-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXB6kAgsLPepwbW/fxLmiZD2hIXQ0on2URG4T797XEC8gQvWDxxj3Zwc7IghvrkP RmfQs2TptcsBcv295SrLcA== 0000062741-96-000018.txt : 19960517 0000062741-96-000018.hdr.sgml : 19960517 ACCESSION NUMBER: 0000062741-96-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSHALL & ILSLEY CORP/WI/ CENTRAL INDEX KEY: 0000062741 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 390968604 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01220 FILM NUMBER: 96566551 BUSINESS ADDRESS: STREET 1: 770 N WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147657801 10-Q 1 10-Q FOR QUARTER ENDED MARCH 31, 1996 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 --------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-1220 ------------------------------ MARSHALL & ILSLEY CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0968604 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 770 North Water Street Milwaukee, Wisconsin 53202 ---------------------- ----- (Address of principal executive offices) (Zip Code) (414) 765 - 7801 ------------------ (Registrant's telephone number, including area code) None ---- (Former name, former address and former fiscal year, if changed since last report) 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. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class April 30, 1996 ----- -------------- Common Stock, $1.00 Par Value 92,464,221 MARSHALL & ILSLEY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's except share data) March 31 December 31 March 31 Assets 1996 1995 1995 - ------ --------------------------------------- Cash and cash equivalents: Cash and due from banks $ 617,746 $ 745,911 $ 570,748 Federal funds sold and security resale agreements 91,878 66,618 208,250 Money market funds 56,748 84,960 115,765 --------------------------------------- Total cash and cash equivalents 766,372 897,489 894,763 Trading securities 31,211 38,601 4,554 Other short-term investments 74,599 95,635 28,509 Investment securities held to maturity, market value $509,557 ($453,240 December 31, and $417,615 March 31, 1995) 509,487 450,457 421,301 Investment securities available for sale at market value 2,699,621 2,458,600 1,860,232 --------------------------------------- Total investment securities 3,209,108 2,909,057 2,281,533 Loans 8,782,236 8,868,902 8,967,409 Less: Allowance for loan losses 161,841 161,430 157,689 --------------------------------------- Net loans 8,620,395 8,707,472 8,809,720 Premises and equipment, net 302,334 306,988 294,786 Accrued interest and other assets 372,553 387,855 346,766 --------------------------------------- Total Assets $ 13,376,572 $ 13,343,097 $ 12,660,631 ======================================= Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,079,165 $ 2,363,194 $ 1,966,315 Interest bearing 7,982,109 7,917,583 7,468,690 --------------------------------------- Total deposits 10,061,274 10,280,777 9,435,005 Funds purchased and security repurchase agreements 813,479 517,576 918,878 Other short-term borrowings 606,362 497,446 122,353 Long-term borrowings 310,036 422,550 765,375 Accrued expenses and other liabilities 329,197 367,131 290,731 --------------------------------------- Total liabilities 12,120,348 12,085,480 11,532,342 Shareholders' equity: Series A convertible preferred stock, $1.00 par value; 348,944 shares issued 349 349 349 Common stock, $1.00 par value; 99,494,335 shares issued 99,494 99,494 99,494 Additional paid-in capital 188,884 190,287 189,743 Retained earnings 1,105,836 1,075,789 976,882 Less: Treasury common stock, at cost; 6,854,035 shares (5,968,631 December 31, and 5,896,692 March 31, 1995) 151,620 128,459 121,983 Deferred compensation 1,098 1,090 1,281 Net unrealized gains (losses) on securities available for sale, net of related taxes 14,379 21,247 (14,915) --------------------------------------- Total shareholders' equity 1,256,224 1,257,617 1,128,289 --------------------------------------- Total Liabilities and Shareholders' Equity $ 13,376,572 $ 13,343,097 $ 12,660,631 ======================================= See notes to financial statements. MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except per share data) Three Months Ended March 31, ---------------------------- Interest income 1996 1995 - --------------- ---------------------------- Loans $ 185,816 $ 185,663 Investment securities: Taxable 38,573 28,271 Exempt from Federal income taxes 6,156 4,066 Trading securities 257 125 Short-term investments 2,627 3,558 ---------------------------- Total interest income 233,429 221,683 Interest expense - ---------------- Deposits 87,602 73,498 Short-term borrowings 10,026 14,807 Long-term borrowings 13,164 12,434 ---------------------------- Total interest expense 110,792 100,739 ---------------------------- Net interest income 122,637 120,944 Provision for loan losses 3,577 3,983 ---------------------------- Net interest income after provision for loan losses 119,060 116,961 Other income - ------------ Data processing services 58,382 47,849 Trust services 16,803 15,207 Other customer services 28,901 27,599 Net securities gains 50 18 Other 8,577 7,029 ---------------------------- Total other income 112,713 97,702 Other expense - ------------- Salaries and employee benefits 91,628 80,864 Net occupancy 9,974 8,939 Equipment 19,401 14,847 Payments to regulatory agencies 540 5,482 Processing charges 4,942 4,493 Supplies and printing 4,611 3,429 Professional services 3,958 3,651 Other 24,135 20,980 ---------------------------- Total other expense 159,189 142,685 ---------------------------- Income before income taxes 72,584 71,978 Provision for income taxes 26,429 25,843 ---------------------------- Net income $ 46,155 $ 46,135 ============================ Net income per common share - --------------------------- Primary $ 0.47 $ 0.47 Fully Diluted 0.46 0.46 Dividends paid per common share $ 0.165 $ 0.150 Weighted average common shares outstanding: Primary 98,192 98,492 Fully diluted 102,089 102,407 See notes to financial statements MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($000's) Three Months Ended March 31, ---------------------------- 1996 1995 ---------------------------- Net Cash Provided by Operating Activities $ 22,862 $ 86,813 Cash Flows From Investing Activities: - ------------------------------------- Net decrease in securities with maturities of three months or less 21,135 15,270 Proceeds from sales of securities available for sale 190,943 211 Proceeds from maturities of longer term securities 205,007 167,214 Purchases of longer term securities (619,478) (81,970) Net (increase)decrease in loans 22,297 (62,901) Purchases of assets to be leased (31,715) (30,206) Principal payments on lease receivables 33,441 31,282 Fixed asset purchases, net (6,374) (10,138) Cash of banks acquired, net -- 11,408 Other 625 4,078 ---------------------------- Net cash provided by (used in) investing activities (184,119) 44,248 ---------------------------- Cash Flows From Financing Activities: - ------------------------------------- Net decrease in deposits (219,503) (212,959) Proceeds from issuance of commercial paper 285,889 201,403 Payments for maturity of commercial paper (265,361) (218,090) Net increase (decrease) in other short-term borrowings 276,713 (57,370) Proceeds from issuance of long-term debt 4,923 179,185 Payments of long-term debt (11,072) (70,099) Dividends paid (15,926) (14,710) Purchases of treasury stock (27,566) (14,415) Other 2,043 2,866 ---------------------------- Net cash provided by (used in) financing activities 30,140 (204,189) ---------------------------- Net decrease in cash and cash equivalents (131,117) (73,128) Cash and cash equivalents, beginning of year 897,489 967,891 ---------------------------- Cash and cash equivalents, end of period $ 766,372 $ 894,763 ============================ Supplemental cash flow information: - ----------------------------------- Cash paid during the period for: Interest $ 115,494 $ 93,195 Income taxes 6,599 11,616 See notes to financial statements MARSHALL & ILSLEY CORPORATION Notes to Financial Statements March 31, 1996 & 1995 (Unaudited) 1. The accompanying unaudited consolidated financial statements should be read in conjunction with Marshall & Ilsley Corporation's ("Corporation") 1995 Annual Report on Form 10-K. The unaudited financial information included in this report reflects all adjustments (consisting only of normal recurring accruals) which are necessary for a fair statement of the financial position and results of operations as of and for the three months ended March 31, 1996 and 1995. The results of operations for the three months ended March 31, 1996 and 1995 are not necessarily indicative of results to be expected for the entire year. 2. The Corporation has 5,000,000 shares of preferred stock authorized, of which, the Board of Directors has designated 3,000,000 shares as Series A convertible, with a $100 value per share for conversion and liquidation purposes. The Corporation has 160,000,000 shares of its $1.00 par value common stock authorized. 3. The Corporation's loan portfolio consists of the following ($000's): March 31 December 31 March 31 1996 1995 1995 --------------------------------- Commercial financial & agricultural $2,974,790 $2,933,278 $2,761,004 Real estate: Construction 273,594 303,345 358,390 Residential Mortgage 1,923,288 2,002,023 2,332,221 Commercial Mortgage 2,195,744 2,189,449 2,095,285 --------------------------------- Total real estate 4,392,626 4,494,817 4,785,896 Personal 1,133,406 1,163,127 1,158,305 Lease financing 281,414 277,680 262,204 --------------------------------- $8,782,236 $8,868,902 $8,967,409 ================================= 4. Investment securities, by type, held by the Corporation are as follows ($000's): March 31 December 31 March 31 1996 1995 1995 --------------------------------- Investment securities held to maturity: U.S. treasury and government agencies $ -- $ -- $ 134,207 State and political subdivisions 505,430 446,113 282,234 Other 4,057 4,344 4,860 --------------------------------- Investment securities held to maturity 509,487 450,457 421,301 Investment securities available for sale: U.S. treasury and government agencies 2,563,789 2,346,866 1,767,147 State and political subdivisions 896 894 -- Other 134,936 110,840 93,085 --------------------------------- Investment securities available for sale 2,699,621 2,458,600 1,860,232 --------------------------------- Total investment securities $3,209,108 $2,909,057 $2,281,533 ================================= MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 1996 & 1995 (Unaudited) 5. As part of its asset/liability management activities, the Corporation may enter into interest rate futures, forwards, swaps and option contracts. These derivative financial instruments are categorized as risk management instruments and are carried at fair value unless the instrument qualifies for hedge accounting treatment. Fair value adjustments on risk management instruments carried at fair value are reflected in other operating income. Gains and losses realized on futures and forward contracts qualifying as hedges are deferred and amortized over the terms of the related assets or liabilities and are included as adjustments to interest income or expense. Settlement on interest rate swaps and option contracts are recognized over the lives of the agreements as adjustments to interest income or interest expense. Interest rate contracts used in connection with the securities portfolio that is designated as available for sale are carried at fair value with gains and losses, net of applicable deferred income taxes, reported in a separate component of shareholders' equity, consistent with the reporting of unrealized gains and losses on such securities. 6. On February 1, 1995, the Corporation acquired the Bank of Burlington ("Burlington") in a tax-free reorganization accounted for as a purchase. Approximately 1.5 million of the Corporation's treasury common shares with an aggregate estimated market value of $29.1 million were exchanged for the outstanding common shares of Burlington. The results of operations for Burlington are included form the date of acquisition and are not material to the Corporation. MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's) Three Months Ended March 31, ---------------------------- Assets 1996 1995 - ------ ---------------------------- Cash and due from banks $ 590,807 $ 579,909 Short-term investments 192,583 238,508 Trading securities 20,322 10,731 Investment securities: Taxable 2,526,363 1,975,106 Tax-exempt 533,576 322,093 ---------------------------- Total investment securities 3,059,939 2,297,199 Loans: Commercial 2,896,492 2,696,723 Real estate 4,422,370 4,731,465 Personal 1,146,921 1,165,968 Lease financing 277,227 258,687 ---------------------------- 8,743,010 8,852,843 Less: Allowance for loan losses 162,517 156,104 ---------------------------- Total loans 8,580,493 8,696,739 Premises and equipment, net 304,693 290,486 Accrued interest and other assets 350,957 343,648 ---------------------------- Total Assets $ 13,099,794 $ 12,457,220 ============================ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,013,864 $ 1,908,012 Interest bearing 7,922,347 7,372,537 ---------------------------- Total deposits 9,936,211 9,280,549 Funds purchased and security repurchase agreements 678,786 948,142 Other short-term borrowings 90,114 91,965 Long-term borrowings 819,374 742,231 Accrued expenses and other liabilities 309,430 287,665 ---------------------------- Total liabilities 11,833,915 11,350,552 Shareholders' equity 1,265,879 1,106,668 ---------------------------- Total Liabilities and Shareholders' Equity $ 13,099,794 $ 12,457,220 ============================ MANAGEMENT'S DISCUSSION OF AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS Net income for the first quarter of 1996 amounted to $46.2 million compared to $46.1 million for the same period in the prior year. Primary and fully diluted earnings per share were $.47 and $.46, respectively for both periods. The return on average assets and return on average equity were 1.42% and 14.66% for the quarter ended March 31, 1996 and 1.50% and 16.91% for the quarter ended March 31, 1995, respectively. Earnings remained unchanged due to slower interest margin growth, slower revenue growth from the Corporation's Data Services Division and the continued growth in expenses associated with the investment in new products and technology being developed by Data Services. Total noninterest expense in the first quarter of 1996 also include costs incurred for implementing certain initiatives to make the Corporation's banking business more effective and efficient. The following tables present a summary of each of the major elements of the consolidated income statement , certain financial statistics and a summary of the major income statement elements stated as a percent of average consolidated assets - converted to a fully taxable equivalent basis (FTE) where appropriate - for the current quarter and previous four quarters. SUMMARY CONSOLIDATED INCOME STATEMENTS AND FINANCIAL STATISTICS ($000's except per share data) - --------------------------------------------------------------- 1996 1995 --------- --------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Interest Income $ 233,429 $ 236,598 $ 235,587 $ 230,792 $ 221,683 Interest Expense (110,792) (111,232) (112,703) (108,509) (100,739) --------- --------- --------- --------- --------- Net Interest Income 122,637 125,366 122,884 122,283 120,944 Provision for Loan Losses (3,577) (4,100) (4,070) (4,005) (3,983) Net Securities Gains (Losses) 50 3,297 1,291 (51) 18 Other Income 112,663 112,012 107,637 102,295 97,684 Other Expense (159,189) (156,572) (150,879) (149,488) (142,685) --------- --------- --------- --------- --------- Income Before Taxes 72,584 80,003 76,863 71,034 71,978 Income Tax Provision (26,429) (27,655) (28,284) (24,797) (25,843) --------- --------- --------- --------- --------- Net Income $ 46,155 $ 52,348 $ 48,579 $ 46,237 $ 46,135 ========= ========= ========= ========= ========= Per Share Earnings Per Share Primary $ 0.47 $ 0.53 $ 0.49 $ 0.47 $ 0.47 Fully Diluted 0.46 0.51 0.48 0.46 0.46 Dividends 0.165 0.165 0.165 0.165 0.150 Return on Average Equity 14.66% 16.76% 15.96% 16.04% 16.91% CONSOLIDATED INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS - ----------------------------------------------------------------------------- 1996 1995 --------- --------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Interest Income (FTE) 7.26% 7.32% 7.33% 7.43% 7.29% Interest Expense (3.40) (3.40) (3.47) (3.46) (3.28) --------- --------- --------- --------- --------- Net Interest Income 3.86 3.92 3.86 3.97 4.01 Provision for Loan Losses (0.11) (0.13) (0.13) (0.13) (0.13) Net Securities Gains 0.00 0.10 0.04 0.00 0.00 Other Income 3.46 3.43 3.31 3.26 3.18 Other Expense (4.89) (4.79) (4.65) (4.77) (4.64) --------- --------- --------- --------- --------- Income Before Taxes 2.32 2.53 2.43 2.33 2.42 Income Tax Provision (0.90) (0.93) (0.94) (0.86) (0.92) --------- --------- --------- --------- --------- Return on Average Assets 1.42% 1.60% 1.49% 1.47% 1.50% ========= ========= ========= ========= ========= NET INTEREST INCOME - ------------------- Net interest income for the first quarter of 1996 amounted to $122.6 million, an increase of $1.7 million or 1.4% from the $120.9 million reported for the first quarter of 1995. The benefit from the increase in the volume of average earning assets offset the slight decline in the yield on earning assets and the increase in both the volume and rate of interest bearing liabilities. As a result there was a slight increase in net interest income in the first quarter of 1996 compared to the first quarter of 1995. Average earning assets increased $548.5 million or 4.8% in the first quarter of 1996 compared to the same period a year ago. Excluding the effect of securitizing adjustable rate mortgage loans (ARMS), average loans grew approximately $379 million or 4.3% compared to the first quarter of last year. Average loans in the first quarter of 1996 include the effect of 1995 acquisitions which were accounted for as purchases with aggregate loans of approximately $186 million. The remaining average earning asset growth was primarily in tax-exempt investment securities. Average interest bearing liabilities increased $355.7 million or 3.9% in the first quarter of 1996 compared to the same period in 1995. Average interest bearing deposits increased $549.8 million or 7.5%, average short-term borrowings decreased $271.2 million or 26.1% and average long-term borrowings increased $77.1 million or 10.4%. Average noninterest bearing deposits increased $105.9 million or 5.5% during the first quarter of 1996 compared to the first quarter of 1995. The growth and composition of the Corporation's quarterly average loan portfolio for the current quarter and previous four quarters are reflected below. The amortized cost of the securitized ARM loans which are classified as investment securities available for sale are included to provide a more meaningful comparison ($ in millions): 1996 1995 --------- ------------------------------------- Annual First Fourth Third Second First Growth Quarter Quarter Quarter Quarter Quarter PCT --------- ------------------------------------- ------ Commercial Loans $ 2,897 $ 2,888 $ 2,913 $ 2,828 $ 2,697 7.4% Real Estate Loans Construction 288 317 329 354 367 (21.6) Commercial Mortgages 2,190 2,174 2,169 2,102 2,072 5.7 Residential Mortgages 1,944 2,159 2,401 2,355 2,292 (15.2) Securitized ARM loans 489 282 26 - - 100.0 --------- --------- -------- --------- -------- ------ Residential Mortgages 2,433 2,441 2,427 2,355 2,292 6.2 --------- --------- -------- --------- -------- ------ Total Real Estate Loans 4,911 4,932 4,925 4,811 4,731 3.8 Personal Loans Personal Loans 847 868 876 873 872 (2.8) Student Loans 300 287 285 285 294 1.8 --------- --------- -------- --------- -------- ------ Total Personal Loans 1,147 1,155 1,161 1,158 1,166 (1.6) Lease Financing Receivables 277 270 262 260 259 7.2 --------- --------- -------- --------- -------- ------ Total Consolidated Average Loans & ARMs $ 9,232 $ 9,245 $ 9,261 $ 9,057 $ 8,853 4.3% ========= ========= ======== ========= ======== ====== Total Consolidated Average Loans $ 8,743 $ 8,963 $ 9,235 $ 9,057 $ 8,853 (1.2)% ========= ========= ======== ========= ======== ====== Beginning in the third quarter of 1995, the Corporation began converting ARM loans into Federal National Mortgage Association ARM pool securities to enhance liquidity. During the first quarter of 1996 an additional $88 million of such loans were securitized . As of March 31, 1996, the total amount of ARM loans that have been securitized and transferred to investment securities available for sale was approximately $542 million. As part of this process, the Corporation pays a fee of 7.5 basis points to guarantee the securities which negatively impacts net interest income. The growth and composition of the Corporation's quarterly average deposits for the current and prior year's quarters are as follows ($ in millions): 1996 1995 --------- ------------------------------------- Annual First Fourth Third Second First Growth Quarter Quarter Quarter Quarter Quarter PCT --------- ------------------------------------- ------ Noninterest Bearing Commercial $ 1,280 $ 1,379 $ 1,282 $ 1,248 $ 1,248 2.5% Personal 418 418 409 410 400 4.4 Other 316 298 290 275 260 21.9 --------- --------- -------- --------- -------- ------ Total Noninterest Bearing Deposits 2,014 2,095 1,981 1,933 1,908 5.5 Interest Bearing Savings & NOW 1,842 1,912 1,961 1,973 2,084 (11.6) Money Market 2,386 2,237 2,049 1,875 1,767 35.1 Other CDs & Time Deposits 3,060 3,069 3,145 3,135 3,037 0.8 CDs Greater than $100 634 623 619 541 485 30.6 --------- --------- -------- --------- -------- ------ Total Interest Bearing Deposits 7,922 7,841 7,774 7,524 7,373 7.5 --------- --------- -------- --------- -------- ------ Total Consolidated Average Deposits $ 9,936 $ 9,936 $ 9,755 $ 9,457 $ 9,281 7.1% ========= ========= ======== ========= ======== ====== Money market savings, CDs greater than $100 and noninterest bearing deposits exhibited the greatest growth when comparing average deposits in the first quarter of 1996 to the first quarter of 1995. Average deposits in the first quarter of 1996 include the effect of 1995 acquisitions which were accounted for as purchases with total deposits of approximately $232 million. As previously discussed throughout 1995, the money market index account, which was introduced in the third quarter of 1994, has been a substantial contributor to deposit growth. The average amount of money market index accounts was $1.49 billion in the first quarter of 1996 compared to $610 million in the same period one year ago. The increase in this deposit type represents both new deposits and disintermediation from the Corporation's other deposit accounts. The Corporation's consolidated average interest earning assets and interest bearing liabilities, interest earned and interest paid for the current quarter and comparative prior year quarter are presented below. Securitized ARM loans are included with loans at amortized cost and other investment securities classified as available for sale are stated at amortized cost in order to make the comparative information more meaningful. YIELD & COST ANALYSIS FIRST QUARTER ($ in millions) ----------------------------------------------------- 1996 1995 ------------------------- -------------------------- Average Average Average Yield or Average Yield or Balance Interest Cost Balance Interest Cost -------------------------- -------------------------- Loans (a) $ 9,231.8 $ 195.1 8.50% $ 8,852.9 $ 186.2 8.53% Investment Securities: Taxable 2,019.2 29.7 5.92 2,022.3 28.2 5.67 Tax Exempt (a) 523.4 8.7 6.65 314.5 5.8 7.48 Other Short-term Investments (a) 212.9 2.9 5.45 249.2 3.7 6.00 -------------------------- -------------------------- Total Interest Earning Assets $11,987.3 $ 236.4 7.93% $11,438.9 $ 223.9 7.94% ========================== ========================== Money Market Savings $ 2,386.6 $ 24.5 4.13% $ 1,766.7 $ 17.1 3.93% Regular Savings & NOW 1,841.8 9.7 2.11 2,083.7 11.3 2.20 Other CDs & Time Deposits 3,059.9 44.2 5.82 3,036.8 38.5 5.14 CD's Greater than $100 634.0 9.2 5.81 485.3 6.6 5.48 -------------------------- -------------------------- Total Interest Bearing Deposits 7,922.3 87.6 4.45 7,372.5 73.5 4.04 Short-term Borrowings 768.9 10.0 5.24 1,040.1 14.8 5.77 Long-term Borrowings 819.4 13.2 6.46 742.3 12.4 6.79 ------------------------- --------------------------- Total Interest Bearing Liabilities $ 9,510.6 $ 110.8 4.69% $ 9,154.9 $ 100.7 4.46% ========================== ========================== Net Interest Margin (FTE) as a Percent of Average Earning Assets $ 125.6 4.21% $ 123.2 4.37% ================ ================ (a) Fully taxable equivalent basis (FTE), assuming a Federal income tax rate of 35%, and excluding disallowed interest expense. The net interest margin as a percent of average earning assets declined 16 basis points from 4.37% in the first quarter of 1995 to 4.21% in the current quarter. The yield on average earning assets was relatively unchanged while the cost of interest bearing liabilities increased 23 basis points. The cost of short-term and long-term borrowings decreased 53 basis points and 33 basis points, respectively which followed the general trends in interest rates throughout 1995 and early 1996. The cost of interest bearing deposits increased 41 basis points in the first quarter of 1996 compared to the same period last year. Each type of interest bearing deposit experienced an increase in average cost except regular savings and NOW accounts. Money market accounts increased 20 basis points, other CDs and time deposits increased 68 basis points and CDs greater than $100,000 increased 33 basis points compared to the same period last year. The possible continuing lack of earning asset growth, particularly loan growth, and shift of deposit mix into higher cost categories may continue to put pressure on the interest spreads and depress interest margin growth. At the end of the first quarter in 1996, the Corporation began entering into interest rate swaps in order to manage its interest rate exposure. Interest rate swaps are contractual agreements between counterparties to exchange interest streams based on notional principal amounts over a set period of time. Such swap agreements normally involve the exchange of fixed and floating rate payment obligations without the exchange of the underlying principal amounts. The notional or principal amount does not represent an amount at risk, but is used only as a basis for determining the actual cash flows related to the interest rate contracts. Market risk, due to potential fluctuations in interest rates, is inherent in swap agreements. All interest rate swap counterparties are formally evaluated and continually monitored for credit-worthiness. At March 31, 1996, the Corporation's quarter-end position in interest rate swaps amounted to $50 million in notional amount. The swaps have terms which range from 3 to 5 years and were designated against variable rate loans in order to reduce interest rate volatility. The effect of the interest rate swaps on net interest income in the first quarter of 1996 was not material. PROVISION FOR LOAN LOSSES AND CREDIT QUALITY - -------------------------------------------- At March 31, 1996, nonperforming assets were $90.8 million compared to $ 70.5 million at December 31, 1995 and $68.9 million at March 31, 1995. Nonaccrual loans, the largest component of nonperforming assets, increased $21.0 million since year-end 1995 and increased $27.4 million since March 31, 1995. Renegotiated loans and other real estate owned were relatively unchanged since year-end 1995 and loans past due 90 days or more decreased $.8 million or 9.3% since December 31, 1995. Compared to March 31, 1995, renegotiated loans decreased $.7 million, loans past due 90 days or more decreased $2.2 million and other real estate owned decreased $2.5 million. Total nonaccrual commercial loans and leases increased $20.9 million since year- end 1995 and increased $22.5 million since March 31, 1995. Nonaccrual commercial loans and leases are substantially responsible for the increase in nonperforming assets at March 31,1996. The increase reflects one commercial credit (approximately $22.5 million) at the lead bank , M&I Marshall & Ilsley Bank, which was placed on nonaccrual near the end of the quarter due to future collectability concerns. Payments were current and therefore net interest income was not adversely affected. Since year end 1995, nonaccrual real estate loans decreased $.5 million while nonaccrual personal loans increased $.6 million. Excluding the effect of the larger commercial loan described above, total nonaccrual loans would have been approximately $49.1 million which is comparable with the level of nonaccruals in the second, third and fourth quarters of 1995. Net charge-offs in the first quarter of 1996 amounted to $2.7 million or .13% of average loans compared to $5.3 million or .24% of average loans in the fourth quarter of 1995 and $2.0 million or .09% of average loans in the first quarter of 1995. Leasing net charge-offs of approximately $2.0 million accounted for the majority of net charge-off activity in the first quarter of 1996 of which, $1.9 million related to one lease customer. The allowance for loan losses amounted to $161.8 million or 1.84% of total loans at March 31, 1996 compared to $161.4 million or 1.82% at December 31, 1995 and $157.7 million or 1.76% at March 31, 1995. The coverage ratio of the allowance for loan losses to nonperforming loans declined from 273% at March 31, 1995 and 261% at December 31, 1995 to 197% at March 31, 1996 largely due to the increase in nonaccrual commercial loans described above. As previously discussed approximately $88 million of ARM loans were securitized and transferred to the Corporation's security portfolio during the first quarter of 1996. In conjunction with this securitization, approximately $.4 million of the allowance for loan losses was transferred to a specific reserve for estimated losses based on the Corporation's experience with these types of financial instruments. The Corporation has agreed to guarantee the first 4% of the loan pools securitized against potential loss. Since inception of the program in the third quarter of 1995, approximately $2.7 million of the allowance has been transferred to the specific reserve and approximately $542 million of ARM loans have been securitized. There have not been any losses through the first quarter of 1996. While net charge-offs and nonperforming assets were adversely impacted in the first quarter of 1996, the Corporation believes that the current reserve and provision levels are adequate. The provision for loan losses amounted to $3.6 million in the first quarter of 1996 compared to $4.0 million in the first quarter of 1995. CONSOLIDATED CREDIT QUALITY INFORMATION ($000's) - ------------------------------------------------- 1996 1995 --------- ------------------------------------- First Fourth Third Second First NONPERFORMING ASSETS Quarter Quarter Quarter Quarter Quarter - -------------------- --------- ------------------------------------- Nonaccrual $ 71,567 $ 50,598 $ 50,643 $ 48,359 $ 44,210 Renegotiated 3,093 3,087 3,298 3,424 3,826 Past Due 90 Days or More 7,422 8,184 7,106 7,879 9,653 --------- --------- -------- --------- -------- Total Nonperforming Loans 82,082 61,869 61,047 59,662 57,689 Other Real Estate Owned 8,744 8,648 8,587 8,510 11,209 --------- --------- -------- --------- -------- Total Nonperforming Assets $ 90,826 $ 70,517 $ 69,634 $ 68,172 $ 68,898 ========= ========= ======== ========= ======== ALLOWANCE FOR LOAN LOSSES $ 161,841 $ 161,430 $164,287 $ 160,565 $157,689 ========= ========= ======== ========= ======== CONSOLIDATED STATISTICS - ----------------------- Net Charge-offs to Average Loans Annualized 0.13% 0.24% 0.03% 0.05% 0.09% Total Nonperforming Loans to Total Loans 0.93 0.70 0.67 0.65 0.64 Total Nonperforming Assets to Total Loans and Other Real Estate Owned 1.03 0.79 0.76 0.74 0.77 Allowance for Loan Losses to Total Loans 1.84 1.82 1.80 1.75 1.76 Allowance for Loan Losses to Nonperforming Loans 197 261 269 269 273 1996 1995 --------- ------------------------------------ First Fourth Third Second First NONACCRUAL LOANS BY TYPE Quarter Quarter Quarter Quarter Quarter - ------------------------ --------- ------------------------------------ Commercial Commercial, Financial & Agricultural $ 33,608 $ 13,527 $ 14,449 $ 13,703 $ 11,134 Lease Financing Receivables 2,069 1,244 2,323 2,246 2,086 --------- -------- -------- -------- -------- Total Commercial 35,677 14,771 16,772 15,949 13,220 Real Estate Construction and Land Development 630 618 242 666 731 Commercial Mortgage 17,063 16,653 17,407 17,626 16,227 Residential Mortgage 14,785 15,701 13,010 11,590 11,378 --------- -------- -------- -------- -------- Total Real Estate 32,478 32,972 30,659 29,882 28,336 Personal 3,412 2,855 3,212 2,528 2,654 --------- -------- -------- -------- -------- Total Nonaccrual Loans $ 71,567 $ 50,598 $ 50,643 $ 48,359 $ 44,210 ========= ======== ======== ======== ======== 1996 1995 RECONCILIATION OF --------- ------------------------------------- CONSOLIDATED ALLOWANCE First Fourth Third Second First FOR LOAN LOSSES Quarter Quarter Quarter Quarter Quarter - ------------------------ --------- ------------------------------------- Beginning Balance $161,430 $164,287 $160,565 $157,689 $153,961 Provision for Loan Losses 3,577 4,100 4,070 4,005 3,983 Allowance of Bank Acquire -- -- 1,096 -- 1,747 Allowance Transfer for Loan Securitizations (440) (1,615) (660) -- -- Loans Charged-off Commercial 763 3,465 502 354 809 Real Estate 455 896 466 161 1,328 Personal 1,336 1,779 1,250 1,402 1,328 Leases 1,989 380 104 258 133 --------- -------- -------- -------- -------- Total Charge-offs 4,543 6,520 2,322 2,175 3,598 Recoveries on Loans Commercial 828 457 514 256 890 Real Estate 323 144 483 208 225 Personal 665 573 530 576 479 Leases 1 4 11 6 2 --------- -------- -------- -------- -------- Total Recoveries 1,817 1,178 1,538 1,046 1,596 --------- -------- -------- -------- -------- Net Loans Charged-off 2,726 5,342 784 1,129 2,002 --------- -------- -------- -------- -------- Ending Balance $161,841 $161,430 $164,287 $160,565 $157,689 ========= ======== ======== ======== ======== OTHER INCOME - ------------ Total other income in the first quarter of 1996 amounted to $112.7 million, an increase of $15.0 million or 15.4%, compared to $97.7 million in the same period last year. Data processing revenue increased $10.5 million or 22.0% from $47.8 million in the first quarter of 1995 to $58.4 million in the current quarter. Processing revenue increased $6.8 million or 18.8% while software revenue remained relatively unchanged. Buyout fees, which can vary from period to period, decreased $1.8 million. Revenues from unique services such as contract programming and consulting increased $4.7 million. Compared to the fourth quarter of 1995, total data processing revenue decreased $.3 million. Due to the timing of conversions and contract signings no significant customer(s) began their processing cycles during the first quarter of 1996. However, based on the increase in new signed contracts, the Corporation anticipates that processing revenue from new customers will be somewhat in line with past quarters. Trust services revenue amounted to $16.8 million in the first quarter of 1996, an increase of $1.6 million or 10.5% compared to $15.2 million in the first quarter of 1995 and remained relatively unchanged from the fourth quarter of the prior year. Other customer services increased $1.3 million or 4.7% and totaled $28.9 million in the first quarter of 1996 compared to $27.6 million in the same period one year ago. Service charges on deposits of $12.9 million was relatively unchanged from the prior year. Corporate finance and management service fees from the Corporation's Capital Markets Group increased $.4 million . Mutual fund commissions and trailor fees increased $.8 million. The effect of net securities transactions in the first quarters of 1996 and 1995 were not significant. Other income amounted to $8.6 million in the first quarter of 1996 compared to $7.0 million in the first quarter of 1995, an increase of $1.5 million or 22%. Gains from the sale of residential mortgage loans which includes the servicing rights increased $2.7 million. OTHER EXPENSE - ------------- Total other expenses in the first quarter of 1996 amounted to $159.2 million, an increase of $16.5 million or 11.6% compared to $142.7 million in the same period last year. The increase in expenses is primarily attributable to the Corporation's nonbanking businesses especially its Data Services Division. Data Services expense growth reflects the impact of recent acquisitions, the cost of adding processing capacity and certain costs associated with developing new products and technology, which do not qualify for capitalization, in order to meet the ever-changing needs of its new and existing customers as efficiently and effectively as possible. Expenses of the Corporation's banks in the first quarter of 1996 include costs of implementing certain initiatives in the areas of retail and small business lending, loan and deposit operational support and product and service distribution networks which are intended to improve customer service, enable more competitive pricing and achieve improved cost efficiencies. Total operating expenses for the Corporation's combined banks and support services group excluding costs of initiatives and the effect of lower deposit insurance premiums increased 2.4 % in the first quarter of 1996 compared to the first quarter of 1995 and decreased .7 % from the fourth quarter of 1995. Salaries and employee benefits expense which accounts for over one-half of total other expenses, amounted to $91.6 million in the first quarter of 1996 compared to $80.9 million in the first quarter of 1995, an increase of $10.8 million or 13.3%. Approximately, $0.7 million of the increase reflects severance and other related costs associated with the implementation of the banking initiatives described above. Total salaries and benefits expense for the Corporation's banks and support services group decreased in the first quarter compared to the same period last year. Salaries and employee benefits expense of Data Services increased $8.0 million or 27.1% in the current quarter compared to the same period last year. At March 31, 1996 Data Services had approximately 2,643 employees compared to 2,268 at March 31, 1995. Approximately 25% of the employee increase relates to a New England data center which was acquired in late June, 1995. Net occupancy expense increased $1.0 million or 11.6% , equipment expense increased $4.6 million or 30.7% , processing charges increased $.4 million or 10% and supplies and printing increased $1.2 million or 34.4% in the first quarter of 1996 compared to the same period last year. Data Services expense growth accounted for approximately $6.4 million or 89% of the combined expense growth of $7.2 million in these categories. The decrease in payments to regulatory agencies reflects the decrease in insurance premium rates on deposits insured through the FDIC which went into effect June 1, 1995. The increase in professional services of $.3 million or 8.4% is attributable to fees to consultants utilized in conjunction with the Corporation's banking initiatives. Other expense increased 15% or $3.1 million from $21.0 million in the first quarter of 1995 to $24.1 million in the first quarter of 1996. Data Services contributed $1.9 million or 61% of the expense growth. INCOME TAXES - ------------ The provision for income taxes for the three months ended March 31, 1996 amounted to $26.4 million compared to $25.8 million for the three months ended March 31, 1995. The effective tax rate remained relatively unchanged. CAPITAL RESOURCES - ----------------- Shareholders' equity was $1.26 billion or 9.39% of total consolidated assets at March 31, 1996 compared to $1.26 billion and 9.43% at December 31, 1995 and $1.13 billion and 8.91% at March 31,1995. Net unrealized gains and losses on securities available for sale decreased $6.9 million since December 31, 1995 and increased $29.3 million from a net unrealized loss of $14.9 million at March 31, 1995 to a net unrealized gain of $14.4 million at March 31, 1996. The Corporation continued to acquire common shares in accordance with the Stock Repurchase Program approved by its Board of Directors. During the first quarter of 1996 1.1 million shares of common stock were acquired with an aggregate cost of $26.9 million . Since inception of the program in April, 1993, 13.6 million common shares have been acquired with a cumulative cost of $305.5 million. In April, 1996 the Corporation's Board of Directors reaffirmed the Stock Repurchase Program and increased the authorization for repurchase to 21.5 million shares from the previous authorization of 15.1 million shares. In addition the Board of Directors approved a 12% increase in the quarterly cash dividend on common stock to $0.185 per share from the $0.165 per share paid in the first quarter. On April 1, 1996 the holder of the Corporation's 8.5% convertible subordinated notes converted $16.8 million of the notes into 1.9 million shares of the Corporation's common stock. The common stock acquired through the conversion of the notes was exchanged for .17 million shares of the Corporation's Series A convertible preferred stock. The Corporation continues to have a strong capital base and its regulatory capital ratios are significantly above the minimum requirements as shown in the following tables as of March 31, 1996. The Corporation's risk-based capital and leverage ratios are as follows: RISK-BASED CAPITAL RATIOS As of March 31, 1996 ($ in millions) ------------------------- Amount Ratio ---------- --------- Tier 1 capital $ 1,174.5 11.81 % Tier 1 capital minimum requirement 397.9 4.00 ---------- --------- Excess $ 776.6 7.81 % ========== ========= Total capital $ 1,406.1 14.13 % Total capital minimum requirement 795.8 8.00 ---------- --------- Excess $ 610.3 6.13 % ========== ========= Risk-adjusted assets $ 9,947.8 ========== LEVERAGE RATIO As of March 31, 1996 ($ in millions) ----------------------- Amount Ratio ---------- --------- Tier 1 capital to adjusted total assets $ 1,174.5 9.03 % Minimum leverage requirement 390.3-650.5 3.00-5.00 ----------- --------- Excess $784.2-524.0 6.03-4.03 % =========== ========= Adjusted average total assets $ 13,010.1 ========== PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K _________________________________________ A. Exhibits: Exhibit 11 - Statement - Computation of Earnings Per Share Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K: None. 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. MARSHALL & ILSLEY CORPORATION (Registrant) /s/ P.R. Justiliano ______________________________________ P.R. Justiliano Senior Vice President and Corporate Controller (Chief Accounting Officer) /s/ J.E. Sandy ______________________________________ J.E. Sandy Vice President May 14, 1996 EX-11 2 10-Q FOR QUARTER ENDED MARCH 31, 1996/EXHIBIT 11 MARSHALL & ILSLEY CORPORATION EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE ($000's except per share data) Three Months Ended March 31, ---------------------------- PRIMARY 1996 1995 - ------- ------------ ------------ Earnings: Net income $ 46,155 $ 46,135 ============ ============ Shares: Weighted average number of common shares outstanding 93,077 93,542 Additional shares relating to: Convertible preferred stock 3,833 3,833 Stock options outstanding at end of each period and exercised during each period (a) 1,282 1,117 ------------ ------------ Total average primary shares outstanding 98,192 98,492 ============ ============ EARNINGS PER SHARE: Primary $ 0.47 $ 0.47 ============ ============ FULLY DILUTED - ------------- Earnings: Net income $ 46,155 $ 46,135 Add: Interest on convertible notes, net of income tax effect 465 465 ------------ ------------ $ 46,620 $ 46,600 ============ ============ Shares: Weighted average number of common shares outstanding 93,077 93,542 Additional shares relating to: Convertible preferred stock 3,833 3,833 Stock options outstanding at end of each period and exercised during each period (b) 1,335 1,188 Assumed conversion of convertible notes 3,844 3,844 ------------ ------------ Total average fully diluted shares outstanding 102,089 102,407 ============ ============ EARNINGS PER SHARE: Fully Diluted $ 0.46 $ 0.46 ============ ============ Notes: - ------ (a) Based on the treasury stock method using average market price. (b) Based on the treasury stock method using period-end market price, if higher than average market price for options outstanding at end of each period and market price at date of exercise for options exercised during each period. EX-12 3 10-Q FOR QUARTER ENDED MARCH 31, 1996/EXHIBIT 12 MARSHALL & ILSLEY CORPORATION EXHIBIT 12 Computation of Ratio of Earnings to Fixed Charges ($000's)
Three Months Ended Years Ended December 31, March 31, ------------------------------------------------- Earnings: 1996 1995 1994 1993 1992 1991 ---------- ---------- --------- --------- --------- --------- Earnings before income taxes, extraordinary items and cumulative effect of changes in accounting principles $ 72,584 $ 299,879 $ 167,803 $ 264,584 $ 231,792 $ 186,738 Fixed charges, excluding interest on deposits 24,999 108,683 77,074 47,905 50,687 66,641 --------- ---------- --------- --------- --------- --------- Earnings including fixed charges but excluding interest on deposits 97,583 408,562 244,877 312,489 282,479 253,379 Interest on deposits 87,602 331,734 255,861 272,100 334,443 448,757 --------- ---------- --------- --------- --------- --------- Earnings including fixed charges and interest on deposits $ 185,185 $ 740,296 $ 500,738 $ 584,589 $ 616,922 $ 702,136 ========= ========== ========= ========= ========= ========= Fixed Charges: Interest Expense: Short-term borrowings $ 10,026 $ 47,740 $ 39,681 $ 18,010 $ 17,606 $ 32,065 Long-term borrowings 13,164 53,709 30,537 23,088 26,439 27,770 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor) 1,809 7,234 6,856 6,807 6,642 6,806 --------- ---------- --------- --------- --------- --------- Fixed charges excluding interest on deposits 24,999 108,683 77,074 47,905 50,687 66,641 Interest on deposits 87,602 331,734 255,861 272,100 334,443 448,757 --------- ---------- --------- --------- --------- --------- Fixed charges including interest on deposits $ 112,601 $ 440,417 $ 332,935 $ 320,005 $ 385,130 $ 515,398 ========= ========== ========= ========= ========= ========= Ratio of Earnings to Fixed Charges: Excluding interest on deposits 3.90 x 3.76 x 3.18 x 6.52 x 5.57 x 3.80 x Including interest on deposits 1.64 x 1.68 x 1.50 x 1.83 x 1.60 x 1.36 x
EX-27 4 10-Q FOR QUARTER ENDED MARCH 31, 1996/EXHIBIT 27
9 1,000 YEAR DEC-31-1996 MAR-31-1996 617,746 7,982,109 91,878 31,211 2,699,621 509,487 509,557 8,782,236 161,841 13,376,572 10,061,274 1,419,841 329,197 310,036 0 349 99,494 1,156,381 13,376,572 185,816 44,729 2,884 233,429 87,602 23,190 122,637 3,577 50 159,189 72,584 46,155 0 0 46,155 0.47 0.46 4.20 71,567 7,422 3,093 82,082 161,430 4,543 1,817 161,841 161,841 0 0
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