8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  December 29, 2006

MARSHALL & ILSLEY CORPORATION

(Exact name of registrant as specified in its charter)

Wisconsin	1-15403	39-0968604
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

770 North Water Street             Milwaukee, Wisconsin	53202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (414) 765-7801

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01.

Other Events.

This Current Report on Form 8-K is being filed to present updated versions of Item 1, “Business,” Item 6, “Selected Financial Data,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 8, “Consolidated Financial Statements and Supplementary Data” and Exhibit 12 – Ratio of Earnings to Fixed Charges of the annual report on Form 10-K of Marshall & Ilsley Corporation (the “Corporation”) for the year ended December 31, 2005 for the reasons described below.  Updated Items 1, 6, 7 and 8 and Exhibit 12 are attached hereto as Exhibits and incorporated herein by reference.

Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”).  Statement 123(R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements.  In conjunction with the adoption of SFAS 123(R), the Corporation elected the Modified Retrospective Application method to implement this new accounting standard.  Under this method all prior period consolidated and segment financial information has been adjusted based on pro forma amounts previously disclosed under SFAS 123.  See Note 2 in Notes to Consolidated Financial Statements contained in the updated Item 8.

Effective January 1, 2006, the Corporation included certain loan and lease fees, primarily prepayment fees, in reported interest income on loans and leases in the Consolidated Statements of Income.  Previously, these fees were reported in Other Income.  Loan origination fees that have been capitalized and amortized over that life of the loan or lease on a basis that produces a level yield in accordance with existing accounting standards was already included in reported interest income on loans and leases.  Interest and Fee Income on Loans and Leases and Other Income have been restated in the Consolidated Statements of Income for this reclassification.

On January 1, 2006, the Banking segment transferred its external item processing business, including all check-processing client relationships to Metavante.  As a result of the transfer, the previously reported Other Income line, Item Processing, was reclassified to Data Processing Services in the Consolidated Statements of Income.  In addition, the segment information contained in Note 23 in Notes to Consolidated Financial Statements contained in the updated Item 8 was adjusted for the transfer.

During 2006, the Corporation transferred the residential and commercial mortgage banking reporting units to the Banking segment.  The segment information contained in Note 23 in Notes to Consolidated Financial Statements contained in the updated Item 8 was adjusted for the transfer.

In response to requests by users of the Corporation’s financial information, trust services revenue, brokerage and investment advisor revenue and noninterest revenue from the private banking business have been combined and is reported in the line item Wealth Management in the Consolidated Statements of Income.

The Corporation has not updated any items in its annual report on Form 10-K for the year ended December 31, 2005 other than as expressly provided herein.

Item 9.01.

Financial Statements and Exhibits.

Exhibit No.	Description
23.1	Consent of Independent Registered Public Accounting Firm
99.1	Updated Item 1, “Business”, of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.2	Updated Item 6, “Selected Financial Data,” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.3	Updated Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.4	Updated Item 8, “Consolidated Financial Statements and Supplementary Data,” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.5	Updated Exhibit 12 – Ratio of Earnings to Fixed Charges

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 hereunto duly authorized.

Dated:  December 29, 2006	MARSHALL & ILSLEY CORPORATION
	By: /s/ Randall J. Erickson
	Randall J. Erickson Senior Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Independent Registered Public Accounting Firm
99.1	Updated Item 1, “Business”, of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.2	Updated Item 6, “Selected Financial Data,” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.3	Updated Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.4	Updated Item 8, “Consolidated Financial Statements and Supplementary Data,” of the annual report on Form 10-K of Marshall & Ilsley Corporation for the year ended December 31, 2005
99.5	Updated Exhibit 12 – Ratio of Earnings to Fixed Charges

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-33153, 33-53155, 33-53897, 33-55317, 33-58787, 333-36909, 333-49195, 333-36846, 333-75848, 333-100234, 333-105161, 333-105162, 333-121604, 333-132977 and 333-137016 on Form S-8 and Nos. 333-33814 and 333-116138 on Form S-3 and Nos. 333-120576 on Form S-4 of our reports dated February 24, 2006 (December 27, 2006 as to Note 2 and Note 23 to the consolidated financial statements) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of a new accounting principle), relating to the consolidated financial statements of Marshall & Ilsley Corporation appearing in this Current Report on Form 8-K dated December 29, 2006.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin

December 27, 2006

EX-99.1

EXHIBIT 99.1

ITEM 1.  BUSINESS

General

Marshall & Ilsley Corporation (“M&I” or the “Corporation”), incorporated in Wisconsin in 1959, is a registered bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”) and is certified as a financial holding company under the Gramm-Leach-Bliley Act.  As of December 31, 2005, M&I had consolidated total assets of approximately $46.2 billion and consolidated total deposits of approximately $27.7 billion, making M&I the largest bank holding company headquartered in Wisconsin.  The executive offices of M&I are located at 770 North Water Street, Milwaukee, Wisconsin 53202 (telephone number (414) 765-7801).

M&I’s principal assets are the stock of its bank and nonbank subsidiaries, which, as of February 1, 2006, included Metavante Corporation (“Metavante”), five bank and trust subsidiaries and a number of companies engaged in businesses that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) has determined to be closely-related or incidental to the business of banking.  M&I provides its subsidiaries with financial and managerial assistance in such areas as budgeting, tax planning, auditing, compliance assistance, asset and liability management, investment administration and portfolio planning, business development, advertising and human resources management.

Generally, M&I organizes its business segments based on legal entities.  Each entity offers a variety of products and services to meet the needs of its customers and the particular market served.  Based on the way M&I organizes its business, M&I has two reportable segments:  Banking and Data Services (or Metavante).  Banking consists of accepting deposits, making loans and providing other services such as cash management, foreign exchange and correspondent banking to a variety of commercial and retail customers.  Data Services consists of providing data processing services, developing and selling software and providing consulting services to financial services companies, including M&I affiliates, as well as providing credit card merchant services.  M&I’s primary other business segments include Trust Services, Capital Markets Group, Brokerage and Insurance Services, and Commercial Leasing .

Banking Operations

M&I’s bank subsidiaries provide a full range of banking services to individuals, businesses and governments throughout Wisconsin, and in the Phoenix and Tucson, Arizona metropolitan areas, the Minneapolis/St. Paul, Minnesota and St. Louis, Missouri metropolitan areas, Las Vegas, Nevada, Naples and Bonita Springs, Florida and Belleville, Illinois.  These subsidiaries offer retail, institutional, business, international and correspondent banking and investment services through the operation of 195 banking offices in Wisconsin, 42 offices in Arizona, 14 offices in Minnesota, seven offices in Missouri, two offices in Florida, one office in Nevada and one office in Illinois, as well as on the Internet.  M&I’s bank subsidiaries hold a significant portion of their mortgage loan and investment portfolios indirectly through their ownership interests in direct and indirect subsidiaries.  M&I Marshall & Ilsley B ank (“M&I Bank”) is M&I’s largest bank subsidiary, with consolidated assets as of December 31, 2005 of approximately $38.9 billion.

Through its bank and nonbank subsidiaries, M&I offers a variety of loan products to retail customers, including credit cards, lines of credit, automobile loans and leases, student loans, home equity loans, personal loans, residential mortgage loans and mortgage refinancing.  M&I also offers a variety of loan and leasing products to business, commercial and institutional customers, including business loans, lines of credit, standby letters of credit, credit cards, government-sponsored loans, commercial real estate financing, construction financing, commercial mortgage loans and equipment and machinery leases.  In addition, through its Home Lending Solutions division, M&I Bank FSB originates residential mortgage loans and lines of credit as part of its wholesale lending program.  M&I Business Credit, Inc. provides working capital loans to commercial borrowers secured by accounts receivable, inventory and other ma rketable assets.  M&I Dealer Finance, Inc. provides retail vehicle lease and installment sale financing.  M&I Support Services Corp. provides bank operation support for loan and deposit account processing and maintenance and other banking services.

M&I’s lending activities involve credit risk.  Credit risk is controlled through active asset quality management and the use of lending standards and thorough review of potential borrowers.  M&I evaluates the credit risk of each borrower on an individual basis and, where deemed appropriate, collateral is obtained.  Collateral varies by individual loan customer but may include accounts receivable, inventory, real estate, equipment, deposits, personal and government guarantees, and general security agreements.  Access to collateral is dependent upon the type of collateral obtained.  On an on-going basis, M&I monitors its collateral and the collateral value related to the loan balance outstanding.

The M&I bank subsidiaries may use wholesale deposits, which include foreign (Eurodollar) deposits.  Wholesale deposits are funds in the form of deposits generated through distribution channels other than M&I’s own banking branches.  These deposits allow M&I’s bank subsidiaries to gather funds across a geographic base and at pricing levels considered attractive, where the underlying depositor may be retail or institutional.  Access to wholesale deposits also provides M&I with the flexibility to not pursue single service time deposit relationships in markets that have experienced unprofitable pricing levels.

M&I’s securitization activities are generally limited to basic term or revolving securitization facilities associated with indirect automobile loans.  A discussion of M&I’s securitization activities is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Note 9 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

Data Services–Metavante Operations

Metavante delivers banking and payment technologies to financial services firms and businesses.  Metavante products and services drive account processing for deposit, loan and trust systems, image-based and conventional check processing, electronic funds transfer, consumer health care payments, and electronic presentment and payment.  Metavante organizes its business in two groups:  Financial Solutions and Payment Solutions.

The Financial Solutions Group includes banking and trust solutions, offering integrated products and services for financial services providers that are centered on customer and account management, specializing in deposit, loan and investment accounts.  Two core processing products offer financial institution clients flexibility in choosing either a licensed or an outsourced solution.  Metavante delivers a complete, integrated customer relationship management solution that offers analytical and decision support capabilities, channel integration, sales and service automation, and consulting services.  Metavante electronic banking solutions provide end-users with consolidated access to their financial relationships through Internet and mobile banking, as well as personal financial management software and telephone banking.  Metavante corporate electronic banking solutions provide a comprehensive set of Internet banking, mult i-bank services, and collection and disbursement services that address the needs of corporate and middle-market customers.  Metavante investment technology services offers a set of Internet-enabled products and services that address asset and liability aggregation, trust and investment account management, and client and regulatory reporting.  Through its image solutions division, Metavante provides comprehensive image-based check and document processing and distributed image-capture solutions, including image-based payment processing, a national check image exchange and settlement network, and browser-based document and report management software.  Metavante lending solutions provide loan originating, processing and closing software systems for the residential mortgage, consumer and small business lending industries.  Metavante also offers risk and compliance software, data, and services that address the regulatory and compliance mandate of financial institutions.

Through its Payment Solutions Group, Metavante provides a complete suite of payment solutions including electronic bill presentment and payment; electronic check presentment and exchange; electronic funds transfer; signature and PIN-debit services; debit-, prepaid- and credit-card account processing; flexible-spending account, health-savings account and health-reimbursement arrangement (FSA/HSA/HRA) medical payment cards; card personalization; balance transfer; automated clearing house (ACH); automated teller machine (ATM) driving; merchant and gateway processing; and transportation payment services.  Metavante owns and operates the NYCE Network.  The NYCE Network provides financial institutions, retailers and independent ATM deployers with shared network services for ATMs, point-of-sale, account-to-account transfers and direct bill payment for millions of consumers across the United States and Canada.  Beyond its core service of providing the convenience of personal identification number (PIN) debit account access at ATMs and retailer point-of-sale terminals, NYCE provides ATM driving and fully automated monitoring services, gateway services, on and off-line signature debit card processing, and card authorization solutions.  Through its healthcare payments division, Metavante offers a consumer-directed health benefits payment platform and a market-leading employee benefits card to electronically access FSAs, HRAs, HSAs, transit/parking accounts and dependent care accounts.  Metavante provides medical identification cards, combination eligibility/payment cards, and the ability to access multiple benefits accounts from a single card.  Metavante also provides a comprehensive FSA/HSA/HRA platform that provides all the technology a financial institution, health insurance company, third-party administrator, or commercial business needs to offer these accounts.  Services include account processing, trustee services, checks and debit cards, online and phone access to account information, investment options, regulatory reporting and related data translation and movement between payers, providers and consumers.

Metavante’s revenue consists of fees related to information and transaction processing services, software licensing and maintenance, conversion services and other professional services.  Maintenance fees include ongoing client support and product updates.  Metavante also receives buyout fees related to client termination prior to the end of the contract term.  The buyout fee is contractual and based on the estimated remaining contract value.  Buyout fees can vary significantly from quarter to quarter and year to year.

Metavante’s expenses consist primarily of salaries and related expenses and processing servicing expenses, such as data processing, telecommunications and equipment expenses.  Other operating costs include selling, general and administrative costs, such as advertising and marketing expenses, travel, supplies and postage, and the use of outside firms for legal, accounting or other professional services, and amortization of investments in software, premises and equipment, conversions and acquired intangible assets.

Other Business Operations

M&I’s other nonbank subsidiaries operate a variety of bank-related businesses, including those providing trust services, capital markets, brokerage and insurance, and commercial leasing.

Trust Services.  Marshall & Ilsley Trust Company N.A. (“M&I Trust”) provides trust and employee benefit plan services to customers throughout the United States with offices in Wisconsin, Arizona, Minnesota, Florida, Nevada, Missouri and Indiana.  M&I Investment Management Corp. offers a full range of asset management services to M&I Trust, the Marshall Funds and other individual, business and institutional customers.

Capital Markets.  M&I Capital Markets Group L.L.C., M&I Capital Markets Group II, L.L.C. and M&I Ventures L.L.C. provide venture capital, financial advisory and strategic planning services to customers, including assistance in connection with the private placement of securities, raising funds for expansion, leveraged buy-outs, divestitures, mergers and acquisitions and small business investment company transactions.

Brokerage and Insurance.  M&I Brokerage Services, Inc., a broker-dealer registered with the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission, provides brokerage and other investment-related services to a variety of retail and commercial customers.  M&I Insurance Services, Inc. provides life, long-term care and disability income insurance products and annuities to retail clients and business owners.

Commercial Leasing.  M&I Equipment Finance Company, a subsidiary of M&I Bank, leases a variety of equipment and machinery to large and small businesses.

Other.  M&I Community Development Corporation makes investments designed primarily to promote the public welfare in markets and communities served by affiliates and subsidiaries of M&I.

More information on M&I’s business segments is contained in Note 23 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

Risk Management

Managing risk is an essential component of successfully operating a financial services company.  M&I has an enterprise-wide approach to risk governance, measurement, management and reporting risks inherent in its businesses.  Risk management practices include key elements such as independent checks and balances, formal authority limits, policies and procedures and portfolio management.  M&I’s internal audit department also evaluates risk management activities.  These activities include performing internal audits and reporting the results to management and the Audit and Risk Management Committees, as appropriate.

M&I has established a number of management committees responsible for assessing and evaluating risks associated with the Company’s businesses including the Credit Policy Committee, Asset Liability Committee (ALCO) and the Corporate Risk Management Committee.  In 2005, M&I established a Risk Management Committee of the Board of Directors for oversight and governance of its risk management function.  The Board’s Risk Management Committee consists of three non-management directors and has the responsibility of overseeing management’s actions with respect to credit, market, liquidity, fiduciary, operational, compliance, legal and reputation risks as well as M&I’s overall risk profile.  The Chief Risk Officer is responsible for reporting to this committee.

Operational Risk Management

Operational risk is the risk of loss from human errors, failed or inadequate processes or systems and external events.  This risk is inherent in all businesses.  Resulting losses could take the form of explicit charges, increased operational costs, harm to M&I’s reputation or lost opportunities.

M&I seeks to mitigate operational risk through a system of internal controls to manage this risk at appropriate levels.  Primary responsibility for managing internal controls lies with the managers of M&I’s various business lines.  M&I monitors and assesses the overall effectiveness of its system of internal controls on an ongoing basis.  The Corporate Risk Management Committee oversees M&I’s monitoring, management and measurement of operational risk.  In addition, M&I has established several other executive management committees to monitor, measure and report on specific operation risks to the Company, including, business continuity planning, customer information security and compliance. These committees report to the Risk Management Committee of the Board of Directors on a regular basis.

Corporate Governance Matters

M&I has adopted a Code of Business Conduct and Ethics that applies to all of M&I’s employees, officers and directors, including M&I’s Chief Executive Officer, Chief Financial Officer and Controller.  The Code of Business Conduct and Ethics is filed as an exhibit to the Corporation's Form 10-K filed March 2, 2006 and is also available on M&I’s web site at www.micorp.com.  M&I intends to disclose any amendment to or waiver of the Code of Business Conduct and Ethics that applies to M&I’s Chief Executive Officer, Chief Financial Officer or Controller on its web site within five business days following the date of the amendment or waiver.

M&I makes available free of charge through its web site its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and its insiders’ Section 16 reports and all amendments to these reports as soon as reasonably practicable after these materials are filed with or furnished to the Securities and Exchange Commission.  In addition, certain documents relating to corporate governance matters are available on M&I’s web site described above.  These documents include, among others, the following:

·

Charter for the Audit Committee of the Board of Directors;

·

Charter for the Compensation and Human Resources Committee of the Board of Directors;

·

Charter for the Nominating and Corporate Governance Committee of the Board of Directors;

·

Categorical Standards for Lending, Banking and Other Business Relationships Involving M&I’s Directors;

·

Corporate Governance Guidelines; and

·

Code of Business Conduct and Ethics.

Shareholders also may obtain a copy of any of these documents free of charge by calling the M&I Shareholder Information Line at 1-800-318-0208.  Information contained on any of M&I’s web sites is not deemed to be a part of this Annual Report.

Acquisitions

On January 4, 2006, Marshall & Ilsley Trust Company N. A. completed the acquisition of the assets of FirstTrust Indiana (“FirstTrust”), a division of First Indiana Bank, N.A.  The acquired assets included those related to FirstTrust’s provision of asset management, trust administration and estate planning services to high-net-worth individuals and institutional customers.

On January 3, 2006, Metavante completed the acquisition of AdminiSource Corp. (“AdminiSource”), a Carrollton, Texas provider of health care payment distribution services.  The acquisition was part of Metavante’s continuing expansion of its consumer-directed health care payments business.

On December 21, 2005, M&I announced its plan to acquire Trustcorp Financial, Inc. (“Trustcorp”), the St. Louis-based parent company of Missouri State Bank & Trust, which provides banking services in Missouri.  The transaction, which is subject to approval by the stockholders of Trustcorp and the receipt of requisite regulatory approvals, is expected to close in the second quarter of 2006.

On November 18, 2005, Metavante completed the acquisition of LINK2GOV Corp. (“LINK2GOV”) of Nashville, Tennessee.  LINK2GOV is a provider of comprehensive, customized online phone and point-of-sale payment processing services, including credit and debit solutions, to many federal, state and local governments and financial intermediaries servicing government entities, including the Internal Revenue Service.

On November 10, 2005, M&I announced its plan to acquire Gold Banc Corporation, Inc. (“Gold Banc”), the Leawood, Kansas-based parent company of Gold Bank, which provides commercial banking services in Florida, Kansas, Missouri and Oklahoma.  The transaction was approved by the Gold Banc stockholders on January 25, 2006, and is expected to be completed promptly following the receipt of the requisite regulatory approvals.

On October 6, 2005, Metavante completed the acquisition of Birmingham, Alabama-based Brasfield Corporation (“Brasfield”).  Brasfield provides core banking, processing, customer service, check and document imaging and check exchange services to community banks, and strengthens Metavante’s community banking strategy.

On August 11, 2005, Metavante completed the acquisition of GHR Systems, Inc. (“GHR”) of Wayne, Pennsylvania.  GHR provides loan origination technologies for the residential mortgage and consumer finance industries, offers point of sale products for any channel and comprehensive underwriting, processing and closing technologies.

On August 8, 2005, Metavante completed the acquisition of TREEV LLC (“TREEV”), of Herndon, Virginia.  TREEV provides browser-based document imaging, storage and retrieval products and services for the financial-services industry in both lending and deposit environments.  TREEV complements Metavante’s check-imaging products and services by providing solutions for document storage and retrieval, including electronic report storage.

On July 22, 2005, Metavante completed the acquisition of Med-i-Bank, Inc. (“MBI”) of Waltham, Massachusetts.  MBI provides electronic payment processing services for employee benefit and consumer-directed healthcare accounts, such as flexible spending accounts, health reimbursement arrangements and health savings account systems.

On February 9, 2005, Metavante completed the acquisition of Clark, New Jersey–based Prime Associates, Inc., a leading international provider of software, data and services that address the regulatory and compliance mandate of financial institutions such as anti-money laundering regulations.  Prime Associates provides regulatory compliance solutions for the Bank Secrecy Act and the USA PATRIOT Act of 2001 and regulations and policy statements promulgated thereunder, including Office of Foreign Asset Control filtering.

More information on M&I’s acquisitions can be found in Note 4 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

M&I continues to evaluate opportunities to acquire banking institutions and other financial service providers and frequently conducts due diligence activities in connection with possible transactions.  As a result, M&I may engage in discussions, and in some cases, negotiations with prospective targets and may make future acquisitions for cash, equity or debt securities.  The issuance of additional shares of M&I common stock would dilute a shareholder’s ownership interest in M&I.  In addition, M&I’s acquisitions may involve the payment of a premium over book value, and therefore, some dilution of book value may occur with any future acquisition.  Generally, it is M&I’s policy not to comment on such discussions or possible acquisitions until a definitive agreement has been signed.  M&I’s strategy for growth includes strengthening its presence in core markets, expanding in to attractive markets and broadening its product offerings.

Principal Sources of Revenue

The table below shows the amount and percentages of M&I’s total consolidated revenues resulting from interest and fees on loans and leases, fees for data processing services and interest on investment securities for each of the last three years ($ in thousands):  

	As Adjusted
	Interest and Fees on Loans and Leases				Fees for Data Processing Services				Interest on Investment Securities
Years Ended December 31,	Amount		Percent of Total Revenues		Amount		Percent of Total Revenues		Amount		Percent of Total Revenues		Total Revenues
2005	$	1,959,063	49.4	%	$	1,185,024	29.9	%	$	287,339	7.3	%	$	3,962,890
2004		1,432,754	46.0			934,128	30.0			261,330	8.4			3,112,285
2003		1,336,288	48.7			700,530	25.5			225,602	8.2			2,745,721

M&I business segment information is contained in Note 23 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

Competition

M&I and its subsidiaries face substantial competition from hundreds of competitors in the markets they serve, some of which are larger and have greater resources than M&I.  M&I’s bank subsidiaries compete for deposits and other sources of funds and for credit relationships with other banks, savings associations, credit unions, finance companies, mutual funds, life insurance companies (and other long-term lenders) and other financial and non-financial companies located both within and outside M&I’s primary market area, many of which offer products functionally equivalent to bank products.  M&I’s nonbank operations compete with numerous banks, finance companies, data servicing companies, leasing companies, mortgage bankers, brokerage firms, financial advisors, trust companies, mutual funds and investment bankers in Wisconsin and throughout the United States.

The markets for the banking and payment products and services offered by Metavante are intensely competitive.  Metavante competes with a variety of companies in various segments of the financial services industry, and its competitors vary in size and in the scope and breadth of products and services they offer.  Certain segments of the financial services industry tend to be highly fragmented with numerous companies competing for market share.  Other segments of the financial services industry have large well-capitalized competitors who command the majority of market share.  Metavante also faces competition from in-house technology departments of existing and potential clients who may develop their own product offerings.

Employees

As of December 31, 2005, M&I and its subsidiaries employed in the aggregate 13,967 employees.  M&I considers employee relations to be excellent.  None of the employees of M&I or its subsidiaries are represented by a collective bargaining group.

Supervision and Regulation

As a registered bank holding company, M&I is subject to regulation and examination by the Federal Reserve Board under the BHCA.  As of February 1, 2006, M&I owned a total of five bank and trust subsidiaries, including two Wisconsin state banks, a Missouri state bank, a federal savings bank, and a national banking association.  M&I’s two Wisconsin state bank subsidiaries are subject to regulation and examination by the Wisconsin Department of Financial Institutions, as well as by the Federal Reserve Board.  M&I’s Missouri state bank subsidiary is subject to regulation and examination by the Missouri Department of Economic Development, Division of Finance, and the Federal Reserve Board.  M&I’s federal savings bank subsidiary is subject to regulation and examination by the Office of Thrift Supervision.  M&I’s national bank, through which trust operations are conducted, is subject to regulation and examination by the Office of the Comptroller of the Currency.  In addition, all of M&I’s bank subsidiaries are subject to examination by the Federal Deposit Insurance Corporation (“FDIC”).

Under Federal Reserve Board policy, M&I is expected to act as a source of financial strength to each of its bank subsidiaries and to commit resources to support each bank subsidiary in circumstances when it might not do so absent such requirements.  In addition, there are numerous federal and state laws and regulations which regulate the activities of M&I and its bank subsidiaries, including requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business, transactions with officers, directors and affiliates, loan limits, consumer protection laws, privacy of financial information, predatory lending, fair lending, mergers and acquisitions, issuances of securities, dividend payments, inter-affiliate liabilities, extensions of credit and branch banking.  Information regarding capital requirements for bank holding companies and tables reflecting M&I’s regulatory c apital position at December 31, 2005 can be found in Note 15 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

The federal regulatory agencies have broad power to take prompt corrective action if a depository institution fails to maintain certain capital levels.  In addition, a bank holding company’s controlled insured depository institutions are liable for any loss incurred by the FDIC in connection with the default of, or any FDIC-assisted transaction involving, an affiliated insured bank or savings association.  Current federal law provides that adequately capitalized and managed bank holding companies from any state may acquire banks and bank holding companies located in any other state, subject to certain conditions.  Banks are permitted to create interstate branching networks in states that have not “opted out” of interstate branching.  M&I Bank currently maintains interstate branches in Arizona and Minnesota and Southwest Bank of St. Louis, M&I’s Missouri state bank subsidiary, maintains an inter state branch in Illinois.

The laws and regulations to which M&I is subject are constantly under review by Congress, regulatory agencies and state legislatures.  In 1999, Congress enacted the Gramm-Leach-Bliley Act (the “Act”), which eliminated certain barriers to and restrictions on affiliations between banks and securities firms, insurance companies and other financial services organizations.  Among other things, the Act repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the BHCA to permit bank holding companies that qualify as “financial holding companies” to engage in a broad list of “financial activities,” and any non-financial activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines is “complementary” to a financial activity and poses no substantial risk to the safety and soundness of depository instit utions or the financial system.  The Act treats various lending, insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities as financial in nature for this purpose.

Under the Act, a bank holding company may become certified as a financial holding company by filing a notice with the Federal Reserve Board, together with a certification that the bank holding company meets certain criteria, including capital, management, and Community Reinvestment Act requirements.  M&I elected to become certified as a financial holding company on June 18, 2003.

In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”).  The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the United States financial system, and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.  The USA PATRIOT Act mandates financial services companies to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes.

The earnings and business of M&I and its bank subsidiaries also are affected by the general economic and political conditions in the United States and abroad and by the monetary and fiscal policies of various federal agencies.  The Federal Reserve Board impacts the competitive conditions under which M&I operates by determining the cost of funds obtained from money market sources for lending and investing and by exerting influence on interest rates and credit conditions.  In addition, legislative and economic factors can be expected to have an ongoing impact on the competitive environment within the financial services industry.  The impact of fluctuating economic conditions and federal regulatory policies on the future profitability of M&I and its subsidiaries cannot be predicted with certainty.

Selected Statistical Information

Statistical information relating to M&I and its subsidiaries on a consolidated basis is set forth as follows:

(1)

Average Balance Sheets and Analysis of Net Interest Income for each of the last three years is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)

Analysis of Changes in Interest Income and Interest Expense for each of the last two years is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(3)

Nonaccrual, Past Due and Restructured Loans and Leases for each of the last five years is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(4)

Summary of Loan and Lease Loss Experience for each of the last five years (including the narrative discussion) is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(5)

Return on Average Shareholders’ Equity, Return on Average Assets and other statistical ratios for each of the last five years can be found in Item 6, Selected Financial Data.

(6)

Potential Problem Loans and Leases for the last two years can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following tables set forth certain statistical information relating to M&I and its subsidiaries on a consolidated basis.

Investment Securities

The amortized cost of M&I’s consolidated investment securities, other than trading and other short-term investments, at December 31 of each year are ($ in thousands):

	2005	2004	2003
U.S. Treasury and government agencies	$4,456,610	$4,147,593	$3,856,069
States and political subdivisions	1,307,403	1,203,412	1,093,033
Other	612,621	686,590	593,875
Total	$6,376,634	$6,037,595	$5,542,977

The maturities, at amortized cost, and weighted average yields (for tax-exempt obligations on a fully taxable basis assuming a 35% tax rate) of investment securities at December 31, 2005 are ($ in thousands):

	Within One Year		After One But Within Five Years		After Five But Within Ten Years		After Ten Years		Total
	Amount	Yield	Amount	Yield	Amount	Yield	Amount	Yield	Amount	Yield
U.S. Treasury and  government agencies	$1,135,435	4.55%	$2,301,947	4.58%	$895,948	4.58%	$123,280	4.58 %	$4,456,610	4.57%
States and political  subdivisions	96,095	7.54	330,149	7.55	292,774	6.86	588,385	6.51	1,307,403	6.93
Other	72,368	5.74	104,157	5.20	43,677	4.83	392,419	4.42	612,621	4.74
Total	$1,303,898	4.84%	$2,736,253	4.96%	$1,232,399	5.13%	$1,104,084	5.55%	$6,376,634	5.07%

Types of Loans and Leases

M&I’s consolidated loans and leases, including loans held for sale, classified by type, at December 31 of each year are ($ in thousands):

	2005	2004	2003	2002	2001
Commercial, financial  and agricultural	$9,491,368	$ 8,396,069	$ 7,013,073	$ 6,791,404	$ 5,656,384
Industrial development  revenue bonds	74,107	85,394	97,601	80,110	71,892
Real estate:
Construction	3,641,942	2,265,227	1,766,697	1,404,414	1,057,691
Mortgage:
Residential	9,884,283	8,548,029	6,834,360	6,412,380	5,237,148
Commercial	8,825,104	8,164,099	7,149,149	6,586,332	5,099,093
Total mortgage	18,709,387	16,712,128	13,983,509	12,998,712	10,336,241
Personal	1,617,761	1,540,024	1,747,738	1,852,202	1,210,808
Lease financing	632,348	537,930	576,322	782,004	962,356
Total loans and leases	34,166,913	29,536,772	25,184,940	23,908,846	19,295,372
Less:
Allowance for loan and lease losses	363,769	358,110	349,561	338,409	268,198
Net loans and leases	$33,803,144	$29,178,662	$24,835,379	$23,570,437	$19,027,174

Loan and Lease Balances and Maturities

The analysis of selected loan and lease maturities at December 31, 2005 and the rate structure for the categories indicated are ($ in thousands):

	Maturity				Rate Structure of Loans and Leases Due After One Year
	One Year Or Less	Over One Year Through Five Years	Over Five Years	Total	With Pre-determined Rate	With Floating Rate	Total
Commercial, financial  and agricultural	$6,243,262	$2,881,816	$400,176	$9,525,254	$1,297,173	$1,984,819	$3,281,992
Industrial development  revenue bonds	2,392	25,751	45,964	74,107	38,017	33,698	71,715
Real estate – construction	1,430,875	2,197,263	13,804	3,641,942	252,107	1,958,960	2,211,067
Lease Financing	131,644	439,386	61,318	632,348	500,704	—	500,704
Total	$7,808,173	$5,544,216	$521,262	$13,873,651	$ 2,088,001	$3,977,477	$6,065,478

Notes:

(1)

Scheduled repayments are reported in the maturity category in which the payments are due based on the terms of the loan agreements.  Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

(2)

The estimated effect arising from the use of interest rate swaps as shown in the rate structure of loans and leases is immaterial.

Deposits

The average amount of and the average rate paid on selected deposit categories for each of the years ended December 31 is as follows ($ in thousands):

	2005		2004		2003
	Amount	Rate	Amount	Rate	Amount	Rate
Noninterest bearing demand deposits	$4,942,803		$  4,585,628		$ 4,189,724
Interest bearing demand deposits	2,030,996	0.89%	2,233,297	0.74%	2,111,753	0.90%
Savings deposits	8,118,331	2.23	7,330,492	0.82	7,226,830	0.69
Time deposits	11,009,343	3.14	9,838,518	2.03	8,457,571	1.89
Total deposits	$26,101,473		$23,987,935		$21,985,878

The maturity distribution of time deposits issued in amounts of $100,000 and over outstanding at December 31, 2005 ($ in thousands) is:

Three months or less	$1,727,521
Over three and through six months	315,181
Over six and through twelve months	1,141,096
Over twelve months	2,468,561
Total	$5,652,359

At December 31, 2005, time deposits issued by foreign offices totaled $2.6 billion.  The majority of foreign deposits were in denominations of $100,000 or more.

Short-Term Borrowings

Information related to M&I’s Federal funds purchased and security repurchase agreements for the last three years is as follows ($ in thousands):

	2005	2004	2003
Amount outstanding at year end	$2,325,863	$1,478,103	$741,646
Average amount outstanding during the year	2,043,314	2,035,428	2,580,291
Maximum outstanding at any month’s end	2,757,845	3,051,606	3,684,044
Weighted average interest rate at year end	4.04%	2.05%	0.73%
Weighted average interest rate during the year	3.21	1.27	1.11

Information relating to the Corporation’s short-term borrowings is included in Note 13 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data.

EX-99.2

EXHIBIT 99.2

ITEM 6.

SELECTED FINANCIAL DATA

Consolidated Summary of Earnings

Years Ended December 31 ($000’s except share data)

	As Adjusted
	2005		2004		2003		2002		2001
Interest and Fee Income:
Loans and leases	$1,959,063		$1,432,754		$1,336,288		$1,318,175		$1,374,162
Investment securities
Taxable	214,537		200,107		165,075		198,037		270,336
Exempt from federal income taxes	64,127		58,826		57,968		60,637		62,273
Trading securities	229		271		258		328		884
Short-term investments	8,675		2,397		2,559		11,168		16,812
Total interest and fee income	2,246,631		1,694,355		1,562,148		1,588,345		1,724,467
Interest Expense:
Deposits	544,920		276,102		228,216		283,385		566,899
Short-term borrowings	106,333		61,256		81,070		150,310		188,587
Long-term borrowings	330,144		196,440		163,348		127,343		110,842
Total interest expense	981,397		533,798		472,634		561,038		866,328
Net interest income	1,265,234		1,160,557		1,089,514		1,027,307		858,139
Provision for loan and lease losses	44,795		37,963		62,993		74,416		54,115
Net interest income after
provision for loan and lease losses	1,220,439		1,122,594		1,026,521		952,891		804,024
Other Income:
Data processing services	1,185,024		934,128		700,530		640,578		607,454
Wealth management	191,720		175,119		148,348		140,736		138,666
Net investment securities gains (losses)	45,514		35,336		21,572		(6,275)		(6,759)
Other	294,001		273,347		313,123		286,640		246,529
Total other income	1,716,259		1,417,930		1,183,573		1,061,679		985,890
Other Expense:
Salaries and employee benefits	1,074,758		919,431		830,779		779,836		720,544
Other	804,286		709,253		654,808		551,370		594,242
Total other expense	1,879,044		1,628,684		1,485,587		1,331,206		1,314,786
Income before income taxes and cumulative
effect of changes in accounting principles	1,057,654		911,840		724,507		683,364		475,128
Provision for income taxes	351,464		305,987		202,060		225,455		153,900
Income before cumulative effect of changes
in accounting principles	706,190		605,853		522,447		457,909		321,228
Cumulative effect of changes in accounting
principles, net of income taxes	—		—		—		—		(436)
Net Income	$     706,190		$    605,853		$    522,447		$    457,909		$    320,792
Net income per common share:**
Basic:
Income before cumulative effect of changes
in accounting principles	$           3.06		$           2.72		$          2.31		$           2.15		$          1.52
Cumulative effect of changes in accounting
principles, net of income taxes	—		—		—		—		—
Net income	$          3.06		$           2.72		$           2.31		$           2.15		$           1.52
Diluted:
Income before cumulative effect of changes
in accounting principles	$          2.99		$           2.66		$           2.28		$           2.06		$           1.47
Cumulative effect of changes in accounting
principles, net of income taxes	—		—		—		—		—
Net income	$           2.99		$           2.66		$           2.28		$           2.06		$           1.47
Other Significant Data:
Year-End Common Stock Price**	$        43.04		$        44.20		$        38.25		$        27.38		$        31.64
Return on Average Shareholders’ Equity	16.21	%	17.00	%	15.87	%	16.32	%	13.04	%
Return on Average Assets	1.63		1.63		1.57		1.57		1.22
Dividend Payout Ratio	31.10		30.45		30.70		30.34		38.64
Average Equity to Average Assets Ratio	10.07		9.59		9.89		9.61		9.33
Ratio of Earnings to Fixed Charges*
Excluding Interest on Deposits	3.28	x	4.24	x	3.71	x	3.27	x	2.48	x
Including Interest on Deposits	2.05	x	2.64	x	2.46	x	2.17	x	1.54	x

______________

    *

See Exhibit 12 for detailed computation of these ratios.

  **

Restated for 2-for-1 stock split effective June 17, 2002.

Consolidated Average Balance Sheets

Years ended December 31 ($000’s except share data)

	2005		2004		2003		2002		2001
Assets:
Cash and due from banks	$   966,078		$   835,391		$    752,215		$    708,256		$    651,367
Investment securities:
Trading securities	26,922		22,297		23,017		15,247		21,284
Short-term investments	237,178		171,057		264,254		717,129		503,857
Other investment securities:
Taxable	4,847,722		4,672,741		4,038,579		3,325,568		3,926,737
Tax exempt	1,334,793		1,199,139		1,173,466		1,224,737		1,269,175
Total investment securities	6,446,615		6,065,234		5,499,316		5,282,681		5,721,053
Loans and Leases:
Commercial	8,954,619		7,621,040		6,905,323		6,143,862		5,478,342
Real estate	20,728,918		17,215,467		14,938,082		12,633,208		10,514,536
Personal	1,525,502		1,632,440		1,874,315		1,388,447		1,182,049
Lease financing	567,344		552,551		674,871		862,927		1,026,215
Total loans and leases	31,776,383		27,021,498		24,392,591		21,028,444		18,201,142
Less:  Allowance for loan and lease losses	362,886		360,408		347,838		302,664		253,089
Net loans and leases	31,413,497		26,661,090		24,044,753		20,725,780		17,948,053
Premises and equipment, net	458,179		448,134		440,492		418,042		391,633
Accrued interest and other assets	3,999,172		3,152,745		2,531,245		2,067,891		1,658,203
Total Assets	$43,283,541		$37,162,594		$33,268,021		$29,202,650		$26,370,309
Liabilities and Shareholders’ Equity:
Deposits:
Noninterest bearing	$4,942,803		$4,585,628		$ 4,189,724		$3,509,133		$ 2,895,083
Interest bearing:
Bank issued deposits:
Bank issued interest bearing activity
Deposits	10,027,250		9,960,645		10,084,996		8,996,778		7,833,126
Bank issued time deposits	4,410,456		3,384,120		3,399,734		3,540,124		3,975,253
Total bank issued deposits	14,437,706		13,344,765		13,484,730		12,536,902		11,808,379
Wholesale deposits	6,720,964		6,057,542		4,311,424		2,596,952		2,487,129
Total interest bearing deposits	21,158,670		19,402,307		17,796,154		15,133,854		14,295,508
Total deposits	26,101,473		23,987,935		21,985,878		18,642,987		17,190,591
Short-term borrowings	2,925,642		2,908,168		3,138,752		4,188,339		3,944,160
Long-term borrowings	8,193,001		5,329,571		3,798,851		2,693,447		1,962,801
Accrued expenses and other liabilities	1,706,111		1,372,677		1,052,713		871,222		813,460
Total liabilities	38,926,227		33,598,351		29,976,194		26,395,995		23,911,012
Shareholders’ Equity	4,357,314		3,564,243		3,291,827		2,806,655		2,459,297
Total Liabilities and Shareholders’ Equity	$43,283,541		$37,162,594		$33,268,021		$29,202,650		$26,370,309
Other Significant Data:
Book Value Per Share at Year End**	$        20.27		$        17.51		$         15.24		$         13.71		$         11.81
Average Common Shares Outstanding**	231,300,867		223,123,866		226,342,764		212,799,996		208,587,816
Employees at Year End	13,967		13,345		12,244		12,625		11,657
Credit Quality Ratios:
Net Loan and Lease Charge-offs to Average Loans and Leases	0.12	%	0.11	%	0.21	%	0.21	%	0.22	%
Total Nonperforming Loans and Leases* and OREO to End of Period Loans and Leases and OREO	0.44		0.48		0.74		0.85		0.94
Allowance for Loan and Lease Losses to End of Period Loans and Leases	1.06		1.21		1.39		1.42		1.39
Allowance for Loan and Lease Losses to Total Nonperforming Loans and Leases*	259		271		202		174		154

______________

    *

Loans and leases nonaccrual, restructured, and past due 90 days or more.

  **

Restated for 2-for-1 stock split effective June 17, 2002.

Yield & Cost Analysis

Years ended December 31 (Tax equivalent basis)

	2005		2004		2003		2002		2001
Average Rates Earned:
Loan and Leases	6.17	%	5.31	%	5.49	%	6.28	%	7.56	%
Investment Securities – Taxable	4.41		4.30		4.13		6.11		7.04
Investment Securities – Tax-Exempt	7.26		7.53		7.58		7.49		7.28
Trading Securities	0.89		1.26		1.16		2.21		4.21
Short-term Investments	3.66		1.40		0.97		1.56		3.34
Average Rates Paid:
Interest Bearing Deposits	2.58	%	1.42	%	1.28	%	1.87	%	3.97	%
Short-term Borrowings	3.63		2.11		2.58		3.59		4.78
Long-term Borrowings	4.03		3.69		4.30		4.73		5.65
M&I Marshall & Ilsley Bank Average Prime Rate	6.19		4.34		4.12		4.67		6.91

EX-99.3

EXHIBIT 99.3

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”).  SFAS 123(R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the fair value of the equity or liability instruments issued.  SFAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards and employee stock purchase plans.  The Corporation elected the Modified Retrospective Application method to implement SFAS 123(R).  Under that method, financial statements prior to the effective date have been adjusted based on pro forma amounts previously disclosed under Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation (“ ;SFAS 123”) for all periods for which SFAS 123 was effective.  The following is an update of Management’s Discussion and Analysis of Financial Condition and Results of Operations based on the adjusted financial statements.  See Notes 2 and 17 in Notes to Consolidated Financial Statements for the disclosures required under SFAS 123(R).

The Corporation’s overall strategy is to drive earnings per share growth by: (1) expanding banking operations not only in Wisconsin but also into faster growing regions beyond Wisconsin; (2) increasing the number of financial institutions to which the Corporation provides correspondent banking services and products; (3) expanding trust services and other wealth management product and service offerings; and (4) growing Metavante’s business through organic growth, cross sales of technology products and acquisitions.

The Corporation continues to focus on its key metrics of growing revenues through balance sheet growth, fee-based income growth and strong credit quality.  Management believes that the Corporation has demonstrated solid fundamental performance in each of these key areas and as a result, the year ended December 31, 2005 produced strong financial results across all of its segments and reporting units.

Strong sales efforts and an improving economy resulted in solid loan and deposit growth in all of the Corporation’s markets.  Both noninterest and bank-issued interest bearing deposit growth trends were especially encouraging.  These factors resulted in an increase in net interest income in 2005 compared to 2004.  The favorable economic conditions in our markets have resulted in net charge-off levels below the Corporation’s historical net charge-off levels again in 2005.  An active acquisition and cross-sale strategy coupled with successful outsourcing contract renewals enabled Metavante to continue double-digit growth in segment earnings.  Continued growth in assets under management and assets under administration resulted in solid growth in fee income for Wealth Management.  Mortgage loan production was very strong in 2005 compared to 2004.  Although an unpredictable source of earnings, the Corp oration’s Capital Markets Group recognized investment securities gains for the third year in a row.  These factors, along with continued expense management, all contributed to the consolidated earnings growth in 2005.

Net income in 2005 amounted to $706.2 million or $2.99 per share on a diluted basis.  The return on average assets and return on average equity were 1.63% and 16.21%, respectively.  By comparison, net income in 2004 was $605.9 million, diluted earnings per share was $2.66, the return on average assets was 1.63% and the return on average equity was 17.00%.  For the year ended December 31, 2003, net income was $522.4 million or $2.28 per diluted share and the returns on average assets and average equity were 1.57% and 15.87%, respectively.

With regard to the outlook in 2006 for the Banking Segment, management expects that organic commercial loan growth (as a percentage) will be in the low double digits.  Organic personal loan production is expected to increase modestly.  However, organic personal loan growth (as a percentage) will depend on the proportion of personal loan production retained versus sold.  Management is encouraged by the recent organic growth in bank-issued deposits and will continue to focus on growing this important source of funds in 2006.  Net charge-offs in 2006 are expected to range from 15 basis points to 20 basis points of average loans which represents a return to historical levels.  Management expects Metavante’s revenue in 2006 to be in the range of $1.4 billion to $1.5 billion.  Organic revenue growth (as a percentage) and segment income growth are expected to continue to modestly improve.  

In November and December of 2005, the Corporation announced the acquisitions of Gold Banc Corporation, Inc. (“Gold Banc”), the parent company of Gold Bank, and Trustcorp Financial, Inc. (“Trustcorp”), the parent company of Missouri State Bank & Trust.  These transactions are expected to close in the second quarter of 2006.  Gold Banc is a financial holding company with consolidated assets of $4.2 billion headquartered in Leawood, Kansas, a part of the Kansas City metropolitan area.  Gold Banc provides banking and asset management services in Kansas, Florida, Missouri and Oklahoma through 31 banking locations.  Trustcorp, with $746.2 million in assets, has seven bank branches located in the St. Louis, Missouri metropolitan area.  Management expects that these transactions in the aggregate will be dilutive to the Corporation’s consolidated results of operations in 2006 by approximately $0.0 5 per diluted share, assuming the transactions are completed in accordance with current expectations.

As previously discussed, on January 1, 2006, the Corporation adopted SFAS 123(R), the new accounting standard that requires all share-based compensation to be expensed.  For the Corporation, additional expense will be reported for its stock option awards and its employee stock purchase plan.  Assuming the same number of awards granted in 2005 and the same fair values, the Corporation estimates that the additional expense for stock options and the employee stock purchase plan will be dilutive to the Corporation’s consolidated results of operations in 2006 by approximately $0.10 per diluted share.

The Corporation’s actual results for 2006 could differ materially from those expected by management.  See “Forward-Looking Statements” in Item 1A. of the Corporation’s Form 10-K filed March 2, 2006, for a discussion of the various risk factors that could cause actual results to differ materially from expected results.

The results of operations and financial condition for the periods presented include the effects of the acquisitions by Metavante as well as the banking-related acquisition from the dates of consummation of the acquisitions.  All transactions were accounted for using the purchase method of accounting.  See Note 4 in Notes to Consolidated Financial Statements for a discussion of the Corporation’s acquisition activities in 2005, 2004 and 2003.

Significant Transactions

Some of the more significant transactions in 2005, 2004 and 2003 consisted of the following:

During the second and third quarters of 2005, the Corporation realized a gain primarily due to the sale of an entity associated with its investment in an independent private equity and venture capital partnership.  The gross pre-tax gain amounted to $29.4 million and is reported in Net Investment Securities Gains in the Consolidated Statements of Income.  On an after-tax basis, and net of related compensation expense, the gain amounted to $16.5 million or $0.07 per diluted share for the twelve months ended December 31, 2005.

During the third quarter of 2005, the Corporation realized a gain due to an equity investment that the Corporation liquidated in a cash tender offer.  The gross pre-tax gain amounted to $6.6 million and is reported in Net Investment Securities Gains in the Consolidated Statements of Income.  On an after-tax basis, the gain amounted to $3.9 million or $0.02 per diluted share for the twelve months ended December 31, 2005.

During the first quarter of 2005, the Corporation’s banking segment’s investment in certain membership interests of PULSE EFT Associates (“PULSE”) was liquidated by PULSE due to a change in control.  The cash received resulted in a pre-tax gain of $5.6 million and is reported in Net Investment Securities Gains in the Consolidated Statements of Income.  

During 2004, net gains associated with the Corporation’s Capital Markets Group investments amounted to $34.6 million.  Approximately $34.1 million of the net gain in 2004 was from a net unrealized gain recognized in the fourth quarter of 2004 due to the net increase in market value of an investment in an independent private equity and venture capital partnership.

The net unrealized gain recognized in the fourth quarter of 2004 was offset by charitable foundation expense which was higher than historical levels and other accrual adjustments that amounted to approximately $6.8 million.

During 2004, Metavante sold its small business 401k Retirement Plan Services operations.  In conjunction with an expanded processing relationship, Metavante also sold the direct customer base of Paytrust.com in 2004.  These transactions resulted in an aggregate loss of approximately $7.1 million.

During 2004, the Corporation issued 3.6 million shares of its common stock in a public offering that resulted in net proceeds to the Corporation of approximately $149.9 million.  Also during 2004, the Corporation issued $400 million of equity units (referred to as Common SPACES^SM) that resulted in net proceeds to the Corporation of approximately $389.2 million.  Each Common SPACES consists of (i) a stock purchase contract under which the investor agrees to purchase for $25.00, a fraction of a share of the Corporation’s common stock on the stock purchase date and (ii) a 1/40, or 2.5%, undivided beneficial interest in a preferred security of M&I Capital Trust B (also referred to as the STACKS^SM) with each share having an initial liquidation value of $1,000.  The stock purchase date is expected to be August 15, 2007 but could be deferred for quarterly periods until August 15, 2008.  On the stoc k purchase date, the number of shares of common stock the Corporation will issue upon settlement of the stock purchase contracts depends on the applicable market value per share of the Corporation’s common stock, which will be determined just prior to the stock purchase date, and other factors.  The Corporation currently estimates that it will issue approximately 8.7 million to 10.9 million common shares to settle shares issuable pursuant to the stock purchase contracts.  The proceeds from these issuances together with proceeds from the issuance of $600.0 million of senior notes were used for general corporate purposes, including maintaining capital at desired levels and providing long-term financing for the acquisitions completed by Metavante in 2004.

During 2004, the Corporation’s banking segment prepaid and retired certain higher cost long-term debt and terminated some related receive floating / pay fixed interest rate swaps designated as cash flow hedges.  The total debt retired amounted to $355.0 million and the charge to earnings amounted to a loss of $6.9 million.

During 2003, gains recognized by the Corporation’s Capital Markets Group amounted to $20.0 million.  Approximately $16.2 million of the gain was from the sale of an investment in the third quarter of 2003.

Also during 2003, several income tax audits covering multiple tax jurisdictions were resolved which positively affected the banking segment by approximately $28.6 million and Metavante by $10.7 million and resulted in a lower provision for income taxes in the Consolidated Statements of Income for the year ended December 31, 2003.

The Corporation used the unanticipated Capital Markets Group gains and the benefits from resolving income tax audits to take advantage of the low interest rate environment in 2003.  The Corporation prepaid and retired certain higher cost long-term debt and terminated some related receive floating / pay fixed interest rate swaps designated as cash flow hedges.  The total debt retired amounted to $744.6 million and the charge to earnings amounted to $56.7 million.

As a result of a shift in product strategy, Metavante wrote-off certain purchased and internally developed software in 2003 that will no longer be used, resulting in losses of $22.8 million in 2003.

Net Interest Income

Net interest income, which is the difference between interest earned on earning assets and interest owed on interest bearing liabilities, represented approximately 42.4% of the Corporation’s source of revenues in 2005.

Net interest income in 2005 amounted to $1,265.2 million compared with net interest income of $1,160.6 million in 2004, an increase of  $104.6 million or 9.0%.  Loan growth and the growth in noninterest bearing and other bank-issued deposits were the primary contributors to the increase in net interest income.  Net interest income in 2005 was negatively affected by lower loan spreads and the interest expense associated with debt issued in the third quarter of 2004 to fund Metavante’s acquisitions.

Average earning assets in 2005 amounted to $38.2 billion compared to $33.1 billion in 2004, an increase of $5.1 billion or 15.5%.  Increases in average loans and leases accounted for 92.6% of the growth in average earning assets.

Average interest bearing liabilities increased $4.6 billion or 16.8% in 2005 compared to 2004.  Approximately $1.8 billion or 37.9% of the growth in average interest bearing liabilities was attributable to interest bearing deposits and the remainder of the growth in average interest bearing liabilities was attributable to long term borrowings.

Average noninterest bearing deposits increased $0.4 billion or 7.8% in 2005 compared to the prior year.

Net interest income in 2004 amounted to $1,160.6 million compared with net interest income of $1,089.5 million in 2003, an increase of  $71.1 million or 6.5%.  Loan growth and growth in lower cost deposits, increased spreads on certain loan products and the impact of the early retirement of some higher cost long-term borrowings in 2003 and 2004 were positive contributors to the increase in net interest income in 2004.  Net interest income in 2004 was negatively affected by the lengthening of liabilities in order to reduce future volatility in net interest income as a result of interest rate movements and cash expenditures for common share buybacks and acquisitions.

Average earning assets in 2004 amounted to $33.1 billion compared to $29.9 billion in 2003, an increase of $3.2 billion or 10.7%.  Increases in average loans and leases accounted for the majority of the growth in average earning assets.

Average interest bearing liabilities increased $2.9 billion or 11.8% in 2004 compared to 2003.  Approximately $1.6 billion or 55.3% of the growth in average interest bearing liabilities was attributable to interest bearing deposits and the remainder of the growth in average interest bearing liabilities was attributable to long-term borrowings.

Average noninterest bearing deposits increased $0.4 billion or 9.4% in 2004 compared to the prior year.

The growth and composition of the Corporation’s average loan and lease portfolio for the current year and prior two years are reflected in the following table ($ in millions):

							Percent Growth
	2005		2004		2003		2005 vs 2004		2004 vs 2003
Commercial:
Commercial	$	8,954.6	$	7,621.0	$	6,905.3	17.5	%	10.4	%
Commercial real estate:
Commercial mortgages		8,575.8		7,658.2		6,901.0	12.0		11.0
Construction		1,412.8		1,097.4		999.5	28.7		9.8
Total commercial real estate		9,988.6		8,755.6		7,900.5	14.1		10.8
Commercial lease financing		439.4		397.0		390.0	10.7		1.8
Total commercial		19,382.6		16,773.6		15,195.8	15.6		10.4
Personal:
Residential real estate:
Residential mortgages		4,239.5		2,855.3		2,335.2	48.5		22.3
Construction		1,513.0		839.8		593.0	80.2		41.6
Total residential real estate		5,752.5		3,695.1		2,928.2	55.7		26.2
Consumer loans:
Student		79.4		87.2		95.8	(8.9)		(9.0)
Credit card		223.6		224.0		198.0	(0.2)		13.1
Home equity loans and lines		4,987.9		4,764.8		4,109.4	4.7		15.9
Other		1,222.5		1,321.3		1,580.5	(7.5)		(16.4)
Total consumer loans		6,513.4		6,397.3		5,983.7	1.8		6.9
Personal lease financing		127.9		155.5		284.9	(17.7)		(45.4)
Total personal		12,393.8		10,247.9		9,196.8	20.9		11.4
Total consolidated average loans and leases	$	31,776.4	$	27,021.5	$	24,392.6	17.6	%	10.8	%

Average loans and leases increased $4.8 billion or 17.6% in 2005 compared to 2004.  Total average commercial loan growth amounted to $2.6 billion.  Total average commercial loan growth in 2005 compared to 2004 consisted of average commercial real estate and commercial real estate construction loan growth which contributed $1.2 billion and average commercial loan growth which contributed $1.4 billion.  Total average personal loan growth amounted to $2.2 billion in 2005 compared to 2004.  This growth was driven primarily by growth in residential real estate loans that consist primarily of traditional three and five year ARMs (adjustable rate mortgages), balloon mortgage loans and construction loans.  Total average residential real estate loans grew by $2.1 billion in 2005 compared to 2004.  From a production standpoint, residential mortgage loan closings in 2005 were $1.5 billion or 35.8% higher than resident ial real estate loan closings in 2004.  Average home equity loans and lines increased $0.2 billion in 2005 compared to 2004.  Average indirect auto loans and leases declined approximately $0.3 billion in 2005 compared to 2004 which reflects, in part, the effect of the sale and securitization of indirect auto loans in 2005 and 2004.

Management attributes the strong growth in commercial loans in 2005 compared to 2004 to the strength of the local economies in the markets the Corporation serves, sales success and continued customer satisfaction.  Management expects that organic commercial loan growth (as a percentage) will reach the low double digits in 2006.  The basis for this expectation includes continued success in attracting new customers in all of the Corporation’s markets and continued modest economic growth in the primary markets that the Corporation serves.

Home equity loans and lines, which include M&I’s wholesale activity, continue to be the primary consumer loan products.  Home equity loan and line production in 2005 continued to be strong.  The rate of growth in home equity loans and lines in 2005 compared to 2004 was affected by the amount of loans sold at origination and increased prepayment activity on the Corporation’s wholesale home equity products.  The proportion of loans sold at origination  significantly increased in 2005 compared to 2004 in response to the increased demand for home equity products with higher loan-to-value characteristics.  Organic personal loan production is expected to increase modestly.  However, organic personal loan growth (as a percentage) in 2006 will depend on the proportion of personal loan production retained versus sold.

The Corporation sells some of its residential real estate loan production (residential real estate and home equity loans) in the secondary market.  Selected residential real estate loans with rate and term characteristics that are considered desirable are periodically retained in the portfolio.  Residential real estate loans originated and sold to the secondary market amounted to $2.4 billion in 2005 compared to $1.6 billion in 2004.  At December 31, 2005, mortgage loans held for sale amounted to $198.7 million.  Gains from the sale of mortgage loans amounted to $42.4 million in 2005 compared to $27.1 million in 2004.  

Auto loans securitized and sold amounted to $0.5 billion in each of 2005 and 2004.  Net losses from the sale and securitization of auto loans, including write-downs of auto loans held for sale, amounted to $2.0 million in 2005 compared to $3.4 million in 2004.  The losses incurred were primarily due to lower loan interest rate spreads associated with new auto loan production in a rising interest rate environment.  See Note 9 in Notes to Consolidated Financial Statements for further discussion of the Corporation’s securitization activities.  At December 31, 2005, auto loans held for sale amounted to $79.1 million.

The Corporation anticipates that it will continue to divest of selected assets through sale or securitization in future periods.

Average loans and leases increased $2.6 billion or 10.8% in 2004 compared to 2003.  Total average commercial loan growth amounted to $1.6 billion.  Total average commercial loan growth in 2004 compared to 2003 consisted of average commercial real estate and commercial real estate construction loan growth which contributed $0.9 billion and average commercial loan growth which contributed $0.7 billion.  Total average personal loan growth amounted to $1.1 billion in 2004 compared to 2003.  Total average personal loan growth in 2004 compared to 2003 was driven by growth in average home equity loans and lines which increased $0.7 billion and growth in average residential real estate and residential real estate construction loan growth which increased $0.8 billion.  From a production standpoint, residential real estate loan closings in 2004 were $1.3 billion or 23.6% lower than residential real estate loan closings in 2003 .  Average indirect auto loans and leases declined approximately $0.4 billion in 2004 compared to 2003 which reflects, in part, the effect of the sale and securitization of indirect auto loans in 2004 and 2003.

The strong growth in commercial loans in 2004 generally occurred somewhat evenly throughout the year, was experienced in all of the Corporation’s markets, and came from both new customers and existing customers across a variety of industries.

Residential real estate loans originated and sold to the secondary market amounted to $1.6 billion in 2004 compared to $3.5 billion in 2003.  Approximately $0.3 billion of loans sold in 2004 were attributable to the AmerUs Home Lending, Inc. (“AmerUs”) acquisition.  Gains from the sale of mortgage loans amounted to $27.1 million in 2004 compared to $54.1 million in 2003.  Approximately $6.2 million of the gain in 2004 was attributable to the AmerUs acquisition.

Auto loans securitized and sold amounted to $0.5 billion in 2004 compared to $0.8 billion in 2003.  Net losses from the sale and securitization of auto loans, including write-downs of auto loans held for sale, amounted to $3.4 million in 2004 compared to gains from the sale and securitization of auto loans of $2.7 million in 2003.

The growth and composition of the Corporation’s consolidated average deposits for the current year and prior two years are reflected below ($ in millions):

							Percent Growth
	2005		2004		2003		2005 vs 2004		2004 vs 2003
Bank issued deposits:
Noninterest bearing:
Commercial	$	3,480.6	$	3,210.5	$	2,903.3	8.4	%	10.6	%
Personal		940.8		897.1		815.9	4.9		10.0
Other		521.4		478.0		470.5	9.1		1.6
Total noninterest bearing		4,942.8		4,585.6		4,189.7	7.8		9.4
Interest bearing:
Activity accounts:
Savings and NOW		3,096.2		3,388.4		3,148.7	(8.6)		7.6
Money market		5,980.1		5,675.6		6,115.3	5.4		(7.2)
Foreign activity		951.0		896.7		821.0	6.1		9.2
Total activity accounts		10,027.3		9,960.7		10,085.0	0.7		(1.2)
Time deposits:
Other CDs and time		3,048.1		2,632.7		2,764.7	15.8		(4.8)
CDs $100,000 and over		1,362.3		751.4		635.1	81.3		18.3
Total time deposits		4,410.4		3,384.1		3,399.8	30.3		(0.5)
Total interest bearing		14,437.7		13,344.8		13,484.8	8.2		(1.0)
Total bank issued deposits		19,380.5		17,930.4		17,674.5	8.1		1.4
Wholesale deposits:
Money market		1,073.1		499.8		74.6	114.7		569.9
Brokered CDs		4,641.1		4,582.8		2,986.0	1.3		53.5
Foreign time		1,006.8		974.9		1,250.8	3.3		(22.1)
Total wholesale deposits		6,721.0		6,057.5		4,311.4	11.0		40.5
Total consolidated average deposits	$	26,101.5	$	23,987.9	$	21,985.9	8.8	%	9.1	%

Average total bank issued deposits increased $1.5 billion or 8.1% in 2005 compared with 2004.  Average noninterest bearing deposits increased $0.4 billion and average interest bearing deposits increased $1.1 billion.  Average time deposits exhibited the greatest growth in bank issued interest bearing deposits in 2005 compared to 2004.  Average money market accounts grew $0.3 billion in 2005 compared to 2004.  This growth was offset in part by a decline in savings and NOW accounts compared to the prior year.  

Noninterest deposit balances tend to exhibit some seasonality with a trend of balances declining somewhat in the early part of the year followed by growth in balances throughout the remainder of the year.  A portion of the noninterest balances is sensitive to the interest rate environment.  Larger balances tend to be maintained when overall interest rates are low and smaller balances tend to be maintained as overall interest rates increase.  Overall, the re-pricing characteristics of the Corporation’s assets and liabilities continue to be reasonably matched.  As interest rates have risen, the Corporation has increasingly been able to competitively price these deposit products which has contributed to the growth in interest bearing bank issued deposits and resulted in less reliance on wholesale funding sources in 2005.  Management expects these trends to continue.

In commercial banking, the focus remains on developing deeper relationships by capitalizing on cross-sale opportunities and through the sale of treasury management products and services along with incentive plans focused on growing deposits.  The retail banking strategy continues to focus on aggressively selling the right products to meet the needs of customers and enhance the Corporation’s profitability.  

Average wholesale deposits increased $0.7 billion in 2005 compared to 2004.  These deposits are funds in the form of deposits generated through distribution channels other than the Corporation’s own banking branches.  These deposits allow the Corporation’s bank subsidiaries to gather funds across a wider geographic base and at pricing levels considered attractive.  The underlying depositor may be retail or institutional.  Access to and use of these funding sources also provide the Corporation added flexibility not to pursue unprofitable single service time deposit relationships.

Average bank issued deposits increased $0.3 billion or 1.4% in 2004 compared with 2003.  Average noninterest bearing deposits increased $0.4 billion and average interest bearing activity accounts decreased $0.1 billion.  Savings and NOW accounts, especially NOW accounts, exhibited the greatest growth in bank issued interest bearing activity deposits in 2004 compared to 2003.  This growth was offset in part by a decline in money market deposits compared to the prior year.  Average bank issued time deposits were relatively unchanged in 2004 compared to 2003.  

In 2004, average wholesale deposits increased $1.7 billion which reflects the Corporation’s greater use of wholesale funding alternatives, especially institutional CDs.  

During 2005, the Corporation’s lead bank, M&I Marshall & Ilsley Bank (“M&I Bank”) issued $1,150.0 million of fixed rate senior notes with a weighted average interest rate of 4.21%.  In addition, M&I Bank issued $1,225.0 million of floating rate senior notes and issued $350.0 million of fixed rate subordinated notes at an interest rate of 4.85%.  New Federal Home Loan Bank (“FHLB”) floating rate advances in 2005 amounted to $550.0 million.  In December 2005, $1.0 billion of existing senior bank notes (puttable reset securities) were remarketed.  The interest rates used to determine interest on floating rate senior notes and floating rate FHLB advances are indexed to the London Interbank Offered Rate (“LIBOR”).  During 2005, $100.5 million of the Corporation’s Series E notes with a weighted average interest rate of 1.75% and $450.0 million of M&I Bank’s F HLB advances with a weighted average interest rate of 1.90% matured.

During 2004, M&I Bank prepaid $300.0 million of floating rate FHLB advances and terminated receive floating / pay fixed interest rate swaps designated as cash flow hedges against the FHLB advances.  The termination of the interest rate swaps resulted in a charge to earnings of $2.0 million.  Also during 2004, a fixed rate advance from the FHLB aggregating $55.0 million with an annual coupon interest rate of 5.06% was prepaid and retired resulting in a charge to earnings of $4.9 million.  The charge to earnings resulting from these transactions is reported in other expense in the Consolidated Statements of Income.

The net interest margin on a fully taxable equivalent basis (“FTE”) as a percent of average earning assets was 3.40% in 2005 compared to 3.61% in 2004, a decrease of 21 basis points.  The Corporation estimates that the additional interest expense associated with the $1.0 billion of debt issued in late July 2004 to finance Metavante’s 2004 acquisitions lowered the net interest margin on a FTE basis by approximately 11 basis points in 2005.  Unlike a bank acquisition or loan growth, where the primary source of revenue is interest income, the revenue impact of Metavante’s acquisitions is reported in other income and is not a component of the net interest margin statistic.  The yield on average earning assets was 5.97% in 2005 compared to 5.23% in 2004, an increase of 74 basis points.  The cost of interest bearing liabilities was 3.04% in 2005 compared to 1.93% in 2004, an increase of 111 basis points.

The Corporation actively manages the repricing characteristics of its liabilities so as to minimize the long-term impact on net interest income when interest rates begin to rise.  Management anticipates that loan spreads will most likely continue to narrow, particularly in a rising interest rate environment, and as the economy improves, the Corporation’s capacity to generate loans may exceed its ability to generate appropriately priced deposits.  As a result, the net interest margin FTE as a percent of average earning assets could continue to have modest downward pressure in 2006.  Net interest income and the net interest margin percentage can vary and continue to be influenced by loan and deposit growth, product spreads, pricing competition in the Corporation’s markets, prepayment activity, future interest rate changes and various other factors.  

The net interest margin on a FTE basis as a percent of average earning assets was 3.61% in 2004 compared to 3.76% in 2003, a decrease of 15 basis points.  The Corporation estimates that the additional interest expense associated with the $1.0 billion of debt issued in late July 2004 to finance Metavante’s 2004 acquisitions lowered the net interest margin on a FTE basis by approximately 6 basis points.  The yield on average earning assets was 5.23% in 2004 compared to 5.34% in 2003, a decrease of 11 basis points.  The cost of interest bearing liabilities was 1.93% in 2004 compared to 1.91% in 2003, an increase of 2 basis points.

Average Balance Sheets and Analysis of Net Interest Income

The Corporation’s consolidated average balance sheets, interest earned and interest paid, and the average interest rates earned and paid for each of the last three years are presented in the following table ($ in thousands):

	2005						2004						2003
	Average Balance		Interest Earned/Paid		Average Yield or Cost (3)		Average Balance		Interest Earned/Paid		Average Yield or Cost (3)		Average Balance		Interest Earned/Paid		Average Yield or Cost (3)
Loans and leases  (1)(2)	$	31,776,383	$	1,961,504	6.17	%	$	27,021,498	$	1,435,390	5.31	%	$	24,392,591	$	1,338,793	5.49	%
Investment securities:
Taxable		4,847,722		214,537	4.41			4,672,741		200,107	4.30			4,038,579		165,075	4.13
Tax-exempt (1)		1,334,793		95,001	7.26			1,199,139		88,425	7.53			1,173,466		87,194	7.58
Federal funds sold and security resale agreements		153,701		5,347	3.48			53,675		857	1.60			28,692		395	1.38
Trading securities (1)		26,922		240	0.89			22,297		281	1.26			23,017		266	1.16
Other short-term investments		83,477		3,328	3.99			117,382		1,540	1.31			235,562		2,164	0.92
Total interest earning assets		38,222,998		2,279,957	5.97	%		33,086,732		1,726,600	5.23	%		29,891,907		1,593,887	5.34	%
Cash and demand deposits due from banks		966,078						835,391						752,215
Premises and equipment, net		458,179						448,134						440,492
Other assets		3,999,172						3,152,745						2,531,245
Allowance for loan and lease losses		(362,886)						(360,408)						(347,838)
Total assets	$	43,283,541					$	37,162,594					$	33,268,021
Interest bearing deposits:
Bank issued deposits:
Bank issued interest bearing activity deposits	$	10,027,250	$	192,441	1.92	%	$	9,960,645	$	77,621	0.78	%	$	10,084,996	$	75,221	0.75	%
Bank issued time deposits		4,410,456		141,530	3.21			3,384,120		82,938	2.45			3,399,734		85,472	2.51
Total bank issued deposits		14,437,706		333,971	2.31			13,344,765		160,559	1.20			13,484,730		160,693	1.19
Wholesale deposits		6,720,964		210,949	3.14			6,057,542		115,543	1.91			4,311,424		67,523	1.57
Total interest bearing deposits		21,158,670		544,920	2.58			19,402,307		276,102	1.42			17,796,154		228,216	1.28
Short-term borrowings		2,925,642		106,333	3.63			2,908,168		61,256	2.11			3,138,752		81,070	2.58
Long-term borrowings		8,193,001		330,144	4.03			5,329,571		196,440	3.69			3,798,851		163,348	4.30
Total interest bearing liabilities		32,277,313		981,397	3.04	%		27,640,046		533,798	1.93	%		24,733,757		472,634	1.91	%
Noninterest bearing deposits		4,942,803						4,585,628						4,189,724
Other liabilities		1,706,111						1,372,677						1,052,713
Shareholders’ equity		4,357,314						3,564,243						3,291,827
Total liabilities and shareholders’equity	$	43,283,541					$	37,162,594					$	33,268,021
Net interest income			$	1,298,560					$	1,192,802					$	1,121,253
Net yield on interest earning assets					3.40	%					3.61	%					3.76	%

Notes:

(1)

Fully taxable equivalent basis, assuming a Federal income tax rate of 35% for all years presented, and excluding disallowed interest expense.

(2)

Loans and leases on nonaccrual status have been included in the computation of average balances.

(3)

Based on average balances excluding fair value adjustments for available for sale securities.

Analysis of Changes in Interest Income and Interest Expense

The effects on interest income and interest expense due to volume and rate changes in 2005 and 2004 are outlined in the following table.  Changes not due solely to either volume or rate are allocated to rate ($ in thousands):

	2005 versus 2004						2004 versus 2003
	Increase (Decrease) Due to Change in						Increase (Decrease) Due to Change in
	Average Volume (2)		Average Rate		Increase (Decrease)		Average Volume (2)		Average Rate		Increase (Decrease)
Interest on earning assets:
Loans and leases (1)	$	252,484	$	273,630	$	526,114	$	144,327	$	(47,730)	$	96,597
Investment securities:
Taxable		9,203		5,227		14,430		27,347		7,685		35,032
Tax-exempt (1)		10,124		(3,548)		6,576		1,751		(520)		1,231
Federal funds sold and security resale agreements		1,600		2,890		4,490		345		117		462
Trading securities (1)		58		(99)		(41)		(8)		23		15
Other short-term investments		(444)		2,232		1,788		(1,087)		463		(624)
Total interest income change	$	270,606	$	282,751	$	553,357	$	171,961	$	(39,248)	$	132,713
Expense on interest bearing liabilities:
Interest bearing deposits:
Bank issued deposits:
Bank issued interest bearing activity deposits	$	520	$	114,300	$	114,820	$	(933)	$	3,333	$	2,400
Bank issued time deposits		25,145		33,447		58,592		(392)		(2,142)		(2,534)
Total bank issued deposits		13,115		160,297		173,412		(1,666)		1,532		(134)
Wholesale deposits		12,671		82,735		95,406		27,414		20,606		48,020
Total interest bearing deposits		24,940		243,878		268,818		20,559		27,327		47,886
Short-term borrowings		369		44,708		45,077		(5,949)		(13,865)		(19,814)
Long-term borrowings		105,661		28,043		133,704		65,821		(32,729)		33,092
Total interest expense change	$	89,499	$	358,100	$	447,599	$	55,510	$	5,654	$	61,164

Notes:

(1)

Fully taxable equivalent basis, assuming a Federal income tax rate of 35% for all years presented, and excluding disallowed interest expense.

(2)

Based on average balances excluding fair value adjustments for available for sale securities.

Summary of Loan and Lease Loss Experience and Credit Quality

The following tables present comparative credit quality information as of and for the year ended December 31, 2005, as well as selected comparative years:

Consolidated Credit Quality Information

December 31, ($000’s)

	2005			2004			2003			2002			2001
Nonperforming Assets by Type
Loans and Leases:
Nonaccrual	$	134,718		$	127,722		$	166,387		$	188,232		$	166,434
Renegotiated		143			236			278			326			378
Past Due 90 Days or More		5,725			4,405			6,111			5,934			6,982
Total Nonperforming Loans and Leases		140,586			132,363			172,776			194,492			173,794
Other Real Estate Owned		8,869			8,056			13,235			8,692			6,796
Total Nonperforming Assets	$	149,455		$	140,419		$	186,011		$	203,184		$	180,590
Allowance for Loan and Lease Losses	$	363,769		$	358,110		$	349,561		$	338,409		$	268,198
Consolidated Statistics
Net Charge-offs to Average Loans and Leases		0.12	%		0.11	%		0.21	%		0.21	%		0.22	%
Total Nonperforming Loans and Leases to Total Loans and Leases		0.41			0.45			0.69			0.81			0.90
Total Nonperforming Assets to Total Loans And Leases and Other Real Estate Owned		0.44			0.48			0.74			0.85			0.94
Allowance for Loan and Lease Losses to Total Loans and Leases		1.06			1.21			1.39			1.42			1.39
Allowance for Loan and Lease Losses to Nonperforming Loans and Leases		259			271			202			174			154

Major Categories of Nonaccrual Loans and Leases ($000’s)

	December 31, 2005						December 31, 2004
	Nonaccrual		% of Loan Type		% of Nonaccrual		Nonaccrual		% of Loan Type		% of Nonaccrual
Commercial and Lease Financing	$	45,269	0.4	%	33.6	%	$	45,510	0.5	%	35.6	%
Real Estate
Construction and Land Development		913	—		0.7			578	—		0.5
Commercial Real Estate		28,644	0.3		21.3			31,852	0.4		24.9
Residential Real Estate		57,982	0.6		43.0			49,206	0.6		38.5
Total Real Estate		87,539	0.4		65.0			81,636	0.4		63.9
Personal		1,910	0.1		1.4			576	—		0.5
Total	$	134,718	0.4	%	100.0	%	$	127,722	0.4	%	100.0	%

Allocation of the Allowance for Loan and Lease Losses ($000’s)

	December 31, 2005				December 31, 2004				December 31, 2003
		Amount	Percent of Loans and Leases to Total Loans and Leases			Amount	Percent of Loans and Leases to Total Loans and Leases			Amount	Percent of Loans and Leases to Total Loans and Leases
Balance at end of period applicable to:
Commercial, Financial & Agricultural	$	222,078	28.0	%	$	244,042	28.7	%	$	237,510	28.2	%
Real Estate
Residential Mortgage		12,921	34.9			12,311	32.6			28,369	29.9
Commercial Mortgage		63,813	30.5			49,965	31.7			37,013	32.7
Personal		24,153	4.7			14,252	5.2			18,213	6.9
Lease Financing		40,804	1.9			37,540	1.8			28,456	2.3
Total	$	363,769	100.0	%	$	358,110	100.0	%	$	349,561	100.0	%

	December 31, 2002				December 31, 2001
		Amount	Percent of Loans and Leases to Total Loans and Leases			Amount	Percent of Loans and Leases to Total Loans and Leases
Balance at end of period applicable to:
Commercial, Financial & Agricultural	$	234,980	28.7	%	$	190,542	29.7	%
Real Estate
Residential Mortgage		35,518	28.9			26,916	29.5
Commercial Mortgage		22,141	31.3			14,336	29.5
Personal		18,394	7.8			21,468	6.3
Lease Financing		27,376	3.3			14,936	5.0
Total	$	338,409	100.0	%	$	268,198	100.0	%

Reconciliation of Consolidated Allowance for Loan and Lease Losses ($000’s)

	2005		2004		2003		2002		2001
Allowance for Loan and Lease Losses at Beginning of Year	$	358,110	$	349,561	$	338,409	$	268,198	$	235,115
Provision for Loan and Lease Losses		44,795		37,963		62,993		74,416		54,115
Allowance of Banks and Loans Acquired		—		27		—		39,813		19,151
Loans and Leases Charged-off:
Commercial		21,540		16,775		17,689		23,003		22,773
Real Estate—Construction		68		33		57		94		186
Real Estate—Mortgage		21,147		13,259		15,192		10,681		11,795
Personal		15,580		12,821		12,100		12,265		10,965
Leases		1,189		7,967		24,625		9,246		2,890
Total Charge-offs		59,524		50,855		69,663		55,289		48,609
Recoveries on Loans and Leases:
Commercial		11,758		12,631		8,736		3,819		4,135
Real Estate—Construction		1		2		88		96		43
Real Estate—Mortgage		2,741		3,887		4,278		2,462		1,419
Personal		3,069		3,327		3,058		3,053		2,567
Leases		2,819		1,567		1,662		1,841		262
Total Recoveries		20,388		21,414		17,822		11,271		8,426
Net Loans and Leases Charged-off		39,136		29,441		51,841		44,018		40,183
Allowance for Loan and Lease Losses at End of Year	$	363,769	$	358,110	$	349,561	$	338,409	$	268,198

Nonperforming assets consist of nonperforming loans and leases and other real estate owned (“OREO”).  The amount of nonperforming assets is affected by acquisitions accounted for under the purchase method of accounting.  The assets and liabilities, including the nonperforming assets, of the acquired entity are included in the Corporation’s consolidated balance sheets from the date the business combination is completed, which impacts period-to-period comparisons.

OREO is principally comprised of commercial and residential properties acquired in partial or total satisfaction of problem loans and amounted to $8.9 million, $8.1 million and $13.2 million at December 31, 2005, 2004 and 2003, respectively.

Nonperforming loans and leases consist of nonaccrual, renegotiated or restructured loans, and loans and leases that are delinquent 90 days or more and still accruing interest.  The balance of nonperforming loans and leases are affected by acquisitions and may be subject to fluctuation based on the timing of cash collections, renegotiations and renewals.

Generally, loans that are 90 days or more past due as to interest or principal are placed on nonaccrual.  Exceptions to these rules are generally only for loans fully collateralized by readily marketable securities or other relatively risk free collateral.  In addition, a loan may be placed on nonaccrual when management makes a determination that the facts and circumstances warrant such classification irrespective of the current payment status.

Maintaining nonperforming assets at an acceptable level is important to the ongoing success of a financial services institution.  The Corporation’s comprehensive credit review and approval process is critical to ensuring that the amount of nonperforming assets on a long-term basis is minimized within the overall framework of acceptable levels of credit risk.  In addition to the negative impact on net interest income and credit losses, nonperforming assets also increase operating costs due to the expense associated with collection efforts.

At December 31, 2005, nonperforming loans and leases amounted to $140.6 million or 0.41% of consolidated loans and leases compared to $132.4 million or 0.45% at December 31, 2004 and $172.8 million or 0.69% at December 31, 2003.  Nonaccrual loans and leases increased $7.0 million or 5.5% at year-end 2005 compared to year-end 2004.  The net increase was primarily due to increases in nonaccrual home equity lines of credit that are included in nonaccrual residential real estate in the previously presented table entitled Major Categories of Nonaccrual Loans and Leases.

Delinquency can be an indicator of potential problem loans and leases.  At December 31, 2005, loans and leases past due 60-89 days and still accruing interest amounted to $33.0 million or 0.10% of total loans and leases outstanding compared to $19.4 million or 0.07% of total loans and leases outstanding at December 31, 2004 and $41.9 million or 0.17% of total loans and leases outstanding at December 31, 2003.

In addition to its nonperforming loans and leases, the Corporation has loans and leases for which payments are presently current, but which management believes could possibly be classified as nonperforming in the near future.  These loans are subject to constant management attention and their classification is reviewed on an ongoing basis.  At December 31, 2005, such loans amounted to $61.3 million compared to $72.4 million at December 31, 2004 and $72.8 million at December 31, 2003.

Net charge-offs amounted to $39.1 million or 0.12% of average loans and leases in 2005 compared with $29.4 million or 0.11% of average loans and leases in 2004 and $51.8 million or 0.21% of average loans and leases in 2003.  Included in net charge-offs for 2003 was a $19.0 million charge-off related to the carrying value of lease obligations for airplanes leased to a regional airline.

Net charge-offs and nonperforming loans and leases in 2005 and 2004 were better than management had expected.  The ratio of net charge-offs to average loans and leases to some extent reflects a higher than normal level of recoveries.  The ratio of recoveries to charge-offs was 34.3% in 2005 and 42.1% in 2004 compared to a five year average of 27.9%.  Although positive resolutions continue to be achieved on prior charge-offs, recoveries are expected to continue to trend downwards.  Management expects net charge-offs and nonperforming loans to trend to historical levels that would indicate net charge-offs as a percent of average loans and leases to be more in the range of 0.15% to 0.20% and nonperforming loans and leases as a percent of total loans and leases to range from current levels to 0.60%.  While it is unclear when this will occur, management does not believe that current net charge-off and nonperforming loan a nd lease levels are sustainable indefinitely.  Negative economic events, an adverse development in industry segments within the portfolio or deterioration of a large loan or lease could also have significant adverse impacts on the actual loss levels.

Consistent with the relatively stable credit quality trends noted above, the provision for loan and lease losses amounted to $44.8 million in 2005.  By comparison, the provision for loan and lease losses amounted to $38.0 million and $63.0 million in 2004 and 2003, respectively.  The provisions for loan and lease losses are the amounts required to establish the allowance for loan and lease losses at the required level after considering charge-offs and recoveries.  The ratio of the allowance for loan and lease losses to total loans and leases was 1.06% at December 31, 2005 compared to 1.21% at December 31, 2004 and 1.39% at December 31, 2003.

Other Income

Total other income amounted to $1,716.3 million in 2005 compared to $1,417.9 million in 2004, an increase of $298.4 million or 21.0%.  Data processing services revenue accounted for 84.1% of the growth in total other income in 2005 compared to 2004.  Wealth management revenue, mortgage banking revenue, other commissions and fees and investment securities gains also contributed to growth in total other income in 2005 compared to 2004.

Total data processing services external revenue amounted to $1,185.0 million in 2005 compared to $934.1 million in 2004, an increase of $250.9 million or 26.9%.  Revenue growth continued throughout this segment driven by revenue associated with acquisitions, higher transaction volumes in core processing activity, payment processing and electronic banking and an increase in healthcare eligibility and payment card production.  Revenue associated with the six acquisitions completed in 2005 and a full year of revenue from the six acquisitions completed in 2004 contributed a significant portion of the revenue growth in 2005 compared to 2004.  The acquisition-related revenue growth includes cross sales of acquired products to customers across the entire segment.  Total buyout revenue, which varies from period to period, amounted to $9.7 million in 2005 compared to $8.8 million in 2004.

Management expects Metavante’s total revenue (internal and external) in 2006 to be in the range of $1.4 billion to $1.5 billion.  Organic revenue growth (as a percentage) and segment income growth are expected to continue to modestly improve.  In any given year there is some customer attrition due to banking consolidations.  In addition, due to the focus of some of the acquired companies on software sales and the retail marketplace, revenue tends to be more cyclical and seasonal in nature especially in the fourth quarter.  Management expects these trends to continue.

Wealth management revenue was $191.7 million in 2005 compared to $175.1 million in 2004, an increase of $16.6 million or 9.5%.  Revenue growth associated with trust services was the primary contributor to the revenue growth in wealth management revenue in 2005 compared to 2004.  Assets under management were $18.9 billion at December 31, 2005 compared to $18.3 billion at December 31, 2004, an increase of $0.6 billion or 3.3%.  On an average basis, assets under management increased approximately $1.2 billion or 6.9% in 2005 compared to 2004.  Assets under administration increased by $6.9 billion or 9.1% and amounted to $82.8 billion at December 31, 2005.  Sales activity emphasizing cross-selling, integrated delivery and account retention continued to drive revenue growth in 2005.

Total mortgage banking revenue was $50.5 million in 2005 compared with $34.7 million in 2004, an increase of $15.8 million or 45.6%.  The increase in gains from the sale of residential mortgage and home equity loans was the primary contributor to the increase in mortgage banking revenue.  During 2005, the Corporation sold $2.4 billion of residential mortgage and home equity loans to the secondary market.  Retained interests in the form of mortgage servicing rights amounted to $0.9 million.  During 2004, the Corporation sold $1.6 billion of loans to the secondary market.  Retained interests in the form of mortgage servicing rights amounted to $1.4 million.  As previously discussed, residential mortgage closings in 2005 were $1.5 billion or 35.8% higher than residential real estate loan closings in 2004.  At December 31, 2005, the carrying value of mortgage servicing rights was insignificant.

Net investment securities gains amounted to $45.5 million in 2005 compared to $35.3 million in 2004.  During 2005, net gains associated with the Corporation’s Capital Markets Group investments amounted to $32.3 million.  Approximately $29.4 million of the net gain in 2005 was from a net realized gain recognized due to the sale of an entity associated with the investment in an independent private equity and venture capital partnership.  The Corporation realized a gain of $6.6 million due to an equity investment that the Corporation liquidated in a cash tender offer.  During the first quarter of 2005, the Corporation’s banking segment’s investment in certain membership interests of PULSE was liquidated due to a change in control.  The cash received resulted in a gain of $5.6 million.  During 2004, net gains associated with the Corporation’s Capital Markets Group investments amounted to $34.6 mi llion.  Approximately $34.1 million of the net gain in 2004 was from a net gain recognized in the fourth quarter of 2004 from an investment in an independent private equity and venture capital partnership.

Other noninterest income amounted to $122.5 million in 2005 compared to $112.5 million in 2004, an increase of $10.0 million or 8.8%.  Other income in 2005 includes gains from the sale of certain trust custody businesses and gains from branch divestitures that aggregated $5.1 million.

Total other income amounted to $1,417.9 million in 2004 compared to $1,183.6 million in 2003, an increase of $234.3 million or 19.8%.  The primary contributors to the growth in other income was growth in data processing services and wealth management revenues as well as an increase in investment securities gains recognized primarily by the Corporation’s Capital Markets Group.  Fee income growth in 2004 was offset by a decline in mortgage banking income.  Mortgage banking income was very robust in 2003 due in part to the increased refinancing activity in the low interest rate environment.

Total data processing services external revenue amounted to $934.1 million in 2004 compared to $700.5 million in 2003, an increase of $233.6 million or 33.3%.  This strong annual revenue growth reflects the effect of Metavante’s six acquisitions completed in 2004, a full year of revenue from the acquisition completed in November of 2003 and organic revenue growth.  The acquisitions completed in 2004 and a full year of revenue from the acquisition completed in November of 2003 contributed a significant portion of the revenue growth in 2004 compared to 2003.  Metavante had a very strong year in 2004 in terms of core outsourcing contract renewals and cross-sale results.  Total buyout revenue, which varies from period to period, amounted to $8.8 million in 2004 compared to $7.6 million in 2003.

Wealth management revenue was $175.1 million in 2004 compared to $148.3 million in 2003, an increase of $26.8 million or 18.0%.  Revenue growth associated with trust services was the primary contributor to the revenue growth in wealth management revenue in 2004 compared to 2003.  Revenue associated with the segments of the employee benefit plan business purchased from a national banking association located in Missouri contributed approximately $10.0 million to the revenue growth in 2004 compared to 2003.  Assets under management were $18.3 billion at December 31, 2004 compared to $15.7 billion at December 31, 2003, an increase of $2.6 billion or 16.5%.  Assets under administration increased by $9.0 billion or 13.4% and amounted to $75.9 billion at December 31, 2004.

Total mortgage banking revenue was $34.7 million in 2004 compared with $67.2 million in 2003, a decrease of $32.5 million.  The decline in gains from the sale of residential mortgage and home equity loans was the primary contributor to the lower mortgage banking revenue.  During 2004, the Corporation sold $1.6 billion of residential mortgage and home equity loans to the secondary market.  Retained interests in the form of mortgage servicing rights amounted to $1.4 million.  Approximately $0.3 billion of the loans sold and $6.2 million of the gain on sale of mortgage loans recognized in 2004 was attributable to the AmerUs acquisition.  During 2003, the Corporation sold $3.5 billion of loans to the secondary market.  Retained interests in the form of mortgage servicing rights amounted to $2.1 million.  Residential real estate loan closings in 2004 were $1.3 billion or 23.6% lower than residential real estate loan closings in 2003.  The increase in residential real estate loan closings and residential real estate loans sold to the secondary market in 2003 was partially the result of a significant increase in refinancing activity due to the low interest rate environment.  

Net investment securities gains amounted to $35.3 million in 2004 compared to $21.6 million in 2003.  During 2004, net gains associated with the Corporation’s Capital Markets Group investments amounted to $34.6 million.  Approximately $34.1 million of the net gain in 2004 was from a net unrealized gain recognized in the fourth quarter of 2004 due to the net increase in market value of an investment in an independent private equity and venture capital partnership.  During 2003, gains recognized by the Corporation’s Capital Markets Group amounted to $20.0 million.  Approximately $16.2 million of the gain was from the sale of an investment in the third quarter of 2003.  During 2003, the Corporation’s banking segment sold $48.0 million of available for sale investment securities and recognized a gain of approximately $4.2 million.  Impairment losses associated with retained interests held in the form of interest-only strips associated with its auto securitization activities amounted to $4.1 million in 2003.

Other noninterest income amounted to $112.5 million in 2004 compared to $112.9 million in 2003.  The increase in other commissions and fees was offset by losses from the sale and securitization of auto loans including write-downs of auto loans held for sale.  The losses incurred in 2004 were primarily due to lower interest rate spreads associated with new auto loan production in a rising interest rate environment.  Auto loans securitized and sold amounted to $0.5 billion in 2004 compared to $0.8 billion in 2003.  During 2003, the Corporation sold six branches and recognized $5.0 million in gains.

Other Expense

Total other expense amounted to $1,879.0 million in 2005 compared to $1,628.7 million in 2004, an increase of $250.3 million or 15.4%.

The acquisitions by Metavante had a significant impact on the year-to-year comparability of operating expenses in 2005 compared to 2004.  Approximately $182.1 million of the 2005 versus 2004 operating expense growth was attributable to the acquisitions.  As all acquisitions were accounted for using the purchase method of accounting, the operating expenses of the acquired entities are included in the consolidated operating expenses from the dates the acquisitions were completed.  Operating expenses associated with acquisitions completed in 2004 are reflected for the full year in 2005 as opposed to a partial year in 2004.  Acquisitions completed in 2005 directly affect the current year but have no impact on the prior year.

Expense control is sometimes measured in the financial services industry by the efficiency ratio statistic.  The efficiency ratio is calculated by dividing total other expense by the sum of total other income (including Capital Markets Group-related investment gains but excluding other securities gains and losses) and net interest income on a fully taxable equivalent basis.  The Corporation’s efficiency ratios for the years ended December 31, 2005, 2004, and 2003 were:

	As Adjusted
Efficiency Ratios	2005	2004	2003
Consolidated Corporation	62.6%	62.4%	64.5%
Consolidated Corporation Excluding Metavante	50.7	50.8	54.6

The Corporation estimates that its expense growth in 2005 compared to 2004, excluding the effect of the acquisitions and the impact of the 2004 significant transactions previously discussed, was approximately $86.3 million or 5.7%.

Salaries and employee benefits expense amounted to $1,074.8 million in 2005 compared to $919.4 million in 2004, an increase of $155.4 million or 16.9%.  Total expense for stock options and the employee stock purchase plan (“ESPP”) amounted to $32.0 million in 2005 compared to $32.2 million in 2004.  Salaries and benefits expense related to the Metavante acquisitions contributed approximately $92.8 million to the expense growth in 2005 compared to 2004.    The remainder of the increase was primarily attributable to the banking segment which reflects increased incentive compensation associated with loan and deposit growth and increased personnel to build out product lines in markets outside Wisconsin as well as increased personnel for de novo branch expansion.  Management expects these activities will continue in 2006.

Net occupancy and equipment expense amounted to $215.6 million in 2005 compared to $192.9 million in 2004, an increase of $22.7 million.  Net occupancy and equipment expense related to the Metavante acquisitions contributed approximately $20.7 million to the expense growth in 2005 compared to 2004.

Software expenses amounted to $58.0 million in 2005 compared to $50.0 million in 2004, an increase of $8.0 million or 15.9%.  Software expense related to the Metavante and banking acquisitions contributed approximately $4.5 million to the expense growth in 2005 compared to 2004.  The banking segment contributed $2.7 million to the growth in software expenses in 2005 compared to 2004.

Processing charges amounted to $62.6 million in 2005 compared to $52.2 million in 2004, an increase of $10.4 million or 19.9%.  Processing charges related to the Metavante acquisitions contributed approximately $11.9 million to the expense growth in 2005 compared to 2004.  

Supplies and printing expense, professional services expense and shipping and handling expense amounted to $149.8 million in 2005 compared to $135.1 million in 2004, an increase of $14.7 million or 10.8%.  The Metavante acquisitions contributed approximately $11.8 million to the expense growth in 2005 compared to 2004.  

Amortization of intangibles amounted to $31.1 million in 2005 compared to $27.9 million in 2004.  Amortization and valuation reserves associated with mortgage servicing rights declined $1.3 million.  At December 31, 2005, the carrying value of mortgage servicing rights amounted to $2.8 million.  Amortization of intangibles increased $6.9 million in 2005 compared to 2004 due to Metavante’s acquisitions.  For the year ended December 31, 2005, $0.4 million of goodwill was included in the determination of the gains associated with the sale of certain trust custody businesses and the gains from branch divestitures.  Goodwill is subject to periodic tests for impairment.  The Corporation has elected to perform its annual test for impairment during the second quarter.  Accordingly, the Corporation updated the analysis to June 30, 2005 and concluded that there continues to be no impairment with respect to goodwill at any reporting unit.  At December 31, 2005, none of the Corporation’s other intangible assets were determined to have indefinite lives.  

Other noninterest expense amounted to $287.2 million in 2005 compared to $251.2 million in 2004, an increase of $36.0 million.  The expense for stock options awarded to outside directors of the Corporation amounted $0.7 million in 2005 compared to $1.0 million in 2004.  The Metavante acquisitions contributed approximately $32.5 million to the expense growth in 2005 compared to 2004.  Excluding the impact of the Metavante acquisitions, advertising, travel and card related expenses increased by $16.7 million in 2005 compared to 2004.  As previously discussed, during 2004 the Corporation prepaid and retired certain higher cost long-term debt and terminated some related receive floating / pay fixed interest rate swaps designated as cash flow hedges resulting in a loss of $6.9 million.  During 2004, Metavante sold its small business 401k Retirement Plan Services operations and also sold the direct customer base of Paytrus t.com  resulting in an aggregate loss of approximately $7.1 million.  Charitable foundation expense over and above normal levels amounted to $5.0 million in 2004.

Other expense is affected by the capitalization of costs, net of amortization, associated with software development and data processing conversions.  A lower amount of capitalized software development costs and capitalized conversion costs net of their respective amortization, write-offs of software and the amortization associated with the software obtained in the acquisitions resulted in a net decrease in other noninterest expense of $8.3 million in 2005 compared to 2004.  During 2004, Metavante determined that certain purchased and internally developed software will no longer be used or was impaired and such software was written off.  Capitalized software costs written off as a result of these decisions amounted to $8.7 million in 2004.

Total other expense amounted to $1,628.7 million in 2004 compared to $1,485.6 million in 2003, an increase of $143.1 million or 9.6%.

The acquisitions by both Metavante and the banking segment had an impact on the year-to-year comparability of operating expenses in 2004 compared to 2003.  Approximately $148.9 million of the 2004 versus 2003 operating expense growth was attributable to the acquisitions.  Operating expenses associated with acquisitions completed in 2003 are reflected for the full year in 2004 as opposed to a partial year in 2003.  Acquisitions completed in 2004 directly affect the current year but have no impact on the prior year.

Certain transactions as previously described herein under “Significant Transactions” also affected the year-to-year comparability of operating expenses in 2004 compared to 2003.  For the years ended December 31, 2004 and 2003, those transactions increased other expense by $20.8 million and $82.2 million, respectively.

The Corporation estimates that its expense growth in 2004 compared to 2003, excluding the effect of the acquisitions and the impact of the significant transactions previously discussed, was approximately $55.5 million or 4.0%.

Salaries and employee benefits expense amounted to $919.4 million in 2004 compared to $830.8 million in 2003, an increase of $88.6 million or 10.7%.  Total expense for stock options and the ESPP amounted to $32.2 million in 2004 compared to $33.3 million in 2003.  Salaries and benefits expense related to the Metavante and banking acquisitions contributed approximately $65.1 million to the expense growth in 2004 compared to 2003.  The impact of the Paytrust transition costs to salaries and employee benefits expense amounted to $2.7 million in 2003.  In 2003, the Corporation restructured certain split dollar life insurance benefits due to a change in tax laws.  Of the total net charge from this restructuring, $8.4 million was recorded in salaries and benefits.  Also included in salaries and employee benefits expense in 2003 is a reversal of $2.4 million of accrued severance associated with the decision to keep a f acility operational that previously had been identified for closure.

Net occupancy and equipment expense amounted to $192.9 million in 2004 compared to $179.0 million in 2003, an increase of $13.9 million.  Net occupancy and equipment expense related to the Metavante and banking acquisitions contributed approximately $13.8 million to the expense growth in 2004 compared to 2003.  The impact of the Paytrust transition costs to net occupancy and equipment expense amounted to $0.8 million in 2003.  During 2003, $6.1 million of accrued lease termination costs were reversed as a result of the decision to keep a facility operational as previously discussed.  

Software expenses amounted to $50.0 million in 2004 compared to $44.7 million in 2003, an increase of $5.3 million or 11.8%.  Software expense related to the Metavante and banking acquisitions contributed approximately $2.2 million to the expense growth in 2004 compared to 2003.  Excluding the expense growth due to acquisitions, Metavante and the banking segment contributed $1.7 million and $0.9 million, respectively to the growth in software expenses in 2004 compared to 2003.

Processing charges amounted to $52.2 million in 2004 compared to $48.3 million in 2003, an increase of $3.9 million or 8.2%.  Processing charges related to the Metavante and banking acquisitions contributed approximately $5.5 million to the expense growth in 2004 compared to 2003.  Third-party processing charges associated with wholesale loan activity were lower in 2004 compared to 2003.

Supplies and printing expense, professional services expense and shipping and handling expense amounted to $135.1 million in 2004 compared to $118.3 million in 2003, an increase of $16.8 million or 14.2%.  The Metavante and banking acquisitions net of Paytrust integration expenses contributed approximately $13.7 million to the expense growth in 2004 compared to 2003.  The remainder of the increase was primarily due to Metavante’s increase in these expenses that was offset by the decrease in costs associated with the lower volume of mortgage loan production in 2004 compared to 2003.

Amortization of intangibles amounted to $27.9 million in 2004 compared to $23.8 million in 2003.  Amortization and valuation reserves associated with mortgage servicing rights declined $0.7 million.  At December 31, 2004, the carrying value of mortgage servicing rights amounted to $3.5 million.  Amortization associated with the 2004 acquisitions amounted to $7.6 million in the current year.  Goodwill is subject to periodic tests for impairment.  Based upon an updated the analysis as of June 30, 2004, the Corporation concluded that there continued to be no impairment with respect to goodwill at any reporting unit.  At December 31, 2004, none of the Corporation’s other intangible assets were determined to have indefinite lives.  For the year ended December 31, 2004, $2.0 million of goodwill and $8.5 million of customer intangibles were included by Metavante in the determination of the loss associate d with the sale of the small business 401k Retirement Plan Services operations and the direct customer base of Paytrust.com.

Other noninterest expense amounted to $251.2 million in 2004 compared to $240.7 million in the prior year, an increase of $10.5 million.  The expense for stock options awarded to outside directors of the Corporation amounted $1.0 million in 2004 compared to $0.6 million in 2003.  The Metavante and banking acquisitions net of Paytrust integration expenses contributed approximately $38.7 million to the expense growth in 2004 compared to 2003.  As previously discussed, during 2004 and 2003 the Corporation prepaid and retired certain higher cost long-term debt and terminated some related receive floating / pay fixed interest rate swaps designated as cash flow hedges.  The total debt retired in 2004 amounted to $355.0 million and the charge to earnings amounted to $6.9 million.  The total debt retired in 2003 amounted to $744.6 million and the charge to earnings amounted to $56.7 million.  During 2004, Metavante sold its small business 401k Retirement Plan Services operations and also sold the direct customer base of Paytrust.com in 2004.  These transactions resulted in an aggregate loss of approximately $7.1 million.  Offsetting the net unrealized securities gain recognized in the fourth quarter of 2004 as previously discussed was charitable foundation expense over and above normal levels that amounted to approximately $5.0 million.

Other expense is affected by the capitalization of costs, net of amortization, associated with software development and data processing conversions.  A lower amount of capitalized software development costs and capitalized conversion costs net of their respective amortization, write-offs of software and the amortization associated with the software obtained in the acquisitions resulted in an increase in other noninterest expense and accounted for approximately $8.8 million of the total increase in other operating expense in 2004 compared to 2003.  During 2004 and 2003, Metavante determined that certain purchased and internally developed software will no longer be used or was impaired and such software was written off.  Capitalized software costs written off as a result of these decisions amounted to $8.7 million in 2004 and $22.8 million in 2003 and are included in other noninterest expense for the respective periods.

Income Tax Provision

The provision for income taxes was $351.5 million in 2005, $306.0 million in 2004, and $202.1 million in 2003.  The effective tax rate in 2005 was 33.2% compared to 33.6% in 2004 and 27.9% in 2003.

In the normal course of business, the Corporation and its affiliates are routinely subject to examinations from Federal and state tax authorities.  During 2003, several income tax audits covering multiple tax jurisdictions were resolved which positively affected the banking segment by approximately $28.6 million and Metavante by $10.7 million and resulted in a lower provision for income taxes in the Consolidated Statements of Income for the year ended December 31, 2003.  Excluding the impact of the income tax audits, the pro forma effective income tax rate for year ended December 31, 2003 would have been 33.3%.

Liquidity and Capital Resources

Shareholders’ equity was $4.74 billion or 10.2% of total consolidated assets at December 31, 2005, compared to $3.95 billion or 9.8% of total consolidated assets at December 31, 2004.  The increase at December 31, 2005 was primarily due to earnings net of dividends paid.

In the second quarter of 2005, the Corporation’s Board of Directors authorized an increase in the quarterly cash dividend paid on the Corporation’s common stock, from $0.21 per share to $0.24 per share, or 14.3%.

Shareholders’ equity at December 31, 2005 includes the effect of certain common stock issuances during the current year.  During 2005, the Corporation issued 5.3 million shares of its common stock valued at $241.1 million in conjunction with five acquisitions completed by Metavante.  In addition, the Corporation issued 0.7 million shares of its common stock valued at $25.1 million to fund its 2004 obligations under its retirement and employee stock ownership plans and its employee stock purchase plan.

During the fourth quarter of 2005, the Corporation entered into an equity distribution agreement whereby the Corporation may offer and sell up to 3.5 million shares of its common stock from time to time through certain designated sales agents.  However, the Corporation will not sell more than the number of shares of its common stock necessary for the aggregate gross proceeds from such sales to reach $150.0 million.  During the fourth quarter of 2005, the Corporation issued 0.2 million shares of its common stock with net proceeds from the sales of $6.7 million.  The proceeds from these issuances were used for general corporate purposes, including maintaining capital at desired levels.

The Corporation has a Stock Repurchase Program under which up to 12 million shares of the Corporation’s common stock can be repurchased annually.  No shares were acquired under the program in 2005.  During 2004, the Corporation repurchased 2.3 million shares at an aggregate cost of $88.5 million.  During 2003, the Corporation repurchased 6.0 million shares at an aggregate cost of $210.9 million.

At December 31, 2005 the net loss in accumulated other comprehensive income amounted to $37.3 million which represents a negative change in accumulated other comprehensive income of $60.6 million since December 31, 2004.  Net accumulated other comprehensive income associated with available for sale investment securities was a net loss of $36.3 million at December 31, 2005, compared to a net gain of $31.1 million at December 31, 2004, resulting in a net loss of $67.4 million over the twelve month period.  The unrealized loss associated with the change in fair value of the Corporation’s derivative financial instruments designated as cash flow hedges declined $6.8 million since December 31, 2004, resulting in a net increase in shareholders’ equity.  

During the third quarter of 2004, the Corporation and M&I Capital Trust B issued 16,000,000 units of Common SPACES^SM that resulted in net proceeds to the Corporation of approximately $389.2 million.  Each unit has a stated value of $25.00 for an aggregate value of $400.0 million.  Each Common SPACES consists of (i) a stock purchase contract under which the investor agrees to purchase for $25, a fraction of a share of the Corporation’s common stock on the stock purchase date and (ii) a 1/40, or 2.5%, undivided beneficial interest in a preferred security of M&I Capital Trust B, also referred to as the STACKS^SM, with each share having an initial liquidation amount of $1,000.  The stock purchase date is expected to be August 15, 2007, but could be deferred for quarterly periods until August 15, 2008.  

On the stock purchase date, the number of shares of common stock the Corporation will issue upon settlement of the stock purchase contracts depends on the applicable market value per share of the Corporation’s common stock, which will be determined just prior to the stock purchase date, and other factors.  The Corporation currently estimates that it will issue approximately 8.7 million to 10.9 million common shares to settle shares issuable pursuant to the stock purchase contracts.  Before issuance of the common shares upon settlement of the stock purchase contracts, the stock purchase contracts will be reflected in diluted earnings per share calculations using the treasury stock method.  Under the treasury stock method, the Corporation expects there will be some dilutive effect on earnings per share for periods when the average market price of the Corporation’s common stock for the reporting period is above $46.28 a nd that there could be some dilutive effect on earnings per share for periods when the average market price of the Corporation’s common stock for the reporting period is above the average market price of the Corporation’s common stock for the twenty trading days ending on the third trading day immediately preceding the end of the reporting period.  There was no dilutive effect on earnings per share for the years ended December 31, 2005 and 2004.

Federal and state banking laws place certain restrictions on the amount of dividends and loans which a bank may make to its parent company.  Such restrictions have not had, and are not expected to have, any material effect on the Corporation’s ability to meet its cash obligations.

M&I manages its liquidity to ensure that funds are available to each of its banks to satisfy the cash flow requirements of depositors and borrowers and to ensure the Corporation’s own cash requirements are met.  M&I maintains liquidity by obtaining funds from several sources.  

The Corporation’s most readily available source of liquidity is its investment portfolio.  Investment securities available for sale, which totaled $5.7 billion at December 31, 2005, represent a highly accessible source of liquidity.  The Corporation’s portfolio of held-to-maturity investment securities, which totaled $0.6 billion at December 31, 2005, provides liquidity from maturities and interest payments.  The Corporation’s mortgage loans held for sale provide additional liquidity.  These loans represent recently funded home mortgage loans that are prepared for delivery to investors, which generally occurs within thirty to ninety days after the loan has been funded.

Depositors within M&I’s defined markets are another source of liquidity.  Core deposits (demand, savings, money market and consumer time deposits) averaged $17.1 billion in 2005.  The Corporation’s banking affiliates may also access the Federal funds markets or utilize collateralized borrowings such as treasury demand notes or FHLB advances.  

The banking affiliates may use wholesale deposits, which include foreign (Eurodollar) deposits.  Wholesale deposits, which averaged $6.7 billion in 2005, are funds in the form of deposits generated through distribution channels other than the Corporation’s own banking branches.  These deposits allow the Corporation’s banking affiliates to gather funds across a national geographic base and at pricing levels considered attractive, where the underlying depositor may be retail or institutional.  Access to wholesale deposits also provides the Corporation with the flexibility to not pursue single service time deposit relationships in markets that have experienced some unprofitable pricing levels.

The Corporation utilizes certain financing arrangements to meet its balance sheet management, funding, liquidity, and market or credit risk management needs.  The majority of these activities are basic term or revolving securitization vehicles.  These vehicles are generally funded through term-amortizing debt structures or with short-term commercial paper designed to be paid off based on the underlying cash flows of the assets securitized.  These facilities provide access to funding sources substantially separate from the general credit risk of the Corporation and its subsidiaries.  

M&I Bank has implemented a bank note program, which permits it to issue up to $7.0 billion of short-term and medium-term notes which are offered and sold only to institutional investors.  This program is intended to enhance liquidity by enabling M&I Bank to sell its debt instruments in private markets in the future without the delays which would otherwise be incurred.  As shown and discussed in Note 14 in the Notes to the Consolidated Financial Statements, longer-term bank notes outstanding at December 31, 2005, amounted to $5.8 billion of which $1.3 billion is subordinated and qualifies as supplementary capital for regulatory capital purposes.

The national capital markets represent a further source of liquidity for M&I.  M&I has filed a number of shelf registration statements that are intended to permit M&I to raise funds through sales of corporate debt and/or equity securities with a relatively short lead time.  

During the third quarter of 2005, the Corporation amended the shelf registration statement originally filed with the Securities and Exchange Commission during the second quarter of 2004 to describe the equity distribution agreement previously discussed.  That shelf registration statement enables the Corporation to issue various securities, including debt securities, common stock, preferred stock, depositary shares, purchase contracts, units, warrants, and trust preferred securities, up to an aggregate amount of $3.0 billion.  At December 31, 2005, approximately $1.3 billion was available under the shelf registration statement for future securities issuances.

During the fourth quarter of 2004, the Corporation filed a shelf registration statement with the Securities and Exchange Commission which will enable the Corporation to issue up to 6.0 million shares of its common stock which may be offered and issued from time to time in connection with the acquisition by M&I, Metavante and/or other consolidated subsidiaries of businesses that the Corporation determines to be to its advantage as they become available.  At December 31, 2005, there were 3.1 million shares of common stock available under the shelf registration statement for future issuances.

Under another shelf registration statement, the Corporation may issue up to $0.6 billion of medium-term Series F notes with maturities ranging from 9 months to 30 years and at fixed or floating rates.  At December 31, 2005, no Series F notes had been issued.  The Corporation may issue up to $0.5 billion of medium-term MiNotes with maturities ranging from 9 months to 30 years and at fixed or floating rates.  The MiNotes are issued in smaller denominations to attract retail investors.  At December 31, 2005, MiNotes issued amounted to $0.2 billion.  Additionally, the Corporation has a commercial paper program.  At December 31, 2005, commercial paper outstanding amounted to $0.3 billion.

Contractual Obligations

The following table summarizes the Corporation’s more significant contractual obligations at December 31, 2005.  Excluded from the following table are a number of obligations to be settled in cash.  These items are reflected in the Corporation’s consolidated balance sheet and include deposits with no stated maturity, trade payables, accrued interest payable and derivative payables that do not require physical delivery of the underlying instrument.

			Payments Due by Period ($ in millions)
Contractual Obligations	Note Ref		Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years
Certificate of Deposit and Other Time Deposit Obligations	(1)	$	11,705.5	$	7,812.8	$	2,653.4	$	451.8	$	787.5
Short-term Debt Obligations	(2)		3,020.0		3,020.0		—		—		—
Long-term Debt Obligations	(3)		11,879.8		2,987.0		2,818.5		1,982.1		4,092.2
Capital Lease Obligations			1.8		1.7		0.1		—		—
Minimum Operating Lease Obligations			178.0		36.7		57.1		36.5		47.7
Obligations to Purchase Foreign Currencies	(4)		338.7		338.7		—		—		—
Purchase Obligations - Facilities (Additions, Repairs and Maintenance)			30.6		20.0		0.9		0.8		8.9
Purchase Obligations - Technology			89.8		73.4		10.3		6.1		—
Purchase Obligations - Other			8.3		6.3		2.0		—		—
Other Obligations:
Unfunded Investment Obligations	(5)		10.3		6.7		3.1		0.4		0.1
Acquisition Obligations	(6)		21.5		21.5		—		—		—
Wholesale Loan Purchase Obligations	(7)		400.0		400.0		—		—		—
Defined Contribution Pension Obligations	(8)		64.2		64.2		—		—		—
Health and Welfare Benefits	(9)		—		—		—		—		—
Postretirement Benefit Obligations			7.0		7.0		—		—		—
Total		$	27,755.5	$	14,796.0	$	5,545.4	$	2,477.7	$	4,936.4

Notes:

In the banking industry, interest-bearing obligations are principally utilized to fund interest-bearing assets.  As such, interest charges on certificate of deposit and other time deposit obligations and short-term debt obligations were excluded from amounts reported, as the potential cash outflows would have corresponding cash inflows from interest-bearing assets.  The same, although to a lesser extent, is the case with respect to interest charges on long-term debt obligations.  As long-term debt obligations may be used for purposes other than to fund interest-bearing assets, an estimate of interest charges is included in the amounts reported.

(1)

Certain retail certificates of deposit and other time deposits give customers rights to early withdrawal.  Early withdrawals may be subject to penalties.  The penalty amount depends on the remaining time to maturity at the time of early withdrawal.  Brokered certificates of deposits may be redeemed early upon the death or adjudication of incompetence of the holder.

(2)

See Note 13 in Notes to Consolidated Financial Statements for a description of the Corporation’s various short-term borrowings.  Many short-term borrowings such as Federal funds purchased and security repurchase agreements and commercial paper are expected to be reissued and, therefore, do not necessarily represent an immediate need for cash.

(3)

See Note 14 in Notes to Consolidated Financial Statements for a description of the Corporation’s various long-term borrowings.  The amounts shown in the table include interest on both fixed and variable rate obligations.  The interest associated with variable rate obligations is based upon rates in effect at December 31, 2005.  The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates.  Future changes in market interest rates could materially affect the contractual amounts to be paid.

(4)

See Note 20 in Notes to Consolidated Financial Statements for a description of the Corporation’s foreign exchange activities.  The Corporation generally matches commitments to deliver foreign currencies with obligations to purchase foreign currencies which minimizes the immediate need for cash.

(5)

The Corporation also has unfunded obligations for certain investments in investment funds.  Under the obligations for certain investments in investment funds the Corporation could be required to invest an additional $47.3 million if the investment funds identify and commit to invest in additional qualifying investments.  The investment funds have limited lives and defined periods for investing in new qualifying investments or providing additional funds to existing investments.  As a result, the timing and amount of the funding requirements for these obligations are uncertain and could expire with no additional funding requirements.

(6)

Represents contingent consideration that the Corporation has determined to be owed beyond a reasonable doubt.  

(7)

Represents an estimate of the minimum purchase obligation amount.  The obligation to sell is on a best-efforts basis and may result in no purchases or more purchases than shown in the table in any given period.  In addition, the actual purchase price will be determined at the time of purchase.

(8)

See Note 18 in Notes to Consolidated Financial Statements for a description of the Corporation’s defined contribution program.  The amount shown represents the unfunded contribution for the year ended December 31, 2005.

(9)

The health and welfare benefit plans are periodically funded throughout each plan year with participant contributions and the Corporation’s portion of benefits expected to be paid.

The Corporation has generally financed its growth through the retention of earnings and the issuance of debt.  It is expected that future growth can be financed through internal earnings retention, additional debt offerings, or the issuance of additional common or preferred stock or other capital instruments.

OFF-BALANCE SHEET ARRANGEMENTS

The term off-balance sheet arrangement describes the means through which companies typically structure off-balance sheet transactions or otherwise incur risks of loss that are not fully transparent to investors or other users of financial information.  For example, in many cases, in order to facilitate transfer of assets or otherwise finance the activities of an unconsolidated entity, a company may be required to provide financial support designed to reduce the risks to the entity or other third parties.  That financial support may take many different forms such as financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose the company to continuing risks or contingent liabilities regardless of whether or not they are recorded on the balance sheet.

Certain guarantees may be a source of potential risk to future liquidity, capital resources and results of operations.  Guarantees may be in the form of contracts that contingently require the guarantor to make payments to the guaranteed party based on: (1) changes in an underlying instrument or variable such as a financial standby letter of credit; (2) failure to perform under an obligating agreement such as a performance standby letter of credit; and (3) indemnification agreements that require the indemnifying party to make payments to the indemnified party based on changes in an underlying instrument or variable that is related to an asset, a liability or an equity security of the indemnified party, such as an adverse judgment in a lawsuit.  The Corporation, for a fee, regularly enters into standby letters of credit transactions and provides certain indemnifications against loss in conjunction with software sales, merchant credi t card processing and securities lending activities, which are described in detail in Notes 19 and 24 in Notes to Consolidated Financial Statements.

Companies may structure and facilitate off-balance sheet arrangements by retaining an interest in assets transferred to an unconsolidated entity.  Such interests may be in the form of a subordinated retained interest in a pool of receivables transferred to an unconsolidated entity, cash collateral accounts, recourse obligations or other forms of credit, liquidity, or market risk support.  These subordinated interests protect the senior interests in the unconsolidated entity in the event a portion of the underlying transferred assets becomes uncollectible or there are insufficient funds to repay senior interest obligations.  The Corporation uses such arrangements primarily in conjunction with its indirect automobile lending activities which are described in detail in Note 9 in Notes to Consolidated Financial Statements and in the discussion of critical accounting policies which follows this discussion.

During the third quarter of 2004, the Corporation and M&I Capital Trust B issued 16,000,000 units of Common SPACES^SM that resulted in net proceeds to the Corporation of approximately $389.2 million.  Each unit has a stated value of $25.00 for an aggregate value of $400.0 million.  Each Common SPACES consists of (i) a stock purchase contract under which the investor agrees to purchase for $25, a fraction of a share of the Corporation’s common stock on the stock purchase date and (ii) a 1/40, or 2.5%, undivided beneficial interest in a preferred security of M&I Capital Trust B, also referred to as the STACKS^SM, with each share having an initial liquidation amount of $1,000.  The stock purchase date is expected to be August 15, 2007, but could be deferred for quarterly periods until August 15, 2008.  

On the stock purchase date, the number of shares of common stock the Corporation will issue upon settlement of the stock purchase contracts depends on the applicable market value per share of the Corporation’s common stock, which will be determined just prior to the stock purchase date, and other factors.  The Corporation currently estimates that it will issue approximately 8.7 million to 10.9 million common shares to settle shares issuable pursuant to the stock purchase contracts.

Holders of the STACKS are entitled to receive quarterly cumulative cash distributions through the stock purchase date fixed initially at an annual rate of 3.90% of the liquidation amount of $1,000 per STACKS.  In addition, the Corporation will make quarterly contract payments under the stock purchase contract at the annual rate of 2.60% of the stated amount of $25 per stock purchase contract.  The Corporation recognized the present value of the quarterly contract payments under the stock purchase contract as a liability with an offsetting reduction in shareholders’ equity.  That liability along with the allocated portion of the fees and expenses incurred for the offering of Common SPACES resulted in a reduction in shareholders’ equity of $34.0 million.

Also at December 31, 2005, the Corporation did not hold any material variable interests in entities that provide it liquidity, market risk or credit risk support, or engage in leasing, hedging or research and development services with the Corporation.  As described in Note 14 in Notes to Consolidated Financial Statements, the Corporation holds all of the common interest in M&I Capital Trust A and M&I Capital Trust B which issued cumulative preferred capital securities which are supported by junior subordinated deferrable interest debentures and a full guarantee issued by the Corporation.  The Corporation does not consolidate M&I Capital Trust A or M&I Capital Trust B.

Based on the off-balance sheet arrangements with which it is presently involved, the Corporation does not believe that such off-balance sheet arrangements either have, or are reasonably likely to have, a material impact to its current or future financial condition, results of operations, liquidity or capital.

CRITICAL ACCOUNTING POLICIES

The Corporation has established various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of the Corporation’s consolidated financial statements.  The significant accounting policies of the Corporation are described in the footnotes to the consolidated financial statements contained herein and updated as necessary in its Quarterly Reports on Form 10-Q.  Certain accounting policies involve significant judgments and assumptions by management that may have a material impact on the carrying value of certain assets and liabilities.  Management considers such accounting policies to be critical accounting policies.  The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances.  Because of the nature of judgments and assumptions made by ma nagement, actual results could differ from these judgments and estimates which could have a material impact on the carrying values of assets and liabilities and the results of the operations of the Corporation.  Management continues to consider the following to be those accounting policies that require significant judgments and assumptions:

Allowance for Loan and Lease Losses

The allowance for loan and lease losses represents management’s estimate of probable losses inherent in the Corporation’s loan and lease portfolio.  Management evaluates the allowance each quarter to determine that it is adequate to absorb these inherent losses.  This evaluation is supported by a methodology that identifies estimated losses based on assessments of individual problem loans and historical loss patterns of homogeneous loan pools.  In addition, environmental factors, including economic conditions and regulatory guidance, unique to each measurement date are also considered.  This reserving methodology has the following components:

Specific Reserve.  The Corporation’s internal risk rating system is used to identify loans and leases that meet the criteria as being “impaired” under the definition in SFAS 114.  A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.  For impaired loans, impairment is measured using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral for collateral dependent loans and loans for which foreclosure is deemed to be probable.  In general, these loans have been internally identified as credits requiring management’s attention due to underlying problems in the borrower’s busines s or collateral concerns.  Subject to a minimum size, a quarterly review of these loans is performed to identify the specific reserve necessary to be allocated to each of these loans.  This analysis considers expected future cash flows, the value of collateral and also other factors that may impact the borrower’s ability to make payments when due.

Collective Loan Impairment.  This component of the allowance for loan and lease losses is comprised of two elements.  First, the Corporation makes a significant number of loans and leases, which due to their underlying similar characteristics, are assessed for loss as homogeneous pools.  Included in the homogeneous pools are loans and leases from the retail sector and commercial loans under a certain size that have been excluded from the specific reserve allocation previously discussed.  The Corporation segments the pools by type of loan or lease and, using historical loss information, estimates a loss reserve for each pool.

The second element reflects management’s recognition of the uncertainty and imprecision underlying the process of estimating losses.  The internal risk rating system is used to identify those loans within certain industry segments that based on financial, payment or collateral performance, warrant closer ongoing monitoring by management.  The specific loans mentioned earlier are excluded from this analysis.  Based on management’s judgment, reserve ranges are allocated to industry segments due to environmental conditions unique to the measurement period.  Consideration is given to both internal and external environmental factors such as economic conditions in certain geographic or industry segments of the portfolio, economic trends, risk profile, and portfolio composition.  Reserve ranges are then allocated using estimates of loss exposure that management has identified based on these economic trends or con ditions.  

The following factors were taken into consideration in determining the adequacy of the allowance for loan and lease losses at December 31, 2005:

In general, the Corporation’s borrowing customers appear to have successfully managed their businesses through the prior economic downturn, the economy is improving and the Corporation’s customer base is showing signs of increased business activity as evidenced by the loan growth experienced in 2005 compared to 2004.  

At December 31, 2005, allowances for loan and lease losses continue to be carried for exposures to manufacturing, healthcare, production agriculture (including dairy and cropping operations), truck transportation, accommodation, general contracting, motor vehicle and parts dealers and the airline industries.  The majority of the commercial charge-offs incurred in recent periods were in these industry segments.  While most loans in these categories are still performing, the Corporation continues to believe these sectors have been more adversely affected by the previous economic slowdown.  Reduced revenues causing a declining utilization of the industry’s capacity levels have impacted manufacturing.  As a result, collateral values and the amounts realized through the sale or liquidation of manufacturing plant and equipment have declined accordingly.

During the fourth quarter of 2005, the Corporation’s commitments to Shared National Credits were approximately $3.1 billion with usage averaging around 45%.  Many of the Corporation’s largest charge-offs have come from the Shared National Credit portfolio.  Although these factors result in an increased risk profile, as of December 31, 2005, Shared National Credit nonperforming loans amounted to $3.9 million.  The Corporation’s exposure to Shared National Credits is monitored closely given this lending group’s loss experience.

The Corporation’s primary lending areas are Wisconsin, Arizona, Minnesota and Missouri.  Each of these regions has cultural and environmental factors that are unique to it.  The uncertainty regarding the inherent losses in their respective loan portfolios continue to present increased risks which have been mitigated by the implementation of the Corporation’s credit underwriting and monitoring processes.  At December 31, 2005, total nonperforming loans and leases as a percent of total loans and leases for the Minnesota and Missouri regions combined was somewhat higher than nonperforming loans and leases as a percent of total loans and leases for the other regions and the consolidated total.

At December 31, 2005, nonperforming loans and leases amounted to $140.6 million or 0.41% of consolidated loans and leases compared to $132.4 million or 0.45% at December 31, 2004 and $172.8 million or 0.69% at December 31, 2003.  Nonaccrual loans and leases increased $7.0 million or 5.5% at year-end 2005 compared to year-end 2004.  The net increase was primarily due to increases in nonaccrual home equity lines of credit.

Net charge-offs amounted to $39.1 million or 0.12% of average loans and leases in 2005 compared to $29.4 million or 0.11% of average loans and leases in 2004 and $51.8 million or 0.21% of average loans and leases in 2003.  Included in net charge-offs for 2003 was a $19.0 million charge-off related to the carrying value of lease obligations to a regional airline.

Net charge-offs and nonperforming loans and leases in 2005 and 2004 were better than management had expected.  The ratio of net charge-offs to average loans and leases to some extent reflect a higher than normal level of recoveries.  The ratio of recoveries to charge-offs was 34.3% in 2005 and 42.1% in 2004 compared to a five year average of 27.9%.  Although positive resolutions continue to be achieved on prior charge-offs, recoveries are expected to continue to trend downwards.  Management expects net charge-offs and nonperforming loans to trend to historical levels that would indicate net charge-offs as a percent of average loans and leases to be more in the range of 0.15% to 0.20% and nonperforming loans and leases as a percent of total loans and leases to range from current levels to 0.60%.

Based on the above loss estimates, management determined its best estimate of the required allowance for loans and leases.  Management’s evaluation of the factors described above resulted in an allowance for loan and lease losses of $363.8 million or 1.06% of loans and leases outstanding at December 31, 2005.  The allowance for loan and lease losses was $358.1 million or 1.21% of loans and leases outstanding at December 31, 2004.  Consistent with the relatively stable credit quality trends noted above, the provision for loan and lease losses amounted to $44.8 million in 2005, compared to $38.0 million and $63.0 million in 2004 and 2003, respectively.  The resulting provisions for loan and lease losses are the amounts required to establish the allowance for loan and lease losses at the required level after considering charge-offs and recoveries.  Management recognizes there are significant estimates in the proces s and the ultimate losses could be significantly different from those currently estimated.

The Corporation has not materially changed any aspect of its overall approach in the determination of the allowance for loan and lease losses.  There have been no material changes in assumptions or estimation techniques as compared to prior periods that impacted the determination of the current period allowance.  However, on an on-going basis the Corporation continues to refine the methods used in determining management’s best estimate of the allowance for loan and lease losses.

Capitalized Software and Conversion Costs

Direct costs associated with the production of computer software that will be licensed externally or used in a service bureau environment are capitalized.  Capitalization of such costs is subject to strict accounting policy criteria, although the appropriate time to initiate capitalization requires management judgment.  Once the specific capitalized project is put into production, the software cost is amortized over its estimated useful life, generally four years.  Each quarter, the Corporation performs net realizable value tests to ensure the assets are recoverable.  Such tests require management judgment as to the future sales and profitability of a particular product which involves, in some cases, multi-year projections.  Technology changes and changes in customer requirements can have a significant impact on the recoverability of these assets and can be difficult to predict.  Should significant adverse chang es occur, estimates of useful life may have to be revised or write-offs would be required to recognize impairment.  For the years ended December 31, 2005 and 2004, the amount of software costs capitalized amounted to $40.8 million and $38.1 million, respectively.  Amortization expense of software costs amounted to $57.7 million and $50.4 million for the years ended December 31, 2005 and 2004, respectively.

During 2004, Metavante determined that certain products had limited growth potential.  As a result of strategic product reviews and the results of net realizable tests on these products, Metavante determined that the capitalized software and other assets associated with the products were impaired.  Total capitalized software costs written off amounted to $8.7 million and are included in other noninterest expense in 2004.

As a result of a change in product strategies, Metavante determined that certain purchased and internally developed software would no longer be used and such software was written off in 2003.  Total capitalized software costs written off as a result of these decisions amounted to $22.8 million and is included in other noninterest expense in 2003.  

Direct costs associated with customer system conversions to the data processing operations are capitalized and amortized on a straight-line basis over the terms, generally five to seven years, of the related servicing contracts.  

Capitalization only occurs when management is satisfied that such costs are recoverable through future operations or buyout fees in case of early termination.  For the years ended December 31, 2005 and 2004, the amount of conversion costs capitalized amounted to $10.5 million and $9.4 million, respectively.  Amortization expense of conversion costs amounted to $10.5 million and $13.5 million for the years ended December 31, 2005 and 2004, respectively.

Net unamortized costs, which are included in Accrued Interest and Other Assets in the Consolidated Balance Sheets, at December 31, were ($ in millions):

	2005	2004
Software	$   154.0	$   161.1
Conversions	26.7	26.5
Total	$   180.7	$   187.6

The Corporation has not substantively changed any aspect to its overall approach in the determination of the amount of costs that are capitalized for software development or conversion activities.  There have been no material changes in assumptions or estimation techniques as compared to prior periods that impacted the determination of the periodic amortization of such costs.

Financial Asset Sales and Securitizations

The Corporation utilizes certain financing arrangements to meet its balance sheet management, funding, liquidity, and market or credit risk management needs.  The majority of these activities are basic term or revolving securitization vehicles.  These vehicles are generally funded through term-amortizing debt structures or with short-term commercial paper designed to be paid off based on the underlying cash flows of the assets securitized.  These financing entities are contractually limited to a narrow range of activities that facilitate the transfer of or access to various types of assets or financial instruments.  In certain situations, the Corporation provides liquidity and/or loss protection agreements.  In determining whether the financing entity should be consolidated, the Corporation considers whether the entity is a qualifying special-purpose entity (“QSPE”) as defined in Statement of Financial Acco unting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  For non-consolidation, a QSPE must be demonstrably distinct, have significantly limited permitted activities, hold assets that are restricted to transferred financial assets and related assets, and can sell or dispose of non-cash financial assets only in response to specified conditions.

In December 2003, the Corporation adopted Financial Accounting Standards Board Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities (revised December 2003).  This interpretation addresses consolidation by business enterprises of variable interest entities.  Transferors to QSPEs and “grandfathered” QSPEs subject to the reporting requirements of SFAS 140 are outside the scope of FIN 46R and do not consolidate those entities.  With respect to the Corporation’s securitization activities, the adoption of FIN 46R did not have an impact on its consolidated financial statements because its transfers are generally to QSPEs.

The Corporation sells financial assets in a two-step process that results in a surrender of control over the assets, as evidenced by true-sale opinions from legal counsel, to unconsolidated entities that securitize the assets.  The Corporation retains interests in the securitized assets in the form of interest-only strips and cash reserve accounts.  Gain or loss on sale of the assets depends in part on the carrying amount assigned to the assets sold allocated between the asset sold and retained interests based on their relative fair values at the date of transfer.  The value of the retained interests is based on the present value of expected cash flows estimated using management’s best estimates of the key assumptions – credit losses, prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.  Actual results can differ from expected results.

The Corporation reviews the carrying values of the retained interests monthly to determine if there is a decline in value that is other than temporary and periodically reviews the propriety of the assumptions used based on current historical experience as well as the sensitivities of the carrying value of the retained interests to adverse changes in the key assumptions.  The Corporation believes that its estimates result in a reasonable carrying value of the retained interests.  

During 2003, the Corporation recognized impairment losses of $4.1 million that are included in net investment securities gains in the Consolidated Statements of Income.  The impairment was a result of the differences between actual prepayments and credit losses experienced compared to the expected prepayments and credit losses used in measuring the initial retained interests.  The impairments on the retained interests, held in the form of interest-only strips, were deemed to be other than temporary.  No impairment losses were recognized in 2004 or 2005.

The Corporation regularly sells automobile loans to an unconsolidated multi-seller special purpose entity commercial paper conduit in securitization transactions in which servicing responsibilities and subordinated interests are retained.  The outstanding balances of automobile loans sold in these securitization transactions were $954.2 million and $1,003.0 million at December 31, 2005 and 2004, respectively.  At December 31, 2005 and 2004, the carrying amount of retained interests amounted to $25.9 million and $42.2 million, respectively.

The Corporation also sells, from time to time, debt securities classified as available for sale that are highly rated to an unconsolidated bankruptcy remote QSPE whose activities are limited to issuing highly rated asset-backed commercial paper with maturities up to 180 days which is used to finance the purchase of the investment securities.  The Corporation provides liquidity back-up in the form of Liquidity Purchase Agreements.  In addition, the Corporation acts as counterparty to interest rate swaps that enable the QSPE to hedge its interest rate risk.  Such swaps are designated as free-standing derivative financial instruments in the Corporation’s Consolidated Balance Sheet.  

At December 31, 2005, highly rated investment securities in the amount of $270.0 million were outstanding in the QSPE to support the outstanding commercial paper.

Income Taxes

Income taxes are accounted for using the asset and liability method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on tax assets and liabilities of a change in tax rates is recognized in the income statement in the period that includes the enactment date.

The determination of current and deferred income taxes is based on complex analyses of many factors, including interpretation of Federal and state income tax laws, the difference between tax and financial reporting basis of assets and liabilities (temporary differences), estimates of amounts currently due or owed, such as the timing of reversals of temporary differences and current accounting standards.  The Federal and state taxing authorities who make assessments based on their determination of tax laws periodically review the Corporation’s interpretation of Federal and state income tax laws.  Tax liabilities could differ significantly from the estimates and interpretations used in determining the current and deferred income tax liabilities based on the completion of taxing authority examinations.

During 2003, several income tax audits covering multiple tax jurisdictions were resolved which positively affected the banking segment by $28.6 million and Metavante by $10.7 million and resulted in a lower provision for income taxes in the Consolidated Statements of Income for the year ended December 31, 2003.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices, and other relevant market rate or price risk.  The Corporation faces market risk through trading and other than trading activities.  While market risk that arises from trading activities in the form of foreign exchange and interest rate risk is immaterial to the Corporation, market risk from other than trading activities in the form of interest rate risk is measured and managed through a number of methods.

Interest Rate Risk

The Corporation uses financial modeling techniques to identify potential changes in income under a variety of possible interest rate scenarios.  Financial institutions, by their nature, bear interest rate and liquidity risk as a necessary part of the business of managing financial assets and liabilities.  The Corporation has designed strategies to limit these risks within prudent parameters and identify appropriate risk/reward tradeoffs in the financial structure of the balance sheet.

The financial models identify the specific cash flows, repricing timing and embedded option characteristics of the assets and liabilities held by the Corporation.  Policies are in place to assure that neither earnings nor fair value at risk exceed appropriate limits.  The use of a limited array of derivative financial instruments has allowed the Corporation to achieve the desired balance sheet repricing structure while simultaneously meeting the desired objectives of both its borrowing and depositing customers.

The models used include measures of the expected repricing characteristics of administered rate (NOW, savings and money market accounts) and non-rate related products (demand deposit accounts, other assets and other liabilities).  These measures recognize the relative insensitivity of these accounts to changes in market interest rates, as demonstrated through current and historical experiences.  However, during the second quarter of 2003, the Corporation increased the proportion of these accounts modeled as rate sensitive, in order to recognize the instability of some of the recent balance growth in these accounts.  This modeling treatment will be maintained until the incremental balances can be observed across a more complete interest rate cycle.  In addition to contractual payment information for most other assets and liabilities, the models also include estimates of expected prepayment characteristics for those items t hat are likely to materially change their payment structures in different rate environments, including residential mortgage products, certain commercial and commercial real estate loans and certain mortgage-related securities.  Estimates for these sensitivities are based on industry assessments and are substantially driven by the differential between the contractual coupon of the item and current market rates for similar products.

This information is incorporated into a model that allows the projection of future income levels in several different interest rate environments.  Earnings at risk are calculated by modeling income in an environment where rates remain constant, and comparing this result to income in a different rate environment, and then dividing this difference by the Corporation’s budgeted operating income before taxes (excluding stock option and employee stock purchase plan expense) for the calendar year.  Since future interest rate moves are difficult to predict, the following table presents two potential scenarios — a gradual increase of 100bp across the entire yield curve over the course of the year (+25bp per quarter), and a gradual decrease of 100bp across the entire yield curve over the course of the year (-25bp per quarter) for the balance sheet as of December 31, 2005:

Hypothetical Change in Interest Rates	Impact to 2006 Pretax Income
100 basis point gradual rise in rates	-0.2%
100 basis point gradual decline in rates	0.0%

These results are based solely on the modeled parallel changes in market rates, and do not reflect the earnings sensitivity that may arise from other factors such as changes in the shape of the yield curve and changes in spread between key market rates.  These results also do not include any management action to mitigate potential income variances within the simulation process.  Such action could potentially include, but would not be limited to, adjustments to the repricing characteristics of any on- or off-balance sheet item with regard to short-term rate projections and current market value assessments.

Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

Another component of interest rate risk is measuring the fair value at risk for a given change in market interest rates.  The Corporation also uses computer modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate.  The net change in the present value of the asset and liability cash flows in different market rate environments is the amount of fair value at risk from those rate movements.  As of December 31, 2005 the fair value of equity at risk for a gradual 100bp shift in rates was less than 2.0% of the market value of the Corporation.

Equity Risk

In addition to interest rate risk, the Corporation incurs market risk in the form of equity risk.  The Corporation invests directly and indirectly through investment funds, in private medium-sized companies to help establish new businesses or recapitalize existing ones.  These investments expose the Corporation to the change in equity values for the companies of the portfolio companies.  However, fair values are difficult to determine until an actual sale or liquidation transaction actually occurs.  At December 31, 2005, the carrying value of total active capital markets investments amounted to approximately $36.9 million.

At December 31, 2005, M&I Wealth Management administered $82.8 billion in assets and directly managed  $18.9 billion in assets.  Exposure exists to changes in equity values due to the fact that fee income is partially based on equity balances.  Quantification of this exposure is difficult due to the number of other variables affecting fee income.  Interest rate changes can also have an effect on fee income for the above-stated reasons.

EX-99.4

EXHIBIT 99.4

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOR YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

Consolidated Balance Sheets

December 31 ($000’s except share data)

	As Adjusted Note 2
	2005		2004
Assets
Cash and Cash Equivalents:
Cash and Due from Banks	$	1,155,263	$	838,668
Federal Funds Sold and Security Resale Agreements		209,869		72,515
Money Market Funds		49,219		76,955
Total Cash and Cash Equivalents		1,414,351		988,138
Investment Securities:
Trading Securities, at Market Value		29,779		18,418
Interest Bearing Deposits at Other Banks		40,659		23,105
Available for Sale, at Market Value		5,701,703		5,358,999
Held to Maturity, Market Value $638,135  ($765,101 in 2004)		618,554		726,386
Total Investment Securities		6,390,695		6,126,908
Loans Held for Sale		277,847		81,662
Loans and Leases:
Loans and Leases, Net of Unearned Income of $107,244  ($85,025 in 2004)		33,889,066		29,455,110
Less: Allowance for Loan and Lease Losses		363,769		358,110
Net Loans and Leases		33,525,297		29,097,000
Premises and Equipment, Net		490,687		467,225
Goodwill and Other Intangibles		2,461,461		2,126,433
Accrued Interest and Other Assets		1,652,379		1,550,036
Total Assets	$	46,212,717	$	40,437,402
Liabilities and Shareholders’ Equity
Deposits:
Noninterest Bearing	$	5,525,019	$	4,888,426
Interest Bearing		22,149,202		21,566,661
Total Deposits		27,674,221		26,455,087
Short-term Borrowings		5,626,734		3,530,036
Accrued Expenses and Other Liabilities		1,507,621		1,474,940
Long-term Borrowings		6,668,670		5,026,599
Total Liabilities		41,477,246		36,486,662
Shareholders’ Equity:
Series A Convertible Preferred Stock, $1.00 par value, 2,000,000 Shares Authorized		—		—
Common Stock, $1.00 par value, 700,000,000 Shares Authorized; 244,587,222 Shares Issued (244,432,222 Shares in 2004)		244,587		244,432
Additional Paid-in Capital		970,739		850,279
Retained Earnings		3,871,614		3,380,212
Accumulated Other Comprehensive Income, Net of Related Taxes		(37,291)		23,338
Less: Treasury Stock, at Cost:  9,148,493 Shares (17,091,528 in 2004)		277,423		518,231
Deferred Compensation		36,755		29,290
Total Shareholders’ Equity		4,735,471		3,950,740
Total Liabilities and Shareholders’ Equity	$	46,212,717	$	40,437,402

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Income

Years ended December 31 ($000’s except share data)

	As Adjusted Note 2
	2005		2004		2003
Interest and Fee Income
Loans and Leases	$	1,959,063	$	1,432,754	$	1,336,288
Investment Securities:
Taxable		214,537		200,107		165,075
Exempt from Federal Income Taxes		64,127		58,826		57,968
Trading Securities		229		271		258
Short-term Investments		8,675		2,397		2,559
Total Interest and Fee Income		2,246,631		1,694,355		1,562,148
Interest Expense
Deposits		544,920		276,102		228,216
Short-term Borrowings		106,333		61,256		81,070
Long-term Borrowings		330,144		196,440		163,348
Total Interest Expense		981,397		533,798		472,634
Net Interest Income		1,265,234		1,160,557		1,089,514
Provision for Loan and Lease Losses		44,795		37,963		62,993
Net Interest Income After Provision for Loan and Lease Losses		1,220,439		1,122,594		1,026,521
Other Income
Data Processing Services		1,185,024		934,128		700,530
Wealth Management		191,720		175,119		148,348
Service Charges on Deposits		93,953		98,882		102,528
Gains on Sale of Mortgage Loans		42,393		27,082		54,143
Other Mortgage Banking Revenue		8,095		7,591		13,075
Net Investment Securities Gains		45,514		35,336		21,572
Life Insurance Revenue		27,079		27,254		30,507
Other		122,481		112,538		112,870
Total Other Income		1,716,259		1,417,930		1,183,573
Other Expense
Salaries and Employee Benefits		1,074,758		919,431		830,779
Net Occupancy		88,656		77,209		67,626
Equipment		126,942		115,650		111,354
Software Expenses		57,987		50,021		44,747
Processing Charges		62,646		52,239		48,295
Supplies and Printing		23,933		23,581		22,118
Professional Services		53,641		43,763		44,429
Shipping and Handling		72,201		67,772		51,765
Amortization of Intangibles		31,103		27,852		23,785
Other		287,177		251,166		240,689
Total Other Expense		1,879,044		1,628,684		1,485,587
Income Before Income Taxes		1,057,654		911,840		724,507
Provision for Income Taxes		351,464		305,987		202,060
Net Income	$	706,190	$	605,853	$	522,447
Net Income Per Common Share
Basic	$	3.06	$	2.72	$	2.31
Diluted		2.99		2.66		2.28

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

Years ended December 31 ($000’s)

	As Adjusted Note 2
	2005		2004		2003
Cash Flows From Operating Activities:
Net Income	$	706,190	$	605,853	$	522,447
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		202,353		192,070		198,974
Provision for Loan and Lease Losses		44,795		37,963		62,993
(Benefit) Provision for Deferred Taxes		(15,954)		2,361		(53,726)
Stock–based Compensation Expense		37,243		36,280		34,992
Excess Tax Benefit from Stock-based Compensation Arrangements		(8,882)		(11,155)		(7,586)
Gains on Sales of Assets		(106,705)		(32,502)		(45,507)
Proceeds from Sales of Trading Securities and Loans Held for Sale		9,175,833		7,721,503		11,637,141
Purchases of Trading Securities and Loans Held for Sale		(9,136,336)		(7,513,518)		(11,240,640)
Other		(262,358)		(42,577)		(83,106)
Total Adjustments		(70,011)		390,425		503,535
Net Cash Provided by Operating Activities		636,179		996,278		1,025,982
Cash Flows From Investing Activities:
Proceeds from Sales of Securities Available for Sale		104,280		12,467		41,838
Proceeds from Maturities of Securities Available for Sale		1,260,242		1,265,998		2,840,754
Proceeds from Maturities of Securities Held to Maturity		108,554		94,907		122,856
Purchases of Securities Available for Sale		(1,792,054)		(1,775,775)		(3,449,841)
Purchases of Securities Held to Maturity		—		—		(1,000)
Net Increase in Loans		(4,545,258)		(4,571,125)		(1,857,480)
Purchases of Assets to be Leased		(281,991)		(215,578)		(243,955)
Principal Payments on Lease Receivables		226,504		291,608		450,224
Purchases of Premises and Equipment, Net		(93,624)		(80,428)		(62,125)
Acquisitions, Net of Cash and Cash Equivalents Acquired		(94,399)		(1,012,100)		(29,395)
Other		(15,390)		25,142		18,002
Net Cash Used in Investing Activities		(5,123,136)		(5,964,884)		(2,170,122)
Cash Flows From Financing Activities:
Net Increase in Deposits		1,295,837		4,200,843		1,886,561
Proceeds from Issuance of Commercial Paper		5,310,137		6,442,232		7,790,467
Principal Payments on Commercial Paper		(5,241,685)		(6,534,320)		(7,737,360)
Net Increase (Decrease) in Other Short-term Borrowings		1,029,234		(1,584,827)		(842,636)
Proceeds from Issuance of Long-term Borrowings		3,279,779		3,040,500		1,278,629
Payment of Long-term Borrowings		(604,735)		(455,829)		(1,164,025)
Dividends Paid		(214,788)		(179,855)		(158,007)
Purchases of Common Stock		—		(98,385)		(201,044)
Proceeds from the Issuance of Common Stock		60,911		206,666		49,063
Excess Tax Benefit from Stock-based Compensation Arrangements		8,882		11,155		7,586
Other		(10,402)		(3,062)		—
Net Cash Provided by Financing Activities		4,913,170		5,045,118		909,234
Net Increase (Decrease) in Cash and Cash Equivalents		426,213		76,512		(234,906)
Cash and Cash Equivalents, Beginning of Year		988,138		911,626		1,146,532
Cash and Cash Equivalents, End of Year	$	1,414,351	$	988,138	$	911,626
Supplemental Cash Flow Information:
Cash Paid During the Year for:
Interest	$	906,308	$	506,773	$	500,698
Income Taxes		366,431		283,588		297,143

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Equity

($000’s except share data)

	Compre- hensive Income		Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Common Stock		Deferred Compen- sation		Accumulated Other Compre-hensive Income
Balance, December 31, 2002 As Originally Reported			$	—	$	240,833	$	569,162	$	2,675,148	$		(381,878)	$	(22,170)	$	(44,427)
Cumulative Effect of SFAS 123(R), Note 2				—		—		128,368		(85,374)			—		3,045		—
Balance, December 31, 2002 As Adjusted				—		240,833		697,530		2,589,774			(381,878)		(19,125)		(44,427)
Comprehensive Income:
Net Income As Adjusted	$	522,447		—		—		—		522,447			—		—		—
Unrealized Gains  (Losses) on Securities:
Arising During the Period Net of Taxes of $6,489		(12,016)		—		—		—		—			—		—		—
Reclassification for Securities  Transactions Included in Net Income Net of  Taxes of $2,008		(3,729)		—		—		—		—			—		—		—
Total Unrealized Gains                     (Losses) on Securities		(15,745)		—		—		—		—			—		—		(15,745)
Net Gains (Losses) on Derivatives Hedging Variability of Cash Flows:
Arising During the Period Net of Taxes of $3,635		(6,748)		—		—		—		—			—		—		—
Reclassification Adjustments For Hedging Activities  Included in Net Income  Net of Taxes of $37,485		69,614		—		—		—		—			—		—		—
Net Gains (Losses)		62,866		—		—		—		—			—		—		62,866
Other Comprehensive Income		47,121		—		—		—		—			—		—		—
Comprehensive Income As Adjusted	$	569,568		—		—		—		—			—		—		—
Issuance of  2,989,875 Treasury Common Shares Under Stock Option and Restricted Stock Plans				—		—		(21,373)		—			79,908		(1,364)		—
Acquisition of 5,996,799 Common Shares				—		—		(112)		—			(211,592)		612		—
Dividends Declared on Common Stock—$0.700 Per Share				—		—		—		(158,007)			—		—		—
Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes				—		—		7,586		—			—		—		—
Stock Based Compensation Expense				—		—		34,992		—			—		—		—
Other				—		—		(290)		—			—		—		—
Balance, December 31, 2003 As Adjusted			$	—	$	240,833	$	718,333	$	2,954,214	$		(513,562)	$	(19,877)	$	2,694

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Equity

($000’s except share data)

	Compre- hensive Income		Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Common Stock		Deferred Compen- sation		Accumula- ted Other Compre- hensive Income
Balance, December 31, 2003 As Adjusted			$	—	$	240,833	$	718,333	$	2,954,214	$	(513,562)	$	(19,877)	$	2,694
Comprehensive Income:
Net Income As Adjusted	$	605,853		—		—		—		605,853		—		—		—
Unrealized Gains (Losses) on Securities:
Arising During the Period Net of Taxes of $5,692		(10,476)		—		—		—		—		—		—		—
Reclassification for Securities  Transactions Included in Net Income Net of  Taxes of $139		(258)		—		—		—		—		—		—		—
Total Unrealized Gains                     (Losses) on Securities		(10,734)		—		—		—		—		—		—		(10,734)
Net Gains (Losses) on Derivatives Hedging Variability of Cash Flows:
Arising During the Period Net of Taxes of $5,821		10,810		—		—		—		—		—		—		—
Reclassification Adjustments For Hedging Activities  Included in Net Income  Net of Taxes of $11,075		20,568		—		—		—		—		—		—		—
Net Gains (Losses)		31,378		—		—		—		—		—		—		31,378
Other Comprehensive Income		20,644		—		—		—		—		—		—		—
Comprehensive Income As Adjusted	$	626,497		—		—		—		—		—		—		—
Issuance of 3,599,700 Common Shares				—		3,599		146,300		—		—		—		—
Present Value of Stock Purchase Contract and Allocated Fees and Expenses for Common SPACESSM				—		—		(34,039)		—		—		—		—
Issuance of 2,825,014 Treasury Common Shares Under Stock Option and Restricted Stock Plans				—		—		(27,436)		—		85,342		(9,610)		—
Acquisition of 2,310,053 Common Shares				—		—		(41)		—		(90,011)		197		—
Dividends Declared on Common Stock—$0.810 Per Share				—		—		—		(179,855)		—		—		—
Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes				—		—		11,155		—		—		—		—
Stock Based Compensation Expense				—		—		36,280		—		—		—		—
Other				—		—		(273)		—		—		—		—
Balance, December 31, 2004 As Adjusted			$	—	$	244,432	$	850,279	$	3,380,212	$	(518,231)	$	(29,290)	$	23,338

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Equity

($000’s except share data)

	Compre- hensive Income		Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Common Stock		Deferred Compen- sation		Accumula- ted Other Compre- hensive Income
Balance, December 31, 2004 As Adjusted			$	—	$	244,432	$	850,279	$	3,380,212	$	(518,231)	$	(29,290)	$	23,338
Comprehensive Income:
Net Income As Adjusted	$	706,190		—		—		—		706,190		—		—		—
Unrealized Gains (Losses) on Securities:
Arising During the Period Net of Taxes of $36,387		(66,670)		—		—		—		—		—		—		—
Reclassification for Securities  Transactions Included in Net Income Net of  Taxes of $388		(722)		—		—		—		—		—		—		—
Total Unrealized Gains   (Losses) on Securities		(67,392)		—		—		—		—		—		—		(67,392)
Net Gains (Losses) on Derivatives Hedging Variability of Cash Flows:
Arising During the Period Net of Taxes of $5,499		10,211		—		—		—		—		—		—		—
Reclassification Adjustments For Hedging Activities  Included in Net Income  Net of Taxes of $1,857		(3,448)		—		—		—		—		—		—		—
Net Gains (Losses)		6,763		—		—		—		—		—		—		6,763
Other Comprehensive Income		(60,629)		—		—		—		—		—		—		—
Comprehensive Income As Adjusted	$	645,561		—		—		—		—		—		—		—
Issuance of 155,000 Common Shares				—		155		6,496		—		—		—		—
Issuance of 5,254,523 Treasury Common Shares in the 2005 Business Combinations				—		—		81,778		—		159,317		—		—
Issuance of 2,358,561 Treasury Common Shares Under Stock Option and Restricted Stock Plans				—		—		(17,201)		—		71,663		(7,746)		—
Issuance of 355,046 Treasury Common Shares for Retirement Plan Funding				—		—		3,611		—		10,765		—		—
Acquisition of 25,095 Common Shares				—		—		(66)		—		(937)		281		—
Dividends Declared on Common Stock—$0.930 Per Share				—		—		—		(214,788)		—		—		—
Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes				—		—		8,882		—		—		—		—
Stock Based Compensation Expense				—		—		37,243		—		—		—		—
Other				—		—		(283)		—		—		—		—
Balance, December 31, 2005 As Adjusted			$	—	$	244,587	$	970,739	$	3,871,614	$	(277,423)	$	(36,755)	$	(37,291)

The accompanying notes are an integral part of the Consolidated Financial Statements.

Notes to Consolidated Financial Statements

December 31, 2005, 2004, and 2003 ($000’s except share data)

Marshall & Ilsley Corporation (“M&I” or the “Corporation”) is a financial holding company that provides diversified financial services to a wide variety of corporate, institutional, government and individual customers.  M&I’s largest affiliates and principal operations are in Wisconsin; however, it has activities in other markets, particularly in certain neighboring Midwestern states, and in Arizona, Nevada and Florida.  The Corporation’s principal activities consist of banking and data processing services.  Banking services, lending and accepting deposits from retail and commercial customers are provided through its lead bank, M&I Marshall & Ilsley Bank (“M&I Bank”), which is headquartered in Wisconsin, one federally chartered thrift headquartered in Nevada, one state chartered bank headquartered in St. Louis, Missouri, and an asset-based lending subsidiary headq uartered in Minneapolis, Minnesota.  In addition to branches located throughout Wisconsin, banking services are provided in branches located throughout Arizona, the Minneapolis, Minnesota and St. Louis, Missouri metropolitan areas, Duluth, Minnesota, Belleville, Illinois, Las Vegas, Nevada and Naples and Bonita Springs, Florida, as well as on the Internet.  Financial and data processing services and software sales are provided through the Corporation’s subsidiary Metavante Corporation (“Metavante”) and its nonbank subsidiaries primarily to financial institutions throughout the United States.  Other financial services provided by M&I include: personal property lease financing to consumer and commercial customers; investment management and advisory services; venture capital and financial advisory services; trust services to residents of Wisconsin, Arizona, Minnesota, Missouri, Florida, Nevada and Indiana; and brokerage and insurance services.

1.

Summary of Significant Accounting Policies

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.

Consolidation principles—The Consolidated Financial Statements include the accounts of the Corporation, its subsidiaries that are wholly or majority owned and/or over which it exercises substantive control and significant variable interest entities for which the Corporation has determined that, based on the variable interests it holds, it is the primary beneficiary in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities an interpretation of Accounting Research Board (“ARB”) No. 51 (revised December 2003).  The primary beneficiary of a variable interest entity is the party that absorbs a majority of an entity’s expected losses, receives a majority of an entity’s expected residual returns, or both, as a result of holding variable interests.  Variable interests are the ownership, con tractual or other pecuniary interests in an entity.  Investments in unconsolidated affiliates, in which the Corporation has 20 percent or more ownership interest and has the ability to exercise significant influence, but not substantive control, over the affiliates’ operating and financial policies, are accounted for using the equity method of accounting, unless the investment has been determined to be temporary.  All significant intercompany balances and transactions are eliminated in consolidation.

The Corporation utilizes certain financing arrangements to meet its balance sheet management, funding, liquidity, and market or credit risk management needs.  The majority of these activities are basic term or revolving securitization facilities.  These facilities are generally funded through term-amortizing debt structures or with short-term commercial paper designed to be paid off based on the underlying cash flows of the assets securitized.  These financing entities are contractually limited to a narrow range of activities that facilitate the transfer of or access to various types of assets or financial instruments.  In certain situations, the Corporation provides liquidity and/or loss protection agreements.  In determining whether the financing entity should be consolidated, the Corporation considers whether the entity is a qualifying special-purpose entity (“QSPE”) as defined in Statement of Financial Accounting Standards No. 140 (“SFAS 140”), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  For non-consolidation, a QSPE must be demonstrably distinct, have significantly limited permitted activities, hold assets that are restricted to transferred financial assets and related assets, and can sell or dispose of non-cash financial assets only in response to specified conditions.

Certain amounts in the 2004 and 2003 Consolidated Financial Statements have been reclassified to conform to the 2005 presentation.

Cash and cash equivalents—For purposes of the Consolidated Financial Statements, the Corporation defines cash and cash equivalents as short-term investments, which have an original maturity of three months or less and are readily convertible into cash.

Securities—Securities, when purchased, are designated as Trading, Investment Securities Held to Maturity, or Investment Securities Available for Sale and remain in that category until they are sold or mature.  The specific identification method is used in determining the cost of securities sold.

Trading Securities are carried at fair value, with adjustments to the carrying value reflected in the Consolidated Statements of Income.  Investment Securities Held to Maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts.  The Corporation designates investment securities as held to maturity only when it has the positive intent and ability to hold them to maturity.  All other securities are classified as Investment Securities Available for Sale and are carried at fair value with fair value adjustments net of the related income tax effects reported as a component of Accumulated Other Comprehensive Income in the Consolidated Balance Sheets.

Loans held for sale—Loans held for sale are carried at the lower of cost or market, determined on an aggregate basis, based on outstanding firm commitments received for such loans or on current market prices.

Loans and leases—Interest on loans, other than direct financing leases, is recognized as income based on the loan principal outstanding during the period.  Unearned income on financing leases is recognized over the lease term on a basis that results in an approximate level rate of return on the lease investment.  Loans are generally placed on nonaccrual status when they are past due 90 days as to either interest or principal.  When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged to interest income on loans.  A nonaccrual loan may be restored to an accrual basis when interest and principal payments are brought current and collectibility of future payments is not in doubt.

The Corporation defers and amortizes fees and certain incremental direct costs, primarily salary and employee benefit expenses, over the contractual term of the loan or lease as an adjustment to the yield.  The unamortized net fees and costs are reported as part of the loan or lease balance outstanding.

The Corporation periodically reviews the residual values associated with its leasing portfolios.  Declines in residual values that are judged to be other than temporary are recognized as a loss resulting in a reduction in the net investment in the lease.

Allowance for loan and lease losses—The allowance for loan and lease losses is maintained at a level believed adequate by management to absorb estimated losses inherent in the loan and lease portfolio including loans that have been determined to be impaired.  For impaired loans, impairment is measured using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral for collateral dependent loans and loans for which foreclosure is deemed to be probable.  Management’s determination of the adequacy of the allowance is based on a continual review of the loan and lease portfolio, loan and lease loss experience, economic conditions, growth and composition of the portfolio, and other relevant factors.  As a result of management’s continual r eview, the allowance is adjusted through provisions for loan and lease losses charged against income.

Financial asset sales—The Corporation sells financial assets, in a two-step process that results in a surrender of control over the assets, as evidenced by true-sale opinions from legal counsel, to unconsolidated entities that securitize the assets.  The Corporation retains interests in the securitized assets in the form of interest-only strips and cash reserve accounts.  Gain or loss on sale of the assets depends in part on the carrying amount assigned to the assets sold allocated between the asset sold and retained interests based on their relative fair values at the date of transfer.  The value of the retained interests is based on the present value of expected cash flows estimated using management’s best estimates of the key assumptions – credit losses, prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.

Premises and equipment—Land is recorded at cost.  Premises and equipment are recorded at cost and depreciated principally on the straight-line method with annual rates varying from 10 to 50 years for buildings and 3 to 10 years for equipment.  Long-lived assets which are impaired are carried at fair value and long-lived assets to be disposed of are carried at the lower of the carrying amount or fair value less cost to sell.  Maintenance and repairs are charged to expense and betterments are capitalized.

Other real estate owned—Other real estate owned consists primarily of assets that have been acquired in satisfaction of debts.  Other real estate owned is recorded at fair value, less estimated selling costs, at the date of transfer.  Valuation adjustments required at the date of transfer for assets acquired in satisfaction of debts are charged to the allowance for loan and lease losses.  Subsequent to transfer, other real estate owned is carried at the lower of cost or fair value, less estimated selling costs, based upon periodic evaluations.  Rental income from properties and gains on sales are included in other income, and property expenses, which include carrying costs, required valuation adjustments and losses on sales, are recorded in other expense.  At December 31, 2005 and 2004, total other real estate owned amounted to $8,869 and $8,056, respectively.

Data processing services—Data processing and related revenues are recognized as services are performed based on amounts billable under the contracts.  Processing services performed that have not been billed to customers are accrued.  Revenue includes shipping and handling costs associated with such income producing activities.

Revenues attributable to the licensing of software are generally recognized upon delivery and performance of certain contractual obligations, provided that no significant vendor obligations remain and collection of the resulting receivable is deemed probable.  Service revenues from customer maintenance fees for ongoing customer support and product updates are recognized ratably over the term of the maintenance period.  Service revenues from training and consulting are recognized when the services are performed.  Conversion revenues associated with the conversion of customers’ processing systems to Metavante’s processing systems are deferred and amortized over the period of the related processing contract, which on average is approximately five years.  Deferred revenues, which are included in Accrued Expenses and Other Liabilities in the Consolidated Balance Sheets, amounted to $111,900 and $97,434 at December 31 , 2005 and 2004, respectively.

Capitalized software and conversions—Direct costs associated with the production of computer software which will be licensed externally or used in a service bureau environment are capitalized and amortized on the straight-line method over the estimated economic life of the product, generally four years.  Such capitalized costs are periodically evaluated for impairment and adjusted to net realizable value when impairment is indicated.  Direct costs associated with customer system conversions to the data services operations are capitalized and amortized on the straight-line method over the terms of the related servicing contract.  Routine maintenance of software products, design costs and development costs incurred prior to establishment of a product’s technological feasibility for software to be sold, are expensed as incurred.

Net unamortized costs, which are included in Accrued Interest and Other Assets in the Consolidated Balance Sheets, at December 31 were:

	2005	2004
Software	$154,058	$ 161,078
Conversions	26,666	26,524
Total	$180,724	$ 187,602

Amortization expense, which includes software write-downs, was $68,170, $72,527 and $82,076, for 2005, 2004 and 2003, respectively.  During 2004, Metavante determined that certain products had limited growth potential.  Based on strategic product reviews and the results of net realizable tests performed on these products, it was determined that the capitalized software and other assets associated with those products were impaired.  Total capitalized software costs written off amounted to $8,662 for the year ended December 31, 2004.  As a result of a shift in product strategy, Metavante determined that certain internally developed software would no longer be used and wrote-off $21,236 of such software in 2003.  

Goodwill and other intangibles—The Corporation annually tests goodwill for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit.  For purposes of the test, the Corporation’s reporting units are the operating segments as defined in Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information.  The first step is a screen for potential impairment and the second step measures the amount of impairment, if any.  See Note 11 for additional information.

Identifiable intangibles arising from purchase acquisitions with a finite useful life are amortized over their useful lives and consist of core deposit intangibles, contract rights, tradenames and customer lists.

Identifiable intangibles that have been determined to have an indefinite useful life are not amortized but are subject to periodic tests for impairment.  At December 31, 2005, the Corporation did not have any identifiable intangibles that have been determined to have an indefinite useful life.  

Derivative financial instruments—Derivative financial instruments, including certain derivative instruments embedded in other contracts, are carried in the Consolidated Balance Sheets as either an asset or liability measured at its fair value.  The fair value of the Corporation’s derivative financial instruments is determined based on quoted market prices for comparable transactions, if available, or a valuation model that calculates the present value of expected future cash flows.  

Changes in the fair value of derivative financial instruments are recognized currently in earnings unless specific hedge accounting criteria are met.  For derivative financial instruments designated as hedging the exposure to changes in the fair value of a recognized asset or liability (fair value hedge), the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged.  For derivative financial instruments designated as hedging the exposure to variable cash flows of a forecasted transaction (cash flow hedge), the effective portion of the derivative financial instrument’s gain or loss is initially reported as a component of accumulated other comprehensive income and is subsequently reclassified into earnings when the forecasted transaction affects earnings.  The ineffective portion of the gain or loss is reported in earnin gs immediately.

At inception of a hedge, the Corporation formally documents the hedging relationship as well as the Corporation’s risk management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged transaction, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in hedging the exposure will be assessed.

The adjustment of the carrying amount of an interest bearing hedged asset or liability in a fair value hedge is amortized into earnings when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If a cash flow hedge is discontinued because it is probable that the original forecasted transaction will not occur, the net gain or loss in accumulated other comprehensive income is immediately reclassified into earnings.  If the cash flow hedge is sold, terminated, expires or the designation of the cash flow hedge is removed, the net gain or loss in accumulated other comprehensive income is reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings.

Cash flows from derivative financial instruments are reported in the Consolidated Statements of Cash Flows as operating activities.

Foreign exchange contracts—Foreign exchange contracts include such commitments as foreign currency spot, forward, future and option contracts.  Foreign exchange contracts and the premiums on options written or sold are carried at market value with changes in market value included in other income.

Treasury stock—Treasury stock acquired is recorded at cost and is carried as a reduction of shareholders’ equity in the Consolidated Balance Sheets.  Treasury stock issued is valued based on average cost.  The difference between the consideration received upon issuance and the average cost is charged or credited to additional paid-in capital.

New accounting pronouncements—In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“SFAS 154”).  This statement is effective for accounting changes and corrections of errors made after January 1, 2006.  SFAS 154 generally requires retrospective application of prior periods’ financial statements of a voluntary change in accounting principle.  However, this statement does not change the transition provisions of any existing accounting pronouncement, including those that are in a transition phase as of the effective date of SFAS 154.

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.  The guidance in this FSP amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, SFAS 124, Accounting for Certain Investments Held by Not-for-Profit Organizations and APBO No. 18, The Equity Method of Accounting for Investments in Common Stock.  The guidance in this FSP also nullifies certain requirements of Emerging Issues Task Force (“EITF”) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments and supersedes EITF Topic No. D-44, Recognition of Other-than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.  This FSP addresses the determination as to when an invest ment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss.  This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than temporary impairments.  See Note 6 in Notes to Consolidated Financial Statements.

In December 2005, the FASB issued FSP SOP 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit Risk.  This FSP was issued to emphasize the requirement to assess the adequacy of disclosures for all lending products especially loan products whose contractual features may increase the exposure of the originator, holder, investor, guarantor, or servicer to risk of nonpayment or realization.  See Note 7 in Notes to Consolidated Financial Statements.

2.

Adoption of Share-Based Payment Accounting Standard

Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”).  SFAS 123(R) replaces FASB statement No.123, Accounting for Stock-Based Compensation (“SFAS 123”), and supercedes Accounting Principles Board Opinion No. 25 (“APBO 25”), Accounting for Stock Issued to Employees.  Statement 123(R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements.  That cost is measured based on the fair value of the equity or liability instruments issued.  Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.  Statement 123(R) also provides guidanc e on measuring the fair value of share-based payment awards.

In conjunction with the adoption of SFAS 123(R), the Corporation elected the Modified Retrospective Application method to implement this new accounting standard.  Under this method all prior periods have been adjusted based on pro forma amounts previously disclosed under SFAS 123.

As permitted under SFAS 123, the Corporation had previously elected to measure and account for share-based compensation cost using the intrinsic value based method of accounting prescribed in APBO 25 and provide the required pro forma disclosures.  Under the intrinsic value based method, compensation cost was the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount paid to acquire the stock.

The most significant differences between SFAS 123(R) and APBO 25 as it relates to the Corporation is the amount of compensation cost attributable to the Corporation’s fixed stock option plans and employee stock purchase plan (“ESPP”).  Under APBO 25 no compensation cost was recognized for fixed stock option plans because the exercise price was equal to the quoted market price at the date of grant and therefore there was no intrinsic value.  SFAS 123(R) compensation cost is equal to the fair value of the options granted.  Under APBO 25 no compensation cost was recognized for the ESPP because the discount and the plan met the definition of a qualified plan of the Internal Revenue Code and met the requirements of APBO 25.  Under SFAS 123(R) the Corporation’s ESPP is compensatory.

The cumulative effect to Shareholders’ Equity at December 31, 2002 as a result of applying the Modified Retrospective Application method to adopt SFAS 123(R) is as follows:

Decrease to Retained Earnings	$(85,374)
Increase to Additional Paid-in Capital	128,368
Decrease to Deferred Compensation	3,045
Net Increase to Shareholders’ Equity	$46,039

The net increase to Shareholders’ Equity represents the deferred income tax benefit outstanding at December 31, 2002 associated with the cumulative effect on net income from 1995 to 2002 from recognizing share-based compensation previously not reported.

The following table presents the aggregate impact of the adjustments resulting from applying the Modified Retrospective Application method to adopt SFAS 123(R):

As of and for the Twelve Months Ended December 31, 2005	As Originally Reported			Adjustment		As Adjusted
Shareholders' Equity:
Additional Paid-in Capital	$	767,328	$	203,411	$	970,739
Retained Earnings		4,021,158		(149,544)		3,871,614
Deferred Compensation		(50,549)		13,794		(36,755)
Total Shareholders' Equity		4,667,810		67,661		4,735,471
Other Expense:
Salaries and Employee Benefits	$	1,042,744	$	32,014	$	1,074,758
Other		286,478		699		287,177
Total Other Expense		1,846,331		32,713		1,879,044
Income Before Income Taxes	$	1,090,367	$	(32,713)	$	1,057,654
Provision for Income Taxes	$	362,898	$	(11,434)	$	351,464
Net Income	$	727,469	$	(21,279)	$	706,190
Net Income Per Common Share:
Basic	$	3.15	$	(0.09)	$	3.06
Diluted		3.10		(0.11)		2.99

As of and for the Twelve Months Ended December 31, 2004	As Originally Reported			Adjustment		As Adjusted
Shareholders' Equity:
Additional Paid-in Capital	$	671,815	$	178,464	$	850,279
Retained Earnings		3,508,477		(128,265)		3,380,212
Deferred Compensation		(40,017)		10,727		(29,290)
Total Shareholders' Equity		3,889,814		60,926		3,950,740
Other Expense:
Salaries and Employee Benefits	$	887,279	$	32,152	$	919,431
Other		250,192		974		251,166
Total Other Expense		1,595,558		33,126		1,628,684
Income Before Income Taxes	$	944,966	$	(33,126)	$	911,840
Provision for Income Taxes	$	317,880	$	(11,893)	$	305,987
Net Income	$	627,086	$	(21,233)	$	605,853
Net Income Per Common Share:
Basic	$	2.81	$	(0.09)	$	2.72
Diluted		2.77		(0.11)		2.66

As of and for the Twelve Months Ended December 31, 2003	As Originally Reported			Adjustment		As Adjusted
Shareholders' Equity:
Additional Paid-in Capital	$	564,269	$	154,064	$	718,333
Retained Earnings		3,061,246		(107,032)		2,954,214
Deferred Compensation		(26,787)		6,910		(19,877)
Total Shareholders' Equity		3,328,693		53,942		3,382,635
Other Expense:
Salaries and Employee Benefits	$	797,518	$	33,261	$	830,779
Other		240,070		619		240,689
Total Other Expense		1,451,707		33,880		1,485,587
Income Before Income Taxes	$	758,387	$	(33,880)	$	724,507
Provision for Income Taxes	$	214,282	$	(12,222)	$	202,060
Net Income	$	544,105	$	(21,658)	$	522,447
Net Income Per Common Share:
Basic	$	2.41	$	(0.10)	$	2.31
Diluted		2.38		(0.10)		2.28

See Note 17 for a description of the Corporation’s share-based compensation plans.

3.

Earnings Per Share

The following presents a reconciliation of the numerators and denominators of the basic and diluted per share computations (dollars and shares in thousands, except per share data):

	Year Ended December 31, 2005 As Adjusted
	Income (Numerator)		Average Shares (Denominator)	Per Share Amount
Basic earnings per share:
Income available to common shareholders	$	706,190	230,849	$3.06
Effect of dilutive securities:
Stock option, restricted stock and other plans		—	5,182
Diluted earnings per share:
Income available to common shareholders	$	706,190	236,031	$2.99

	Year Ended December 31, 2004 As Adjusted
	Income (Numerator)		Average Shares (Denominator)	Per Share Amount
Basic earnings per share:
Income available to common shareholders	$	605,853	222,801	$2.72
Effect of dilutive securities:
Stock option, restricted stock and other plans		—	4,745
Diluted earnings per share:
Income available to common shareholders	$	605,853	227,546	$2.66

	Year Ended December 31, 2003 As Adjusted
	Income (Numerator)		Average Shares (Denominator)	Per Share Amount
Basic earnings per share:
Income available to common shareholders	$	522,447	226,139	$2.31
Effect of dilutive securities:
Stock option, restricted stock and other plans		—	3,061
Diluted earnings per share:
Income available to common shareholders	$	522,447	229,200	$2.28

Options to purchase shares of common stock not included in the computation of diluted net income per share because the options’ exercise price was greater than the average market price of the common shares for the years ended December 31, are as follows:

Year Ended December 31,	Price Range			Shares
2005	$43.310	—	$47.020	62
2004	39.910	—	44.200	3,474
2003	31.045	—	38.250	7,021

4.

Business Combinations

The following acquisitions, which are not considered to be material business combinations, were announced during the fourth quarter of 2005:

In December 2005, the Corporation announced the signing of a definitive agreement to acquire Trustcorp Financial, Inc. (“Trustcorp”), a bank holding company headquartered in St. Louis, Missouri.  Trustcorp, with consolidated assets of $746.2 million at December 31, 2005, is the parent company of Missouri State Bank & Trust, a bank with seven offices in the St. Louis metropolitan area.  Missouri State Bank & Trust offices will become offices of M&I’s affiliate Southwest Bank of St. Louis.  Under the terms of the definitive agreement, Trustcorp shareholders will receive 0.7011 of a share of M&I common stock and $7.70 in cash for each Trustcorp share.  Based on the price of M&I’s shares when the agreement was executed, the transaction value is approximately $181 million.  The acquisition is expected to close in the second quarter of 2006, subject to shareholder and regulatory appr ovals and other customary closing conditions.

In November 2005, Metavante announced that it signed a definitive agreement to acquire AdminiSource Corporation (“AdminiSource”) of Carrollton, Texas.  AdminiSource is a provider of health care payment distribution services, providing printed and electronic payment and remittance advice distribution services for payer organizations nationwide.  Metavante completed its acquisition of AdminiSource in January 2006.  Total consideration in this transaction consisted of 527,864 shares of M&I common stock valued at $23.2 million and $5.0 million in cash.

In November 2005, the Corporation announced the signing of a definitive agreement to acquire Gold Banc Corporation, Inc. (“Gold Banc”), a bank holding company headquartered in Leawood, Kansas, a part of the Kansas City metropolitan area with consolidated assets at December 31, 2005 of $4.2 billion.  Gold Banc is the holding company for Gold Bank, with 11 branches in Kansas, nine of which are in the Kansas City area, and six branches in Missouri, four of which are in the Kansas City area.  In addition, Gold Bank has 11 branches in Florida and three branches in Tulsa, Oklahoma.  The consideration to Gold Banc shareholders is expected to be $18.50 per Gold Banc share, consisting of $2.78 in cash and $15.72 in the form of M&I common stock.  Based on the price of M&I’s shares when the agreement was executed, the total transaction value is approximately $700 million.  The current Gold Bank branches a re expected to become M&I Bank branches in the second quarter of 2006.  The transaction is expected to close in the second quarter of 2006 pending regulatory approval and other customary closing conditions.

In October 2005, Marshall & Ilsley Trust Company, N.A. signed a definitive agreement to acquire the trust and asset management business assets of FirstTrust Indiana of Indianapolis, Indiana, a division of First Indiana Bank, N.A.  FirstTrust Indiana offers asset management, trust administration and estate planning services to high net-worth individuals and institutional customers.  The FirstTrust Indiana business, with nearly $1 billion in assets under administration, will be integrated into the Corporation’s Trust reporting unit.  Marshall & Ilsley Trust Company, N.A. completed the acquisition of FirstTrust Indiana in January 2006 for cash consideration of $15.9 million.

The following acquisitions, which are not considered to be material business combinations individually or in the aggregate, were completed during 2005:

 On November 18, 2005, Metavante completed the acquisition of all of the outstanding stock of LINK2GOV Corp. (“LINK2GOV”) of Nashville, Tennessee for $63.5 million in cash.  LINK2GOV is a provider of electronic payment processing services for federal, state and local government agencies in the United States, including the Internal Revenue Service.  Initial goodwill, subject to the completion of appraisals and valuation of the assets acquired and liabilities assumed, amounted to $53.2 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $13.4 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax purposes.

On October 6, 2005, Metavante acquired the membership interests of Brasfield Holdings, LLC (“Brasfield”) and associated members.  Brasfield of Birmingham, Alabama provides core processing products and services to community banks which license and use Bankway software from Kirchman Corporation, an indirect subsidiary of Metavante.  Total consideration consisted of 335,462 shares of M&I’s common stock valued at $14.6 million and $0.2 million in cash, with up to an additional $25.0 million to be paid based on meeting certain performance criteria.  Initial goodwill, subject to the completion of appraisals and valuation of the assets acquired and liabilities assumed, amounted to $19.1 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 9 years amounted to $4.0 million.  The goodwill and intangibles resulting from this transactio n are not deductible for tax purposes.

On August 11, 2005, Metavante completed the acquisition of GHR Systems, Inc. (“GHR”) of Wayne, Pennsylvania for $63.6 million.  Total consideration consisted of 1,152,144 shares of M&I’s common stock valued at $52.2 million and $11.4 million in cash.  GHR provides loan origination technologies for the residential mortgage and consumer finance industries, offers point of sale products for any channel and comprehensive underwriting, processing and closing technologies.  Initial goodwill, subject to the completion of appraisals and valuation of the assets acquired and liabilities assumed, amounted to $42.0 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $10.5 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax purposes.

On August 8, 2005, Metavante completed the acquisition of all of the outstanding capital stock of TREEV LLC (“TREEV”) of Herndon, Virginia for $19.4 million.  Total consideration consisted of 353,073 shares of M&I’s common stock valued at $16.4 million and $3.0 million in cash.  TREEV provides browser-based document imaging, storage and retrieval products and services for the financial services industry in both lending and deposit environments.  TREEV would complement Metavante’s check-imaging products and services by providing solutions for document storage and retrieval, including electronic report storage.  Initial goodwill, subject to the completion of appraisals and valuations of the assets acquired and liabilities assumed, amounted to $16.9 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $5.2 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax purposes.

On July 22, 2005, Metavante completed the acquisition of all of the outstanding capital stock of Med-i-Bank, Inc. (“MBI”) of Waltham, Massachusetts for $150.5 million.  Total consideration consisted of 2,850,730 shares of M&I’s common stock valued at $133.8 million and $16.7 million in cash.  MBI provides electronic payment processing services for employee benefit and consumer-directed healthcare accounts, such as flexible spending accounts, health reimbursement arrangements and health savings account systems.  Initial goodwill, subject to the completion of appraisals and valuations of the assets acquired and liabilities assumed, amounted to $117.8 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $25.0 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax p urposes.

In February 2005, Metavante completed the acquisition of all of the outstanding stock of Prime Associates, Inc. (“Prime”) of Clark, New Jersey, for $24.6 million.  Total consideration consisted of 563,114 shares of M&I’s common stock valued at $24.0 million and $0.6 million in cash.  Prime is a provider of anti-money laundering and fraud interdiction software and data products for financial institutions, insurance companies and securities firms.  Additional consideration up to $4.0 million may be paid based upon attainment of certain earnings levels in the year ending December 31, 2005.  Contingent payments, if made, would be reflected as adjustments to goodwill.  Initial goodwill, subject to the completion of appraisals and valuations of the assets acquired and liabilities assumed, amounted to $24.6 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $4.6 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax purposes.

There was no in-process research and development acquired in any of the acquisitions completed by Metavante for the year ended December 31, 2005.

The following acquisitions, which were not considered material business combinations individually or in the aggregate, were completed during 2004:

On November 22, 2004, Metavante completed the acquisition of all of the outstanding common stock of VECTORsgi Holdings, Inc. (“VECTORsgi”).  VECTORsgi, based in Addison, Texas, is a provider of banking transaction applications, including electronic check-image processing and image exchange, item processing, dispute resolution and e-commerce for financial institutions and corporations.  The aggregate cash purchase price for VECTORsgi was $100.0 million, with up to an additional $35.0 million to be paid based on meeting certain performance criteria.  Goodwill amounted to $83.5 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 12 years amounted to $12.4 million.  The goodwill and intangibles resulting from this transaction are not deductible for tax purposes.

On October 20, 2004, Metavante acquired all of the outstanding membership interests of NuEdge Systems LLC (“NuEdge”) for approximately $1.4 million in cash.  NuEdge is engaged in the business of providing customer relationship management solutions for enterprise marketing automation.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 8 years amounted to $1.4 million.  The intangible resulting from this transaction is deductible for tax purposes.

On September 8, 2004, Metavante acquired certain assets of Response Data Corp. (“RDC”), for approximately $35.0 million in cash.  RDC is a New Jersey-based provider of credit card balance transfer, bill pay and convenience check processing.  Goodwill amounted to $26.4 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 10 years amounted to $6.4 million.  The goodwill and intangibles resulting from this transaction are deductible for tax purposes.

On July 30, 2004, Metavante completed the acquisition of all of the outstanding common stock of the NYCE Corporation (“NYCE”), for $613.0 million in cash, subject to certain adjustments that may include a return of a portion of the purchase price based on certain future revenue measures.  NYCE owns and operates one of the largest electronic funds transfer networks in the United States and provides debit card authorization processing services for automated teller machines (ATMs) and on-line and off-line signature based debit card transactions.  At December 31, 2005 goodwill amounted to $448.7 million.  The estimated identifiable intangible asset to be amortized (customer relationships and trademark) with an estimated useful life of 20 years for both the customer relationships intangible and for the trademark intangible amounted to $185.0 million.  The goodwill and intangibles resulting from this transaction are n ot deductible for tax purposes.

On July 1, 2004, Metavante completed the acquisition of all of the outstanding common stock of Advanced Financial Solutions, Inc. and its affiliated companies (collectively “AFS”), of Oklahoma City, Oklahoma for $141.9 million in cash.  AFS is a provider of image-based payment, transaction and document software technologies.  AFS also operates an electronic check-clearing network through one of its affiliates.  Additional contingent consideration may be paid based on the attainment of certain performance objectives each year, beginning on the date of closing and ending December 31, 2004, and each year thereafter through 2007.  Contingent payments, if made, would be reflected as adjustments to goodwill.  At December 31, 2005, goodwill amounted to $102.6 million.  The estimated identifiable intangible assets to be amortized (customer relationships and non-compete agreements) with an estimated useful life of 12 years for customer relationships and 4 years for non-compete agreements, amounted to $21.5 million.  The goodwill and intangibles resulting from this transaction are partially deductible for tax purposes.

On May 27, 2004, Metavante completed the purchase of certain assets and the assumption of certain liabilities of Kirchman Corporation (“Kirchman”), of Orlando, Florida for $157.4 million in cash.  Kirchman is a provider of automation software and compliance services to the banking industry.  Goodwill amounted to $160.3 million.  The estimated identifiable intangible assets to be amortized (customer relationships and non-compete agreements) with an estimated useful life of 10 years for customer relationships and 5 years for non-compete agreements amounted to $15.8 million.  The goodwill and intangibles resulting from this transaction are deductible for tax purposes.

There was no in-process research and development acquired in any of the acquisitions completed by Metavante for the year ended December 31, 2004.

On January 1, 2004, the Banking segment completed the purchase of certain assets and the assumption of certain liabilities of AmerUs Home Lending, Inc. (“AmerUs”), an Iowa-based corporation engaged in the business of brokering and servicing mortgage and home equity loans for $15.0 million in cash.  Goodwill amounted to $5.3 million.  The estimated identifiable intangible asset to be amortized (customer relationships) with an estimated useful life of 3 years amounted to $0.3 million.  The goodwill and intangibles resulting from this transaction are deductible for tax purposes.

The following acquisitions, which were not considered material business combinations individually or in the aggregate, were completed during 2003:

In November 2003, Metavante acquired the assets of Printing For Systems, Inc., a Connecticut corporation engaged in the business of printing and delivery of identification cards and other documents for the healthcare insurance industry, including non-financial data processing and direct mail services in connection with such services.  The total original cost of this acquisition was $25.0 million which was paid in cash.  For three years beginning in 2004, additional contingent payments may be made each year if certain annual revenue and profitability targets are achieved subject to certain other conditions.  The maximum total contingent consideration over the three-year contingency period is $25.0 million.  There was no in-process research and development acquired in this acquisition.  The estimated identifiable intangible to be amortized (customer list) with an estimated life of 8 years amounted to $4.0 million. &nbs p;Goodwill at December 31, 2005 amounted to $40.9 million which includes contingent consideration of $22.5 million.  The goodwill and intangibles resulting from this transaction are deductible for tax purposes.

In May 2003, the Corporation’s Trust subsidiary entered into an agreement to purchase for cash certain segments of the employee benefit plan business of a national banking association located in Missouri.  This acquisition enhances the Trust subsidiary’s presence in Missouri and complements the Missouri acquisition by the Banking segment in October 2002.  The acquired segments were transferred to the Corporation’s Trust subsidiary in accordance with an established conversion schedule that was completed in the first quarter of 2004.  The total cost of this acquisition was $4.0 million subject to additional payments up to $7.0 million contingent upon achieving certain revenue targets one year from the completion date of the acquisition.  The identifiable intangible to be amortized (customer list) with an estimated life of 6.2 years amounted to $4.0 million.  Goodwill at December 3 1, 2005 amounted to $4.3 million which includes contingent consideration of $3.6 million.  The intangibles resulting from this transaction are deductible for tax purposes.

The results of operations of the acquired entities have been included in the consolidated results since the dates the transactions were closed.

5.

Cash and Due from Banks

At December 31, 2005 and 2004, $81,009 and $106,911, respectively, of cash and due from banks was restricted, primarily due to requirements of the Federal Reserve System to maintain certain reserve balances.

6.

Securities

The book and market values of selected securities at December 31 were:

	2005				2004
	Amortized Cost		Market Value		Amortized Cost		Market Value
Investment Securities Available for Sale:
U.S. Treasury and government agencies	$	4,456,610	$	4,379,148	$	4,147,593	$	4,157,374
States and political subdivisions		690,849		703,892		479,326		504,027
Mortgage backed securities		118,693		116,464		151,061		150,658
Other		491,928		502,199		533,229		546,940
Total	$	5,758,080	$	5,701,703	$	5,311,209	$	5,358,999
Investment Securities Held to Maturity:
States and political subdivisions	$	616,554	$	636,135	$	724,086	$	762,801
Other		2,000		2,000		2,300		2,300
Total	$	618,554	$	638,135	$	726,386	$	765,101

The unrealized gains and losses of selected securities at December 31 were:

	2005				2004
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Investment Securities Available for Sale:
U.S. Treasury and government agencies	$	4,263	$	81,725	$	23,654	$	13,873
States and political subdivisions		18,010		4,967		26,023		1,322
Mortgage backed securities		—		2,229		227		630
Other		10,743		472		13,790		79
Total	$	33,016	$	89,393	$	63,694	$	15,904
Investment Securities Held to Maturity:
States and political subdivisions	$	19,610	$	29	$	38,832	$	117
Other		—		—		—		—
Total	$	19,610	$	29	$	38,832	$	117

The book value and market value of selected securities by contractual maturity at December 31, 2005 were:

	Investment Securities Available for Sale				Investment Securities Held to Maturity
	Amortized Cost		Market Value		Amortized Cost		Market Value
Within one year	$	206,940	$	209,633	$	91,604	$	92,440
From one through five years		4,092,439		4,025,145		233,974		241,443
From five through ten years		537,124		534,065		166,648		172,693
After ten years		921,577		932,860		126,328		131,559
Total	$	5,758,080	$	5,701,703	$	618,554	$	638,135

The following table provides the gross unrealized losses and fair value, aggregated by investment category and the length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2005:

	Less than 12 Months		12 Months or More		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
U.S. Treasury and government agencies	$2,782,907	$44,829	$1,202,390	$36,896	$3,985,297	$81,725
State and political subdivisions	201,436	3,249	49,171	1,747	250,607	4,996
Mortgage backed securities	78,900	1,247	37,564	982	116,464	2,229
Other	57,568	386	4,276	86	61,844	472
Total	$3,120,811	$49,711	$1,293,401	$39,711	$4,414,212	$89,422

The investment securities in the above table were temporarily impaired at December 31, 2005.  This temporary impairment represents the amount of loss that would have been realized if the investment securities had been sold on December 31, 2005.  The temporary impairment in the investment securities portfolio is predominantly the result of increases in market interest rates since the investment securities were acquired and not from deterioration in the creditworthiness of the issuer.

The gross investment securities gains and losses, including Wealth Management transactions, amounted to $48,012 and $2,598 in 2005, $44,008 and $8,656 in 2004, and $36,784 and $15,212 in 2003, respectively.  See the Consolidated Statements of Cash Flows for the proceeds from the sale of investment securities.

Income tax expense related to net securities transactions amounted to $15,901, $12,373, and $7,543 in 2005, 2004, and 2003, respectively.

At December 31, 2005, securities with a value of approximately $1,421,352 were pledged to secure public deposits, short-term borrowings, and for other purposes required by law.

7.

Loans and Leases

Loans and leases at December 31 were:

	2005		2004
Commercial, financial and agricultural	$	9,599,361	$	8,483,046
Cash flow hedging instruments at fair value		(33,886)		(1,583)
Commercial, financial and agricultural		9,565,475		8,481,463
Real estate:
Construction		3,641,942		2,265,227
Residential mortgage		5,050,803		3,398,790
Home equity loans and lines of credit		4,833,480		5,149,239
Commercial mortgage		8,825,104		8,164,099
Total Real Estate		22,351,329		18,977,355
Personal		1,617,761		1,540,024
Lease financing		632,348		537,930
Total loans and leases	$	34,166,913	$	29,536,772

Included in residential mortgages in the table previously presented are residential mortgage loans held for sale.  Residential mortgage loans held for sale amounted to $198,716 and $67,897 at December 31, 2005 and 2004, respectively.  Auto loans held for sale, which are included in personal loans in the table previously presented, amounted to $79,131 and $13,765 at December 31, 2005 and 2004, respectively.

Commercial loans and commercial mortgages are evaluated for the adequacy of repayment sources at the time of approval and are regularly reviewed for any possible deterioration in the ability of the borrower to repay the loan.

The Corporation evaluates the credit risk of each commercial customer on an individual basis and, where deemed appropriate, collateral is obtained.  Collateral varies by the type of loan and individual loan customer and may include accounts receivable, inventory, real estate, equipment, deposits, personal and government guarantees, and general security agreements.  The Corporation’s access to collateral is dependent upon the type of collateral obtained.  

Policies have been established that set standards for the maximum commercial mortgage loan amount by type of property, loan terms, pricing structures, loan-to-value limits by property type, minimum requirements for initial investment and maintenance of equity by the borrower, borrower net worth, property cash flow and debt service coverage as well as policies and procedures for granting exceptions to established underwriting standards.

The Corporation’s residential real estate lending policies require all loans to have viable repayment sources.  Residential real estate loans are evaluated for the adequacy of these repayment sources at the time of approval, using such factors as credit scores, debt-to-income ratios and collateral values.  Home equity loans and lines of credit are generally governed by the same lending policies.  

Origination activities for commercial construction loans and residential construction loans are similar to those described above for commercial mortgages and residential real estate lending.  

The Corporation’s lending activities are concentrated primarily in the Midwest.  Approximately 51% of the portfolio consists of loans granted to customers located in Wisconsin, 14% of the loans are to customers located in Arizona, 11% of the loans are to customers in Minnesota and 5% are to customers located in Missouri.  The Corporation’s loan portfolio consists of business loans extending across many industry types, as well as loans to individuals.  As of December 31, 2005, total loans to any group of customers engaged in similar activities and having similar economic characteristics, as defined by the North American Industry Classification System, did not exceed 10% of total loans.

Federal banking regulatory agencies have established guidelines in the form of supervisory limits for loan- to-value ratios (“LTV”) in real estate lending.  The supervisory limits are based on the type of real estate collateral and loan type (1-4 family residential and non-residential).  The guidelines permit financial institutions to grant or purchase loans with LTV ratios in excess of the supervisory LTV limits (“High LTV or HLTV”) provided such exceptions are supported by appropriate documentation or the loans have additional credit support.  Federal banking regulatory agencies have also established aggregate limits on the amount of HLTV loans a financial institution may hold.  HLTV loans as defined by the supervisory limits, amounted to $3,630 million at December 31, 2005.  Approximately $2,120 million of these HLTV loans at December 31, 2005 were secured by owner-occupied residential properti es.  At December 31, 2005, all of the Corporation’s banking affiliates were in compliance with the aggregate limits for HLTV loans.

Federal banking regulatory agencies have recently expressed concerns that concentrations of loans secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing or permanent financing of the property may make financial institutions more vulnerable to cyclical real estate markets.  Loans secured by vacant land and loans secured by multi-family properties each represented less than 10% of total real estate loans outstanding at December 31, 2005, respectively.  Loans secured by non-farm nonresidential properties amounted to $5,114 million with approximately 40% of those loans secured by owner-occupied properties at December 31, 2005.  Loans secured by owner-occupied properties ge nerally have risk profiles that are less influenced by the condition of the general real estate market.  

The Corporation offers a variety of loan products with payment terms and rate structures that have been designed to meet the needs of its customers within an established framework of acceptable credit risk.  Payment terms range from fully amortizing loans that require periodic principal and interest payments to terms that require periodic payments of interest-only with principal due at maturity.  Interest-only loans are typical in commercial and business line-of-credit or revolving line-of-credit loans, home equity lines-of-credit and construction loans (residential and commercial).  At December 31, 2005, loans with below market or so-called teaser interest rates amounted to less than $3 million.  At December 31, 2005, the Corporation did not offer, hold or service option adjustable rate mortgages that may expose the borrowers to future increase in repayments in excess of changes resulting solely from increases in the mar ket rate of interest (loans subject to negative amortization).

The Corporation periodically reviews the residual values associated with its leasing portfolios.  Declines in residual values that are judged to be other than temporary are recognized as a loss resulting in a reduction in the net investment in the lease.  No residual impairment losses were incurred for the years ended December 31, 2005 and 2004.  

An analysis of loans outstanding to directors and officers, including their related interests, of the Corporation and its significant subsidiaries for 2005 is presented in the following table.  All of these loans were made in the ordinary course of business with normal credit terms, including interest rates and collateral.  The beginning balance has been adjusted to reflect the activity of newly-appointed directors and executive officers.

Loans to directors and executive officers:
Balance, beginning of year	$168,746
New loans	313,887
Repayments	(354,160)
Balance, end of year	$128,473

8.

Allowance for Loan and Lease Losses

An analysis of the allowance for loan and lease losses follows:

	2005		2004		2003
Balance, beginning of year	$	358,110	$	349,561	$	338,409
Allowance of loans and leases acquired		—		27		—
Provision charged to expense		44,795		37,963		62,993
Charge-offs		(59,524)		(50,855)		(69,663)
Recoveries		20,388		21,414		17,822
Balance, end of year	$	363,769	$	358,110	$	349,561

As of December 31, 2005 and 2004, nonaccrual loans and leases totaled $134,718 and $127,722, respectively.

At December 31, 2005 and 2004 the Corporation’s recorded investment in impaired loans and leases and the related valuation allowance are as follows:

	2005				2004
	Recorded Invest- ment		Valuation Allow- ance		Recorded Invest- ment		Valuation Allow- ance
Total impaired loans and leases	$	134,861			$	128,398
Loans and leases excluded from individual     evaluation		(61,090)				(54,481)
Impaired loans evaluated	$	73,771			$	73,917
Valuation allowance required	$	50,113	$	18,235	$	54,862	$	21,203
No valuation allowance required		23,658		—		19,055		—
Impaired loans evaluated	$	73,771	$	18,235	$	73,917	$	21,203

The recorded investment in impaired loans for which no allowance is required is net of applications of cash interest payments and net of previous direct write-downs of $31,505 in 2005 and $18,380 in 2004 against the loan balances outstanding.  Loans less than $250 are excluded from individual evaluation, but are collectively evaluated as homogeneous pools.  The required valuation allowance is included in the allowance for loan and lease losses in the Consolidated Balance Sheets.

The average recorded investment in total impaired loans and leases for the years ended December 31, 2005 and 2004 amounted to $135,584 and $145,598, respectively.

Interest payments received on impaired loans and leases are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions of principal.  Interest income recognized on total impaired loans and leases amounted to $8,528 in 2005, $6,591 in 2004 and $7,841 in 2003.  The gross income that would have been recognized had such loans and leases been performing in accordance with their original terms would have been $10,954 in 2005, $10,047 in 2004 and $12,378 in 2003.

9.

Variable Interest Entities and Financial Asset Sales

The Corporation sells indirect automobile loans to an unconsolidated multi-seller asset-backed commercial paper conduit or basic term facilities, in securitization transactions in accordance with SFAS 140.  Servicing responsibilities and subordinated interests are retained.  The Corporation receives annual servicing fees based on the loan balances outstanding and rights to future cash flows arising after investors in the securitization trusts have received their contractual return and after certain administrative costs of operating the trusts.  The investors and the securitization trusts have no recourse to the Corporation’s other assets for failure of debtors to pay when due.  The Corporation’s retained interests are subordinate to investors’ interests.  Their value is subject to credit, prepayment and interest rate risks on the transferred financial assets.

During 2005, 2004 and 2003, the Corporation recognized net gains/(losses) of $(1,957), $(3,440) and $2,726, respectively, on the sale and securitization of automobile loans.  Net trading (losses)/gains associated with related interest swaps amounted to $(1,078), $(357) and $162 in 2005, 2004, and 2003, respectively.

During 2004 and 2005, there were no impairment losses.  For the year ended December 31, 2003, the Corporation recognized impairment losses of $4,082, which is included in net investment securities gains in the Consolidated Statements of Income.  The impairment was a result of the differences between actual prepayments and credit losses experienced compared to the expected prepayments and credit losses used in initially measuring retained interests.  The impairment of the retained interests, held in the form of interest-only strips, was deemed to be other than temporary.

The values of retained interests are based on cash flow models, which incorporate key assumptions.  Key economic assumptions used in measuring the retained interests at the date of securitization resulting from securitizations of automobile loans completed during the year were as follows (rate per annum):

	2005	2004
Prepayment speed (CPR)	15-40%	19-35%
Weighted average life (in months)	21.2	20.0
Expected credit losses (based on original balance)	0.22-0.74%	0.20-0.74%
Residual cash flow discount rate	12.0%	12.0%
Variable returns to transferees	Forward one month LIBOR yield curve

For 2005, the prepayment speed and expected credit loss estimates are based on historical prepayment rates, credit losses on similar assets and considers current environmental factors.  The prepayment speed curve ramps to its maximum near the end of the fourth year.  The expected credit losses are based in part on whether the loan is on a new or used vehicle.  The credit loss estimates ramp to their maximum levels near the end of the third year.  The expected credit losses presented are based on the original loan balances.  The Corporation has not changed any aspect of its overall approach to determining the key economic assumptions.  However, on an ongoing basis the Corporation continues to refine the assumptions used in measuring retained interests.

Retained interests and other assets consisted of the following at December 31:

	2005		2004
Interest – only strips	$	10,659	$	24,092
Cash collateral accounts		15,050		17,969
Servicing advances		237		143
Total retained interests	$	25,946	$	42,204

At December 31, 2005 key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows ($ in millions):

		Adverse Change in Assumptions
		10%	20%
Weighted average life (in months)	14.1
Prepayment speed	17-42%	$0.5	$1.1
Expected credit losses (based on original balance)	0.20-1.028%	0.6	1.1
Residual cash flows discount rate (annual)	12.0%	0.1	0.2

These sensitivities are hypothetical and should be used with caution.  As the figures indicate, changes in fair value based on a 10 percent adverse variation in assumptions generally can not be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear.  Also, the effect of an adverse variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.  Realistically, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

Actual and projected net credit losses represented 0.56% of total automobile loans that have been securitized at December 31, 2005, based on balances at the time of the initial securitization.

The following table summarizes certain cash flows received from and paid to the securitization trusts for the years ended December 31:

	2005		2004
Proceeds from new securitizations	$	498,858	$	494,624
Servicing fees received		5,765		6,176
Net charge-offs		(2,489)		(2,298)
Cash collateral account transfers, net		(2,919)		(7,587)
Other cash flows received on retained interests, net		17,385		32,748

At December 31, 2005 securitized automobile loans and other automobile loans managed together with them along with delinquency and credit loss information consisted of the following:

	Securitized		Portfolio		Managed
Loan balances	$	954,209	$	245,046	$	1,199,255
Principal amounts of loans 60 days or more past due		855		1,173		2,028
Net credit losses		2,411		1,431		3,842

The Corporation also sells, from time to time, debt securities classified as available for sale that are highly rated to an unconsolidated bankruptcy remote qualifying special purpose entity (“QSPE”) whose activities are limited to issuing highly rated asset-backed commercial paper with maturities up to 180 days which is used to finance the purchase of the investment securities.  The Corporation provides liquidity back-up in the form of Liquidity Purchase Agreements.  In addition, the Corporation acts as counterparty to interest rate swaps that enable the QSPE to hedge its interest rate risk.  Such swaps are designated as trading in the Corporation’s Consolidated Balance Sheets.

A subsidiary of the Corporation has entered into interest rate swaps with the QSPE designed to counteract the interest rate risk associated with third party beneficial interest (commercial paper) and the transferred assets.  The beneficial interests in the form of commercial paper have been issued by the QSPE to parties other than the Corporation and its subsidiary or any other affiliates.  The notional amounts do not exceed the amount of beneficial interests.  The swap agreements do not provide the QSPE or its administrative agent any decision-making authority other than those specified in the standard ISDA Master Agreement.

Highly rated investment securities in the amount of $270.0 million and $280.2 million were outstanding at December 31, 2005 and 2004, respectively, in the QSPE to support the outstanding commercial paper.

The Corporation also holds other variable interests in variable interest entities.

The Corporation is committed to community reinvestment and is required under federal law to take affirmative steps to meet the credit needs of the local communities it serves.  The Corporation regularly invests in or lends to entities that:  own residential facilities that provide housing for low-to-moderate income families (affordable housing projects); own commercial properties that are involved in historical preservations (rehabilitation projects); or provide funds for qualified low income community investments.  These projects are generally located within the geographic markets served by the Corporation’s banking segment.  The Corporation’s involvement in these entities is limited to providing funding in the form of subordinated debt or equity interests.  At December 31, 2005, investments in the form of subordinated debt represented an insignificant involvement in five unrelated entities.

Generally, the economic benefit from the equity investments consists of the income tax benefits obtained from the Corporation’s allocated operating losses from the partnership that are tax deductible, allocated income tax credits for projects that qualify under the Internal Revenue Code and in some cases, participation in the proceeds from the eventual disposition of the property.  The Corporation uses the equity method of accounting to account for these investments.  To the extent a project qualifies for income tax credits, the project must continue to qualify as an affordable housing project for fifteen years, a rehabilitation project for five years, or a qualified low income community investment for seven years in order to avoid recapture of the income tax credit which generally defines the time the Corporation will be involved in a project.

The Corporation’s maximum exposure to loss as a result of its involvement with these entities is generally limited to the carrying value of these investments plus any unfunded commitments on projects that are not completed.  At December 31, 2005, the aggregate carrying value of the subordinated debt and equity investments was $23,308 and the amount of unfunded commitments outstanding was $10,346.

10.

Premises and Equipment

The composition of premises and equipment at December 31 was:

	2005		2004
Land	$	90,834	$	77,211
Building and leasehold improvements		493,655		488,586
Furniture and equipment		533,728		519,969
		1,118,217		1,085,766
Less:  Accumulated depreciation		627,530		618,541
Total premises and equipment, net	$	490,687	$	467,225

Depreciation expense was $76,477 in 2005, $71,489 in 2004, and $68,247 in 2003.

The Corporation leases certain of its facilities and equipment.  Rent expense under such operating leases was $80,195 in 2005, $70,644 in 2004, and $68,882 in 2003, respectively.

The future minimum lease payments under operating leases that have initial or remaining noncancellable lease terms in excess of one year for 2006 through 2010 are $36,719, $32,153, $24,925, $19,541, and $17,007, respectively.

11.

Goodwill and Intangibles

SFAS 142, Goodwill and Other Intangible Assets adopts an aggregate view of goodwill and bases the accounting for goodwill on the units of the combined entity into which an acquired entity is integrated (those units are referred to as Reporting Units).  A Reporting Unit is an operating segment as defined in SFAS 131 or one level below an operating segment.

SFAS 142 provides specific guidance for testing goodwill and intangible assets that are not amortized for impairment.  Goodwill is tested for impairment at least annually using a two-step process that begins with an estimation of the fair value of a Reporting Unit.  The first step is a screen for potential impairment and the second step measures the amount of impairment, if any.  Intangible assets that are not amortized are also tested annually.

With the assistance of a nationally recognized independent appraisal firm, the Corporation has elected to perform its annual test for goodwill impairment during the second quarter.  Accordingly, the Corporation updated the analysis to June 30, 2005 and concluded that there continues to be no impairment with respect to goodwill at any reporting unit.

The changes in the carrying amount of goodwill for the twelve months ended December 31, 2005 and 2004 are as follows:

	Banking		Metavante		Others		Total
Goodwill balance as of December 31, 2003	$	809,772	$	155,329	$	4,687	$	969,788
Goodwill acquired during the period		5,314		823,989		—		829,303
Purchase accounting adjustments		—		(900)		725		(175)
Goodwill balance as of December 31, 2004		815,086		978,418		5,412		1,798,916
Goodwill acquired during the period		—		273,610		—		273,610
Purchase accounting adjustments		(5,710)		20,011		2,392		16,693
Goodwill balance as of December 31, 2005	$	809,376	$	1,272,039	$	7,804	$	2,089,219

Purchase accounting adjustments are the adjustments to the initial goodwill recorded at the time an acquisition is completed.  Such adjustments generally consist of adjustments to the assigned fair value of the assets acquired and liabilities assumed resulting from the completion of appraisals or other valuations, adjustments to initial estimates recorded for transaction costs or exit liabilities, if any, contingent consideration when paid or received from escrow arrangements at the end of a contractual contingency period and the reduction of goodwill allocated to sale transactions.  For the year ended December 31, 2005, purchase accounting adjustments for the Banking segment represent adjustments relating to the resolution of tax issues resulting from the acquisitions of National City Bancorporation, Richfield State Agency, Inc. and Mississippi Valley Bancshares, Inc.  Purchase accounting adjustments for the Banking segm ent also include a reduction of goodwill allocated to branch divestitures.  Purchase accounting adjustments for Metavante represent adjustments to the initial estimates of fair value associated with the acquisitions of Kirchman Corporation, Advanced Financial Solutions, Inc. and its affiliated companies, NYCE Corporation, Response Data Corp., NuEdge Systems LLC and VECTORsgi Holdings, Inc.  In addition, purchase accounting adjustments for Metavante include the effect of $22.5 million of contingent consideration associated with the Printing For Systems, Inc. acquisition.  Purchase accounting adjustments for the Others include the effect of a contingent payment made for an acquisition made by the Corporation’s Trust subsidiary, net of the reduction of goodwill allocated to the sale of two small Trust business lines.  

For the year ended 2004, the reduction of goodwill relating to Metavante’s divestitures amounted to $2,014 which was offset by purchase accounting adjustments from initial estimates of fair values associated with acquisitions.

The Corporation’s other intangible assets consisted of the following at December 31, 2005:

	Gross Carrying Value		Accumulated Amortiza- tion		Net Carrying Value		Weighted Average Amortiza- tion Period (Yrs)
Other intangible assets:
Core deposit intangible	$	152,816	$	79,616	$	73,200	6.3
Data processing contract rights/customer lists		317,223		32,832		284,391	15.9
Trust customers		4,750		1,229		3,521	6.8
Tradename		8,275		750		7,525	19.4
Other intangibles		1,250		414		836	4.6
	$	484,314	$	114,841	$	369,473	12.8
Mortgage loan servicing rights					$	2,769

The Corporation’s other intangible assets consisted of the following at December 31, 2004:

	Gross Carrying Value		Accumulated Amortiza- tion		Net Carrying Value		Weighted Average Amortiza- tion Period (Yrs)
Other intangible assets:
Core deposit intangible	$	159,474	$	76,024	$	83,450	6.4
Data processing contract rights/customer lists		252,088		17,428		234,660	13.8
Trust customers		4,750		792		3,958	6.8
Tradename		2,775		1,967		808	3.0
Other intangibles		1,250		140		1,110	4.6
	$	420,337	$	96,351	$	323,986	10.8
Mortgage loan servicing rights					$	3,531

Amortization expense of other intangible assets amounted to $31,103, $27,852 and $23,785 in 2005, 2004 and 2003, respectively.

The estimated amortization expense of other intangible assets and mortgage loan servicing rights for the next five years are:

2006	$	33,382
2007		31,352
2008		29,562
2009		28,403
2010		27,481

Mortgage loan servicing rights are subject to the prepayment risk inherent in the underlying loans that are being serviced.  The actual remaining life could be significantly different due to actual prepayment experience in future periods.

At December 31, 2005 and 2004, none of the Corporation’s other intangible assets were determined to have indefinite lives.

12.

Deposits

The composition of deposits at December 31 was:

	2005		2004
Noninterest bearing demand	$	5,525,019	$	4,888,426
Savings and NOW		10,462,831		10,118,415
Cash flow hedge — Brokered MMDA		(5,326)		(1,445)
Total Savings and NOW		10,457,505		10,116,970
CDs $100,000 and over		5,652,359		5,592,947
Cash flow hedge – Institutional CDs		(13,767)		(8,977)
Total CDs $100,000 and over		5,638,592		5,583,970
Other time deposits		3,434,476		2,721,214
Foreign deposits		2,618,629		3,144,507
Total deposits	$	27,674,221	$	26,455,087

At December 31, 2005 and 2004, brokered deposits amounted to $4,892 million and $5,737 million, respectively.

At December 31, 2005, the scheduled maturities for CDs $100,000 and over, other time deposits, and foreign deposits were:

2006	$	7,812,750
2007		1,926,161
2008		727,237
2009		309,388
2010 and thereafter		929,928
	$	11,705,464

13.

Short-term Borrowings

Short-term borrowings at December 31 were:

	2005		2004
Federal funds purchased and security repurchase agreements	$	2,325,863	$	1,478,103
Cash flow hedge – Federal funds		1,394		10,752
Federal funds purchased and security repurchase agreements		2,327,257		1,488,855
U.S. Treasury demand notes		306,564		98,369
Commercial paper		380,551		312,098
Other		5,597		34,918
		3,019,969		1,934,240
Current maturities of long-term borrowings		2,606,765		1,595,796
Total short-term borrowings	$	5,626,734	$	3,530,036

Unused lines of credit, primarily to support commercial paper borrowings, were $75.0 million at December 31, 2005 and 2004.

14.

Long-term Borrowings

Long-term borrowings at December 31 were:

	2005		2004
Corporation:
Medium-term notes Series E and MiNotes	$	423,796	$	526,850
4.375% senior notes		598,007		597,505
3.90% junior subordinated debt securities		396,014		395,018
7.65% junior subordinated deferrable interest debentures		204,983		213,574
Subsidiaries:
Borrowings from Federal Home Loan Bank (FHLB):
Floating rate advances		1,220,000		670,000
Cash flow hedge		(21,847)		(6,644)
Floating rate advances		1,198,153		663,356
Fixed rate advances		700,946		1,151,506
Senior bank notes:
Floating rate bank notes		723,818		—
Cash flow hedge		(1,168)		—
Floating rate bank notes		722,650		—
Fixed rate bank notes		1,859,858		710,003
Senior bank notes — Amortizing bank notes		145,301		181,550
Senior bank notes — EXLs		249,995		249,956
Senior bank notes — Extendible Monthly Securities		499,803		—
Senior bank notes — Puttable Reset Securities		1,000,480		1,001,108
Subordinated bank notes		1,269,410		919,551
Nonrecourse notes		3,505		6,298
9.75% obligation under capital lease due through 2006		457		1,089
Other		2,077		5,031
Total long-term borrowing including current maturities		9,275,435		6,622,395
Less current maturities		2,606,765		1,595,796
Total long-term borrowings	$	6,668,670	$	5,026,599

At December 31, 2005, Series E notes outstanding amounted to $278,425 with fixed rates of 4.50% to 5.75%.  Series E notes outstanding mature at various times and amounts through 2023.  In May 2002, the Corporation filed a prospectus supplement with the Securities and Exchange Commission to issue up to $500 million of medium-term MiNotes.  The MiNotes, issued in minimum denominations of one-thousand dollars or integral multiples of one-thousand dollars, may have maturities ranging from nine months to 30 years and may be at fixed or floating rates.  At December 31, 2005, MiNotes outstanding amounted to $145,371 with fixed rates of 2.55% to 6.00%.  MiNotes outstanding mature at various times through 2030.  The Corporation has filed a shelf registration statement under which it may issue up to $569 million of medium-term Series F notes with maturities ranging from nine months to 30 years and at fixed or floatin g rates.  At December 31, 2005 no Series F notes have been issued.  

The Corporation has filed a shelf registration statement with the Securities and Exchange Commission which will enable the Corporation to issue various securities, including debt securities, common stock, preferred stock, depositary shares, purchase contracts, units, warrants, and trust preferred securities, up to an aggregate amount of $3.0 billion.  At December 31, 2005 and 2004, approximately $1.30 billion and $1.45 billion, respectively was available for future securities issuances.

During 2004, the Corporation issued $600 million of 4.375% senior notes.  Interest is paid semi-annually and the notes mature on August 1, 2009.

During 2004, the Corporation, through its unconsolidated subsidiary, M&I Capital Trust B, issued 16,000,000 units of Common SPACES^SM.  Each unit has a stated value of $25 for an aggregate value of $400 million.  Each Common SPACES consists of (i) a stock purchase contract under which the investor agrees to purchase for $25, a fraction of a share of the Corporation’s common stock on the stock purchase date and (ii) a 1/40, or 2.5%, undivided beneficial interest in a preferred security of M&I Capital Trust B, also referred to as the STACKS^SM, with each share having an initial liquidation amount of $1,000.  The stock purchase date is expected to be August 15, 2007, but could be deferred for quarterly periods until August 15, 2008.  Holders of the STACKS are entitled to receive quarterly cumulative cash distributions through the stock purchase date fixed initially at an annual rate of 3.90% of the liquidation amount of $1,000 per STACKS.  In addition, the Corporation will make quarterly contract payments under the stock purchase contract at the annual rate of 2.60% of the stated amount of $25 per stock purchase contract.  

Concurrently with the issuance of the STACKS, M&I Capital Trust B invested the proceeds in junior subordinated debt securities that were issued by the Corporation.  The subordinated debt, which represents the sole asset of M&I Capital Trust B bears interest at an initial annual rate of 3.90% payable quarterly and matures on August 15, 2038.

The interest payment provisions for the junior subordinated debt securities correspond to the distribution provisions of the STACKS and automatically reset to equal the distribution rate on the STACKS as and when the distribution rate on the STACKS is reset.  In addition, the interest payment dates on the junior subordinated debt securities may be changed, and the maturity of the junior subordinated debt securities may be shortened in connection with a remarketing of the STACKS, in which case the distribution payment dates and final redemption date of the STACKS will automatically change as well.

The Corporation has the right to defer payments of interest on the junior subordinated debt securities at any time or from time to time.  The Corporation may not defer interest payments for any period of time that exceeds five years with respect to any deferral period or that extends beyond the stated final maturity date of the junior subordinated debt securities.  As a consequence of the Corporation’s extension of the interest payment period, distributions on the STACKS would be deferred.  In the event the Corporation exercises its right to extend an interest payment period, the Corporation is prohibited from paying dividends or making any distributions on, or redeeming, purchasing, acquiring or making a liquidation payment with respect to, shares of the Corporation’s capital stock.

The junior subordinated debt securities are junior in right of payment to all present and future senior indebtedness of the Corporation.  The Corporation may elect at any time effective on or after the stock purchase date, including in connection with a remarketing of the STACKS, that the Corporation’s obligations under the junior subordinated debt securities and under the Corporation’s guarantee of the STACKS shall be senior obligations instead of subordinated obligations.

M&I Capital Trust B is a 100% owned unconsolidated finance subsidiary of the Corporation.  The Corporation has fully and unconditionally guaranteed the securities that M&I Capital Trust B has issued.

The junior subordinated debt securities qualify as “Tier 1” capital for regulatory capital purposes.

In December 1996, the Corporation formed M&I Capital Trust A, which issued $200 million in liquidation or principal amount of cumulative preferred capital securities.  Holders of the capital securities are entitled to receive cumulative cash distributions at an annual rate of 7.65% payable semiannually.

Concurrently with the issuance of the capital securities, M&I Capital Trust A invested the proceeds, together with the consideration paid by the Corporation for the common interest in M&I Capital Trust A, in junior subordinated deferrable interest debentures (“subordinated debt”) issued by the Corporation.  The subordinated debt, which represents the sole asset of M&I Capital Trust A, bears interest at an annual rate of 7.65% payable semiannually and matures on December 1, 2026.

The subordinated debt is junior in right of payment to all present and future senior indebtedness of the Corporation.  The Corporation may redeem the subordinated debt in whole or in part at any time on or after December 1, 2006 at specified call premiums, and at par on or after December 1, 2016.  In addition, in certain circumstances the subordinated debt may be redeemed at par upon the occurrence of certain events.  The Corporation’s right to redeem the subordinated debt is subject to regulatory approval.

The Corporation has the right, subject to certain conditions, to defer payments of interest on the subordinated debt for extension periods, each period not exceeding ten consecutive semiannual periods.  As a consequence of the Corporation’s extension of the interest payment period, distributions on the capital securities would be deferred.  In the event the Corporation exercises its right to extend an interest payment period, the Corporation is prohibited from making dividend or any other equity distributions during such extension period.

M&I Capital Trust A is a 100% owned unconsolidated finance subsidiary of the Corporation.  The Corporation has fully and unconditionally guaranteed the securities that M&I Capital Trust A has issued.

The junior subordinated deferrable interest debentures qualify as “Tier 1” capital for regulatory capital purposes.

Floating rate FHLB advances mature at various times between 2006 and 2011.  The interest rate is reset monthly based on the London Interbank Offered Rate (“LIBOR”).  During 2004, M&I Bank prepaid $300.0 million of floating rate FHLB advances and terminated certain receive floating / pay fixed interest rate swaps designated as cash flow hedges against the forecasted interest payments on certain FHLB advances.  The termination of the interest rate swaps resulted in a charge to earnings of $2.0 million.  The charge to earnings resulting from this transaction is reported in other expense in the Consolidated Statements of Income for the year ended December 31, 2004.

Fixed rate FHLB advances have interest rates, which range from 2.07% to 8.47% and mature at various times in 2006 through 2017.  During 2004, a fixed rate advance from the FHLB aggregating $55.0 million with an annual coupon interest rate of 5.06% was prepaid and retired resulting in a charge to earnings of $4.9 million.  The charge to earnings resulting from this transaction is reported in other expense in the Consolidated Statements of Income for the year ended December 31, 2004.

The Corporation is required to maintain unencumbered first mortgage loans and mortgage-related securities such that the outstanding balance of FHLB advances does not exceed 85% (70% for multi-family) of the book value of this collateral.  In addition, a portion of these advances are collateralized by all FHLB stock.

The floating rate senior bank notes have interest rates based on 3-month LIBOR with a spread that ranges from a minus 0.015% to a plus 0.13%.  Interest payments are quarterly.  The floating rate senior bank notes outstanding mature at various times and amounts from 2007 to 2010.  

The fixed rate senior bank notes have interest rates, which range from 2.63% to 5.52% and pay interest semi-annually.  The fixed rate senior bank notes outstanding mature at various times and amounts from 2007 through 2017.  

The senior bank notes – Amortizing have a maturity date of August 18, 2009.  The senior bank notes pay interest semi-annually at a fixed semi-annual coupon interest rate of 2.90%.  In addition, principal in the amount of $18,182 is paid every coupon payment period beginning on August 18, 2004 and ending on August 18, 2009.

The senior bank notes – Extendible Liquidity Securities (“EXLs”) are indexed to one month LIBOR plus a stated spread.  EXL noteholders have the ability to extend the maturity date through 2006.  The stated spread is 0.10% to maturity in 2006.

The senior bank notes – Extendible Monthly Securities have an initial stated maturity date of December 15, 2006.  The noteholders may elect to extend the maturity date through 2011.  The interest rate is floating based upon LIBOR plus an applicable spread and is reset monthly.  The applicable spread is initially minus 0.02%, 0.00% in year two, and is plus for the remaining term, consisting of:  0.01% in year three, 0.03% in years four and five and 0.04% to maturity in 2011.  

The senior bank notes – Puttable Reset Securities have a maturity date of December 15, 2016.  However in certain circumstances, the notes will be put back to the issuing bank at par prior to final maturity.  The notes are also subject to the exercise of a call option by a certain broker-dealer.  Beginning December 15, 2003 and each December 15 thereafter until and including December 15, 2015, the broker-dealer has the right to purchase all of the outstanding notes from the noteholders at a price equal to 100% of the principal amount of the notes and then remarket the notes.  However, if the broker-dealer does not purchase the notes on the aforementioned date(s), each holder of outstanding notes will be deemed to have put all of the holder’s notes to the issuing bank at a price equal to 100% of the principal amount of the notes and the notes will be completely retired.  The current interest rate is 5.18% and , to the extent the notes are purchased and remarketed, the interest rate will reset each date the notes are remarketed, subject to a floor of 5.17%.  The call and put are considered clearly and closely related for purposes of recognition and measurement under SFAS 133.  The fair value of the call option at December 31, 2005 and 2004, as determined by the holder of the call option, was approximately $62 million and $84 million, respectively.  

The subordinated bank notes have fixed rates that range from 4.85% to 7.88% and mature at various times in 2010 through 2017.  Interest is paid semi-annually.  The subordinated bank notes qualify as “Tier 2” or supplementary capital for regulatory capital purposes.

The nonrecourse notes are reported net of prepaid interest and represent borrowings by the commercial leasing subsidiary from banks and other financial institutions.  These notes have a weighted average interest rate of 6.35% at December 31, 2005 and are due in installments over varying periods through 2009.  Lease financing receivables at least equal to the amount of the notes are pledged as collateral.

Scheduled maturities of long-term borrowings are $1,306,192, $993,522, $847,096, and $769,180 for 2007 through 2010, respectively.

15.

Shareholders’ Equity

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 Preferred Stock (the “Series A”), with a $100 value per share for conversion and liquidation purposes.  Series A is nonvoting preferred stock.  The same cash dividends will be paid on Series A as would have been paid on the common stock exchanged for Series A.  At December 31, 2005 and 2004 there were no shares of Series A outstanding.

During 2004, the Corporation and M&I Capital Trust B issued 16,000,000 units of Common SPACES^SM.  Each unit has a stated value of $25.00 for an aggregate value of $400.0 million.  Each Common SPACES consists of (i) a stock purchase contract under which the investor agrees to purchase for $25, a fraction of a share of the Corporation’s common stock on the stock purchase date and (ii) a 1/40, or 2.5%, undivided beneficial interest in a preferred security of M&I Capital Trust B, also referred to as the STACKS^SM, with each share having an initial liquidation amount of $1,000.  The stock purchase date is expected to be August 15, 2007, but could be deferred for quarterly periods until August 15, 2008.  Holders of the STACKS are entitled to receive quarterly cumulative cash distributions through the stock purchase date fixed initially at an annual rate of 3.90% of the liquidation amount of $1, 000 per STACKS.  In addition, the Corporation will make quarterly contract payments under the stock purchase contract at the annual rate of 2.60% of the stated amount of $25 per stock purchase contract.

The Corporation recognized the present value of the quarterly contract payments under the stock purchase contract as a liability with an offsetting reduction in Shareholders’ Equity.  That liability along with the allocated portion of the fees and expenses incurred for the offering of Common SPACES resulted in a reduction in Shareholders’ Equity of $34,039 in 2004.

Each stock purchase contract underlying a Common SPACES obligates the investor to purchase on the stock purchase date for an amount in cash equal to the $25 stated amount of the Common SPACES, a number of shares of common stock equal to the settlement rate.

The settlement rate for each purchase contract will be set on August 15, 2007 (regardless of whether the stock purchase date is deferred beyond August 15, 2007).  If the applicable market value of common stock is equal to or greater than $46.28, the settlement rate will be .5402 shares of common stock, which is equal to the stated amount divided by $46.28.  If the applicable market value of common stock is less than $46.28 but greater than $37.32, the settlement rate will be a number of shares of common stock equal to $25 divided by the applicable market value.  If the applicable market value of common stock is less than or equal to $37.32, the settlement rate will be 0.6699 which is equal to the stated amount divided by $37.32.  The settlement rates are subject to adjustment, without duplication, upon the occurrence of certain anti-dilution events including adjustments for dividends paid above $0.21 per share (the divide nd level at the time of the offering).

  The Corporation currently estimates that it will issue approximately 8.7 million to 10.9 million common shares to settle shares issuable pursuant to the stock purchase contracts.

Holders of Common SPACES have pledged their ownership interests in the STACKS as collateral for the benefit of the Corporation to secure their obligations under the stock purchase contract.  Holders of Common SPACES have the option to elect to substitute pledged treasury securities for the pledged ownership interests in the STACKS.

The Corporation issues treasury common stock in conjunction with exercises of stock options and restricted stock, acquisitions, and conversions of convertible securities.  Treasury shares are acquired from restricted stock forfeitures, shares tendered to cover tax withholding associated with stock option exercises and vesting of key restricted stock, mature shares tendered for stock option exercises in lieu of cash and open market purchases in accordance with the Corporation’s approved share repurchase program.  The Corporation is currently authorized to repurchase up to 12 million shares per year.  There were no shares repurchased in accordance with the approved plan during 2005.  The Corporation repurchased 2.3 million shares with an aggregate cost of $88.5 million in 2004.

During 2005, the Corporation entered into an equity distribution agreement that is described in the Prospectus Supplement dated October 17, 2005.  The proceeds from these issuances will be used for general corporate purposes, including maintaining capital at desired levels. Under the equity distribution agreement, the Corporation may offer and sell up to 3.5 million shares of its common stock from time to time through certain designated sales agents.  However, the Corporation will not sell more than the number of shares of its common stock necessary for the aggregate gross proceeds from such sales to reach $150.0 million.  During 2005, the Corporation issued 155,000 shares of its common stock.  The net proceeds from the sale amounted to $6,651.  

The Corporation sponsors a deferred compensation plan for its non-employee directors and the non-employee directors and advisory board members of its affiliates.  Participants may elect to have their deferred fees used to purchase M&I common stock with dividend reinvestment.  Such shares will be distributed to plan participants in accordance with the plan provisions.  At December 31, 2005 and 2004, 611,318 and 620,624 shares of M&I common stock, respectively, were held in a grantor trust.  The aggregate cost of such shares is included in Deferred Compensation as a reduction of Shareholders’ equity in the Consolidated Balance Sheets and amounted to $16,759 at December 31, 2005 and $16,735 at December 31, 2004.

During 2003, the Corporation amended its deferred compensation plan for its non-employee directors and selected key employees to permit participants to defer the gain from the exercise of nonqualified stock options.  In addition, the gain upon vesting of restricted common stock to participating executive officers may be deferred.  Shares of M&I common stock, which represent the aggregate value of the gains deferred are maintained in a grantor trust with dividend reinvestment.  Such shares will be distributed to plan participants in accordance with the plan provisions.  At December 31, 2005 and 2004, 451,923 and 270,352 shares of M&I common stock, respectively, were held in the grantor trust.  The aggregate cost of such shares is included in Deferred Compensation as a reduction of Shareholders’ Equity in the Consolidated Balance Sheets and amounted to $18,724 at December 31, 2005 and $10,731 at December&n bsp;31, 2004.

In conjunction with previous acquisitions, the Corporation assumed certain deferred compensation and nonqualified retirement plans for former directors and executive officers of acquired companies.  At December 31, 2005 and 2004, 59,796 and 87,557 common shares of M&I stock, respectively, were maintained in a grantor trust with such shares to be distributed to plan participants in accordance with the provisions of the plans.  The aggregate cost of such shares of $1,272 and $1,824 at December 31, 2005 and 2004, respectively, is included in Deferred Compensation as a reduction of Shareholders’ Equity in the Consolidated Balance Sheets.

Federal banking regulatory agencies have established capital adequacy rules which take into account risk attributable to balance sheet assets and off-balance sheet activities.  All banks and bank holding companies must meet a minimum total risk-based capital ratio of 8%.  Of the 8% required, at least half must be comprised of core capital elements defined as “Tier 1” capital.  The Federal banking agencies also have adopted leverage capital guidelines which banking organizations must meet.  Under these guidelines, the most highly rated banking organizations must meet a minimum leverage ratio of at least 3% “Tier 1” capital to total assets, while lower rated banking organizations must maintain a ratio of at least 4% to 5%.  Failure to meet minimum capital requirements can result in certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements.

At December 31, 2005 and 2004, the most recent notification from the Federal Reserve Board categorized the Corporation as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Corporation’s category.

To be well capitalized under the regulatory framework, the “Tier 1” capital ratio must meet or exceed 6%, the total capital ratio must meet or exceed 10% and the leverage ratio must meet or exceed 5%.

The Corporation’s risk-based capital and leverage ratios are as follows ($ in millions):

	Risk-Based Capital Ratios, As Adjusted
	As of December 31, 2005				As of December 31, 2004
	Amount		Ratio		Amount		Ratio
Tier 1 capital	$	3,114.0	7.84	%	$	2,580.4	7.60	%
Tier 1 capital adequacy minimum requirement		1,587.9	4.00			1,357.9	4.00
Excess	$	1,526.1	3.84	%	$	1,222.5	3.60	%
Total capital	$	4,726.4	11.91	%	$	3,863.1	11.38	%
Total capital adequacy minimum requirement		3,175.8	8.00			2,715.9	8.00
Excess	$	1,550.6	3.91	%	$	1,147.2	3.38	%
Risk-adjusted assets	$	39,698.1			$	33,948.4

	Leverage Ratio, As Adjusted
	As of December 31, 2005				As of December 31, 2004
	Amount		Ratio		Amount		Ratio
Tier 1 capital to adjusted total assets	$	3,114.0	7.24	%	$	2,580.4	6.88	%
Minimum leverage adequacy requirement		1,291.1  - 2,151.9	3.00-5.00			1,125.3  - 1,875.5	3.00-5.00
Excess	$	1,822.9  -    962.1	4.24-2.24	%	$	1,455.1  -    704.9	3.88-1.88	%
Adjusted average total assets	$	43,039.2			$	37,509.2

All of the Corporation’s banking subsidiaries’ risk-based capital and leverage ratios meet or exceed the defined minimum requirements, and have been deemed well capitalized as of December 31, 2005 and 2004.  The following table presents the risk-based capital ratios for the Corporation’s lead banking subsidiary:

	As Adjusted
	Tier 1		Total		Leverage
M&I Marshall & Ilsley Bank
December 31, 2005	7.52	%	12.03	%	6.95	%
December 31, 2004	7.11		11.30		6.39

Banking subsidiaries are restricted by banking regulations from making dividend distributions above prescribed amounts and are limited in making loans and advances to the Corporation.  At December 31, 2005, the retained earnings of subsidiaries available for distribution as dividends without regulatory approval, while maintaining well capitalized risk-based capital and leverage ratios, was approximately $942.8 million.

16.

Income Taxes

Total income tax expense for the years ended December 31, 2005, 2004, and 2003 was allocated as follows:

	As Adjusted
	2005		2004		2003
Income before income taxes	$	351,464	$	305,987	$	202,060
Shareholders’ Equity:
Compensation expense for tax purposes in excess of Amounts recognized for financial reporting purposes		(8,882)		(11,155)		(7,586)
Unrealized gains (losses) on accumulated Other comprehensive income		(33,133)		11,065		25,353
	$	309,449	$	305,897	$	219,827

The current and deferred portions of the provision for income taxes were:

	As Adjusted
	2005		2004		2003
Current:
Federal	$	333,433	$	267,613	$	234,898
State		33,985		36,013		20,887
Total current		367,418		303,626		255,785
Deferred:
Federal		(15,082)		3,855		(50,317)
State		(872)		(1,494)		(3,408)
Total deferred		(15,954)		2,361		(53,725)
Total provision for income taxes	$	351,464	$	305,987	$	202,060

The following is a reconciliation between the amount of the provision for income taxes and the amount of tax computed by applying the statutory Federal income tax rate (35%):

	As Adjusted
	2005		2004		2003
Tax computed at statutory rates	$	370,179	$	319,144	$	253,577
Increase (decrease) in taxes resulting from:
Federal tax-exempt income		(21,498)		(20,834)		(20,485)
State income taxes, net of Federal tax benefit		21,130		22,031		13,107
Bank owned life insurance		(9,478)		(9,539)		(10,677)
Resolution of income tax audits		—		—		(39,312)
Other		(8,869)		(4,815)		5,850
Total provision for income taxes	$	351,464	$	305,987	$	202,060

The tax effects of temporary differences that give rise to significant elements of the deferred tax assets and deferred tax liabilities at December 31 are as follows:

	As Adjusted
	2005		2004
Deferred tax assets:
Deferred compensation	$	54,919	$	50,180
Share-based compensation		67,661		60,926
Allowance for loan and lease losses		147,877		142,651
Accrued postretirement benefits		27,543		29,507
Accrued expenses		31,988		30,937
Net Operating Loss Carryforwards (NOLs)		29,821		23,464
Accumulated other comprehensive income		20,584		—
Other		90,557		77,888
Total deferred tax assets before valuation allowance		470,950		415,553
Valuation allowance		(39,060)		(40,228)
Net deferred tax assets		431,890		375,325
Deferred tax liabilities:
Lease revenue reporting		119,112		124,401
Conversion cost deferred		52,261		57,093
Premises and equipment, principally due to depreciation		22,931		13,941
Deductible goodwill		42,407		29,555
Purchase accounting adjustments		123,434		103,422
Accumulated other comprehensive income		—		12,549
Other		58,599		49,694
Total deferred tax liabilities		418,744		390,655
Net deferred tax asset (liability)	$	13,146	$	(15,330)

The Corporation continues to carry a valuation allowance to reduce certain state deferred tax assets which include, in part, certain state NOLs which expire at various times through 2020.  At December 31, 2005, the Corporation believes it is more likely than not that these items will not be realized.  However, as time passes the Corporation will be able to better assess the amount of tax benefit it will realize from using these items.

17.

Stock Option, Restricted Stock and Employee Stock Purchase Plans

The Corporation has equity incentive plans which provide for the grant of nonqualified and incentive stock options, stock appreciation rights, rights to purchase shares of restricted stock and the award of restricted stock units to key employees and directors of the Corporation at prices ranging from zero to the market value of the shares at the date of grant.  The equity incentive plans generally provide for the grant of options to purchase shares of the Corporation’s common stock for a period of ten years from the date of grant.  Stock options granted generally become exercisable over a period of three years from the date of grant.  However, stock options granted to directors of the Corporation vest immediately and stock options granted after 1996 provide accelerated or immediate vesting for grants to individuals who meet certain age and years of service criteria at the date of grant.  Restrictions on stock or unit s issued pursuant to the Equity Incentive Plans generally lapse within a three to seven year period.

The Corporation also has a Long-Term Incentive Plan.  Under the plan, performance units may be awarded from time to time.  Once awarded, additional performance units will be credited to each participant based on dividends paid by the Corporation on its common stock.  At the end of a designated vesting period, participants will receive a cash award equal to the Corporation’s average common stock price over the last five days of the vesting period multiplied by some percent (0%-275%) of the initial performance units credited plus those additional units credited as dividends based on the established performance criteria.  The vesting period is three years from the date the performance units were awarded.

The Corporation also has a qualified employee stock purchase plan (the “ESPP”) which gives employees who elect to participate in the plan the right to acquire shares of the Corporation’s common stock at the purchase price which is 85 percent of the lesser of the fair market value of the Corporation’s common stock on the first or last day of the one-year offering period (“look-back feature”) which has historically been from July 1 to June 30.

Under the fair value method of accounting, compensation cost is measured at the grant date based on the fair value of the award using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock, expected dividends and the risk-free interest rate over the expected life of the option.  The resulting compensation cost for stock options that vest is recognized over the service period, which is usually the vesting period.  The fair value method of accounting provided under SFAS 123 is generally similar to the fair value method of accounting under SFAS 123(R).

Activity relating to nonqualified and incentive stock options was:

	Number of Shares	Option Price Per Share		Weighted- Average Exercise Price
Shares under option at December 31, 2002	20,946,401	$	7.69-33.94	$	25.69
Options granted	3,794,250		25.93-38.25		34.48
Options lapsed or surrendered	(478,454)		9.63-34.79		29.42
Options exercised	(2,479,381)		7.69-34.79		19.75
Shares under option at December 31, 2003	21,782,816	$	9.63-38.25	$	27.81
Options granted	3,758,145		36.76-44.20		41.64
Options lapsed or surrendered	(343,070)		15.94-41.95		32.12
Options exercised	(2,319,794)		9.63-34.79		21.09
Shares under option at December 31, 2004	22,878,097	$	10.13-44.20	$	30.70
Options granted	3,911,980		40.49-47.02		42.81
Options lapsed or surrendered	(284,399)		22.80-42.82		36.76
Options exercised	(1,850,361)		10.13-41.95		23.49
Shares under option at December 31, 2005	24,655,317	$	15.94-47.02	$	33.09

The range of options outstanding at December 31, 2005 were:

	Number of Shares		Weighted-Average Exercise Price				Weighted-Average Aggregate intrinsic Value				Weighted-Average Remaining Contractual Life (In Years)
Price Range	Outstanding	Exercisable		Outstanding		Exercisable		Outstanding		Exercisable	Outstanding	Exercisable
$15.00-23.99	2,731,449	2,731,449	$	20.98	$	20.98	$	22.06	$	22.06	4.2	4.2
24.00-26.99	1,797,503	1,793,335		25.82		25.82		17.22		17.22	3.3	3.3
27.00-29.99	4,360,486	4,334,067		28.57		28.57		14.47		14.47	5.6	5.6
30.00-32.99	5,013,488	4,985,935		31.41		31.41		11.63		11.63	5.2	5.1
33.00-35.99	3,193,560	2,359,724		34.77		34.76		8.27		8.28	7.7	7.7
36.00-41.99	3,749,601	1,711,652		41.59		41.45		1.45		1.59	8.8	8.8
Over $42.00	3,809,230	535,131		42.84		42.82		0.20		0.22	9.8	9.8
	24,655,317	18,451,293	$	33.09	$	30.35	$	9.95	$	12.69	6.6	5.7

Options exercisable at December 31, 2004 and 2003 were 16,845,530 and 15,810,384, respectively.  The weighted-average exercise price for options exercisable was $28.32 at December 31, 2004 and $26.19 at December 31, 2003.

The fair value of each option grant was estimated as of the date of grant using the Black-Scholes closed form option-pricing model for options granted prior to September 30, 2004.  A form of a lattice option-pricing model was used for options granted after September 30, 2004.

The grant date fair values and assumptions used to determine such value are as follows:

	2005			2004			2003
Weighted-average grant date fair value	$	8.78		$	7.48		$	10.00
Assumptions:
Risk-free interest rates		3.70-4.64	%		3.17-4.45	%		2.54-3.83	%
Expected volatility		13.12-18.50	%		18.00-30.33	%		30.23-31.19	%
Expected term (in years)		6.0			6.0			6.0
Expected dividend yield		2.11	%		1.93	%		2.19	%

The total intrinsic value of nonqualified and incentive stock options exercised during the years ended December 31, 2005, 2004 and 2003 was $37.0 million, $43.7 million and $32.2 million, respectively.  The total fair value of shares vested during the years ended December 31, 2005, 2004 and 2003 amounted to $29.8 million, $30.0 million and $29.9 million, respectively.

There was approximately $35.8 million of total unrecognized compensation expense related to unvested nonqualified and incentive stock options at December 31, 2005.  The total unrecognized compensation expense will be recognized over a weighted average period of 1.4 years.  For awards with graded vesting, compensation expense was recognized using an accelerated method prior to the adoption of SFAS 123(R) and is recognized on a straight line basis for awards granted after the effective date.

For the years ended December 31, 2005, 2004 and 2003 the expense for nonqualified and incentive stock options that is included in Salaries and Employee Benefits expense in the Consolidated Statements of Income amounted to $28.8 million, $29.7 million and $31.2 million, respectively.  These amounts are considered non-cash expenses for the Statements of Cash Flow purposes.

For the years ended December 31, 2005, 2004 and 2003 the expense for directors’ nonqualified and incentive stock options that is included in Other expense in the Consolidated Statements of Income amounted to $0.7 million, $1.0 million and $0.6 million, respectively.

Activity relating to the Corporation’s Restricted Stock Purchase Rights was:

	December 31
	2005		2004		2003
Restricted stock purchase rights outstanding — Beginning of Year		—		—		—
Restricted stock purchase rights granted		183,700		172,700		163,300
Restricted stock purchase rights exercised		(183,700)		(172,700)		(163,300)
Restricted stock purchase rights outstanding — End of Year		—		—		—
Weighted-average grant date market value	$	42.88	$	41.50	$	34.28
Aggregate compensation expense	$	4,529	$	3,153	$	1,111
Unamortized deferred compensation	$	13,794	$	10,727	$	6,910

Restrictions on stock issued pursuant to the exercise of stock purchase rights generally lapse within a three to seven year period.  Accordingly, the compensation related to issuance of the rights is amortized over the vesting period.  At December 31, 2005, the unamortized compensation expense will be recognized over a weighted average period of 1.9 years.  These amounts are considered non-cash expenses for the Statements of Cash Flow purposes.

All participants in the Long-Term Incentive Plan will receive a cash award at the end of the designated vesting period.  This plan meets the definition of a liability award.  Unlike equity awards, liability awards are remeasured at fair value at each balance sheet date until settlement.  For the years ended December 31, 2005, 2004 and 2003 the expense for the Long-Term Incentive Plan that is included in Salaries and Employee Benefits expense in the Consolidated Statements of Income amounted to $8.6 million, $11.8 million and $9.4 million, respectively.  

Under SFAS 123(R), compensation expense is recognized for the ESPP.  The compensation cost per share for the ESPP was $9.96 and $8.04 for the years ended December 31, 2005 and 2004, respectively.  Employee contributions under the ESPP are made ratably during the plan period.  Employees may withdraw from the plan prior to the end of the one year offering period.  The total estimated shares to be purchased are estimated at the beginning of the plan period based on total expected contributions for the plan period and 85% of the market price at that date.  During 2005 and 2004, common shares purchased by employees under the ESPP amounted to 324,500 and 332,520, respectively.  For the years ended December 31, 2005, 2004 and 2003 the total expense for the ESPP that is included in Salaries and Employee Benefits expense in the Consolidated Statements of Income amounted to $3.3 million, $2.5 million and $2.1 million , respectively.  These amounts are considered non-cash expenses for the Statements of Cash Flow purposes.

Shares reserved for the granting of options and stock purchase rights at December 31, 2005 were 4,121,081.

18.

Employee Retirement and Health Plans

The Corporation has a defined contribution program that consists of a retirement plan and employee stock ownership plan for substantially all employees.  The retirement plan provides for a guaranteed contribution to eligible participants equal to 2% of compensation.  At the Corporation’s option, an additional profit sharing amount may also be contributed to the retirement plan and may vary from year to year up to a maximum of 6% of eligible compensation.  Under the employee stock ownership plan, employee contributions into the retirement plan of up to 6% of eligible compensation are matched up to 50% by the Corporation based on the Corporation’s return on equity as defined by the plan.  Total expense relating to these plans was $60,390, $52,065, and $52,946 in 2005, 2004, and 2003, respectively.

The Corporation also has supplemental retirement plans to provide retirement benefits to certain of its key executives.  Total expense relating to these plans amounted to $3,112 in 2005, $3,213 in 2004, and $10,779 in 2003.

The Corporation sponsors a defined benefit health plan that provides health care benefits to eligible current and retired employees.  Eligibility for retiree benefits is dependent upon age, years of service, and participation in the health plan during active service.  The plan is contributory and in 1997 and 2002 the plan was amended.  Employees hired after September 1, 1997, including employees retained from mergers, will be granted access to the Corporation’s plan upon becoming an eligible retiree; however, such retirees must pay 100% of the cost of health care benefits.  The plan continues to contain other cost-sharing features such as deductibles and coinsurance.  In addition to the normal monthly funding for claims, the Corporation expects to make an additional contribution to its plan of approximately $7.0 million per year.

The changes during the year of the accumulated postretirement benefit obligation (“APBO”) for retiree health benefits are as follows:

	2005			2004
Change in Benefit Obligation
APBO, beginning of year	$	73,652		$	83,337
Service cost		2,210			2,523
Interest cost on APBO		4,635			5,008
Actuarial (gains) losses		9,433			(5,785)
Other Events (Medicare Part D)		(3,507)			(7,842)
Benefits paid		(5,035)			(3,589)
APBO, end of year		81,388			73,652
Change in Plan Assets
Fair value of plan assets, beginning of year		7,826			—
Actual return on plan assets		546			407
Employer contribution/payments		10,980			11,008
Benefits paid		(5,035)			(3,589)
Fair value of plan assets, end of year		14,317			7,826
Unfunded status		67,071			65,826
Unrecognized actuarial net loss		(24,929)			(20,008)
Unrecognized prior service cost		22,841			25,563
Accrued postretirement benefit cost	$	64,983		$	71,381
Weighted average discount rate used in determining APBO		5.00	%		6.25	%

The assumed health care cost trend for 2006 was 9.00% for pre-age 65 and post-age 65 retirees.  The rate was assumed to decrease gradually to 5.00% for pre-age 65 and post-age 65 retirees in 2010 and remain at that level thereafter.

The weighted average discount rate used in determining the APBO was based on matching the Corporation’s estimated plan duration to a yield curve derived from a portfolio of high-quality corporate bonds with yields within the 10^th to 90^th percentiles.  The portfolio consisted of over 500 actual Aa quality bonds at various maturity points across the full maturity spectrum that were all United States issues and non-callable (or callable with make whole features) with a minimum amount outstanding of $50 million.  

Net periodic postretirement benefit cost for the years ended December 31, 2005, 2004 and 2003 includes the following components:

	2005		2004		2003
Service cost	$	2,210	$	2,523	$	2,140
Interest cost on APBO		4,635		5,008		5,340
Expected return on plan assets		(597)		(300)		—
Prior service amortization		(2,721)		(2,721)		(2,721)
Actuarial loss amortization		1,056		1,664		2,005
Other		—		—		660
Net periodic postretirement (benefit)/cost	$	4,583	$	6,174	$	7,424

The assumed health care cost trend rate has a significant effect on the amounts reported for the health care plans.  A one-percentage point change on assumed health care cost trend rates would have the following effects:

	One Percentage Point Increase		One Percentage Point Decrease
Effect on total of service and interest cost components	$	827	$	(724)
Effect on accumulated postretirement benefit obligation		9,111		(8,005)

Postretirement medical plan weighted–average asset allocations at December 31, by asset category are as follows:

	2005		2004
Plan Assets by Category
Equity securities	50	%	48	%
Tax exempt debt securities	45		45
Cash	5		7
Total	100	%	100	%

The Corporation’s primary investment objective is to achieve a combination of capital appreciation and current income.  The long-term target asset mix is 50% fixed income and 50% equity securities.  Individual fixed income securities may be taxable or tax-exempt and will have maturities of thirty years or less.  The average maturity of the portfolio will not exceed ten years.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Total Without Medicare Part D	Estimated Medicare Part D Subsidy
2006	$3,805	$(683)
2007	4,348	(763)
2008	4,886	(838)
2009	5,422	(901)
2010-2015	39,690	(6,341)

On December 8, 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law.  The Act introduces a prescription drug benefit program under Medicare (Medicare Part D) as well as a 28% Federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.

In May 2004, the Financial Accounting Standards Board issued FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  FSP 106-2 requires companies to account for the effect of the subsidy on benefits attributable to past service as an actuarial experience gain and as a reduction of the service cost component of net postretirement health care costs for amounts attributable to current service, if the benefit provided is at least actuarially equivalent to Medicare Part D.

During the third quarter of 2004, the Corporation elected to adopt FSP 106-2 and to retroactively recognize the Act from January 1, 2004.  The Corporation and its actuarial advisors determined that benefits provided to certain participants are expected to be at least actuarially equivalent to Medicare Part D, and, accordingly the Corporation will be entitled to some subsidy.  The expected subsidy reduced the accumulated postretirement benefit obligation at January 1, 2004 by approximately $7.8 million and net periodic cost for the year ended December 31, 2004 by approximately $1.3 million as compared with the amount determined without considering the effects of the subsidy.

Assumptions used to develop this reduction included those used in the determination of the annual postretirement health care expense and also include expectations of how the Federal program will ultimately operate.

On January 21, 2005 final regulations establishing how Medicare Part D will operate were published.  After evaluating the final regulations, the Corporation determined that it was able to expand the retiree group that is eligible for the subsidy which lowered the APBO by approximately $3.5 million over what had previously been calculated.

19.

Financial Instruments with Off-Balance Sheet Risk

Financial instruments with off-balance sheet risk at December 31 were:

	2005		2004
Financial instruments whose amounts represent credit risk:
Commitments to extend credit:
To commercial customers	$	13,896,069	$	11,407,915
To individuals		2,566,658		2,637,837
Commercial letters of credit		49,698		87,428
Mortgage loans sold with recourse		71,997		152,042

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates and may require payment of a fee.  The majority of the Corporation’s commitments to extend credit generally provide for the interest rate to be determined at the time the commitment is utilized.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Corporation evaluates each customer’s credit worthiness on an individual basis.  Collateral obtained, if any, upon extension of credit, is based upon management’s credit evaluation of the customer.  Collateral requirements and the ability to access collateral is generally similar to that required on loans outstanding as discussed in Note 7.

Commercial letters of credit are contingent commitments issued by the Corporation to support the financial obligations of a customer to a third party.  Commercial letters of credit are issued to support payment obligations of a customer as buyer in a commercial contract for the purchase of goods.  Letters of credit have maturities which generally reflect the maturities of the underlying obligations.  The credit risk involved in issuing letters of credit is the same as that involved in extending loans to customers.  If deemed necessary, the Corporation holds various forms of collateral to support letters of credit.

Certain mortgage loans sold have limited recourse provisions.  The Corporation expects losses arising from the limited recourse provisions to be insignificant.

20.

Foreign Exchange Contracts

Foreign exchange contracts are commitments to purchase or deliver foreign currency at a specified exchange rate.  The Corporation enters into foreign exchange contracts primarily in connection with trading activities to enable customers involved in international trade to hedge their exposure to foreign currency fluctuations and to minimize the Corporation’s own exposure to foreign currency fluctuations resulting from the above.  Foreign exchange contracts include such commitments as foreign currency spot, forward, future and, to a much lesser extent, option contracts.  The risks in these transactions arise from the ability of the counterparties to perform under the terms of the contracts and the risk of trading in a volatile commodity.  The Corporation actively monitors all transactions and positions against predetermined limits established on traders and types of currency to ensure reasonable risk taking.

Matching commitments to deliver foreign currencies with commitments to purchase foreign currencies minimizes the Corporation’s market risk from unfavorable movements in currency exchange rates.

At December 31, 2005 the Corporation’s foreign currency position resulting from foreign exchange contracts by major currency was as follows (U.S. dollars):

	Commitments to Deliver Foreign Exchange		Commitments to Purchase Foreign Exchange
Currency
Euros	$	214,751	$	216,421
Swiss Franc		24,664		24,624
Canadian Dollars		43,841		43,629
English Pound Sterling		35,846		35,600
Japanese Yen		12,643		12,596
Australian Dollar		2,569		2,536
Mexican Peso		2,921		2,920
All Other		379		386
Total	$	337,614	$	338,712
Average amount of contracts during 2005 to deliver/purchase foreign exchange	$	519,954	$	519,559

21.

Derivative Financial Instruments and Hedging Activities

Interest rate risk, the exposure of the Corporation’s net interest income and net fair value of its assets and liabilities to adverse movements in interest rates, is a significant market risk exposure that can have a material effect on the Corporation’s financial condition, results of operations and cash flows.  The Corporation has established policies that neither earnings nor fair value at risk should exceed established guidelines and assesses these risks by modeling the impact of changes in interest rates that may adversely impact expected future earnings and fair values.

The Corporation has strategies designed to confine these risks within the established limits and identify appropriate risk / reward trade-offs in the financial structure of its balance sheet.  These strategies include the use of derivative financial instruments to help achieve the desired balance sheet repricing structure while meeting the desired objectives of its customers.

Trading Instruments and Other Free Standing Derivatives

The Corporation enters into various derivative contracts primarily to focus on providing derivative products to customers which enables them to manage their exposures to interest rate risk.  The Corporation’s market risk from unfavorable movements in interest rates is generally economically hedged by concurrently entering into offsetting derivative contracts.  The offsetting derivative contracts generally have nearly identical notional values, terms and indices.  The Corporation uses interest rate futures to economically hedge the exposure to interest rate risk arising from the interest rate swap (designated as trading) entered into in conjunction with its auto securitization activities.  Interest rate futures are also used to economically hedge the exposure to interest rate risk arising from auto loans designated as held for sale and other free standing derivatives.

Interest rate lock commitments on residential mortgage loans intended to be held for sale are considered free standing derivative instruments.  The option to sell the mortgage loans at the time the commitments are made are also free standing derivative instruments.  The change in fair value of these derivative instruments due to changes in interest rates tend to offset each other and act as economic hedges.  At December 31, 2005 and 2004, the estimated fair values of interest rate lock commitments on residential mortgage loans intended to be held for sale and related option to sell were insignificant.

Trading and free standing derivative contracts are not linked to specific assets and liabilities on the balance sheet or to forecasted transactions in an accounting hedge relationship and, therefore, do not qualify for hedge accounting under SFAS 133.  They are carried at fair value with changes in fair value recorded as a component of other noninterest income.

At December 31, 2005, free standing interest rate swaps consisted of $1.6 billion in notional amount of receive fixed / pay floating with an aggregate negative fair value of $19.8 million and $1.3 billion in notional amount of pay fixed / receive floating with an aggregate positive fair value of $21.6 million.

At December 31, 2005, interest rate caps purchased amounted to $23.8 million in notional with a positive fair value of $0.2 million and interest rate caps sold amounted to $23.8 million in notional with a negative fair value of $0.2 million.

At December 31, 2005, the notional value of free standing interest rate futures was $0.9 billion with an immaterial fair value.

Fair Value Hedges

The Corporation has fixed rate CDs and fixed rate long-term debt which expose the Corporation to variability in fair values due to changes in market interest rates.  

To limit the Corporation’s exposure to changes in interest rates, the Corporation has entered into received-fixed / pay floating interest rate swaps.

The Corporation structures the interest rate swaps so that all of the critical terms of the fixed rate CDs and fixed rate borrowings match the receive fixed leg of the interest rate swaps at inception of the hedging relationship.  As a result, the Corporation expects the hedging relationship to be highly effective in achieving offsetting changes in fair value due to changes in market interest rates both at inception and on an ongoing basis.

At December 31, 2005 certain interest rate swaps designated as fair value hedges met the criteria required to qualify for the shortcut method of accounting.  Based on the shortcut method of accounting treatment, no ineffectiveness is assumed.

At December 31, 2005, no component of the derivative instruments’ gain or loss was excluded from the assessment of hedge effectiveness for derivative financial instruments designated as fair value hedges.

During the first quarter of 2003, the Corporation terminated the fair value hedge on certain long-term borrowings.  The adjustment to the fair value of the hedged instrument of $35.2 million is being accreted as income into earnings over the expected remaining term of the borrowings using the effective interest method.

The following table presents additional information with respect to selected fair value hedges.

Fair Value Hedges

December 31, 2005

Hedged Item	Hedging Instrument	Notional Amount ($ in millions)		Fair Value ($ in millions)		Weighted Average Remaining Term (Years)
Fair Value Hedges that Qualify for Shortcut Accounting
Fixed Rate Bank Notes	Receive Fixed Swap	$	445.5	$	(9.5)	8.6
Institutional CDs	Receive Fixed Swap		115.0		(0.5)	0.5
Other Fair Value Hedges
Fixed Rate CDs	Receive Fixed Swap	$	860.5	$	(23.6)	8.7
Medium Term Notes	Receive Fixed Swap		359.9		(7.8)	7.4
Fixed Rate Bank Notes	Receive Fixed Swap		625.0		(12.0)	4.8
Institutional CDs	Receive Fixed Swap		15.0		(0.2)	8.0
Brokered Bullet CDs	Receive Fixed Swap		188.5		(0.9)	0.8

The impact from fair value hedges to total net interest income for the year ended December 31, 2005 was a positive $30.2 million.  The impact to net interest income due to ineffectiveness was a positive $0.5 million.  

Cash Flow Hedges

The Corporation has variable rate loans, deposits and borrowings which expose the Corporation to variability in interest payments due to changes in interest rates.  The Corporation believes it is prudent to limit the variability of a portion of its interest receipts and payments.  To meet this objective, the Corporation enters into various types of derivative financial instruments to manage fluctuations in cash flows resulting from interest rate risk.  At December 31, 2005, these instruments consisted of interest rate swaps.  

The Corporation regularly originates and holds floating rate commercial loans that reprice monthly on the first business day to one-month LIBOR.  As a result, the Corporation’s interest receipts are exposed to variability in cash flows due to changes in one-month LIBOR.

In order to hedge the interest rate risk associated with the floating rate commercial loans indexed to one-month LIBOR, the Corporation has entered into receive fixed / pay LIBOR-based floating interest rate swaps designated as cash flow hedges against the first LIBOR-based interest payments received that, in the aggregate for each period, are interest payments on such principal amount of its then existing LIBOR-indexed floating-rate commercial loans equal to the notional amount of the interest rate swaps outstanding.

Hedge effectiveness is assessed at inception and each quarter on an on-going basis using regression analysis that takes into account reset date differences for certain designated interest rate swaps that reset quarterly.  Each month the Corporation makes a determination that it is probable that the Corporation will continue to receive interest payments on at least that amount of principal of its existing LIBOR-indexed floating-rate commercial loans that reprice monthly on the first business day to one-month LIBOR equal to the notional amount of the interest rate swaps outstanding.  Ineffectiveness is measured using the hypothetical derivative method and is recorded as a component of interest income on loans.

The Corporation regularly issues floating rate institutional CDs indexed to three-month LIBOR.  As a result, the Corporation’s interest payments are exposed to variability in cash flows due to changes in three-month LIBOR.

In order to hedge the interest rate risk associated with floating rate institutional CDs, the Corporation has entered into pay fixed / receive LIBOR-based floating interest rate swaps designated as cash flow hedges against the interest payments on the forecasted issuance of floating rate institutional CDs.

For certain institutional CDs, hedge effectiveness is assessed at inception and each quarter on an on-going basis using regression analysis that regresses daily observations of three-month LIBOR to itself with a five day mismatch on either side for potential reset date differences between the interest rate swaps and the floating rate institutional CDs.  The regression analysis is based on a rolling five years of daily observations.  Ineffectiveness is measured using the hypothetical derivative method and is recorded as a component of interest expense on deposits.

The Corporation regularly purchases overnight borrowings indexed to the Federal funds rate.  As a result, the Corporation’s interest payments are exposed to variability in cash flows due to changes in the Federal funds effective rate.

In order to hedge the interest rate risk associated with overnight borrowings, the Corporation has entered into pay fixed / receive floating interest rate swaps designated as cash flow hedges against interest payments on the forecasted issuance of floating rate overnight borrowings.  The floating leg of the interest rate swap resets monthly to the H15 Federal Effective index.  The H15 Federal Effective index is not a benchmark rate therefore, hedge effectiveness is assessed at inception and each quarter on an on-going basis using regression analysis.  Each month the Corporation makes a determination that it is probable that the Corporation will continue to make interest payments on at least that amount of outstanding overnight floating-rate borrowings equal to the notional amount of the interest rate swaps outstanding.  Ineffectiveness is measured using the hypothetical derivative method and is recorded as a component of interest expense on short term borrowings.

The Corporation structures the remaining interest rate swaps so that all of the critical terms of the LIBOR-based floating rate deposits and borrowings match the floating leg of the interest rate swaps at inception of the hedging relationship. As a result, the Corporation expects those hedging relationships to be highly effective in achieving offsetting changes in cash flows due to changes in market interest rates both at inception and on an ongoing basis.

At December 31, 2005 one interest rate swap designated as a cash flow hedge met the criteria required to qualify for the shortcut method of accounting.  Based on the shortcut method of accounting treatment, no ineffectiveness is assumed.

At December 31, 2005, no component of the derivative instruments’ gain or loss was excluded from the assessment of hedge effectiveness for derivative financial instruments designated as cash flow hedges.

Changes in the fair value of the interest rate swaps designated as cash flow hedges are reported in accumulated other comprehensive income.  These amounts are subsequently reclassified to interest income or interest expense as a yield adjustment in the same period in which the related interest on the variable rate loans and short-term borrowings affects earnings.  Ineffectiveness arising from differences between the critical terms of the hedging instrument and hedged item is recorded in interest income or expense.

The following table summarizes the Corporation’s cash flow hedges.

Cash Flow Hedges

December 31, 2005

Hedged Item	Hedging Instrument	Notional Amount ($ in millions)		Fair Value ($ in millions)		Weighted Average Remaining Term (Years)
Cash Flow Hedges that Qualify for Shortcut Accounting
Floating Rate Bank Notes	Pay Fixed Swap	$	125.0	$	1.2	1.3
Other Cash Flow Hedges
Variable Rate Loans	Receive Fixed Swap	$	1,150.0	$	(33.9)	3.9
Institutional CDs	Pay Fixed Swap		1,405.0		13.8	1.4
Federal Funds Purchased	Pay Fixed Swap		300.0		(1.4)	1.3
FHLB Advances	Pay Fixed Swap		1,220.0		21.8	3.0
Money Market Accounts	Pay Fixed Swap		250.0		5.3	1.5

During 2004, $300 million of FHLB floating rate advances were retired.  In conjunction with the retirement of debt, $300 million in notional value of receive floating / pay fixed interest rate swaps designated as cash flow hedges against the retired floating rate advances were terminated.  The loss in accumulated other comprehensive income aggregating $2.0 million ($1.3 million after tax) was charged to other expense.

During 2003, $610.0 million of FHLB floating rate advances were retired.  In conjunction with the retirement of debt, $610.0 million in notional value of received floating / pay fixed interest rate swaps designated as cash flow hedges against the retired floating rate advances were terminated.  The loss in accumulated other comprehensive income aggregating $40.5 million ($26.3 million after tax) was charged to other expense.

During 2003, the Corporation redeemed all of the Floating Rate Debentures held by its subsidiary, MVBI Capital Trust, and MVBI Capital Trust redeemed all of its currently outstanding Floating Rate Trust Preferred Securities at an aggregate liquidation amount of $14.95 million.  In conjunction with the redemption, the Corporation terminated the associated interest rate swap designated as a cash flow hedge.  The loss in accumulated other comprehensive income aggregating $1.4 million ($0.9 million after tax) was charged to other expense.

During 2003, the cash flow hedge on commercial paper was terminated.  The $32.6 million in accumulated other comprehensive income at the time of termination is being amortized as expense into earnings in the remaining periods during which the hedged forecasted transaction affects earnings.

The impact to total net interest income from cash flow hedges, including amortization of terminated cash flow hedges, for the year ended December 31, 2005 was a positive $5.3 million.  The impact due to ineffectiveness was immaterial.  The estimated reclassification from accumulated other comprehensive income in the next twelve months is approximately $7.1 million.

Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of the contracts.  The Corporation maintains risk management policies that define parameters of acceptable market risk within the framework of its overall asset/liability management strategies and monitor and limit exposure to credit risk.  The Corporation believes its credit and settlement procedures serve to minimize its exposure to credit risk.  Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities and other relevant factors.  At December 31, 2005, the estimated credit exposure arising from derivative financial instruments was approximately $24.7 million.

For the years ended December 31, 2004 and 2003, the total effect on net interest income resulting from derivative financial instruments, was a positive $8.6 million and a negative $34.6 million including the amortization of terminated derivative financial instruments, respectively.

22.

Fair Value of Financial Instruments

The book values and estimated fair values for on and off-balance sheet financial instruments as of December 31, 2005 and 2004 are presented in the following table.  Derivative financial instruments designated as hedging instruments are included in the book values and fair values presented for the related hedged items.  Derivative financial instruments designated as trading and other free standing derivatives are included in Trading securities.

Balance Sheet Financial Instruments ($ in millions)

	2005				2004
	Book Value		Fair Value		Book Value		Fair Value
Financial Assets:
Cash and short term investments	$	1,455.0	$	1,455.0	$	1,011.2	$	1,011.2
Trading securities		29.8		29.8		18.4		18.4
Investment securities available for sale		5,701.7		5,701.7		5,359.0		5,359.0
Investment securities held to maturity		618.6		638.1		726.4		765.1
Net loans and leases		33,803.1		33,878.5		29,178.7		29,309.4
Interest receivable		199.0		199.0		144.9		144.9
Financial Liabilities:
Deposits		27,674.2		27,642.7		26,455.1		26,453.7
Short-term borrowings		3,020.0		3,020.0		1,934.2		1,934.2
Long-term borrowings		9,275.4		9,248.6		6,622.4		6,707.2
Standby letters of credit		6.8		6.8		5.1		5.1
Interest payable		168.1		168.1		93.0		93.0

Where readily available, quoted market prices are utilized by the Corporation.  If quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  The calculated fair value estimates, therefore, cannot be substantiated by comparison to independent markets and, in many cases, could not be realized upon immediate settlement of the instrument.  The current reporting requirements exclude certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the entire Corporation.

The following methods and assumptions are used in estimating the fair value for financial instruments.

Cash and short-term investments

The carrying amounts reported for cash and short-term investments approximate the fair values for those assets.

Trading and investment securities

Fair value is based on quoted market prices or dealer quotes where available.  Estimated fair values for residual interests in the form of interest-only strips from automobile loan securitizations are based on discounted cash flow analysis.

Net loans and leases

Loan and lease balances are assigned fair values based on a discounted cash flow analysis.  The discount rate is based on the treasury yield curve, with rate adjustments for credit quality, cost and profit factors.  Net loans and leases include loans held for sale.

Deposits

The fair value for demand deposits or any interest bearing deposits with no fixed maturity date is considered to be equal to the carrying value.  Time deposits with defined maturity dates are considered to have a fair value equal to the book value if the maturity date was within three months of December 31.  The remaining time deposits are assigned fair values based on a discounted cash flow analysis using discount rates that approximate interest rates currently being offered on time deposits with comparable maturities.

Borrowings

Short-term borrowings are carried at cost that approximates fair value.  Long-term debt is generally valued using a discounted cash flow analysis with a discount rate based on current incremental borrowing rates for similar types of arrangements or, if not readily available, based on a build up approach similar to that used for loans and deposits.  Long-term borrowings include their related current maturities.

Standby letters of credit

The book value and fair value of standby letters of credit is based on the unamortized premium (fees paid by customers).

Off-Balance Sheet Financial Instruments ($ in millions)

Fair values of loan commitments and commercial letters of credit have been estimated based on the equivalent fees, net of expenses, that would be charged for similar contracts and customers at December 31:

	2005		2004
Loan commitments	$	9.4	$	13.2
Commercial letters of credit		0.4		0.7

See Note 19 for additional information on off-balance sheet financial instruments.

23.

Business Segments

Generally, the Corporation organizes its segments based on legal entities.  Each entity offers a variety of products and services to meet the needs of its customers and the particular market served.  Each entity has its own president and is separately managed subject to adherence to corporate policies.  Discrete financial information is reviewed by senior management to assess performance on a monthly basis.  Certain segments are combined and consolidated for purposes of assessing financial performance.

The accounting policies of the Corporation’s segments are the same as those described in Note 1.  Intersegment revenues may be based on cost, current market prices or negotiated prices between the providers and receivers of services.

Based on the way the Corporation organizes its segments, the Corporation has determined that it has two reportable segments.

Banking

Banking represents the aggregation of two separately chartered banks headquartered in Wisconsin, one federally chartered thrift headquartered in Nevada, one separately chartered bank headquartered in St. Louis, Missouri, an asset-based lending subsidiary headquartered in Minnesota and an operational support subsidiary.  Banking consists of accepting deposits, making loans and providing other services such as cash management, foreign exchange and correspondent banking to a variety of commercial and retail customers.  Products and services are provided through a variety of delivery channels including traditional branches, supermarket branches, telephone centers, ATMs and the Internet.

Data Services (or Metavante)

Data Services includes Metavante as well as its related subsidiaries.  Metavante provides technology products, software and services, including data processing to M&I affiliates as well as banks, thrifts, credit unions, trust companies and other financial services providers in the United States and abroad.  Metavante provides products and services related to customer relationship management, electronic banking, Internet banking and electronic funds transfer.  Metavante also provides a variety of card solutions, including debit, prepaid debit, and credit card account processing, card personalization, ACH processing, ATM driving and monitoring, gateway transaction processing, merchant processing, healthcare identification card fulfillment and flexible spending account processing.  In addition Metavante provides electronic bill presentment and payment services, as well as payment and settlement of bill payment transactio ns for businesses and consumers.

All Others

The Corporation’s primary other operating segments include Trust Services,  Capital Markets Group, Brokerage and Insurance Services and Commercial Leasing.  Trust Services provides investment management and advisory services as well as personal, commercial and corporate trust services in Wisconsin, Arizona, Minnesota, Florida, Nevada, Missouri and Indiana.  Capital Markets Group provides venture capital and advisory services.

Total Revenues by type in All Others consist of the following ($ in millions):

	As Adjusted
	2005		2004		2003
Trust Services	$	165.2	$	148.3	$	126.2
Capital Markets		25.1		18.1		20.4
Brokerage and Insurance		27.3		25.2		23.4
Commercial Leasing		14.9		15.5		15.1
Others		4.6		4.2		4.1
Total	$	237.1	$	211.3	$	189.2

The following represents the Corporation’s operating segments as of and for the years ended December 31, 2005, 2004 and 2003.  Beginning in 2005, total other income for Metavante includes float income which represents interest income on balances invested in an affiliate bank which arise from Electronic Bill Payment activities.  This income was formerly reported as a component of Net Interest Income for Metavante.  Effective January 1, 2006 the Corporation transferred a portion of its item processing business from the Banking Segment to Metavante.  During  2006, the Corporation transferred the residential and commercial mortgage banking reporting units, which were previously included in other business operations, to the Banking Segment.  Segment information for all periods has been adjusted for these transfers and reclassifications.  Fees – Intercompany represent intercompany revenue charged t o other segments for providing certain services.  Expenses – Intercompany represent fees charged by other segments for certain services received.  For each segment, Expenses – Intercompany are not the costs of that segment’s reported intercompany revenues.  Intrasegment revenues, expenses and assets have been eliminated.

	Year Ended December 31, 2005 As Adjusted ($ in millions)
	Banking			Metavante			Others			Corporate Overhead		Eliminations Reclassifications Adjustments		Consolidated
Net interest income	$	1,282.4		$	(37.3)		$	17.7		$	(9.7)	$	12.1	$	1,265.2
Other income
Fees – external		298.6			1,185.0			213.6			19.1		—		1,716.3
Fees – internal
Fees – intercompany		59.9			87.9			5.8			86.5		(240.1)		—
Float income – intercompany		—			12.1			—			—		(12.1)		—
Total other income		358.5			1,285.0			219.4			105.6		( 252.2)		1,716.3
Other expense
Expenses – other		638.1			1,011.5			116.5			113.1		(0.2)		1,879.0
Expenses – intercompany		153.3			43.3			42.1			1.2		(239.9)		—
Total other expense		791.4			1,054.8			158.6			114.3		( 240.1)		1,879.0
Provision for loan and    lease losses		43.4			—			1.4			—		—		44.8
Income (loss) before taxes		806.1			192.9			77.1			(  18.4)		—		1,057.7
Income tax expense (benefit)		257.6			73.4			29.4			(8.9)		—		351.5
Segment income	$	548.5		$	119.5		$	47.7		$	(   9.5)	$	—	$	706.2
Identifiable assets	$	43,518.2		$	2,826.3		$	685.5		$	615.7	$	(1,433.0)	$	46,212.7
Depreciation and amortization	$	82.3		$	139.0		$	(24.2)		$	5.3	$	—	$	202.4
Purchase of premises and equipment, net	$	60.7		$	44.2		$	10.2		$	(21.5)	$	—	$	93.6
Return on Average Equity		15.31	%		15.44	%		23.90	%						16.21	%

	Year Ended December 31, 2004 As Adjusted ($ in millions)
	Banking			Metavante			Others			Corporate Overhead		Eliminations Reclassifications Adjustments		Consolidated
Net interest income	$	1,169.3		$	(21.8)		$	16.9		$	(7.8)	$	4.0	$	1,160.6
Other income
Fees – external		271.3			935.1			189.6			22.0		—		1,418.0
Fees – internal
Fees – intercompany		64.3			76.3			4.8			70.2		(215.6)		—
Float income – intercompany		—			4.0			—			—		(4.0)		—
Total other income		335.6			1,015.4			194.4			92.2		( 219.6)		1,418.0
Other expense
Expenses – other		604.4			822.0			104.1			97.9		0.3		1,628.7
Expenses – intercompany		136.3			45.7			40.0			(6.1)		(215.9)		—
Total other expense		740.7			867.7			144.1			91.8		( 215.6)		1,628.7
Provision for loan and lease losses		29.8			—			8.2			—		—		38.0
Income (loss) before  taxes		734.4			125.9			59.0			(7.4)		—		911.9
Income tax expense (benefit)		240.0			49.1			23.2			(6.3)		—		306.0
Segment income	$	494.4		$	76.8		$	35.8		$	(1.1)	$	—	$	605.9
Identifiable assets	$	38,130.1		$	2,390.2		$	559.0		$	933.0	$	(1,574.9)	$	40,437.4
Depreciation and amortization	$	90.5		$	118.5		$	(20.4)		$	3.5	$	—	$	192.1
Purchase of premises and equipment, net	$	50.0		$	27.4		$	1.6		$	1.4	$	—	$	80.4
Return on Average Equity		15.82	%		17.05	%		19.59	%						17.00	%

	Year Ended December 31, 2003 As Adjusted ($ in millions)
	Banking			Metavante			Others			Corporate Overhead		Eliminations Reclassifications Adjustments		Consolidated
Net interest income	$	1,091.9		$	(4.6)		$	16.6		$	(16.7)	$	2.3	$	1,089.5
Other income
Fees – external		309.7			700.6			168.6			4.4		0.3		1,183.6
Fees – internal
Fees – intercompany		63.6			66.7			4.0			62.1		(196.4)		—
Float income – intercompany		—			2.3			—			—		(2.3)		—
Total other income		373.3			769.6			172.6			66.5		( 198.4)		1,183.6
Other expense
Expenses – other		643.7			652.9			91.4			97.8		(0.2)		1,485.6
Expenses – intercompany		123.0			42.4			36.3			(5.8)		(195.9)		—
Total other expense		766.7			695.3			127.7			92.0		( 196.1)		1,485.6
Provision for loan and lease losses		51.9			—			11.1			—		—		63.0
Income (loss) before  taxes		646.6			69.7			50.4			(  42.2)		—		724.5
Income tax expense (benefit)		180.5			18.6			19.7			(16.7)		—		202.1
Segment income	$	466.1		$	51.1		$	30.7		$	(25.5)	$	—	$	522.4
Identifiable assets	$	33,221.9		$	990.2		$	609.6		$	571.4	$	(1,020.5)	$	34,372.6
Depreciation and amortization	$	103.8		$	115.5		$	(23.0)		$	2.7	$	—	$	199.0
Purchase of premises and equipment, net	$	31.9		$	28.7		$	2.1		$	(0.6)	$	—	$	62.1
Return on Average Equity		15.56	%		13.82	%		16.88	%						15.87	%

24.

Guarantees

Standby letters of credit are contingent commitments issued by the Corporation to support the obligations of a customer to a third party and to support public and private financing, and other financial or performance obligations of customers.  Standby letters of credit have maturities that generally reflect the maturities of the underlying obligations.  The credit risk involved in issuing standby letters of credit is the same as that involved in extending loans to customers.  If deemed necessary, the Corporation holds various forms of collateral to support the standby letters of credit.  The gross amount of standby letters of credit issued at December 31, 2005 was $1.8 billion.  Of the amount outstanding at December 31, 2005, standby letters of credit conveyed to others in the form of participations amounted to $72.3 million.  Since many of the standby letters of credit are expected to expire without being drawn upon, the amounts outstanding do not necessarily represent future cash requirements.  At December 31, 2005, the estimated fair value associated with letters of credit amounted to $6.8 million.

Metavante offers credit card processing to its customers.  Under the rules of the credit card associations, Metavante has certain contingent liabilities for card transactions acquired from merchants.  This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor.  In such case, Metavante charges the transaction back (“chargeback”) to the merchant and the disputed amount is credited or otherwise refunded to the cardholder.  If Metavante is unable to collect this amount from the merchant, due to the merchant’s insolvency or other reasons, Metavante will bear the loss for the amount of the refund paid to the cardholder.  In most cases this contingent liability situation is unlikely to arise because most products or services are delivered when purchased, and credits are issued by the merchant on returned i tems.  However, where the product or service is not provided until some time following the purchase, the contingent liability may be more likely.  This credit loss exposure is within the scope of the recognition and measurement provisions of FIN 45.  The Corporation has concluded that the fair value of the contingent liability was immaterial due to the following factors: (1) merchants are evaluated for credit risk in a manner similar to that employed in making lending decisions; (2) if deemed appropriate, the Corporation obtains collateral which includes holding funds until the product or service is delivered or severs its relationship with a merchant; and (3) compensation, if any, received for providing the guarantee is minimal.

Metavante assesses the contingent liability and records credit losses for known losses and a provision for losses incurred but not reported which are based on historical chargeback loss experience.  For the year ended December 31, 2005, recoveries of such losses totaled $56, compared to $300 of such losses for the year ended December 31, 2004.

Metavante’s master license agreement includes an indemnification clause that indemnifies the licensee against claims, suits or other proceedings (including reasonable attorneys’ fees and payment of any final settlement or judgment) brought by third parties against the licensee alleging that a software product, by itself and not in combination with any other hardware, software or services, when used by licensee as authorized under the master license agreement, infringes a U.S. patent or U.S. copyright issued or registered as of  the date the master license agreement is executed.  Metavante’s obligation to indemnify a licensee is contingent on the licensee providing prompt written notice of the claim, full authority and control of the defense and settlement of the claim and reasonable assistance at Metavante’s request and expense, to defend or settle such claim.

In the event a software product becomes, or in Metavante’s opinion is likely to become, the subject of an infringement claim, Metavante may, at its option and expense, either procure for the licensee the right to continue using the software product, modify the software product so that it becomes non-infringing, substitute the software product with other software of the same material capability and functionality or where none of these options are reasonably available, terminate the license granted and refund the unearned portion of the initial license fee.

Metavante’s obligation is subject to certain exceptions and Metavante will have no obligation to any infringement claim based upon any failure to use the software product in accordance with the license agreement or for purposes not intended by Metavante, Metavante’s modification of the software product in compliance with specifications or requirements provided by the licensee, use of any part of the software product in conjunction with third party software, hardware or data not authorized in the license agreement, modification, addition or change to any part of the software product by the licensee or its agents or any registered user, use of any release of the software product other than the most current release made available to the licensee and any claim of infringement arising more than five years after the delivery date of the applicable software product.

At December 31, 2005 and 2004 there were no liabilities reflected on the Consolidated Balance Sheets related to these indemnifications.

As of December 31, 2005, the Corporation has fully and unconditionally guaranteed $200 million of certain long-term borrowing obligations issued by M&I Capital Trust A that was deconsolidated upon the adoption of the provisions of FIN 46R.  In addition, at December 31, 2005 the Corporation has fully and unconditionally guaranteed $400 million of certain long-term borrowing obligations issued by M&I Capital Trust B.  See Note 14 for further discussion regarding M&I Capital Trust A and B.

As part of securities custody activities and at the direction of trust clients, the Corporation’s trust subsidiary, Marshall & Ilsley Trust Company N.A. (“M&I Trust”) lends securities owned by trust clients to borrowers who have been evaluated for credit risk in a manner similar to that employed in making lending decisions.  In connection with these activities, M&I Trust has issued certain indemnifications against loss resulting from the default by a borrower under the master securities loan agreement, such as the failure of the borrower to return loaned securities when due or the borrower’s bankruptcy or receivership.  The borrowing party is required to fully collateralize securities received with cash or marketable securities.  As securities are loaned, collateral is maintained at a minimum of 100 percent of the fair value of the securities plus accrued interest and the collateral is revalued on a daily basis.  The amount of securities loaned subject to indemnification was $8.0 billion at December 31, 2005 and $5.0 billion at December 31, 2004.  Because of the requirement to fully collateralize securities borrowed, management believes that the exposure to credit loss from this activity is remote and there are no liabilities reflected on the Consolidated Balance Sheets at December 31, 2005 and December 31, 2004, related to these indemnifications.

25.

Condensed Financial Information—Parent Corporation Only

Condensed Balance Sheets

December 31

	As Adjusted
	2005		2004
Assets
Cash and cash equivalents	$	288,579	$	582,127
Indebtedness of nonbank affiliates		1,287,910		1,288,790
Investments in affiliates:
Banks		3,585,196		3,102,088
Nonbanks		1,470,609		969,707
Premises and equipment, net		8,786		31,189
Other assets		337,606		345,914
Total assets	$	6,978,686	$	6,319,815
Liabilities and Shareholders’ Equity
Commercial paper issued	$	301,963	$	312,098
Other liabilities		318,452		324,030
Long-term borrowings:
Medium-term notes Series E and MiNotes		423,796		526,850
4.375% senior notes		598,007		597,505
3.90% junior subordinated debt securities		396,014		395,018
7.65% junior subordinated deferrable interest debentures due to M&I Capital Trust A		204,983		213,574
Total long-term borrowings		1,622,800		1,732,947
Total liabilities		2,243,215		2,369,075
Shareholders’ equity		4,735,471		3,950,740
Total liabilities and shareholders’ equity	$	6,978,686	$	6,319,815

Scheduled maturities of long-term borrowings are $198,425 in 2006, $9,299 in 2007, $3,529 in 2008, $605,387 in 2009 and $18,988 in 2010.  See Note 14 for a description of the long-term borrowings.

Condensed Statements of Income

Years Ended December 31

	As Adjusted
	2005		2004		2003
Income
Cash dividends:
Bank affiliates	$	445	$	284,347	$	390,129
Nonbank affiliates		59,473		68,473		28,682
Interest from affiliates		68,955		34,825		13,406
Service fees and other		112,504		100,986		71,658
Total income		241,377		488,631		503,875
Expense
Interest		85,567		48,246		32,056
Salaries and employee benefits		70,740		63,033		59,870
Administrative and general		44,555		32,662		36,098
Total expense		200,862		143,941		128,024
Income before income taxes and equity in undistributed net income of affiliates		40,515		344,690		375,851
Provision for income taxes		(8,906)		(6,297)		(16,712)
Income before equity in undistributed net income of affiliates		49,421		350,987		392,563
Equity in undistributed net income of affiliates, net of dividends paid:
Banks		516,712		182,750		43,992
Nonbanks		140,057		72,116		85,892
Net income	$	706,190	$	605,853	$	522,447

Condensed Statements of Cash Flows

Years Ended December 31

	As Adjusted
	2005		2004		2003
Cash Flows From Operating Activities:
Net income	$	706,190	$	605,853	$	522,447
Noncash items included in income:
Equity in undistributed net income of affiliates		(656,769)		(254,866)		(129,884)
Depreciation and amortization		5,282		3,517		2,720
Excess tax benefit from stock–based comp. arrangements		(1,001)		(1,519)		(2,287)
Other		(7,470)		1,127		28,763
Net cash provided by operating activities		46,232		354,112		421,759
Cash Flows From Investing Activities:
Increases in indebtedness of affiliates		(548,005)		(1,522,750)		(1,104,749)
Decreases in indebtedness of affiliates		548,885		599,830		1,125,657
Decreases (increases) in investments in affiliates		(110,014)		(147,329)		2,829
Proceeds from (purchases of ) premises and equipment, net		21,456		(1,456)		622
Other		24,340		(59,570)		(21,374)
Net cash (used in) provided by investing activities		(63,338)		(1,131,275)		2,985
Cash Flows From Financing Activities:
Dividends paid		(214,788)		(179,855)		(158,007)
Proceeds from issuance of commercial paper		4,676,424		4,280,021		4,638,514
Principal payments on commercial paper		(4,686,559)		(4,273,666)		(4,652,968)
Proceeds from issuance of long-term borrowings		8,005		1,108,956		179,166
Payments on long-term borrowings		(111,036)		(8,241)		(186,460)
Purchases of common stock		—		(98,385)		(201,044)
Proceeds from issuance of common stock		60,911		206,666		49,063
Excess tax benefit from stock-based comp. arrangements		1,001		1,519		2,287
Other		(10,400)		(3,062)		—
Net cash (used in) provided by financing activities		(276,442)		1,033,953		(329,449)
Net (decrease) increase in cash and cash equivalents		(293,548)		256,790		95,295
Cash and cash equivalents, beginning of year		582,127		325,337		230,042
Cash and cash equivalents, end of year	$	288,579	$	582,127	$	325,337

Quarterly Financial Information (Unaudited)

Following is unaudited financial information for each of the calendar quarters during the years ended December 31, 2005 and 2004 as adjusted.  Common dividend data for prior periods has been restated for the 2002 two-for-one stock split. ($000’s except share data)

	Quarter Ended As Adjusted
	Dec. 31		Sept. 30		June 30		March 31
2005
Total Interest Income	$	628,741	$	583,723	$	541,483	$	492,684
Net Interest Income		331,577		321,794		313,005		298,858
Provision for Loan and Lease Losses		12,995		9,949		13,725		8,126
Income before Income Taxes		262,270		271,435		273,751		250,198
Net Income		177,455		179,674		183,745		165,316
Net Income Per Share:
Basic	$	0.76	$	0.77	$	0.80	$	0.73
Diluted		0.74		0.75		0.79		0.71
2004
Total Interest and Fee Income	$	462,048	$	431,064	$	405,034	$	396,209
Net Interest Income		295,790		287,982		291,014		285,771
Provision for Loan and Lease Losses		12,837		6,872		9,227		9,027
Income before Income Taxes		249,714		226,619		221,966		213,541
Net Income		167,181		150,613		146,519		141,540
Net Income Per Share:
Basic	$	0.75	$	0.68	$	0.66	$	0.64
Diluted		0.73		0.66		0.65		0.62

	2005		2004		2003		2002		2001
Common Dividends Declared
First Quarter	$	0.210	$	0.180	$	0.160	$	0.145	$	0.133
Second Quarter		0.240		0.210		0.180		0.160		0.145
Third Quarter		0.240		0.210		0.180		0.160		0.145
Fourth Quarter		0.240		0.210		0.180		0.160		0.145
	$	0.930	$	0.810	$	0.700	$	0.625	$	0.568

Price Range of Stock

(Low and High Close-Restated for 2002 Two-for-One Stock Split)

	2005		2004		2003		2002		2001
First Quarter
Low	$	40.21	$	36.18	$	25.07	$	28.90	$	24.02
High		43.65		40.39		29.15		31.68		27.60
Second Quarter
Low		41.23		36.60		25.79		29.52		24.46
High		45.06		41.15		31.75		31.96		27.18
Third Quarter
Low		42.83		37.32		30.13		25.69		25.50
High		47.28		41.21		32.74		30.97		29.78
Fourth Quarter
Low		40.18		40.28		32.53		23.25		26.33
High		44.40		44.43		38.40		29.20		32.06

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Marshall & Ilsley Corporation:

We have audited the accompanying consolidated balance sheets of Marshall & Ilsley Corporation and subsidiaries (the “Corporation”) as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005.  These financial statements are the responsibility of the Corporation’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Marshall & Ilsley Corporation and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”).  

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin

February 24, 2006 (December 27, 2006 as to Note 2 and Note 23)

EX-99.5

EXHIBIT 99.5

EXHIBIT 12

MARSHALL & ILSLEY CORPORATION

Computation of Ratio of Earnings to Fixed Charges

($000’s)

	As Adjusted for the Years Ended December 31,
Earnings:	2005			2004			2003			2002			2001
Earnings before income taxes, extraordinary items and Cumulative effect of changes in accounting principles	$	1,057,654		$	911,840		$	724,507		$	683,364		$	475,128
Fixed charges, excluding interest on deposits		463,209			281,244			267,379			301,518			321,059
Earnings including fixed charges but Excluding interest on deposits		1,520,863			1,193,084			991,886			984,882			796,187
Interest on deposits		544,920			276,102			228,216			283,385			566,899
Earnings including fixed charges and interest on deposits	$	2,065,783		$	1,469,186		$	1,220,102		$	1,268,267		$	1,363,086
Fixed Charges:
Interest Expense:
Short-term borrowings	$	106,333		$	61,256		$	81,070		$	150,310		$	188,587
Long-term borrowings		330,144			196,440			163,348			127,343			110,842
One-third of rental expense for all operating leases (the amount deemed representative of the interest factor)		26,732			23,548			22,961			23,865			21,630
Fixed charges excluding interest on deposits		463,209			281,244			267,379			301,518			321,059
Interest on deposits		544,920			276,102			228,216			283,385			566,899
Fixed charges including interest on deposits	$	1,008,129		$	557,346		$	495,595		$	584,903		$	887,958
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits		3.28	x		4.24	x		3.71	x		3.27	x		2.48	x
Including interest on deposits		2.05	x		2.64	x		2.46	x		2.17	x		1.54	x