-----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, C8/z+/3tkzG5j4XBpGM9Cg7ThrS9MkP1bleVx9P8hK1tmyeKnU1tTuRBxuh+znKg vi/lUR2lq4e69HxZfs1ZOQ== 0000062741-01-500027.txt : 20010516 0000062741-01-500027.hdr.sgml : 20010516 ACCESSION NUMBER: 0000062741-01-500027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: SEC FILE NUMBER: 001-15403 FILM NUMBER: 1637955 BUSINESS ADDRESS: STREET 1: 770 N WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147657801 MAIL ADDRESS: STREET 1: 770 NORTH WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 10-Q 1 fm10q301.txt FORM 10-Q FOR 03/31/2001 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (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, 2001 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) Registrant's telephone number, including area code: (414) 765-7801 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, 2001 ----- ---------------- Common Stock, $1.00 Par Value 102,956,585 MARSHALL & ILSLEY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's except share data)
March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Assets - ------ Cash and cash equivalents: Cash and due from banks $ 639,557 $ 760,103 $ 674,604 Federal funds sold and security resale agreements 13,577 54,443 64,655 Money market funds 288,161 50,147 153,652 ------------ ------------ ------------ Total cash and cash equivalents 941,295 864,693 892,911 Investment securities: Trading securities, at market value 45,300 15,317 43,342 Short-term investments, at cost which approximates market value 30,668 43,528 16,382 Available for sale at market value 4,575,569 4,735,722 4,306,051 Held to maturity at amortized cost, market value $1,131,004 ($1,124,756 December 31, and $1,130,123 March 31, 2000) 1,100,398 1,112,545 1,160,104 ------------ ------------ ------------ Total investment securities 5,751,935 5,907,112 5,525,879 Loans and leases 17,804,471 17,587,087 16,965,521 Less: Allowance for loan and lease losses 240,348 235,115 232,471 ------------ ------------ ------------ Net loans and leases 17,564,123 17,351,972 16,733,050 Premises and equipment 384,174 392,995 370,663 Goodwill and core deposit intangibles 304,837 310,930 333,885 Other intangibles 33,743 34,354 24,957 Accrued interest and other assets 1,174,438 1,215,683 1,082,393 ------------ ------------ ------------ Total Assets $ 26,154,545 $ 26,077,739 $ 24,963,738 ============ ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,737,891 $ 3,129,834 $ 2,658,348 Interest bearing 15,035,449 16,118,793 14,409,973 ------------ ------------ ------------ Total deposits 17,773,340 19,248,627 17,068,321 Funds purchased and security repurchase agreements 2,028,462 1,092,723 2,125,022 Other short-term borrowings 2,189,732 1,722,008 2,044,667 Accrued expenses and other liabilities 806,981 850,916 612,829 Long-term borrowings 1,042,712 921,276 1,038,184 ------------ ------------ ------------ Total liabilities 23,841,227 23,835,550 22,889,023 Shareholders' equity: - --------------------- Series A convertible preferred stock, $1.00 par value; 336,370 shares issued 336 336 336 Common stock, $1.00 par value; 112,757,546 shares issued 112,757 112,757 112,757 Additional paid-in capital 443,213 452,212 455,217 Retained earnings 2,174,964 2,117,759 1,976,667 Accumulated other comprehensive income, net of related taxes 59,548 38,127 (45,057) Less: Treasury common stock, at cost: 9,839,811 shares (9,910,839 December 31, and 8,752,702 March 31, 2000) 457,375 458,472 405,805 Deferred compensation 20,125 20,530 19,400 ------------ ------------ ------------ Total shareholders' equity 2,313,318 2,242,189 2,074,715 ------------ ------------ ------------ Total Liabilities and Shareholders' Equity $ 26,154,545 $ 26,077,739 $ 24,963,738 ============ ============ ============ See notes to financial statements.
MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except share data)
Three Months Ended March 31, 2001 2000 -------------- -------------- Interest income - --------------- Loans and leases $ 353,990 $ 326,478 Investment securities: Taxable 77,951 67,890 Exempt from federal income taxes 15,900 16,447 Trading securities 328 527 Short-term investments 4,265 3,283 ------------ ------------ Total interest income 452,434 414,625 Interest expense - ---------------- Deposits 187,183 172,578 Short-term borrowings 54,101 57,039 Long-term borrowings 25,371 15,887 ------------ ------------ Total interest expense 266,655 245,504 Net interest income 185,779 169,121 Provision for loan and lease losses 11,063 5,819 ------------ ------------ Net interest income after provision for loan and lease losses 174,716 163,302 Other income - ------------ Data processing services: Account processing fees 104,788 94,665 Professional services fees 15,505 18,285 Software revenue 8,023 9,318 Other revenue 4,676 7,733 ------------ ------------ Total data processing services 132,992 130,001 Item processing 12,457 12,444 Internet banking 981 505 Trust services 30,029 27,808 Service charges on deposits 20,826 18,514 Mortgage banking 6,872 2,912 Capital Markets revenue 6,334 15,111 Net investment securities losses (123) -- Life insurance revenue 6,530 6,672 Other 30,063 27,459 ------------ ------------ Total other income 246,961 241,426 Other expense - ------------- Salaries and employee benefits 167,922 157,318 Net occupancy 15,897 13,327 Equipment 28,632 27,400 Software expenses 8,070 6,865 Processing charges 8,950 7,549 Supplies and printing 4,950 4,857 Professional services 7,160 7,577 Shipping and handling 11,317 11,386 Amortization of intangibles 8,005 7,706 Single charter 5,980 -- Other 23,893 24,013 ------------ ------------ Total other expense 290,776 267,998 Income before income taxes and cumulative effect of changes in accounting principles 130,901 136,730 Provision for income taxes 44,299 46,015 ------------ ------------ Income before cumulative effect of changes in accounting principles 86,602 90,715 Cumulative effect of changes in accounting principles, net of income taxes (436) (2,279) ------------ ------------ Net income $ 86,166 $ 88,436 ============ ============ Net income per common share - --------------------------- Basic: Income before cumulative effect of changes in accounting principles $ 0.83 $ 0.86 Cumulative effect of changes in accounting principles, net of income taxes -- (0.02) ------------ ------------ Net income $ 0.83 0.84 ============ ============ Diluted: Income before cumulative effect of changes in accounting principles $ 0.80 $ 0.83 Cumulative effect of changes in accounting principles, net of income taxes -- (0.02) ------------ ------------ Net income $ 0.80 $ 0.81 ============ ============ Dividends paid per common share $ 0.265 $ 0.240 Weighted average common shares outstanding: Basic 102,839 104,657 Diluted 107,819 109,564 See notes to financial statements.
MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($000's)
Three Months Ended March 31, 2001 2000 -------------- -------------- Net Cash Provided/(Used) by Operating Activities $ (8,828)$ 88,892 Cash Flows From Investing Activities: - ------------------------------------- Proceeds from sales of securities available for sale 10,875 11,498 Proceeds from maturities of securities available for sale 252,132 162,852 Proceeds from maturities of securities held to maturity 11,978 10,534 Purchases of securities available for sale (23,040) (136,933) Net increase in loans (202,724) (607,295) Purchases of assets to be leased (124,366) (102,100) Principal payments on lease receivables 174,957 81,334 Fixed asset purchases, net (7,147) (14,571) Acquisitions and investments in joint ventures -- (265) Other 5,534 2,396 ------------ ------------ Net cash provided/(used) in investing activities 98,199 (592,550) Cash Flows From Financing Activities: - ------------------------------------- Net increase/(decrease) in deposits (1,476,456) 633,140 Proceeds from issuance of commercial paper 604,163 804,280 Payments for maturity of commercial paper (564,729) (625,093) Net increase /(decrease) in other short-term borrowings 867,938 (534,826) Proceeds from issuance of long-term debt 625,651 378,110 Payments of long-term debt (32,066) (19,913) Dividends paid (28,279) (25,897) Purchases of treasury stock (15,520) (94,756) Other 6,529 1,668 ------------ ------------ Net cash provided/(used) by financing activities (12,769) 516,713 ------------ ------------ Net increase in cash and cash equivalents 76,602 13,055 Cash and cash equivalents, beginning of year 864,693 879,856 ------------ ------------ Cash and cash equivalents, end of period $ 941,295 $ 892,911 ============ ============ Supplemental cash flow information: - ----------------------------------- Cash paid during the period for: Interest $ 293,851 $ 224,574 Income taxes 6,221 930 See notes to financial statements.
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements March 31, 2001 & 2000 (Unaudited) 1. The accompanying unaudited consolidated financial statements should be read in conjunction with Marshall & Ilsley Corporation's ("M&I" or "Corporation") 2000 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, 2001 and 2000. The results of operations for the three months ended March 31, 2001 and 2000 are not necessarily indicative of results to be expected for the entire year. Certain amounts in the 2000 consolidated financial statements and analyses have been reclassified to conform with the 2001 presentation. 2. Change in Method of Accounting During the fourth quarter of 2000, the Corporation adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 - REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB 101). SAB 101 provides guidance on a variety of revenue recognition matters. The cumulative effect of change in accounting principles was retroactively recorded as of January 1, 2000. The financial position and results of operations as of and for the three months ended March 31, 2000 have been restated to reflect application of the guidance contained in SAB 101. See Note 2 of the Notes to Consolidated Financial Statements of Item 8 of the Corporation's 2000 Annual Report on Form 10-K. On January 1, 2001, the Corporation adopted the Financial Accounting Standards Board SFAS No. 133, ACCOUNTING FOR DERATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The statement requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The effects of adopting SFAS 133 are as follows:
Other Consolidated Comprehensive Income Income Statement (Equity) -------------- ------------- Fair value hedges $ (628) $ -- Cash flow hedges (43) (15,665) -------------- ------------- (671) (15,665) Income tax benefit 235 5,483 -------------- ------------- Cumulative effect of change in accounting principles $ (436) $ (10,182) ============== =============
See Note 10 for additional information regarding the Corporation's use of derivative financial instruments. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) 3. New Accounting Pronouncements In September, 2000, the FASB issued SFAS 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS replaces SFAS 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. SFAS 140 is generally effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The disclosure requirements are effective for financial statements for fiscal years ending after December 15, 2000. The Corporation does not anticipate the adoption of SFAS 140 will materially impact its present securitization activities. 4. A reconciliation of the numerators and denominators of the basic and diluted per share computations are as follows (dollars and shares in thousands, except per share data):
Three Months Ended March 31, 2001 -------------------------------------- Income Average Shares Per Share (Numerator) (Denominator) Amount ------------ --------------- --------- Net Income $ 86,166 Convertible Preferred Dividends (1,019) ------------ Basic Earnings Per Share Income Available to Common Shareholders $ 85,147 102,839 $ 0.83 ======== Effect of Dilutive Securities Convertible Preferred Stock 1,019 3,844 Stock Options and Restricted Stock Plans -- 1,136 ------------ ------------- Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 86,166 107,819 $ 0.80 ========
Three Months Ended March 31, 2000 -------------------------------------- Income Average Shares Per Share (Numerator) (Denominator) Amount ------------ --------------- --------- Net Income $ 88,436 Convertible Preferred Dividends (923) ------------ Basic Earnings Per Share Income Available to Common Shareholders $ 87,513 104,657 $ 0.84 ======== Effect of Dilutive Securities Convertible Preferred Stock 923 3,844 Stock Options and Restricted Stock Plans -- 1,063 ------------ ------------- Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 88,436 109,564 $ 0.81 ========
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) 5. Selected investment securities, by type, held by the Corporation are as follows ($000's):
March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Investment securities available for sale: U.S. treasury and government agencies $ 3,194,030 $ 3,342,952 $ 3,760,161 State and political subdivisions 153,356 151,041 145,993 Mortgage backed securities 329,044 342,171 170,812 Other 891,990 899,558 229,085 Fair value hedging instruments 7,149 -- -- ------------ ------------ ------------ Total $ 4,575,569 $ 4,735,722 $ 4,306,051 ============ ============ ============
March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Investment securities held to maturity: U.S. treasury and government agencies $ -- $ -- $ 5 State and political subdivisions 1,095,239 1,107,476 1,154,905 Other 5,159 5,069 5,194 ------------ ------------ ------------ Total $ 1,100,398 $ 1,112,545 $ 1,160,104 ============ ============ ============
6. The Corporation's loan and lease portfolio consists of the following ($000's):
March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Commercial, financial & agricultural $ 5,329,597 $ 5,289,537 $ 5,031,736 Real estate: Construction 636,429 619,281 515,502 Residential mortgage 5,083,629 5,049,557 5,154,388 Commercial mortgage 4,497,606 4,359,812 4,095,617 ------------ ------------ ------------ Total real estate 10,217,664 10,028,650 9,765,507 Personal 1,180,833 1,174,248 1,320,014 Lease financing 1,064,813 1,094,652 848,264 Cash flow hedging instruments at fair value 11,564 -- -- ------------ ------------ ------------ Total $ 17,804,471 $ 17,587,087 $ 16,965,521 ============ ============ ============
7. Sale of Receivables During the first quarter of 2001, $67.7 million of automobile loans were sold in securitization transactions and gains of $2.0 million were recognized. Other income associated with auto securitizations amounted to $3.8 million. Key economic assumptions used in measuring the retained interests at the date of securitization resulting from securitizations completed during the first quarter were as follows (rate per annum):
Prepayment speed 25.0 % Weighted average life (in months) 21.8 Expected credit losses 0.18 % Residual cash flow discount rate 12.0 % Variable returns to transferees Forward one month LIBOR yield curve
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) At March 31, 2001, securitized automobile loans and other automobile loans managed together with them along with delinquency and credit loss information consisted of the following:
Total Securitized Portfolio Managed ------------ ------------ ------------ Loan balances $ 241,883 $ 295,502 $ 537,385 Principal amounts of loans 60 days or more past due 90 671 761 Net credit losses 49 287 336
8. The Corporation's deposit liabilities consists of the following ($000's):
March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Noninterest bearing demand $ 2,737,891 $ 3,129,834 $ 2,658,348 Savings and NOW 7,758,708 7,486,094 7,033,134 CD's $100,000 and over 2,459,240 2,663,050 1,993,954 Other time deposits 3,307,283 3,532,310 3,456,666 Foreign deposits 1,513,822 2,437,339 1,926,219 Fair value hedging instruments (3,604) -- -- ------------ ------------ ------------ $ 17,773,340 $ 19,248,627 $ 17,068,321 ============ ============ ============
9. Comprehensive Income The following tables present the Corporation's comprehensive income ($000's):
Three Months Ended March 31, 2001 --------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ------------ ------------ ------------ Net income $ 86,166 Other comprehensive income: Unrealized gains (losses) on securities: Arising during the period $ 54,370 $ (20,006) 34,364 Reclassification for securities transactions included in net income -- -- -- ------------ ------------ ------------ Unrealized gains (losses) 54,370 (20,006) 34,364 Net gains (losses) on derivatives hedging variability of cash flows: Adoption of SFAS 133 (15,665) 5,483 (10,182) Arising during the period (5,294) 1,853 (3,441) Reclassification adjustments for hedging activities included in net income 1,047 (367) 680 ------------ ------------ ------------ Net gains (losses) $ (19,912) $ 6,969 (12,943) ------------ ------------ ------------ Other comprehensive income 21,421 ------------ Total comprehensive income $ 107,587 ============
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited)
Three Months Ended March 31, 2000 --------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ------------ ------------- ------------ Net income $ 88,436 Other comprehensive income: Unrealized gains (losses) on securities: Arising during the period $ (30,919) $ 10,833 (20,086) Reclassification for securities transactions included in net income 11,966 (4,188) 7,778 ------------ ------------ ------------ Unrealized gains (losses) (18,953) 6,645 (12,308) Net gains (losses) on derivatives hedging variability of cash flows: Arising during the period N/A N/A N/A Reclassification adjustments for hedging activities included in net income N/A N/A N/A ------------ ------------ ------------ Net gains (losses) N/A N/A N/A ------------ ------------ ------------ Other comprehensive income (12,308) ------------ Total comprehensive income $ 76,128 ============
10. Derivative Financial Instruments and Hedging Activities Interest rate risk, the exposure of the Corporation's net interest income and net fair value of its assets and liabilities, to adverse movements in interest rates, is a significant market risk exposure that can have a material effect on the Corporation's financial position, results of operations and cash flows. The Corporation has policies to ensure that neither earnings nor fair value at risk exceed established guidelines and assesses these risks by continually identifying and monitoring changes in interest rates that may adversely impact expected future earnings and fair values. The Corporation has designed strategies to confine these risks within the established limits and indentify appropriate risk / reward trade- offs in the financial structure of its balance sheet. These strategies include the use of derivative financial instruments to help achieve the desired balance sheet repricing structure while meeting the desired objectives of its customers. Trading Instruments ------------------- The Corporation enters into interest rate swaps as part of its trading activities which enable its customers to manage their exposures to interest rate risk. The Corporation's market risk from unfavorable movements in interest rates is generally minimized by concurrently entering into offsetting positions with nearly identical notional values, terms and indices. At March 31, 2001, interest rate swaps designated as trading consisted of $268.8 million in notional amount of receive-fixed / pay-floating with an aggregate positive fair value of $1.4 million and $268.8 million in notional amount of pay fixed receive floating with an aggregate negative fair value of $1.3 million. Interest rate swaps designated as trading are recorded at fair value. Gains and losses arising from changes in fair value are recorded in other income. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) Fair Value Hedges ----------------- The Corporation has fixed rate callable CDs, equity indexed CDs and fixed rate long-term debt which expose the Corporation to variability in fair values due to changes in market interest rates and, in the case of the equity indexed CDs, to changes in the S&P 500 index. To limit the Corporation's exposure to changes in fair value due to changes in interest rates and the equity index, the Corporation has entered into receive-fixed / pay-floating interest rate swaps with identical call features, thereby creating the effect of floating rate deposits and floating rate long-term debt. The Corporation has determined that the hedges on the long-term debt qualify for the special short-cut accounting prescribed by SFAS 133, resulting in no ineffectiveness. The Corporation also has Agency collateralized mortgage backed investment securities designated as available for sale. The embedded prepayment options in the underlying mortgages expose the Corporation to variability in fair value in a changing interest rate environment. To limit its exposure to changes in fair value, the Corporation has designated purchased interest rate floors as a hedge against changes in fair value attributable to the embedded prepayment option. During the first quarter of 2001, the Corporation sold a portion of the floors ($100 million in notional amount). The adjustment to the carrying amount of the hedged investment securities of $3.2 million is being accreted into earnings over the remaining life of the security using the interest method. The following table presents additional information with respect to the Corporation's fair value hedges.
FAIR VALUE HEDGES - March 31, 2001 Impact to Net Interest Income - First Quarter 2001 ($000's) --------------------------------------- Components Excluded Notional Fair Wt. Avg. from Hedged Hedging Amount Value Remaining Ineffec- Ineffec- Net Item Instrument ($ in mil)($ in mil) Term (Yrs) tiveness tiveness Settlement Total - ----------------- ------------------ --------- --------- ---------- --------- -------- ---------- -------- Callable CDs Receive Fixed Swap $ 540.9 $ 4.9 6.5 $ 146 $ -- $1,187 $1,333 Equity Index CDs Receive Fixed Swap 14.9 (1.3) 4.0 -- -- (224) (224) Long-term Borrowings Receive Fixed Swap 200.0 21.6 25.7 -- -- 1,216 1,216 CMOs (Prepay Option) Interest Rate Floor 150.0 7.1 5.6 (222) -- 283 61 ------- ------- ------ ------ ------ ------ $ 905.8 $ 32.3 $ (76) $ -- $2,462 $2,386 ======= ======= ====== ====== ====== ======
Cash Flow Hedges ---------------- The Corporation has variable rate loans and variable rate short-term borrowings which expose the Corporation to variability in interest payments due to changes in interest rates. The Corporation believes it is prudent to limit the variability of a portion of its interest receipts and payments. To meet this objective, the Corporation enters into various types of derivative financial instruments to manage fluctuations in cash flows resulting from interest rate risk. At March 31, 2001, these instruments include interest rate swaps and an interest rate floor. The interest rate swaps change the variable-rate cash flow exposure on the loans and short-term borrowings to fixed-rate cash flows through the interest rate swaps. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) The purchased interest rate floor also protects the Corporation from decreases in interest rates that would result in decreased cash interest receipts from the variable rate loans. Under the agreement, the Corporation has the right to receive cash if interest rates decrease below a specified level. Ineffectiveness arising from differences between the critical terms of the hedging instrument and hedged item are recorded in interest income or expense based on the transaction that gave rise to the ineffectiveness. Changes in the fair value of the interest rate swaps or floor designated as cash flow hedges are reported in accumulated other comprehensive income (AOCI). These amounts subsequently are reclassified to interest income or interest expense as a yield adjustment in the same period in which the related interest on the variable rate loans and short-term borrowings affects earnings. The following table summarizes the Corporation's cash flow hedges at March 31, 2001.
CASH FLOW HEDGES - March 31, 2001 Impact to Net Interest Income- First Quarter 2001 ($000's) Estimated -------------------------------- Reclass Components from Excluded AOCI in Notional Fair Wt. Avg. from Reclass Next 12 Hedged Hedging Amount Value Remaining Ineffec- Ineffec- from Months Item Instrument ($ in mil)($ in mil) Term (Yr) tiveness tiveness AOCI Total $(000's) - ----------------- --------------- --------- --------- --------- -------- -------- ------- ------- -------- Variable Rate Loans Pay Fixed Swap $ 721.1 $ 11.4 1.4 $ -- $ -- $ (218) $ (218) $ 6,889 Commercial Paper Pay Fixed Swap 200.0 (19.2) 5.7 -- -- (932) (932) (5,227) Fed Funds Purchased Pay Fixed Swap 500.0 (6.1) 2.8 -- -- 101 101 (4,177) Variable Rate Interest Rate Loans Floors 25.0 0.1 0.7 (8) -- 2 (6) 118 -------- ------- ----- ----- ------- ------- ------- $1,446.1 $ (13.8) $ (8) $ -- $(1,047) $(1,055) $(2,397) ======== ======= ===== ===== ======= ======= =======
For the three months ended March 31, 2000, the effect on net interest income resulting from derivative financial instruments was a positive $0.2 million. 11. Segments Generally, the Corporation organizes its segments based on legal entities. Each entity offers a variety of products and services to meet the needs of its customers and the particular market served. Each entity has its own president and is separately managed subject to adherence to Corporate policies. Discrete financial information is reviewed by senior management to assess performance on a monthly basis. Certain segments are combined and consolidated for purposes of assessing financial performance. Prior period segment information for the Banking segment and Data Services segment have been restated for the transfer of certain assets and liabilities of the Data Services Division, which represent the payment services or item processing line of business. The transfer to the Banking segment occurred at the beginning of the third quarter of 2000. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) The Corporation evaluates the profit or loss performance of its segments based on operating income. Operating income is after-tax income excluding nonrecurring charges and charges for services from the holding company. Operating income for the banking entities and certain other entities also excludes certain assets, liabilities, equity, revenues and expenses associated with adjustments, charges or credits arising from acquisitions accounted for as purchases (hereinafter called acquisition costs). The accounting policies of the Corporation's segments are the same as those described in Note 1 to the Corporation's Annual Report on Form 10K, Item 8. Intersegment revenues may be based on cost, current market prices or negotiated prices between the providers and receivers of services. Based on the way the Corporation organizes its segments and the requirements of Statement of Financial Accounting Standards No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION", the Corporation has determined that it has two reportable segments. Information with respect to M&I's segments is as follows: BANKING Banking represents the aggregation of fifteen separately chartered banks located in Wisconsin, one bank in Arizona, one federally chartered thrift headquartered in Nevada and an operational support subsidiary which, beginning in the third quarter of 2000, includes item processing. Banking consists of accepting deposits, making loans and providing other services such as cash management, foreign exchange and correspondent banking to a variety of commercial and retail customers. Products and services are provided through a variety of delivery channels including traditional branches, supermarket branches, telephone centers, ATMs and the internet. In addition, the Corporation's larger affiliate banks provide numerous services such as cash management, regional credit, and centralized accounting to M&I's community banking affiliates. Intrasegment revenues, expenses and assets have been eliminated in the following information and prior periods have been restated to include the item processing line of business. ($ in millions):
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Revenue: Net interest income $ 187.5 $ 170.9 Other revenues: Unaffiliated customers 68.2 57.5 Affiliated customers 8.0 4.6 ------------ ------------ Total revenues 263.7 233.0 Expenses: Intersegment charges 15.7 10.2 Other operating expense 109.7 101.1 ------------ ------------ Total expenses 125.4 111.3 Provision for loan and lease losses 10.9 5.8 Income tax expense 40.4 36.0 ------------ ------------ Operating income $ 87.0 $ 79.9 ============ ============ Identifiable assets $ 24,985.6 $ 23,585.4 ============ ============ Return on tangible equity 18.8 % 19.4 % ============ ============
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) The following tables present revenue and operating income by line of business for Banking. This information is based on the Corporation's product profitability measurement system and is an aggregation of the revenues and expenses associated with the products and services within each line of business. Net interest income is derived from the Corporation's internal funds transfer pricing system, expenses are allocated based on available transaction volumes and the provision for loan and lease losses is allocated based on credit risk. Equity is assigned to products and services on a basis that considers market, operational and reputation risk. ($ in millions):
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Banking revenues: Commercial Banking $ 106.9 $ 98.6 Retail Banking 104.4 95.1 Investments and Other 52.4 39.3 ------------ ------------ Total banking revenues $ 263.7 $ 233.0 ============ ============ Percent of total banking revenue: Commercial Banking 40.5 % 42.3 % Retail Banking 39.6 40.8 Investments and Other 19.9 16.9 ------------ ------------ Total banking revenues 100.0 % 100.0 % ============ ============ Operating banking income Commercial Banking $ 47.4 $ 40.3 Retail Banking 24.6 24.4 Investments and Other 15.0 15.2 ------------ ------------ Total operating banking income $ 87.0 $ 79.9 ============ ============ Percent of total operating banking income: Commercial Banking 54.4 % 50.4 % Retail Banking 28.3 30.5 Investments and Other 17.3 19.1 ------------ ------------ Total operating banking income 100.0 % 100.0 % ============ ============ Banking return on tangible equity Commercial Banking 23.7 % 21.9 % Retail Banking 17.7 19.4 ------------ ------------ Total banking return on tangible equity 18.8 % 19.4 % ============ ============
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) DATA SERVICES Data Services includes Metavante and its two nonbank subsidiaries. Metavante provides data processing services, develops and sells software and provides consulting services to M&I affiliates as well as banks, thrifts, credit unions, trust companies and other financial services companies throughout the world although its activities are primarily domestic. In addition, Metavante derives revenue from the Corporation's credit card merchant operations. The majority of Metavante revenue is derived from internal and external processing. Intrasegment revenues, expenses and assets have been eliminated in the following information and prior periods have been restated to exclude the item processing business. ($ in millions):
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Revenue: Net interest expense $ (0.6) $ (1.3) Other revenues: Unaffiliated customers 131.6 128.9 Affiliated customers 16.0 15.1 ------------ ------------ Total revenues 147.0 142.7 Expenses: Intersegment charges 3.2 0.7 Other operating expense 129.1 122.8 ------------ ------------ Total expenses 132.3 123.5 Income tax expense 6.2 8.1 ------------ ------------ Operating income $ 8.5 $ 11.1 ============ ============ Identifiable assets $ 610.5 $ 528.5 ============ ============ Return on equity 12.0 % 18.4 % ============ ============
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) ALL OTHERS M&I's primary other operating segments includes Trust Services, Mortgage Banking (residential and commercial), Capital Markets Group, Brokerage and Insurance Services and Commercial Leasing. Trust Services provide investment management and advisory services as well as personal, commercial and corporate trust services in Wisconsin, Florida and Arizona. Capital Markets Group provide venture capital and advisory services. Intrasegment revenues, expenses and assets for the entities that comprise Trust Services and Capital Markets Group have been eliminated in the following information. ($ in millions):
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Revenue: Net interest income $ 5.5 $ 5.0 Other revenues: Unaffiliated customers 47.2 52.9 Affiliated customers 3.6 3.1 ------------ ------------ Total revenues 56.3 61.0 Expenses: Intersegment charges 7.4 7.4 Other operating expense 28.9 26.0 ------------ ------------ Total expenses 36.3 33.4 Provision for loan and lease losses 0.2 0.0 Income tax expense 7.9 11.1 ------------ ------------ Operating income $ 11.9 $ 16.5 ============ ============ Identifiable assets $ 757.7 $ 704.1 ============ ============ Return on tangible equity 20.5 % 30.7 % ============ ============
Total Revenues by type in All Others consist of the following:
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ All Others Revenues: Trust Services $ 30.3 $ 28.5 Residential Mortgage Banking 7.4 5.7 Capital Markets 7.1 15.8 Brokerage and Insurance 5.5 6.4 Commercial Leasing 2.9 2.4 Commercial Mortgage Banking 0.6 0.4 Others 2.5 1.8 ------------ ------------ Total All Others revenues $ 56.3 $ 61.0 ============ ============
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued March 31, 2001 & 2000 (Unaudited) Segment information reconciled to the Consolidated Financial Statements is as follows ($ in millions):
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Revenues: Banking $ 263.7 $ 233.0 Data Services 147.0 142.7 All Others 56.3 61.0 Corporate overhead (6.9) (4.2) Acquisition costs 0.3 0.4 Intersegment eliminations (27.7) (22.4) ------------ ------------ Consolidated revenues $ 432.7 $ 410.5 ============ ============ Expenses: Banking $ 125.4 $ 111.3 Data Services 132.3 123.5 All Others 36.3 33.4 Corporate overhead 14.1 17.2 Acquisition costs 4.4 5.0 Single charter 6.0 -- Intersegment eliminations (27.7) (22.4) ------------ ------------ Consolidated expenses $ 290.8 $ 268.0 ============ ============ Net income (loss): Operating income: Banking $ 87.0 $ 79.9 Data Services 8.5 11.1 All Others 11.9 16.5 Corporate overhead (12.8) (12.9) Nonrecurring (5.0) (2.3) Acquisition costs (3.4) (3.9) ------------ ------------ Consolidated net income $ 86.2 $ 88.4 ============ ============ Assets: Banking $ 24,985.6 $ 23,585.4 Data Services 610.5 528.5 All Others 757.7 704.1 Corporate overhead 364.3 196.4 Acquisition costs 245.8 264.8 Intersegment eliminations (809.4) (315.5) ------------ ------------ Consolidated assets $ 26,154.5 $ 24,963.7 ============ ============
MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's)
Three Months Ended March 31, 2001 2000 -------------- -------------- Assets - ------ Cash and due from banks $ 612,645 $ 630,113 Investment securities: Trading securities 29,919 41,553 Short-term investments 318,075 234,435 Other investment securities: Taxable 4,488,625 4,132,667 Tax-exempt 1,293,755 1,341,892 ------------- ------------- Total investment securities 6,130,374 5,750,547 Loans and leases: Commercial 5,258,481 4,896,688 Real estate 10,105,358 9,599,400 Personal 1,173,905 1,313,719 Lease financing 1,079,695 825,300 ------------- ------------- Total loans and leases 17,617,439 16,635,107 Less: Allowance for loan and lease losses 237,791 228,464 ------------- ------------- Net loans and leases 17,379,648 16,406,643 Premises and equipment, net 386,423 372,300 Accrued interest and other assets 1,524,781 1,441,311 ------------- ------------- Total Assets $ 26,033,871 $ 24,600,914 ============= ============= Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,657,789 $ 2,609,079 Interest bearing 15,020,398 14,422,706 ------------- ------------- Total deposits 17,678,187 17,031,785 Funds purchased and security repurchase agreements 1,916,858 2,751,558 Other short-term borrowings 1,759,942 1,143,504 Long-term borrowings 1,611,647 1,010,484 Accrued expenses and other liabilities 785,255 585,216 ------------- ------------- Total liabilities 23,751,889 22,522,547 Shareholders' equity 2,281,982 2,078,367 ------------- ------------- Total Liabilities and Shareholders' Equity $ 26,033,871 $ 24,600,914 ============= =============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION ---------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- THREE MONTHS ENDED MARCH 31, 2001 AND 2000 ------------------------------------------ Net income for the first quarter of 2001 amounted to $86.2 million compared to $88.4 million for the same period in the prior year. Basic and diluted earnings per share were $.83 and $.80 respectively for the three months ended March 31, 2001, compared with $.84 and $.81 respectively for the three months ended March 31, 2000. The return on average assets and average equity were 1.34% and 15.31% for the quarter ended March 31, 2001 and 1.45% and 17.11% for the quarter ended March 31, 2000. Net income for the current quarter includes certain expenses incurred in connection with the previously announced plan to reduce the number of banking charters under which it operates and also includes the cumulative effect of the change in accounting for derivatives and hedging activities. Net income for the prior year comparative quarter includes the cumulative effect of the change in accounting for certain conversion services provided by Metavante. The impact of these items is shown in the following table:
Other Consolidated Comprehensive Income Income Statement (Equity) -------------- -------------- Fair value hedges $ (628) $ -- Cash flow hedges (43) (15,665) -------------- -------------- (671) (15,665) Income tax benefit 235 5,483 -------------- -------------- Cumulative effect of change in accounting principles $ (436) $ (10,182) ============== ==============
The following tables present a summary of each of the major elements of the consolidated operating income statement, certain financial statistics and a summary of the major operating 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. Operating income for the first quarter of 2001 and 2000 excludes the items discussed above and operating income for the third and fourth quarters of 2000 excludes certain nonrecurring losses and expenses associated with balance sheet restructuring, charter consolidations and the withdrawn Metavante IPO. "Cash operating income" and related statistics is operating income before amortization of intangibles. Amortization includes amortization of goodwill and core deposit premiums and is net of negative goodwill accretion and the income tax expense or benefit, if any related to each component. These calculations were specifically formulated by the Corporation and may not be comparable to similarly titled measures reported by other companies. Summary Consolidated Operating Income Statements ------------------------------------------------ and Financial Statistics ------------------------ ($000's except per share data) ------------------------------
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Interest income $ 452,434 $ 457,503 $ 443,265 $ 432,589 $ 414,625 Interest expense (266,655) (282,738) (279,200) (267,534) (245,504) ---------- ---------- ---------- ---------- ---------- Net interest income 185,779 174,765 164,065 165,055 169,121 Provision for loan and lease losses (11,063) (8,979) (5,938) (9,616) (5,819) Net investment securities gains (losses) (123) (120) (110) 1,281 -- Other income 247,084 249,543 247,560 244,142 241,426 Other expense (284,796) (282,262) (271,542) (266,981) (267,997) ---------- ---------- ---------- ---------- ---------- Income before taxes 136,881 132,947 134,035 133,881 136,731 Income tax provision (45,754) (43,230) (43,578) (43,134) (46,016) ---------- ---------- ---------- ---------- ---------- Operating income $ 91,127 $ 89,717 $ 90,457 $ 90,747 $ 90,715 ========== ========== ========== ========== ========== Cash operating income $ 95,828 $ 94,663 $ 95,606 $ 95,307 $ 95,204 ========== ========== ========== ========== ========== Per Common Share Operating income Basic $ 0.88 $ 0.86 $ 0.86 $ 0.86 $ 0.86 Diluted 0.85 0.83 0.83 0.83 0.83 Cash Operating income Basic $ 0.92 $ 0.90 $ 0.91 $ 0.91 $ 0.90 Diluted 0.89 0.87 0.88 0.88 0.87 Dividends 0.265 0.265 0.265 0.265 0.24 Return on Average Equity Operating income 16.20 % 15.92 % 16.57 % 17.39 % 17.55 % Cash Operating income 19.60 19.40 20.45 21.52 21.92
Summary Consolidated Operating Income Statement Components ---------------------------------------------------------- as a Percent of Average Total Assets ------------------------------------
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Interest income (FTE) 7.16 % 7.27 % 7.16 % 7.08 % 6.91 % Interest expense (4.15) (4.42) (4.43) (4.30) (4.01) ---------- ---------- ---------- ---------- ---------- Net interest income 3.01 2.85 2.73 2.78 2.90 Provision for loan and lease losses (0.17) (0.14) (0.10) (0.15) (0.10) Net investment securities gains (losses) -- -- -- 0.02 -- Other income 3.85 3.90 3.93 3.92 3.94 Other expense (4.45) (4.41) (4.31) (4.29) (4.38) ---------- ---------- ---------- ---------- ---------- Income before taxes 2.24 2.20 2.25 2.28 2.36 Income tax provision (0.82) (0.80) (0.81) (0.82) (0.88) ---------- ---------- ---------- ---------- ---------- Return on average assets based on operating income 1.42 % 1.40 % 1.44 % 1.46 % 1.48 % ========== ========== ========== ========== ========== Return on tangible average assets based on cash operating income 1.51 % 1.50 % 1.54 % 1.55 % 1.58 % ========== ========== ========== ========== ==========
NET INTEREST INCOME ------------------- Net interest income for the first quarter of 2001 amounted to $185.8 million compared to $169.1 million reported for the first quarter of 2000. Strong loan growth and increased spreads in loan products contributed to the $16.7 million increase in net interest income despite the continued use of higher-cost funding sources and reduced spreads in deposit products due to an adverse shift in the mix of bank-issued deposit types. Average earning assets in the first quarter of 2001 increased $1.4 billion or 6.1% compared to the same period a year ago. Average loans, including securitized adjustable rate mortgage loans (ARMs), accounted for $1.4 billion or all of the growth in earning assets compared to the first quarter of last year. Average investment securities, excluding securitized ARMs, declined $96.8 million while other earning assets increased $72.0 million for the three months ended March 31, 2001 compared with the same period in the prior year. Average interest bearing liabilities increased $1.0 billion or 5.1% in the first quarter of 2001 compared to the same period in 2000. Since the first quarter of 2000, average interest bearing deposits increased $0.6 billion. Over 74% of the growth in interest bearing deposits were attributable to bank-issued deposits. Average total short-term borrowings decreased $218 million and reflects a shift away from fed funds and repurchase agreements and short-term bank notes to longer-term liabilities. Long-term borrowings increased $0.6 billion. Average noninterest bearing deposits increased $49 million or 1.9% compared to the same period last year. The growth and composition of the Corporation's quarterly average loan portfolio for the current quarter and previous four quarters are reflected in the following table. Securitized ARM loans which are classified in the consolidated balance sheets as investment securities available for sale are included to provide a more meaningful comparison ($ in millions): Consolidated Average Loans, Leases and Securitized ARMs -------------------------------------------------------
2001 2000 Growth Pct. ------- ----------------------------------- ---------------- First Fourth Third Second First Prior Quarter Quarter Quarter Quarter Quarter Annual Quarter -------- -------- -------- -------- -------- ------- -------- Commercial $ 5,258 $ 5,042 $ 4,950 $ 5,013 $ 4,897 7.4 % 4.3 % Real Estate Construction Commercial 495 469 450 407 407 21.7 5.5 Residential 126 123 117 112 106 18.1 2.5 -------- -------- -------- -------- -------- ------- -------- Total Construction 621 592 567 519 513 21.0 4.9 Commercial Mortgages 4,429 4,300 4,219 4,159 4,050 9.3 3.0 Residential Residential mortgages 2,409 2,740 3,168 3,011 2,862 (15.8) (12.1) Home equity loans and lines 2,647 2,462 2,261 2,230 2,174 21.7 7.5 Securitized ARM loans 828 523 375 403 424 95.5 58.4 -------- -------- -------- -------- -------- ------- -------- Total Residential 5,884 5,725 5,804 5,644 5,460 7.8 2.8 -------- -------- -------- -------- -------- ------- -------- Total Real Estate 10,934 10,617 10,590 10,322 10,023 9.1 3.0 Personal Student 134 119 108 254 262 (48.9) 12.5 Credit card 190 187 171 153 151 26.5 1.9 Other 850 852 883 944 901 (5.7) (0.3) -------- -------- -------- -------- -------- ------- -------- Total Personal 1,174 1,158 1,162 1,351 1,314 (10.6) 1.4 Lease financing Commercial 385 377 360 341 335 15.0 2.2 Personal 695 698 616 536 490 41.6 (0.5) -------- -------- -------- -------- -------- ------- -------- Total Lease Financing 1,080 1,075 976 877 825 30.8 0.4 -------- -------- -------- -------- -------- ------- -------- Total Consolidated Average Loans, Leases and ARMs $ 18,446 $ 17,892 $ 17,678 $ 17,563 $ 17,059 8.1 % 3.1 % ======== ======== ======== ======== ======== ======= ======== Total Consolidated Average Loans, Leases and ARMs Commercial Banking $ 10,567 $ 10,188 $ 9,979 $ 9,920 $ 9,689 9.1 % 3.7 % Retail Banking 7,879 7,704 7,699 7,643 7,370 6.9 2.3 -------- -------- -------- -------- -------- ------- -------- Total Consolidated Average Loans, Leases and ARMs $ 18,446 $ 17,892 $ 17,678 $ 17,563 $ 17,059 8.1 % 3.1 % ======== ======== ======== ======== ======== ======= ======== Total Consolidated Average Loans and Leases $ 17,618 $ 17,369 $ 17,303 $ 17,160 $ 16,635 5.9 % 1.4 % ======== ======== ======== ======== ======== ======= ========
Compared with the first quarter of 2000, total consolidated average loans, leases and securitized ARMs increased $1.4 billion or 8.1%. Approximately 63% of consolidated average loan growth was attributable to commercial banking. Total loan growth in commercial banking amounted to $878 million or 9.1% and was driven by commercial loan growth of $361 million and commercial real estate loan growth of $467 million of which, $88 million was attributable to commercial construction loan growth. Retail banking loan growth amounted to $509 million or 6.9%. Home equity loans and lines increased $473 million. In the fourth quarter of 2000, the Corporation acquired $341 million of home equity loans and lines related to its private-label banking services. Personal lease financing receivables increased $205 million. Residential mortgages decreased $453 million or 15.8% while securitized ARM loans increased $404 million. In addition to the ongoing sale of residential mortgage production in the secondary market, late in the third quarter of 2000, the Corporation sold $300.8 million of portfolio ARM loans and late in the fourth quarter of 2000, securitized $511 million of ARM loans. The decline in average student loans of $128 million reflects the sale of approximately $150 million of such loans late in the second quarter of 2000. Average other personal loans decreased $51 million or 5.7%. Beginning in the third quarter of 2000, the Corporation began securitizing indirect auto loans. Indirect auto loans securitized and sold in 2000 amounted to $223 million and for the three months ended March 31, 2001 amounted to $68 million. The Corporation anticipates that indirect auto loan origination will continue to be securitized and sold in future quarters. Generally, the Corporation sells residential real estate loan production in the secondary market. Residential real estate loans originated and sold to investors amounted to $ 322 million in the first quarter of 2001 compared to $72 million in the first quarter of the prior year. The growth and composition of the Corporation's quarterly average deposits for the current and prior year's quarters are as follows ($ in millions): Consolidated Average Deposits -----------------------------
2001 2000 Growth Pct. ------- ----------------------------------- ---------------- First Fourth Third Second First Prior Quarter Quarter Quarter Quarter Quarter Annual Quarter -------- -------- -------- -------- -------- ------- -------- Noninterest bearing deposits Commercial $ 1,639 $ 1,716 $ 1,694 $ 1,677 $ 1,668 (1.7)% (4.5)% Personal 583 582 572 591 576 1.2 0.2 Other 436 428 373 351 365 19.5 1.8 -------- -------- -------- -------- -------- ------- ------- Total noninterest bearing deposits 2,658 2,726 2,639 2,619 2,609 1.9 (2.5) Interest bearing deposits Savings & NOW 1,720 1,760 1,826 1,880 1,919 (10.4) (2.3) Money market 5,873 5,558 5,248 5,092 5,065 15.9 5.7 Other CDs & time deposits 3,397 3,452 3,394 3,399 3,428 (0.9) (1.6) CDs greater than $100,000 820 856 874 852 909 (9.8) (4.2) Foreign Time 1,415 2,042 1,951 2,112 2,057 (31.2) (30.7) Brokered CDs 1,795 1,780 1,653 1,239 1,045 71.8 0.8 -------- -------- -------- -------- -------- ------- ------- Total interest bearing deposits 15,020 15,448 14,946 14,574 14,423 4.1 (2.8) -------- -------- -------- -------- -------- ------- ------- Total consolidated average deposits $ 17,678 $ 18,174 $ 17,585 $ 17,193 $ 17,032 3.8 % (2.7)% ======== ======== ======== ======== ======== ======= ======= Bank issued deposits $ 14,182 $ 14,125 $ 13,715 $ 13,572 $ 13,688 3.6 % 0.4 % Wholesale deposits 3,496 4,049 3,870 3,621 3,344 4.6 (13.6) -------- -------- -------- -------- -------- ------- ------- Total consolidated average deposits $ 17,678 $ 18,174 $ 17,585 $ 17,193 $ 17,032 3.8 % (2.7)% ======== ======== ======== ======== ======== ======= =======
The Corporation continues to have some reliance on wholesale deposits for funding. Compared with the first quarter of 2000, average wholesale deposit growth amounted to $152 million or 4.6%. The increase in Brokered CDs of $750 million and brokered money market accounts of $124 million was offset by a decrease in Eurodollar term and overnight funds, which are included in foreign time, of $721 million. Average bank issued deposits increased $494 million or 3.6% in the first quarter of 2001 compared to the first quarter of 2000. As part of its private-label banking services, the Corporation acquired $354 million of deposits late in 2000. Average money market index accounts accounted for approximately $858 million of the growth in average bank issued deposits while savings and NOW declined $199 million and bank issued money market savings decreased $175 million. This shift in mix had an adverse impact on the interest margin. Noninterest bearing deposits, as previously discussed, increased $49 million. Average bank issued deposits were negatively impacted by the sale of three bank branches in 2000 all located in Illinois. Total deposits sold amounted to approximately $111 million. There were no branch sales in the first quarter of 2001 or during the first quarter of 2000. The Corporation's consolidated average interest earning assets and interest bearing liabilities, interest earned and interest paid for the current quarter and prior year first quarter are presented in the following table. Securitized ARM loans that are classified in the balance sheet as investment securities available for sale are included with loans to provide a more meaningful comparison ($ in millions):
Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 -------------------------------- -------------------------------- Average Average Average Yield or Average Yield or Balance Interest Cost (b) Balance Interest Cost (b) ---------- ---------- ---------- ---------- ---------- ---------- Loans and leases (a) $ 18,445.9 $ 370.5 8.15 % $ 17,059.0 $ 335.0 7.90 % Investment securities: Taxable 3,660.1 61.9 6.98 3,708.8 59.9 6.34 Tax Exempt (a) 1,293.8 22.6 7.17 1,341.9 23.8 7.20 Other short-term investments (a) 348.0 4.6 5.36 276.0 3.8 5.56 ---------- ---------- ---------- ---------- ---------- ---------- Total interest earning assets $ 23,747.8 $ 459.6 7.88 % $ 22,385.7 $ 422.5 7.57 % Money market savings $ 5,872.7 $ 71.8 4.96 % $ 5,065.3 $ 61.2 4.86 % Regular savings & NOW 1,719.8 5.7 1.34 1,918.4 8.5 1.78 Other CDs & time deposits 4,812.9 69.5 5.86 5,484.9 74.6 5.47 CDs greater than $100 & Brokered CDs 2,615.0 40.2 6.23 1,954.1 28.3 5.82 Total interest bearing deposits 15,020.4 187.2 5.05 14,422.7 172.6 4.81 Short-term borrowings 3,676.8 54.1 5.97 3,895.1 57.0 5.89 Long-term borrowings 1,611.6 25.3 6.38 1,010.5 15.9 6.32 Total interest bearing liabilities $ 20,308.8 $ 266.6 5.32 % $ 19,328.3 $ 245.5 5.11 % ========== ========== ========== ========== ========== ========== Net interest margin (FTE) as a percent of average earning assets $ 193.0 3.31 % $ 177.0 3.17 % ========== ========== ========== ========== Net interest spread (FTE) 2.56 % 2.46 % ========== =========
(a) Fully taxable equivalent basis (FTE), assuming a Federal income tax rate of 35%, and excluding disallowed interest expense. (b) Based on average balances excluding fair value adjustments for available for sale securities. The yield on average earning assets increased 31 basis points since the first quarter of 2000 which had a positive impact on interest income (FTE) of approximately $13.4 million. The increase in the yield of taxable investment securities reflects the Corporation's realignment of its available for sale investment securities portfolio through the sale and purchase of approximately $1.6 billion of U.S. Government Agency securities during the third quarter of 2000. The increase in the volume of earning assets, primarily loans and securitized ARMs, increased interest income by approximately $23.7 million compared with the first quarter of 2000. The cost of interest bearing deposits increased 24 basis points from the same quarter of the previous year which reflects, in part, the adverse shift in deposit mix previously discussed. Short-term borrowing costs increased 8 basis points which also reflects the shift in mix of short-term funding sources. Long-term borrowing costs increased 6 basis points compared with the first quarter of 2000 which is a result of the greater use of bank notes which were issued in the later part of 2000. The overall increase in the cost of interest bearing liabilities of 21 basis points increased interest expense by approximately $5.7 million while the increase in the volume of interest bearing liabilities increased interest expense by approximately $15.4 million. In the recent declining interest rate environment, the Corporation has taken certain actions to lessen the amount of income at risk due to changes in interest rates. As a result, net interest income will not experience the same magnitude of benefit as it might have, absent the actions taken. In addition to continuing to seek less costly funding sources, the Corporation may, among other things, continue to divest of lower yielding assets through sale or securitization in the future. PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY ------------------------------------------------------ The following tables present comparative consolidated credit quality information as of March 31, 2001 and the prior four quarters. NONPERFORMING ASSETS -------------------- ($000's)
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Nonaccrual $ 130,640 $ 121,425 $ 116,682 $ 119,584 $ 111,642 Renegotiated 560 614 658 421 688 Past due 90 days or more 7,080 7,371 7,295 10,069 9,334 ---------- ---------- ---------- ---------- ---------- Total nonperforming loans and leases 138,280 129,410 124,635 130,074 121,664 Other real estate owned 3,790 3,797 3,804 4,592 6,247 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets $ 142,070 $ 133,207 $ 128,439 $ 134,666 $ 127,911 ========== ========== ========== ========== ========== Allowance for loan and lease losses $ 240,348 $ 235,115 $ 232,690 $ 234,119 $ 232,471 ========== ========== ========== ========== ==========
CONSOLIDATED STATISTICS -----------------------
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Net Charge-offs (Recoveries) to average loans and leases annualized 0.13 % 0.16 % 0.17 % 0.19 % (0.02)% Total nonperforming loans and leases to total loans and leases 0.78 0.74 0.72 0.75 0.72 Total nonperforming assets to total loans and leases and other real estate owned 0.80 0.76 0.74 0.77 0.75 Allowance for loan and lease losses to total loans and leases 1.35 1.34 1.34 1.35 1.37 Allowance for loan and lease losses to nonperforming loans and leases 174 182 187 180 191
NONACCRUAL LOANS AND LEASES BY TYPE ----------------------------------- ($000's)
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Commercial Commercial, financial & agricultural $ 50,273 $ 49,965 $ 39,203 $ 51,505 $ 49,006 Lease financing receivables 2,959 1,921 2,046 2,271 3,929 ---------- ---------- ---------- ---------- ---------- Total commercial 53,232 51,886 41,249 53,776 52,935 Real estate Construction & land development 2,584 2,896 2,929 2,915 5,284 Commercial mortgage 38,797 35,011 42,246 36,159 28,069 Residential mortgage 34,244 29,895 28,155 25,198 23,715 ---------- ---------- ---------- ---------- ---------- Total real estate 75,625 67,802 73,330 64,272 57,068 Personal 1,783 1,737 2,103 1,536 1,639 ---------- ---------- ---------- ---------- ---------- Total nonaccrual loans and leases $ 130,640 $ 121,425 $ 116,682 $ 119,584 $ 111,642 ========== ========== ========== ========== ==========
RECONCILIATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES ----------------------------------------------------- ($000's)
2001 2000 ---------- -------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Beginning balance $ 235,115 $ 232,690 $ 234,119 $ 232,471 $ 225,862 Provision for loan and lease losses 11,063 8,979 5,938 9,616 5,819 Allowance of banks and loans acquired -- 1,270 -- -- -- Allowance transfer for loan securitizations -- (1,022) -- -- -- Loans and leases charged-off Commercial 2,577 2,253 5,210 2,711 449 Real estate 2,075 3,267 943 4,989 653 Personal 2,383 2,629 2,285 1,758 1,544 Leases 496 397 193 539 198 ---------- ---------- ---------- ---------- ---------- Total charge-offs 7,531 8,546 8,631 9,997 2,844 Recoveries on loans and leases Commercial 515 429 436 1,020 2,811 Real estate 410 645 291 373 206 Personal 728 627 508 539 525 Leases 48 43 29 97 92 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,701 1,744 1,264 2,029 3,634 ---------- ---------- ---------- ---------- ---------- Net loans and leases charge-offs (recoveries) 5,830 6,802 7,367 7,968 (790) ---------- ---------- ---------- ---------- ---------- Ending balance $ 240,348 $ 235,115 $ 232,690 $ 234,119 $ 232,471 ========== ========== ========== ========== ==========
Nonperforming assets consist of nonperforming loans and other real estate owned (OREO). OREO is comprised of commercial and residential properties acquired in partial or total satisfaction of problem loans and branch premises held for sale. At March 31, 2001, OREO acquired in satisfaction of debts amounted to $3.2 million and branch premises held for sale amounted to $0.6 million. Nonperforming loans and leases consist of nonaccrual, renegotiated or restructured loans, and loans and leases that are delinquent 90 days or more and still accruing interest. The balance of nonperforming loans and leases can fluctuate widely based on the timing of cash collections, renegotiations and renewals. Maintaining nonperforming assets at an acceptable level is important to the ongoing success of a financial services institution. The Corporation's comprehensive credit review and approval process is critical to ensuring that the amount of nonperforming assets on a long-term basis is minimized within the overall framework of acceptable levels of credit risk. In addition to the negative impact on net interest income and credit losses, nonperforming assets also increase operating costs due to the expense associated with collection efforts. At March 31, 2001, nonperforming loans and leases amounted to $138.3 million or 0.78% of consolidated loans and leases of $17.8 billion, an increase of $8.9 million or 6.9% since December 31, 2000. Nonaccrual loans and leases accounted for $9.2 million of the increase compared to the prior quarter. Nonaccrual residential real estate loans accounted for $4.3 million of the increase. Nonaccrual commercial real estate loans increased $3.8 million driven primarily by multifamily loans. Two commercial lease financing receivables placed on nonaccrual accounted for the $1.0 million increase in nonaccrual leases while nonaccrual commercial and industrial loans were relatively unchanged. Nonaccrual loans associated with the cranberry industry amounted to $13.0 million at March 31, 2001, compared to $13.8 million at December 31, 2000. While this sector represents 10% of total nonaccrual loans, the Corporation feels this industry has stabilized and does not anticipate further losses. Net charge-offs amounted to $5.8 million or 0.13% of average loans in the first quarter of 2001 compared with net charge-offs of $6.8 million or 0.16% of average loans in the fourth quarter of 2000 and have remained fairly stable over the past four quarters. The allowance for loan and lease losses represents management's estimate of probable inherent losses which have occurred as of the date of the financial statements. In determining the adequacy of the reserve the Corporation evaluates the reserves necessary for specific nonperforming loans and also estimates losses inherent in other loans and leases. As a result, the allowance for loans and leases contains the following components: Specific Reserve. The amount of specific reserves is determined through a loan-by-loan analysis of nonperforming loans that considers expected future cash flows, the value of collateral and other factors that may impact the borrower's ability to make payments when due. Included in this group are those nonaccrual or renegotiated loans which meet the criteria as being "impaired" under the definition in SFAS 114. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Allocated inherent reserve. The amount of the allocated portion of the inherent loss reserve is determined by reserving factors assigned to loans and leases based on the Corporation's internal loan grading system. Line officers and loan committees are responsible for continually assigning grades to commercial loan types based on standards established in the Corporation's loan policies and adherence to the standards is closely monitored by the Corporation's Loan Review Group. Loan grades are similar to, but generally more conservative than, regulatory classifications. In addition, reserving factors are applied to retail and smaller balance ungraded credits as well as specialty loan products such as credit card, student loans and mortgages. Reserving factors are derived and are determined based on such factors as historical charge-off experience, remaining life, and industry practice for reserve levels. The use of industry practice is intended to prevent an understatement of reserves based upon an over-reliance on historical charge-offs during favorable economic conditions. Unallocated inherent reserve. Management determines the unallocated portion of the inherent loss reserve based on factors that cannot be associated with a specific credit or loan categories. These factors include management's subjective evaluation of local, national and international economic and business conditions, changes to underwriting standards and marketing channels such as use of centralized retail and small business credit centers, trends towards higher advance rates and longer amortization periods and the impact of acquisitions on the Corporation's credit risk profile. The unallocated portion of the inherent loss reserve also reflects management's attempt to ensure that the overall reserve appropriately reflects a margin for the imprecision necessarily inherent in estimates of expected credit losses. Management's evaluation of the factors described above resulted in an allowance for loan and lease losses of $240.3 million at March 31, 2001 compared to $235.1 million at December 31, 2000. The level of reserve reflects management's belief that losses inherent in the loan and lease portfolio were larger than would otherwise be suggested by the Corporation's favorable charge-off experience in recent years; the Corporation's experience, as most recently evidenced in the second and third quarters of 2000, of larger losses in commercial and commercial real estate loans in brief periods at particular points in economic cycles; and the view that the absolute level of the allowance should not decline appreciably given continuing loan growth and the slowing of economic prosperity. OTHER INCOME ------------ Total other income in the first quarter of 2001 amounted to $247.0 million, an increase of $5.6 million or 2.3%, compared to $241.4 million in the same period last year. Total data processing services revenue increased $3.0 million or 2.3% from $130.0 million in the first quarter of 2000 to $133.0 million in the current quarter. Account processing fees increased $10.1 million or 10.7% and reflects growth in electronic bill payment and presentment and online banking. Professional services fees and software revenue is somewhat seasonal in nature and are typically lower in the first quarter. Other revenue declined primarily due to lower equipment sales while buyout fees were relatively unchanged. The increase in internet banking revenue was driven by increased internet mortgage lending activity. Trust services revenue amounted to $30.0 million in the first quarter of 2001, an increase of $2.2 million or 8.0% compared to $27.8 million in the first quarter of 2000. Trust services revenue is largely derived from asset-based fees. Maintaining year-over-year revenue growth in the current market environment will be a continuing challenge. Service charges on deposits increased $2.3 million or 12.5% and amounted $20.8 million in the first quarter of 2001. The increase was primarily attributable to service charges on commercial demand accounts. Mortgage banking revenue increased $4.0 million in the first quarter of 2001 compared to the first quarter of 2000. While all sources of mortgage banking revenue increased compared to the prior year, gains on the sale of mortgage loans accounted for the majority of the increase which reflects the increased origination and sale activity as previously discussed. The decrease in capital markets revenue is due to gains from the sale of investments and other net unrealized gains. Net securities gains from Capital Markets investments, which can vary from period to period, amounts to $6.2 million in the current quarter compared to $14.8 million in the first quarter of last year. Other income in the first quarter of 2001 amounted to $30.1 million compared to $27.5 million in the first quarter of 2000, an increase of $2.6 million or 9.5%. Gains and income from indirect auto securitizations, which began in the third quarter of 2000 as previously discussed, amounted to $5.6 million in the current quarter. Offsetting this income was lower investment income on nonqualified benefit plan assets of approximately $1.5 million. During the first quarter of 2000 the Corporation recognized reversion income associated with the final settlement of an acquired pension plan of approximately $1.8 million. OTHER EXPENSE ------------- Total other expense for the three months ended March 31, 2001, amounted to $290.8 million including costs attributable to the single charter initiative. Single Charter related expenses incurred in the current quarter amounted to $6.0 million. Such expenses consisted of the costs of programming changes required to support operations and processes to achieve the scale required in the single charter environment, systems conversion costs, consulting and other professional fees, costs incurred to eliminate duplicate loan and deposit customer's accounts and other affiliate shareholder matters and costs associated with employee relocation, retention and severance. During the first quarter of 2001, ten charter mergers were completed. Excluding this item, total other expense amounted to $284.8 million in the first quarter of 2001 compared to $268.0 million in the first quarter of 2000 an increase of $16.8 million or 6.3%. The Corporation's nonbanking businesses, especially its Data Services segment ("Metavante"), continue to be the primary contributors to operating expense growth. Metavante expense growth represents over half of all of the consolidated operating expense growth and reflects the cost of adding processing capacity and other related costs associated with developing new products and services. Expense growth in the current quarter for the banking segment reflects start-up costs associated with its private-label banking services and losses associated with retail auto lease residual values. Expense control is sometimes measured in the financial services industry by the efficiency ratio statistic. The efficiency ratio is calculated by taking total other expense (excluding nonrecurring charges) divided by the sum of total other income (including Capital Markets revenue but excluding investment securities gains or losses) and net interest income on a fully taxable equivalent basis. The Corporation's efficiency ratios for the three months ended March 31, 2001 and 2000 and the year ended December 31, 2000 are:
Three Months Three Months Three Months Ended Ended Ended March 31, December 31, March 31, 2001 2000 2000 ------------ ------------ ------------ Consolidated Corporation 64.7 % 65.4 % 64.0 % Consolidated Corporation Excluding Metavante Including Intangible Amortization 53.9 % 55.8 % 53.8 % Excluding Intangible Amortization 51.8 % 53.4 % 51.6 %
Salaries and employee benefits expense amounted to $167.9 million in the first quarter of 2001 compared to $157.3 million in the first quarter of 2000, an increase of $10.6 million or 6.7%. Salaries and employee benefits expense of Metavante increased $8.0 million. At March 31, 2001, Metavante had approximately 294 more full time equivalent employees when compared to March 31, 2000. Compared to the first quarter of 2000, expense growth in the current quarter in salaries and employee benefits was $2.4 million or 3.9% for the banking segment. Data Services expense growth accounted for approximately $6.2 million or 96% of the increase in net occupancy, equipment, software, supplies and printing and processing expenses in the first quarter of 2001 compared to the first quarter of 2000. Approximately $1.3 million of the decline in professional fees was attributable to Metavante and was offset by increased fees in mortgage and internet banking. Other expense amounted to $23.9 million in the first quarter of 2001, and was relatively unchanged compared to the first quarter of 2000. Lower cost of sales associated with equipment sales and card plastics revenue was $3.1 million and was offset by losses associated with auto lease residuals. Other expense is affected by the capitalization of costs, net of amortization and write-downs associated with software development and customer data processing conversions. Net software capitalization was $7.2 million in the first quarter of 2000 and in the current quarter amounted to $6.4 million resulting in an increase of $0.8 million in other expense in the first quarter of 2001 compared to first quarter of 2000. INCOME TAXES ------------ The provision for income taxes for the three months ended March 31, 2001 amounted to $44.3 million or 33.8% of pre-tax income compared to $46.0 million or 33.7% of pre-tax income for the three months ended March 31, 2000. CAPITAL RESOURCES ----------------- Shareholders' equity was $2.31 billion at March 31, 2001 compared to $2.24 billion at December 31, 2000 and $2.07 billion at March 31, 2000. The Corporation had net unrealized gains on securities available for sale at March 31, 2000 of $72.5 million, an increase in market value net of related income tax effects of $34.4 million since December 31, 2000. Net unrealized losses associated with derivative financial instruments designated cash flow hedges at March 31, 2001 amounted to $12.9 million. For the three months ended March 31, 2000, M&I repurchased 0.3 million shares of its Common Stock. The aggregate cost of the shares repurchased was $15.5 million. The Corporation continues to have a strong capital base and its regulatory capital ratios are significantly above the minimum requirements as shown in the following tables. RISK-BASED CAPITAL RATIOS ------------------------- ($ in millions)
March 31, 2001 December 31, 2000 --------------------------------- --------------------------------- Amount Ratio Amount Ratio --------------------------------- --------------------------------- Tier 1 Capital $ 2,130 10.08 % $ 2,071 10.20 % Tier 1 Capital Minimum Requirement 845 4.00 812 4.00 -------------------------------- -------------------------------- Excess $ 1,285 6.08 % $ 1,259 6.20 % ================================ ================================ Total Capital $ 2,522 11.94 % $ 2,445 12.05 % Total Capital Minimum Requirement 1,690 8.00 1,624 8.00 -------------------------------- -------------------------------- Excess $ 832 3.94 % $ 821 4.05 % ================================ ================================ Risk-Adjusted Assets $ 21,121 $ 20,294 ================= =================
LEVERAGE RATIOS --------------- ($ in millions)
March 31, 2001 December 31, 2000 --------------------------------- --------------------------------- Amount Ratio Amount Ratio --------------------------------- --------------------------------- Tier 1 Capital $ 2,130 8.31 % $ 2,071 8.25 % Minimum Leverage Requirement 769 - 1,281 3.00 - 5.00 753 - 1,255 3.00 - 5.00 -------------------------------- -------------------------------- Excess $ 1,361 - 849 5.31 - 3.31 % $ 1,318 - 816 5.25 - 3.25 % ================================ ================================ Adjusted Average Total Assets $ 25,620 $ 25,096 ================= =================
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following updated information should be read in conjunction with the Corporation's 2000 Annual Report on Form 10-K. Updated information regarding the Corporation's use of derivative financial instruments is contained in Note 11, Notes to Financial Statements contained in Item 1 herein. Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices, and other relevant market rate or price risk. The Corporation faces market risk through trading and other than trading activities. While market risk that arises from trading activities in the form of foreign exchange and interest rate risk is immaterial to the Corporation, market risk from other than trading activities in the form of interest rate risk is measured and managed through a number of methods. Interest Rate Risk - ------------------- The Corporation uses financial modeling techniques to identify potential changes in income under a variety of possible interest rate scenarios. Financial institutions, by their nature, bear interest rate and liquidity risk as a necessary part of the business of managing financial assets and liabilities. The Corporation has designed strategies to confine these risks within prudent parameters and identify appropriate risk/reward tradeoffs in the financial structure of the balance sheet. The financial models identify the specific cash flows, repricing timing and embedded option characteristics across the array of assets and liabilities held by the Corporation. Policies are in place to assure that neither earnings nor fair value at risk exceed appropriate limits. The use of a limited array of derivative financial instruments has allowed the Corporation to achieve the desired balance sheet repricing structure while simultaneously meeting the desired objectives of both its borrowing and depositing customers. The models used include measures of the expected repricing characteristics of administered rate (NOW, savings and money market accounts) and non-rate related products (demand deposit accounts, other assets and other liabilities). These measures recognize the relative insensitivity of these accounts to changes in market interest rates, as demonstrated through current and historical experiences. In addition to information about contractual payment information for most other assets and liabilities, the models also include estimates of expected prepayment characteristics for those items that are likely to materially change their payment structures in different rate environments, including residential mortgage products, certain commercial and commercial real estate loans and certain mortgage-related securities. Estimates for these sensitivities are based on industry assessments and are substantially driven by the differential between the contractual coupon of the item and current market rates for similar products. This information is incorporated into a model that allows the projection of future income levels in several different interest rate environments. Earnings at risk are calculated by modeling income in an environment where rates remain constant, and comparing this result to income in a different rate environment, and then dividing this result into the Corporation's budgeted / forecasted pre-tax income for the ensuing twelve months. Since future interest rate moves are difficult to predict, the following table presents two potential scenarios - a gradual increase of 100bp across the entire yield curve over the course of a year (+25bp per quarter), and a gradual decrease of 100bp across the entire yield curve over the course of a year (-25bp per quarter) for the balance sheet as of March 31, 2001 and December 31, 2000:
Impact to Annual Pretax Income as of ------------------------------------ March 31, December 31, 2001 2000 ----------------- ------------------ Hypothetical Change in Interest Rate ------------------------------------ 100 basis point gradual: Rise in rates (4.9)% (6.4)% Decline in rates 3.7 % 5.3 %
These results are based solely on the modeled parallel changes in market rates, and do not reflect the earnings sensitivity that may arise from other factors such as changes in the shape of the yield curve, the changes in spread between key market rates, or accounting recognition for impairment of certain intangibles. These results are also considered to be conservative estimates due to the fact that they do not include any management action to mitigate potential income variances within the simulation process. Such action could potentially include, but would not be limited to, adjustments to the repricing characteristics of any on- or off-balance sheet item with regard to short-term rate projections and current market value assessments. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. Another component of interest rate risk is measuring the fair value at risk for a given change in market interest rates. The Corporation also uses computer modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The net change in the present value of the assets and liability cash flows in different market rate environments is the amount of fair value at risk from those rate movements. As of March 31, 2001 the fair value of equity at risk for a gradual 100bp shift in rates was less than 1.0% of the market value of the Corporation. The Corporation uses derivative financial instruments to manage interest rate exposure. A small amount of derivatives are sold to customers where the Corporation acts as an intermediary. The Corporation through its trading accounts matches off these instruments in order to minimize exposure to market risks. Equity Risk - ------------ In addition to interest rate risk, the Corporation incurs market risk in the form of equity risk. M&I's Capital Markets Group invests in private, medium- sized companies to help establish new businesses or recapitalize existing ones. Exposure to the change in equity values for the companies that are held in their portfolio exists, but due to the nature of the investments, cannot be quantified within acceptable levels of precision. M&I Trust Services administers $56.1 billion in assets and directly manages a portfolio of $11.8 billion. Exposure exists to changes in equity values due to the fact that fee income is partially based on equity balances. While this exposure is present, quantification remains difficult due to the number of other variables affecting fee income. Interest rate changes can also have an effect on fee income for the above stated reasons. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- A. Exhibits: Exhibit 10 - Change of Control Agreement dated as of April 16, 2001 between the Corporation and Mark F. Furlong Exhibit 11 - Statements - Computation of Earnings Per Share Incorporated by Reference to NOTE 4 of Notes to Financial Statements contained in Item 1 - Financial Statements (unaudited) of Part 1-Financial Information herein. Exhibit 12 -Computation of Ratio of Earnings to Fixed Charges 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 15, 2001 EX-10 2 ex100301.txt EXHIBIT 10 - FORM 10-Q FOR 03/31/2001 CHANGE OF CONTROL AGREEMENT --------------------------- THIS AGREEMENT, entered into as of the 16th day of April, 2001, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and MARK F. FURLONG (the "Executive") (hereinafter collectively referred to as "the parties"). W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as hereinafter defined in Section 2) exists and that the threat of or the occurrence of a Change of Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; and WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its shareholders to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. EMPLOYMENT TERM. (a) The "Employment Term" shall commence on the first date during the Protected Period (as defined in Section 1(c), below) on which a Change of Control (as defined in Section 2, below) occurs (the "Effective Date") and shall expire on the third anniversary of the Effective Date; provided, however, that at the end of each day of the Employment Term the Employment Term shall automatically be extended for one (1) day unless either the Company or the Executive shall have given written notice to the other at least thirty (30) days prior thereto that the Employment Term shall not be so extended. (b) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated prior to the Effective Date and the Executive reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise occurred in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement, the Effective Date shall mean the date immediately prior to the date of such termination of the Executive's employment. (c) For purposes of this Agreement, the "Protected Period" shall be the three (3) year period commencing on the date hereof; provided, however, that at the end of each day the Protected Period shall be automatically extended for one (1) day unless at least thirty (30) days prior thereto the Company shall have given written notice to the Executive that the Protected Period shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the Protected Period shall not end if prior to the expiration thereof any third party has indicated an intention or taken steps reasonably calculated to effect a Change of Control, in which event the Protected Period shall end only after such third party publicly announces that it has abandoned all efforts to effect a Change of Control. 2. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of Control" shall mean the first to occur of the following: (a) The acquisition by any individual, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-three percent (33%) or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions of common stock shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege or by one person or a group of persons acting in concert), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger, statutory share exchange or consolidation which would not be a Change of Control under subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened "election contest" or other actual or threatened "solicitation" (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) of proxies or consents by or on behalf of a person other than the Incumbent Board; or (c) Consummation of a reorganization, merger, statutory share exchange or consolidation, unless, following such reorganization, merger, statutory share exchange or consolidation, (i) more than two-thirds (2/3) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, statutory share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, statutory share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, statutory share exchange or consolidation, (ii) no person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, statutory share exchange or consolidation and any person beneficially owning, immediately prior to such reorganization, merger, statutory share exchange or consolidation, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, statutory share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, statutory share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Consummation of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than two-thirds (2/3) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. EMPLOYMENT. (a) Subject to the provisions of Section 3, hereof, the Company agrees to continue to employ the Executive and the Executive agrees to remain in the employ of the Company during the Employment Term. During the Employment Term, the Executive shall be employed in such executive capacity as may be mutually agreed to by the parties. During the Employment Term, Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or assigned at any time during the twelve (12) month period immediately preceding the Effective Date, and Executive's services shall be performed at the location where Executive was employed immediately preceding the Effective Date or at any office or location less than thirty-five (35) miles from such location, unless mutually agreed to in writing by the parties. (b) Excluding periods of vacation and sick leave to which the Executive is entitled, during the Employment Term the Executive agrees to devote full time attention to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, provided that the Executive may take reasonable amounts of time to (i) serve on corporate, civil or charitable boards or committees, and (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, if such activities do not significantly interfere with the performance of the Executive's responsibilities hereunder. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of Executive's responsibilities hereunder. 4. COMPENSATION. (a) BASE SALARY. During the Employment Term, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve (12) month period immediately preceding the month in which the Effective Date occurs, including any amounts which were deferred under any plans of the Company and its affiliated companies. During the Employment Term, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (b) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Term, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve (12) full months or with respect to which the Executive has been employed by the Company for less than twelve (12) full months) bonuses paid or payable, including any amounts which were deferred under any plans of the Company and its affiliated companies, to the Executive by the Company and its affiliated companies in respect of the three (3) fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the "Recent Average Bonus"). Each such Annual Bonus shall be paid no later than seventy-five (75) days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus under any plan or arrangement of the Company allowing therefor. (c) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Term, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) BENEFIT PLANS. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) EXPENSES. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) FRINGE BENEFITS. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) OFFICE AND SUPPORT STAFF. During the Employment Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, in accordance with the most favorable of the foregoing provided to the Executive by the company and its affiliated companies at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (h) VACATION AND SICK LEAVE. During the Employment Term, the Executive shall be entitled to paid vacation and sick leave (without loss of pay) in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (i) RESTRICTIONS. As of the Effective Date, all restrictions limiting the exercise, transferability or other incidents of ownership of any outstanding award, including but not limited to restricted stock, options, stock appreciation rights, or other property or rights of the Company granted to the Executive shall lapse, and such awards shall become fully vested and be held by the Executive free and clear of all such restrictions. This provision shall apply to all such property or rights notwithstanding the provisions of any other plan or agreement, unless the effect of the application of this provision to a particular right or property would result in the loss of favorable securities law treatment for participants under the plan pursuant to which the award was granted. 5. TERMINATION OF EMPLOYMENT. During the Employment Term, the Executive's employment hereunder may be terminated under the following circumstances: (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Term. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Term (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 5 of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative, provided if the parties are unable to agree, the parties shall request the Dean of the Medical College of Wisconsin to choose such physician. (b) CAUSE. The Company may terminate the Executive's employment for "Cause". A termination for Cause is a termination evidenced by a resolution adopted in good faith by a majority of the Board that the Executive (i) willfully, deliberately and continually failed to substantially perform his duties under Section 3, above (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure constitutes gross misconduct, and results in and was intended to result in demonstrable material injury to the Company, monetary or otherwise, or (ii) committed acts of fraud and dishonesty constituting a felony, as determined by a final judgment or order of a court of competent jurisdiction, and resulting or intended to result in gain to or personal enrichment of the Executive at the Company's expense, provided, however, that no termination of the Executive's employment shall be for Cause as set forth in (i), above, until (a) Executive shall have had at least sixty (60) days to cure any conduct or act alleged to provide Cause for termination after a written notice of demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) GOOD REASON. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c)(1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason or for no reason during the sixty (60) day period commencing on the date six (6) months after the Effective Date shall be deemed to be a termination by the Executive for Good Reason for all purposes of this Agreement. (d) VOLUNTARY TERMINATION. The Executive may voluntarily terminate his employment hereunder at any time. (e) NOTICE OF TERMINATION. Any purported termination by the Company or by the Executive (other than by death of the Executive) shall be communicated by Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) the Termination Date. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) TERMINATION DATE, ETC. "Termination Date" shall mean in the case of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination subject to the following: (1) If the Executive's employment is terminated by the Company, the date specified in the Notice of Termination shall be at least thirty (30) days after the date the Notice of Termination is given to the Executive, provided, however, that in the case of Disability, the Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; (2) If the Executive's employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days after the date the Notice of Termination is given to the Company; and (3) In the event that within thirty (30) days following the date of receipt of the Notice of Termination, one party notifies the other that a dispute exists concerning the basis for termination, the Executive's employment hereunder shall not be terminated except after the dispute is finally resolved and a Termination Date is determined either by a mutual written agreement of the parties, or by a binding and final judgment order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid; and (2) The product of (x) the higher of (I) the Recent Average Bonus and (II) the Annual Bonus paid or payable, including any amount deferred, (and annualized for any fiscal year consisting of less than twelve (12) full months or for which the Executive has been employed for less than twelve (12) full months) for the most recently completed fiscal year during the Employment Term, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days completed in the current fiscal year through the Termination Date, and the denominator of which is 365. The sum of the amounts described in Clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"; B. The amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary (increased for this purpose by any Section 401(k) deferrals, cafeteria plan elections, or other deferrals that would have increased Executive's Annual Base Salary if paid in cash to Executive when earned) and (y) the Executive's Highest Annual Bonus; C. A separate lump-sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the most favorable to the Executive actuarial assumptions and Company contribution history with respect to the applicable retirement plan, incentive plans, savings plans and other plans described in Section 4(c) (or any successor plan thereto) (the "Retirement Plans") during the twelve (12) month period immediately preceding the Effective Date) of the benefit payable under the Retirement Plans and any supplemental and/or excess retirement plan providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued for an additional three (3) years after the Termination Date with annual compensation equal to the sum of the Annual Base Salary and Highest Annual Bonus, assuming for this purpose that all accrued benefits and contributions are fully vested and that benefit accrual formulas and Company contributions are no less advantageous to the Executive than those in effect during the twelve (12) month period immediately preceding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plans during the twelve (12) month period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plans and the SERP. For example, if there were a termination today this supplemental retirement benefit would be interpreted with respect to two plans in existence today as follows: (i) with respect to the Retirement Growth component of the retirement program of the Company, the Executive would receive three times eight percent (8%) (or twenty-four percent (24%)) of the sum of the Executive's Annual Base Salary (determined in accordance with subsection C of Section 6(a)(i)) and the Executive's Highest Annual Bonus; and (ii) with respect to the Incentive Savings component of the retirement plan of the Company, the Executive would receive three times the annual Company match of fifty percent (50%) of the Executive's maximum allowable contribution to the Plan assuming Executive's compensation is as set forth above; and D. The amount equal to the product of (i) three and (ii) the sum of (x) the imputed income reflected on Executive's W-2 attributable to the car provided to Executive by the Company or its affiliates for the last calendar year ending before the Effective Date and (y) the club dues for Executive paid by the Company or its affiliates attributable to such year. (ii) For thirty-six (36) months after the Termination Date, the Company shall continue to provide medical and dental benefits to the Executive and/or the Executive's family in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives who are active employees and their families as in effect from time to time thereafter; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other benefits under another employer provided plan, the medical and other benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility, provided that the aggregate coverage of the combined benefit plans is no less favorable to the Executive, in terms of amounts and deductibles and costs to him, than the coverage required hereunder. For purposes of determining eligibility of the Executive for retiree health insurance, the Executive shall be considered to have remained employed until the end of such thirty-six (36) month period and to have retired on the last day of such period. If the Executive would qualify at the end of such thirty-six (36) month period for retiree health insurance under the Company's plan guidelines as in existence on the Effective Date, the Company shall provide to the Executive and his or her spouse, for life, retiree health insurance, subsidized to at least the same percentage extent as under the Company's plan as in existence on the Effective Date. Such retiree health insurance shall provide medical benefits to the Executive and/or the Executive's spouse in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives who are active employees and their spouses as in effect from time to time thereafter; provided, however, that if the Executive and/or the Executive's spouse qualifies for coverage by Medicare or any successor program, the Company may require that the Executive and/or the Executive's spouse fully participate in Medicare and pay the premiums therefor personally. (iii) The Executive shall have the right to purchase the car provided to him by the Company or its affiliates during the twelve (12) month period immediately preceding the Effective Date, if applicable, (or a comparable car acceptable to the Executive if such car is no longer owned by the Company or its affiliates), at the book value thereof on the Termination Date, exercisable within thirty (30) days after the Termination Date; and if the car is not purchased, Executive shall return the car to the Company. (iv) The Executive shall have the option of purchasing any split dollar life insurance owned by the Company or its affiliates on the life of Executive for the Company's investment in the contract, exercisable at any time within thirty (30) days after the Termination Date; and the Company agrees during the Employment Term not to terminate, sell, transfer or otherwise dispose of any such insurance without first allowing Executive the opportunity to exercise such option. For the thirty-six (36) month period after the Termination Date, the Company shall continue to provide group term life insurance (or comparable term coverage) in the same face amount and on substantially the same terms as in effect for the Executive just prior to the Effective Time. At the end of the thirty-six (36) month period, the Executive shall have any conversion rights as regards such coverage as are provided by law. (v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive pursuant to this Agreement under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). Notwithstanding anything herein contained to the contrary, the payments and benefits provided in this Section 6(a) (other than the Accrued Obligations) shall not be paid or provided to the Executive unless and until he executes a Complete and Permanent Release (the "Release") in the form attached hereto, and the applicable period for rescission of the Release has expired. The parties agree that the Release may be expanded to include any company acquiring the Company and its affiliates as "Released Parties" as defined in the Release. (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Term, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, except that the Company shall pay or provide the Accrued Obligations, six (6) months of Annual Base Salary, and the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Termination Date. The six (6) months of Annual Base Salary shall be paid during the six (6) month period following the Termination Date on a monthly basis. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, and the Executive's family shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and any of its affiliated companies to surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to family death benefits, if any, as in effect with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their families. (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall terminate without further obligations to the Executive, except that the Company shall pay or provide the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Term, or if the Executive voluntarily terminates employment during the Employment Term for other than Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination and any other amounts earned or accrued through the Termination Date, in each case to the extent theretofore unpaid; provided that if Executive voluntarily terminates, Executive shall receive the benefits normally provided upon normal or early retirement with respect to other peer Executives and their families to the extent he qualifies therefore All salary or compensation hereunder shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination. (e) DELINQUENT PAYMENTS. If any of the payments referred to in this Section 6 are not paid within the time specified after the Termination Date (hereinafter a "Delinquent Payment"), in addition to such principal sum, the Company will pay to the Executive interest on all such Delinquent Payments computed at the prime rate as announced from time to time by M&I Marshall & Ilsley Bank, or its successor, compounded monthly. Notwithstanding the foregoing, no interest shall be due and owing as regards payments which are delayed because of Executive's failure to execute the Release or the recission thereof. (f) VACATION PAY. In consideration of all payments made by the Company to the Executive pursuant to this Agreement, the Executive hereby waives any claim he may have for accrued and unpaid vacation pay as of the Termination Date. 7. NO MITIGATION. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except to the extent set forth in Section 6(a)(ii)) whether or not the Executive obtains other employment. 8. EXCISE TAX PAYMENTS. (a) Notwithstanding anything contained in this Agreement to the contrary, in the event that any payment or distribution to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) A determination shall be made as to whether and when a Gross-Up Payment is required pursuant to this Section 8 and the amount of such Gross-Up Payment, such determination to be made within fifteen (15) business days of the Termination Date, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). Such determination shall be made by a national independent accounting firm selected by the Executive (the "Accounting Firm"). All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by the Company and the Company shall pay such fees, costs and expenses as they become due. The Accounting Firm shall provide detailed supporting calculations, acceptable to the Executive, both to the Company and the Executive. The Gross-Up Payment, if any, as determined pursuant to this Section 8(b) shall be paid by the Company to the Executive or paid by the Company on behalf of the Executive to the applicable government taxing authorities by means of payroll tax withholding if required by law or if timely requested by the Executive within five (5) business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an unqualified opinion that no Excise Tax will be imposed with respect to any such Payment or Payments. Any such initial determination by the Accounting Firm of the Gross-Up Payment shall be binding upon the Company and the Executive subject to the application of Section 8(c). (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon notice (formal or informal) to the Executive from any governmental taxing authority that the tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any prior taxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable governmental taxing authority a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the expiration of the statute of limitations with respect to the Executive's applicable tax return. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive at least five (5) business days prior to the date on which the applicable governmental taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties imposed on the Underpayment. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Company to the Executive and the Executive shall, within ten (10) business days of the occurrence of such Overpayment, pay to the Company the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Overpayment relates) was paid to the Executive. 9. UNAUTHORIZED DISCLOSURE. During the term of the Executive's employment with the Company, and during the two-year period following the Termination Date, the Executive shall not make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any confidential information obtained by the Executive while in the employ of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers or methods of operation) the disclosure of which he knows or has reason to believe will be materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 9) or any information not otherwise considered confidential by a reasonable person engaged in the same business as that conducted by the Company. Notwithstanding the foregoing, the Executive's obligation hereunder not to make any Unauthorized Disclosure shall continue after the end of the two-year period following his termination of employment with the Company as regards any information which is a trade secret as defined in Section 134.90 of the Wisconsin Statutes. In no event shall an asserted violation of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative. 11. FEES AND EXPENSES. From and after the Effective Date, the Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably incurred by the Executive as they become due as a result of (i) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive's hearing before the Board as contemplated in Section 5(b) of this Agreement, (iii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits or (iv) a dispute between the Executive and the Internal Revenue Service (or any other taxing authority) with regard to an "Underpayment" (as defined in Section 8 of this Agreement). 12. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, if to the Company, to Marshall & Ilsley Corporation, 770 North Water Street, Milwaukee, Wisconsin 53202, or if to Executive, to the address set forth below Executive's signature, or to such other address as the party may be notified, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 13. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries for which the Executive may qualify. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 14. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 15. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 16. EMPLOYMENT. The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will" and prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the company terminates, the Executive shall have no further rights under this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Wisconsin without giving effect to the conflict of law principles thereof. 18. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 20. HEADINGS. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 21. MODIFICATION. No provision of this Agreement may be modified or amended unless such modification or amendment is agreed to in writing signed by both the Executive and the Company. 22. WITHHOLDING. The Company shall be entitled to withhold from amounts paid to the Executive hereunder any federal, estate or local withholding or other taxes or charges which it is, from time to time, required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. MARSHALL & ILSLEY CORPORATION By: /s/ James B. Wigdale ____________________________________ James B. Wigdale, Chairman ATTEST: /s/ Michael A. Hatfield _____________________________________ Michael A. Hatfield, Secretary EXECUTIVE: /s/ Mark F. Furlong __________________________________ Mark F. Furlong Address: __________________________________ __________________________________ MWFurlong3yrchangec EX-12 3 ex120301.txt EXHIBIT 12 - FORM 10-Q FOR 03/31/2001 EXHIBIT 12 MARSHALL & ILSLEY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($000's)
Three Months Ended Years Ended December 31, March 31, --------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- ----------- Earnings: Earnings before income taxes, extraordinary items and cumulative effect of changes in accounting principles $ 130,901 $ 470,350 $ 527,939 $ 465,285 $ 388,172 $ 317,949 Fixed charges, excluding interest on deposits 84,185 321,812 222,172 206,546 175,609 126,261 ----------- ----------- ----------- ----------- ----------- ----------- Earnings including fixed charges but excluding interest on deposits 215,086 792,162 750,111 671,831 563,781 444,210 Interest on deposits 187,183 772,016 585,864 564,540 460,418 392,473 ----------- ----------- ----------- ----------- ----------- ----------- Earnings including fixed charges and interest on deposits $ 402,269 $ 1,564,178 $ 1,335,975 $ 1,236,371 $ 1,024,199 $ 836,683 =========== =========== =========== =========== =========== =========== Fixed Charges: Interest Expense: Short-term borrowings $ 54,101 $ 224,187 $ 142,294 $ 126,624 $ 111,193 $ 63,892 Long-term borrowings 25,371 78,773 63,145 66,810 54,175 53,615 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor) 4,713 18,852 16,733 13,112 10,241 8,754 ----------- ----------- ----------- ----------- ----------- ----------- Fixed charges excluding interest on deposits 84,185 321,812 222,172 206,546 175,609 126,261 Interest on deposits 187,183 772,016 585,864 564,540 460,418 392,473 ----------- ----------- ----------- ----------- ----------- ----------- Fixed charges including interest on deposits $ 271,368 $ 1,093,828 $ 808,036 $ 771,086 $ 636,027 $ 518,734 =========== =========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges: Excluding interest on deposits 2.55 x 2.46 x 3.38 x 3.25 x 3.21 x 3.52 x Including interest on deposits 1.48 x 1.43 x 1.65 x 1.60 x 1.61 x 1.61 x
-----END PRIVACY-ENHANCED MESSAGE-----