		(6	)		(5	)		(24	)
Total loans charged-off		(13,947	)		(9,584	)		(26,941	)		(17,041	)
Recoveries of loans charged-off
Commercial		507			97			657			1,068
Factored receivables		—			—			—			—
Commercial real estate		106			56			214			69
Commercial real estate construction		—			—			—			—

44

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Residential real estate		—			—			—			3
Consumer		5			10			19			41
Total loan recoveries		618			163			890			1,181
Net loans charged-off		(13,329	)		(9,421	)		(26,051	)		(15,860	)
Provision for loan losses		(738	)		25,514			14,528			42,314
Ending Balance	$	42,859		$	58,210		$	42,859		$	58,210
Total loans	$	895,336		$	1,369,422		$	895,336		$	1,369,422
Average total loans		968,674			1,372,486			1,085,966			1,391,739
Allowance for loan losses to total loans		4.79	%		4.25	%		4.79	%		4.25	%
Allowance for loan losses to nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing		57.17			80.12			57.17			80.12
Net charge-offs annualized to average total loans:
Commercial		9.38			5.56			7.93			2.92
Commercial real estate		4.11			1.45			1.27			0.88
Consumer		(0.01	)		(0.05	)		(0.05	)		(0.05	)
Total loans		5.47			2.72			3.20			1.52
Ratio of recoveries to loans charged-off		4.43			1.70			3.30			6.93

Nonperforming Assets and Loans 90 Days or More Past Due and Still Accruing Interest

     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 properties. Loans are placed on nonaccrual status when CIB Marine determines that it is probable that the principal and interest amounts will not be collected according to the terms of the loan agreement. A loan is classified as restructured when a concession is granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that would not otherwise be considered. CIB Marine may restructure the loan by modifying the terms to reduce or defer cash payments required of the borrower, reduce the interest rate below current market rates for new debt with similar risk, reduce the face amount of the debt, or reduce the accrued interest. Foreclosed properties represent properties acquired by CIB Marine as a result of loan defaults by customers.

     The following table summarizes the composition of CIB Marine’s nonperforming assets, loans 90 days or more past due and still accruing, and related asset quality ratios:

	September 30,			December 31,			September 30,
	2004			2003			2003
	(Dollars in thousands)
Nonperforming Assets
Nonaccrual loans:
Commercial	$	64,464		$	58,161		$	59,074
Factored receivables		—			—			—
Commercial real estate		71,956			77,960			87,241
Commercial real estate construction		15,140			13,310			57,410
Residential real estate		485			2,622			1,681
Home equity		680			—			—
Consumer		3			11			20
Total nonaccrual loans		152,728			152,064			205,426
Foreclosed properties		4,822			40,715			5,677
Restructured loans		1,553			2,946			2,970
		159,103			195,725			214,073
Nonperforming assets included in assets of companies held for disposal (1):
Nonaccrual loans		85,981			99,213			138,700
Foreclosed properties		1,884			37,688			1,850
Restructured loans		4			7			8
Total nonperforming assets of companies held for disposal(1)		(87,869	)		(136,908	)		(140,558	)
Total nonperforming assets, excluding assets of companies held for disposal	$	71,234		$	58,817		$	73,515

45

	September 30,			December 31,			September 30,
	2004			2003			2003
	(Dollars in thousands)
Loans 90 Days or More Past Due and Still Accruing
Commercial	$	8,088		$	—		$	9
Factored receivables		—			—			—
Commercial real estate		8,461			352			5,811
Commercial real estate construction		44			—			—
Residential real estate		72			—			126
Home equity		—			—			—
Consumer		10			7			1
Total Company		16,675			359			5,947
Loans 90 days or more past due and still accruing included in assets of companies held for disposal (1)		(10,007	)		—			(2,952	)
Net	$	6,668		$	359		$	2,995
Allowance for loan losses:
Total company	$	81,064		$	109,872		$	126,999
Allowance for loan loss included in assets of companies held for disposal (1)		(38,205	)		(55,490	)		(68,790	)
Net	$	42,859		$	54,382		$	58,209
Total loans:
Total company	$	1,620,137		$	2,360,041		$	2,566,312
Loans included in assets of companies held for disposal(1)		(724,801	)		(1,128,629	)		(1,196,890	)
Net	$	895,336		$	1,231,412		$	1,369,422
Total Assets:
Total company	$	2,645,623		$	3,186,237		$	3,361,800
Assets of companies held for disposal (1)		(1,250,282	)		(1,482,088	)		(1,488,037	)
Net	$	1,395,341		$	1,704,149		$	1,873,763
Ratios Total Company-Continuing and Discontinued Operations
Nonaccrual loans to total loans		9.43	%		6.44	%		8.00	%
Foreclosed properties to total assets		0.18			1.28			0.17
Nonperforming assets to total assets		6.01			6.14			6.37
Nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing to total loans		10.55			6.58			8.35
Nonperforming assets and loans 90 days or more past due and still accruing to total assets		6.64			6.15			6.54
Ratios: Continuing Operations only (excludes assets of companies held for disposal (1)):
Nonaccrual loans to total loans		7.45			4.29			4.87
Foreclosed properties to total assets		0.21			0.18			0.20
Nonperforming assets to total assets		5.11			3.45			3.92
Nonaccrual loans, restructured loans and loans 90 days or more past due and still accruing to total loans		8.37			4.56			5.31
Nonperforming assets and loans 90 days or more past due and still accruing to total assets		5.58			3.47			4.08

(1) For comparative purposes, companies held for disposal include MSI, Commercial Finance and CIB-Chicago, for all periods presented.

     Total nonaccrual loans, including CIB — Chicago, were $152.7 million at September 30, 2004, an increase of $0.6 million, or 0.4% from $152.1 million at December 31, 2003. The ratio of nonaccrual loans to total loans, including CIB — Chicago was 9.4% at September 30, 2004 and 6.44% at December 31, 2003.

     As of September 30, 2004, $127.9 million, or 83.8%, of total nonaccrual loans consisted of the following seventeen lending relationships:

• Commercial loans and commercial real estate loans to related borrowers totaling $17.2 million secured by a first lien on business assets, closely held stock, and mortgages on several properties. As of September 30, 2004, a specific reserve of $5.2 million was allocated to this relationship. During the third quarter of 2004, $2.5 million was charged-off.

46

• Commercial loans totaling $16.9 million to related borrowers secured by a first lien on business assets and other intellectual property. Specific reserves in the amount of $9.6 million were allocated as of September 30, 2004.

• Commercial real estate and construction loans totaling $14.1 million related to condominium development projects in Chicago. Specific reserves as of September 30, 2004 totaled $1.3 million. During the second quarter of 2004, CIB Marine funded and charged-off to its accrual for unfunded commitments and standby letters of credit, which is included in other liabilities, a $5.0 million letter of credit on commercial retail space associated with one project within this borrowing relationship.

• Commercial loans and commercial real estate loans totaling $13.3 million secured by a first lien on business assets, closely held stock, and first mortgages on two industrial properties. As of September 30, 2004, a specific reserve of $5.6 million was allocated to this relationship and $4.4 million was charged-off during the third quarter of 2004.

• Commercial real estate loan totaling $12.1 million related to commercial property, of which $3.6 million was charged-off in the third quarter of 2004 and $2.0 million of specific reserves were allocated to this relationship.

• Commercial loans and commercial real estate loans totaling $8.6 million secured by a first mortgage on a housing project and a lien on business assets. As of September 30, 2004, specific reserves allocated to this relationship totaled $0.6 million and $4.6 million was charged-off in the third quarter of 2004.

• Commercial loans and commercial real estate loans totaling $6.9 million and secured by a second mortgage and assignment of rents on a commercial property. As of September 30, 2004, specific reserves allocated to this relationship totaled $4.0 million.

• Commercial loans and a commercial real estate loan totaling $6.0 million to related borrowers secured by closely held stock and a first lien mortgage on multi-family zoned undeveloped land. As of September 30, 2004, $0.2 million was allocated as specific reserves and $4.3 million was charged-off in the third quarter of 2004.

• Commercial and commercial real estate loans in the total amount of $5.8 million to related borrowers secured by business assets and a first mortgage on a hotel. As of September 30, 2004, the amount of specific reserves allocated to this relationship was $0.3 million.

• Commercial real estate loans to related borrowers in the amount of $4.5 million secured by a first mortgage on two commercial properties. As of September 30, 2004, specific reserves of $1.3 million were allocated to these loans.

• Commercial and commercial real estate loans totaling $4.1 million to a borrower secured by all business assets and first mortgages on three commercial real estate properties. A specific reserve in the amount of $0.4 million was allocated to the loans as of September 30, 2004 and $4.1 million was charged-off during the third quarter of 2004.

• Commercial loan in the amount of $3.5 million to a borrower secured by a first mortgage on a several condominium and interests in limited partnerships. As of September 30, 2004, specific reserves in the amount of $0.8 million were allocated to this relationship.

• Commercial real estate construction loan in the amount of $3.4 million to a borrower secured by a first mortgage on residential property and the assignment of leases on a residential property. As of September 30, 2004, specific reserves in the amount of $1.8 million were allocated to this relationship.

• Commercial real estate construction loans totaling $3.3 million to related borrowers secured by a first mortgage on a condominium development project. No specific reserves have been allocated to this relationship and $0.5 million was charged-off during the third quarter of 2004.

• Commercial loans in the amount of $3.0 million to a borrower secured by eligible accounts receivable and a junior lien on residential property. Specific reserves of $0.3 million were allocated to this relationship as of September 30, 2004.

• Commercial real estate loans in the amount of $2.7 million to a borrower secured by first mortgages on commercial properties. Specific reserves of $0.3 million were allocated as of September 30, 2004. During the third quarter of 2004, $0.9 million was charged-off.

• Commercial loans and commercial real estate in the amount of $2.5 million to a borrower secured by a first lien on business assets and mortgages on nonresidential properties. As of September 30, 2004, specific reserves in the amount of $0.9 million were allocated to this relationship.

     Foreclosed properties, excluding assets of companies held for disposal, were $2.9 million at September 30, 2004 and consisted of five properties as compared to $40.7 million and nine properties at December 31, 2003, all of which were held for sale. Two properties accounted for $33.7 million, or 92.9% of the $37.8 million decrease in foreclosed properties. One property, which had a carrying value of $25.2 million at December 31, 2003, was a commercial office building located in Illinois that was being converted to residential condominiums. This property was acquired in the last quarter of 2003 through a deed in lieu of foreclosure and was subject to a first lien which CIB Marine had assumed. During the first half of 2004, CIB Marine recognized a $0.3 million impairment loss on this property, and in the second quarter of 2004, CIB Marine transferred its interest in the acquired property to the first lienholder in

47

exchange for the satisfaction of the assumed mortgage note payable. The second property, which had a carrying value of $8.8 million at December 31, 2003 was a parking garage located in Chicago, which was sold in the second quarter of 2004 at a $0.6 million loss. Additionally, one property, with a carrying value of $1.9 million at September 30, 2004 and $2.2 million at December 31, 2003 was held by CIB — Chicago and was transferred to assets of companies held for disposal during the third quarter of 2004. During the first nine months of 2004, CIB Marine acquired one property with a carrying value of $1.1 million at September 30, 2004.

     Restructured loans were $1.5 million and $2.9 million at September 30, 2004 and December 31, 2003 respectively. The balance at September 30, 2004 and the decrease from December 31, 2003 was primarily due to one lending relationship. As of December 31, 2003, there were two restructured loans in this lending relationship: a commercial loan with a balance of $1.3 million at December 31, 2003, which was charged-off in full during the third quarter of 2004, and a commercial real estate loan with a balance of $1.5 million and $1.6 million at September 30, 2004 and December 31, 2003, respectively. The commercial real estate loan had specific reserves of $0.1 million at both September 30, 2004 and December 31, 2003, and as of September 30, 2004, was current as to all payments in accordance with the restructured loan agreement. While CIB Marine believes that the value of the property securing the obligation approximates the amount owed, net of specific reserves, it cannot provide assurances that the value will be maintained or that there will not be losses with respect to this relationship.

     Loans 90 days or more past due and still accruing interest are loans which are delinquent with respect to the payment of principal and/or interest but which management believes all contractual principal and interest amounts due will be collected. CIB Marine had $16.7 million, including $10.0 million in assets of companies held for disposal, in loans that were 90 days or more past due and still accruing at September 30, 2004 compared to $0.4 million at December 31, 2003. Five borrowing relationships within this category had loan balances of $1.0 million or more at September 30, 2004. These five borrowing relationships had loans totaling $13.6 million, or 81.4% of the total loans 90 days or more past due and still accruing interest at September 30, 2004:

• Commercial real estate loans in the amount of $5.5 million to one borrower secured by first mortgage liens on commercial real estate property. As of September 30, 2004, no specific reserves were allocated to this relationship. These loans were subsequently paid in full.

• Commercial loan in the amount of $2.7 million to a borrower secured by accounts receivable of several closely held companies. As of September 30, 2004, no specific reserves were allocated to this relationship. This loan was subsequently sold in conjunction with the sale of CIB — Chicago.

• Commercial loan in the amount of $2.3 million to a borrower secured by accounts receivable of a closely held company. As of September 30, 2004, no specific reserves were allocated to this relationship. This loan was subsequently sold in conjunction with the sale of CIB — Chicago.

• Commercial loan in the amount of $2.1 million to a borrower secured by interest in several limited nursing home partnerships. As of September 30, 2004, no specific reserves were allocated to this relationship. This loan was subsequently sold in conjunction with the sale of CIB — Chicago.

• Commercial real estate loan in the amount of $1.0 million to a borrower secured by a first mortgage lien on commercial real estate property. As of September 30, 2004, no specific reserves were allocated to this relationship. This loan was subsequently sold in conjunction with the sale of CIB — Chicago.

     The ratio of nonperforming assets and loans 90 days or more past due and still accruing to total assets, including CIB — Chicago, was 6.64% at September 30, 2004, as compared to 6.15% at December 31, 2003. Excluding CIB — Chicago, the ratio of nonperforming assets and loans 90 days or more past due and still accruing to total assets was 5.58% at September 30, 2004 as compared to 3.47% at December 31, 2003 and 4.08% at September 30, 2003.

     A loan is considered impaired when, based on current information and events, it is probable that CIB Marine will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment records and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans, including CIB — Chicago, were $150.4 million at September 30, 2004 as compared to $203.5 million at December 31, 2003. Impaired loans, excluding CIB — Chicago were $65.1 million at September 30,

48

2004 and $74.2 million at December 31, 2003. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, CIB Marine does not separately identify individual consumer and residential loans for impairment disclosures.

     The following table sets forth information regarding impaired loans:

	September 30,			December 31,			September 30,
	2004			2003			2003
	(Dollars in thousands)
Impaired loans without a specific allowance	$	35,221		$	59,578		$	19,139
Impaired loans with a specific allowance		115,181			143,925			178,386
Total impaired loans		150,402			203,503			197,525
Impaired loans of companies held for disposal at September 30, 2004 (1)		(85,345	)		(129,314	)		(122,891	)
Impaired loans not including assets of companies held for disposal at September 30, 2004	$	65,057		$	74,189		$	74,634
Specific allowance related to impaired loans	$	41,214		$	42,768		$	62,594
Specific allowance related to impaired loans included in assets of companies held for disposal		(21,101	)		(21,950	)		(36,912	)
Specific allowance related to impaired loans not including assets of companies held for disposal	$	20,113		$	20,818		$	25,682

(1) December 31, 2003 and September 30, 2003 are for comparative purposes

Companies Held For Disposal

     Assets and liabilities of companies held for disposal, as shown on the consolidated balance sheets are comprised of Hillside, including CIB — Chicago, CIB Construction (including Canron) and MICR and the remaining assets of MSI at September 30, 2004 and CIB Construction and MICR at December 31, 2003.

     Loss or income from discontinued operations, as shown on the consolidated statement of operations, is comprised of MSI and consolidated Hillside Investors, including CIB — Chicago, CIB Construction and Commercial Finance, for all periods presented.

     Because both MICR and Canron were acquired in loan collection activities, and because they are not considered permissible banking activities, CIB Marine’s regulators generally limit the holding period for such assets to not more than five years.

Reconciliation of Assets/Liabilities of companies held for disposal

	September 30,			December 31,
	2004			2003
	(Dollars in thousands)
Assets of companies held for disposal:
MICR	$	2,788		$	4,555
CIB Construction		14,344			28,964
CIB — Chicago (1)		1,239,210			N/A
MSI (1)		2,344			N/A
Intercompany eliminations (2)		(8,404	)		(4,463	)
Total assets of companies held for disposal	$	1,250,282		$	29,056
Liabilities of companies held for disposal:
MICR	$	699		$	590
CIB Construction		11,326			28,459
CIB — Chicago (1)		1,193,951			N/A
MSI (1)		2,973			N/A
Intercompany eliminations (2)		(5,013	)		(11,668	)
Total liabilities of companies held for disposal	$	1,203,936		$	17,381

(1) Not classified as held for disposal at December 31, 2003.

49

(2) Includes mortgage banking assets/liabilities held by affiliates and elimination of intercompany transactions between subsidiaries and affiliates.

CIB Construction (includes Canron)

     CIB Construction, a wholly owned subsidiary of CIB Marine, acquired 84% of the outstanding stock of Canron through loan collection activities in 2002. During the third quarter of 2003, CIB Construction commenced a wind down of its affairs and a voluntary liquidation of its assets. The gross assets and liabilities of CIB Construction and its subsidiaries are reported on the consolidated balance sheet as assets or liabilities of companies held for disposal. Intercompany loan and cash balances and interest income and expense between CIB Construction and CIB Marine have been eliminated from the totals shown on the consolidated financial statements. The net income or loss associated with CIB Construction is presented as discontinued operations in CIB Marine’s consolidated statement of operations.

     In conjunction with the liquidation, Canron, a subsidiary of CIB Construction, established an accrual for employee severance and retention costs. Under Canadian law, employees are generally entitled to one week’s salary for every year of service with the company, up to a maximum of twenty-six years. For the nine months ended September 30, 2004, Canron recognized a $0.04 million recovery of prior period provisions for employee severance and retention costs. At September 30, 2004, Canron had an accrued severance liability of $0.8 million. During the first nine months of 2004, Canron sold certain of its properties and equipment for approximately $6.7 million. Substantially all of the proceeds were used to reduce secured debt to CIB Marine.

     Excluding $0.7 million in recoveries of previously charged-off amounts recorded by its parent, the net income attributable to Canron for the nine months ended September 30, 2004 was $2.6 million which resulted mainly from gains on sales of certain properties and equipment and collection of off-balance sheet receivables.

     The following table summarizes the composition of CIB Construction’s balance sheets. The balance sheets reflect estimated liquidation values less costs to sell:

	September 30,		December 31,
	2004 (1)		2003 (1)
	(Dollars in thousands)
Assets:
Cash on deposit at CIB Marine	$	1,660	$	2,407
Accounts receivable		2,589		12,807
Inventories and contracts in progress		—		1,438
Other assets		1,613		—
Current assets		5,862		16,652
Property and equipment, net		8,482		12,312
Total assets	$	14,344	$	28,964
Liabilities and stockholder’s equity:
Current portion of loans payable to CIB Marine	$	2,700	$	11,625
Other liabilities		8,626		14,697
Current liabilities		11,326		26,322
Loans payable to unaffiliated banks		—		2,137
Total liabilities		11,326		28,459
Stockholder’s equity		3,018		505
Total liabilities and stockholder’s equity	$	14,344	$	28,964

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

MICR

     In 2000, CIB Marine acquired and/or assumed, through MICR, a wholly owned subsidiary of CIB - Chicago, the business and certain assets and liabilities of a manufacturer of payment processing systems. The gross assets and liabilities of MICR are reported on the consolidated balance sheet as assets or liabilities of companies held for disposal. At September 30, 2004 and at December 31, 2003, MICR had assets of $2.8 million and $4.6 million, respectively, and liabilities of $0.7 million and $0.6 million, respectively. The net aftertax income of MICR was $0.6 million for both nine months ended September 30, 2004 and 2003 and is included in continuing operations on the consolidated statement of operations. Dividends totaling $0.5 million and $0.8 million were paid by MICR to CIB — Chicago, its parent, during the nine months ended September 30, 2004 and 2003, respectively. CIB Marine

50

management, which has authority to do so, has developed and is implementing a plan to sell this business.

     The following table summarizes the composition of MICR’s balance sheet:

	September 30,		December 31,
	2004 (1)		2003 (1)
	(Dollars in thousands)
Assets:
Cash and cash equivalents non-affiliates	$	634	$	622
Accounts receivable		628		571
Inventory		940		857
Other current assets		67		16
Property and equipment, net		284		333
Goodwill, net		235		2,156
Total assets	$	2,788	$	4,555
Liabilities and stockholder’s equity:
Liabilities	$	699	$	590
Stockholder’s equity		2,089		3,965
Total liabilities and stockholder’s equity	$	2,788	$	4,555

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

MSI

     In September 1995, CIB Marine acquired Mortgage Services of Illinois, Inc., a mortgage origination and mortgage brokerage services company. In 1998, CIB Marine changed the name of this subsidiary to Mortgage Services, Inc (“MSI”). MSI sold substantially all of these mortgage loans in the secondary market with servicing rights released. Due to the underperformance of this subsidiary, CIB Marine management, which had the authority to do so, developed and implemented a plan to sell this business in the first quarter of 2004. During the third quarter of 2004, CIB Marine sold to an unrelated party substantially all of the assets and operations of MSI. The sale of the operations was accomplished through two separate transactions and resulted in a $0.7 million loss . CIB Marine is in the process of winding down the remaining affairs of this company and has incurred certain liabilities with respect to the operations of the mortgage company. These liabilities, totaling $1.9 million as of September 30, 2004, include repurchase obligations relative to certain mortgage loans as a result of borrower fraud and/or documentation issues, and potential tax liabilities.

	September 30,			December 31,
	2004 (1)			2003
	(Dollars in thousands)
Assets:
Cash on deposit at CIB Marine	$	268		$	12
Loans held for sale		375			148
Net loans		590			202
Property and equipment, net		42			1,019
Other intangibles		—			825
Other assets		1,069			766
Total assets	$	2,344		$	2,972
Liabilities and stockholder’s equity:
Liabilities		2,973			1,434
Stockholder’s equity		(629	)		1,538
Total liabilities and stockholder’s equity	$	2,344		$	2,972

(1) Included in assets and liabilities of companies held for disposal in the consolidated balance sheet.

     For the nine months ended September 30, 2004, MSI’s loss, excluding affiliate transactions, was $1.3 million, including a $0.7 million loss on the sales of substantially all of the assets and operations of the company and a $1.0 million impairment loss recognized by its parent. During the first quarter of 2004, based on the expected market value of this subsidiary, management determined the value of customer base intangibles, including $0.3 million of additional contingent consideration due under the original purchase agreement, was impaired and an impairment loss of $1.0 million was recognized. MSI’s operating results, the $1.0 million impairment

51

and the $0.7 million loss on the sales of substantially all of the assets and operations of the company are presented as discontinued operations in CIB Marine’s consolidated statements of operations.

Commercial Finance

     In August 2002, CIB Marine acquired certain of the assets of a receivables factoring business through Commercial Finance, an Illinois limited liability company and a wholly-owned subsidiary of CIB — Chicago. The assets were acquired from a borrower who was in default of its obligations to CIB Marine and other lenders. Commercial Finance provides the factoring of receivables and other asset-based lending products to borrowers. In the first quarter of 2004, CIB Marine management, which has the authority to do so, developed and implemented a plan to sell this business. In June 2004, CIB Marine sold to an unrelated party substantially all of the business assets and the business of Commercial Finance. The gain on the sale of this operation was $0.2 million. Total assets at the time of sale were $10.9 million.

     Commercial Finance’s results from operations and the $0.2 million gain on sale of its assets is presented in discontinued operations in CIB Marine’s consolidated statement of operations.

Hillside (includes CIB — Chicago)

     The Board of Directors of CIB Marine evaluated a wide range of alternatives to improve the capital and liquidity position of CIB Marine, including the sale of additional common stock, sale of the company, sale of one or more of the bank subsidiaries and other asset reduction strategies. An investment banker was hired to assist in evaluating the financial condition of the company and various strategic alternatives. Upon evaluation, the Board determined that under the circumstances the sale of CIB — Chicago, its Chicago banking subsidiary, was the most prudent course of action for the company and its shareholders. During the third quarter of 2004, CIB Marine management, which had the authority to do so, implemented a plan to sell Hillside, including its subsidiary CIB - Chicago. Accordingly, the assets and liabilities of Hillside, including CIB — Chicago are included in assets and liabilities of companies held for disposal as of September 30, 2004.

     The following table summarizes the composition of CIB — Chicago’s balance sheet:

	September 30,			December 31,
	2004 (1)			2003
	(Dollars in thousands)
Assets
Cash and cash equivalents:
Cash and due from banks	$	14,268		$	18,232
Federal funds sold		97,616			2,470
Total cash and cash equivalents		111,884			20,702
Securities available for sale, at fair value		406,207			283,602
Loans (2)		724,740			1,134,013
Allowance for loan losses		(38,115	)		(55,146	)
Net loans		686,625			1,078,867
Premises and equipment, net		11,579			12,026
Accrued interest receivable		4,352			6,128
Other intangible assets		784			982
Foreclosed properties		1,884			37,688
Other assets		15,895			25,061
Total assets	$	1,239,210		$	1,465,056
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	57,363		$	86,832
Interest-bearing demand		23,927			24,567
Savings		195,594			275,269
Time		866,279			927,398
Total deposits		1,143,163			1,314,066
Short-term borrowings		7,637			42,367
Long-term borrowings		30,008			30,526
Accrued interest payable		3,307			3,367
Other liabilities		9,836			23,308

52

	September 30,		December 31,
	2004 (1)		2003
	(Dollars in thousands)
Total liabilities		1,193,951		1,413,634
Stockholders’ Equity		45,259		51,422
Total liabilities and stockholders’ equity	$	1,239,210	$	1,465,056

(1)	Included in assets and liabilities of companies held for disposal in the consolidated balance sheets.
(2)	September 20, 2004 and December 31, 2003 includes $0.6 million and $3.7 million, respectively, in loans which on a consolidated CIB Marine basis are classified as receivable from sale of stock.

     CIB — Chicago’s results from operations are presented as discontinued operations in the consolidated statement of operations.

Deposit Liabilities

     Total deposits decreased $1.6 billion, or 56.2%, from $2.8 billion at December 31, 2003 to $1.2 billion at September 30, 2004. The decrease was primarily due to the transfer of CIB - Chicago’s deposits to liabilities of companies held for disposal. At December 31, 2003, CIB - Chicago had total deposits of $1.3 billion. Excluding CIB — Chicago, total deposits decreased $279.5 million at September 30, 2004 as compared to December 31, 2003. This decrease was primarily a decrease in savings and time deposits driven by the rate environment and less competitive pricing by CIB Marine as a result of its risk management policy. As assets declined, CIB Marine offered less competitive rates and allowed the higher priced time deposits to decline through attrition. Time deposits represent the largest component of deposits. Including CIB — Chicago, the percentage of time deposits to total deposits was 68.1% at September 30, 2004 and 65.0% at December 31, 2003. Excluding CIB — Chicago, the percentage of time deposits to total deposits was 60.9% at September 30, 2004 and 60.5% at December 31, 2003. These percentages reflect CIB Marine’s reliance on time deposits as a primary source of funding. At September 30, 2004, time deposits of $100,000 or more were $538.0 million, including $286.3 million at CIB — Chicago, and at December 31, 2003, time deposits of $100,000 or more were $617.2 million, including $294.9 million at CIB — Chicago. CIB Marine accepts brokered time deposits periodically to meet short-term funding needs and/or when their related costs are at or below those being offered on other deposits. Brokered time deposits were $157.8 million, including $89.3 million at CIB — Chicago, at September 30, 2004 and $183.0 million, including $95.4 million at CIB — Chicago, at December 31, 2003.

Borrowings

     CIB Marine utilizes various types of borrowings to meet liquidity needs, fund asset growth and/or when the pricing of these borrowings is more favorable than deposits. Total borrowed funds decreased $90.7 million from $200.7 million at December 31, 2003 to $110.0 million at September 30, 2004. Short-term borrowings accounted for $51.7 million of the total decrease. The decrease in short-term borrowings was primarily due to the satisfaction of a $26.7 million mortgage note payable and the transfer of CIB — Chicago’s borrowings, which were $13.2 million at December 31, 2003, to liabilities of companies held for disposal. In December 2003, CIB Marine acquired through a deed in lieu of foreclosure a commercial office building subject to the first lien held by an outside financial institution (“Lender”) and assumed the borrower’s financial obligation relating to that first lien. At December 31, 2003, the assumed non-recourse mortgage note payable had an outstanding balance of $26.7 million and was included in short-term borrowings. In the second quarter of 2004, CIB Marine transferred its interest in the acquired property to the Lender in exchange for the satisfaction of the assumed mortgage note. The transfer of interest resulted in no gain or loss. During the second quarter of 2004, CIB Marine sold its receivables factoring business which had a $12.0 million line of credit with a $7.3 million outstanding balance at December 31, 2003. This line of credit was paid off upon the sale of the factoring subsidiary. Long-term borrowings accounted for $39.0 million of the decrease in total borrowed funds. The decrease in long-term borrowings was mainly due to the transfer of CIB — Chicago to liabilities of companies held for disposal and $8.5 million paydown of the Federal Home Loan Bank borrowings. At December 31, 2003, CIB — Chicago had $30.5 million in long-term borrowings.

Other Liabilities

     Other liabilities declined $22.7 million from $29.0 million at December 31, 2003 to $6.3 million at September 30, 2004. The majority of the decline related to an accrual for unfunded commitments and standby letters of credit losses which had a balance of $0.7 million at September 30, 2004 as compared to $15.7 million at December 31, 2003. During the first half of 2004, CIB Marine funded and charged-off against the accrual $5.5 million for one standby letter of credit, transferred $5.0 million to the allowance for loan loss, and recognized a $0.7 million provision, which is included in provision for credit losses on the consolidated statements of operations. Additionally, during the third quarter of 2004, a commitment with an accrual of $1.9 million expired without being funded. The $1.9 million is included in discontinued operations on the consolidated statement of operations. The remaining $3.3 million accrual for unfunded commitments and standby letters of credit losses was transferred to liabilities of companies held for disposal at September 30, 2004.

53

Capital and Regulatory Matters

     CIB Marine and its subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Pursuant to federal holding company and bank regulations, CIB Marine and each bank subsidiary is assigned to a capital category. The assigned capital category is largely determined by three ratios that are calculated in accordance with specific instructions included in the regulations: total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank subsidiaries must meet specific capital guidelines that involve quantitative measures of the bank’s assets and certain off-balance sheet items as calculated under regulatory accounting practices. The banks’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. To be categorized as well capitalized, the bank subsidiaries must maintain total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively.

     There are five capital categories defined in the regulations: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Classification of a subsidiary bank in any of the undercapitalized categories can result in certain mandatory and possible additional discretionary actions by regulators that could have a direct material effect on the consolidated financial statements.

     At September 30, 2004, pursuant to FDIC guidelines in 12 C.F.R. Part 325, Marine FSB was categorized as well capitalized. Central Illinois Bank, Citrus Bank, Marine — Wisconsin, and CIB - Indiana were categorized as adequately capitalized. While Citrus Bank, Marine — Wisconsin, and CIB - - Indiana met the capital ratio criteria of a well capitalized bank at September 30, 2004, they were subject to regulatory orders or agreements as of that date, and pursuant to the FDIC regulations, a bank that is subject to any written agreement or order to meet and maintain a specific capital level for any capital measure cannot be classified as well capitalized. CIB — Chicago was categorized as undercapitalized. In the second quarter of 2004, CIB — Chicago submitted to the FDIC a capital restoration plan which was accepted by the FDIC on August 9, 2004.

     On January 30, 2003, CIB Marine’s bank subsidiary, CIB — Chicago, entered into a Memorandum of Understanding (the “Memorandum”) with the DBRE and the FDIC. The Memorandum was entered into as a result of the deterioration in the credit quality of the loan portfolio, the level of concentrations of credit, and weaknesses in the credit administration process identified during the DBRE’s regular examination of CIB — Chicago, which commenced on August 31, 2002.

     Pursuant to the Memorandum, CIB — Chicago agreed to take certain actions to correct the deficiencies noted within the examination report. In addition, during the period in which the Memorandum was in effect, CIB — Chicago agreed to maintain a Tier 1 leverage capital level equal to or exceeding 8% of the bank’s total assets. In the event such ratio is less than 8% as of June 30 or December 31 of each calendar year the Memorandum was in effect, the bank was required within 30 days thereof to submit to the regulators a plan for the augmentation of the bank’s capital accounts. Also, unless prior written consent was received from the regulators, CIB — Chicago agreed to restrict its loan growth to no more than 2% during any consecutive three month period and suspend the declaration or payment of dividends. The Memorandum was superseded by a Cease and Desist Order.

     In the second quarter of 2004, CIB Marine entered into a Written Agreement with the Federal Reserve Bank (the “Agreement”) and CIB — Chicago, Central Illinois Bank, Marine — Wisconsin and CIB - - Indiana each consented to the issuance of Cease and Desist Orders (“Orders”) with banking regulatory authorities. Additionally, in the third quarter of 2004, Citrus Bank entered into a Written Agreement with the Office of the Comptroller of the Currency. Among other items, the Orders and Agreement restrict the payment of cash dividends without prior written consent from the regulators and require the banks to maintain a Tier 1 leverage Capital level equal to or exceeding 8% of the bank’s total assets. The Agreement with the OCC also requires Citrus Bank to maintain a total capital ratio of not less than 14%. These restrictions are in force until such Orders and Agreement are terminated. In the event the capital ratio at any calendar quarter end with respect to each such bank is less than required under the Orders and Agreement, the bank is required within 90 days to increase its capital ratio as of the end of that preceding quarterly period to the minimum stated in the Orders and Agreement. Failure to comply with the Orders or Agreements could have a material adverse effect on CIB Marine and its operations. As of September 30, 2004, only CIB - - Chicago had capital below the minimum required by the Orders and Agreements.

54

     The risk-based capital information of CIB Marine at September 30, 2004 and December 31, 2003 is contained in the following table.

	September 30,			December 31,
	2004			2003
	(Dollars in thousands)
Risk weighted assets	$	1,928,995		$	2,737,049
Average assets (1)		2,731,398			3,252,625
Capital components
Stockholders’ equity		80,351			108,523
Restricted core capital:
Junior subordinated debentures net of investment in trust		60,000			60,000
Minority interests in consolidated subsidiaries		133			133
Total restricted core capital elements		60,133			60,133
Disallowed amounts		(33,305	)		(23,914	)
Maximum allowable in tier 1 capital		26,828			36,219
Nonfinancial equity items		(33	)		(55	)
Less: disallowed intangibles		(1,766	)		(4,945	)
Less: unrealized gain on securities		(328	)		(2,184	)
Tier 1 capital		105,052			137,558
Allowable allowance for loan losses		24,857			35,342
Allowable junior subordinated debentures net of investment in trust		33,305			23,914
Total risk based capital	$	163,214		$	196,814

						Minimum Required to be
	Actual					Adequately Capitalized
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2004
Total capital to risk weighted assets	$	163,214		8.46	%	$	154,320		8.00	%
Tier 1 capital to risk weighted assets		105,052		5.45			77,160		4.00
Tier 1 leverage to average assets		105,052		3.85			109,256		4.00
December 31, 2003
Total capital to risk weighted assets	$	196,814		7.19	%	$	218,964		8.00	%
Tier 1 capital to risk weighted assets		137,558		5.03			109,482		4.00
Tier 1 leverage to average assets		137,558		4.23			130,105		4.00

(1) Average assets as calculated in accordance with 12 C.F.R. Part 325 of the FDIC rules and regulations which requires a quarter to date average and allows for current period adjustments of goodwill and other intangible assets.

Liquidity

     The objective of liquidity risk management is to ensure that CIB Marine has adequate funding capacity to fund commitments to extend credit, deposit account withdrawals, maturities of borrowings, and other obligations in a timely manner. CIB Marine actively manages its liquidity position by estimating, measuring, and monitoring its sources and uses of funds. 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, loan repayments and investment maturities. CIB Marine also makes use of noncore funding sources in a manner consistent with its liquidity, funding and market risk policies. Noncore funding sources are used to meet funding needs and/or when the pricing and continued availability of these sources presents lower cost funding opportunities. Short-term noncore funding sources utilized by CIB Marine include federal funds purchased, securities sold under agreements to repurchase, Eurodollar deposits, short-term borrowings from the Federal Home Loan Bank, and short-term brokered and negotiable time deposits. CIB Marine also has established borrowing lines with the Federal Reserve Bank and nonaffiliated banks. Long-term funding sources, other than core deposits, include long-term brokered and negotiable time deposits and long-term borrowings from the Federal Home Loan Bank. Additional sources of liquidity include cash and cash equivalents, federal funds sold, sales of loans held for sale, and the sale of securities.

     During the second half of 2003 and throughout 2004, some of the borrowing sources customarily utilized by CIB Marine were restricted or unavailable due to noncompliance with certain asset quality, earnings and capital maintenance debt covenants and the inability to provide audited consolidated financial statements. Federal funds borrowings by certain CIB Marine subsidiary banks were discontinued or were contingent on subsidiary bank pledges of fixed income investment securities, the Federal Home Loan Bank of Chicago restricted lending terms, and derivative counterparties increased collateral requirements. Brokered deposits were restricted by

55

FDIC rules and regulations at the subsidiary banks which were defined as less than well capitalized due to either low levels of capital or the issuance of Cease and Desist Orders or formal written agreements. Brokered deposits became available only after a waiver was obtained from the FDIC for some of the subsidiary banks and were restricted from use at CIB — Chicago. The credit status of all of CIB Marine’s subsidiary banks was reduced, and as a result the subsidiary banks were restricted from daylight overdraft activity at their respective Federal Reserve Banks. Additionally, pursuant to the Written Agreement between CIB Marine and the Federal Reserve Bank, CIB Marine must obtain Federal Reserve Bank approval before incurring additional borrowings or debt. Pursuant to regulatory agreements consented to by certain CIB Marine bank subsidiaries, the subsidiaries must obtain regulatory approval before paying cash dividends. These restrictions could potentially impact liquidity.

     The following discussion should be read in conjunction with the consolidated statements of cash flows contained in the consolidated financial statements.

     CIB Marine’s primary sources of funds for the nine months ended September 30, 2004 came from a net decrease in the loan portfolio of $296.4 million and $269.9 million in net cash provided by investing activities of discontinued operations. Other sources of funds came from $21.4 million in cash provided by operating activities, $6.8 million net increase in continuing short-term borrowings, $6.9 million decrease in net assets of companies held for disposal and $2.2 million net decrease in other investments.

     A net decrease in deposits of $264.2 million and $304.0 million in cash used for financing activities by discontinued operations was CIB Marine’s primary use of funds for the nine months ended September 30, 2004. Other uses of funds were a net increase in investment securities of $14.5 million, $8.5 million repayments of long-term borrowings, and $0.7 million to purchase property and equipment.

     The primary source of funds from discontinued operations for the nine months ended September 30, 2004 came from a net decrease in the loan portfolio of $384.6 million. Other sources of funds came from $17.6 million in cash provided by operating activities and $9.7 million in proceeds from the sale of foreclosed properties.

     A net decrease in deposits of $177.7 million and $124.0 million net increase in investment securities was the discontinued operation’s primary use of funds for the nine months ended September 30, 2004. Other uses of funds included a net decrease in short-term borrowings of $19.6 million.

     The Company had liquid assets from continuing operations of $132.3 million and $119.8 million at September 30, 2004 and December 31, 2003, respectively.

     CIB Marine was able to meet its liquidity needs during the first nine months of 2004. CIB Marine subsidiary banks have higher levels of liquid assets to meet potentially high levels of liquidity needs. During 2006, it is expected the parent, CIB Marine Bancshares, will have adequate funding capacity to meet its obligations.

Subsequent Events

     See Note 13-Subsequent Events in Item 1 of this Form 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SENSITIVITY

     Since December 31, 2003, CIB Marine’s market risk profile has become more sensitive to declining rates. The increase in sensitivity to declining rates is in part due to the significant increase in short-term liquid assets and the decline in net interest income resulting from decreases in loan volumes. For additional information regarding CIB Marine’s market risk, refer to its 2003 Annual Report on Form 10-K, which is on file with the Securities and Exchange Commission.

56

     The following table illustrates the period and cumulative interest rate sensitivity gap for September 30, 2004.

Repricing Interest Rate Sensitivity Analysis

	September 30, 2004
	0-3			4-6			7-12			2-5			Over 5
	Months			Months			Months			Years			Years			Total
	(Dollars in thousands)
Interest-earning assets:
Loans	$	630,258		$	34,574		$	57,113		$	149,310		$	24,081		$	895,336
Securities		89,678			53,623			75,912			126,804			18,748			364,765
Loans held for sale		—			—			—			—			—			—
Federal funds sold		88,025			—			—			—			—			88,025
Total interest-earning assets		807,961			88,197			133,025			276,114			42,829			1,348,126
Interest-bearing liabilities:
Time deposits		132,384			99,922			188,132			315,529			17,502			753,469
Savings and interest-bearing demand deposits		360,537			—			—			—			—			360,537
Short-term borrowings		40,934			—			—			—			—			40,934
Long-term borrowings		—			—			—			7,250			—			7,250
Junior subordinated debentures		21,857			—			—			—			40,000			61,857
Total interest-bearing liabilities	$	555,712		$	99,922		$	188,132		$	322,779		$	57,502		$	1,224,047
Interest sensitivity gap (by period)		252,249			(11,725	)		(55,107	)		(46,665	)		(14,673	)		124,079
Interest sensitivity gap (cumulative)		252,249			240,524			185,417			138,752			124,079			124,079
Adjusted for derivatives:
Derivatives (notional, by period)		(8,940	)		—			5,000			5,000			(1,060	)		—
Derivatives (notional, cumulative)		(8,940	)		(8,940	)		(3,940	)		1,060			—			—
Interest sensitivity gap (by period)		243,309			(11,725	)		(50,107	)		(41,665	)		(15,733	)		124,079
Interest sensitivity gap (cumulative)		243,309			231,584			181,477			139,812			124,079			124,079
Cumulative gap as a % of total assets		9.20	%		8.75	%		6.86	%		5.28	%		4.69	%

     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, 2004, and December 31, 2003.

	Basis point changes
	+200			+100			-100			-200
Net interest income change over one year:
September 30, 2004		11.63	%		9.48	%		0.19	%		(3.71	)%
December 31, 2003		4.83	%		3.58	%		(4.33	)%		(7.69	)%

ITEM 4. CONTROLS AND PROCEDURES

     (a) Disclosure Controls and Procedures

     CIB Marine maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Disclosure controls include components of internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.

     As reported in our Form 10-K for the fiscal year ended December 31, 2003, CIB Marine’s management identified material weaknesses in its internal control over financial reporting, and as a result of these weaknesses concluded that its disclosure controls and procedures were ineffective as of December 31, 2003. During the third quarter of 2004, the company has taken action to remediate these material weaknesses and continues to assess additional controls that may be required to remediate these weaknesses.

     CIB Marine’s management, under the supervision and with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the company’s disclosure controls and procedures as of September 30, 2004. As a part of its evaluation, management has evaluated whether the control deficiencies related to the material weaknesses in internal control over financial reporting which were reported in the 2003 Form 10-K continue to exist. As of September 30, 2004, CIB Marine has determined that it has not completed the implementation and/or testing of the changes in controls and procedures that it believes are necessary to conclude that the material weaknesses have been remediated. Based on this evaluation, management has concluded that the disclosure controls and procedures were ineffective as of September 30, 2004.

     Management has undertaken procedures in order to conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the consolidated financial statements contained in this filing. Accordingly, Management

57

believes that the condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, CIB Marine’s financial position, results of operations, and cash flows for the periods presented.

     (b) Changes in Internal Control over Financial Reporting

     During the third quarter of 2004, management of CIB Marine has taken action to remediate the material weaknesses which were disclosed in its 2003 Form 10-K, including changes to internal control over financial reporting that have materially affected, or are likely to materially affect, CIB Marine’s internal control over financial reporting. These changes in internal control are identified below and listed under the corresponding material weakness.

(i) CIB Marine’s polices and procedures over the determination of the allowance for loan losses were not effective.

• The company further enhanced its loan underwriting standards,

(ii) CIB Marine’s policies and procedures were not effective with regard to coins, jewelry and precious metals loan collateral held, by failing to adequately appraise collateral in its possession, control access by the borrower to such collateral and periodically inspect the collateral using persons with expertise in such collateral.

• The company further enhanced its procedures to monitor loan collateral and valuation of collateral for collateral dependent loans

     Other than as discussed above, there were no additional changes in CIB Marine’s internal control over financial reporting during the quarter ended September 30, 2004, that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Material pending litigation, other than that of a routine nature in the ordinary course of business, is as follows:

     In August 2003, Keith Burchett, a shareholder of CIB Marine and a borrower of CIB — Chicago, commenced an action in the Circuit Court of Cook County, Illinois, against CIB Marine, Central Illinois Bank, CIB — Chicago and two of their now former directors and/or officers for damages arising out of alleged fraudulent misrepresentations relative to the financial condition of Canron and its principal shareholder by defendants to induce the plaintiff to borrow money from CIB - Chicago and make a $0.5 million investment in Canron. Plaintiff asserts claims for fraud and shareholder remedies. The shareholder remedies action alleges the defendants’ violations of lending regulations caused a decline in the plaintiff’s investment in CIB Marine. Plaintiff seeks an unspecified amount of compensatory and punitive damages, requests an order requiring CIB Marine and the banks to repurchase his CIB Marine shares of stock at fair value, and other forms of relief. While the outcome of these claims cannot be determined at this time, CIB Marine intends to vigorously defend this action. Central Illinois Bank has been removed as a defendant in subsequent amended complaints filed by the plaintiff. On November 30, 2004, CIB Marine sold CIB — Chicago.

     In June 2004, Central Illinois Bank commenced an action in the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois, against John C. Hadley and Mary Lydia Hadley, CIB Marine’s largest individual shareholders, for damages arising out of the Hadleys’ default in December 2003 of certain loan obligations (the “State Litigation”) and subsequently obtained a confession of judgment. The loans approximate $9.7 million plus interest and attorneys fees and are secured by CIB Marine stock and the accounts receivable, inventory, equipment and other personal property of the borrowers and their restaurant supply and coin businesses. In December 2004, the Hadleys consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code pending in the United States Bankruptcy Court for the Central District of Illinois (the “Bankruptcy Case”). The claims and counterclaims filed in the State Litigation have been stayed. On January 30, 2006, Central Illinois Bank filed an adversary proceeding in the bankruptcy case seeking a determination that Central Illinois Bank’s claim against the Hadleys is not dischargeable. On March 13, 2006, the Hadleys filed a counterclaim against Central Illinois Bank in the dischargeability adversary proceeding that sought to recover $35.0 million in actual damages and punitive damages for the alleged loss or substitution by Central Illinois Bank of certain rare coins and collectibles which the Hadleys alleged were pledged to the bank as collateral, sought to recover certain alleged preferential transfers and sought to equitably subordinate the bank’s claim to those of unsecured creditors. Central Illinois Bank filed an answer to the counterclaim denying the material allegations of the Hadleys. Following a hearing on November 15, 2006, the court in the Bankruptcy Case entered an order on November 27, 2006, conditionally approving the settlement agreement between Central Illinois Bank and the Hadleys that provides for dismissal of the adversary complaint and counterclaims with prejudice and without admitting any fault or liability; the exchange of mutual general releases of claims among the Hadleys, Central Illinois Bank and its parent and affiliated corporations; preserving only the Hadleys’ claims as members of a putative plaintiff class in an action currently pending in the United States District Court for the Eastern District of Wisconsin entitledDennis Lewis, et al. v. CIB Marine Bancshares, Inc., et al., Case No. 05-C-1008 or as individual plaintiffs in an “opt out” action against some or all of the same parties alleging substantially the same claims; the discharge, waiver, release or assignment by Central Illinois Bank to the Hadleys’ bankruptcy estate, at the Hadleys’ option, of the bank’s proof of claim; the return by Central Illinois Bank to the Hadleys’ bankruptcy estate of all collateral security and the payment by Central Illinois Bank of $1.75 million. The order approving the settlement is subject to the condition that the Hadleys advise the Bankruptcy Court that they have verified certain representations and warranties set forth in the settlement agreement during the 30-day period prescribed in the order. The settlement is subject to approval of the Central Illinois Bank’s regulators.

58

     In June 2004, John C. Ruedi, a former employee of CIB Marine, filed an action against CIB Marine and “Central Illinois Bancorp, Inc.” in the Circuit Court of the Sixth Judicial District, Champaign County, Illinois for rescission or damages, including punitive damages, in connection with plaintiff’s October 1, 2002 exercise of options issued by CIB Marine to acquire 36,688 shares of CIB Marine common stock at various exercise prices. Plaintiff claims that but for CIB Marine’s and Central Illinois Bancorp, Inc.’s alleged fraudulent concealment of material facts regarding the financial condition of CIB Marine he would not have exercised his options. Plaintiff also seeks to recover from Central Illinois Bancorp, Inc. and CIB Marine in excess of $40,000 allegedly due Plaintiff pursuant to a purported memorandum providing for the payment of an incentive to Plaintiff in connection with his employment. In March 2005, Plaintiff amended his complaint to add the former President and CEO of CIB Marine as a defendant based upon claims of alleged fraudulent concealment. (Claims filed in the action against KPMG LLP and a retired partner of KPMG were voluntarily dismissed by the Plaintiff.) CIB Marine filed a motion to dismiss several of Plaintiff’s claims and answered the others denying liability. That motion to dismiss was denied and CIB Marine answered the remaining counts against it, denying liability. Plaintiff filed a motion for summary judgment seeking recovery of $40,000 from CIB Marine on his incentive payment claim. This motion was denied. All discovery has been stayed in this action by an order of the federal court in the Dennis Lewis case described later in this section, with the result that this suit is currently dormant. Plaintiff has filed a motion in the Lewis case to vacate the discovery stay in this case. No date has been set for a ruling on that motion, which CIB Marine and the other defendants in the Lewis case opposed. While the ultimate outcome of these claims cannot be determined at this time, CIB Marine intends to vigorously defend the action.

     On June 3, 2005, a first consolidated complaint was filed by Dennis Lewis, a shareholder, and other alleged shareholders of CIB Marine in the United States District Court for the Central District of Illinois, Urbana Division, against CIB Marine, certain of its current and former officers and directors, and KPMG LLP. The filing consolidated two actions that had been filed in January 2005: one filed by Lewis in the United States District Court for the Central District of Illinois, Urbana Division and another filed in the United States District Court for the Central District of Illinois, Peoria Division by Elaine Sollberger, a purported shareholder, whose claims were voluntarily dismissed in connection with the consolidation, and have not been reasserted in the consolidated complaint. Plaintiffs sought to maintain the action as a class action on behalf of all persons who purchased common stock of CIB Marine between April 12, 1999, and April 12, 2004, claiming violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by CIB Marine and other defendants and liability of certain defendants other than CIB Marine and KPMG under Section 20(a) of the Securities Exchange Act as controlling persons. The substance of the complaint is that the financial condition of CIB Marine was overstated with the result that members of the purported class acquired their CIB Marine stock at inflated prices. Plaintiffs seek money damages, interest, attorneys’ fees and costs. The federal court in Urbana, Illinois granted the motion of CIB Marine and several other defendants to transfer the action to the United States District Court for the Eastern District of Wisconsin, sitting in Milwaukee, Wisconsin, where the action is now pending.

     All defendants moved to dismiss the action on various grounds. On October 12, 2006 the court denied CIB Marine’s motion to dismiss, granted in part the motions to dismiss filed by the individual defendants and granted the motion to dismiss filed by KPMG. CIB Marine and the individual defendants have filed answers to the pending complaint denying any liability. An additional person has moved to intervene as a plaintiff in the action. On November 10, 2006, plaintiffs filed a further amended complaint as to KPMG, which KPMG has stated it intends to move to dismiss. As a result of the filing of the initial motions to dismiss, all discovery in this action was stayed automatically. Plaintiffs have moved to vacate that stay of discovery, which all defendants opposed based on KPMG’s pending motion to dismiss the further amended complaint filed by plaintiffs against KPMG. The court has not set a date to rule on the motion to vacate the stay of discovery. CIB Marine intends to vigorously contest certification of any class action and to otherwise vigorously defend this action. The ultimate outcome of this action cannot be determined at this time.

     In April 2005, James Fasano and Thomas Arundel, shareholders of CIB Marine and borrowers of CIB — Chicago, commenced an action in the Circuit Court of Cook County, Illinois, against CIB Marine, CIB — Chicago and two of their now former directors and/or

59

officers for damages arising out of alleged fraudulent misrepresentations relative to the financial condition of Canron and its principal shareholder to induce the plaintiffs to borrow $0.5 million from CIB — Chicago and invest it in Canron. Plaintiffs assert claims for fraud and shareholder remedies. The shareholder remedies action alleges the defendants’ violations of lending regulations caused a decline in the plaintiffs’ investment in CIB Marine. Plaintiffs seek an unspecified amount of compensatory and punitive damages, request an order requiring CIB Marine and the bank to repurchase their CIB Marine shares of stock at fair value, and other forms of relief. While the outcome of these claims cannot be determined at this time, CIB Marine intends to vigorously defend this action. On November 30, 2004, CIB Marine sold CIB — Chicago.

     In December 2003, CIB — Chicago acquired the title to a commercial office building that was being converted into residential condominiums. The property was acquired through a Deed in Lieu of Foreclosure Settlement Agreement (“DIL Agreement”) from a borrower who was in default on its obligation. The property was included in foreclosed properties at December 31, 2003. Pursuant to the DIL Agreement, CIB — Chicago acquired the property subject to the first lien held by an outside financial institution and assumed the borrower’s financial obligation relating to that first lien. At December 31, 2003, the assumed financial obligation was reported as an outstanding non-recourse mortgage note payable. During the second quarter of 2004, CIB — Chicago transferred all of its rights, title and interest in the property, along with the borrower’s obligation under the related mortgage note, to the first lien holder. CIB — Chicago transferred the property based upon its evaluation that the amount of additional funds necessary to complete the project was greater than the financial benefits and risks associated therewith. The property was transferred without any further liability or obligation to the first lien position holder and CIB — Chicago reserved its legal rights to pursue the borrower and guarantors. The transfer to the first lien holder resulted in no additional gain or loss to CIB Marine. During 2003, CIB Marine charged-off $41.7 million of the loan to its allowance for loan loss with respect to this borrowing relationship and also recorded a $1.5 million market value write down on the property. In July 2004, CIB — Chicago commenced litigation in the United States District Court for the Northern District of Illinois, Eastern Division, against the borrower, guarantors and their related interests for collection of the losses incurred by CIB Marine based upon state law claims of breach of agreements, fraud, conversion and other theories of recovery, including Federal RICO violations. In November 2004, CIB - - Chicago assigned the loans and claims related to this development to CIB Marine in conjunction with the sale of CIB — Chicago. In April 2005, the United States District Court dismissed the RICO claim and, as a result, lacked jurisdiction over the state law claims. In April 2005, CIB Marine commenced an action in the Circuit Court of Cook County, Illinois, against the defendants on the state law claims. In the event that there are any recoveries with respect to these loans and claims, CIB Marine has agreed to pay the purchaser of CIB — Chicago ten percent of any recovery after collection costs. To date, CIB Marine has not made any recoveries with respect to such loans and claims.

     On April 20, 2006, Mark A. Sindecuse filed an action in the United States District Court, Eastern District of Missouri, Eastern Division (St. Louis) against CIB Marine, Dean M. Katsaros (“Katsaros”), a former director of the Company, and Katsaros & Associates, Inc. The complaint purports to assert common law causes of action against CIB Marine for fraud and negligent misrepresentation in connection with plaintiff’s purchases of common stock of CIB Marine in private placements in 1995, 1996, 1997 and 1998. Additional claims are asserted against the other defendants. Plaintiff seeks compensatory damages of an out-of-pocket loss of “over $500,000 plus interest on his loans and loss of use of his money” and the plaintiff seeks damages of approximately $2,000,000 for “the difference between the value when [plaintiff] attempted to sell his stock and its present value.” Plaintiff also seeks unspecified punitive damages. CIB Marine and Katsaros have filed motions to dismiss the complaint. The court has set a schedule for this case that provides for trial to commence on October 15, 2007. CIB Marine intends to defend the action vigorously.

     CIB Marine and the individual defendants in the Ruedi, Burchett, Fasano/Arundel and Lewis cases described above, are insureds under a policy that on its face purports to provide coverage for those cases, including the costs of defense (payment of which by the insured reduces the remaining coverage under the policy), which include attorneys’ fees. With respect to the Ruedi and Lewis cases the insurer has reserved all rights and notified CIB Marine and the other insureds of potential grounds to deny coverage. After CIB Marine exhausted the retention under that policy, the insurer paid substantially all of the costs of defense of CIB Marine and the individual defendants in the Ruedi and Lewis cases through February 17, 2006 subject to its reservation of rights to seek reimbursement. On that date the insurer informed the insureds of its intention to terminate any further funding of the costs of defense. Negotiations ensued and CIB Marine has reached an agreement in principle with the insurer, which has not yet been reduced to a binding written agreement, providing that the insurer will pay 35% of the costs of defense of the Ruedi and Lewis cases incurred by CIB Marine and the individual defendants and CIB Marine will pay the remaining 65% of those reasonable costs subject to its reservation of rights to seek reimbursement. With respect to the individual defendants, the payment of these defense costs by CIB Marine is pursuant to the provision of its by-laws that mandates advancing defense costs of directors and officers under certain circumstances. The advances to individuals are subject to repayment by the individual defendants if it is ultimately determined, as provided in the by-laws and applicable Wisconsin law, that they are not entitled to be indemnified. The agreement in principle with the insurer provides that either CIB Marine or the insurer can terminate the funding arrangement under certain circumstances. In the event of termination, CIB Marine would be responsible for all of the reasonable costs of defense of CIB Marine and the individual

60

defendants in the Ruedi and Lewis cases. Defense costs in the other cases submitted for coverage continue to be paid by the insurer subject to the insurer’s reservation of rights under the policy. CIB Marine is not advancing the defense costs of any individual defendant in any of the other cases referred to above except that it is advancing the defense costs of defendant Katsaros in the Sindecuse case pursuant to the mandatory advancement by-law described in this paragraph.

     It is not possible to estimate the amount or timing of the defense costs that will be paid by CIB Marine from and after February 17, 2006 in the Ruedi and Lewis cases or in the other cases described above. The following factors, among others, could cause actual results to differ from those described in the preceding forward-looking statement and affect the amount and timing of the expenses referred to with respect to the Ruedi and Lewis cases: (1) the federal court’s decision on whether to vacate the existing stays of discovery and, if one or both stays are vacated, the scope of discovery that is allowed by the court and/or requested by the plaintiffs; (2) the extent, if any, to which the Lewis case is allowed to proceed as a class action; (3) the scope of discovery pursued by the plaintiffs (and the timing and substance of the court’s rulings on any objections thereto by defendants) when discovery proceeds irrespective of the existing stays of discovery; (4) whether plaintiffs are able to state a cause of action against KPMG and, if so, what actions KPMG takes in defense of the claim against it; (5) the extent to which CIB Marine and the individual defendants and their respective counsel are able to coordinate their defense of the action and in particular minimize duplication of activities in defense of the case; (6) if the funding arrangement is finally agreed to by CIB Marine, the individual defendants and the insurer, the insurer’s determinations of what services and costs are reasonable and appropriate under the insurer’s guidelines for paying the costs of defense; (7) CIB Marine’s determination of what costs of defense are “reasonable” within the meaning of its by-laws and any claims made by individual defendants whose costs of defense may be rejected in whole or in part on that ground; (8) the occurrence of circumstances that would lead either CIB Marine or the insurer to terminate the funding arrangement described above if in fact a definitive agreement is entered into; and (9) the extent to which any individual defendant whose costs of defense are advanced by CIB Marine is ultimately required to repay those costs and, if so, the ability of that person to make repayment.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

     The following table shows certain information relating to CIB Marine’s acquisitions of common stock for the three months ended September 30, 2004. All acquisitions were made pursuant to CIB Marine’s collection efforts:

					Total Number of		Maximum Number of
					Shares Purchased as		Shares That May Yet
	Total Number of		Average Price Paid		Part of a Publicly		be Purchased Under
Period	Shares Purchased (1)		per Share (2)		Announced Plan		the Plan
July 1-31, 2004		13,950	$	4.36		—		—
August 1-31, 2004		7,452		4.30		—		—
September 1-30, 2004		44,600		4.39		—		—
Total (Third Quarter)		66,002	$	4.37		—		—

(1)	Includes only shares pledged as collateral and received through collection efforts when the borrowers defaulted on loans.
(2)	Valuations reflect the lower of the loan balance or the estimated fair market value of CIB Marine’s stock at time of acquisition.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     CIB Marine did not submit any matters to a vote of its shareholders during the third quarter of 2004.

ITEM 5. OTHER INFORMATION

     Not Applicable

61

ITEM 6. EXHIBITS

Exhibit 10.1 — Agreement by and between Citrus Bank, N.A., and the Office of the Comptroller of the Currency (incorporated by reference to Exhibit 99 of CIB Marine’s Form 8-K filed with the Securities and Exchange Commission on August 23, 2004).

Exhibit 31.1 — Certification of Stanley J. Calderon, Chief Executive Officer, under Rule 13(a) — 14(d)/15d — 14(d).

Exhibit 31.2 — Certification of Steven T. Klitzing, Chief Financial Officer, under Rule 13(a) — 14(d)/15d — 14(d).

Exhibit 32.1 — Certification of Stanley J. Calderon, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 — Certification of Steven T. Klitzing, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

62

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 8th day of December, 2006.

CIB MARINE BANCSHARES, INC. (Registrant)
By:	STEVEN T. KLITZING
	Steven T. Klitzing
	Executive Vice President and Chief Financial Officer

63