-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DY4aujQy4JsKBCEtp+uQo8dt8c/zIvCcPrF0xqimxlDbp9LTNlP70/7hQgesdHYb Gih69bkQG2QHeOFHSI165Q== 0000062741-94-000031.txt : 19941116 0000062741-94-000031.hdr.sgml : 19941116 ACCESSION NUMBER: 0000062741-94-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSHALL & ILSLEY CORP/WI/ CENTRAL INDEX KEY: 0000062741 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 390968604 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01220 FILM NUMBER: 94559754 BUSINESS ADDRESS: STREET 1: 770 N WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147657801 10-Q 1 10-Q FOR 09/30/94 (3RD QUARTER) FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________ Commission file number 0 - 1220 -------------------------------- MARSHALL & ILSLEY CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0968604 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 770 North Water Street Milwaukee, Wisconsin 53202 -------------------- ----- (Address of principal executive offices) (Zip Code) (414) 765 - 7801 ---------------- (Registrant's telephone number, including area code) None ---- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class October 31, 1994 ----- ---------------- Common Stock, $1.00 Par Value 93,118,497 Page 1 PART 1 - FINANCIAL INFORMATION MARSHALL & ILSLEY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's except share data)
September 30 December 31 September 30 Assets 1994 1993 1993 - ------ ------------ ------------ ------------- Cash and cash equivalents: Cash and due from banks $600,896 $667,114 $588,001 Federal funds sold and security resale agreements 164,961 49,336 54,552 Money market funds 54,219 68,184 50,075 ------------ ------------ ------------- Total cash and cash equivalents 820,076 784,634 692,628 Trading securities 4,629 2,852 11,542 Other short-term investments 43,371 50,121 58,466 Investment securities held to maturity, market value $409,498 ($341,877 December 31, and $1,022,243 September 30, 1993) 410,340 335,400 1,047,842 Investment securities available for sale at market value September 30, 1994 (amortized cost December 31 and September 30, 1993). Market value $2,261,117 and $1,588,678 at December 31 and September 30, 1993, respectively. 2,035,786 2,237,158 1,563,729 ------------ ------------ ------------- Total investment securities 2,446,126 2,572,558 2,611,571 Loans 8,910,135 8,617,372 8,374,457 Less: Allowance for loan losses 152,470 133,600 131,662 ------------ ------------ ------------- Net loans 8,757,665 8,483,772 8,242,795 Premises and equipment, net 291,365 299,801 286,967 Accrued interest and other assets 310,260 292,199 287,870 ------------ ------------ ------------- Total Assets $12,673,492 $12,485,937 $12,191,839 ============ ============ ============= Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $2,101,750 $2,290,233 $2,089,407 Interest bearing 7,522,848 7,881,576 7,662,074 ------------ ------------ ------------- Total deposits 9,624,598 10,171,809 9,751,481 Funds purchased and security repurchase agreements 977,194 515,028 706,063 Other short-term borrowings 215,455 201,688 106,098 Long-term borrowings 519,602 234,418 263,353 Accrued expenses and other liabilities 282,684 248,481 238,666 ------------ ------------ ------------- Total liabilities 11,619,533 11,371,424 11,065,661 Shareholders' equity: Series A convertible preferred stock, $1.00 par value; 348,944 shares issued (185,314 shares December 31 and September 30, 1993) 349 185 185 Common stock, $1.00 par value; 99,494,335 shares issued (102,073,005 December 31, and 101,380,212 September 30, 1993) 99,494 102,073 101,380 Additional paid-in capital 199,269 238,130 226,758 Retained earnings 901,525 897,123 867,390 Less: Treasury common stock, at cost; 6,108,518 shares (5,821,786 December 31, and 3,474,437 September 30, 1993) 126,588 121,106 67,394 Deferred compensation 1,329 1,892 2,141 Net unrealized losses on securities available for sale, net of related taxes 18,761 - - ------------ ------------ ------------- Total shareholders' equity 1,053,959 1,114,513 1,126,178 ------------ ------------ ------------- Total Liabilities and Shareholders' Equity $12,673,492 $12,485,937 $12,191,839 ============ ============ =============
See notes to financial statements. Page 2 MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except per share data) Three Months Ended September 30 ------------------------------- 1994 1993 Interest income: ------------ ------------ Loans $175,351 $161,152 Investment securities: Taxable 28,689 30,056 Exempt from Federal income taxes 4,051 4,942 Trading securities 35 42 Short-term investments 2,354 1,247 ------------ ------------ Total interest income 210,480 197,439 Interest expense: Deposits 65,296 66,906 Short-term borrowings 10,981 4,306 Long-term borrowings 8,038 6,522 ------------ ------------ Total interest expense 84,315 77,734 ------------ ------------ Net interest income 126,165 119,705 Provision for loan losses 3,655 4,400 ------------ ------------ Net interest income after provision for loan losses 122,510 115,305 Other income: Data processing services 40,045 34,847 Trust services 14,881 15,229 Other customer services 29,470 31,113 Net securities gains 210 1,585 Other 6,757 11,288 ------------ ------------ Total other income 91,363 94,062 Other expense: Salaries and employee benefits 79,941 80,498 Net occupancy 9,294 9,260 Equipment 13,775 14,607 Payments to regulatory agencies 5,842 5,788 Processing charges 5,020 4,340 Supplies and printing 4,014 3,249 Professional services 2,872 3,427 Other 21,777 21,320 ------------ ------------ Total other expense 142,535 142,489 ------------ ------------ Income before income taxes and extraordinary items 71,338 66,878 Provision for income taxes 26,446 24,343 ------------ ------------ Income before extraordinary items 44,892 42,535 Extraordinary items, net of tax ($1,087) 1,123 - ------------ ------------ Net income $46,015 $42,535 ============ ============ Net income per common share: Primary: Income before extraordinary items $0.45 $0.42 Extraordinary items 0.01 - ------------ ------------ Net income $0.46 $0.42 ============ ============ Fully Diluted: Income before extraordinary items $0.44 $0.40 Extraordinary items 0.01 - ------------ ------------ Net income $0.45 $0.40 ============ ============ Dividends paid per common share $0.15 $0.14 Weighted average common shares outstanding: Primary 100,192 102,128 Fully diluted 104,037 108,182 Page 3 MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except per share data) Nine Months Ended September 30 ------------------------------ 1994 1993 Interest income: ------------ ------------ Loans $501,090 $481,100 Investment securities: Taxable 81,795 94,502 Exempt from Federal income taxes 12,549 16,069 Trading securities 121 130 Short-term investments 5,428 4,521 ------------ ------------ Total interest income 600,983 596,322 Interest expense: Deposits 188,602 206,373 Short-term borrowings 27,972 14,221 Long-term borrowings 19,998 17,003 ------------ ------------ Total interest expense 236,572 237,597 ------------ ------------ Net interest income 364,411 358,725 Provision for loan losses 20,608 13,151 ------------ ------------ Net interest income after provision for loan losses 343,803 345,574 Other income: Data processing services 116,256 99,733 Trust services 45,015 45,921 Other customer services 89,519 90,472 Net securities gains (losses) (6,443) 4,145 Other 23,714 31,405 ------------ ------------ Total other income 268,061 271,676 Other expense: Salaries and employee benefits 246,493 236,639 Net occupancy 28,688 27,963 Equipment 44,794 42,715 Payments to regulatory agencies 17,672 17,399 Processing charges 14,443 12,682 Supplies and printing 10,636 9,819 Professional services 8,663 8,934 Merger / Restructuring 76,562 - Other 72,200 64,608 ------------ ------------ Total other expense 520,151 420,759 ------------ ------------ Income before income taxes and extraordinary items 91,713 196,491 Provision for income taxes 45,369 68,610 ------------ ------------ Income before extraordinary items 46,344 127,881 Extraordinary items, net of tax ($1,087) 1,123 - ------------ ------------ Net income $47,467 $127,881 ============ ============ Net income per common share: Primary: Income before extraordinary items $0.46 $1.24 Extraordinary items 0.01 - ------------ ------------ Net income $0.47 $1.24 ============ ============ Fully Diluted: Income before extraordinary items $0.46 $1.19 Extraordinary items 0.01 - ------------ ------------ Net income $0.47 $1.19 ============ ============ Dividends paid per common share $0.44 $0.40 Weighted average common shares outstanding: Primary 99,871 102,917 Fully diluted 104,721 109,220 Page 4 MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($000's) Nine Months Ended September 30 ----------------------------- 1994 1993 ------------ ------------ Net Cash Provided by Operating Activities $217,164 $176,724 Cash Flows From Investing Activities: Net decrease in securities with maturities of three months or less 7,696 41,600 Proceeds from sales of securities available for sale 569,264 19,737 Proceeds from maturities of longer term securities 655,982 1,295,343 Purchases of longer term securities (1,144,368) (1,053,355) Net increase in loans (406,575) (407,687) Purchases of assets to be leased (65,868) (66,775) Principal payments on lease receivables 85,043 78,047 Fixed asset purchases, net (17,190) (44,300) Other 2,560 6,692 ------------ ------------ Net cash provided by (used in) investing activities (313,456) (130,698) Cash Flows From Financing Activities: Net decrease in deposits (547,038) (290,999) Proceeds from issuance of commercial paper 1,316,256 740,437 Payments for maturity of commercial paper (1,265,722) (793,938) Net increase in other short-term borrowings 456,468 240,035 Proceeds from issuance of long-term debt 342,216 111,723 Payments of long-term debt (85,042) (44,066) Dividends paid (43,040) (40,656) Purchases of treasury stock (50,390) (59,646) Other 8,026 617 ------------ ------------ Net cash provided by (used in) financing activities 131,734 (136,493) ------------ ------------ Net increase (decrease) in cash and cash equivalents 35,442 (90,467) Cash and cash equivalents, beginning of year 784,634 783,095 ------------ ------------ Cash and cash equivalents, end of period $820,076 $692,628 ============ ============ Supplemental cash flow information: Cash paid during the period for: Interest $231,874 $191,322 Income taxes 62,690 51,550 See notes to financial statements Page 5 MARSHALL & ILSLEY CORPORATION Notes to Financial Statements September 30, 1994 & 1993 (Unaudited) 1.The accompanying unaudited consolidated financial statements should be read in conjunction with Marshall & Ilsley Corporation's ("Corporation") 1993 Annual Report on Form 10-K and the 1993 Consolidated Financial Statements restated for the merger with Valley Bancorporation on Form 8-K filed September 27, 1994. 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 and nine months ended September 30, 1994 and 1993. The results of operations for the three and nine months ended September 30, 1994 and 1993 are not necessarily indicative of results to be expected for the entire year. 2.The Corporation has 5,000,000 shares of preferred stock authorized, of which, the Board of Directors has designated 3,000,000 shares (500,000 shares in 1993) as Series A convertible, with a $100 value per share for conversion and liquidation purposes. 3.The Corporation has 160,000,000 (80,000,000 in 1993) shares of its $1.00 par value common stock authorized. 4.The Corporation's loan portfolio consists of the following ($000's): September 30 December 31 September 30 1994 1993 1993 ------------ ------------ ------------- Commercial financial & agricultural $2,757,297 $2,584,719 $2,601,812 Real estate: Construction 369,151 333,609 298,208 Residential Mortgage 2,237,621 2,223,857 2,162,864 Commercial Mortgage 2,085,258 2,000,052 1,902,850 ------------ ------------ ------------- Total real estate 4,692,030 4,557,518 4,363,922 Personal 1,202,007 1,217,513 1,156,912 Lease financing 258,801 257,622 251,811 ------------ ------------ ------------- $8,910,135 $8,617,372 $8,374,457 ============ ============ ============= 5.Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, investment securites classified as available for sale at September 30, 1994 are carried at fair value with fair value adjustments, net of their related income tax effects, reported as a component of shareholders' equity. Investment securities classifed as available for sale at December 31 and September 30, 1993, are carried at amortized cost in the accompanying consolidated balance sheets. Investment securities, by type, held by the Corporation are as follows ($000's): September 30 December 31 September 30 1994 1993 1993 ------------- ------------ ------------ Investment securities held to maturity: U.S. treasury and government agencies $111,571 - $625,463 State and Political Subdivisions 293,901 $326,154 358,607 Other 4,868 9,246 63,772 ------------ ------------ ------------- Investment securities held to maturity 410,340 335,400 1,047,842 ------------ ------------ ------------- Investment securities available for sale: U.S. treasury and government agencies 1,939,829 2,139,866 1,524,708 State and Political Subdivisions - - - Other 95,957 97,292 39,021 ------------ ------------ ------------- Investment securities available for sale 2,035,786 2,237,158 1,563,729 ------------ ------------ ------------- Total Investment Securities $2,446,126 $2,572,558 $2,611,571 ============ ============ ============= Page 6 MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's) Three Months Ended September 30 ------------------------------- 1994 1993 ------------ ------------ Assets - ------ Cash and due from banks $603,810 $627,157 Short-term investments 220,637 158,890 Trading securities 2,828 5,142 Investment securities: Taxable 2,082,981 2,214,332 Tax-exempt 350,436 395,816 ------------ ------------ Total investment securities 2,433,417 2,610,148 Loans: Commercial 2,740,144 2,566,571 Real estate 4,628,935 4,298,688 Personal 1,210,507 1,120,225 Lease financing 257,555 249,589 ------------ ------------ 8,837,141 8,235,073 Less: Allowance for loan losses 150,643 131,399 ------------ ------------ Total loans 8,686,498 8,103,674 Premises and equipment, net 287,212 286,329 Accrued interest and other assets 287,868 269,290 ------------ ------------ Total Assets $12,522,270 $12,060,630 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $2,034,549 $2,034,993 Interest bearing 7,650,352 7,752,295 ------------ ------------ Total deposits 9,684,901 9,787,288 Funds purchased and security repurchase agreements 852,973 531,539 Other short-term borrowings 145,600 82,711 Long-term borrowings 491,488 308,070 Accrued expenses and other liabilities 267,578 225,011 ------------ ------------ Total liabilities 11,442,540 10,934,619 Shareholders' equity 1,079,730 1,126,011 ------------ ------------ Total Liabilities and Shareholders' Equity $12,522,270 $12,060,630 ============ ============ Page 7 MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's) Nine Months Ended September 30 ------------------------------ 1994 1993 ------------ ------------ Assets - ------ Cash and due from banks $617,865 $604,117 Short-term investments 186,770 187,087 Trading securities 3,516 4,640 Investment securities: Taxable 2,142,275 2,233,922 Tax-exempt 356,618 414,095 ------------ ------------ 2,498,893 2,648,017 Total investment securities Loans: Commercial 2,691,077 2,578,100 Real estate 4,541,792 4,181,149 Personal 1,208,589 1,085,829 Lease financing 256,251 246,507 ------------ ------------ 8,697,709 8,091,585 Less: Allowance for loan losses 142,065 128,870 ------------ ------------ Total loans 8,555,644 7,962,715 Premises and equipment, net 288,893 278,789 Accrued interest and other assets 291,371 267,959 ------------ ------------ Total Assets $12,442,952 $11,953,324 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $2,037,499 $1,939,455 Interest bearing 7,697,795 7,743,189 ------------ ------------ Total deposits 9,735,294 9,682,644 Funds purchased and security repurchase agreements 847,039 581,551 Other short-term borrowings 129,351 83,297 Long-term borrowings 379,273 262,016 Accrued expenses and other liabilities 241,415 222,452 ------------ ------------ Total liabilities 11,332,372 10,831,960 Shareholders' equity 1,110,580 1,121,364 ------------ ------------ Total Liabilities and Shareholders' Equity $12,442,952 $11,953,324 ============ ============ Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 ______________________________________________ For the third quarter of 1994 the Corporation reported income before extraordinary items of $44.9 million compared to $42.5 million for the same period last year, an increase of 5.5%. Fully diluted earnings per share amounted to $.44, an increase of 10% when compared to the third quarter of 1993. The Corporation's return on average assets and return on shareholders' equity was 1.42% and 16.5% compared to 1.40% and 15.0% for the three months ended September 30, 1993, respectively. During the third quarter of 1994, the Corporation realized an extraordinary gain of $3.7 million resulting from certain required branch divestitures with deposits of $58.6 million. The Corporation also prepaid $53 million of long- term debt. The prepayment premium paid amounted to $1.5 million and is included in the net extraordinary gain for the quarter. This net extraordinary gain after tax increased net income $1.1 million and earnings per share by $.01. PROVISION FOR LOAN LOSSES AND CREDIT QUALITY ____________________________________________ The provision for loan losses amounted to $3.7 million in the third quarter of 1994 compared to $4.4 million for the same period a year ago. The provision level is slightly lower than that reported in the prior two quarters when adjusted for the additional provision taken for certain Valley banks in the second quarter of 1994. Nonperforming assets at September 30, 1994 were $77.0 million an increase of $7.2 million since the second quarter of 1994 and was relatively unchanged from the third quarter of 1993. All major categories of nonperforming assets reflected an increase when compared to the second quarter of 1994. Nonaccrual loans, the largest component of nonperforming assets, increased $4.6 million. All categories of nonaccrual loans reflected a modest increase. Total nonperforming loans as a percent of total loans outstanding amounted to .76% at September 30, 1994 compared to .70% at June 30, 1994 and .74% September 30, 1993. Other real estate owned (OREO) increased $1.2 million in the current quarter when compared to the second quarter of 1994. The increase was primarily due to the transfer of branch locations to be sold. Net charge offs in the third quarter of 1994 amounted to $.6 million or .02% of average loans annualized. The amount is below that reported in the second quarter of 1994 and lower than any quarter reported in 1993. Year-to-date net charge-offs amounted to $1.7 million compared to $5.3 million for the same period in 1993. The allowance for loan losses was $152.5 million or 1.71% of total loans at September 30, 1994 compared to $149.4 million at June 30, 1994 and $131.7 million at September 30, 1993. The allowance reflects the unusual charge of $8.9 million reported in the second quarter of 1994. The allowance for loan losses to total loans remains at 1.71% for the current quarter compared to the second quarter of 1994 and is above 1.57% reported in the third quarter of 1993. The following tables present certain credit quality information and statistics at September 30, 1994 as well as the previous four quarters. CONSOLIDATED CREDIT QUALITY INFORMATION ($000's) 1994 1993 _____________________________________________ Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter _____________________________________________ NONPERFORMING ASSETS Nonaccrual $53,987 $49,384 $44,571 $44,186 $49,965 Renegotiated 4,748 4,328 4,019 4,263 5,024 Past Due 90 Days or More 8,551 7,613 8,028 7,906 7,013 ________ ___________________________________ Total Nonperforming Loans 67,286 61,325 56,618 56,355 62,002 Other Real Estate Owned 9,697 8,494 12,813 12,928 14,533 ________ ___________________________________ Total Nonperforming Assets $76,983 $69,819 $69,431 $69,283 $76,535 ======== =================================== ALLOWANCE FOR LOAN LOSSES $152,470 $149,371 $137,174 $133,600 $131,662 ======== ==================================== NONACCRUAL LOANS BY TYPE Commercial Commercial, Financial & Agricultural $ 11,944 $ 11,410 $ 9,856 $ 10,055 $ 14,404 Lease Financing Receivables 2,883 2,106 2,756 2,868 3,524 ________ ___________________________________ Total Commercial 14,827 13,516 12,612 12,923 17,928 Real Estate Construction and Land Development 3,862 3,135 493 538 169 Commercial Mortgage 21,769 20,188 19,357 18,433 18,656 Residential Mortgage 10,725 10,062 9,492 9,631 10,409 ________ ___________________________________ Total Real Estate 36,356 33,385 29,342 28,602 29,234 Personal 2,804 2,483 2,617 2,661 2,803 ________ ___________________________________ Total Nonaccrual Loans $ 53,987 $ 49,384 $ 44,571 $ 44,186 $ 49,965 ======== =================================== 1994 1993 _____________________________________________ Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter _____________________________________________ NET LOAN AND LEASE CHARGE-OFFS Loan and Lease Charge-offs $ 1,993 $ 3,543 $ 2,287 $ 6,404 $ 3,613 Loan and Lease Recoveries 1,437 2,739 1,909 2,292 1,540 ________ _________________________________ Net Loan and Lease Charge-offs $ 556 $ 804 $ 378 $ 4,112 $ 2,073 ======== ================================= CONSOLIDATED STATISTICS Net Charge-offs to Average Loans Annualized 0.02% 0.04% 0.02% 0.19% 0.10% Total Nonperforming Loans to Total Loans 0.76 0.70 0.66 0.65 0.74 Total Nonperforming Assets to Total Loans and Other Real Estate Owned 0.86 0.80 0.80 0.80 0.91 Allowance for Loan Losses to Total Loans 1.71 1.71 1.59 1.55 1.57 Allowance for Loan Losses to Nonperforming Loans 227 244 242 237 212 INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS ________________________________________________________________ The following table presents a summarized view of each of the major elements of the consolidated income statement for the comparative quarters. Each of the elements is stated as a percent of the average total assets for the respective quarter and, where appropriate, is converted to a fully taxable basis. ROA 1994 1993 IMPACT ______ ______ ______ Interest Income 6.74% 6.61% 0.13% Interest Expense (2.67) (2.56) (0.11) ______ ______ ______ Net Interest Income 4.07 4.05 0.02 Provision for Loan Losses (0.12) (0.14) 0.02 Net Securities Gains 0.01 0.05 (0.04) Other Income 2.89 3.04 (0.15) Other Expense (4.52) (4.68) 0.16 ______ ______ ______ Income Before Income Taxes 2.33 2.32 0.01 Income Taxes (0.91) (0.92) 0.01 ______ ______ ______ Return on Assets (ROA) Before Net Extraordinary Credit 1.42% 1.40% 0.02% ====== ====== ====== NET INTEREST INCOME ___________________ Net interest income in the third quarter of 1994 was $126.2 million compared to $119.7 million for the same period one year ago, an increase of $6.5 million or 5.4%. This compares to net interest income of $120.7 million reported in the second quarter of 1994 and $117.5 million for the first quarter of the year. The benefit of the increase in the average volume of and yield on earning assets, together with a slight decline in the cost of interest-bearing deposits was partially offset by the increased volume of higher cost short-term and long- term borrowings fueled in part by the slow growth in deposits. In the third quarter of 1994, average earning assets increased $484.8 million or 4.4% compared to the same period one year ago. Average loan growth of $602.1 million or 7.3% was offset, in part, by a decline in average securities of $117.3 million. The growth and composition of the Corporation's quarterly average loan portfolio for the current quarter and previous four quarters are reflected below (amounts in millions): 1994 1993 _____________________________________________________ Annual Third Second First Fourth Third Growth Quarter Quarter Quarter Quarter Quarter PCT _____________________________________________________ Commercial Loans $ 2,740 $ 2,715 $ 2,616 $ 2,558 $ 2,566 6.8% Real Estate Loans Construction 343 321 331 321 282 22.0 Commercial Mortgages 2,066 2,031 2,016 1,939 1,865 10.8 Residential Mortgages 2,219 2,149 2,147 2,190 2,152 3.1 _______ _______ _______ _______ ____________ Total Real Estate Loans 4,628 4,501 4,494 4,450 4,299 7.7 Personal Loans Personal Loans 946 952 948 953 914 3.5 Student Loans 265 259 256 228 206 28.4 _______ _______ _______ _______ ____________ Total Personal Loans 1,211 1,211 1,204 1,181 1,120 8.1 Lease Financing Receivables 258 257 255 255 250 3.2 _______ _______ _______ _______ ____________ Total Consolidated Average Loans $ 8,837 $ 8,684 $ 8,569 $ 8,444 $ 8,235 7.3% ======= ======= ======= ======= ============ The composition of the Corporation's quarterly average deposits for the current quarter and prior year's quarters are as follows (amounts in millions): 1994 1993 _______________________________________________________ Annual Third Second First Fourth Third Growth Quarter Quarter Quarter Quarter Quarter PCT ______________________________________________________ Noninterest Bearing Commercial $ 1,298 $ 1,271 $ 1,270 $ 1,352 $ 1,270 2.2% Personal 432 444 426 424 405 6.7 Other 305 322 345 395 360 (15.3) _______ _______ _______ _______ _____________ Total Noninterest Bearing Deposits 2,035 2,037 2,041 2,171 2,035 -- Interest Bearing Savings & NOW 2,484 2,477 2,455 2,454 2,377 4.4 Money Market 1,495 1,481 1,523 1,574 1,534 (2.5) Other CDs & Time Deposits 3,227 3,233 3,313 3,369 3,422 (5.7) CDs Greater than $100 444 481 478 480 419 5.8 _______ _______ _______ _______ _____________ Total Interest Bearing Deposits 7,650 7,672 7,769 7,877 7,752 (1.3) _______ _______ _______ _______ _____________ Total Consolidated Average Deposits$ 9,685 $ 9,709 $ 9,810 $10,048 $ 9,787 (1.0%) ======= ======= ======= ======= ======= ====== The yield on average earning assets increased 11 basis points while the cost of interest-bearing deposits decreased 3 basis points in the third quarter of 1994 compared to the same period last year. This benefit was partially offset by an increase in short-term borrowing costs of 158 basis points. During the second quarter of 1994, the Corporation's banking subsidiaries began offering Bank Notes. The Bank Notes provide an additional funding source along with those traditionally available to our banking affiliates. During the third quarter our banking affiliates issued $124 million of Bank notes and as of September 30, 1994 the total outstanding amounted to $264 million. These notes were issued for a two-year term and have floating interest rates. Management has also developed new products such as a money market index account to attract new deposits and has put into place a nationally marketed brokered CD program. The lack of deposit growth to fund earning asset growth in the future may continue to put pressure on the margins. At September 30, 1994, the Corporation prepaid $23 million of long-term debt that was due to mature in December, 1994 and $30 million due in December, 1995. A prepayment premium of $1.5 million was paid. The debt was refinanced with lower rate medium-term notes. This refinancing will have a positive impact on the margin in the future. In April, 1993 the Corporation's Board of Directors approved a common share repurchase program which allowed for the buy back of 9 million common shares. Since the announcement, the Corporation has cumulatively repurchased 8.3 million common shares at an aggregate cost of approximately $186 million through September 30, 1994. The estimated impact of the program in the third quarter of 1994 compared to the same period last year was to increase interest expense by approximately $1.3 million. At the present time, the Corporation is not involved in any significant or complex derivative product arrangements. Yield & Cost Analysis 1994 1993 ($000's) _________________________________________________________ Average Average Average Yield or Average Yield or Balance Interest Cost Balance Interest Cost _________________________________________________________ Loans $ 8,837,141 $175,864 7.90% $ 8,235,073 $161,626 7.79% Investment Securities: Taxable 2,082,981 28,689 5.46 2,214,332 30,056 5.39 Tax Exempt 350,436 5,948 6.73 395,816 7,987 8.01 Other Short-term Investments 223,465 2,397 4.26 164,032 1,296 3.13 ____________________ _____ ____________________ _____ Total Interest Earning Assets $11,494,023 $212,898 7.35% $11,009,253 $200,965 7.24% ==================== ===== ==================== ===== Money Market Savings $ 1,495,494 $ 10,597 2.81% $ 1,533,690 $ 9,525 2.46% Regular Savings & NOW 2,484,315 11,708 1.87 2,377,475 13,613 2.27 Other CDs & Time Deposits 3,226,718 38,006 4.67 3,421,799 39,294 4.56 CD's Greater than $100 443,825 4,985 4.46 419,331 4,474 4.23 ____________________ _____ ____________________ _____ Total Interest Bearing Deposits 7,650,352 65,296 3.39 7,752,295 66,906 3.42 Short-term Borrowings 998,573 10,981 4.36 614,250 4,306 2.78 Long-term Borrowings 491,488 8,038 6.49 308,070 6,522 8.40 ____________________ _____ ____________________ _____ Total Interest Bearing Liabilities $ 9,140,413 $ 84,315 3.66% $ 8,674,615 $77,734 3.56% ==================== ===== ==================== ===== Net Interest Margin (FTE) as a Percent of Average Earning Assets $128,583 4.44% $123,231 4.44% ======== ===== ======== ===== OTHER INCOME ____________ Total other income was $91.4 million for the third quarter of 1994, a decline of $2.7 million or 2.9% when compared to $94.1 million earned in the third quarter of 1993. Fees from data processing services grew $5.2 million or 14.9% and amounted to $40.0 million this quarter compared to $34.8 million for the same period last year. This increase was due primarily to processing revenue. Lower security gains realized in the third quarter of 1994 compared to the same period last year resulted in a decline of $1.4 million. Trust fees declined $.3 million or 2.3% due to lack of continued growth. Fees from other customer services declined 5.3% or $1.6 million primarily due to a decrease in service charges on deposit accounts. Other income decreased $4.5 million or 40.1% this quarter compared to the same quarter last year. The decline in revenue from the origination and sale of mortgage loans to the secondary market continues to account for the majority of the decrease. OTHER EXPENSE _____________ Total other expense for the third quarter of 1994 remained relatively unchanged from the same period a year ago. A majority of the expense categories reflected a decrease or a modest increase when compared to the third quarter of 1993. As noted in the prior quarter, a restructuring/merger charge related to the Valley merger was recorded. This $76.6 million charge reflected the costs associated with a reduction in work force, the write off of duplicate computer and software costs and other one-time costs. The decline in salaries and benefits expense, equipment and professional services expense reflects the cost savings achieved through the merger. Processing charges and supplies expense were not significantly affected by the merger. The other miscellaneous expense category is affected by the capitalization of costs, net of amortization, associated with software development and data processing conversions. During the third quarter of 1994, the amount of cost capitalized, net of amortization, was greater than the amount recorded in the third quarter of 1993 by approximately $.4 million. As noted in prior discussions, M&I Data Services, the Corporation's data processing subsidiary (DSI) has been a large contributor to the Corporation's overall expense growth. As part of the Valley merger, Valley's data processing and operations subsidiary, which performed data processing and operational functions for their affiliated companies only, was merged into DSI. While DSI continues to grow and expand, the merger efficiencies have resulted in DSI's expenses remaining relatively unchanged for the third quarter of 1994 when compared to the same period one year ago. While no assurances can be made, the estimated annual Corporate cost savings to be achieved by the combined companies budgeted in 1995 is estimated to be approximately $36 million. Management estimates at this time that approximately 40% of the annual cost savings will be achieved in 1994. INCOME TAXES ____________ The income tax provision for the three months ended September 30, 1994 amounted to $26.4 million compared to $24.3 million for the three months ended September 30, 1993. The effective tax rate remained relatively unchanged. NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 _____________________________________________ For the nine months ended September 30, 1994 the Corporation recorded net income of $47.5 million compared to $127.9 million for the nine months ended September 30, 1993. Fully diluted net income per share amounted to $.47 compared to $1.19 for the prior year. Net income for the nine months ended September 30, 1994 would have been $122.5 million and fully diluted net income per share would have amounted to $1.18 per share had the $76.1 million of unusual charges not been recorded in the second quarter of 1994 and the net extraordinary credit of $1.1 million reported in the third quarter of 1994 not been realized. The decline in operating earnings was due to lower realized net securities gains and higher net noninterest expenses. The following table summarizes the unusual items reported in the second quarter of 1994. After-Tax Charge _____________ Recognition of $76.6 million merger/restructuring charge $59.5 million Additional loan loss provisions of $8.9 million 5.8 million Security losses of $7.3 million 4.6 million Other miscellaneous charges of $8.5 million 6.2 million _____________ $76.1 million ============= The table below summarizes the merger/restructuring charge recorded at June 30, 1994 (amounts in millions): MERGER/RESTRUCTURING CHARGES Executive Contracts $26.4 Employee Severance Costs 14.9 Computer and Software 12.7 System Conversion Costs 2.9 Facilities and Equipment 4.2 Investment Advisors 3.4 Accounting, Legal and Other Professional Fees 3.9 Other 8.2 ______ $76.6 ====== The executive contract accrual of $26.4 million represents the present value of the amounts due to certain Valley executives under their former employment contracts. As of September 30, 1994, $10.3 million had been paid and the remaining liability is expected to be paid beginning in 1997. As part of the on-going merger and restructuring, the Corporation anticipates a reduction in its work force. As of June 30, the Corporation accrued the severance costs for all employees who have been formally notified of job loss and the costs associated with other identified employees who have not been notified. The severance policy, which has been distributed to all employees, generally provides for a minimum of 2 weeks of severance payments up to a maximum of 52 weeks depending upon years of service and job classification with certain adjustments if subsequent employment is found during the severance period. The computer and software charge represents the write-off of Valley's capitalized costs associated with its own internal data processing function. The systems conversion cost estimate of $2.9 million is the cost associated with the one time conversion and standardization of Valley's records to M&I's data processing systems. As part of the merger, duplicative branch offices and other corporate facilities will be sold or leases terminated. In addition, certain excess furniture and equipment will also be disposed of. The estimated loss on lease terminations and equipment disposals amounted to $4.2 million. The estimated net gain on sale of excess facilities, which is not considered to be significant, will be recorded when realized. Investment advisor, accounting, legal and other professional fees present amounts incurred to consummate the mergers. Other miscellaneous charges amounted to $8.2 million and included a $3.2 million charge associated with the curtailment of Valley's defined benefit pension plan at May 31, 1994. Beginning in June, 1994 former Valley employees became eligible to participate in M&I's defined contribution pension plan. Also included were costs to eliminate duplicate customer accounts, unusable capitalized inventory costs and write-offs of other costs not deemed to be realizable due to the merger. As part of the approval of the merger, certain branch divestitures were required by the regulatory agencies. These required branch divestitures with deposits of approximately $250 million along with the resulting approximate net gain of $24 million, will be recorded when realized. It is not anticipated that these sales will have a material impact on the financial condition of the company. The Corporation also increased the loan loss provision at several former Valley banks in order to raise their reserve levels to be more in line with the M&I Banks. The additional provision of $8.9 million increased Valley's allowance for loan loss to nonperforming loan ratio from 164% to 195% at June 30. It is not anticipated that this one-time increase in provision levels will result in lower provision levels in the future. Security losses of $7.3 million were realized in the second quarter of 1994 to reposition our balance sheet in light of current interest rates. Approximately $568 million of securities with a remaining average maturity of one year were sold. The proceeds were reinvested in higher yielding securities with an average maturity of less than two years. The securities sold were classified as available for sale, therefore, the resulting realized loss has no impact on shareholders' equity. Other miscellaneous charges included a goodwill asset adjustment of $2.7 million, other real estate write-downs of $1.8 million and other accrual related adjustments such as professional fees not resulting from the merger/restructuring. CAPITAL RESOURCES _________________ During the third quarter, the Board of Directors approved an increase in the number of common shares that can be repurchased for the common share buy back program originally announced in 1993. The number of shares authorized increased from 9 million to 15.1 million. The cost of the common shares to be purchased in 1995 is expected to be funded primarily through operations. Shareholders' equity to total assets was 8.32% at September 30, 1994. The Corporation continues to have a strong capital base and its regulatory capital ratios remain significantly above the defined minimum regulatory ratios as shown in the following tables as of September 30, 1994. RISK-BASED CAPITAL RATIOS ($ in thousands) Amount Ratio __________ ______ Tier 1 capital $1,024,010 10.83% Tier 1 capital minimum requirement 378,062 4.00 __________ ______ Excess $ 645,948 6.83% ========== ====== Total capital $1,262,809 13.36% Total capital minimum requirement 756,125 8.00 __________ ______ Excess $ 506,684 5.36% ========== ====== Risk-adjusted assets $9,451,561 LEVERAGE RATIO ($ in millions) Amount Ratio ___________________ ____________ Tier 1 capital to adjusted total assets $ 1,024,010 8.20% Minimum leverage requirement (1) 374,660 - 624,433 3.00 - 5.00 ___________________ ____________ Excess $ 649,350 - 399,577 5.20 - 3.20% =================== ============ Adjusted average total assets $12,488,654 (1) The 3% Ratio Shown is effective for banking organizations which have received the top bank rating from their principal federal banking regulator. Organizations receiving lower ratings are required to meet a higher minimum Leverage Ratio of between 4% and 5%. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders ____________________________________________________________ A. The Corporation held its Annual Meeting of Shareholders on August 23, 1994. B. Votes cast for items presented for consideration and approval are as follows: 1) To approve the Marshall & Ilsley Corporation 1994 Long-Term Incentive Plan. For 72,889,061 Against 6,217,333 Abstain 2,734,695 Withheld 0 Broker Non-Vote 0 2) To elect seven Directors to serve until the 1997 Annual Meeting of Shareholders. For Withheld Richard A. Abdoo 80,616,925 1,224,164 Wendell F. Bueche 80,724,434 1,116,655 G. H. Gunnlaugsson 80,704,033 1,137,056 Peter M. Platten III 79,789,954 2,051,135 J. B. Wigdale 80,721,043 1,120,046 James O. Wright 80,581,008 1,260,081 Jack F. Kellner 80,465,761 1,375,328 There were no votes against, abstentions, or broker non-votes for any of the individual Candidates. The continuing directors of the Corporation are: Mr. Chait Mr. Francke Mr. Kuester Mr. Zuehlke Mr. Bolduc Mr. Puelicher Mr. Kress Mr. Tisdale Mr. Meyer, Jr. Mr. Boldt Mr. O'Hare Mr. Jacobs Mr. Orr Item 6 - Exhibits and Reports on Form 8-K _________________________________________ A. Exhibits Exhibit 11 - Statements - Computation of Earnings Per Share Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K The Corporation filed the 1993 restated Consolidated Financial Statements reflecting the merger with Valley Bancorporation on Form 8-K, filed September 27, 1994. 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 November 14, 1994 EX-11 2 EXHIBIT 11/EARNINGS PER SHARE/10Q FOR 09/30/94 MARSHALL & ILSLEY CORPORATION EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE ($000's except per share data) Three Months Ended September 30 ------------------------------- PRIMARY 1994 1993 - ------- ------------ ------------ Earnings: Income before extraordinary items $44,892 $42,535 Extraordinary items 1,123 - ------------ ------------ Net income $46,015 $42,535 ============ ============ Shares: Weighted average number of common shares outstanding 94,923 98,279 Additional shares relating to: Convertible preferred stock 3,833 1,963 Stock options outstanding (a) 1,401 1,886 Stock options exercised (c) 35 - ------------ ------------ Total average primary shares outstanding 100,192 102,128 ============ ============ PRIMARY EARNINGS PER SHARE: Income before extraordinary items $0.45 $0.42 Extraordinary items 0.01 - ------------ ------------ Net income $0.46 $0.42 ============ ============ FULLY DILUTED - ------------- Earnings: Income before extraordinary items $44,892 $42,535 Add: Interest on convertible notes, net of income tax effect 465 697 ------------ ------------ Earnings before extraordinary items, as adjusted 45,357 43,232 Extraordinary items 1,123 - ------------ ------------ Total earnings as adjusted $46,480 $43,232 ============ ============ Shares: Weighted average number of common shares outstanding 94,923 98,279 Additional shares relating to: Convertible preferred stock 3,833 1,963 Stock options outstanding (b) 1,401 2,146 Stock options exercised (c) 35 - Assumed conversion of convertible notes 3,845 5,794 ------------ ------------ Total average fully diluted shares outstanding 104,037 108,182 ============ ============ FULLY DILUTED EARNINGS PER SHARE: Income before extraordinary items $0.44 $0.40 Extraordinary items 0.01 - ------------ ------------ Net income $0.45 $0.40 ============ ============ Notes: - ------ (a) Based on the treasury stock method using average market price. (b) Based on the treasury stock method using period-end market price or average market price, whichever is higher. (c) Based on the treasury stock method using market price at date of exercise. MARSHALL & ILSLEY CORPORATION EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE ($000's except per share data) Nine Months Ended September 30 ------------------------------ PRIMARY 1994 1993 - ------- ------------ ------------ Earnings: Income before extraordinary items $46,344 $127,881 Extraordinary items 1,123 - ------------ ------------ Net income $47,467 $127,881 ============ ============ Shares: Weighted average number of common shares outstanding 95,485 98,953 Additional shares relating to: Convertible preferred stock 2,847 1,963 Stock options outstanding (a) 1,421 2,001 Stock options exercised (c) 118 - ------------ ------------ Total average primary shares outstanding 99,871 102,917 ============ ============ PRIMARY EARNINGS PER SHARE: Income before extraordinary items $0.46 $1.24 Extraordinary items 0.01 - ------------ ------------ Net income $0.47 $1.24 ============ ============ FULLY DILUTED - ------------- Earnings: Income before extraordinary items $46,344 $127,881 Add: Interest on convertible notes, net of income tax effect 1,582 2,099 ------------ ------------ Earnings before extraordinary items, as adjusted 47,926 129,980 Extraordinary items 1,123 - ------------ ------------ Total earnings as adjusted $49,049 $129,980 ============ ============ Shares: Weighted average number of common shares outstanding 95,485 98,953 Additional shares relating to: Convertible preferred stock 2,847 1,963 Stock options outstanding (b) 1,441 2,472 Stock options exercised (c) 118 - Assumed conversion of convertible notes 4,830 5,832 ------------ ------------ Total average fully diluted shares outstanding 104,721 109,220 ============ ============ FULLY DILUTED EARNINGS PER SHARE: Income before extraordinary items $0.46 $1.19 Extraordinary items 0.01 - ------------ ------------ Net income $0.47 $1.19 ============ ============ Notes: - ------ (a) Based on the treasury stock method using average market price. (b) Based on the treasury stock method using period-end market price or average market price, whichever is higher. (c) Based on the treasury stock method using market price at date of exercise. EX-12 3 EXHIBIT 12/RATIO OF EARNINGS TO FIXED CHARGES/10-Q FOR 09/30/94 EXHIBIT 12 MARSHALL & ILSLEY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($OOO's) 9 Months Sept 30 EARNINGS 1994 1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- --------- Earnings before income taxes, extraordinary items and cumulative effect of changes in principles $91,713 $264,584 $231,792 $186,738 $143,192 $161,140 Fixed charges, excluding interest on deposits 53,175 47,905 50,687 66,641 85,234 102,398 --------- --------- --------- --------- --------- --------- Earnings including fixed charges but excluding interest on deposits 144,888 312,489 282,479 253,379 228,426 263,538 Interest on deposits 188,602 272,100 334,443 448,757 466,537 426,008 --------- --------- --------- --------- --------- --------- Earnings including fixed charges and interest on deposits $333,490 $584,589 $616,922 $702,136 $694,963 $689,546 ========= ========= ========= ========= ========= ========= FIXED CHARGES: Interest Expense: Borrowings: Short-term $27,972 $18,010 $17,606 $32,065 $56,849 $74,831 Long-term 19,998 23,088 26,439 27,770 22,524 22,057 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor) 5,205 6,807 6,642 6,806 5,861 5,510 --------- --------- --------- --------- --------- --------- Fixed charges excluding interest on deposits 53,175 47,905 50,687 66,641 85,234 102,398 Interest on Deposits 188,602 272,100 334,443 448,757 466,537 426,008 --------- --------- --------- --------- --------- --------- Fixed charges including interest on deposits $241,777 $320,005 $385,130 $515,398 $551,771 $528,406 ========= ========= ========= ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES Excluding interest on deposits 2.72 x 6.52 x 5.57 x 3.80 x 2.68 x 2.57 x Including interest on deposits 1.38 x 1.83 x 1.60 x 1.36 x 1.26 x 1.30 x EX-27 4 EXHIBIT 27/10-Q DATED 09/30/94
9 1,000 YEAR DEC-31-1994 SEP-30-1994 600,896 7,522,848 164,961 4,629 2,035,786 410,340 409,498 8,910,135 152,470 12,673,492 9,624,598 1,192,649 282,684 519,602 0 349 99,494 954,116 12,673,492 501,090 94,344 5,549 600,983 188,602 236,572 364,411 20,608 (6,443) 520,151 91,713 46,344 1,123 0 47,467 0.47 0.47 4.36 53,987 8,551 4,748 67,286 133,600 7,823 6,085 152,470 152,470 0 0
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