-----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, LeTul1fzRshd3ROL/SVYI14wgGd+O31fIBzrUxD2U+YJVa4xVO0tayZNQ8muSfqp m4cj0b3xvQGRZOzEoTqqog== 0000062741-98-000065.txt : 19981118 0000062741-98-000065.hdr.sgml : 19981118 ACCESSION NUMBER: 0000062741-98-000065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 000-01220 FILM NUMBER: 98750538 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 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 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, 1998 ------------------------------------------------- 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, 1998 ----- ---------------- Common Stock, $1.00 Par Value 106,065,959 MARSHALL & ILSLEY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's except share data)
September 30, December 31, September 30, Assets 1998 1997 1997 - ------ ------------------------------------------ Cash and cash equivalents: Cash and due from banks $ 596,478 $ 817,491 $ 809,321 Federal funds sold and security resale agreements 51,498 34,586 99,358 Money market funds 280,952 65,986 49,458 ------------------------------------------ Total cash and cash equivalents 928,928 918,063 958,137 Investment Securities: Trading securities 57,219 43,644 39,303 Short-term investments, available for sale 49,796 37,018 43,289 Other available for sale at market value 4,359,883 4,208,616 3,188,488 Held to maturity, market value $1,099,744 ($1,203,872 December 31, and $1,128,632 September 30, 1997) 1,058,452 1,176,688 1,109,218 ------------------------------------------ Total investment securities 5,525,350 5,465,966 4,380,298 Loans and leases 13,729,765 13,101,912 10,814,322 Less: Allowance for loan and lease losses 218,706 208,651 163,690 ------------------------------------------ Net loans and leases 13,511,059 12,893,261 10,650,632 Premises and equipment, net 360,096 351,423 331,021 Accrued interest and other assets 882,748 873,445 432,998 ------------------------------------------ Total Assets $ 21,208,181 $ 20,502,158 $ 16,753,086 ========================================== Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,629,976 $ 2,753,320 $ 2,501,039 Interest bearing 11,866,461 12,267,008 9,459,592 ------------------------------------------ Total deposits 14,496,437 15,020,328 11,960,631 Funds purchased and security repurchase agreements 2,298,997 1,486,663 1,714,538 Other short-term borrowings 847,033 658,597 671,592 Accrued expenses and other liabilities 504,494 516,779 426,457 Long-term borrowings 866,563 797,362 501,450 ------------------------------------------ Total liabilities 19,013,524 18,479,729 15,274,668 Shareholders' equity: Series A convertible preferred stock, $1.00 par value; 685,314 shares issued 685 685 685 Common stock, $1.00 par value; 112,757,546 shares issued (113,185,374 December 31, and 103,377,331 September 30, 1997) 112,757 113,185 103,377 Additional paid-in capital 610,577 620,899 208,035 Retained earnings 1,605,680 1,460,646 1,407,692 Less: Treasury common stock, at cost; 6,581,090 shares (7,765,169 December 31, and 10,621,925 September 30, 1997) 186,692 215,787 282,069 Deferred compensation 15,321 9,297 3,259 Net unrealized gains on securities available for sale, net of related taxes 66,971 52,098 43,957 ------------------------------------------ Total shareholders' equity 2,194,657 2,022,429 1,478,418 ------------------------------------------ Total Liabilities and Shareholders' Equity $ 21,208,181 $ 20,502,158 $ 16,753,086 ========================================== See notes to financial statements.
MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except per share data) Three Months Ended September 30, -------------------------------- Interest income 1998 1997 - --------------- ---------------------------- Loans and leases $ 274,529 $ 223,275 Investment securities: Taxable 71,421 56,501 Exempt from Federal income taxes 13,345 11,268 Trading securities 657 506 Short-term investments 2,557 2,470 ---------------------------- Total interest income 362,509 294,020 Interest expense - ---------------- Deposits 142,183 111,071 Short-term borrowings 34,085 27,765 Long-term borrowings 16,774 11,900 ---------------------------- Total interest expense 193,042 150,736 ---------------------------- Net interest income 169,467 143,284 Provision for loan and lease losses 4,769 4,348 ---------------------------- Net interest income after provision for loan and lease losses 164,698 138,936 Other income - ------------ Data processing services 102,205 86,653 Trust services 23,807 20,072 Other customer services 38,146 34,092 Net securities gains 3,568 196 Other 15,975 13,664 ---------------------------- Total other income 183,701 154,677 Other expense - ------------- Salaries and employee benefits 131,217 113,724 Net occupancy 11,271 10,070 Equipment 26,212 22,148 Software expenses 5,591 5,037 Payments to regulatory agencies 1,193 776 Processing charges 6,190 6,812 Supplies and printing 4,430 3,828 Professional services 6,049 4,434 Other 33,633 28,907 ---------------------------- Total other expense 225,786 195,736 ---------------------------- Income before income taxes 122,613 97,877 Provision for income taxes 42,458 33,097 ---------------------------- Net income $ 80,155 $ 64,780 ============================ Net income per common share - --------------------------- Basic $ 0.74 $ 0.68 Diluted 0.70 0.63 Dividends paid per common share $ 0.220 $ 0.200 Weighted average common shares outstanding: Basic 106,043 92,486 Diluted 115,329 102,273 See notes to financial statements. MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($000's except per share data) Nine Months Ended September 30, ------------------------------- Interest income 1998 1997 - --------------- ---------------------------- Loans and leases $ 811,904 $ 646,399 Investment securities: Taxable 215,691 168,877 Exempt from Federal income taxes 38,516 31,916 Trading securities 1,684 1,493 Short-term investments 7,548 8,391 ---------------------------- Total interest income 1,075,343 857,076 Interest expense - ---------------- Deposits 426,221 319,396 Short-term borrowings 96,806 80,664 Long-term borrowings 50,235 35,867 ---------------------------- Total interest expense 573,262 435,927 ---------------------------- Net interest income 502,081 421,149 Provision for loan and lease losses 14,502 13,155 ---------------------------- Net interest income after provision for loan and lease losses 487,579 407,994 Other income - ------------ Data processing services 298,131 249,074 Trust services 67,314 57,801 Other customer services 114,244 96,351 Net securities gains 18,262 1,362 Other 49,544 30,475 ---------------------------- Total other income 547,495 435,063 Other expense - ------------- Salaries and employee benefits 387,204 332,069 Net occupancy 33,260 30,782 Equipment 76,148 65,382 Software expenses 15,659 14,294 Payments to regulatory agencies 3,704 2,335 Processing charges 18,443 19,573 Supplies and printing 13,722 12,389 Professional services 16,308 12,769 Merger /Restructuring 23,373 -- Other 110,121 80,242 ---------------------------- Total other expense 697,942 569,835 ---------------------------- Income before income taxes 337,132 273,222 Provision for income taxes 119,279 91,702 ---------------------------- Net income $ 217,853 $ 181,520 ============================ Net income per common share - --------------------------- Basic $ 2.01 $ 1.92 Diluted 1.89 1.78 Dividends paid per common share $ 0.640 $ 0.585 Weighted average common shares outstanding: Basic 105,758 92,443 Diluted 115,270 102,259 See notes to financial statements. MARSHALL & ILSLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($000's) Nine Months Ended September 30, ------------------------------- 1998 1997 ---------------------------- Net Cash Provided by Operating Activities $ 259,838 $ 233,956 Cash Flows From Investing Activities: - ------------------------------------- Net increase in securities with maturities of three months or less (12,500) (200) Proceeds from sales of securities available for sale 149,995 432,140 Proceeds from maturities of longer term securities 1,098,190 495,489 Purchases of longer term securities (987,206) (979,461) Net increase in loans (893,358) (874,029) Purchases of assets to be leased (207,141) (191,029) Principal payments on lease receivables 172,863 131,865 Fixed asset purchases, net (48,705) (44,025) Other 11,448 9,166 ---------------------------- Net cash used in investing activities (716,414) (1,020,084) ---------------------------- Cash Flows From Financing Activities: - ------------------------------------- Net increase (decrease) in deposits (523,891) 314,058 Proceeds from issuance of commercial paper 542,348 299,710 Payments for maturity of commercial paper (641,501) (208,507) Net increase in other short-term borrowings 1,215,977 502,844 Proceeds from issuance of long-term debt 85,886 123,026 Payments of long-term debt (139,539) (214,600) Dividends paid (72,215) (57,066) Purchases of treasury stock (13,296) (48,751) Other 13,672 16,535 ---------------------------- Net cash provided by financing activities 467,441 727,249 ---------------------------- Net increase (decrease) in cash and cash equivalents 10,865 (58,879) Cash and cash equivalents, beginning of year 918,063 1,017,016 ---------------------------- Cash and cash equivalents, end of period $ 928,928 $ 958,137 ============================ Supplemental cash flow information: - ----------------------------------- Cash paid during the period for: Interest $ 577,029 $ 423,511 Income taxes 101,812 73,752 See notes to financial statements. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements September 30, 1998 & 1997 (Unaudited) 1. The accompanying unaudited consolidated financial statements should be read in conjunction with Marshall & Ilsley Corporation's ("Corporation") 1997 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 and nine months ended September 30, 1998 and 1997. The results of operations for the three and nine months ended September 30, 1998 and 1997 are not necessarily indicative of results to be expected for the entire year. Certain amounts in the 1997 consolidated financial statements and analyses have been reclassified to conform with the 1998 presentation. 2. The Corporation has 5,000,000 shares of preferred stock authorized, of which the Board of Directors has designated 2,000,000 shares as Series A convertible, with a $100 value per share for conversion and liquidation purposes. The Corporation has 160,000,000 shares of its $1.00 par value common stock authorized. 3. 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 September 30, 1998 ------------------------------------- Per Income Average Shares Share (Numerator)(Denominator) Amount --------------------------------- Net Income $ 80,155 Convertible Preferred Dividends (1,689) ---------- Basic Earnings Per Share Income Available to Common Shareholders $ 78,466 106,043 $ 0.74 Effect of Dilutive Securities Convertible Preferred Stock 1,689 7,677 Stock Options and Restricted Stock Plans -- 1,609 ---------- ------------ Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 80,155 115,329 $ 0.70 Three Months Ended September 30, 1997 ------------------------------------- Per Income Average Shares Share (Numerator)(Denominator) Amount --------------------------------- Net Income $ 64,780 Convertible Preferred Dividends (1,535) ---------- Basic Earnings Per Share Income Available to Common Shareholders $ 63,245 92,486 $ 0.68 Effect of Dilutive Securities Convertible Preferred Stock 1,535 7,677 Stock Options, Restricted Stock and Performance Plan -- 2,110 ---------- ------------ Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 64,780 102,273 $ 0.63 MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued September 30, 1998 & 1997 (Unaudited) Nine Months Ended September 30, 1998 ------------------------------------ Per Income Average Shares Share (Numerator)(Denominator) Amount --------------------------------- Net Income $ 217,853 Convertible Preferred Dividends (4,913) ---------- Basic Earnings Per Share Income Available to Common Shareholders $ 212,940 105,758 $ 2.01 Effect of Dilutive Securities Convertible Preferred Stock 4,913 7,677 Stock Options and Restricted Stock Plans -- 1,835 ---------- ------------ Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 217,853 115,270 $ 1.89 Nine Months Ended September 30, 1997 ------------------------------------ Per Income Average Shares Share (Numerator)(Denominator) Amount --------------------------------- Net Income $ 181,520 Convertible Preferred Dividends (4,135) ---------- Basic Earnings Per Share Income Available to Common Shareholders $ 177,385 92,443 $ 1.92 Effect of Dilutive Securities Convertible Preferred Stock 4,135 7,051 8.5% Convertible Debt 232 627 Stock Options, Restricted Stock and Performance Plans -- 1,978 Forward Repurchase Contract -- 160 ---------- ------------ Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions $ 181,752 102,259 $ 1.78 MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued September 30, 1998 & 1997 (Unaudited) 4. Selected investment securities, by type, held by the Corporation are as follows ($000's):
September 30, December 31, September 30 1998 1997 1997 ------------------------------------------ Other investment securities available for sale: U.S. treasury and government agencies $ 3,990,061 $ 3,880,813 $ 3,016,852 State and political subdivisions 1,434 487 298 Other 368,388 327,316 171,338 ------------------------------------------ Other available for sale $ 4,359,883 $ 4,208,616 $ 3,188,488 ========================================== Investment securities held to maturity: U.S. treasury and government agencies $ -- $ 168,665 $ 148,579 State and political subdivisions 1,054,152 925,644 878,025 Other 4,300 82,379 82,614 ------------------------------------------ Held to maturity $ 1,058,452 $ 1,176,688 $ 1,109,218 ==========================================
5. The Corporation's loan and lease portfolio consists of the following ($000's):
September 30, December 31, September 30 1998 1997 1997 ------------------------------------------ Commercial, financial & agricultural $ 4,007,022 $ 3,395,227 $ 3,269,988 Real estate: Construction 419,520 458,671 413,810 Residential Mortgage 3,985,730 4,146,416 2,923,711 Commercial Mortgage 3,591,558 3,450,896 2,650,774 ------------------------------------------ Total real estate 7,996,808 8,055,983 5,988,295 Personal 1,167,002 1,161,608 1,135,723 Lease financing 558,933 489,094 420,316 ------------------------------------------ $ 13,729,765 $ 13,101,912 $ 10,814,322 ==========================================
MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued September 30, 1998 & 1997 (Unaudited) 6. The Corporation's deposit liabilities consists of the following ($000's):
September 30, December 31, September 30 1998 1997 1997 ------------------------------------------ Noninterest bearing demand $ 2,629,976 $ 2,753,320 $ 2,501,039 Savings and NOW 6,348,828 5,858,845 4,648,179 Other time deposits $100 and over 1,602,204 1,463,643 1,347,485 Other time deposits under $100 3,915,429 4,944,520 3,463,928 ------------------------------------------ $ 14,496,437 $ 15,020,328 $ 11,960,631 ==========================================
7. On March 31, 1997, $16.8 million of the Corporation's 8.5% convertible subordinated notes were converted by the holder into 1,922,114 shares of the Corporation's common stock. The common stock acquired by conversion of the notes was exchanged for 168,185 shares of the Corporation's Series A convertible preferred stock. This is a noncash transaction for purposes of the Consolidated Statements of Cash Flows. 8. The accompanying unaudited consolidated financial statements have been restated to give effect to the merger of Advantage Bancorp, Inc. ("Advantage") with and into the Corporation. Certain adjustments have been made to conform the presentation of Advantage's financial information with that of the Corporation. In accordance with the terms of the merger, which was consummated April 1, 1998, each share of Advantage Common Stock was converted into a right to receive 1.2 shares of the Corporation's Common Stock (approximately 4.0 million shares) in a tax-free reorganization which was accounted for as a pooling of interests. Net interest income and net income of the previously separate enterprises for the three months ended March 31, 1998 prior to the consummation of the merger and a reconciliation of the net interest income and net income of the Corporation as previously reported for the three months and nine months ended September 30, 1997 to the amounts for those periods in the accompanying consolidated financial statements as restated for the pooling of interests are as follows ($000's): Three Three Nine Months Months Months Ended Ended Ended March 31, September 30, September 30, 1998 1997 1997 ---------------------------------------- Net interest income: Corporation $ 156,637 $ 135,518 $ 398,400 Advantage Bancorp 7,964 7,766 22,749 ------------ ------------ ------------ Combined $ 164,601 $ 143,284 $ 421,149 ============ ============ ============ Net income: Corporation $ 72,931 $ 61,864 $ 173,285 Advantage Bancorp 2,575 2,916 8,235 ------------ ------------ ------------ Combined $ 75,506 $ 64,780 $ 181,520 ============ ============ ============ MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued September 30, 1998 & 1997 (Unaudited) 9. Comprehensive Income On January 1, 1998, the Corporation adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a complete set of financial statements. Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not includable in reported net income but are reflected in shareholders' equity. The standard permits the statement of changes in shareholders' equity to be used and requires companies to report comparative totals for comprehensive income in interim reports. The following table presents the Corporation's comprehensive income ($000's): Three Months Ended ----------------------------------- September 30, September 30, 1998 1997 ------------ ------------ Net income $ 80,155 $ 64,780 Other comprehensive income Unrealized gains (losses) on securities, net of tax: Arising during the period 25,020 14,767 Reclassification for securities transactions included in net income (1,779) (57) ------------ ------------ 23,241 14,710 ------------ ------------ Total comprehensive income $ 103,396 $ 79,490 ============ ============ Nine Months Ended ----------------------------------- September 30, September 30, 1998 1997 ------------ ------------ Net income $ 217,853 $ 181,520 Other comprehensive income Unrealized gains (losses) on securities, net of tax: Arising during the period 18,373 14,979 Reclassification for securities transactions included in net income (3,500) 630 ------------ ------------ 14,873 15,609 ------------ ------------ Total comprehensive income $ 232,726 $ 197,129 ============ ============ Other comprehensive income as shown is net of deferred income tax expenses of $13,298 and $8,584 for the three months and $8,464 and $9,075 for the nine months ended September 30, 1998 and 1997, respectively. MARSHALL & ILSLEY CORPORATION Notes to Financial Statements - Continued September 30, 1998 & 1997 (Unaudited) 10. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in 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. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. Statement 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any quarter after issuance. Statement 133 cannot be applied retroactively. Statement 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). To the extent derivative instruments do not qualify for hedge accounting treatment, the statement could increase volatility in earnings and other comprehensive income. The Corporation believes their existing derivative instruments will qualify for hedge accounting and therefore the impacts of adopting Statement 133 on its financial statements will not be material. The Corporation has not determined the timing or method of adoption. MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's) Three Months Ended September 30, -------------------------------- Assets 1998 1997 - ------ ---------------------------- Cash and due from banks $ 640,704 $ 617,092 Trading securities 51,050 40,549 Short-term investments 191,666 179,385 Other investment securities: Taxable 4,461,150 3,339,556 Tax-exempt 1,107,902 938,949 ---------------------------- Total investment securities 5,811,768 4,498,439 Loans and leases: Commercial 3,857,381 3,163,275 Real estate 7,863,491 5,889,056 Personal 1,153,680 1,128,613 Lease financing 541,679 401,019 ---------------------------- 13,416,231 10,581,963 Less: Allowance for loan and lease losses 217,847 163,066 ---------------------------- Total loans and leases 13,198,384 10,418,897 Premises and equipment, net 357,903 334,154 Accrued interest and other assets 895,205 411,916 ---------------------------- Total Assets $ 20,903,964 $ 16,280,498 ============================ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,583,802 $ 2,308,471 Interest bearing 12,205,667 9,480,431 ---------------------------- Total deposits 14,789,469 11,788,902 Funds purchased and security repurchase agreements 2,278,791 1,802,359 Other short-term borrowings 168,448 178,425 Long-term borrowings 1,033,687 659,642 Accrued expenses and other liabilities 479,417 392,725 ---------------------------- Total liabilities 18,749,812 14,822,053 Shareholders' equity 2,154,152 1,458,445 ---------------------------- Total Liabilities and Shareholders' Equity $ 20,903,964 $ 16,280,498 ============================ MARSHALL & ILSLEY CORPORATION CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited) ($000's) Nine Months Ended September 30, ------------------------------- Assets 1998 1997 - ------ ---------------------------- Cash and due from banks $ 648,964 $ 601,077 Trading securities 43,669 40,567 Short-term investments 184,724 200,631 Other investment securities: Taxable 4,381,673 3,340,644 Tax-exempt 1,069,575 894,612 -------------------------- Total investment securities 5,679,641 4,476,454 Loans and leases: Commercial 3,658,059 3,069,145 Real estate 7,932,551 5,690,128 Personal 1,150,182 1,143,223 Lease financing 515,441 371,080 -------------------------- 13,256,233 10,273,576 Less: Allowance for loan and lease losses 215,227 162,733 -------------------------- Total loans and leases 13,041,006 10,110,843 Premises and equipment, net 355,669 331,685 Accrued interest and other assets 889,042 412,026 -------------------------- Total Assets $ 20,614,322 $ 15,932,085 ========================== Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest bearing $ 2,490,592 $ 2,206,138 Interest bearing 12,138,017 9,304,694 -------------------------- Total deposits 14,628,609 11,510,832 Funds purchased and security repurchase agreements 1,996,051 1,784,571 Other short-term borrowings 350,168 179,720 Long-term borrowings 1,046,196 676,081 Accrued expenses and other liabilities 487,338 371,740 -------------------------- Total liabilities 18,508,362 14,522,944 Shareholders' equity 2,105,960 1,409,141 -------------------------- Total Liabilities and Shareholders' Equity $ 20,614,322 $ 15,932,085 ========================== MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 - ---------------------------------------------- Net income for the third quarter of 1998 amounted to $80.2 million compared to $64.8 million for the same period in the prior year. Basic and diluted earnings per share were $.74 and $.70 respectively for the three months ended September 30, 1998, compared with $.68 and $.63, respectively for the three months ended September 30, 1997. The return on average assets and average equity were 1.52% and 14.76% for the quarter ended September 30, 1998 and 1.58% and 17.62% for the quarter ended September 30, 1997. The Corporation's results of operations and financial position for 1998 include the effects of the merger with Security Capital Corporation ("Security") which was completed on October 1, 1997 and accounted for as a purchase. Security had approximately $2.2 billion of loans and $2.3 billion of deposits at the time of merger. 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 second quarter of 1998 excluded the merger/restructuring charge of $16.3 million ($23.4 million before-tax) associated with the merger with Advantage. SUMMARY CONSOLIDATED OPERATING INCOME STATEMENTS AND FINANCIAL STATISTICS - ------------------------------------------------------------------------- ($000' except per share data) - ----------------------------- 1998 1997 ------------------------------- -------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Interest Income $ 362,509 $ 358,747 $ 354,087 $ 363,257 $ 294,020 Interest Expense (193,042) (190,734) (189,486) (189,859) (150,736) --------- --------- --------- --------- --------- Net Interest Income 169,467 168,013 164,601 173,398 143,284 Provision for Loan Losses (4,769) (4,868) (4,865) (4,478) (4,348) Net Securities Gains 3,568 8,031 6,663 2,765 196 Other Income 180,133 176,471 172,629 170,641 154,481 Other Expense (225,786) (227,629) (221,154) (227,376) (195,736) --------- --------- --------- --------- --------- Income Before Taxes 122,613 120,018 117,874 114,950 97,877 Income Tax Provision (42,458) (41,558) (42,368) (39,785) (33,097) --------- --------- --------- --------- --------- Operating Income $ 80,155 $ 78,460 $ 75,506 $ 75,165 $ 64,780 ========= ========= ========= ========= ========= Per Common Share Operating Income Per Share Basic $ 0.74 $ 0.73 $ 0.70 $ 0.70 $ 0.68 Diluted 0.70 0.68 0.66 0.65 0.63 Dividends 0.220 0.220 0.200 0.200 0.200 Return on Average Equity Based on Operating Income 14.76% 14.96% 14.87% 14.96% 17.62% CONSOLIDATED OPERATING INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE - -------------------------------------------------------------------------- TOTAL ASSETS - ------------ 1998 1997 ------------------------------- --------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Interest Income (FTE) 7.01% 7.10% 7.19% 7.28% 7.30% Interest Expense (3.67) (3.71) (3.78) (3.73) (3.67) --------- --------- --------- --------- --------- Net Interest Income 3.34 3.39 3.41 3.55 3.63 Provision for Loan Losses (0.09) (0.09) (0.10) (0.09) (0.11) Net Securities Gains 0.07 0.16 0.13 0.05 0.00 Other Income 3.42 3.44 3.44 3.36 3.76 Other Expense (4.29) (4.44) (4.40) (4.47) (4.76) --------- --------- --------- --------- --------- Income Before Taxes 2.45 2.46 2.48 2.40 2.52 Income Tax Provision (0.93) (0.93) (0.97) (0.92) (0.94) --------- --------- --------- --------- --------- Return on Average Assets Based on Operating Income 1.52% 1.53% 1.51% 1.48% 1.58% ========= ========= ========= ========= ========= The following table reconciles operating income to operating income before amortization of intangibles ("tangible operating income"). 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 TANGIBLE OPERATING INCOME AND FINANCIAL STATISTICS - ----------------------------------------------------------------------- ($000' except per share data) - ----------------------------- 1998 1997 ------------------------------- -------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Operating Income $ 80,155 $ 78,460 $ 75,506 $ 75,165 $ 64,780 Amortization, net of tax 5,199 5,206 5,379 5,292 1,064 --------- --------- --------- --------- --------- Tangible Operating Income $ 85,354 $ 83,666 $ 80,885 $ 80,457 $ 65,844 ========= ========= ========= ========= ========= Tangible Operating Income Per Share Basic $ 0.76 $ 0.76 $ 0.75 $ 0.75 $ 0.70 Diluted 0.74 0.73 0.70 0.70 0.64 Return on Average Tangible Assets 1.64% 1.65% 1.64% 1.61% 1.61% Tangible Equity 18.26 18.66 18.66 18.96 18.46 NET INTEREST INCOME - ------------------- Net interest income for the third quarter of 1998 amounted to $169.5 million, an increase of $26.2 million or 18.3% from the $143.3 million reported for the third quarter of 1997. The increase in the volume of average earning assets contributed approximately $83.7 million while the decrease in yield on earning assets, primarily loans, decreased interest income by approximately $15.2 million. The increase in the volume of average interest bearing liabilities contributed approximately $43.2 million to the increase in interest expense and was partially offset by the decrease in the rate of interest bearing liabilities which reduced interest expense by approximately $.9 million. The large changes attributable to volume reflect the effect of the acquisition of Security in the fourth quarter of 1997. Average earning assets increased $4.1 billion or 27.5% in the third quarter of 1998 compared to the same period a year ago and increased $0.3 billion since the second quarter of 1998. Including securitized adjustable rate mortgage loans (ARMS), average loans grew approximately $3.3 billion or 30.2% compared to the third quarter of last year and increased .8% since the second quarter of 1998. Average securities, excluding securitized ARMs, increased $0.8 billion for the three months ended September 30, 1998 compared with the same period in the prior year and increased $0.2 billion since the second quarter of 1998. Average interest bearing liabilities increased $3.6 billion or 29.4% in the third quarter of 1998 compared to the same period in 1997 and increased $163.6 million since the second quarter of 1998. Since the second quarter of 1998, average interest bearing deposits increased $63.8 million or .5% while average total borrowings increased $99.8 million. Average noninterest bearing deposits increased $275.3 million or 11.9% from the quarter ended September 30, 1997 to the quarter ended September 30, 1998 and $90.0 million from the prior quarter in 1998. The growth and composition of the Corporation's quarterly average loan portfolio for the current quarter and previous four quarters are reflected in the following table. Securitized ARM loans which are classified in the consolidated balance sheets as investment securities available for sale are included to provide a more meaningful comparison ($ in millions): Marshall & Ilsley Corporation's quarterly average loan and lease portfolio
Growth Pct. --------------------- 1998 1997 Third Qtr. ----------------------------- ------------------- 1998 Vs. Third Second First Fourth Third Second Qtr Quarter Quarter Quarter Quarter Quarter Annual 1998 --------- --------- --------- --------- --------- --------- --------- Commercial Loans $ 3,857 $ 3,711 $ 3,400 $ 3,305 $ 3,163 21.9 % 3.9 % Real Estate Loans Residential Mortgages 3,915 3,979 4,081 4,293 2,863 36.7 (1.6) Securitized ARM loans 933 929 1,025 972 437 113.5 0.4 --------- --------- --------- --------- --------- --------- --------- Residential Mortgages 4,848 4,908 5,106 5,265 3,300 46.9 (1.2) Construction 404 409 448 453 397 1.8 (1.2) Commercial Mortgages 3,544 3,543 3,476 3,403 2,629 34.8 0.0 --------- --------- --------- --------- --------- --------- --------- Total Real Estate Loans 8,796 8,860 9,030 9,121 6,326 39.0 (0.7) Personal Loans Personal Loans 895 877 862 881 857 4.4 2.1 Student Loans 259 274 284 278 272 (4.8) (5.5) --------- --------- --------- --------- --------- --------- --------- Total Personal Loans 1,154 1,151 1,146 1,159 1,129 2.2 0.3 Lease Financing Receivables Commercial 331 335 322 321 287 15.3 (1.2) Personal 211 184 163 141 114 85.1 14.7 --------- --------- --------- --------- --------- --------- --------- Lease Financing Receivables 542 519 485 462 401 35.2 4.4 --------- --------- --------- --------- --------- --------- --------- Total Consolidated Average Loans, Leases and ARMs $ 14,349 $ 14,241 $ 14,061 $ 14,047 $ 11,019 30.2 % 0.8 % ========= ========= ========= ========= ========= ========= ========= Total Consolidated Average Loans and Leases $ 13,416 $ 13,312 $ 13,036 $ 13,075 $ 10,582 26.8 % 0.8 % ========= ========= ========= ========= ========= ========= =========
As previously discussed, the annual growth is largely attributable to the Security merger. In the first six months of 1998, approximately $259 million of ARM loans were converted into government guaranteed agency pool securities. There were no securitizations in the quarter ended September 30, 1998 and approximately $218 million in all of 1997. In addition, approximately $580 million of securitized ARMs were acquired in the Security merger. Compared with the second quarter of 1998, total consolidated average loans, leases and securitized ARMs increased $108 million. The growth in commercial loans of approximately $146 million and lease financing receivables of $23 million were partially offset by a decline in residential real estate loans and securitized ARMs of $64 million. The decrease in residential real estate loans and securitized ARMs reflects the effect of increased prepayments associated with customer refinancings to fixed rate loans in response to the recent interest rate environment. Generally, the Corporation sells fixed rate residential real estate loans in the secondary market. One to four family residential real estate loans sold to investors amounted to $443 million in the third quarter of 1998 compared to $245 million in the third quarter of 1997. For the nine months ended September 30, 1998 sales to investors amounted to $1.4 billion compared to $461 million in the first nine months of 1997. The growth and composition of the Corporation's quarterly average deposits for the current and prior year's quarters are as follows ($ in millions):
Growth Pct. -------------------- 1998 1997 Third Qtr. ----------------------------- ------------------- 1998 Vs. Third Second First Fourth Third Second Qtr Quarter Quarter Quarter Quarter Quarter Annual 1998 --------- --------- --------- --------- --------- --------- --------- Noninterest Bearing Commercial $ 1,670 $ 1,599 $ 1,562 $ 1,696 $ 1,502 11.2 % 4.4 % Personal 507 512 487 475 449 12.9 (1.0) Other 407 383 343 412 358 13.7 6.3 --------- --------- --------- --------- --------- --------- --------- Total Noninterest Bearing Deposits 2,584 2,494 2,392 2,583 2,309 11.9 3.6 Interest Bearing Savings & NOW 2,152 2,160 2,131 2,149 1,843 16.8 (0.4) Money Market 4,233 4,021 3,805 3,676 2,849 48.6 5.3 Other CDs & Time Deposits 4,231 4,397 4,626 4,547 3,430 23.4 (3.8) CDs Greater than $100,000 810 844 834 780 682 18.8 (4.0) Brokered CDs 779 720 669 668 676 15.2 8.2 --------- --------- --------- --------- --------- --------- --------- Total Interest Bearing Deposits 12,205 12,142 12,065 11,820 9,480 28.7 0.5 --------- --------- --------- --------- --------- --------- --------- Total Consolidated Average Deposits $ 14,789 $ 14,636 $ 14,457 $ 14,403 $ 11,789 25.4 % 1.0 % ========= ========= ========= ========= ========= ========= =========
Compared with the second quarter of 1998, average deposit growth amounted to $153 million or 1.05%. Money market, noninterest bearing and brokered CDs exhibited the largest growth and accounted for approximately $361 million of the growth in average deposits. Offsetting this growth were declines in other CDs and time deposits of $166 million. This shift in deposit mix reflects, in part, the maturity of special CD products which were offered at the time of the Security merger, and had a positive impact on the net interest margin. The Corporation's consolidated average interest earning assets and interest bearing liabilities, interest earned and interest paid for the current quarter, prior quarter and prior year third quarter are presented in the following table. Securitized ARM loans that are classified in the balance sheet as investment securities available for sale are included with loans to make the comparative information more meaningful. YIELD & COST ANALYSIS ($ in millions)
Three Months Ended Three Months Ended Three Months Ended ------------------------- ------------------------- -------------------------- September 30, 1998 June 30, 1998 September 30, 1997 ------------------------- ------------------------- -------------------------- Average Average Average Average Yield or Average Yield or Average Yield or Balance Interest Cost (b) Balance Interest Cost (b) Balance Interest Cost (b) -------------------------- -------------------------- -------------------------- Loans and Leases (a) $14,348.9 $ 292.4 8.10%$14,241.4 $ 290.6 8.19%$11,018.1 $ 231.9 8.36% Investment Securities: Taxable 3,528.5 54.0 6.14 3,376.1 52.7 6.32 2,903.4 48.3 6.67 Tax Exempt (a) 1,107.9 19.4 7.05 1,067.5 18.7 7.17 938.9 16.4 7.07 Other Short-term Investments (a) 242.7 3.3 5.39 229.7 3.1 5.48 220.0 3.0 5.04 -------------------------- -------------------------- -------------------------- Total Interest Earning Assets $19,228.0 $ 369.1 7.65%$18,914.7 $ 365.1 7.77%$15,080.4 $ 299.6 7.91% ========================== ========================== ========================== Money Market Savings $ 4,232.8 $ 48.6 4.55%$ 4,021.0 $ 45.6 4.55%$ 2,849.1 $ 31.2 4.34% Regular Savings & NOW 2,151.9 10.5 1.94 2,160.2 11.6 2.16 1,843.1 10.0 2.16 Other CDs & Time Deposits 4,231.6 59.9 5.61 4,397.2 62.3 5.68 3,430.3 49.5 5.73 CDs Greater than $100 & Brokered CDs 1,589.4 23.2 5.79 1,563.4 22.8 5.85 1,358.0 20.4 5.96 -------------------------- -------------------------- -------------------------- Total Interest Bearing Deposits 12,205.7 142.2 4.62 12,141.8 142.3 4.70 9,480.5 111.1 4.65 Short-term Borrowings 2,447.2 34.1 5.53 2,360.7 31.9 5.42 1,980.8 27.7 5.56 Long-term Borrowings 1,033.7 16.8 6.44 1,020.5 16.5 6.48 659.6 11.9 7.14 -------------------------- -------------------------- -------------------------- Total Interest Bearing Liabilities $15,686.6 $ 193.1 4.88%$15,523.0 $ 190.7 4.93%$12,120.9 $ 150.7 4.93% ========================== ========================== ========================== Net Interest Margin (FTE) as a Percent of Average Earning Assets $ 176.0 3.65% $ 174.4 3.71% $ 148.9 3.93% ================ ================ ================ (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 net interest margin as a percent of average earning assets declined 28 basis points since the third quarter of 1997 and decreased 6 basis points from 3.71% in the second quarter of 1998 to 3.65% in the current quarter. The yield on average earning assets decreased 12 basis points since the second quarter of 1998. This decline in yield reflects continued run-off of higher yielding loans and securitized ARMs and investment securities as well as accelerated amortization of purchase accounting premiums assigned to acquired loans and investment securities due to prepayments and refinancings in response to the interest rate environment. The yield on loans and securitized ARMs, the largest earning asset, declined 9 basis points which had a negative impact on net interest income of approximately $32.6 million compared with the second quarter of 1998. Net interest income may continue to be adversely affected if the current prepayment experience continues. The cost of interest bearing deposits decreased 8 basis points from the previous quarter which reflects the shift in deposit mix previously discussed along with the reduction of interest paid on selected deposit account types. Short-term borrowing costs increased 11 basis points and long-term borrowing costs decreased 4 basis points, respectively, compared with the second quarter of 1998. The increase in short-term borrowing costs compared to the prior quarter reflects a shift in the mix of funding sources from special programs which were available during the second quarter. At September 30, 1998, the Corporation had standard receive fixed/pay floating interest rate swaps and interest rate caps and floors designated as hedges to manage the interest rate volatility associated with variable rate loans and variable rate debt. In addition, the Corporation had callable receive fixed / pay floating interest rate swaps designated as hedges to offset callable CDs. The Corporation's position with respect to interest rate swaps and interest rate caps and floors designated as hedges at September 30, 1998 consisted of the following ($ in millions): Interest Rate Swaps ------------------- Notional Value $675 Weighted average receive rate 6.16% Weighted average pay rate 5.62% Weighted average remaining term (in years) 2.24 Estimated fair value $16.73 Callable Interest Rate Swaps ---------------------------- Notional Value $297 Weighted average receive rate 6.34% Weighted average pay rate 5.48% Weighted average remaining term (in years) 7.50 Estimated fair value $3.36 Interest Rate Caps/Floors ------------------------- Notional Value $50 Strike Rate 5.63% Index 5.59% Weighted average remaining term (in years) 2.13 Estimated fair value $0.51 Unamortized premium $0.25 For the three months ended September 30, 1998, the effect on net interest income resulting from the swaps, net of cap and floor premium amortization, was a positive $1.2 million compared with a positive $.6 million in the same period in 1997. See also the discussion of derivative financial instruments entered into on behalf of customers and the Corporation's related offsetting positions under "Other Income." PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY - ------------------------------------------------------ At September 30, 1998, nonperforming assets were $100.2 million compared to $98.4 million at June 30, 1998 and $79.2 million at September 30, 1997. Nonaccrual loans and leases, the largest component of nonperforming assets, were relatively unchanged compared to the second quarter. Other real estate owned increased $1.4 million and loans and leases past due 90 days or more increased $.4 million since the second quarter of 1998. The increase in other real estate is primarily due to the closure of a former Advantage administrative facility. Other real estate owned increased $6.8 million since September 30, 1997, which is primarily due to branch closures associated with the Security merger which occurred in the fourth quarter of 1997. Net charge-offs in the third quarter of 1998 amounted to $2.1 million or .06% of average loans and leases compared to net charge-offs of $4.3 million or .13% of average loans and leases in the second quarter of 1998 and net charge-offs of $2.1 million or .08% of average loans and leases in the third quarter of 1997. The Corporation's lead bank had one large commercial loan that accounted for $2.1 million of the charge-offs in the second quarter of 1998. The allowance for loan and lease losses amounted to $218.7 million or 1.59% of total loans and leases at September 30, 1998 compared to $216.0 million or 1.61% at June 30, 1998 and $163.7 million or 1.51% at September 30, 1997. The coverage ratio of the allowance for loan and lease losses to nonperforming loans and leases was 248% at September 30, 1998 compared with 247% at June 30, 1998 and 222% at September 30, 1997. The provision for loan and lease losses amounted to $4.8 million in the third quarter of 1998 compared to $4.3 million in the third quarter of 1997. The increase is primarily due to loan growth. CONSOLIDATED CREDIT QUALITY INFORMATION - --------------------------------------- NONPERFORMING ASSETS ($000's) ------------------------------
1998 1997 ----------------------------- ------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Nonaccrual $ 79,645 $ 79,594 $ 71,399 $ 66,945 $ 64,846 Renegotiated 1,129 1,192 1,241 1,338 1,242 Past Due 90 Days or More 7,249 6,809 7,117 8,238 7,721 --------- --------- --------- --------- --------- Total Nonperforming Loans and Leases 88,023 87,595 79,757 76,521 73,809 Other Real Estate Owned 12,212 10,807 11,504 15,573 5,430 --------- --------- --------- --------- --------- Total Nonperforming Assets $ 100,235 $ 98,402 $ 91,261 $ 92,094 $ 79,239 ========= ========= ========= ========= ========= ALLOWANCE FOR LOAN AND LEASE LOSSES $ 218,706 $ 216,014 $ 215,481 $ 208,651 $ 163,690 ========= ========= ========= ========= ========= CONSOLIDATED STATISTICS ----------------------- Net Charge-offs (Recoveries) to Average Loans and Leases Annualized 0.06% 0.13% (0.06)% 0.07% 0.08% Total Nonperforming Loans and Leases to Total Loans and Leases 0.64 0.65 0.61 0.58 0.68 Total Nonperforming Assets to Total Loans and Other Real Estate Owned 0.73 0.73 0.69 0.70 0.73 Allowance for Loan and Lease Losses to Total Loans and Leases 1.59 1.61 1.63 1.59 1.51 Allowance for Loan and Lease Losses to Nonperforming Loans and Leases 248 247 270 273 222
NONACCRUAL LOANS AND LEASES BY TYPE ($000's) ---------------------------------------------
1998 1997 ----------------------------- ------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Commercial Commercial, Financial & Agricultural $ 14,506 $ 19,322 $ 16,659 $ 12,431 $ 17,280 Lease Financing Receivables 2,812 2,171 2,648 3,855 2,073 --------- --------- --------- --------- --------- Total Commercial 17,318 21,493 19,307 16,286 19,353 Real Estate Construction and Land Development 2,901 2,032 2,152 1,329 856 Commercial Mortgage 22,244 21,967 17,472 14,696 20,277 Residential Mortgage 34,797 31,424 29,327 31,117 20,644 --------- --------- --------- --------- --------- Total Real Estate 59,942 55,423 48,951 47,142 41,777 Personal 2,385 2,678 3,141 3,517 3,716 --------- --------- --------- --------- --------- Total Nonaccrual Loans and Leases $ 79,645 $ 79,594 $ 71,399 $ 66,945 $ 64,846 ========= ========= ========= ========= =========
RECONCILIATION OF CONSOLIDATED ALLOWANCE FOR LOAN AND LEASE LOSSES ($000's) -----------------------------------------------------------------------------
1998 1997 ----------------------------- ------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter --------- --------- --------- --------- --------- Beginning Balance $ 216,014 $ 215,481 $ 208,651 $ 163,690 $ 161,426 Provision for Loan and Lease Losses 4,769 4,868 4,865 4,478 4,348 Allowance of Bank Acquired -- -- -- 42,773 -- Loans and Leases Charged-off Commercial 510 3,237 1,153 1,273 1,123 Real Estate 1,369 815 906 925 1,109 Personal 1,714 1,768 2,426 2,058 1,962 Leases 131 194 165 416 208 --------- --------- --------- --------- --------- Total Charge-offs 3,724 6,014 4,650 4,672 4,402 Recoveries on Loans and Leases Commercial 274 373 5,704 1,387 1,338 Real Estate 717 385 146 326 249 Personal 633 644 760 635 597 Leases 23 277 5 34 134 --------- --------- --------- --------- --------- Total Recoveries 1,647 1,679 6,615 2,382 2,318 --------- --------- --------- --------- --------- Net Loans and Leases Charge-offs (Recoveries) 2,077 4,335 (1,965) 2,290 2,084 --------- --------- --------- --------- --------- Ending Balance $ 218,706 $ 216,014 $ 215,481 $ 208,651 $ 163,690 ========= ========= ========= ========= =========
OTHER INCOME - ------------ Total other income in the third quarter of 1998 amounted to $183.7 million, an increase of $29.0 million or 18.7%, compared to $154.7 million in the same period last year. Data processing revenue increased $15.6 million or 17.9% from $86.7 million in the third quarter of 1997 to $102.2 million in the current quarter. Processing revenue increased $11.8 million or 19.5%. Software revenue increased $2.2 million or 15.8%. Conversion fees increased $1.4 million. All other revenue including buyout fees, which can vary from period to period, were relatively unchanged. Compared to the second quarter of 1998, revenue from data processing services increased $3.1 million or 3.1%. Revenue growth levels in 1999 may be below historical patterns due to the loss of a significant customer because of an acquisition and general reluctance of potential customers to change their information processing or application systems with year 2000 rapidly approaching. Trust services revenue amounted to $23.8 million in the third quarter of 1998, an increase of $3.7 million or 18.6% compared to $20.1 million in the third quarter of 1997. Other customer services revenue amounted to $38.1 million in the third quarter of 1998 compared with $37.9 million in the second quarter of 1998 and $34.1 million in the third quarter of 1997. Other customer services revenue in 1998 includes the effect of the Security merger. Net securities gains in the third quarter of 1998 amounted to $3.6 million compared with $.2 million in the third quarter of 1997. During the third quarter of 1998, the holding company sold equity securities for a gain of $1.3 million. In addition, the Corporation's banking affiliates sold available for sale treasury securities for a gain of $2.4 million. All other income amounted to $16.0 million in the third quarter of 1998 compared to $13.7 million in the third quarter of 1997. Gains from the sale of residential mortgage loans, which includes the servicing rights, increased $3.4 million. Revenue from bank-owned life insurance acquired in the Security merger amounted to $.8 million for the three months ended September 30, 1998. Rent income was $.5 million larger than the 1997 same quarter due to additional rental space from the Security merger. Gain on fixed asset dispositions decreased $3.0 million from the third quarter of 1997 primarily due to branch deposit and facilities sales made in 1997. In addition to utilizing interest rate swaps, caps and floors for hedging purposes as discussed previously under "Net Interest Income", in September 1998, the Corporation began trading in swap agreements for its customers. The Corporation's market risk from these transactions is minimized by concurrently entering into offsetting positions with nearly identical notional values, terms and indexes. The Corporation's position with respect to interest rate swaps held for trading purposes at September 30, 1998 consisted of the following ($ in millions): Customer Trading Interest Rate Swaps ------------------------------------ Received Fixed Notional Value $30 Weighted average receive rate 5.70% Weighted average pay rate 5.31% Weighted average remaining term (in years) 6.08 Estimated fair value $1.04 Pay Fixed Notional Value $30 Weighted average receive rate 5.31% Weighted average pay rate 5.65% Weighted average remaining term (in years) 6.08 Estimated fair value ($0.96) Market value changes on trading interest rate swaps are recognized as a component of "Other Income" in the period of change. The impact of these transactions were not material for the quarter ended September 30, 1998. OTHER EXPENSE - ------------- Total other expense in the third quarter of 1998 amounted to $225.8 million compared with $227.6 million in the second quarter of 1998 and $195.7 million in the third quarter of 1997. Expenses of the Corporation's banking business in the third quarter of 1998 include the effects of the Security merger. The Corporation added approximately 400 full-time equivalent employees as a direct result of the merger. The Corporation's nonbanking businesses, especially its Data Services segment ("Data Services"), continue to be the primary contributors to operating expense growth. Data Services expense growth represents over half of the consolidated operating expense growth and reflects the cost of adding processing capacity and other related costs associated with increased revenue growth and maintenance activities for Year 2000. Expense growth of Trust Services reflects increased activity in its outsourcing services business and expense growth of the Corporation's residential mortgage banking reflects the significant increase in volume of originations and accelerated amortization of mortgage servicing rights due to increased prepayments. 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 (excluding securities gains or losses) and net interest income on a fully taxable equivalent basis. The Corporation's efficiency ratios for the three months ended September 30, 1998 and June 30, 1998 and the year ended December 31, 1997 are: Three Months Three Months Year Ended Ended Ended September 30, June 30, December 31, Efficiency Ratios 1998 1998 1997 - ---------------------- ----------- ----------- ------------- Consolidated Corporation 63.4% 64.9% 65.7 % Consolidated Corporation Excluding Data Service 53.3% 54.4% 57.1 % Salaries and employee benefits expense amounted to $131.2 million in the third quarter of 1998 compared to $113.7 million in the third quarter of 1997, an increase of $17.5 million or 15.4%. Salaries and employee benefits expense of Data Services increased $9.1 million or 16.4% in the current quarter compared to the same period last year. At September 30, 1998 Data Services had on average approximately 268 more full time equivalent employees when compared to September 30, 1997 which reflects, in part, additional processing and service centers. Compared to the third quarter of 1997, expense growth in the current quarter in salaries and employee benefits amounted to $5.1 million for banking and Support Services, $1.9 million for Trust Services and $0.9 for residential mortgage banking. Data Services expense growth accounted for approximately $3.7 million or 64.3% of the increase in net occupancy, equipment and software expenses in the third quarter of 1998 compared to the third quarter of 1997. The increase in payments to regulatory agencies in the third quarter of 1998 compared to the like period in the prior year reflects the additional deposits acquired in the Security merger. The increase in professional services expense in the third quarter of 1998 compared to 1997 of $1.6 million or 36.4% is attributable to fees associated with job placement, loan originations and refinancings and other consultants. Data Services accounted for approximately $.4 million of the increase in professional services expense. Other expense amounted to $33.6 million in the third quarter of 1998, an increase of $4.7 million or 16.3% compared to the third quarter of 1997. Other expenses associated with Data Services accounted for approximately $1.3 million of the increase. Amortization expense for goodwill, core deposit premiums and mortgage servicing rights, primarily attributable to the Security merger, increased $6.7 million and includes accelerated amortization for mortgage servicing rights due to the increase in prepayments associated with refinancings which is expected to continue. Advertising, promotion and development and customer related expense of the Corporation and its affiliates excluding Data Services increased $.7 million. These increases were partially offset by a $2.3 million decrease in expense for deferred liabilities tied to the value of the Corporation's Common Stock due to the rapid increase in the stock price in 1997 and the revision and funding of this plan in 1998. Due to accelerated prepayment activity, the Corporation reduced its recourse obligations associated with securitized ARM's by $2.4 million in the third quarter of 1998. INCOME TAXES - ------------ The provision for income taxes for the three months ended September 30, 1998 amounted to $42.5 million or 34.6% of pre-tax income compared to $33.1 million or 33.8% of pre-tax income for the three months ended September 30, 1997. The change in the effective tax is primarily due to the increase in non-deductible goodwill amortization expense in the current quarter compared to the prior year quarter. NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 - --------------------------------------------- Net income for the nine months ended September 30, 1998 amounted to $217.9 million compared to $181.5 million in the same period of 1997. Basic and diluted earnings per share were $2.01 and $1.89, respectively for the nine months ended September 30, 1998 compared to $1.92 and $1.78, respectively for the same period last year. The year to date return on average equity was 13.83% in the current period and 17.22% for the nine months ended September 30, 1997. The Corporation's results of operations for the nine months ended September 30, 1998 include the impact of the Security merger as previously discussed. On April 1, 1998, the Corporation completed the merger with Advantage Bancorp, Inc. ("Advantage") a Kenosha, Wisconsin based savings and loan holding company by issuing 1.2 shares of the Corporation's Common Stock for each share of Advantage Common Stock. The transaction was accounted for as a pooling of interests. In conjunction with this transaction, the Corporation recorded a merger / restructuring charge of approximately $16.3 million ($23.4 million before-tax) in the quarter ended June 30, 1998. A detailed discussion of the components of the merger / restructuring is contained in the Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended June 30, 1998. The charge as recorded has not materially changed. Operating income for the first nine months of 1998 was $234.1 million and basic and diluted earnings per share amounted to $2.17 and $2.03 per share, respectively, excluding the merger / restructuring charge for the Advantage merger. The return on average equity based on operating income was 1.52% for the nine months ended September 30, 1998. The following table presents a summary of each of the major elements of the consolidated income statement for the first nine months of 1998 and 1997, excluding the merger / restructuring charges, stated as a percent of average consolidated assets - converted to a fully taxable equivalent basis (FTE) where appropriate. Nine Months Ended September 30, --------------------- ROA 1998 1997 Impact --------- --------- -------- Interest Income 7.10% 7.33% (0.23)% Interest Expense (3.72) (3.66) (0.06) --------- --------- -------- Net Interest Income 3.38 3.67 (0.29) Provision for Loan and Lease Losses (0.09) (0.11) 0.02 Net Securities Gains 0.12 0.01 0.11 Other Income 3.43 3.64 (0.21) Other Expense (4.38) (4.79) 0.41 --------- --------- -------- Income Before Taxes 2.46 2.42 0.04 Income Taxes (0.94) (0.90) (0.04) --------- --------- -------- Return on Average Assets 1.52% 1.52% (0.00)% ========= ========= ======== The increase in operating income is largely due to growth in noninterest revenue of $112.4 million, including $49.1 million in data processing services, $17.9 million in other customer services, $16.9 million in net securities gains and $9.5 million in Trust services. Approximately $4.9 million of the increase in net securities gains were attributable to the Capital Markets Group. Net interest income increased $80.9 million. Growth in other expense, which is driven primarily by Data Services, was $104.7 million excluding the merger / restructuring charge. CAPITAL RESOURCES - ----------------- Shareholders' equity was $2.19 billion at September 30, 1998 compared to $2.02 billion at December 31, 1997 and $1.48 billion at September 30, 1997. The Company has net unrealized gains on securities available for sale at September 30, 1998 of $67.0 million, an increase of $14.9 million compared to December 31, 1997. The increase in deferred compensation of $6.0 million from $9.3 million at December 31, 1997 to $15.3 million at September 30, 1998 reflects the partial funding of the Corporation's Directors Deferred Compensation Plan for $7.9 million, partially offset by the accelerated vesting of the Advantage bank incentive plan of $.4 million and the termination of Advantage's ESOP at $1.2 million. In connection with the acquisition of Advantage Bancorp, Inc., the Company rescinded its stock repurchase program effective March 16, 1998. During the third quarter of 1998, the Company did not repurchase any shares of its own common stock. Based on recent market conditions, the Corporation intends to begin acquiring its common stock to fund benefit plans and for other business purposes. Any such purchases may be conducted through open market or privately negotiated transactions. The price, timing and actual number of shares purchased will depend on market conditions. The Corporation continues to have a strong capital base and its regulatory capital ratios are significantly above the minimum requirements as shown in the following tables. RISK-BASED CAPITAL RATIOS ($IN MILLIONS) - -----------------------------------------
September 30, 1998 December 31, 1997 ------------------------------------ ----------------------------------- Amount Ratio Amount Ratio ------------------- ---------------- ------------------ ---------------- Tier 1 Capital $ 1,998.1 12.89 % $ 1,821.7 12.34 % Tier 1 Capital Minimum Requirement 620.0 4.00 590.5 4.00 --------- -------- --------- -------- Excess $ 1,378.1 8.89 % $ 1,231.2 8.34 % ========= ======== ========= ======== Total Capital $ 2,272.2 14.66 % $ 2,106.5 14.27 % Total Capital Minimum Requirement 1,240.0 8.00 1,180.9 8.00 --------- -------- --------- -------- Excess $ 1,032.2 6.66 % $ 925.6 6.27 % ========= ======== ========= ======== Risk-Adjusted Assets $15,499.6 $14,761.7 ========= =========
LEVERAGE RATIOS ($IN MILLIONS) - -------------------------------
September 30, 1998 December 31, 1997 ------------------------------------ ----------------------------------- Amount Ratio Amount Ratio ------------------- ---------------- ------------------ ---------------- Tier 1 Capital $ 1,998.1 9.75 % $ 1,821.7 9.21 % Minimum Leverage Requirement 614.9 - 1,024.8 3.00 - 5.00 593.5 - 989.2 3.00 - 5.00 ------------------- ---------------- ------------------ ---------------- Excess $ 1,383.2 - 973.3 6.75 - 4.75 % $ 1,228.2 - 832.5 6.21 - 4.21 % =================== ================ ================== ================ Adjusted Average Total Assets $20,496.2 $19,784.3 ========= =========
Year 2000 - --------- Year 2000 is the term used to describe the fact that many existing computer programs use only two digits to identify a year in a date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The term also refers to devices with imbedded technology that are time sensitive and may fail to recognize year 2000 correctly. This issue affects virtually all companies and organizations. The Corporation recognizes the need to ensure its operations and income stream will not be adversely impacted by year 2000 related events. The Board of Directors reviews the plans associated with this problem. They receive periodic updates on plan revisions, progress achieved compared to targets and the costs involved. Also, the Corporation Internal Audit Group is evaluating the processes and procedures used to address the problem and the progress being made. Proactive "information sharing" is encouraged by the Corporation, both internally and externally, through an employee newsletter, written communications and regional workshops with customers, the Corporation's Web site, trade groups, vendors, utilities and the government. The Corporation has made it a priority to resolve any potential business issues connected with year 2000 and has made solid progress toward protecting itself from the risks associated with it. However, despite the detailed planning, execution and verification steps taken by the Corporation, there can be no assurance that all issues have been identified or successfully resolved. The following is a summary of the risks, state of readiness, contingency plans and estimated costs for addressing year 2000. For purposes of this discussion, the summary has been segregated between Data Services and the remainder of the Corporation and Subsidiaries. The Corporation's banking affiliates are heavily reliant on Data Services with respect to their core processing systems (loans and deposits). DATA SERVICES ------------- Data Services is in the business of developing, maintaining, and running software serving the financial services industry. Banking institutions comprise the majority of its customers. Future data processing revenue is critically dependent upon successfully implementing the necessary changes to ensure year 2000 compliance. Data Services began developing its plan to address Year 2000 in 1996. Data Services employs approximately 150 full-time equivalent employees who are dedicated to the Year 2000 project and maintains a dedicated code renovation center and testing facility. Code modifications and testing have been completed for licensed software and upgrades have been distributed to customers. Service bureau code modifications were completed in December 1997. In September and October of 1998 the service bureau core application systems were converted and are now running on year 2000 compliant software. "19xx" testing and system verification have been completed by a selected group of customers. Additional "20xx" testing and verification are currently in process with customer acceptance expected in March 1999. M&I's banking affiliates are participants in both of these testing phases. Data Services will continue testing to ensure other modifications and enhancements implemented prior to Year 2000 are compliant. Because Data Services is in a technology business, it is heavily reliant on software and hardware products. Data Services is in the process of inventorying and validating year 2000 compliance for all third-party software and computer hardware including mainframe, open systems, network and desktop equipment. With the most critical phase of the year 2000 project almost complete, the physical infrastructure including elevators, security systems, heating and air conditioning are being assessed. The majority of testing, system modifications and infrastructure changes will be completed in the second quarter of 1999. In August 1998 Data Services received ITAA*2000 certification from the Information Technology Association of America. The program examines processes and methods used by companies to perform their year 2000 software conversions. In addition, Data Services progress and plans are subject to periodic review and evaluation by banking regulatory agencies. In August 1998 Data Services adopted a "Year 2000 Contingency Strategy" plan which is an expansion of their pre-existing "Services Continuity Recovery" plan. This plan includes an analysis of "most reasonably likely year 2000 worst case scenarios" and their planned solutions to those scenarios. The plan meets all the Federal Financial Institutions Examination Council's (FFIEC) guidelines. Examples of these scenarios and planned solutions are, a power interruption at a data processing facility mitigated by an onsite generator, and simultaneous disasters at all data processing locations mitigated by the use of a prearranged third party facility. CORPORATION AND SUBSIDIARIES (Excluding Data Services) ------------------------------------------------------ The Corporation and its other affiliates began addressing Year 2000 in 1997. The overall process is being coordinated through M&I Support Services which has a dedicated function addressing the issue. Their mission includes providing an overall plan, communicating and documenting the process and reporting of progress including periodic reporting to the banking affiliates primary regulator(s). In addition, a coordinator has been appointed from each affiliate bank and division of the Corporation. In some cases external resources or consultants are contracted for assistance with the project or for specific business line solutions. Planning of the project was completed in June 1997. The inventory of hardware, software, electronic equipment and building systems was completed in January 1998. Designated "Mission Critical Software" has been renovated and is in the validation phase which is projected to be completed in the fourth quarter of 1998. The risk assessment phase of analyzing vendor readiness, and testing hardware is substantially complete. The plan for renovation of systems is in process. This phase includes developing an action plan for each inventory item, developing hardware and "Non-Mission Critical" software upgrades and/or replacement schedules and implementation. Major items in this group needing upgrades or replacement include PCs, ATMs and their related networks. The remaining phases include testing of implementation, certification of hardware, software, office machines and building systems. The Corporation anticipates this process to be completed in the second quarter of 1999. The Corporation also has a risk that major loan customers may incur year 2000 problems that might inhibit their ability to repay their obligations or affect the Corporation's ability to access collateral in the event of default. All customers with loans exceeding a specified threshold amount have been sent a year 2000 questionnaire designed to summarize their state of readiness. Additional mailings or phone contact is being made with loan customers that have not responded to initial requests for information. Those responding to the mail surveys or contacted by phone have been assessed and assigned a risk factor for year 2000 readiness. These assessments have become a part of the Corporation ongoing Credit Review process and the risk factor assigned is a component in assessing the adequacy of the allowance for loan and lease losses. Applicants for certain types and sizes of new loans are required to submit similar information which will be used in the underwriting and monitoring processes. Although M&I has had contingency plans (disaster recovery) in place covering major business disruptions like power outages and communications or computer system failures for some time, in January 1998, the Corporation began to revise these plans to specifically include year 2000 issues. As a part of this process the Corporation is identifying a list of "most reasonably likely worst case scenarios" and action plans to minimize business disruption if they were to occur. The major scenarios identified take into account the Corporation's dependency on utilities, government and customer behavior over which it has very limited control. Reviews have been made of the year 2000 programs and contingency plans for the Federal Reserve and major utilities. Periodic updates of their progress in following their year 2000 readiness timetables are being made. Contingency plan revisions are expected to be completed in the second quarter of 1999. YEAR 2000 RELATED COSTS ----------------------- The majority of Data Services' contracts do not provide for additional reimbursement over and above the previously contracted maintenance amounts. The current estimate of the Corporation's total net direct cost for the year 2000 effort as outlined above is approximately $39 million with Data Services representing approximately 88% of that amount. Approximately $21 million or 53% has been expensed through September 30, 1998. The cost for the three and nine months ended September 30, 1998 were $5 million and $11 million, respectively. Costs for the comparable three and nine months in 1997 were approximately $2 million and $6 million, respectively. It is estimated that total 1998 net expense will be approximately $14 million. Prior periods amounts have been restated to conform with the additional guidance issued by the Securities and Exchange Commission on November 9, 1998, which, among other things, more clearly defines the types of expenses that should be disclosed. Replacement equipment and software are being capitalized or expensed in accordance with the Corporation's normal accounting policies. The effect of writing off the net book value of equipment or software that is not Year 2000 compliant is included in the above estimates. Forward-Looking Statements -------------------------- This Management's Discussion and Analysis of Financial Position contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding M&I's risks, state of readiness, contingency plans and estimated costs for addressing Year 2000 issues. Forward-looking statements are subject to significant risks and uncertainties and M&I's actual results may differ materially from the results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in such forward-looking statements include, but are not limited to: (1) unanticipated problems or delays encountered in making information systems Year 2000 compliant, (2) higher than anticipated costs in attaining Year 2000 compliance, (3) unanticipated litigation or other disputes with customers, suppliers or others involving Year 2000 issues, (4) erroneous certifications from third parties as to Year 2000 compliance, and (5) those factors set under "Forward-Looking Statements" in Part I of M&I's Annual Report on Form 10-K for the year ended December 31, 1997 which are incorporated herein by reference. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------------------- For a detailed discussion of market risk, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the Corporation's Annual Report on Form 10K for the year ended December 31, 1997. For additional information on the Corporation's derivative financial instruments, see Management's Discussion and Analysis of Financial Position and Results of Operations. Interest Rate Risk - ------------------ The Corporation's consolidated static gap position as of September 30, 1998 has not materially changed since December 31, 1997. Along with the static gap analysis, determining the sensitivity of future earnings to a hypothetical +/- 100 basis point parallel rate shock is accomplished through the use of simulation modeling. The following table illustrates these amounts as of September 30 and June 30, 1998, and December 31, 1997, which are within the limits established by the Corporation: Hypothetical Change Impact to Pretax Net Income in Interest Rates -------------------------------------------- - ------------------- September 30, June 30, December 31, 1998 1998 1997 ------------- ------------- ------------ 100 basis point Shock Up (7.2%) (7.4%) (7.1%) 100 basis point Shock Down 4.9% 5.9% 6.1% These results are based solely on the repricing characteristics of the balance sheet, adjusted for expected prepayments, due to immediate and sustained 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 change in spread between key market rates, or accounting recognition for impairment of certain intangibles. The above results are also considered to be conservative estimates due to the fact that no management action to mitigate potential income variances are included within the simulation process. This action would 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. Another component of interest rate risk, fair value at risk, is determined by the Corporation through the technique of simulating the fair value of equity in changing rate environments. This technique involves determining the present value of all contractual asset and liability cash flows (adjusted for prepayments) based on a predetermined discount rate. The net result of all these balance sheet items determine the fair value of equity. The fair value of equity resulting from the current flat rate scenario is compared to the fair value of equity calculated using discount rates +/- 100 basis points from flat rates to determine the fair value of equity at risk. The fair value of equity at risk is less than 1.5% of the market value of the Corporation as of September 30, 1998. In September 1998 the Corporation began acting as an intermediary for swap agreements on behalf of its customers. These are derivative financial instruments and are matched off by the Corporation to eliminate exposure to market risk. For a more detailed discussion of these items, see the discussion of derivative financial instruments under "Other Income." PART II - OTHER INFORMATION 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: 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 November 16, 1998 EX-11 2 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998/EXHIBIT 11 EXHIBIT 11 EXHIBIT 11 MARSHALL & ILSLEY CORPORATION COMPUTATION OF EARNINGS PER SHARE ($000's except per share data) Three Months Ended September 30, -------------------------------- BASIC 1998 1997 - ----- ------------ ------------ Earnings: Net income $ 80,155 $ 64,780 Less: Convertible preferred dividends (1,689) (1,535) ------------ ------------ Income available to common shareholders $ 78,466 $ 63,245 ============ ============ Shares: Weighted average number of common shares outstanding 106,144 92,652 Less: Unvested restricted stock (101) (166) ------------ ------------ Total average basic shares outstanding 106,043 92,486 ============ ============ Basic earnings per share $ 0.74 $ 0.68 ============ ============ DILUTED - ------- Earnings: Income available to common shareholders plus conversions $ 80,155 $ 64,780 ============ ============ Shares: Weighted average number of common shares outstanding 106,144 92,652 Additional shares relating to: Convertible preferred stock 7,677 7,677 Stock options, restricted stock and performance plans 1,508 1,944 ------------ ------------ Total average diluted shares outstanding 115,329 102,273 ============ ============ Diluted earnings per share $ 0.70 $ 0.63 ============ ============ EXHIBIT 11 MARSHALL & ILSLEY CORPORATION COMPUTATION OF EARNINGS PER SHARE ($000's except per share data) Nine Months Ended September 30, ------------------------------- BASIC 1998 1997 - ----- ------------ ------------ Earnings: Net income $ 217,853 $ 181,520 Less: Convertible preferred dividends (4,913) (4,135) ------------ ------------ Income available to common shareholders $ 212,940 $ 177,385 ============ ============ Shares: Weighted average number of common shares outstanding 105,871 92,628 Less: Unvested restricted stock (113) (185) ------------ ------------ Total average basic shares outstanding 105,758 92,443 ============ ============ Basic earnings per share $ 2.01 $ 1.92 ============ ============ DILUTED - ------- Earnings: Net income $ 217,853 $ 181,520 Add: Interest on convertible notes, net of income tax effect -- 232 ------------ ------------ Income available to common shareholders plus conversions $ 217,853 $ 181,752 ============ ============ Shares: Weighted average number of common shares outstanding 105,871 92,628 Additional shares relating to: Convertible preferred stock 7,677 7,051 8.5% convertible debt -- 627 Stock options, restricted stock and performance plans 1,722 1,793 Forward repurchase contract -- 160 ------------ ------------ Total average diluted shares outstanding 115,270 102,259 ============ ============ Diluted earnings per share $ 1.89 $ 1.78 ============ ============ EX-12 3 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998/EXHIBIT 12 EXHIBIT 12 EXHIBIT 12 MARSHALL & ILSLEY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($000's)
Nine Months Ended Years Ended December 31, September 30,---------------------------------------------------------- 1998 1997 1996 1995 1994 1993 ------------ ---------- ---------- ---------- ---------- ---------- Earnings: Earnings before income taxes, extraordinary items and cumulative effect of changes in accounting principles $ 337,132 $ 388,172 $ 317,949 $ 312,938 $ 179,762 $ 276,163 Fixed charges, excluding interest on deposits 154,722 175,609 126,188 119,424 85,768 55,740 ---------- ---------- ---------- ---------- ---------- ---------- Earnings including fixed charges but excluding interest on deposits 491,854 563,781 444,137 432,362 265,530 331,903 Interest on deposits 426,221 460,418 392,504 363,488 274,211 288,397 ---------- ---------- ---------- ---------- ---------- ---------- Earnings including fixed charges and interest on deposits $ 918,075 $ 1,024,199 $ 836,641 $ 795,850 $ 539,741 $ 620,300 ========== ========== ========== ========== ========== ========== Fixed Charges: Interest Expense: Short-term borrowings $ 96,806 $ 112,794 $ 62,071 $ 47,740 $ 39,681 $ 18,010 Long-term borrowings 50,235 52,574 55,363 64,363 39,168 30,860 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor) 7,681 10,241 8,754 7,321 6,919 6,870 ---------- ---------- ---------- ---------- ---------- ---------- Fixed charges excluding interest on deposits 154,722 175,609 126,188 119,424 85,768 55,740 Interest on deposits 426,221 460,418 392,504 363,488 274,211 288,397 ---------- ---------- ---------- ---------- ---------- ---------- Fixed charges including interest on deposits $ 580,943 $ 636,027 $ 518,692 $ 482,912 $ 359,979 $ 344,137 ========== ========== ========== ========== ========== ========== Ratio of Earnings to Fixed Charges: Excluding interest on deposits 3.18 x 3.21 x 3.52 x 3.62 x 3.10 x 5.95 x Including interest on deposits 1.58 x 1.61 x 1.61 x 1.65 x 1.50 x 1.80 x
EX-27 4 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998/EXHIBIT 27
9 1,000 9-MOS DEC-31-1997 SEP-30-1998 596,478 330,748 51,498 57,219 4,359,883 1,058,452 1,099,744 13,729,765 218,706 21,208,181 14,496,437 3,146,030 504,494 866,563 0 685 112,757 2,081,215 21,208,181 811,904 254,207 9,232 1,075,343 426,221 573,262 502,081 14,502 18,262 697,942 337,132 217,853 0 0 217,853 2.01 1.89 3.65 79,645 7,249 1,129 88,023 208,651 14,388 9,941 218,706 218,706 0 0
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