-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RmReaSvDAtd/c4YmWw3DtEPvANzmJWLgEPqFWmcQqlvkThhC5kVUCNovicHupbzR /4LW2b1kaS265VY16SCDaA== 0000950124-96-001078.txt : 19960311 0000950124-96-001078.hdr.sgml : 19960311 ACCESSION NUMBER: 0000950124-96-001078 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960308 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSHALL & ILSLEY CORP/WI/ CENTRAL INDEX KEY: 0000062741 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 390968604 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-01220 FILM NUMBER: 96532608 BUSINESS ADDRESS: STREET 1: 770 N WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147657801 10-K405 1 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-1220 MARSHALL & ILSLEY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WISCONSIN 39-0968604 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 770 NORTH WATER STREET MILWAUKEE, WISCONSIN 53202 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (414) 765-7801 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock - $1.00 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock held by nonaffiliates of the registrant is approximately $2,305,562,000 as of February 29, 1996. The number of shares of common stock outstanding as of February 29, 1996 is 92,685,907. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference from the Proxy Statement for the registrant's Annual Meeting of Shareholders to be held on April 23, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I 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, as amended (the "BHCA"), and a registered savings and loan holding company under the Home Owners' Loan Act of 1933, as amended ("HOLA"). As of December 31, 1995, M&I had consolidated total assets of approximately $13.3 billion and consolidated total deposits of approximately $10.3 billion, making M&I the second 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 and the assets of its Data Services Division ("M&I Data Services"). M&I's subsidiaries include 29 commercial banks, one savings association and a number of companies engaged in businesses that the Federal Reserve Board (the "FRB") 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, compliance assistance, asset and liability management, investment administration and portfolio planning, business development, advertising and human resources management. M&I's bank and savings association subsidiaries provide a full range of banking services to individuals, businesses and governments throughout Wisconsin and the Phoenix, Arizona metropolitan area. These subsidiaries offer retail, institutional, international, business and correspondent banking, investment and trust services through the operation of 236 banking offices in Wisconsin and 12 offices in Arizona. M&I Marshall & Ilsley Bank ("M&I Bank"), M&I's largest bank subsidiary with consolidated assets as of December 31, 1995 of approximately $4.0 billion, is the third largest bank in Wisconsin. M&I Data Services is a major supplier of financial and data processing services and software to banking, financial and related organizations. M&I Data Services provides services and software to over 500 financial institution customers in the United States, as well as institutions in numerous foreign countries. M&I's nonbank subsidiaries operate a variety of bank-related businesses, including those providing investment management services, insurance services, trust services, equipment lease financing, commercial and residential mortgage banking, venture capital, brokerage services and financial advisory services. M&I Investment Management Corp. offers a full range of asset management services to M&I's trust company subsidiaries, the Marshall Funds and other individual, business and institutional customers. M&I's trust company subsidiaries provide trust and employee benefit plan services to customers in Wisconsin, Arizona and Florida. M&I First National Leasing Corp. leases a variety of equipment and machinery to large and small businesses. M&I Mortgage Corp. originates, purchases, sells and services residential mortgages. The Richter-Schroeder Company originates and services long-term commercial real estate loans for institutional investors. M&I Capital Markets Group, Inc. provides 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. M&I Brokerage Services, Inc., a broker-dealer registered with the National Association of Securities Dealers and the Securities and Exchange Commission, provides brokerage and other investment related services to a variety of retail and commercial customers. On February 1, 1995, M&I acquired the Bank of Burlington, Burlington, Wisconsin, which had total assets of approximately $180 million at the acquisition date. On July 1, 1995, M&I acquired Citizens Bancorp of Delavan, Inc., Delavan, Wisconsin, and on July 2, 1995, M&I acquired Sharon State Bank, Sharon, Wisconsin, which were merged and became the M&I Bank of Delavan with combined assets of $123 million at the merger date. 2 3 PRINCIPAL SOURCES OF REVENUE The table below shows the amount and percentages of M&I's total consolidated operating income resulting from interest and fees on loans, interest on investment securities and fees for data processing services for each of the last three years:
INTEREST ON INTEREST AND INVESTMENT FEES FOR DATA FEES ON LOANS SECURITIES PROCESSING SERVICES -------------------- -------------------- -------------------- PERCENT PERCENT PERCENT OF TOTAL OF TOTAL OF TOTAL TOTAL YEAR ENDED OPERATING OPERATING OPERATING OPERATING DECEMBER 31 AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME INCOME - ----------- -------- --------- -------- --------- -------- --------- ---------- ($000'S) ($000'S) ($000'S) ($000'S) 1995................... $774,256 57.4% $136,980 10.2% $213,914 15.9% $1,348,842 1994................... 681,085 57.8 127,587 10.8 159,418 13.5 1,178,787 1993................... 643,679 55.2 143,899 12.3 135,041 11.6 1,165,403
M&I business segment information is contained in Note 19 of the Notes to the Consolidated Financial Statements contained in Item 8 hereof. 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 non-bank 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 market for the banking technology services offered by M&I Data Services is national in scope. In any given geographic area, M&I Data Services' competitors vary in size and include national, regional and local operations. While historically the bank data processing industry has been highly decentralized, there is an accelerating trend toward consolidation in the industry, resulting in fewer companies competing over larger geographic regions. As consolidation continues, successful companies in this business are likely to increase substantially in size as the scale of activity necessary to compete increases. EMPLOYEES As of December 31, 1995, M&I and its subsidiaries employed in the aggregate approximately 9,079 full and part-time employees. M&I considers employee relations to be excellent. None of the employees of M&I and its subsidiaries are represented by a collective bargaining group. SUPERVISION AND REGULATION As a registered bank holding company and savings and loan holding company, M&I is subject to regulation and examination by the FRB under the BHCA and the Office of Thrift Supervision ("OTS") under HOLA. M&I's state bank subsidiaries are subject to regulation and examination by the Wisconsin Office of the Commissioner of Banking, or in the case of M&I Thunderbird Bank, the Arizona State Banking Department, and the FRB (for state banks which are members of the Federal Reserve System) or the Federal Deposit Insurance Corporation ("FDIC") (for state banks which are not members of the Federal Reserve System). M&I's national bank subsidiary is subject to regulation and examination by the Office of the Comptroller of the Currency. M&I's savings association subsidiary is subject to regulation and examination by 3 4 the Wisconsin Office of the Commissioner of Savings and Loans and the OTS. In addition, all of M&I's bank subsidiaries are subject to examination by the FDIC and other federal agencies. Under FRB 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 affiliates, loan limits, mergers and acquisitions, issuances of securities, dividend payments, extensions of credit and branch banking. The federal regulatory agencies have implemented provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 by creating standards for when they will take prompt corrective action if a depository institution fails to maintain a certain capital level within specified categories ranging from "critically undercapitalized" to "well capitalized." Information regarding capital requirements for bank holding companies and tables reflecting M&I's regulatory capital position at December 31, 1995 can be found in Note 13 of the Notes to the Consolidated Financial Statements contained in Item 8 hereof. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the restrictions on interstate acquisitions have been abolished effective September 29, 1995. Now, 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. In addition, banks may create interstate branching networks on or after June 1, 1997 in states that do not opt out of the legislation, or prior to such date in states that opt into the legislation early. The Financial Reform, Recovery and Enforcement Act of 1989 provides that 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. The laws and regulations to which M&I are subject are constantly under review by Congress, regulatory agencies and state legislatures. These laws and regulations may be changed dramatically in the future, which could affect the ability of bank holding companies to engage in certain activities such as nationwide banking, securities underwriting and insurance, as well as the amount of capital that banks and bank holding companies must maintain, premiums paid for deposit insurance and other matters directly affecting earnings. It is not certain which changes will occur, if any, or the effect such changes will have on the profitability of M&I, its ability to compete effectively, or the composition of the financial services industry. The earnings and business of M&I and the M&I bank subsidiaries 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 FRB 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. The foregoing references to applicable laws, statutes, regulations and legislation are brief summaries thereof which do not purport to be complete and are qualified in their entirety by reference to such statutes, regulations and legislation. 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 Position and Results of Operations. 4 5 (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 Position and Results of Operations. (3) Nonaccrual, Past Due and Restructured Loans for each of the last five years is included in Item 7, Management's Discussion and Analysis of Financial Position and Results of Operations. (4) Summary of Loan Loss Experience for each of the last five years is included in Item 7, Management's Discussion and Analysis of Financial Position 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. 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 at December 31 of each year are:
1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS) U.S. Treasury and government agencies.................. $2,330,577 $1,970,556 $2,139,866 States and political subdivisions...................... 446,998 290,483 326,154 Other.................................................. 98,380 86,533 106,538 ---------- ---------- ---------- $2,875,955 $2,347,572 $2,572,558 ========== ========== ==========
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, 1995 are (in thousands):
AFTER ONE BUT AFTER FIVE BUT WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL ---------------- ------------------ ---------------- --------------- ------------------ AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD -------- ----- ---------- ----- -------- ----- ------- ----- ---------- ----- U.S. Treasury and government agencies.................. $662,408 5.53% $1,662,707 6.15% $ 3,754 6.84% $1,708 8.06% $2,330,577 5.98% States and other political subdivisions.............. 95,930 6.94 158,504 7.16 183,533 7.41 9,031 9.21 446,998 7.26 Other....................... 7,630 8.60 14,063 10.87 7,483 10.59 69,204 3.80 98,380 5.70 -------- ---- ---------- ----- -------- ----- ------- ---- ---------- ---- $765,968 5.74% $1,835,274 6.27% $194,770 7.52% $79,943 4.50% $2,875,955 6.17% ======== ==== ========== ===== ======== ===== ======= ==== ========== ====
5 6 TYPES OF LOANS M&I's consolidated loans, classified by type, at December 31 of each year are:
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Commercial, financial and agricultural................... $2,903,920 $2,644,928 $2,538,830 $2,471,150 $2,620,594 Industrial development revenue bonds.......................... 29,358 31,796 45,889 58,388 52,288 Real estate: Construction................... 303,345 378,316 333,609 273,556 260,353 Mortgage: Residential................. 2,002,023 2,240,287 2,223,857 2,160,116 1,977,673 Commercial.................. 2,189,449 2,062,022 2,000,052 1,718,452 1,320,346 ---------- ---------- ---------- ---------- ---------- Total mortgage......... 4,191,472 4,302,309 4,223,909 3,878,568 3,298,019 Personal......................... 1,163,127 1,178,453 1,217,513 1,056,901 1,010,682 Lease financing.................. 277,680 256,690 257,622 242,282 219,164 ---------- ---------- ---------- ---------- ---------- 8,868,902 8,792,492 8,617,372 7,980,845 7,461,100 Less: Allowance for loan losses......................... 161,430 153,961 133,600 123,805 105,156 ---------- ---------- ---------- ---------- ---------- Net loans........................ $8,707,472 $8,638,531 $8,483,772 $7,857,040 $7,355,944 ========== ========== ========== ========== ==========
LOAN BALANCES AND MATURITIES DECEMBER 31, 1995 DOLLAR AMOUNTS IN THOUSANDS The analysis of loan maturities at December 31, 1995, and the rate structure for the categories indicated are:
RATE STRUCTURE OF LOANS MATURITY DUE AFTER ONE YEAR ------------------------------------------------- ---------------------------------- OVER ONE OVER WITH PRE- WITH ONE YEAR YEAR THROUGH FIVE DETERMINED FLOATING OR LESS FIVE YEARS YEARS TOTAL RATE RATE TOTAL ---------- ------------ -------- ---------- ---------- -------- ---------- (IN THOUSANDS) (IN THOUSANDS) Commercial, financial and agricultural............. $2,117,379 $679,506 $107,035 $2,903,920 $ 635,405 $151,136 $ 786,541 Industrial development revenue bonds............ 10,306 9,772 9,280 29,358 9,511 9,541 19,052 Real estate -- construction............. 207,483 95,862 -- 303,345 64,243 31,619 95,862 Lease financing............ 79,692 197,584 404 277,680 197,988 -- 197,988 ---------- -------- -------- ---------- --------- -------- ---------- $2,414,860 $982,724 $116,719 $3,514,303 $ 907,147 $192,296 $1,099,443 ========== ======== ======== ========== ========= ======== ==========
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. NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS Generally, a loan is placed on nonaccrual if payment of interest is more than 60 days delinquent and the loan has been determined by management to be a "problem" loan. In addition, loans which are past due 90 days or more as to interest or principal are also placed on non-accrual. Exceptions to these rules are generally only for loans fully collateralized by readily marketable securities or other relatively risk free collateral. 6 7 POTENTIAL PROBLEM LOANS At December 31, 1995, the Corporation had $23,623 of loans for which payments are presently current, but the borrowers are experiencing serious financial problems. These loans are subject to constant management attention and their classification is reviewed on a quarterly basis. OTHER INTEREST BEARING ASSETS At December 31, 1995, the Corporation's commercial finance subsidiary had $4,093 of corporate debt investment securities on nonaccrual status. The gross interest that would have been recorded in 1995 under the original terms amounted to $413. There was no interest income recorded during 1995 with respect to such debt securities. 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:
1995 1994 1993 ------------------ ------------------ ------------------ AMOUNT RATE AMOUNT RATE AMOUNT RATE ---------- ----- ---------- ----- ---------- ----- (IN THOUSANDS) Noninterest bearing demand deposits.......................... $1,980,035 $2,051,864 $1,997,781 Interest bearing demand deposits.... 959,234 1.85% 1,084,552 1.65% 1,081,702 1.88% Savings deposits.................... 3,006,002 3.61% 2,869,618 2.54% 2,792,851 2.57% Time deposits....................... 3,664,144 5.61% 3,664,063 4.51% 3,902,398 4.61% ---------- ---------- ---------- Total deposits............ $9,609,415 $9,670,097 $9,774,732 ========== ========== ==========
The maturity distribution of time deposits issued in amounts of $100,000 and over and outstanding at December 31, 1995 (in thousands) is: Three months or less...................................................... $281,827 Over three and through six months......................................... 126,556 Over six and through twelve months........................................ 136,600 Over twelve months........................................................ 115,294 -------- $660,277 ========
At December 31, 1995, time deposits issued by foreign offices totalled $44,847. SHORT-TERM BORROWINGS Information related to M&I's funds purchased and security repurchase agreements for the last three years is as follows (in thousands):
1995 1994 1993 ---------- ---------- -------- (IN THOUSANDS) Amount outstanding at year end.................. $ 517,576 $ 944,843 $515,028 Average amount outstanding during the year...... 739,191 835,472 556,812 Maximum amount outstanding at any month's end... 1,094,314 1,011,509 907,247 Weighted average interest rate at year end...... 4.99% 5.17% 2.78% Weighted average interest rate during the year.......................................... 5.70% 4.09% 2.87%
7 8 SUMMARY OF LOAN LOSS EXPERIENCE The following should be read in conjunction with Item 7, Management's Discussion and Analysis of Financial Position and Results of Operations. The Corporation's evaluation of the adequacy of the allowance for loan losses broadly consists of two levels of analysis. The first level focuses primarily on assessments of specific credits, as described more fully below. The second more general level of analysis focuses on categories of similar type loans and portfolio segments (e.g., commercial/individual; real estate/non-real estate; geographical regions related to the locations of affiliate banks). These methodologies include multiple analytical approaches which are viewed together to assess overall reserve and provision levels. The analyses consider, among other factors, historical loss experience, current and anticipated economic conditions, loan portfolio trends, portfolio composition by segment, assigned credit grades, and estimates of potential loss exposures. The loan portfolios of the Corporation's affiliate banks and leasing subsidiary are subject to continual management oversight and quarterly analyses. Management's analyses are based on the Corporation's credit grading system which classifies loans in a manner similar to that of bank regulatory examiners, with estimates of probable and potential losses derived. Management's assigned credit grades and quarterly portfolio analyses are subject to independent monitoring by the Corporation's credit review group, which also performs periodic portfolio reviews at each affiliate. The credit review group prepares reports on the results of its evaluations of affiliate loan portfolios, which together with quarterly analyses of credit exposure provided by affiliate management, serve as the basis for determining the adequacy of the allowance for loan losses. Management utilizes the above-described reserve analysis approaches to determine the overall adequacy of the allowance for loan losses. Management's overall assessment is based on its view of the loan portfolio as consisting of commercial business loans, real estate loans, personal loans, and direct financing leases. Industrial development revenue bonds are viewed as commercial real estate loans. During 1995, consolidated net charge-offs increased to $9.3 million, representing $14.6 million of charge-offs, offset by $5.3 million of recoveries. The 1995 net charge-off level closely parallels the levels of 1992 and 1993, which were above the unusually low 1994 level of $4.6 million, but below the higher than historic net charge-off level experienced in 1991. Gross charge-off levels declined from 1991 through 1994 and although 1995 levels increased, they remained at the second lowest level during the five-year period. Recovery levels in 1991, 1993 and 1994 were relatively consistent, and contrast to a higher level of recoveries in 1992 and a lower level of recoveries in 1995. Recoveries in 1992 were unusually high due to the collection of a large commercial loan charge-off recorded in 1990. The generally positive net charge-off levels experienced during the post-1991 period reflect the relative strength of the Wisconsin economy and stabilization in the Arizona economy and real estate levels. The Corporation's Arizona-based loan portfolio represents approximately 3% of the total portfolio. The Corporation's 1995 provision level of $16.2 million is consistent with the 1994 general provision level of $16.0 million, not including the $8.9 million special provision taken in 1994. The special provision, which was charged to expense, was utilized to conform Valley's loan valuation policies with those of the Corporation, after consummation of the merger. The 1994 and 1995 general provision levels are lower than the previous three years. The resulting 1995 year-end reserve level is $161 million, or 1.82% of total loans, which compares to the year-end 1994 reserve level of 1.75%. The increasing reserve levels in 1991 through 1995 reflect the Corporation's favorable net charge-off experience and the inherent cyclical nature of economic conditions and related credit impacts. In addition, the 1995 reserve level of 1.82% reflects a reduction in loan volume due to the securitization of mortgage loans and related transfer of a portion of the loan loss reserve to a recourse reserve. The year-end 1995 reserve level is considered adequate given uncertainties regarding the economic conditions in the country and the Corporation's primary service areas. The Corporation's 1995 charge-off and recovery levels across portfolio sectors generally reflect the current stability of the Wisconsin and Arizona economies. These conditions contrast with 1990 and 1991 when conditions were generally less favorable and weaknesses in economic conditions and real estate values significantly impacted the Corporation's Arizona-based portfolio, resulting in higher than historic levels of 8 9 losses. The 1995 charge-off level for commercial loans was above the abnormally low 1994 level, but below 1991-1993 levels. During the 1991-1995 period, commercial loan recoveries generally declined, with the exception of 1992 when a large recovery occurred relating to a 1990 charge-off. The higher 1992 recovery and the abnormally low 1994 gross charge-offs, resulted in small net commercial loan recoveries in 1992 and 1994. The 1995 charge-off for construction real estate loans, decreased from the 1994 peak. The losses were offset by negligible recoveries and continue to be relatively immaterial. The 1995 charge-offs for real estate mortgages, which decreased to the lowest level in five years, were offset by lower than normal recoveries. Resulting net charge-offs increased from 1993 and 1994 levels, but remained below 1991 and 1992 levels. The 1995 charge- off and recovery levels for personal loans increased above 1993 and 1994 levels, but remained below 1991 and 1992 levels. The 1995 charge-offs for the Corporation's lease financing portfolio approximated 1993 and 1994 levels, remaining below 1991 and 1992 levels. Offsetting recoveries continued to decrease from their 1993 peak, resulting in 1995 net charge-offs which were slightly below the five-year average. The Corporation's charge-off and provision levels for 1996 are expected to continue to be largely dependent on economic conditions in the Corporation's primary service areas. While general economic conditions continue to be relatively stable, should national or regional conditions deteriorate, the Corporation's Wisconsin and Arizona markets may be adversely affected. Absent deterioration in these conditions, total charge-offs for 1996 are not currently expected to vary significantly from 1995 levels. Offsetting recoveries are currently expected to decrease slightly from 1995 levels as a result of the general decline in gross charge-offs in recent years. At the present time, there are no material loans which are known or believed to be in imminent danger of deteriorating or defaulting which are currently expected to give rise to material charge-offs; however, loss levels can be significantly impacted by a few large loans which could deteriorate unexpectedly or be adversely impacted by economic conditions. Based on current conditions, commercial loan losses for 1996 are expected to approximate normal historic levels, remaining below peak 1990 and 1991 levels. Commercial real estate loans continue to be highly vulnerable to regional economic conditions and real estate values; however, based on current conditions, real estate and construction loan losses for 1996 are not currently expected to vary significantly from 1995 levels. Based on the current portfolio size, composition and experience, personal loan losses for 1996 are expected to approximate normal historic levels, remaining below the peak level experienced in 1991. However, the Corporation is not immune to the potential impacts of national trends in retail credit delinquencies and collections. At the present time, direct lease financing losses for 1996 are expected to approximate historic levels; however, actual losses could be impacted by portfolio growth, fraud, or unanticipated weaknesses in industry segments within the portfolio. 9 10 ITEM 2. PROPERTIES M&I and M&I Bank occupy offices on all or portions of 16 floors of a 21-story building located at 770 North Water Street, Milwaukee, Wisconsin. A subsidiary of M&I Bank owns the building and its adjacent 10-story parking lot and leases the remaining floors to a professional tenant. In addition, various subsidiaries of M&I lease commercial office space in downtown Milwaukee office buildings near the 770 North Water Street facility. M&I Bank also owns or leases various branch offices located in Milwaukee and in surrounding suburban communities. M&I has 28 subsidiary banks and one savings association located in cities throughout Wisconsin. M&I Thunderbird Bank, a wholly-owned bank subsidiary of M&I, is located in Phoenix, Arizona and has 12 offices in Phoenix and the surrounding Maricopa County communities. The subsidiary banks and savings association occupy modern facilities which are owned or leased. M&I owns a data processing facility located in Brown Deer, a suburb of Milwaukee, from which M&I Data Services conducts data processing activities. Properties leased by M&I for M&I Data Services also include commercial office space in Brown Deer, a data processing site in Oak Creek, Wisconsin, and processing centers and sales offices in various cities throughout the United States. ITEM 3. LEGAL PROCEEDINGS M&I is not currently involved in any material pending legal proceedings other than litigation of a routine nature and various legal matters which are being defended and handled in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME OF OFFICER OFFICE - ------------------------- ------------------------------------------------------------------ J.B. Wigdale Chairman of the Board since December, 1992, Chief Executive Age 59 Officer since October, 1992, Director since December, 1988, Vice Chairman of the Board, December, 1988 to December, 1992, Marshall & Ilsley Corporation; Chairman of the Board since January, 1989, Chief Executive Officer since 1987, Director since 1981, M&I Marshall & Ilsley Bank; President and Director -- M&I Financial Corp., M&I Building Corp. and Loujo Company; Director -- M&I First National Leasing Corp., M&I Mortgage Corp., Richter-Schroeder Company, Inc., M&I Data Services, M&I Capital Markets Group, Inc. and Marshall & Ilsley Trust Company. D.J. Kuester Director since February, 1994, President since 1987, Marshall & Age 54 Ilsley Corporation; President and Director since January, 1989, M&I Marshall & Ilsley Bank; Chairman of the Board, Chief Executive Officer and Director, M&I Data Services; Director -- M&I Financial Corp. and M&I Building Corp; President and Director, M&I Insurance Company of Arizona, Inc. P.M. Platten, III Vice Chairman of the Board and Director since May, 1994, Marshall Age 56 & Ilsley Corporation; Chairman of the Board, January, 1993 to May, 1994, President and Chief Executive Officer, January, 1989 to May, 1994, Valley Bancorporation.
10 11
NAME OF OFFICER OFFICE - ------------------------- ------------------------------------------------------------------ G.H. Gunnlaugsson Director since February, 1994, Executive Vice President and Chief Age 51 Financial Officer since 1987, Marshall & Ilsley Corporation; Vice President of M&I Marshall & Ilsley Bank since 1976; Vice President and Director -- M&I Insurance Company of Arizona, Inc. and Loujo Company; Director -- M&I Mortgage Corp., M&I Data Services and M&I Insurance Services, Inc. G.D. Strelow Senior Vice President and Human Resources Director of Marshall & Age 61 Ilsley Corporation since 1993; Vice President and Human Resources Director of M&I Marshall & Ilsley Bank since 1980. M.A. Hatfield Senior Vice President since 1993, Secretary since 1981 and Age 50 Treasurer from 1986 to May 1995, Marshall & Ilsley Corporation; Vice President and Secretary, M&I Marshall & Ilsley Bank; Secretary -- M&I First National Leasing Corp., M&I Capital Markets Group, Inc., Marshall & Ilsley Trust Company, M&I Investment Management Corp., Marshall & Ilsley Trust Company of Florida, M&I Ventures Corporation and M&I Brokerage Services, Inc.; Secretary, Treasurer and Director -- M&I Financial Corp. and M&I Building Corp.; Secretary and Director -- M&I Insurance Company of Arizona, Inc., M&I Data Services and Loujo Company; Secretary, M&I Insurance Services, Inc.; Secretary and Treasurer, M&I Mortgage Corp.; Director, Richter-Schroeder Company, Inc. P.R. Justiliano Senior Vice President since 1994 and Corporate Controller since Age 45 April, 1989, Vice President, 1986 to 1994, Marshall & Ilsley Corporation; Director, M&I Insurance Company of Arizona, Inc. J.L. Delgadillo Senior Vice President of Marshall & Ilsley Corporation since 1993; Age 43 Director of M&I Data Services since 1994; President and Chief Operating Officer of M&I Data Services since 1993; Senior Vice President of M&I Data Services since 1989. D.W. Layden, Jr. Senior Vice President since October, 1994, Marshall & Ilsley Age 38 Corporation; Director -- Marshall & Ilsley Trust Company and M&I Investment Management Corp. since February, 1995; Executive Vice President and Chief Financial Officer from January, 1994 to October, 1994, Senior Vice President and Legal Counsel from March, 1992 to October, 1994, M&I Data Services. D.R. Jones Senior Vice President since December, 1993, Vice President and Age 50 North and South Regional Manager since May, 1993, Vice President and South Regional Manager from March, 1989 to May, 1993, Marshall & Ilsley Corporation. D.P. O'Connor Senior Vice President since December, 1993, Vice President and Age 54 North Regional Manager from March, 1989 to May, 1993, Marshall & Ilsley Corporation; Executive Vice President since May, 1993, M&I Marshall & Ilsley Bank; Chairman from January, 1992 to May, 1993, M&I First American National Bank.
11 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS STOCK LISTING M&I's common stock is traded under the symbol "MRIS" in the NASDAQ National Market System, and quotations are supplied by the National Association of Securities Dealers. Common dividends declared and the price range for M&I's common stock for each of the last five years can be found in Item 8, Consolidated Financial Statements, Quarterly Financial Information. A discussion of the regulatory restrictions on the payment of dividends can be found under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and in Note 13 to Item 8, Consolidated Financial Statements. HOLDERS OF COMMON EQUITY At December 31, 1995, M&I had approximately 18,659 record holders of its Common Stock. 12 13 ITEM 6. SELECTED FINANCIAL DATA CONSOLIDATED SUMMARY OF EARNINGS YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Interest Income: Loans............................. $774,256 $681,085 $643,679 $665,634 $730,696 Investment Securities: Taxable........................ 118,868 110,894 123,207 139,302 140,261 Tax Exempt..................... 18,112 16,693 20,692 31,946 42,438 Short-term Investments............ 13,424 8,634 5,899 14,157 24,695 -------- -------- -------- -------- -------- Total Interest Income..... 924,660 817,306 793,477 851,039 938,090 Interest Expense: Deposits.......................... 331,734 255,861 272,100 334,443 448,757 Short-term Borrowings............. 47,740 39,681 18,010 17,606 32,065 Long-term Borrowings.............. 53,709 30,537 23,088 26,439 27,770 -------- -------- -------- -------- -------- Total Interest Expense.... 433,183 326,079 313,198 378,488 508,592 -------- -------- -------- -------- -------- Net Interest Income................. 491,477 491,227 480,279 472,551 429,498 Provision for Loan Losses........... 16,158 24,907 18,034 23,546 28,924 -------- -------- -------- -------- -------- Net Interest Income After Provision for Loan Losses................... 475,319 466,320 462,245 449,005 400,574 Other Income: Data Processing Services.......... 213,914 159,418 135,041 112,056 90,582 Trust Services.................... 64,176 59,720 61,226 58,050 54,060 Other............................. 146,092 142,343 175,659 158,305 132,106 -------- -------- -------- -------- -------- Total Other Income........ 424,182 361,481 371,926 328,411 276,748 Other Expense: Salaries and Benefits............. 343,650 323,904 320,717 299,540 260,289 Other............................. 255,972 260,866 248,870 246,084 230,295 Merger/Restructuring.............. -- 75,228 -- -- -- -------- -------- -------- -------- -------- Total Other Expense....... 599,622 659,998 569,587 545,624 490,584 -------- -------- -------- -------- -------- Income Before Taxes................. 299,879 167,803 264,584 231,792 186,738 Provision for Income Taxes.......... 106,580 73,405 93,190 75,391 56,725 -------- -------- -------- -------- -------- Income Before Extraordinary Items and Accounting Changes............ 193,299 94,398 171,394 156,401 130,013 Extraordinary Items and Accounting Changes........................... -- 11,542 -- (9,134) -- -------- -------- -------- -------- -------- Net Income................ $193,299 $105,940 $171,394 $147,267 $130,013 ======== ======== ======== ======== ========
13 14 CONSOLIDATED SUMMARY OF EARNINGS -- CONTINUED YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Per Share: Primary Net Income Before Extraordinary Items and Accounting Changes.................................. $ 1.96 $ 0.95 $ 1.67 $ 1.55 $ 1.33 Primary Net Income After Extraordinary Items and Accounting Changes.................................. 1.96 1.07 1.67 1.46 1.33 Fully Diluted Net Income Before Extraordinary Items and Accounting Changes.................................. 1.90 0.93 1.60 1.48 1.27 Fully Diluted Net Income After Extraordinary Items and Accounting Changes.................................. 1.90 1.04 1.60 1.40 1.27 Fully Diluted Net Income (Historical)*...... 1.90 1.04 1.76 1.52 1.40 Common Dividend Declared.................... 0.645 0.59 0.54 0.48 0.43 Other Significant Data: Year-End Common Stock Price................. $26.00 $19.00 $23.63 $21.17 $18.33 Return on Average Shareholders' Equity Before Extraordinary Items and Accounting Changes.................................. 16.41% 8.60% 15.29% 15.48% 14.44% Return on Average Shareholders' Equity After Extraordinary Items and Accounting Changes.................................. 16.41 9.65 15.29 14.57 14.44 Return on Average Assets Before Extraordinary Items and Accounting Changes.................................. 1.52 0.76 1.42 1.36 1.18 Return on Average Assets After Extraordinary Items and Accounting Changes............. 1.52 0.85 1.42 1.28 1.18 Dividend Payout Ratio....................... 33.95 56.73 33.75 34.20 33.86 Average Equity to Average Assets Ratio...... 9.26 8.83 9.31 8.77 8.18 Ratio of Earnings to Fixed Charges** Excluding Interest on Deposits........... 3.76x 3.18x 6.52x 5.57x 3.80x Including Interest on Deposits........... 1.68x 1.50x 1.83x 1.60x 1.36x Stock Splits................................ 3 FOR 1
- --------------- * Not restated for acquisitions accounted for as a pooling of interests. ** See Exhibit 12 for detailed computation of these ratios. 14 15 CONSOLIDATED AVERAGE BALANCE SHEETS YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Assets: Cash and Due from Banks................. $ 576,943 $ 613,053 $ 616,761 $ 572,132 $ 538,068 Short-term Investments.................. 222,779 196,653 180,143 366,132 428,543 Trading Securities...................... 10,346 4,528 4,860 6,049 6,185 Investment Securities: Taxable............................... 2,026,859 2,116,856 2,236,805 1,950,155 1,692,476 Tax Exempt............................ 374,014 351,026 400,135 523,551 604,753 Loans: Commercial............................ 2,832,228 2,680,735 2,572,967 2,643,726 2,813,243 Real Estate........................... 4,773,214 4,572,496 4,248,970 3,798,180 3,314,452 Personal.............................. 1,159,957 1,201,131 1,109,701 1,017,625 991,600 Lease Financing....................... 262,566 256,344 248,654 234,566 199,246 ----------- ----------- ----------- ----------- ----------- Total Loans and Leases.................. 9,027,965 8,710,706 8,180,292 7,694,097 7,318,541 Allowance for Loan Losses............. 160,797 144,917 129,972 114,046 100,726 ----------- ----------- ----------- ----------- ----------- Net Loans and Leases.................... 8,867,168 8,565,789 8,050,320 7,580,051 7,217,815 Other Assets............................ 647,402 584,556 550,444 527,339 527,485 ----------- ----------- ----------- ----------- ----------- Total Assets..................... $12,725,511 $12,432,461 $12,039,468 $11,525,409 $11,015,325 =========== =========== =========== =========== =========== Liabilities and Shareholders' Equity: Noninterest Bearing Deposits............ $ 1,980,035 $ 2,051,864 $ 1,997,781 $ 1,799,072 $ 1,576,525 Interest Bearing Deposits: Savings and NOW Accounts.............. 1,981,804 2,426,502 2,339,754 2,086,065 1,769,710 Money Market Savings.................. 1,983,432 1,527,668 1,534,799 1,560,913 1,441,169 CDs of $100 or more................... 567,373 436,268 440,573 416,555 565,614 Other................................. 3,096,771 3,227,795 3,461,825 3,589,990 3,668,741 ----------- ----------- ----------- ----------- ----------- Total Deposits.......................... 9,609,415 9,670,097 9,774,732 9,452,595 9,021,759 Short-term Borrowings................... 835,230 964,850 641,836 529,528 591,602 Long-term Borrowings.................... 801,176 447,254 272,041 284,333 290,724 Accrued Expenses and Other Liabilities........................... 301,865 252,297 229,545 248,286 210,575 Shareholders' Equity.................... 1,177,825 1,097,963 1,121,314 1,010,667 900,665 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity........... $12,725,511 $12,432,461 $12,039,468 $11,525,409 $11,015,325 =========== =========== =========== =========== =========== Other Significant Data: Book Value Per Share at Year End***..... $ 12.92 $ 11.01 $ 11.35 $ 10.76 $ 9.74 Average Common Shares Outstanding***.... 93,697,513 94,850,595 98,497,435 96,958,290 94,601,491 Shareholders of Record at Year End*..... 18,659 18,919 10,374 9,381 9,462 Employees at Year End*.................. 9,079 8,634 6,611 6,315 6,137 Historically Reported Credit Quality Ratios:* Net Loan Charge-offs to Average Loans... 0.10% 0.05% 0.03% 0.07% 0.32% Total Nonperforming Loans** & OREO to End of Period Loans & OREO............ 0.79 0.80 0.86 1.14 1.49 Allowance for Loan Losses to End of Period Loans.......................... 1.82 1.75 1.74 1.76 1.55 Allowance for Loan Losses to Total Nonperforming Loans**................. 261 265 261 213 128
- --------------- * Not restated for acquisitions accounted for as pooling of interests. ** Nonaccrual loans, restructured loans, and loans past due 90 days or more. *** Restated for 3 for 1 stock split. 15 16 YIELD & COST ANALYSIS (TAX EQUIVALENT BASIS) YEARS ENDED DECEMBER 31
1995 1994 1993 1992 1991 ---- ----- ---- ---- ----- Average Rates Earned: Loans............................................... 8.60% 7.84% 7.89% 8.68% 10.02% Investment Securities -- Taxable.................... 5.86 5.24 5.51 7.14 8.29 Investment Securities -- Tax Exempt................. 6.85 6.86 7.91 9.02 10.27 Trading Securities.................................. 4.98 5.39 4.26 4.69 6.42 Short-term Investments.............................. 5.81 4.28 3.17 3.80 5.68 Average Rates Paid: Interest Bearing Deposits........................... 4.35% 3.36% 3.50% 4.37% 6.03% Short-term Borrowings............................... 5.72 4.11 2.81 3.32 5.42 Long-term Borrowings................................ 6.70 6.83 8.49 9.30 9.55 M&I Marshall & Ilsley Bank Average Prime Rate....... 8.83 7.15 6.00 6.25 8.46 Summary Yield and Cost Analysis: (As a % of Average Assets) Average Yield....................................... 7.34% 6.65% 6.70% 7.53% 8.72% Average Cost........................................ 3.40 2.62 2.60 3.28 4.62 ---- ---- ---- ---- ----- Net Interest Income................................. 3.94 4.03 4.10 4.25 4.10 Provision for Loan Losses........................... 0.13 0.20 0.15 0.20 0.26 ---- ---- ---- ---- ----- Net Interest Income After Provision for Loan Losses........................................... 3.81 3.83 3.95 4.05 3.84 Net Securities Gains (Losses)....................... 0.04 (0.05) 0.07 0.08 0.05 Other Income........................................ 3.30 2.95 3.02 2.77 2.47 Other Expense....................................... 4.72 5.30 4.74 4.74 4.46 ---- ---- ---- ---- ----- Income Before Income Taxes.......................... 2.43 1.43 2.30 2.16 1.90 Provision for Income Taxes.......................... 0.91 0.67 0.88 0.80 0.72 ---- ---- ---- ---- ----- Income Before Extraordinary Items and Accounting Changes.......................................... 1.52% 0.76% 1.42% 1.36% 1.18% ==== ==== ==== ==== ===== Net Income.................................. 1.52% 0.85% 1.42% 1.28% 1.18% ==== ==== ==== ==== =====
- --------------- * Not restated for acquisitions accounted for as pooling of interests. ** Nonaccrual loans, restructured loans, and loans past due 90 days or more. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS For 1995, the Corporation reported net income of $193.3 million compared to $105.9 million in 1994. Fully diluted net income per share in 1995 was $1.90 compared to $1.04 in the prior year. The return on average assets and average equity in 1995 was 1.52% and 16.41%, respectively, and 0.85% and 9.65%, respectively, for the year ended December 31, 1994. Net income for 1994 included $64.0 million of charges and extraordinary items related to the Corporation's merger with Valley Bancorporation (Valley), which occurred during the second quarter of 1994. Excluding the above noted merger related charges, net operating income and fully diluted earnings per share for 1994 would have been $169.9 million and $1.65, respectively. The following table summarizes the unusual items reported in the second quarter of 1994 adjusted for merger related gains realized in the third and fourth quarter of 1994 and its impact on net income.
AFTER-TAX GAIN FULLY DILUTED (CHARGE) PER SHARE INCREASE ($ MILLIONS) (DECREASE) ------------ ------------------ Income from Operations.................................. $169.9 $ 1.65 Recognition of $75.2 million merger/restructuring charge............................................. (58.9) (.56) Additional loan loss provisions of $8.9 million....... (5.8) (.06) Other miscellaneous charges of $8.5 million........... (6.2) (.06) Securities losses of $7.3 million..................... (4.6) (.04) Net extraordinary gain of $20.6 million............... 11.5 .11 ------ ------ Reported Net Income..................................... $105.9 $ 1.04 ====== ======
INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS The table below presents a summary of the major elements of the income statement for 1995, 1994, and 1993. Each of the elements is stated as a percent of average total assets outstanding for the respective year and, where appropriate, is converted to a fully taxable equivalent basis (FTE). The results exclude the after-tax merger related charges reported in 1994.
1995 1994 1993 ----- ----- ----- Interest Income............................................. 7.34% 6.65% 6.70% Interest Expense............................................ (3.40) (2.62) (2.60) ----- ----- ----- Net Interest Income......................................... 3.94 4.03 4.10 Provision for Loan Losses................................... (.13) (.13) (.15) Net Securities Gains........................................ .04 .01 .07 Other Income................................................ 3.30 2.95 3.02 Other Expense............................................... (4.72) (4.64) (4.74) ----- ----- ----- Income Before Income Taxes.................................. 2.43 2.22 2.30 Income Taxes................................................ (.91) (.85) (.88) ----- ----- ----- Return on Average Assets.................................... 1.52% 1.37% 1.42% ===== ===== =====
17 18 NET INTEREST INCOME Net interest income for 1995 was $491.5 million compared to $491.2 million in 1994, an increase of $0.3 million. The benefit from the increase in rates earned and the slight increase in the volume of average earning assets, primarily loans, was offset by the increase in rates paid on interest bearing liabilities and the negative impact of the change in liability mix. Average earning assets increased $282.2 million or 2.5% in 1995 compared to the same period last year. Average loan growth of $317.3 million or 3.6% was somewhat offset by the decline in average other earning assets, primarily investment securities, of $35.1 million. Average interest bearing liabilities increased $235.4 million or 2.6% in 1995 compared to 1994. Average interest bearing deposits increased $11.1 million while average short-term borrowings decreased $129.6 million or 13.4% since last year. The decrease in average short-term borrowings together with the decrease in noninterest bearing deposits of $71.8 million or 3.5%, resulted in an increase in average long-term borrowings from $447.3 million in 1994 to $801.2 million in 1995, an increase of $353.9 million or 79.1%. In conjunction with the Valley merger in 1994, the Corporation completed certain required and voluntary branch divestitures. During the third and fourth quarters of 1994, approximately $300 million of deposits and $200 million of loans were sold. The effect of these divestitures was somewhat mitigated by 1995 acquisitions which were accounted for as purchases. The Bank of Burlington, with deposits of $149 million and loans of $113 million, was acquired on February 1, 1995. In July 1995, Citizens Bancorp of Delavan, Inc. and Sharon State Bank were acquired, which had combined deposits of $82.6 million and combined loans of $72.5 million. The growth and composition of the Corporation's average loan portfolio for the current year and prior two years are reflected below:
GROWTH PERCENT ------------- 1995 1994 VS. VS. 1995 1994 1993 1994 1993 -------- -------- -------- ---- ---- $ IN MILLIONS Commercial Loans.............................. $2,832.2 $2,680.7 $2,573.0 5.7% 4.2% Real Estate Loans Construction................................ 341.8 262.7 277.9 30.1 (5.5) Commercial Mortgages........................ 2,129.8 2,098.6 1,825.5 1.5 15.0 Residential Mortgages....................... 2,301.6 2,211.2 2,145.6 4.1 3.1 -------- -------- -------- ---- ---- Total Real Estate Loans....................... 4,773.2 4,572.5 4,249.0 4.4 7.6 Personal Loans Personal Loans.............................. 872.0 936.7 901.0 (6.9) 4.0 Student Loans............................... 288.0 264.4 208.7 8.9 26.7 -------- -------- -------- ---- ---- Total Personal Loans.......................... 1,160.0 1,201.1 1,109.7 (3.4) 8.2 Leasing Financing Receivables................................. 262.6 256.4 248.6 2.4 3.1 -------- -------- -------- ---- ---- Total Consolidated Average Loans.... $9,028.0 $8,710.7 $8,180.3 3.6% 6.5% ======== ======== ======== ==== ====
During the third quarter of 1995, the Corporation began converting adjustable rate mortgage loans (ARMs) into Federal National Mortgage Association (FNMA) ARM pool securities to enhance liquidity. Approximately $455 million of ARM loans were securitized and transferred to investment securities available for sale in 1995. A fee of 7.5 basis points is required to guarantee the securities which had and will have a negative impact on net interest income. The Corporation estimates that approximately $100 million of ARM loans may be securitized in 1996. Average residential real estate loan growth and average total consolidated loan growth for 1995 versus 1994 would have been 7.6% and 4.5% before the securitizations. 18 19 The growth and composition of the Corporation's average deposits for the current year and prior two years are reflected below:
GROWTH PERCENT -------------- 1995 1994 VS. VS. 1995 1994 1993 1994 1993 -------- -------- -------- ----- ---- $ IN MILLIONS Noninterest Bearing Commercial................................. $1,289.7 $1,302.7 $1,252.1 (1.0)% 4.0% Personal................................... 409.2 428.7 404.8 (4.5) 5.9 Other...................................... 281.1 320.5 340.9 (12.3) (6.0) -------- -------- -------- ----- ---- Total Noninterest Bearing Deposits......................... 1,980.0 2,051.9 1,997.8 (3.5) 2.7 Interest Bearing Savings & NOW.............................. 1,981.8 2,426.4 2,339.7 (18.3) 3.7 Money Market............................... 1,983.4 1,527.7 1,534.8 29.8 (0.5) Other CDs & Time Deposits.................. 3,096.8 3,227.8 3,461.8 (4.1) (6.8) CDs Greater than $100,000.................. 567.4 436.3 440.6 30.1 (1.0) -------- -------- -------- ----- ---- Total Interest Bearing Deposits.... 7,629.4 7,618.2 7,776.9 0.1 (2.0) -------- -------- -------- ----- ---- Total Consolidated Average Deposits......................... $9,609.4 $9,670.1 $9,774.7 (0.6)% (1.1)% ======== ======== ======== ===== ====
During the third quarter of 1994, the Corporation began offering a money market index account to attract new deposits. The average balance of the money market index account was approximately $956 million in 1995. Since inception, this product has generated approximately $668 million of new deposits. The remaining balances were the result of disintermediation from the Corporation's other deposit accounts. The average rate paid on the index account was approximately 200 basis points higher than the tier equivalent nonindexed money market account in 1995. The net interest margin as a percent of average earning assets declined 10 basis points from 4.40% in 1994 to 4.30% in 1995. The yield on interest earning assets increased 74 basis points while the cost of interest bearing liabilities increased 107 basis points. Loan growth and the increase in loan yields of 76 basis points account for 87% of the increase in interest on earning assets in 1995 compared to 1994. The remainder of the increase was primarily attributable to higher yields in other earning assets, particularly taxable investment securities. The increase in average cost of deposits and short-term borrowings represent 83% of the 1995 versus 1994 increase in interest paid on interest bearing liabilities. The average cost of savings and interest bearing demand deposits increased 88 basis points and the average cost of other time deposits increased 110 basis points in 1995 compared to the prior year. The average cost of short-term borrowings increased 161 basis points. The increase in the volume of long-term borrowings, offset by a 13 basis point decline in the average cost of this category, contributed approximately $23.2 million of the increase in interest paid on interest bearing liabilities. During the second quarter of 1994, the Corporation's banking subsidiaries began offering Bank Notes. The Bank Notes, issued for a two-year term at floating interest rates indexed to LIBOR, provide an additional funding source along with those traditionally available to our banking affiliates. In 1995, the average amount and average cost of these notes were $415 million and 6.20% compared to $138.4 million and 5.21% in 1994. Throughout 1995 and 1994, the Corporation was not involved in derivative activity that would impact net interest margins or interest rate sensitivity or risk. Financial derivative instruments which are straightforward and involve little complexity may be used on a limited basis in the future. The possible continuing lack of deposit and earning asset growth, and shift of deposit mix into higher cost categories, may continue to put pressure on the interest margin. 19 20 Net interest income was $491.2 million in 1994, an increase of $10.9 million or 2.3% from $480.3 million earned in 1993. The benefit of the increase in average earning assets was partially offset by the slight decline in the yield on average earning assets and increased volume of higher cost short-term and long-term borrowings fueled in part by the decline in average deposits. Average earning assets increased $377.5 million or 3.4% in 1994 compared to the prior year. Average loans increased $530.4 million or 6.5% and was the primary contributor to average earning asset growth. The decline in other earning assets, primarily investment securities, was due to the funding of loan growth. During 1994, the Corporation experienced a shift in its deposit mix. Noninterest bearing deposits increased $54.1 million or 2.7%, however, this increase did not offset the decline in interest bearing deposits, which declined $158.7 million in 1994. Core interest bearing deposits increased $79.6 million while certificates of deposit and other time deposits declined $238.3 million. During the third quarter of 1994, the Corporation prepaid $53 million of Valley's long-term Series A 9.86% and Series B 9.97% senior unsecured notes and refinanced the notes with the Corporation's medium-term notes which had an average cost of 7.46% in 1994. The net interest margin as a percentage of average earning assets declined from 4.48% in 1993 to 4.40% in 1994. The average yield on interest earning assets was 7.27% in 1994, a decrease of 6 basis points compared to 1993. The total investment yield declined 40 basis points due to the maturity of higher yielding securities. The total cost of interest bearing liabilities remained relatively unchanged. While the decline in the cost of deposits had a favorable impact on the net interest margin, the lack of deposit growth resulted in the use of higher cost short-term and long-term borrowings to meet funding needs. Average short-term borrowings increased $323.0 million and the average cost of such borrowings increased 130 basis points in 1994 compared to the prior year. The increase in the average volume of long-term borrowings, primarily Bank Notes, negatively impacted the net interest margin despite the 166 basis point decline in the cost of such borrowings. 20 21 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 below (dollars in thousands):
1995 1994 1993 ---------------------------------- ---------------------------------- ---------------------------------- AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE BALANCE EARNED YIELD BALANCE EARNED YIELD BALANCE EARNED YIELD ----------- -------- ------- ----------- -------- ------- ----------- -------- ------- Loans(1,2)....... $ 9,027,965 $776,280 8.60% $ 8,710,706 $683,265 7.84% $ 8,180,292 $645,434 7.89% Investment securities: Taxable........ 2,026,859 118,868 5.86 2,116,856 110,894 5.24 2,236,805 123,207 5.51 Tax exempt(1).... 374,014 25,621 6.85 351,026 24,065 6.86 400,135 31,650 7.91 Interest bearing deposits in other banks.... 144,135 7,956 5.52 93,504 3,752 4.01 98,220 2,915 2.97 Funds sold and security resale agreements..... 65,820 4,195 6.37 91,090 4,147 4.55 40,401 1,224 3.03 Trading securities(1)... 10,346 515 4.98 4,528 244 5.39 4,860 207 4.26 Other short-term investments.... 12,824 790 6.16 12,059 517 4.29 41,522 1,574 3.79 ----------- -------- ---- ----------- -------- ---- ----------- -------- ---- Total interest earning assets... 11,661,963 934,225 8.01 11,379,769 826,884 7.27 11,002,235 806,211 7.33 Cash and demand deposits due from banks..... 576,943 613,053 616,761 Premises and equipment, net............ 295,970 289,300 281,952 Other assets..... 351,432 295,256 268,492 Allowance for loan losses.... (160,797) (144,917) (129,972) ----------- ----------- ----------- Total Assets... $12,725,511 $12,432,461 $12,039,468 =========== =========== =========== Savings and interest bearing demand deposits....... $ 3,965,236 $126,196 3.18% $ 3,954,170 $ 90,788 2.30% $ 3,874,553 $ 92,074 2.38% Other time deposits....... 3,664,144 205,538 5.61 3,664,063 165,073 4.51 3,902,398 180,026 4.61 Short-term borrowings..... 835,230 47,740 5.72 964,850 39,681 4.11 641,836 18,010 2.81 Long-term borrowings..... 801,176 53,709 6.70 447,254 30,537 6.83 272,041 23,088 8.49 ----------- -------- ---- ----------- -------- ---- ----------- -------- ---- Total interest bearing liabi- lities... 9,265,786 433,183 4.68 9,030,337 326,079 3.61 8,690,828 313,198 3.60 Noninterest bearing deposits....... 1,980,035 2,051,864 1,997,781 Other liabilities.... 301,865 252,297 229,545 Shareholders' equity......... 1,177,825 1,097,963 1,121,314 ----------- ----------- ----------- Total liabilities and shareholders' equity..... $12,725,511 $12,432,461 $12,039,468 =========== =========== =========== Net interest income... $501,042 $500,805 $493,013 ======== ======== ======== Net yield on interest earning assets... 4.30% 4.40% 4.48% ==== ==== ====
- --------------- Notes: (1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35%, and excluding disallowed interest expense. (2) Loans on a nonaccrual status have been included in the computation of average balances. 21 22 ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE The effect on interest income and interest expense due to volume and rate changes in 1995 and 1994 are outlined below. Changes not due solely to either volume or rate are allocated to rate (dollars in thousands):
1995 VS. 1994 1994 VS. 1993 ------------------------------ -------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN DUE TO CHANGE IN ------------------- TOTAL ------------------- TOTAL AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) ------- ------- ---------- -------- -------- ---------- Interest on earning assets: Loans(1)........................ $24,886 $68,129 $ 93,015 $ 41,850 $ (4,019) $ 37,831 Investment securities: Taxable......................... (4,715) 12,689 7,974 (6,607) (5,706) (12,313) Tax-exempt(1)................... 1,576 (20) 1,556 (3,884) (3,701) (7,585) Interest bearing deposits in other banks.................. 2,032 2,172 4,204 (140) 977 837 Funds sold and security resale agreements................... (1,150) 1,198 48 1,536 1,387 2,923 Trading securities(1)........... 314 (43) 271 (14) 51 37 Other short-term investments.... 33 240 273 (1,117) 60 (1,057) ------- ------- -------- -------- -------- -------- Total interest income change................ $22,976 $84,365 $107,341 $ 31,624 $(10,951) $ 20,673 ======= ======= ======== ======== ======== ======== Expense on interest bearing liabilities: Savings and interest bearing demand deposits.............. $ 254 $35,154 $ 35,408 $ 1,892 $ (3,178) $ (1,286) Other time deposits............. 4 40,461 40,465 (10,995) (3,958) (14,953) Short-term borrowings........... (5,331) 13,390 8,059 9,064 12,607 21,671 Long-term borrowings............ 24,165 (993) 23,172 14,870 (7,421) 7,449 ------- ------- -------- -------- -------- -------- Total interest expense change................ $19,092 $88,012 $107,104 $ 14,831 $ (1,950) $ 12,881 ======= ======= ======== ======== ======== ========
- --------------- Notes: (1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35%, and excluding disallowed interest expense. 22 23 PROVISION FOR LOAN LOSSES AND CREDIT QUALITY The provision for loan losses in 1995 amounted to $16.2 million compared to $24.9 million in 1994. The 1994 provision included an additional loan loss provision of $8.9 million which was recorded at the time of the Valley merger to conform Valley's loan valuation policies with those of the Corporation. Nonperforming assets at December 31, 1995 were $70.5 million compared to $70.1 million reported at December 31, 1994. Nonaccrual loans, the largest component of nonperforming assets, increased $5.8 million when compared to December 31, 1994 while loans past due 90 days or more and renegotiated loans decreased $1.1 million and $0.9 million, respectively. Nonaccrual commercial loans and leases increased $4.8 million or 48.1% while nonaccrual commercial real estate loans declined $3.1 million or 15.5% at December 31, 1995 when compared to last year. Nonaccrual residential real estate continued its upward trend and amounted to $15.7 million, an increase of $4.2 million since December 31, 1994. At December 31, 1995, other real estate owned, which is down $3.5 million from the prior year, includes approximately $2.4 million of closed branch facilities. Net charge-offs in 1995 amounted to $9.3 million or .10% of average loans compared to $4.5 million or .05% for the prior year. The allowance for loan losses amounted to $161.4 million or 1.82% of total loans at December 31, 1995 compared to $154.0 million or 1.75% of total loans at December 31, 1994. The coverage of the allowance for loan losses to nonperforming loans decreased slightly from 265% at December 31, 1994 to 261% at the end of the current year. As part of the ARM loan securitization previously discussed, approximately $2.3 million of loan loss reserve balances were transferred to a specific investment reserve to cover estimated losses based on the Corporation's experience with these types of loans. The Corporation has agreed to guarantee the first 4% of the loan pools securitized through FNMA against loss. Since the third quarter of 1995, nonperforming assets increased $0.9 million which was primarily due to an increase of $1.1 million in loans past due 90 days or more. Also affecting total nonperforming assets were net charge-offs in the fourth quarter which amounted to $5.3 million and was $4.6 million higher than the third quarter of 1995. The increased net charge-offs were primarily related to commercial loans. 23 24 CONSOLIDATED CREDIT QUALITY INFORMATION DECEMBER 31 ($000'S)
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- NONPERFORMING ASSETS BY TYPE Loans: Nonaccrual........................ $ 50,598 $ 44,766 $ 44,186 $ 52,811 $ 78,887 Renegotiated...................... 3,087 4,172 4,263 6,325 8,026 Past Due 90 Days or More.......... 8,184 9,093 7,906 7,097 9,330 -------- -------- -------- -------- -------- Total Nonperforming Loans................... 61,869 58,031 56,355 66,233 96,243 Other Real Estate Owned............. 8,648 12,114 12,928 19,286 18,510 -------- -------- -------- -------- -------- Total Nonperforming Assets.................. $ 70,517 $ 70,145 $ 69,283 $ 85,519 $114,753 ======== ======== ======== ======== ======== Allowance for Loan Losses........... $161,430 $153,961 $133,600 $123,805 $105,156 ======== ======== ======== ======== ======== CONSOLIDATED STATISTICS Net Charge-offs to Average Loans.... .10% .05% .11% .12% .30% Total Nonperforming Loans to Total Loans............................. .70 .66 .65 .83 1.29 Total Nonperforming Assets to Total Loans and Other Real Estate Owned............................. .79 .80 .80 1.07 1.53 Allowance for Loan Losses to Total Loans............................. 1.82 1.75 1.55 1.55 1.41 Allowance for Loan Losses to Nonperforming Loans............... 261 265 237 187 109
MAJOR CATEGORIES OF NONACCRUAL LOANS ($000'S)
1995 1994 ---------------------------------- ---------------------------------- % OF % OF LOAN % OF LOAN % OF NONACCRUAL TYPE NONACCRUAL NONACCRUAL TYPE NONACCRUAL ---------- ---- ---------- ---------- ---- ---------- COMMERCIAL Commercial...................... $ 13,527 .5% 26.7% $ 8,372 .3 % 18.7% Lease Financing Receivables..... 1,244 .4 2.5 1,601 .6 3.6 ------- -- ----- ------- -- ----- Total Commercial......... 14,771 .5 29.2 9,973 .3 22.3 REAL ESTATE Construction and Land Development................... 618 .2 1.2 902 .2 2.0 Commercial Real Estate.......... 16,653 .8 32.9 19,706 1.0 44.0 Residential Real Estate......... 15,701 .7 31.0 11,453 .5 25.6 ------- -- ----- ------- -- ----- Total Real Estate........ 32,972 .7 65.1 32,061 .7 71.6 Personal........................ 2,855 .2 5.7 2,732 .2 6.1 ------- -- ----- ------- -- ----- Total.................... $ 50,598 .6% 100.0% $ 44,766 .5 % 100.0% ======= == ===== ======= == =====
24 25 RECONCILIATION OF CONSOLIDATED ALLOWANCE FOR LOAN LOSSES ($000'S)
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Allowance for Loan Losses at Beginning of Year................. $153,961 $133,600 $123,805 $105,156 $ 94,145 Provision for Loan Losses(1)........ 16,158 24,907 18,034 23,546 28,924 Allowance of Bank Acquired.......... 2,843 -- 1,167 4,284 4,344 Allowance Transfer for Loan Securitizations................... (2,275) -- -- -- -- Loans Charged-off Commercial........................ 5,130 3,301 8,810 8,863 12,614 Real Estate-Construction.......... 407 737 79 513 352 Real Estate-Mortgage.............. 2,444 3,241 2,729 4,655 7,440 Personal.......................... 5,759 4,375 5,033 6,887 8,220 Leases............................ 875 907 815 1,426 1,430 -------- -------- -------- -------- -------- Total Charge-offs................... 14,615 12,561 17,466 22,344 30,056 Recoveries on Loans Commercial........................ 2,117 3,675 3,431 9,149 4,285 Real Estate-Construction.......... 39 6 49 92 175 Real Estate-Mortgage.............. 1,021 2,468 2,208 1,493 790 Personal.......................... 2,158 1,789 2,156 2,306 2,503 Leases............................ 23 77 216 123 46 -------- -------- -------- -------- -------- Total Recoveries.................... 5,358 8,015 8,060 13,163 7,799 -------- -------- -------- -------- -------- Net Loans Charged-off............... 9,257 4,546 9,406 9,181 22,257 -------- -------- -------- -------- -------- Allowance for Loan Losses at End of Year.............................. $161,430 $153,961 $133,600 $123,805 $105,156 ======== ======== ======== ======== ========
- --------------- (1) The amount of the provision for loan losses charged to operating expense for the year ended December 31, 1995, is the amount necessary to bring the allowance for loan losses at December 31, 1995, to a level believed adequate by management to absorb current estimated potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on a continual review of the loan portfolio, loan loss experience, economic conditions, growth and composition of the portfolio, and other relevant factors. As a result of management's continual review, the allowance is adjusted through provisions for loan losses charged against income. 25 26 OTHER INCOME Total other income was $424.2 million for the year ended December 31, 1995 compared to $361.5 million earned in the prior year. Our financial services affiliates were the major contributors to the increase. M&I Data Services (Data Services), the Corporation's data processing division, reported data processing revenue of $213.9 million compared to $159.4 million for the year ended December 31, 1994, an increase of $54.5 million or 34.2%. Processing and conversion revenue increased $30.0 million or 23.4% while buy out fees related to terminated contracts (which can vary from year to year) increased $4.3 million and amounted to $6.3 million for the year ended December 31, 1995. Software related revenue increased $18.5 million. Approximately 60% of the increase is attributable to the December, 1994 acquisition of Software Alliance. Trust fees amounted to $64.2 million, an increase of $4.5 million or 7.5% compared to $59.7 million earned in 1994. An increase in the overall market value of trust assets along with increased revenue from outsourcing services more than offset the revenue decline due to pricing compressions. Other customer services declined $6.3 million in 1995 compared to the prior year. Fees on loans declined $1.3 million or 6.5% while other commission and fees declined $2.2 million or 4.9% in the current year when compared to 1994. Service charges on deposit accounts declined $2.9 million and amounted to $51.0 million for the year ended December 31, 1995. Net securities gains amounted to $4.6 million for the year ended December 31, 1995 compared to net securities losses of $5.8 million for the year ended December 31, 1994. During 1995, Capital Markets Group realized securities gains of $7.2 million offset in part by $4.0 million of realized and unrealized securities losses as compared to securities gains of $2.3 million in 1994 and securities losses of $0.3 million. The Corporation also sold certain equity securities carried in the available for sale category and realized a net gain of $1.3 million in 1995 and $0.9 million in 1994. Excluding the $7.3 million of securities losses taken at the time of the Valley merger, 1994 net securities gains amounted to $1.5 million. Other miscellaneous income amounted to $30.8 million for the year ended December 31, 1995, slightly lower than that reported in the prior year. The Corporation adopted the new accounting standard on mortgage servicing rights in the third quarter of 1995 which resulted in a $2.4 million increase in other income. This increase was offset by lower gains on the sale of other real estate owned and lower insurance commissions revenue. Revenue from property and casualty insurance commissions declined $2.8 million due to the sale of that line of business in the later part of 1994. Total other income amounted to $361.5 million in 1994, a decline of $10.4 million when compared to $371.9 million reported in 1993. Excluding the $7.3 million of securities losses taken as part of the Valley acquisition, other income declined $3.1 million in 1994 compared to the prior year. Data processing revenue increased $24.4 million or 18.1% in 1994 while trust revenues declined $1.5 million for the same period. Other customer service revenue declined $7.4 million in 1994 compared to 1993 primarily due to lower service charges on deposit accounts. The higher interest rate environment in 1994 caused higher earnings credits to be given to commercial deposit accounts. The decline in revenue from the origination and sale of mortgage loans in 1994 accounted for a majority of the decrease in fees on loans and other miscellaneous income. Securities losses in 1994 amounted to $5.8 million compared to a net gain of $8.3 million in 1993. Excluding the securities losses taken at the time of the Valley acquisition, net securities gains amounted to $1.5 million in 1994. Capital Markets Group realized net gains of $2.0 million in 1994 compared to $3.3 million in 1993. The Corporation also sold certain equity securities and realized a gain of $0.9 million in 1994 and $4.2 million in 1993. OTHER EXPENSE Total other expense amounted to $599.6 million in 1995 compared to $660.0 million in 1994. As noted earlier, several one time charges were recorded in 1994. A merger/restructuring charge of $75.2 million reflected the costs associated with executive contracts, a reduction in work force, and other items related to the merger. Also taken at that time were other miscellaneous charges of $8.5 million which represented goodwill 26 27 and other real estate write downs and other accrual related adjustments. Total other expense for 1994, excluding the above noted items, would have been $576.3 million. Salaries and benefits expense amounted to $343.7 million, an increase of $19.7 million or 6.1%, in 1995 compared to the prior year. The increase was due primarily to Data Services. At December 31, 1995, Data Services had approximately 2,600 employees compared to 2,200 employees at December 31, 1994. A portion of the increase was due to Data Service's acquisition of Software Alliance and a New England data center. Our banking affiliates experienced a decline in salaries and benefits expense. Upon consummation of the merger in 1994, the Valley pension plan was curtailed and in 1995, the plan was fully terminated through cash distributions and/or purchases of annuities. The 1994 curtailment expense of $2.3 million is classified as a merger/restructuring cost while the pension termination expense of $1.8 million is included in salaries and benefits expense for 1995. Net occupancy expense in 1995 declined $0.9 million due primarily to the branch divestitures which occurred during 1994. This benefit was somewhat offset by increased occupancy costs incurred by Data Services through its New England data center acquisition and a full year of operating a secondary processing site. Equipment expense amounted to $65.5 million in 1995 compared to $59.6 million for 1994. The 1995 acquisition of the New England data center, a secondary processing site which became operational late in the fourth quarter of 1994, and CPU and other equipment upgrades by Data Services were the primary reasons for the increase. The decline in payments to regulatory agencies of $10.6 million in 1995 when compared to 1994 is due to the reduction in FDIC insurance premium rates which declined from $.23 per $1,000 of insured deposits to $.04 on June 1, 1995. Supplies and printing expense which amounted to $15.7 million in 1995 increased $1.3 million when compared to the prior year. This increase is the result of higher data processing revenue experienced in 1995. Professional services expense amounted to $18.7 million for the year ended December 31, 1995 compared to $12.5 million in the prior year. Approximately $4.7 million of the increase was due to costs incurred for technological assistance in software development, such as Data Service's data warehouse project. Approximately $1.1 million of the remaining increase represents costs incurred in connection with the ARM loan securitization program previously discussed. Other miscellaneous expense amounted to $89.1 million in 1995 compared to $96.1 million in 1994. Excluding $7.4 million of charges taken in conjunction with the Valley merger, other miscellaneous expense for 1994 amounted to $88.7 million. Travel and software costs for Data Services increased $4.8 million over the prior year. In addition, the acquisitions of Software Alliance and the New England data center resulted in an increase in intangibles amortization expense of $3.7 million in 1995 compared to 1994. This category of expense is also affected by the capitalization of costs, net of amortization, associated with software development and data processing conversions. Including the professional services expense increase of $4.7 million, the amount of software development costs, net of amortization, in 1995 was $8.0 million higher than the amount reported in 1994. The impact of conversion activity, net of amortization, was to increase miscellaneous expense by $1.0 million in 1995 compared to the prior year. Total other expense amounted to $660.0 million in 1994 compared to $569.6 million in 1993. Excluding the one-time merger related items of $83.7 million, 1994 total other expenses amounted to $576.3 million, an increase of $6.7 million or 1.2% when compared to 1993. The minimal expense growth is attributable to the cost savings achieved by the Corporation in 1994 due to the merger. Salaries and Benefits expense increased only 1.0% due primarily to the elimination of duplicate job functions at the time of the Valley merger. Occupancy expense increased $0.2 million in 1994 compared to 1993 due to the sale of branch facilities in the second half of 1994. Equipment expense, which increased 2.9% in 1994 when compared to the prior year, was associated with Data Services need for more computer capacity, data storage devices, and other processing 27 28 equipment. This increased cost did not totally offset the cost savings associated with the merger. The other miscellaneous category of expense was affected by the $7.4 million of merger related charges in 1994. INCOME TAX PROVISION The provision for income taxes was $106.6 million in 1995 compared to $73.4 million in 1994 and $93.2 million in 1993. The increase in the 1995 provision levels is due to higher taxable income offset in part by a $2.3 million research and experimental tax credit related to software development. The 1994 provision for taxes was impacted by certain nondeductible expenses associated with the Valley combination. The effective tax rate was 35.54% in 1995, 43.74% in 1994, and 35.22% in 1993. ASSET/LIABILITY MANAGEMENT Asset/Liability management involves the funding and investment strategies necessary to maintain an appropriate balance between interest sensitive assets and liabilities as well as to assure adequate liquidity. These strategies determine the characteristics and mix of the balance sheet. They affect net interest margins, maturity patterns, interest rate sensitivity and risk, as well as resource allocations. The Corporation combines the active management of the balance sheet position over interest rate cycles to confine interest rate risk within prudent parameters. Financial derivative instruments may be used on a limited basis and are generally straightforward and involve little complexity. We position the balance sheet in a manner which will match asset and liability repricing schedules to insulate our net interest margin from cyclical swings in interest rates, while consciously matching or mismatching discretionary asset and liability repricing schedules to take advantage of interest rate swings over short periods of time. Adequate funding sources are maintained through a full line of deposit and short-term borrowing products, competitively priced to a diversified customer base. Asset diversification provides a proper mix of variable and fixed rate loans, while investment decisions are primarily designed to balance the overall interest rate risk in the balance sheet. Liquidity is provided through marketability and an appropriate schedule of maturing investments. A portion of demand deposits are considered rate sensitive under the following assumptions. A core amount of demand deposits is calculated at the beginning of each year. This core number is the average of the previous six months actual and upcoming twelve months forecasted balances. The core balance is considered nonrate sensitive and classified as a nonrate sensitive liability in the "1 year +" time frame. Actual demand deposit balances are compared to the core balance monthly. The difference, positive or negative, is considered rate sensitive and classified as a rate sensitive liability. At December 31, 1995, $261 million of demand deposits were classified as rate sensitive in the "1-30 Days" time frame. In addition, a percentage of various interest-bearing accounts are classified (rate sensitive or nonrate sensitive) according to assumptions which approximate the extent to which the rates on these accounts are expected to increase (decrease) relative to a change in the general level of interest rates. 28 29 ASSET/LIABILITY MANAGEMENT ($ IN MILLIONS)
1-30 31-90 91-180 181-364 1 DAYS DAYS DAYS DAYS SUBTOTAL YEAR + TOTAL ------ ----- ------ ------- -------- ------ ------- Loans....................... $3,138 $ 678 $ 744 $ 917 $5,477 $3,230 $ 8,707 Securities.................. 97 56 180 434 767 2,142 2,909 Other Interest Bearing Assets.................... 286 -- -- -- 286 -- 286 Other Assets................ -- -- -- -- -- 1,441 1,441 ------ ----- ----- ------ ------ ------ ------- Total Assets.............. $3,521 $ 734 $ 924 $ 1,351 $6,530 $6,813 $13,343 Rate Sensitive Liabilities............... $4,403 $ 492 $ 727 $ 1,091 $6,713 $3,044 $ 9,757 Nonrate Sensitive Liabilities............... -- -- -- -- -- 3,586 3,586 ------ ----- ----- ------ ------ ------ ------- Total Liabilities & Equity................. $4,403 $ 492 $ 727 $ 1,091 $6,713 $6,630 $13,343 ====== ===== ===== ====== ====== ====== ======= Gap......................... $ (882) $ 242 $ 197 $ 260 $ 183 Cumulative Gap.............. (882) (640) (443 ) (183) Cumulative Gap as a % of Total Assets.............. (6.61)% (4.80)% (3.32 )% (1.37)%
CAPITAL RESOURCES Shareholders' equity was $1.26 billion at December 31, 1995 compared to $1.06 billion at December 31, 1994. This increase was primarily due to retained net income, the issuance of 2.8 million common shares for the acquisition of three banking affiliates and a $55.3 million increase in the net unrealized gain on investment securities available for sale. The Corporation and its affiliates continue to have a strong capital base and the Corporation's regulatory capital ratios are significantly above the defined minimum regulatory ratios. At December 31, 1995, the Corporation had a total risk-based capital ratio of 14.04% and an 11.71% core capital to risk-based asset ratio. Selected leverage capital ratios must also be maintained. The Corporation's leverage ratio at December 31, 1995 of 9.07% was substantially in excess of the minimum guidelines. The Corporation's subsidiaries, primarily its banking subsidiaries, are restricted by regulations from making dividend distributions above prescribed amounts. In addition, banking subsidiaries are limited in making loans and advances to the Corporation. At December 31, 1995, approximately $87 million and $45 million were available for distribution without regulatory approval from the Corporation's banking and nonbanking subsidiaries, respectively. Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each subsidiary bank in circumstances when it might not do so absent such policy. In May of 1994, $16.4 million of 8.5% convertible subordinated notes were converted into 1,870,057 shares of common stock. As provided for in the note agreement, the noteholder, subsequent to conversion, exchanged the common shares acquired by conversion of the debt for 163,630 shares of Series A preferred stock. The Corporation has a Stock Repurchase Program which was approved by the Corporation's Board of Directors in April 1993 and reaffirmed in October 1994. In October 1994, the Board of Directors also authorized an increase in the number of shares to be repurchased from 9.0 million shares to 15.1 million shares. The shares are being acquired in anticipation of the remaining conversion of the Corporation's 8.5% convertible subordinated notes, to fund the on-going program to deliver or have available shares of common stock for stock option and other employee benefit plans and other corporate needs. During 1995, the Corporation purchased 2.7 million shares and has cumulatively purchased 12.5 million shares since inception of the program. 29 30 The Corporation has filed registration statements with the Securities & Exchange Commission to issue medium term unsecured and subordinated series notes. These issues may have maturities which range from nine (9) months to 30 years from the date of issue at a fixed or floating rate. As of December 31, 1995, approximately $177 million of medium term notes and approximately $560 million of bank notes can be issued. This allows the Corporation to maintain ready access to funding sources for general corporate purposes which include, but are not limited to, refinancing existing corporate and bank debt as it matures, and other corporate needs. 30 31 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOR YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 CONSOLIDATED BALANCE SHEETS DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1995 1994 ----------- ----------- ASSETS Cash and Cash Equivalents: Cash and Due from Banks......................................... $ 745,911 $ 685,919 Funds Sold and Security Resale Agreements....................... 66,618 205,248 Money Market Funds.............................................. 84,960 76,724 ----------- ----------- Total Cash and Cash Equivalents................................... 897,489 967,891 Trading Securities, at Market Value............................... 38,601 20,361 Other Short-term Investments, at Cost which Approximates Market Value.................................................... 95,635 43,519 Investment Securities Available for Sale, at Market Value......... 2,458,600 1,865,147 Investment Securities Held to Maturity, Market Value $453,240 ($419,521 in 1994).............................................. 450,457 429,456 Loans, Net of Unearned Income of $46,571 ($39,569 in 1994)........ 8,868,902 8,792,492 Less: Allowance for Loan Losses................................... 161,430 153,961 ----------- ----------- Net Loans......................................................... 8,707,472 8,638,531 Premises and Equipment............................................ 306,988 286,435 Accrued Interest and Other Assets................................. 387,855 361,609 ----------- ----------- Total Assets............................................ $13,343,097 $12,612,949 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest Bearing............................................. $ 2,363,194 $ 2,199,016 Interest Bearing................................................ 7,917,583 7,300,064 ----------- ----------- Total Deposits.................................................... 10,280,777 9,499,080 Short-term Borrowings............................................. 1,015,022 1,111,142 Accrued Expenses and Other Liabilities............................ 367,131 287,654 Long-term Borrowings.............................................. 422,550 653,777 ----------- ----------- Total Liabilities....................................... 12,085,480 11,551,653 Shareholders' Equity: Series A Convertible Preferred Stock, $1.00 par value, 3,000,000 Shares Authorized; 348,944 Shares Issued; Liquidation Preference $34,894........................................... 349 349 Common Stock, $1.00 par value, 160,000,000 Shares Authorized; 99,494,335 Shares Issued..................................... 99,494 99,494 Additional Paid-in Capital...................................... 190,287 194,697 Retained Earnings............................................... 1,075,789 945,469 Less: Treasury Stock, at Cost, 5,968,631 Shares (6,964,920 in 1994)........................................................ 128,459 143,438 Deferred Compensation........................................ 1,090 1,203 Net Unrealized Securities Gains (Losses) Net of Taxes........... 21,247 (34,072) ----------- ----------- Total Shareholders' Equity.............................. 1,257,617 1,061,296 ----------- ----------- Total Liabilities and Shareholders' Equity.............. $13,343,097 $12,612,949 =========== ===========
The accompanying notes are an integral part of the Consolidated Financial Statements. 31 32 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1995 1994 1993 -------- -------- -------- INTEREST INCOME Loans................................................................ $774,256 $681,085 $643,679 Investment Securities: Taxable............................................................ 118,868 110,894 123,207 Exempt from Federal Income Taxes................................... 18,112 16,693 20,692 Trading Securities................................................... 483 218 186 Other Short-term Investments......................................... 12,941 8,416 5,713 -------- -------- -------- Total Interest Income....................................... 924,660 817,306 793,477 INTEREST EXPENSE Deposits............................................................. 331,734 255,861 272,100 Short-term Borrowings................................................ 47,740 39,681 18,010 Long-term Borrowings................................................. 53,709 30,537 23,088 -------- -------- -------- Total Interest Expense...................................... 433,183 326,079 313,198 -------- -------- -------- Net Interest Income.................................................. 491,477 491,227 480,279 Provision for Loan Losses............................................ 16,158 24,907 18,034 -------- -------- -------- Net Interest Income After Provision for Loan Losses.................. 475,319 466,320 462,245 OTHER INCOME Data Processing Services............................................. 213,914 159,418 135,041 Trust Services....................................................... 64,176 59,720 61,226 Other Customer Services.............................................. 110,779 117,089 124,505 Net Securities Gains (Losses)........................................ 4,555 (5,752) 8,334 Other................................................................ 30,758 31,006 42,820 -------- -------- -------- Total Other Income.......................................... 424,182 361,481 371,926 OTHER EXPENSE Salaries and Employee Benefits....................................... 343,650 323,904 320,717 Net Occupancy........................................................ 35,717 36,579 36,389 Equipment............................................................ 65,534 59,569 57,863 Payments to Regulatory Agencies...................................... 12,715 23,359 23,142 Processing Charges................................................... 18,480 18,293 17,379 Supplies and Printing................................................ 15,711 14,416 13,169 Professional Services................................................ 18,675 12,504 12,036 Merger/Restructuring................................................. -- 75,228 -- Other................................................................ 89,140 96,146 88,892 -------- -------- -------- Total Other Expense......................................... 599,622 659,998 569,587 -------- -------- -------- Income Before Income Taxes and Extraordinary Items................... 299,879 167,803 264,584 Provision for Income Taxes........................................... 106,580 73,405 93,190 -------- -------- -------- Income Before Extraordinary Items.................................... 193,299 94,398 171,394 Extraordinary Items, Net of Income Taxes............................. -- 11,542 -- -------- -------- -------- Net Income.................................................. $193,299 $105,940 $171,394 ======== ======== ======== NET INCOME PER COMMON SHARE Primary: Income Before Extraordinary Items.................................. $ 1.96 $ 0.95 $ 1.67 Extraordinary Items................................................ -- 0.12 -- -------- -------- -------- Net Income.................................................. $ 1.96 $ 1.07 $ 1.67 ======== ======== ======== Fully Diluted: Income Before Extraordinary Items.................................. $ 1.90 $ 0.93 $ 1.60 Extraordinary Items................................................ -- 0.11 -- -------- -------- -------- Net Income.................................................. $ 1.90 $ 1.04 $ 1.60 ======== ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. 32 33 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 ($000'S)
1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income.................................................... $ 193,299 $ 105,940 $ 171,394 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization............................. 47,167 71,957 57,058 Provision for Loan Losses................................. 16,158 24,907 18,034 Gains on Sales of Assets.................................. (20,448) (2,434) (21,487) Proceeds from Sales of Trading Securities and Loans Held for Resale.............................................. 3,506,767 3,657,575 3,192,622 Purchases of Trading Securities and Loans Held for Resale.................................................. (3,514,512) (3,547,732) (3,220,184) Other..................................................... (727) (2,765) (6,743) ----------- ----------- ----------- Total Adjustments......................................... 34,405 201,508 19,300 ----------- ----------- ----------- Net Cash Provided by Operating Activities..................... 227,704 307,448 190,694 CASH FLOWS FROM INVESTING ACTIVITIES Net (Increase) Decrease in Shorter Term Securities............ (49,980) 7,676 53,244 Proceeds from Maturities of Longer Term Securities............ 668,708 861,428 1,742,984 Proceeds from Sales of Securities Available for Sale.......... 133,340 595,476 29,892 Purchases of Longer Term Securities........................... (791,172) (1,254,651) (1,419,314) Decrease in Loans Due to Divestitures......................... -- 199,455 -- Net Increase in Loans......................................... (332,649) (497,075) (543,812) Purchases of Assets to be Leased.............................. (132,299) (88,826) (94,187) Principal Payments on Lease Receivables....................... 139,155 113,976 105,352 Purchases of Premises and Equipment, Net...................... (39,881) (28,995) (65,731) Other......................................................... 26,603 (29,829) (10,431) ----------- ----------- ----------- Net Cash Used in Investing Activities......................... (378,175) (121,365) (202,003) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in Deposits Due to Divestitures...................... -- (300,736) -- Net Increase (Decrease) in Deposits........................... 550,261 (371,993) 33,124 Proceeds from Issuance of Commercial Paper.................... 1,406,388 1,578,618 1,348,661 Principal Payments on Commercial Paper........................ (1,439,343) (1,604,384) (1,325,634) Net Increase (Decrease) in Other Short-term Borrowings........ (434,429) 440,501 53,320 Proceeds from Issuance of Long-term Debt...................... 216,872 497,560 116,959 Payment of Long-term Debt..................................... (104,676) (96,299) (63,718) Dividends Paid................................................ (62,985) (57,575) (54,435) Purchase of Common Stock...................................... (61,104) (101,887) (114,686) Proceeds from the Issuance of Common Stock.................... 9,079 11,682 19,887 Other......................................................... 6 1,687 (630) ----------- ----------- ----------- Net Cash Provided by (Used in) Financing Activities........... 80,069 (2,826) 12,848 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents.......... (70,402) 183,257 1,539 Cash and Cash Equivalents, Beginning of Year.................. 967,891 784,634 783,095 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year........................ $ 897,489 $ 967,891 $ 784,634 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid During the Year for: Interest.................................................... $ 406,383 $ 319,398 $ 313,073 Income Taxes................................................ 107,672 91,797 88,398
The accompanying notes are an integral part of the Consolidated Financial Statements. 33 34 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
ADDITIONAL TREASURY DEFERRED PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- STOCK STOCK CAPITAL EARNINGS STOCK SATION --------- -------- ---------- -------- -------- -------- Balance, December 31, 1992.......... $ 185 $ 29,788 $297,452 $780,177 $ 18,798 $ 3,135 Net Income.......................... -- -- -- 171,394 -- -- 3 for 1 Stock Split Effected in the Form of a 200% Stock Dividend..... -- 59,576 (59,576) -- -- -- Transactions by Affiliates Prior to Combination....................... -- 11,513 (11,513) (19,014) -- -- Issuance of 134,150 Common Shares on Conversion of Convertible Notes... -- 134 383 -- -- -- Issuance of 2,228,186 Common Shares Under Stock Option and Restricted Stock Plans....................... -- 1,062 3,230 -- (15,582) -- Acquisition of 5,053,317 Common Shares............................ -- -- -- -- 117,890 -- Dividends Declared on Preferred Stock -- $5.76 Per Share.......... -- -- -- (1,067) -- -- Dividends Declared on Common Stock -- $0.54 Per Share.......... -- -- -- (34,354) -- -- Net Change in Deferred Compensation...................... -- -- -- -- -- (1,243) Other............................... -- -- 8,154 (13) -- -- ---- -------- -------- -------- -------- ------- Balance, December 31, 1993.......... $ 185 $102,073 $238,130 $897,123 $121,106 $ 1,892 ==== ======== ======== ======== ======== =======
The accompanying notes are an integral part of the Consolidated Financial Statements. 34 35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
NET UNREALIZED ADDITIONAL TREASURY DEFERRED SECURITIES PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- GAINS (LOSSES) STOCK STOCK CAPITAL EARNINGS STOCK SATION NET OF TAXES --------- -------- ---------- -------- -------- ------- -------------- Balance, December 31, 1993........... $ 185 $102,073 $238,130 $897,123 $121,106 $1,892 $ -- Net Income........................... -- -- -- 105,940 -- -- -- Adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities"..... -- -- -- -- -- -- 13,858 Issuance of 2,653,689 Treasury Shares in the 1994 Business Combination... -- (2,654) (52,569) -- (55,223) -- -- Transactions by Affiliates Prior to Combination........................ -- -- -- (9,963) -- -- -- Issuance of 1,870,057 Treasury Common Shares on Conversion of Convertible Notes.............................. -- -- (22,365) -- (38,916) -- -- Issuance of 163,630 Preferred Shares on Conversion of 1,870,057 Common Shares............................. 164 -- 38,752 -- 38,916 -- -- Issuance of 1,154,218 Common Shares Under Stock Option and Restricted Stock Plans........................ -- 78 (10,628) -- (22,294) -- -- Acquisition of 4,827,637 Common Shares............................. -- -- -- -- 99,271 -- -- Dividends Declared on Preferred Stock -- $6.43 Per Share........... -- -- -- (2,000) -- -- -- Dividends Declared on Common Stock -- $0.59 Per Share.................... -- -- -- (45,612) -- -- -- Net Change in Deferred Compensation....................... -- -- -- -- -- (689 ) -- Net Change in Unrealized Securities Gains (Losses) Net of Taxes........ -- -- -- -- -- -- (47,930) Other................................ -- (3) 3,377 (19) 578 -- -- ---- -------- -------- -------- -------- ------ -------- Balance, December 31, 1994........... $ 349 $ 99,494 $194,697 $945,469 $143,438 $1,203 $(34,072) ==== ======== ======== ======== ======== ====== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. 35 36 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
NET UNREALIZED ADDITIONAL TREASURY DEFERRED SECURITIES PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- GAINS (LOSSES) STOCK STOCK CAPITAL EARNINGS STOCK SATION NET OF TAXES --------- ------- ---------- ---------- -------- ------- -------------- Balance, December 31, 1994..... $ 349 $99,494 $194,697 $ 945,469 $143,438 $1,203 $(34,072) Net Income..................... -- -- -- 193,299 -- -- -- Issuance of 2,844,144 Common Shares in Acquisitions Accounted for as Purchases... -- -- 904 -- (58,791) -- -- Issuance of 884,087 Common Shares Under Stock Option and Restricted Stock Plans....... -- -- (8,730) -- (18,427) -- -- Acquisition of 2,731,942 Common Shares....................... -- -- 1 -- 62,239 -- -- Dividends Declared on Preferred Stock -- $7.085 Per Share.... -- -- -- (2,472) -- -- -- Dividends Declared on Common Stock -- $0.645 Per Share.... -- -- -- (60,513) -- -- -- Net Change in Deferred Compensation................. -- -- -- -- -- (113 ) -- Net Change in Unrealized Securities Gains (Losses) Net of Taxes..................... -- -- -- -- -- -- 55,319 Other.......................... -- -- 3,415 6 -- -- -- ----- ------- -------- ---------- -------- ------ -------- Balance, December 31, 1995..... $ 349 $99,494 $190,287 $1,075,789 $128,459 $1,090 $ 21,247 ===== ======= ======== ========== ======== ====== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. 36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) Marshall & Ilsley Corporation ("M&I" or the "Corporation") is a bank and savings and loan holding company that provides financial services to a wide variety of corporate, institutional, government and individual customers through 28 banks and one savings association located in Wisconsin and one bank in Arizona. Based on total revenues, banking is M&I's largest business and includes personal property lease financing; investment management and advisory services; commercial and residential mortgage banking; venture capital and financial advisory services; trust services to residents of Wisconsin, Arizona and Florida; and brokerage services. M&I also provides financial and data processing services and software sales through the Data Services Division of the Corporation. 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 and Florida. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles 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 Marshall & Ilsley Corporation and all subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. Certain amounts in the 1994 and 1993 Consolidated Financial Statements have been reclassified to conform with the 1995 presentation. Cash and cash equivalents -- For purposes of the Consolidated Financial Statements, the Corporation defines 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. Investment Securities Held to Maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. Investment Securities Available for Sale are carried at fair value with fair value adjustments and the related income tax effects reported as a separate component of shareholders' equity as prescribed by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Short-term Investments, other than Trading Securities, are carried at cost, which approximates market value. Trading Securities are carried at market value, with adjustments to the carrying value reflected in the Consolidated Statements of Income. Loans -- Interest on loans, other than direct financing leases, is recognized as income based on the loan principal outstanding during the period. Unearned income on direct 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 balance outstanding. Allowance for loan losses -- The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated potential losses in the loan portfolio. Management's determination of the 37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) adequacy of the allowance is based on a continual review of the loan portfolio, loan loss experience, economic conditions, growth and composition of the portfolio, and other relevant factors. As a result of management's continual review, the allowance is adjusted through provisions for loan losses charged against income. Premises and equipment -- Premises and equipment are recorded at cost and depreciated principally on the straight-line method with annual rates varying from 2% to 10% for buildings and 10% to 35% for equipment. Maintenance and repairs are charged to expense and betterments are capitalized. Other real estate owned -- Other real estate owned includes assets that have been acquired in satisfaction of debts or bank branch premises held for sale. Other real estate is recorded at the lower of cost or 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 losses, whereas any valuation adjustments on premises are reported in other expense. Subsequent to transfer, other real estate owned is carried at the lower of cost or fair market 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. Mortgage servicing -- Normal fees related to the servicing of mortgage loans are recorded as income when payments are received from mortgagors. Mortgage loans held for sale to investors 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. Data processing services -- Direct costs associated with the production of computer software which will be marketed or used in data processing operations are capitalized and amortized on the straight-line method over the estimated economic life of the product, generally four years. Direct costs associated with customer system conversions to the data services operations are capitalized and amortized on the straight-line method over the terms, generally five to seven years, 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 are expensed as incurred. Net unamortized capitalized costs were $34,984 at December 31, 1995, and $21,696 at December 31, 1994. Amortization expense was $7,122, $6,960, and $4,668, for 1995, 1994, and 1993, respectively. Intangibles -- Unamortized intangibles resulting from acquisitions, primarily goodwill, core deposit premiums, purchased data processing contract rights and mortgage servicing rights were $77,376 at December 31, 1995 and $64,171 at December 31, 1994. The Corporation recognizes as separate assets rights to service mortgage loans when purchased or originated and sold with servicing retained in accordance with Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122) which was adopted by the Corporation in 1995. The Corporation allocates the cost of mortgage loans to the mortgage servicing rights and the loans based on their estimated relative fair values. Mortgage servicing rights are amortized over the periods during which the corresponding mortgage servicing revenues are anticipated to be generated. The Corporation periodically evaluates and measures impairment of capitalized mortgage servicing rights and recognizes impairment, if required, through a valuation allowance. For purposes of evaluating and measuring impairment, the Corporation stratifies the mortgage servicing rights based on loan term which the Corporation considers the predominant risk characteristic of the underlying loans. The impact of adopting SFAS 122 was not material and no valuation allowance was required for any individual stratum at December 31, 1995. Purchased data processing contract rights represent the costs to acquire the rights to data processing and software distribution. Such costs are generally amortized over the average contract lives, which range from 5 to 8 years. The other intangibles are amortized principally on the straight-line method over periods ranging from 6 to 25 years. Total amortization expense was $10,708, $9,176 and $7,204 for 1995, 1994 and 1993, respectively. The Corporation continually evaluates whether later events and circumstances have occurred to indicate that intangibles should be evaluated for possible impairment and utilizes estimates of undiscounted net income over the remaining life to measure recoverability. 38 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The Corporation also has negative goodwill included in other liabilities, the majority of which, arose from an acquisition in 1992. Negative goodwill amounted to $10,811 and $12,387 at December 31, 1995 and 1994, respectively. The negative goodwill is being accreted on a straight-line basis over a period of 10 years and amounted to $1,576 in 1995, 1994 and 1993. Foreign exchange contracts -- Foreign exchange contracts include such commitments as foreign currency spot, forward, future and, to a much lessor extent, option contracts. Foreign exchange contracts and the premiums on options written or sold are carried at market value, with realized and unrealized gains and losses included in other income. Net income per share -- Primary net income per share is computed using the weighted average number of common shares outstanding plus common equivalent shares issuable upon the assumed conversion of the preferred stock outstanding and shares issuable under outstanding stock option plans. The average number of common and common equivalent shares used in computing primary net income per share was 98,757,047 in 1995, 99,420,070 in 1994, and 102,672,361 in 1993. Fully diluted net income per share also includes dilution resulting from the assumed conversion of the convertible notes. The average number of shares used in the computation of fully diluted net income per share was 102,954,823 in 1995, 104,051,365 in 1994, and 108,874,600 in 1993. 2. BUSINESS COMBINATIONS On May 31, 1994, Valley Bancorporation ("Valley") merged with and into the Corporation in a tax-free reorganization accounted for as a pooling of interests. Accordingly, prior year financial statements have been restated to give effect to this transaction. In accordance with the terms of the merger, each share of Valley Common Stock was converted into the right to receive 1.72 shares of the Corporation's Common Stock (approximately 35.7 million shares). A reconciliation of net interest income and net income of the Corporation as previously reported to the amounts for that period in the accompanying Consolidated Financial Statements as restated for the 1994 pooling of interests is as follows:
1993 -------- Net Interest Income: Corporation, as previously reported..................................... $309,178 Valley Bancorporation................................................... 171,101 -------- Combined.................................................................. $480,279 ======== Net Income: Corporation, as previously reported..................................... $125,491 Valley Bancorporation................................................... 45,903 -------- Combined.................................................................. $171,394 ========
39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The Corporation has also consummated the following business combinations:
CONSIDERATION DATE ------------------------ METHOD OF ORGANIZATION CONSUMMATED CASH COMMON STOCK ACCOUNTING - ------------------------------------ ------------------ ------- ------------ ---------- Pierce County Bank and Trust Co. ... November 6, 1993 $14,678 -- Purchase Software Alliance Corp. ............ December 30, 1994 15,700 -- Purchase Bank of Burlington.................. February 1, 1995 -- 1,491,600 Purchase Mutual Services, Inc. .............. June 27, 1995 5,333 -- Purchase Citizens Bancorp of Delavan, Inc. ............................. July 1, 1995 -- 1,132,544 Purchase Sharon State Bank................... July 2, 1995 -- 220,000 Purchase
The results of operations for the acquired companies accounted for as purchases are included in the Consolidated Financial Statements from the dates of acquisition. The pro forma impact on net income from acquisitions is not material. 3. MERGER/RESTRUCTURING Certain one-time expenses associated with the 1994 merger with Valley are shown in the Consolidated Statements of Income as Merger/Restructuring and consist of the following: Executive contracts........................................................ $26,371 Employee severance costs................................................... 14,775 Duplicative computer and software write-offs............................... 12,741 System conversion and standardization costs................................ 2,888 Investment advisor fees.................................................... 3,420 Legal, accounting and other professional fees.............................. 3,826 Lease terminations and equipment disposals................................. 4,232 Net gain on sale of duplicative facilities and voluntary divestitures...... (1,334) Other...................................................................... 8,309 ------- Total merger/restructuring....................................... $75,228 =======
The executive contracts accrual was the present value of the amounts contractually due to certain Valley executives under their former employment contracts. During 1995 and 1994, payments of $0.2 million and $10.2 million respectively, were made. Employee severance costs represented the planned general reduction in work force resulting from the merger and restructuring activities which affected all employee groups. Approximately $8.6 million of severance costs were paid in 1994 and the remainder was substantially paid in 1995. Duplicative computer and software write-offs were the capitalized costs of Valley's own internal data processing center which was closed. System conversion and standardization costs represent the costs associated with the one-time conversion and standardization of Valley's records to the Corporation's data processing systems. Investment advisors and legal, accounting and other professional fees represent fees paid to consummate the merger. Lease terminations and equipment disposals represent the costs to terminate branch office and other corporate facilities leases, equipment leases and the disposal of equipment. Net gain on sale of duplicative facilities and voluntary divestitures represents the gain or loss from the sale of duplicative branch offices and other corporate facilities which were owned. The Corporation voluntarily 40 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) divested four bank branches with deposits of approximately $34 million and certain portions of its insurance agencies. Other charges include the one-time expenses associated with the curtailment of certain Valley defined benefit plans, approximately $3.3 million, costs to eliminate duplicate customer accounts, unusable capitalized inventory, and other costs not deemed to be realizable due to the merger. There have not been any material adjustments to the liabilities subsequent to the initial recognition which occurred during the second quarter of 1994. 4. EXTRAORDINARY ITEMS During the third and fourth quarters of 1994, the Corporation realized extraordinary gains from the sale of certain bank branches with deposits of $267 million which were required to be divested in conjunction with the regulatory approvals obtained for the merger with Valley. During the third quarter of 1994, the Corporation prepaid $53 million of Valley's long-term debt consisting of the senior unsecured notes, Series A 9.86% due in 1994 and Series B 9.97% due in 1995. In accordance with the note agreements, a prepayment premium was paid in connection with the early retirement of the debt. The debt was refinanced with the Corporation's medium-term notes. The following table summarizes these 1994 transactions:
EARNINGS PER SHARE INCOME INCREASE (DECREASE) GROSS TAX NET ------------------- GAIN EXPENSE GAIN FULLY (LOSS) (BENEFIT) (LOSS) PRIMARY DILUTED ------- --------- ------- ------- ------- Required Divestitures.............. $22,034 $ 9,527 $12,507 $ 0.13 $ 0.12 Debt Prepayment.................... (1,484) (519) (965) (0.01) (0.01) ------- ------ ------- ------ ------ $20,550 $ 9,008 $11,542 $ 0.12 $ 0.11 ======= ====== ======= ====== ======
5. CASH AND DUE FROM BANKS At December 31, 1995, $133,652 of cash and due from banks was restricted, primarily due to requirements of the Federal Reserve System to maintain certain reserve balances. 6. OTHER SHORT-TERM INVESTMENTS Other short-term investments at December 31 were:
1995 1994 ------- ------- Commercial paper................................................. $65,250 $15,270 Interest bearing deposits in other banks......................... 28,812 28,249 U.S. Treasury Bills.............................................. 1,573 -- ------- ------- Total other short-term investments..................... $95,635 $43,519 ======= =======
41 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) 7. SECURITIES The book and market values of securities at December 31 were:
1995 1994 ------------------------- ------------------------- AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ---------- ---------- ---------- ---------- Investment Securities Held to Maturity: U.S. Treasury and government agencies............................ $ -- $ -- $ 134,080 $ 129,737 States and political subdivisions...... 446,113 448,896 290,483 284,885 Other.................................. 4,344 4,344 4,893 4,899 ---------- ---------- ---------- ---------- Total.......................... $ 450,457 $ 453,240 $ 429,456 $ 419,521 ========== ========== ========== ========== Investment Securities Available for Sale: U.S. Treasury and government agencies............................ $2,330,577 $2,346,866 $1,836,476 $1,772,883 States and political subdivisions...... 885 894 -- -- Mortgage backed securities............. 5,210 5,220 12,099 11,759 Other.................................. 88,826 105,620 69,541 80,505 ---------- ---------- ---------- ---------- Total.......................... $2,425,498 $2,458,600 $1,918,116 $1,865,147 ========== ========== ========== ==========
The unrealized gains and losses of securities at December 31 were:
1995 1994 ------------------------- ------------------------- UNREALIZED UNREALIZED UNREALIZED UNREALIZED GAINS LOSSES GAINS LOSSES ---------- ---------- ---------- ---------- Investment Securities Held to Maturity: U.S. Treasury and government agencies........ $ -- $ -- $ -- $ 4,343 States and political subdivisions............ 4,473 1,690 1,501 7,099 Other........................................ -- -- 8 2 ------- ------ ------- ------- Total................................ $ 4,473 $1,690 $ 1,509 $ 11,444 ======== ====== ======== ======== Investment Securities Available for Sale: U.S. Treasury and government agencies........ $ 23,964 $7,675 $ 120 $ 63,713 States and political subdivisions............ 9 -- -- -- Mortgage backed securities................... 33 23 14 354 Other........................................ 17,237 443 11,003 39 ------- ------ ------- ------- Total................................ $ 41,243 $8,141 $ 11,137 $ 64,106 ======== ====== ======== ========
42 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The book value and market value of securities by contractual maturity at December 31, 1995 were:
INVESTMENT SECURITIES INVESTMENT SECURITIES HELD TO MATURITY AVAILABLE FOR SALE ---------------------- ------------------------- AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE --------- -------- ---------- ---------- Within one year............................. $ 96,883 $ 97,053 $ 669,085 $ 669,797 From one through five years................. 158,962 159,980 1,676,312 1,691,060 From five through ten years................. 185,273 186,563 9,497 9,858 After ten years............................. 9,339 9,644 70,604 87,885 -------- -------- ---------- ---------- Total............................. $ 450,457 $453,240 $2,425,498 $2,458,600 ========= ======== ========== ==========
The gross realized gains and losses amounted to $8,821 and $4,266 in 1995, $3,499 and $9,251 in 1994, and $8,552 and $218 in 1993, respectively. At December 31, 1995, securities with a value of approximately $364,340 were pledged to secure public deposits, short-term borrowings, and for other purposes required by law. During 1995, approximately $455 million of adjustable rate mortgage loans were securitized and transferred to investment securities available for sale. Approximately $2,275 of the allowance for loan losses was transferred to a specific investment reserve to cover estimated losses based on the Corporation's experience with these types of financial instruments. The Corporation has agreed to guarantee the first 4% of the loan pools securitized through a government agency against potential loss. These are noncash transactions for purposes of the Consolidated Statements of Cash Flows. On December 1, 1995, the Corporation transferred and reclassified approximately $182.8 million of investment securities previously classified as held to maturity to available for sale after reassessing the appropriateness of the classification of all investment securities held at that time in accordance with SFAS 115 and the Financial Accounting Standards Board's, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." 8. LOANS Loans at December 31 were:
1995 1994 ---------- ---------- Commercial, financial, and agricultural..................... $2,903,920 $2,644,928 Industrial development revenue bonds........................ 29,358 31,796 Real estate: Construction.............................................. 303,345 378,316 Residential mortgage...................................... 2,002,023 2,240,287 Commercial mortgage....................................... 2,189,449 2,062,022 Personal.................................................... 1,163,127 1,178,453 Lease financing............................................. 277,680 256,690 ---------- ---------- Total loans....................................... $8,868,902 $8,792,492 ========== ==========
The Corporation's lending activities are concentrated primarily in the Midwest. Approximately 3% of its portfolio consists of loans granted to customers located in Arizona. The Corporation had $3,103 in foreign credits at December 31, 1995. The Corporation's loan portfolio consists of business loans extending across many industry types, as well as loans to individuals. As of December 31, 1995, total loans to any group of 43 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) customers engaged in similar activities and having similar economic characteristics, as defined by standard industrial classifications, did not exceed 10% of total loans. The Corporation evaluates the credit risk of each customer 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 guaranties, and general security agreements. Access to collateral is dependent upon the type of collateral obtained. On an on-going basis, the Corporation monitors its collateral and the collateral value related to the loan balance outstanding. An analysis of loans outstanding to directors and officers, including their related interests, of the Corporation and its significant subsidiaries for 1995 is presented below. 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 and directors and executive officers of subsidiaries previously not considered significant. Loans to Directors & Executive Officers: Balance, beginning of year............................................... $ 146,102 New loans................................................................ 104,675 Repayments............................................................... (106,742) --------- Balance, end of year..................................................... $ 144,035 =========
9. ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses follows:
1995 1994 1993 -------- -------- -------- Balance, beginning of year......................... $153,961 $133,600 $123,805 Allowance of banks acquired........................ 2,843 -- 1,167 Provision charged to expense....................... 16,158 24,907 18,034 Loan securitization transfer....................... (2,275) -- -- Charge-offs........................................ (14,615) (12,561) (17,466) Recoveries......................................... 5,358 8,015 8,060 -------- -------- -------- Balance, end of year............................... $161,430 $153,961 $133,600 ======== ======== ========
As of December 31, 1995, and 1994, nonaccrual loans totalled $50,598 and $44,766, respectively. During the second quarter of 1994, a loan loss provision of $8,950 was charged to expense, after consummation of the merger with Valley, to conform Valley's loan valuation policies with those of the Corporation. In May 1993 and October 1994, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, an amendment to SFAS No. 114 (collectively "SFAS 114"). These new standards require that a loan's value be measured, and if appropriate, a valuation reserve established, when it has been determined that 44 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) the loan is impaired and loss is probable. At December 31, 1995 the Corporation's recorded investment in impaired loans and the related valuation allowance are as follows:
RECORDED VALUATION INVESTMENT ALLOWANCE ---------- --------- Total impaired loans and leases (Nonaccrual and renegotiated)................................................ $ 53,685 Loans and leases excluded from evaluation under SFAS 114....... (22,887) --------- $ 30,798 ========= Valuation allowance required................................... $ 8,643 $ 2,336 No valuation allowance required................................ 22,155 -- --------- ------- Impaired loans evaluated....................................... $ 30,798 $ 2,336 ========= =======
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 writedowns of $4,325 against the loan balance outstanding. The required valuation allowance is included in the allowance for loan losses in the consolidated balance sheet at December 31, 1995. The average recorded investment in total impaired loans and leases for the year ended December 31, 1995 amounted to $52,827. 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. During 1995, interest income recognized on total impaired loans amounted to $3,594. The gross income that would have been recognized had such loans and leases been performing in accordance with their original terms would have been $8,430 for the same period. 10. PREMISES AND EQUIPMENT The composition of premises and equipment at December 31 was:
1995 1994 -------- -------- Land........................................................... $ 37,006 $ 37,894 Buildings and leasehold improvements........................... 250,607 246,679 Furniture and equipment........................................ 315,961 288,507 -------- -------- 603,574 573,080 Less accumulated depreciation.................................. 296,586 286,645 -------- -------- Total premises and equipment......................... $306,988 $286,435 ======== ========
Depreciation expense was $45,153 in 1995, $43,006 in 1994, and $42,417 in 1993. The Corporation leases certain of its facilities and equipment. Rent expense under such operating leases was $21,702 in 1995, $20,567 in 1994, and $20,420 in 1993, respectively. The future minimum lease payments under operating leases that have initial or remaining noncancellable lease terms in excess of one year for 1996 through 2000 are $9,124, $8,770, $8,146 $7,132 and $4,884, respectively. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard, which must be adopted in 1996, requires long-lived impaired assets 45 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) to be carried at fair value and all long-lived assets to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell. SFAS 121 prescribes a cash flow test for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of SFAS 121, assets include certain identifiable intangibles and goodwill if the asset tested for recoverability was acquired in a business combination accounted for using the purchase method. The Corporation does not anticipate that SFAS 121 will have a material impact on the consolidated financial statements. 11. SHORT-TERM BORROWINGS Short-term borrowings at December 31 were:
1995 1994 ---------- ---------- Funds purchased and security repurchase agreements.......... $ 517,576 $ 944,843 U.S. Treasury demand notes.................................. 17,585 29,976 Commercial paper............................................ 41,571 74,526 Current maturities of long-term borrowings.................. 398,688 37,286 Other....................................................... 39,602 24,511 ---------- ---------- Total short-term borrowings....................... $1,015,022 $1,111,142 ========== ==========
Unused lines of credit primarily to support commercial paper borrowings were $40,000 at December 31, 1995 and 1994. 12. LONG-TERM BORROWINGS Long-term borrowings at December 31 were:
1995 1994 -------- -------- CORPORATION: 8.5% convertible subordinated notes due in 1997................ $ 33,637 $ 33,637 6.375% subordinated notes due in 2003.......................... 99,475 99,422 Medium-term Series B and C notes............................... 170,200 183,700 Mortgage....................................................... 35 65 Other.......................................................... 20,923 7,747 SUBSIDIARIES: Bank notes..................................................... 438,823 308,638 Nonrecourse notes.............................................. 32,533 33,043 Mortgages...................................................... 1,812 3,021 9.75% obligation under capital lease due through 2006.......... 4,699 4,939 Other.......................................................... 19,101 16,851 -------- -------- 821,238 691,063 Less current maturities........................................ 398,688 37,286 -------- -------- Total long-term borrowings........................... $422,550 $653,777 ======== ========
46 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The 8.5% convertible subordinated notes (the "Notes") require semi-annual interest payments and are convertible at the option of the holder into common stock at a conversion price of $8.75. The holder has the right to exchange common stock, acquired by conversion of the Notes or otherwise, for Series A convertible preferred stock ("Series A"). The holder may own up to 24.9% (computed as the percentage of common shares owned directly or indirectly through conversion privileges) of the Corporation's outstanding common stock and convertible securities, but may not own directly more than 5% of the Corporation's outstanding common stock. Except under limited circumstances, the holder may not sell, transfer or otherwise dispose of the Notes or common stock acquired by conversion, and then, only under prescribed conditions and subject to the Corporation's right of first refusal. A portion of the Notes qualify as equity contract notes as defined by the applicable guidelines of the Board of Governors of the Federal Reserve System. The Notes require the holder to take common stock (or other equity securities) in lieu of cash in satisfaction of the claim for principal repayment, unless the Corporation sells new common stock (or certain other equity securities) and dedicates the proceeds thereof to the redemption or retirement of the Notes. During 1994, $16,363 of the Notes were converted by the holder into 1,870,057 shares of the Corporation's common stock. The common stock acquired by conversion of the Notes was exchanged for 163,630 shares of the Corporation's Series A convertible preferred stock. These are noncash transactions for purposes of the Consolidated Statements of Cash Flows. The 6.375% subordinated notes are not redeemable prior to maturity and qualify as "Tier 2" or supplementary capital for regulatory capital purposes. Interest is payable semiannually. The Corporation has filed registration statements with the Securities and Exchange Commission to issue medium-term unsecured and unsubordinated series notes. These issues may have maturities which range from 9 months to 30 years from the date of issue, at a fixed or floating rate. At December 31, 1995, medium-term Series B notes outstanding amounted to $47,330. Such notes mature in 1996 through 1998 and have fixed interest rates of 6.05% to 8.65%. No additional borrowings may occur under the Series B notes. There were $122,870 of medium-term Series C notes outstanding at December 31, 1995. The medium-term Series C notes have fixed interest rates of 6.74% to 7.84% and mature in 1996 and 1997. Approximately $27,130 of unissued Series C notes are remaining and available to be issued in the future. There have been no issuances of the $150 million Series D notes. The bank notes represent unsecured general obligations of the Corporation's banking subsidiaries ("Issuing Banks"). Each of the Corporation's banking subsidiaries is a potential Issuing Bank which may issue bank notes with maturities ranging from 30 days to 15 years at a fixed or floating rate up to a maximum of $1.0 billion aggregate principal amount outstanding at any time. The bank notes are offered through certain designated agents and are offered and sold only to institutional investors. The bank notes are sole obligations of the respective Issuing Banks and are not obligations of or guaranteed by the Corporation. The amount outstanding at December 31, 1995 represents the aggregate borrowings of 14 banking subsidiaries and mature at various times in 1996 and 1997. Each bank note outstanding has a floating rate which is based on LIBOR plus 1/16 which ranged from 5.81% to 6.00% at December 31, 1995. Interest is payable and the interest rate is reset monthly. The nonrecourse notes are reported net of prepaid interest and represent borrowings by the leasing subsidiary from banks and other financial institutions. These notes have a weighted average interest rate of 8.65% at December 31, 1995 and are due in installments over varying periods through 2001. Lease financing receivables at least equal to the amount of the notes are pledged as collateral. The mortgages are secured by land and buildings with a net book value of $8,650 at December 31, 1995. 47 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) Scheduled maturities of long-term borrowings are: $296,756, $14,116, $6,273 and $975 for 1997 through 2000, respectively. 13. SHAREHOLDERS' EQUITY The Corporation has 5,000,000 shares of preferred stock authorized, of which the Board of Directors has designated 3,000,000 shares as Series A convertible, with a $100 value per share for conversion 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. Series A has the same restrictions on sale as are applicable to the 8.5% convertible subordinated notes. The holder of the 8.5% convertible subordinated notes has the option through 1997 to exchange common stock of the Corporation for Series A. If the common stock is acquired by the holder in conversion of the notes, the exchange ratio is one share of Series A for 11.43 shares of common stock. If acquired otherwise, the exchange ratio is one share of Series A, valued at $100, to the holder's weighted average purchase price per common share. Also, the holder has the option to convert Series A into common stock at the same ratio that the common stock was exchanged for Series A. The Corporation has issued 348,944 shares of its Series A convertible preferred stock in exchange for 3,832,957 shares of common stock. The preferred stock is treated as a common stock equivalent in all per share calculations. The Corporation has a Stock Repurchase Program which was approved by the Corporation's Board of Directors in April, 1993 and reaffirmed in October, 1994. In October 1994, the Board of Directors also authorized an increase in the number of shares to be repurchased from 9.0 million shares to 15.1 million shares. The shares are being acquired in anticipation of the conversion of the Corporation's 8.5% convertible subordinated notes, to fund the on-going program to deliver or have available shares of common stock for stock option and other employee benefit plans and other corporate needs. During 1995, the Corporation purchased 2.7 million shares and has cumulatively purchased 12.5 million shares since inception of the program. 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, 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%. 48 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The Corporation's risk-based capital and leverage ratios are as follows:
RISK-BASED CAPITAL RATIOS AS OF DECEMBER 31, 1995 ------------------------- AMOUNT RATIO -------- ------ ($ IN MILLIONS) Tier 1 capital............................................. $1,167.5 11.71% Tier 1 capital minimum requirement......................... 398.7 4.00 -------- ----- Excess..................................................... $ 768.8 7.71% ======== ===== Total capital.................................... $1,399.3 14.04% Total capital minimum requirement.......................... 797.3 8.00 -------- ----- Excess..................................................... $ 602.0 6.04% ======== ===== Risk-adjusted assets............................. $9,965.8
LEVERAGE RATIO AS OF DECEMBER 31, 1995 --------------------------- AMOUNT RATIO ------------ ---------- ($ IN MILLIONS) Tier 1 capital to adjusted total assets................... $ 1,167.5 9.07% Minimum leverage requirement.............................. 386.3-643.8 3.00-5.00 ------------ --------- Excess.................................................... $781.2-523.7 6.07-4.07% ============ ========= Adjusted average total assets................... $ 12,875.3
All of the Corporation's banking subsidiaries' risk-based capital and leverage ratios meet or exceed the defined minimum requirements. 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, 1995, the retained earnings of subsidiaries available for distribution as dividends without regulatory approval was approximately $131,998. 14. INCOME TAXES Total income tax expense for the years ended December 31, 1995, 1994 and 1993 was allocated as follows:
1995 1994 1993 -------- -------- ------- Income before extraordinary items................... $106,580 $ 73,405 $93,190 Extraordinary items................................. -- 9,008 -- Shareholders' Equity: Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes....................................... (3,415) (3,442) (8,154) Unrealized gains (losses) on investment securities available for sale............................. 30,752 (18,897) -- -------- -------- ------- $133,917 $ 60,074 $85,036 ======== ======== =======
49 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The current and deferred portions of the provision for income taxes were:
1995 1994 1993 -------- -------- ------- Current: Federal........................................... $ 91,233 $ 80,758 $81,561 State............................................. 13,900 12,686 14,746 -------- -------- ------- 105,133 93,444 96,307 Deferred: Federal........................................... 1,826 (21,075) (3,412) State............................................. (379) 1,036 295 -------- -------- ------- 1,447 (20,039) (3,117) -------- -------- ------- Total provision for income taxes.......... $106,580 $ 73,405 $93,190 ======== ======== =======
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%):
1995 1994 1993 -------- ------- ------- Tax computed at statutory rates...................... $104,958 $58,731 $92,604 Increase (decrease) in taxes resulting from: Federal tax-exempt income.......................... (5,972) (5,972) (7,714) State income taxes, net of Federal tax benefit..... 9,891 10,605 9,832 Adjustment to deferred tax assets/liabilities for an enacted change in tax rate................... -- -- (469) Merger/Restructuring............................... -- 7,191 -- Other.............................................. (2,297) 2,850 (1,063) -------- ------- ------- Total provision for income taxes........... $106,580 $73,405 $93,190 ======== ======= =======
50 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) 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:
1995 1994 ------- ------- Deferred tax assets: Deferred compensation.......................................... $ 9,396 $ 8,170 Allowance for loan losses...................................... 48,523 43,537 Accrued postretirement benefits................................ 16,384 14,275 Unrealized gains and losses.................................... -- 18,897 Other.......................................................... 25,512 26,504 ------- ------- Total deferred tax assets.............................. 99,815 111,383 Deferred tax liabilities: Lease revenue reporting........................................ 19,988 20,683 Deferred expense, net of unearned income....................... 9,724 5,563 Premises and equipment, principally due to depreciation........ 18,720 17,683 Pension funding versus expense................................. 1,067 1,833 Purchase accounting adjustments................................ 3,303 336 Unrealized gains and losses.................................... 11,855 -- Other.......................................................... 8,209 6,122 ------- ------- Total deferred tax liabilities......................... 72,866 52,220 ------- ------- Net deferred tax assets................................ $26,949 $59,163 ======= =======
The amount of income tax expense (benefit) related to net securities gains or losses amounted to $1,762, ($2,171) and $3,103, in 1995, 1994, and 1993, respectively. 15. STOCK OPTION AND RESTRICTED STOCK PLANS The Corporation has Executive Stock Option and Restricted Stock Plans which provide for the grant of nonqualified and incentive stock options, stock appreciation rights and rights to purchase restricted shares to key employees at prices ranging from not less than the par value of the common shares to the fair market value of the shares at the date of grant. 51 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) Activity relating to common stock options was:
NUMBER OPTION PRICE OF SHARES PER SHARE ---------- -------------- Shares under option at December 31, 1993................. 6,395,435 $ 4.02-23.25 Options granted.......................................... 1,091,800 19.25-21.75 Options lapsed or surrendered............................ (29,889) 5.39-22.75 Options exercised........................................ (1,151,218) 4.02-19.50 ---------- -------------- Shares under option at December 31, 1994................. 6,306,128 $ 4.02-23.25 Options granted.......................................... 741,700 20.25-26.19 Options lapsed or surrendered............................ (34,275) 8.54-22.75 Options exercised........................................ (858,087) 4.02-22.75 ---------- -------------- Shares under option at December 31, 1995................. 6,155,466 $ 4.47-26.19 ========== ==============
Options exercisable at December 31, 1995 and 1994, were 4,949,541 and 4,825,426, respectively. Shares reserved for the granting of additional options at December 31, 1995 were 1,735,961. There were 5,000 restricted stock purchase rights outstanding at December 31, 1995 and 13,000 restricted stock purchase rights outstanding at December 31, 1994. During 1995, 26,000 stock purchase rights were exercised and 3,000 purchase rights were exercised in 1994. Restrictions on stock issued pursuant to the exercise of stock purchase rights lapse within a seven-year period. Accordingly, the compensation related to issuance of the rights is deferred and amortized over the vesting period. Unamortized deferred compensation is reflected as a reduction of shareholders' equity. Aggregate compensation expense related to stock purchase rights was $611, $747, and $1,008 in 1995, 1994, and 1993, respectively. The Corporation also has a Long-term Incentive Plan (the "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 an amount, either in cash, common stock or some combination thereof, equal to some percent (0%-275%) of the initial performance units credited plus those additional units credited as dividends based on the established performance criteria. During 1995, 91,700 units and in 1994, 156,500 units were awarded to certain executives of the Corporation. The vesting period is three years from the date the performance units were awarded. Based on the performance criteria, without regard to the vesting, no amount would be due to the participants at December 31, 1995. In October, 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." This standard, which must be adopted in 1996, establishes financial accounting and reporting standards for stock-based employee compensation plans such as stock options, restricted stock plans and stock appreciation rights. SFAS 123 defines a fair value based method of accounting for employee stock option or similar equity instruments. Under the fair value based method, 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 is recognized over the service period, which is usually the vesting period. 52 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) Currently compensation cost is measured and accounted for using the intrinsic value based method of accounting prescribed in Accounting Principles Board Opinion No. 25 (APBO 25), "Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is 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 largest difference between SFAS 123 and APBO 25 as it relates to the Corporation is the amount of compensation cost attributable to the Corporation's fixed stock option plans. Under APBO 25, no compensation cost is recognized for fixed stock option plans because the exercise price is equal to the quoted market price at the date of grant and therefore, there is no intrinsic value. SFAS 123 compensation cost would equal the fair value of the options granted. This standard permits entities to continue to measure compensation cost for such plans using the accounting method prescribed by APBO 25 as long as pro forma disclosures of net income and earnings per share are presented as if the fair value based method of accounting as defined in SFAS 123 had been applied. The Corporation has not yet determined whether it will adopt the SFAS 123 method of accounting or continue APBO 25 accounting with the required disclosures. However, based on the fixed stock option grants in 1995, the impact of adopting the SFAS 123 accounting would be immaterial to the consolidated financial statements. 16. EMPLOYEE RETIREMENT AND HEALTH PLANS The Corporation has a defined contribution retirement plan and an incentive savings 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, a profit sharing amount may also be contributed and may vary from year to year up to a maximum of 6% of eligible compensation. Under the incentive savings plan, employee contributions, 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 $23,883, $21,631 and $17,771 in 1995, 1994 and 1993, 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 $1,023 in 1995, $910 in 1994, and $2,703 in 1993. Valley maintained a trusteed defined benefit retirement plan which covered substantially all its employees. Upon consummation of the merger in 1994, the plan was curtailed and in 1995, was fully terminated through cash distributions and/or purchases of annuities. The following table reflects the plan's funded status and amounts recognized in the financial statements at December 31:
1994 ------- Actuarial present value of benefit obligations: Vested benefit obligation................................................ $34,680 Nonvested benefit obligation............................................. 520 ------- Accumulated/Projected benefit obligation................................... 35,200 Plan assets at fair value.................................................. 43,913 ------- Plan assets greater than projected benefit obligations..................... 8,713 Unrecognized net gain...................................................... (2,855) Unrecognized net asset..................................................... (1,534) ------- Prepaid pension cost....................................................... $ 4,324 =======
53 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) The net pension cost for 1994 and 1993, included the following components:
1994 1993 ------- ------- Service cost..................................................... $ 2,011 $ 3,361 Interest cost.................................................... 3,393 3,283 Actual return on plan assets..................................... (777) (2,885) Net amortization and deferral.................................... (2,279) (416) ------- ------- Net periodic pension cost before curtailment and termination..... 2,348 3,343 Curtailment...................................................... 2,301 -- ------- ------- Total expense.......................................... $ 4,649 $ 3,343 ======= =======
During 1995, expense of $1,789 was recorded in conjunction with the termination of the Valley plan. The expense associated with the curtailment is classified as Merger/Restructuring and the termination expense is included in salaries and employee benefits in the Consolidated Statements of Income. The following assumptions were used in determining the projected benefit obligation:
1994 ---- Discount rate................................................................. 8.25% Expected long-term rate of return on assets................................... 7.00%
The Corporation sponsors a defined benefit health plan that provides health care benefits to all eligible current and retired employees. The plan is contributory, with contributions adjusted periodically such that participants contribute approximately 40% of the cost of health care benefits. The plan also contains other cost-sharing features such as deductibles and coinsurance. Retiree eligibility is dependent upon age, years of service, and participation in the health plan during active service. The plan is not funded. Valley provided postretirement health care benefits to retired employees. These benefits were subject to deductibles, copayment provisions and other limitations. Only those employees retiring on or before December 31, 1994 were eligible for such benefits. As part of the merger, all former Valley employees became eligible to participate in the Corporation's postretirement health plan. The Corporation did not recognize years of service with Valley prior to the merger. The components of the accumulated postretirement benefit obligation (APBO) reconciled with the amount recognized in the Corporation's Consolidated Balance Sheets at December 31, were:
1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees....................................................... $16,022 $17,541 Fully eligible active plan participants........................ 9,424 8,187 Active plan participants....................................... 19,434 13,890 ------- ------- 44,880 39,618 Unrecognized loss................................................ (6,152) (5,836) ------- ------- Accrued postretirement benefit cost.............................. $38,728 $33,782 ======= ======= Weighted average discount rate used in determining APBO.......... 7.50% 8.25% ======= =======
54 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) Net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 includes the following components:
1995 1994 1993 ------ ------ ------ Service cost............................................. $2,130 $2,510 $1,385 Interest on APBO......................................... 3,236 2,950 2,279 Net amortization and deferral............................ 127 617 -- ------ ------ ------ $5,493 $6,077 $3,664 ====== ====== ======
For measurement purposes, the assumed health care cost trend rate was 11% and 12% in 1995 and 1994, respectively, and gradually declines to 5.5% in the year 2022. The health care cost trend rate assumption has a significant effect on the amounts reported. An increase in the assumed health care cost trend rate of one percentage point would increase the APBO at December 31, 1995 by $7,569 and increase 1995 postretirement benefit expense by $564. 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Financial instruments with off-balance sheet risk at December 31 were:
1995 1994 ---------- ---------- Financial instruments whose amounts represent credit risk: Commitments to extend credit: To commercial customers................................ $3,912,442 $2,585,065 To individuals......................................... 818,888 634,350 Standby letters of credit, net of participations.......... 280,750 332,142 Commercial letters of credit.............................. 17,342 26,278 Mortgage loans sold with recourse......................... 4,926 6,145 Financial instruments whose amounts exceed the amount of credit risk: Foreign exchange contracts: Commitments to purchase foreign exchange............... 133,236 148,832 Commitments to deliver foreign exchange................ 136,373 151,135 Options written/purchased.............................. 1,504 6,714
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 8. Standby and commercial letters of credit are contingent commitments issued by the Corporation to support the financial obligations of a customer to a third party. Standby letters of credit are issued to support 55 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) public and private financing, and other financial or performance obligations of customers. 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. Mortgage loans sold with recourse are pools of residential mortgage loans sold to government agencies subject to certain underwriting requirements. If the loans do not meet the underwriting requirements of the government agencies, the Corporation may be required to reacquire the loans. 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. The Corporation's market risk from unfavorable movements in currency exchange rates is minimized by essentially matching commitments to deliver foreign currencies with commitments to purchase foreign currencies. At December 31, 1995, the Corporation's foreign currency positions resulting from foreign exchange contracts by major currency was as follows ($000's US):
COMMITMENTS COMMITMENTS TO DELIVER TO PURCHASE FOREIGN FOREIGN EXCHANGE EXCHANGE ----------- ----------- CURRENCY Deutsche Mark.............................................. $ 42,232 $ 42,113 French Franc............................................... 32,311 32,242 English Pound Sterling..................................... 20,414 20,278 Japanese Yen............................................... 18,205 16,714 Canadian Dollars........................................... 14,450 13,764 Spanish Peseta............................................. 2,830 2,788 All Other.................................................. 5,931 5,337 --------- --------- Total............................................ $ 136,373 $ 133,236 ========= ========= Average Amount of Contracts To Deliver/Purchase Foreign Exchange................................................. $ 242,030 $ 238,839 ========= =========
These amounts do not represent the actual credit or market exposure. 56 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The book values and estimated fair values for on and off-balance sheet financial instruments as of December 31, 1995 and 1994 are reflected below: BALANCE SHEET FINANCIAL INSTRUMENTS ($ IN MILLIONS)
1995 1994 --------------------- ------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE --------- --------- -------- -------- Financial Assets: Cash and short-term investments............. $ 993.1 $ 993.1 $1,011.4 $1,011.4 Trading securities.......................... 38.6 38.6 20.4 20.4 Investment securities held to maturity...... 450.5 453.2 429.5 419.5 Investment securities available for sale.... 2,458.6 2,458.6 1,865.1 1,865.1 Net loans................................... 8,707.5 8,930.0 8,638.5 8,668.6 Interest receivable......................... 96.8 96.8 85.9 85.9 Financial Liabilities: Deposits.................................... 10,280.8 10,355.3 9,499.1 9,494.3 Short-term borrowings....................... 616.3 616.3 1,073.9 1,073.9 Long-term borrowings: Convertible debt......................... 33.6 100.0 33.6 73.0 Other long-term borrowings............... 787.6 796.9 657.4 639.6 Interest payable............................ 72.1 72.1 44.7 44.7
Where readily available, quoted market prices were utilized by the Corporation. If quoted market prices were not available, fair values were based on estimates using present value or other valuation techniques. These techniques were 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 in immediate settlement of the instrument. SFAS 107 excludes 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 Corporation. The following methods and assumptions were used in estimating the fair value for financial instruments. CASH AND SHORT-TERM INVESTMENTS The carrying amounts reported for cash and short-term investments approximates the fair values for those assets. TRADING AND INVESTMENT SECURITIES Fair value is based on quoted market prices or dealer quotes. See Note 7, Securities, for additional information. LOANS Loans that reprice or mature within three months of December 31 were assigned fair values based on their book value. Market values were used on performing loans where available. Most remaining loan balances 57 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) were assigned fair values based on a discounted cash flow analysis. The discount rate was based on the treasury yield curve, with rate adjustments for credit quality, cost and profit factors. DEPOSITS The fair value for demand deposits or any interest bearing deposits with no fixed maturity date was considered to be equal to the carrying value. Time deposits with defined maturity dates were considered to have a fair value equal to the book value if the maturity date was within three months of December 31. The remaining time deposits were assigned fair values based on a discounted cash flow analysis using discount rates which approximate interest rates currently being offered on time deposits with comparable maturities. BORROWINGS Short-term borrowings are carried at cost which approximates fair value. The Corporation has convertible debt (see Note 12) for which fair value was considered to be the current market value of the shares that would be issued in a full conversion. Other long-term debt was generally valued using a discounted cash flow analysis with a discount rate based on current incremental borrowing rates for similar types of arrangements or, if not readily available, based on a build up approach similar to that used for loans and deposits. Long-term borrowings include their related current maturities. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS ($ IN MILLIONS) Fair values of loan commitments and 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.
1995 1994 ---- ---- Loan commitments...................................................... $1.5 $1.2 Letters of credit..................................................... 2.2 2.7
Foreign exchange contracts are carried at market value (U.S. dollar equivalent of the underlying contract). The fair value of options written/purchased are based on the market value of the premium paid as of the reporting date.
1995 1994 ------ ------ Commitments to purchase foreign exchange........................... $133.2 $148.8 Commitments to deliver foreign exchange............................ 136.4 151.1 Options written/purchased.......................................... .0 .8
See Note 17 for additional information on off-balance sheet financial instruments. 58 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) 19. BUSINESS SEGMENTS The following table reflects certain information regarding our banking and data processing businesses:
ADJUSTMENTS DATA AND BANKING PROCESSING ELIMINATIONS CONSOLIDATION ----------- -------- ------------ ----------- 1995 Revenue from: Unaffiliated customers................. $ 1,134,928 $213,914 $ -- $ 1,348,842 Affiliated customers................... 8,388 70,946 (79,334) -- ----------- -------- -------- ----------- Total revenue............................ $ 1,143,316 $284,860 $(79,334) $ 1,348,842 =========== ======== ======== =========== Operating profit......................... $ 264,996 $ 34,883 $ -- $ 299,879 =========== ======== ======== =========== Identifiable assets...................... $13,166,362 $242,695 $(65,960) $13,343,097 =========== ======== ======== =========== Net capital expenditures................. $ 6,859 $ 33,022 $ -- $ 39,881 =========== ======== ======== =========== 1994 Revenue from: Unaffiliated customers................. $ 1,019,369 $159,418 $ -- $ 1,178,787 Affiliated customers................... 6,815 72,068 (78,883) -- ----------- -------- -------- ----------- Total revenue............................ $ 1,026,184 $231,486 $(78,883) $ 1,178,787 =========== ======== ======== =========== Operating profit before Merger/Restructuring................... $ 211,897 $ 31,134 $ -- $ 243,031 =========== ======== ======== =========== Operating profit......................... $ 150,352 $ 17,451 $ -- $ 167,803 =========== ======== ======== =========== Identifiable assets...................... $12,463,178 $208,216 $(58,445) $12,612,949 =========== ======== ======== =========== Net capital expenditures................. $ (3,184) $ 32,179 $ -- $ 28,995 =========== ======== ======== =========== 1993 Revenue from: Unaffiliated customers................. $ 1,030,362 $135,041 $ -- $ 1,165,403 Affiliated customers................... 7,920 71,775 (79,695) -- ----------- -------- -------- ----------- Total revenue............................ $ 1,038,282 $206,816 $(79,695) $ 1,165,403 =========== ======== ======== =========== Operating profit......................... $ 243,285 $ 21,299 $ -- $ 264,584 =========== ======== ======== =========== Identifiable assets...................... $12,372,154 $162,748 $(48,965) $12,485,937 =========== ======== ======== =========== Net capital expenditures................. $ 20,004 $ 45,727 $ -- $ 65,731 =========== ======== ======== ===========
Our banking operations provide traditional banking products along with trust, mortgage banking, leasing, and venture capital services. M&I Data Services, a division of the Corporation, provides data processing, software, and other related services to both affiliated and unaffiliated customers. In addition, a Valley affiliate provided similar services and other operational support to affiliated customers and merged with M&I Data Services upon consummation of the merger. Revenues from affiliated customers are charged at rates available to and transacted with unaffiliated customers. Operating profit is pretax net income. Depreciation and amortization expense for the banking services business amounted to $8,189, $40,733, and $30,378 in 1995, 1994, and 1993, respectively, and for M&I Data Services amounted to $38,978 in 1995, $31,224 in 1994, and $26,680 in 1993. 59 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) 20. CONDENSED FINANCIAL INFORMATION -- PARENT CORPORATION ONLY CONDENSED BALANCE SHEETS DECEMBER 31
1995 1994 ---------- ---------- ASSETS Cash and cash equivalents................................... $ 36,689 $ 47,157 Data processing services receivables........................ 60,034 47,678 Indebtedness of affiliates: Banks..................................................... 5,000 5,000 Nonbanks.................................................. 173,690 145,721 Investments in affiliates: Banks..................................................... 1,075,011 957,731 Nonbanks.................................................. 164,860 155,536 Premises and equipment, net................................. 115,627 97,086 Other assets................................................ 116,136 120,977 ---------- ---------- Total assets...................................... $1,747,047 $1,576,886 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper issued..................................... $ 41,571 $ 74,526 Other liabilities........................................... 123,589 116,493 Long-term borrowings........................................ 324,270 324,571 ---------- ---------- Total liabilities................................. 489,430 515,590 Shareholders' equity........................................ 1,257,617 1,061,296 ---------- ---------- Total liabilities and shareholders' equity........ $1,747,047 $1,576,886 ========== ==========
Scheduled maturities of long-term borrowings are $69,981 in 1996, $143,980 in 1997, $7,895 in 1998, $2,863 in 1999 and $75 in 2000. 60 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31
1995 1994 1993 -------- -------- -------- INCOME Cash dividends: Bank affiliates.......................................... $141,928 $ 94,812 $105,738 Nonbank affiliates....................................... 11,624 14,690 13,259 Interest from affiliates................................... 10,491 12,172 11,582 Data processing income..................................... 284,141 230,518 205,937 Service fees and other..................................... 37,322 33,068 33,543 -------- -------- -------- Total income..................................... 485,506 385,260 370,059 EXPENSE Interest................................................... 26,851 23,214 19,978 Salaries and employee benefits............................. 151,519 126,171 122,416 Administrative and general................................. 122,276 155,297 95,211 -------- -------- -------- Total expense.................................... 300,646 304,682 237,605 Income before income taxes, extraordinary items and equity in undistributed net income of affiliates................ 184,860 80,578 132,454 Provision for income taxes................................. 9,549 475 6,821 -------- -------- -------- Income before extraordinary items and equity in undistributed net income of affiliates................... 175,311 80,103 125,633 Extraordinary items, net of income taxes................... -- (610) -- -------- -------- -------- Income before equity in undistributed net income of affiliates............................................... 175,311 79,493 125,633 Equity in undistributed net income of affiliates: Banks.................................................... 5,755 29,430 36,527 Nonbanks................................................. 12,233 (2,983) 9,234 -------- -------- -------- Net income....................................... $193,299 $105,940 $171,394 ======== ======== ========
61 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 1995, 1994, AND 1993 ($000'S EXCEPT SHARE DATA) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31
1995 1994 1993 ----------- ----------- ----------- Cash Flows From Operating Activities: Net income.......................................... $ 193,299 $ 105,940 $ 171,394 Noncash items included in income: Equity in undistributed net income of affiliates..................................... (17,988) (26,447) (45,761) Depreciation and amortization..................... 42,264 40,596 32,772 Other............................................. 10,372 (20,661) (6,283) ---------- ---------- ---------- Net cash provided by operating activities......... 227,947 99,428 152,122 Cash Flows From Investing Activities: Increases in indebtedness of affiliates........... (256,220) (28,136) (351,056) Decreases in indebtedness of affiliates........... 228,251 155,658 247,435 Increases in investments in affiliates............ (215) (20,300) (15,040) Net capital expenditures.......................... (33,755) (33,069) (46,700) Other............................................. (11,298) 3,279 (7,436) ---------- ---------- ---------- Net cash provided by (used in) investing activities..................................... (73,237) 77,432 (172,797) Cash Flows From Financing Activities: Dividends paid.................................... (62,985) (57,575) (54,435) Proceeds from issuance of commercial paper........ 1,406,388 1,578,618 1,348,661 Principal payments on commercial paper............ (1,439,343) (1,604,384) (1,325,634) Proceeds from issuance of long-term debt.......... -- 158,563 99,351 Payments on long-term debt........................ (17,619) (67,229) (37,491) Increase (decrease) in other short-term borrowings..................................... -- (50,000) 50,000 Purchase of common stock.......................... (61,104) (101,887) (114,686) Proceeds from exercise of stock options........... 9,079 11,682 19,887 Other............................................. 406 (1,043) 431 ---------- ---------- ---------- Net cash used in financing activities............. (165,178) (133,255) (13,916) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents....................................... (10,468) 43,605 (34,591) Cash and cash equivalents, beginning of year........ 47,157 3,552 38,143 ---------- ---------- ---------- Cash and cash equivalents, end of year.............. $ 36,689 $ 47,157 $ 3,552 ========== ========== ==========
62 63 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) ($000'S EXCEPT SHARE DATA) Following is unaudited financial information for each of the calendar quarters during the years ended December 31, 1995 and 1994.
QUARTER ENDED ----------------------------------------------- DEC. 31 SEPT. 30 JUNE 30 MARCH 31 -------- -------- -------- -------- 1995 Total Interest Income............... $236,598 $235,587 $230,792 $221,683 Net Interest Income................. 125,366 122,884 122,283 120,944 Provision for Loan Losses........... 4,100 4,070 4,005 3,983 Income before Income Taxes.......... 80,003 76,863 71,034 71,979 Net Income.......................... 50,372 47,742 46,268 46,124 Net Income Per Share: Primary: Net Income..................... 0.53 0.49 0.47 0.47 Fully Diluted: Net Income..................... 0.51 0.48 0.46 0.46 1994 Total Interest Income............... $216,323 $210,480 $198,539 $191,964 Net Interest Income................. 126,816 126,165 120,711 117,535 Provision for Loan Losses........... 4,299 3,655 13,001 3,952 Income (Loss) before Income Taxes and Extraordinary Items........... 76,090 71,338 (39,636) 60,011 Income (Loss) before Extraordinary Items............................. 48,054 44,892 (37,061) 38,513 Net Income (Loss)................... 58,473 46,015 (37,061) 38,513 Net Income (Loss) Per Share: Primary: Income (Loss) before Extraordinary Items.......... 0.49 0.45 (0.39) 0.39 Net Income (Loss).............. 0.60 0.46 (0.39) 0.39 Fully Diluted: Income (Loss) before Extraordinary Items.......... 0.48 0.44 (0.39) 0.37 Net Income (Loss).............. 0.58 0.45 (0.39) 0.37 1995 1994 1993 1992 1991 ------- ------- ------- ------- -------- COMMON DIVIDENDS DECLARED First Quarter....................... $0.150 $0.14 $0.12 $0.11 $0.10 Second Quarter...................... 0.165 0.15 0.14 0.12 0.11 Third Quarter....................... 0.165 0.15 0.14 0.12 0.11 Fourth Quarter...................... 0.165 0.15 0.14 0.12 0.11 ------ ----- ----- ----- ----- $0.645 $0.59 $0.54 $0.47 $0.43 ====== ===== ===== ===== =====
63 64 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- CONTINUED ($000'S EXCEPT SHARE DATA) PRICE RANGE OF STOCK (LOW AND HIGH BID)
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- First Quarter Low.............................................. $18 1/8 $20 $21 1/6 $17 1/4 $ 8 15/16 High............................................. 21 3/4 23 3/4 23 5/16 18 1/4 11 3/16 Second Quarter Low.............................................. 19 7/8 19 1/4 22 15/16 16 15/16 10 9/16 High............................................. 22 3/4 22 1/4 25 3/4 20 9/16 13 11/16 Third Quarter Low.............................................. 22 1/8 19 5/8 21 1/4 19 3/16 12 3/4 High............................................. 26 1/4 21 3/4 25 21 13/16 15 1/16 Fourth Quarter Low.............................................. 24 18 21 3/4 20 1/16 14 3/16 High............................................. 26 3/8 20 9/16 24 1/4 22 1/16 18 9/16
64 65 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of Marshall & Ilsley Corporation: We have audited the accompanying consolidated balance sheets of Marshall & Ilsley Corporation (a Wisconsin corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended December 31, 1995, 1994 and 1993. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marshall & Ilsley Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. As discussed in note one to the consolidated financial statements, effective January 1, 1994, the Corporation changed its method of accounting for certain investments in debt and equity securities. /s/ Arthur Andersen LLP Milwaukee, Wisconsin, January 26, 1996 65 66 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to M&I's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996, except for information as to executive officers which is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to M&I's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to M&I's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to M&I's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996. 66 67 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Consolidated Financial Statements: Balance Sheets -- December 31, 1995 and 1994 Statements of Income -- years ended December 31, 1995, 1994, and 1993 Statements of Cash Flows -- years ended December 31, 1995, 1994, and 1993 Statements of Shareholders' Equity -- years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Public Accountants 2. Financial Statement Schedules All schedules are omitted because they are not required, not applicable or the required information is contained elsewhere. 3. Exhibits See Index to Exhibits of this Form 10-K. (b) Reports on Form 8-K During the last quarter of 1995, M&I filed one Current Report on Form 8-K dated December 27, 1995. The Form 8-K reported items 5 and 7 and included exhibits related to the offering by M&I of debt securities.
67 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARSHALL & ILSLEY CORPORATION By: /s/ J.B. Wigdale -------------------------------------- J.B. Wigdale Chairman of the Board Date: February 26, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
NAME ---- /s/ J.B. WIGDALE - --------------------------------------------- J.B. Wigdale Chairman of the Board and a Director (Chief Executive Officer) Date: February 26, 1996 /s/ G.H. GUNNLAUGSSON - --------------------------------------------- G.H. Gunnlaugsson Executive Vice President and a Director (Chief Financial Officer) Date: February 26, 1996 /s/ P.R. JUSTILIANO - --------------------------------------------- P.R. Justiliano Senior Vice President and Corporate Controller (Principal Accounting Officer) Date: February 26, 1996
Directors: Richard A. Abdoo, Oscar C. Boldt, J.P. Bolduc, Wendell F. Bueche, G.H. Gunnlaugsson, Burleigh E. Jacobs, Jack F. Kellner, D.J. Kuester, Edward L. Meyer, Jr., Don R. O'Hare, San W. Orr, Jr., Peter M. Platten III, Stuart W. Tisdale, J.B. Wigdale, James O. Wright and Gus A. Zuehlke. By /s/ M.A. HATFIELD ------------------------------------------ M.A. Hatfield As Attorney-In-Fact* Date: February 26, 1996
- --------------- * Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 68 69 MARSHALL & ILSLEY CORPORATION INDEX TO EXHIBITS (ITEM 14(a)3) ITEM (2) Agreement and Plan of Merger dated as of September 19, 1993, between M&I and Valley Bancorporation, incorporated by reference to M&I's Current Report on Form 8-K dated September 19, 1993 (as amended by M&I's Current Report on Form 8-K/A dated September 19, 1993), SEC File No. 0-1220 (3) (a) Restated Articles of Incorporation, incorporated by reference to M&I's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, SEC File No. 0-1220 (b) By-laws, as amended (4) (a) Indenture between M&I and Chemical Bank (as successor to Manufacturers Hanover Trust Company) dated as of November 15, 1985 ("Senior Indenture"), incorporated by reference to M&I's Registration Statement on Form S-3 (Registration No. 33-21377), as supplemented by the First Supplemental Indenture to the Senior Indenture dated as of May 31, 1990, incorporated by reference to M&I's Current Report on Form 8-K dated May 31, 1990, and as supplemented by the Second Supplemental Indenture to the Senior Indenture dated as of July 15, 1993, incorporated by reference to M&I's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 0-1220 (b) Form of Medium Term Notes, Series B, issued pursuant to the Senior Indenture, incorporated by reference to M&I's Current Report on Form 8-K dated May 31, 1990, SEC File No. 0-1220 (c) Form of Medium Term Notes, Series C, and Series D issued pursuant to the Senior Indenture, included in Exhibit 4(a) (d) Indenture between M&I and Chemical Bank dated as of July 15, 1993 ("Subordinated Indenture"), incorporated by reference to M&I's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 0-1220 (e) Form of Subordinated Note issued pursuant to the Subordinated Indenture, included in Exhibit 4(d) (f) Investment Agreement between M&I and The Northwestern Mutual Life Insurance Company dated August 30, 1985, incorporated by reference to M&I's Current Report on Form 8-K dated May 20, 1985, SEC File No. 0-1220 (g) Subordinated Convertible Note Agreement between The Northwestern Mutual Life Insurance Company dated December 31, 1985, incorporated by reference to M&I's Current Report on Form 8-K dated May 20, 1985, SEC File No. 0-1220 (h) Form of Convertible Subordinated Note, incorporated by reference to M&I's Current Report on Form 8-K dated May 20, 1985, SEC File No. 0-1220 (i) Designation of Rights and Preferences of holders of Series A Preferred Stock, incorporated by reference to M&I's Current Report on Form 8-K dated May 20, 1985, SEC File No. 0-1220 73 70 (10) (a) 1983 Executive Stock Option and Restricted Stock Plan, as amended, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, SEC File No. 0-1220* (b) 1985 Executive Stock Option and Restricted Stock Plan, as amended, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, SEC File No. 0-1220* (c) M&I Marshall & Ilsley Bank Supplementary Retirement Benefits Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1983, SEC File No. 0-1220* (d) Directors Deferred Compensation Plan, adopted on February 14, 1985, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1984, SEC File No. 0-1220* (e) Consulting Agreement and Supplemental Retirement Plan dated as of October 1, 1986 between M&I and Mr. J.A. Puelicher, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, SEC File No. 0-1220* (f) Amendment to Consulting Agreement and Supplemental Retirement Plan dated as of August 13, 1992, between M&I and Mr. J.A. Puelicher, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, SEC File No. 0-1220* (g) Deferred Compensation Trust between Marshall & Ilsley Corporation and Bessemer Trust Company dated April 28, 1987, as amended, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, SEC File No. 0-1220* (h) 1986 Non-Qualified Stock Option Plan of M&I and related Stock Option Agreement between M&I and Mr. J.A. Puelicher, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, SEC File No. 0-1220* (i) Form of employment agreements, dated November 5, 1990, between M&I and Messrs. Gunnlaugsson, Kuester, Strelow and Wigdale incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, SEC File No. 0-1220* (j) Employment agreement, dated November 5, 1990, between M&I and Mr. Michael A. Hatfield incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, SEC File No. 0-1220* (k) Employment agreement, dated as of November 5, 1990, between M&I and Mr. Delgadillo, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, SEC File No. 0-1220* (l) Restricted Stock Plan of Marshall & Ilsley Corporation, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, SEC File No. 0-1220* (m) 1989 Executive Stock Option and Restricted Stock Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, as amended by M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, SEC File No. 0-1220* 74 71 (n) Marshall & Ilsley Corporation Nonqualified Retirement Benefit Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, SEC File No. 0-1220* (o) Marshall & Ilsley Corporation Supplemental Retirement Benefits Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, SEC File No. 0-1220* (p) Marshall & Ilsley Trust Company Supplemental Retirement Benefits Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, SEC File No. 0-1220* (q) Supplemental Retirement Agreement dated December 10, 1992, between M&I and Mr. J.A. Puelicher, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, SEC File No. 0-1220* (r) Amendment to Supplemental Retirement Agreement dated December 16, 1993, between M&I and Mr. J.A. Puelicher, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, SEC File No. 0-1220* (s) Marshall & Ilsley Corporation 1993 Executive Stock Option Plan, as amended* (t) Marshall & Ilsley Corporation 1994 Long-Term Incentive Plan for Executives, incorporated by reference to M&I's Proxy Statement for the 1994 Annual Meeting of Shareholders, SEC File No. 0-1220* (u) Marshall & Ilsley Corporation 1995 Directors Stock Option Plan, incorporated by reference to M&I's Proxy Statement for the 1995 Annual Meeting of Shareholders, SEC File No. 0-1220* (v) Marshall & Ilsley Corporation Assumption Agreement dated May 31, 1994 assuming rights, obligations and interests of Valley Bancorporation under various stock option plans, incorporated by reference to M&I's Registration Statement on Form S-8 (Reg. No. 33-53897)* (w) Valley Bancorporation 1992 Incentive Stock Plan, incorporated by reference to Valley Bancorporation's Proxy Statement for the 1992 Annual Meeting of Shareholders (the "Valley 1992 Proxy Statement")* (x) Valley Bancorporation 1992 Outside Directors' Stock Option Plan, incorporated by reference to the Valley 1992 Proxy Statement* (y) Valley Bancorporation 1988 Nonqualified Stock Option Plan, incorporated by reference to Valley Bancorporation's Proxy Statement for the 1988 Annual Meeting of Shareholders* (z) Valley Bancorporation 1986 Amended and Restated Stock Option Plan, incorporated by reference to Valley Bancorporation's Proxy Statement for the 1987 Annual Meeting of Shareholders* (aa) Employment agreement between M&I and Mr. Peter M. Platten, III, incorporated by reference to M&I's Registration Statement on Form S-4 (Reg. No. 33-51753)* (bb) Letter agreement dated January 25, 1994 between Valley Bancorporation and Mr. Peter M. Platten, III incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, SEC File No. 0-1220* 75 72 (cc) Employment agreement, dated as of December 14, 1995, between M&I and Ms. Patricia R. Justiliano* (11) Computation of Net Income Per Common Share (12) Computation of Ratio of Earnings to Fixed Charges (21) Subsidiaries (23) Consent of Arthur Andersen LLP (24) Powers of Attorney (27) Financial Data Schedule M&I will provide a copy of any instrument defining the rights of holders of long-term debt to the Commission upon request. _____________________ *Management contract or compensatory plan or arrangement. 76 EX-3.(B) 2 BY-LAWS 1 Exhibit 3(b) Updated through 12/14/95 BY-LAWS MARSHALL & ILSLEY CORPORATION 1. OFFICES 1.1. Principal and Other Offices. The principal office of the Corporation shall be located at any place either within or outside the State of Wisconsin as shall be designated in the Corporation's most recent annual report filed with the Wisconsin Secretary of State. The executive offices of the Corporation shall be located at its principal office. The Corporation may have such other offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. 1.2. Registered Office. The registered office of the Corporation required by the Wisconsin Business Corporation Law (the "WBCL") to be maintained in the State of Wisconsin may be, but need not be, the same as any of its places of business within the State of Wisconsin. The registered office may be changed from time to time as provided in Section 180.0502 of the WBCL or any successor thereto. 2. SHAREHOLDERS 2.1. Annual Meeting. The annual meeting of shareholders shall be held on the fourth Tuesday in the month of April in each year at 10 A.M., or at such other time and/or date as shall be fixed by the Secretary of the Corporation or the Board of Directors, for the purposes of electing directors and for the transaction of such other business as may have been properly brought before the meeting in compliance with the provisions of Section 2.5 of the By-laws. If the day fixed for the annual meeting shall be a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. 2.2. Special Meetings. Except as otherwise provided by the WBCL and subject to the rights of the holders of any class of series of capital stock having a preference over the common stock as to dividends or upon liquidation, special meetings of shareholders of the Corporation may be called only by the Chief Executive Officer or the President of the Corporation pursuant to a resolution approved by not less than three-quarters of the Board of Directors. 2 2.3. Place of Meeting. The Board of Directors, Chief Executive Officer or President may designate any place, within or without the State of Wisconsin, as the place of meeting for the annual meeting or for any special meeting. If no designation is made, the place of meeting shall be the principal office of the Corporation. Any meeting may be adjourned to reconvene at any place designated by vote of a majority of the shares represented at the meeting. 2.4. Notice of Meeting. The Corporation shall notify shareholders of the date, time and place of each annual and special shareholders' meeting not less than ten nor more than sixty days before the date of the meeting. Notice of a special meeting shall include a description of each purpose for which the meeting is called. Notice of the meeting shall be given only to those shareholders entitled to vote at the meeting, unless otherwise required by the law. Notice may be communicated in person, by telephone, telegraph, teletype, facsimile or other forms of wire or wireless communication, or by mail or private carrier. Written notice to a shareholder shall be deemed to be effective on the earlier of: (a) the date received; (b) the date it is deposited in the United States mail when addressed to the shareholder's address shown in the Corporation's current record of shareholders, with postage prepaid; (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (d) the date sent, if transmitted by telegraph, teletype, facsimile or other form of wire or wireless communication; or (e) the date delivered to a courier or deposited in a designated receptacle, if sent by private carrier, when addressed to the shareholder's address shown in the Corporation's current record of shareholders. 2.5. Advance Notice of Shareholder-Proposed Business at Annual Meetings. At an annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given in accordance with Section 2.4 of these By-laws, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, the Chief Executive Officer or the President, or (c) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice of such business in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less 2 3 than 90 days prior to the anniversary date of the annual meeting of shareholders in the immediately preceding year. A shareholder's notice to the Secretary of the Corporation shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, and the beneficial owner or owners, if any, on whose behalf the proposal is made, (iii) a representation that the shareholder is a shareholder of record and will remain such through the record date for the meeting and that the shareholder intends to appear in person or by proxy at such meeting to move the consideration of the business set forth in the notice, (iv) the class and number of shares of the Corporation which are beneficially owned by the shareholder and the beneficial owner or owners on whose behalf the proposal is made, and (v) any material interest of the shareholder in such business. In addition, any such shareholders shall be required to provide such further information as may be requested by the Corporation in order to comply with federal securities laws, rules and regulations. Notwithstanding anything contained in these By-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.5; provided, however, that nothing in this Section 2.5 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.5, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2.6. Procedure for Nomination of Directors. Only persons nominated in accordance with the following procedures shall be eligible for election as directors, except as may otherwise be provided by the terms of the Corporation's Amended and Restated Articles of Incorporation (the "Articles") with respect to the rights of holders of any class or series of preferred stock to elect directors under specified circumstances. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors, by any nominating committee or persons appointed by the Board, or by any shareholder of the Corporation entitled to vote for election of 3 4 directors at the meeting who complies with the notice procedures set forth in this Section 2.6. Nominations other than those made by or at the direction of the Board of Directors or any nominating committee or person appointed by the Board shall be made pursuant to timely notice in proper written form to the Secretary of the Corporation. To be timely, a shareholder's request to nominate a person for election to the Board of Directors, together with the written consent of such person to serve as a director, must be received by the Secretary of the Corporation not less than 90 days prior to the anniversary date of the annual meeting of shareholders in the immediately preceding year. To be in proper written form, such shareholder's notice shall set forth in writing (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such person, (iv) a description of all arrangements and understandings between the shareholder or beneficial owner or owners on whose behalf the nomination is made and each proposed nominee and any person or persons (naming such person or persons) pursuant to which the intended nomination or nominations are to be made by the shareholder, and (v) such other information relating to such person as is required to be disclosed in solicitations of proxies for election of directors, or as otherwise required, in each case pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice, (i) the name and address, as they appear on the Corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination is made, (ii) a representation that the shareholder is a shareholder of record and will remain such through the record date for the meeting and that the shareholder intends to appear in person or by proxy at such meeting to make the nomination(s) set forth in the notice, and (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such shareholder and the beneficial owner or owners on whose behalf the nomination is made. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No persons shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein and in the Articles. The Chairman of any meeting of shareholders shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with the 4 5 procedures prescribed by the Articles and these By-laws; and if he should so determine, he shall so declare to the meeting and the defective nomination(s) shall be disregarded. 2.7. Fixing of Record Date. For the purpose of determining any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive any distribution or dividend from the Corporation, or in order to determine those shareholders entitled to take any other action authorized by these By-laws or the WBCL, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders. Such record date shall not be more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is so fixed for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, or shareholders entitled to receive a dividend or any other distribution, the record date for determination of such shareholders shall be at the close of business on: (a) with respect to an annual shareholders' meeting or any special shareholders' meeting called by the Board of Directors or any person specifically authorized by these By-laws to call a meeting, the day before the first notice is given to shareholders; (b) with respect to a special shareholders' meeting demanded by one or more shareholders, the date the first shareholder signs a demand for the special meeting; (c) with respect to the payment of a dividend, the date the Board of Directors authorizes the dividend; and (d) with respect to any other distribution to shareholders, other than one involving a repurchase or reacquisition of shares, the date the Board of Directors authorizes the distribution. When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made as provided in this section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2.8. Shareholders' List. After fixing a record date for a meeting of shareholders, the Corporation shall prepare a list of the names of all its shareholders who are entitled to 5 6 notice of a shareholders' meeting. The list shall be arranged by class or series of shares and show the address of and the number of shares held by each shareholder. The shareholder list shall be available for inspection by any shareholder beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder, or his or her agent or attorney, is entitled, on written demand, to inspect and to copy the list during regular business hours and at his expense, during the period it is available for inspection, provided the shareholder, or his or her agent or attorney, demonstrates to the satisfaction of the Corporation he or she satisfies the requirements of the WBCL. The Corporation shall make the shareholders' list available at the meeting and shall be subject to the inspection of any shareholder, or his or her agent or attorney, during the time of the meeting or any adjournment thereof. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at such meeting. 2.9. Quorum; Votes. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles or the WBCL provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. If the Articles or the WBCL provide for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is deemed present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles or the WBCL requires a greater number of affirmative votes, provided, however, that unless otherwise provided in the Articles, directors are elected by a plurality of 6 7 the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 2.10. Proxies. At all meetings of shareholders, a shareholder entitled to vote may vote by proxy appointed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. 2.11. Voting Shares Owned by the Corporation. Shares of the Corporation belonging to it shall not be voted directly or indirectly at any meeting of shareholders and shall not be considered in determining whether a quorum exists or for any other purpose relating to the voting of shares. Notwithstanding the foregoing, shares held by the Corporation in a fiduciary capacity are outstanding shares and may be voted and shall be considered in any such determination. 2.12. Shares in the Name of Another Corporation or a Trustee. Shares issued in the name of another corporation may be voted by the president of such corporation, or any other officer or proxy appointed by such president in the absence of express written notice to the Corporation of the designation of some other person by the board of directors or by-laws of such other corporation. Shares in the name of a trustee shall be voted in the manner designated by a majority of the trustees or their proxy unless a greater concurrence of trustees is required by the trust, of which the Corporation shall have actual notice. 2.13. Adjournments. An annual or special meeting of shareholders may be adjourned by a vote of a majority of the shares represented at the meeting entitled to vote in the election of directors, even if less than a quorum. Upon being reconvened, the adjourned meeting shall be deemed to be a continuation of the initial meeting. A quorum will be deemed present if a quorum of shares was represented at the initial meeting and any business that could be conducted at the initial meeting may be considered at the adjourned meeting. A meeting may be adjourned at any time, including after action on one or more matters, and for any purpose, including, but not limited to, allowing additional time to solicit votes on one or more matters, to disseminate additional information to shareholders or to count votes. Notice is not required for an adjourned meeting if the date, time and place of the adjournment are announced at the meeting before adjournment. If a new record date for an adjourned meeting is fixed, notice of the adjourned meeting must be given to persons who are shareholders as of the new record 7 8 date. Only those shares entitled to vote at the initial meeting will be entitled to vote at the adjourned meeting. 2.14. Polling. In the discretion of the chairman of an annual or special meeting of shareholders, polls may be closed at any time after commencement of the meeting. When there are several matters to be considered at a meeting, the polls may remain open during the meeting as to any or all matters to be considered, as the chairman may declare. Polls will remain open as to matters to be considered at any adjournment of the meeting unless the chairman declares otherwise. At the discretion of the chairman, the polls may remain open after adjournment of a meeting for not more than 72 hours for the purpose of collecting proxies and counting votes. All votes submitted prior to the announcement of the results of the balloting shall be valid and counted. The results of balloting shall be final and binding after announcement of such results. 2.15 Chairman of Meetings. The Chairman of the Board or, in his absence or inability or refusal to act, the Chairman of the Executive Committee, shall preside at all meetings of the shareholders. 3. BOARD OF DIRECTORS 3.1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board of Directors, subject to any limitations set forth in the Articles. 3.2. Number, Tenure and Qualifications. The number of directors (exclusive of directors, if any, elected by the holders of one or more series of preferred stock, voting separately as a series pursuant to the provisions of the Articles applicable thereto) shall not be less than three directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors then in office. The directors shall be divided into three classes, designated Class I, Class II and Class III, and the term of directors of each class shall be three years. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. If the number of directors is changed by resolution of the Board of Directors pursuant to this Section 3.2, any increase or decrease shall be apportioned among the various classes of directors so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors shorten the term of any 8 9 incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be duly elected and shall qualify. Directors need not be residents of the State of Wisconsin or shareholders of the Corporation. No person shall be eligible to be elected a director at any meeting of shareholders held on or after the date he attains age seventy-two (72). The Board of Directors, at its discretion, may waive the age limitation or establish a greater age from time to time. The Board of Directors, at its discretion, may designate a person who has served as a director of the Corporation as a "Director Emeritus" upon such terms and conditions and at such compensation as may be fixed by resolution of the Board from time to time. A Director Emeritus shall have the right to attend meetings of the Board of Directors but shall have no vote and shall not be counted in determining the presence of a quorum. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Articles applicable thereto. Directors so elected shall not be divided into classes unless expressly provided by such Articles, and during the prescribed terms of office of such directors, the Board of Directors shall consist of such directors in addition to the number of directors determined as provided in the first paragraph of this Section 3.2. 3.3. Regular Meeting. A regular meeting of the Board of Directors shall be held, without other notice, immediately after and at the same place as the annual meeting of shareholders, and each adjourned session thereof. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. 3.4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, President, Secretary or three-quarters of the members of the Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place either within or without the State of Wisconsin as the place for holding any special meeting of the Board of Directors called by them. 3.5. Notice. Notice of meetings of the Board of Directors may be communicated in person, by telephone, telegraph, 9 10 teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier. Notice of meetings, except the regular annual meeting, shall be given at least 48 hours prior to the time set for the meeting if communicated orally or by telegraph, teletype, facsimile or other form of wire or wireless communication, and at least 5 days prior to the date set for the meeting if communicated by any other means. Written notice shall be deemed effective and given on the earlier of: (a) when received; (b) 2 days after the date it is deposited in the United States mail, with postage prepaid, when addressed to the director at an address designated by him to receive such notice or, in the absence of such designation, at his business or home address as they appear in the Corporation's records; (c) the date and time sent, if transmitted by telegraph, teletype, facsimile or other form of wire or wireless communication when sent to the director at a location designated by the director to receive such notice or, in the absence of such designation, at his business or home as those locations appear in the Corporation's records; or (d) the date delivered to a courier or deposited in a designated receptacle, if sent by private carrier, when addressed to the director at an address designated by him to receive such notice or, in the absence of such designation, at his business or home address as it appears in the Corporation's records. Oral notice shall be deemed effective when communicated. Whenever any notice whatever is required to be given to any director of the Corporation under these By-laws, the Articles or under the provisions of any statute, a waiver thereof in writing, signed at any time whether before or after the time of meeting, by the director entitled to such notice, shall be deemed equivalent to timely notice. A director's attendance at, or participation in, a meeting waives any required notice unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of such meeting. 3.6. Quorum; Votes. A majority of the number of directors in accordance with Section 3.2 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but though less than such quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. The affirmative vote of a majority of directors present shall be the act of the Board of Directors, or a committee of the Board of Directors created under Section 3.11, unless the Articles or these By-laws require the vote of a greater number of directors. 10 11 3.7. Removal and Resignation. Exclusive of directors, if any, elected by the holders of one or more classes of preferred stock, no director of the Corporation may be removed from office except for "Cause" and by the affirmative vote of two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote at a meeting of shareholders duly called for such purpose. As used in this Section 3.7, the term "Cause" shall mean solely malfeasance arising from the performance of a director's duties which has a materially adverse effect on the business of the Corporation. A director may resign at any time by delivering written notice to the Board of Directors, Chairman of the Board or to the Corporation. 3.8. Vacancies. Any vacancy on the Board of Directors, however caused, including, without limitation, any vacancy resulting from an increase in the number of directors, shall be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director so elected to fill any vacancy on the Board of Directors, including a vacancy created by an increase in the size of the Board of Directors, shall hold office for the remaining term of directors of the class to which he has been elected and until his successor shall be elected and shall qualify. 3.9. Compensation. The Board of Directors, by affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the Corporation as directors or otherwise, or may delegate such authority to an appropriate committee. 3.10. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors or a committee thereof at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless: (a) the director objects at the beginning of the meeting (or promptly upon his arrival) to holding the meeting or transacting business at the meeting; or (b) the director dissents or abstains from an action taken and minutes of the meeting are prepared that show the director's dissent or abstention from the action taken; or (c) the director delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting; or (d) the director dissents or abstains from an action taken, minutes of the meeting are prepared that fail to show the director's dissent or abstention from the action taken and the director delivers to the Corporation a written notice of that failure promptly after 11 12 receiving the minutes. Such right to dissent shall not apply to a director who voted in favor of such action. 3.11. Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of the number of directors then in office, may designate one or more committees, each committee to consist of two or more directors elected by the Board of Directors. The Board of Directors may elect one or more of its members as alternate members of any such committee and such alternate member may take the place of any absent member or members at any meeting of such committee upon request of the Chairman of the Board or upon request of the chairman of such meeting. Unless limited by the Articles, each committee may exercise those aspects of the authority of the Board of Directors which are within the scope of the committee's assigned responsibilities or which the Board of Directors otherwise specifically confers upon such committee; provided, however, that no committee of the Board may do any of the following: (a) authorize distributions; (b) approve or propose to shareholders action that the WBCL requires be approved by shareholders; (c) fill vacancies on the Board of Directors or on any of its committees, unless the Board of Directors has specifically granted such authority to the committee; (d) amend the Articles; (e) adopt, amend, or repeal these By-laws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board of Directors may authorize a committee (or a senior executive officer of the Corporation) to do so within limits specifically prescribed by the Board of Directors. 12 13 3.12. Informal Action Without Meeting. Any action required or permitted by the Articles or these By-laws or any provision of law to be taken by the Board of Directors or a committee at a meeting may be taken without a meeting if the action is taken by all members of the Board of Directors. The action shall be evidenced by one or more written consents describing the action taken, signed by each director and retained by the Corporation. 3.13. Telephonic Meetings. Any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication which allows all directors participating to simultaneously hear each other during the meeting. In the case of any such meeting all participating directors must be informed that a meeting is taking place at which official business may be transacted. A director participating in a meeting by this means is deemed to be present in person at the meeting. 3.14 Chairman of Meetings. The Chairman of the Board or, in his absence or inability or refusal to act, the Chairman of the Executive Committee, shall preside at all meetings of the Board of Directors. 4. OFFICERS 4.1. Number. The principal officers of the Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, any one of whom may be designated as Executive Vice President, and a Secretary, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. 4.2. Election and Term of Office. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after the annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until his successor shall have been duly elected or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 4.3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the 13 14 Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 4.4. Vacancies. A vacancy in any principal office occurring for any reason shall be filled by the Board of Directors for the unexpired portion of the term as soon as reasonably practicable at the convenience of the Board. 4.5. Chairman of the Board. The Chairman of the Board shall have such duties as the Board of Directors shall prescribe from time to time. 4.6. Vice Chairman of the Board. The Vice Chairman of the Board shall be responsible for the administration and management of the areas of the business and affairs of the Corporation assigned to him from time to time by the Board of Directors or the Chief Executive Officer. 4.7. Chief Executive Officer. The Chief Executive Officer shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general supervision and control of the business and affairs of the Corporation and its officers. The Chief Executive Officer shall have the authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as the Chief Executive Officer deems necessary, prescribe their powers, duties and compensation, and delegate authority to them. Such agents and employees shall hold offices at the discretion of the Chief Executive Officer. The Chief Executive Officer shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business or which shall be authorized by the Board of Directors. Except as otherwise provided by the WBCL or the Board of Directors, the Chief Executive Officer may authorize any other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, the Chief Executive Officer shall have all authority and perform all duties incident to the office of the chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time. 4.8. President. In the absence of the Chief Executive Officer or in the event of his death, inability or refusal to act, the President shall perform the duties of the Chief 14 15 Executive Officer, and when so acting shall have all the powers and duties of the Chief Executive Officer. In addition, the President shall be responsible for the administration and management of the areas of the business and affairs of the Corporation assigned to him from time to time by the Board of Directors or the Chief Executive Officer. 4.9. Vice Presidents. One or more of the Vice Presidents may be designated as Executive Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Vice Presidents in the order designated at the time of their election (or in the absence of any designation, then in the order of their appointment), shall perform the duties of the President and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign with the Secretary or Assistant Secretary certificates for shares of the Corporation and shall perform such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President or the Board of Directors. 4.10. Secretary. The Secretary shall: (a) keep the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by the WBCL; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder or delegate that responsibility to a stock transfer agent; (e) sign with the President or a Vice President certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; and (f) in general have all authority and perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chief Executive Officer or by the Board of Directors. 4.11. Assistant Secretaries. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the President or a Vice President certificates for shares of the Corporation, the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Secretaries, in general, shall have such authority and perform such duties as shall be assigned to them by the Secretary, the President or the Board of Directors. 15 16 4.12. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors or a committee authorized by the Board to fix the same and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation or a member of such a committee. 4.13. Voting of Stock in Other Corporations. The Board of Directors by resolution shall from time to time designate one or more persons who shall vote all stock held by this Corporation in any other corporation, banking corporation or banking association. Such resolution may designate such persons in the alternative and may empower them to execute proxies to vote in their stead. Where time permits, however, the manner in which such shares shall be voted shall be determined by the Board of Directors of this Corporation or the appropriate committee thereof while the Board is not in session. 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER 5.1. Certificates for Shares. Subject to the requirements of the WBCL, certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed, either manually or by facsimile, by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors or the Secretary may prescribe. 5.2. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. 16 17 5.3. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the WBCL as they may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation, including the appointment or designation of one or more stock transfer agents and one or more stock registrars. 6. EMERGENCY BY-LAWS Unless the Articles provide otherwise, the following provisions of this Article 6 shall be effective during an "emergency" which is defined as a catastrophic event that prevents a quorum of the Corporation's directors from being readily assembled. 17 18 During such emergency: (a) Any one member of the Board of Directors or any one of the following officers: Chief Executive Officer, President, any Vice-President or Secretary, may call a meeting of the Board of Directors. Notice of such meeting need be given only to those directors whom it is practicable to reach, and may be given in any practical manner, including by publication or radio. Such notice shall be given at least six hours prior to the commencement of the meeting. (b) One or more officers of the corporation present at the emergency meeting of the Board of Directors, as is necessary to achieve a quorum, shall be considered to be directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the directors are present (including any officers who are to serve as directors for the meeting), those directors present (including the officers serving as directors) shall constitute a quorum. (c) The Board of Directors as constituted in paragraph (b), and after notice as set forth in paragraph (a), may: (1) prescribe emergency powers to any officer of the corporation; (2) delegate to any officer or director, any of the powers of the Board of Directors; (3) designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; (4) relocate the principal place of business, or designate successive or simultaneous principal places of business; and (5) take any other action, convenient, helpful, or necessary to carry on the business of the corporation. Corporate action taken in good faith in accordance with this Article 6 binds the Corporation and may not be used to impose liability on a corporate director, officer, employee or agent. 18 19 7. GENERAL 7.1. Indemnify of Officers and Directors. (a) Definitions to Indemnification and Insurance Provisions. (1) "Director, Officer, Employee or Agent" means any of the following: (i) a natural person who, is or was a director, officer, employee or agent of the Corporation; (ii) a natural person who, while a director, officer, employee or agent of the Corporation, is or was serving either pursuant to the Corporation's specific request or as a result of the nature of such person's duties to the Corporation as a director, officer, partner, trustee, member of any governing or decision making committee, employee or agent of another corporation or foreign corporation, partnership, joint venture, trust or other enterprise; (iii) a natural person who, while a director, officer, employee or agent of the Corporation, is or was serving an employee benefit plan because his or her duties to the Corporation also impose duties on, or otherwise involve services by, the person to the plan or to participants in or beneficiaries of the plan; or (iv) unless the context requires otherwise, the estate or personal representative of a director, officer, employee or agent. (2) "Liability" means the obligation to pay a judgment, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, the agreement to pay any amount in settlement of a Proceeding (whether or not approved by a court order), and reasonable expenses and interest related to the foregoing. (3) "Party" means a natural person who was or is, or who is threatened to be made, a named defendant or respondent in a Proceeding. (4) "Proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal (including but not limited to any act or failure to act alleged or determined to have been negligent, to have violated the Employee Retirement Income Security Act of 1974, or to have violated Section 180.40 [180.0826, 180.0832 and 19 20 180.0833] of the Wisconsin Statutes, or any successor thereto, regarding improper dividends, distributions of assets, purchases of shares of the Corporation, or loans to officers), which involves foreign, federal, state or local law and which is brought by or in the right of the Corporation or by any other person or entity, to which the Director, Officer, Employee or Agent was a party because he or she is a Director, Officer, Employee or Agent. (5) "Expenses" means all reasonable fees, costs, charges, disbursements, attorneys' fees and any other expenses incurred in connection with the Proceeding. (b) Indemnification of Officers, Directors, Employees and Agents. (1) The Corporation shall indemnify a Director, Officer, Employee or Agent to the extent he or she has been successful on the merits or otherwise in the defense of any Proceeding, for all reasonable Expenses. (2) In cases not included under subsection (1), the Corporation shall indemnify a Director, Officer, Employee or Agent against Liability and Expenses incurred by such person in a Proceeding unless it shall have been proven by final judicial adjudication that such person breached or failed to perform a duty owned to the Corporation which constituted: (i) A willful failure to deal fairly with the Corporation or its shareholders in connection with a matter in which the Director, Officer, Employee or Agent has a material conflict of interest; (ii) A violation of criminal law, unless the Director, Officer, Employee or Agent had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful; (iii) A transaction from which the Director, Officer, Employee or Agent derived an improper personal profit; or 20 21 (iv) Willful misconduct. (c) Determination that Indemnification is Proper. (1) Unless provided otherwise by a written agreement between the Director, Officer, Employee or Agent and the Corporation, determination of whether indemnification is required under Section (b) shall be made by any method set forth in Section 180.046 [180.0855] of the Wisconsin Statutes. (2) A Director, Officer, Employee or Agent who seeks indemnification under this section shall make a written request to the Corporation. As a further pre-condition to any right to receive indemnification, the writing shall contain a declaration that the Corporation shall have the right to exercise all rights and remedies available to such Director, Officer, Employee or Agent against any other person, corporation, foreign corporation, partnership, joint venture, trust or other enterprise, arising out of, or related to, the Proceeding which resulted in the Liability and the Expense for which such Director, Officer, Employee or Agent is seeking indemnification, and that the Director, Officer, Employee or Agent is hereby deemed to have assigned to the Corporation all such rights and remedies. (3) Indemnification under subsection (b)(1) shall be made within 10 days of receipt of a written demand for indemnification. Indemnification required under subsection (b)(2) shall be made within 30 days of receipt of a written demand for indemnification. (4) Indemnification under this section is not required to the extent the Director, Officer, Employee or Agent has previously received indemnification or allowance of expenses from any person or entity, including the Corporation, in connection with the same Proceeding. (5) Upon written request by a Director, Officer, Employee or Agent who is a Party to a Proceeding, the Corporation shall pay or reimburse his or her reasonable Expenses as incurred if the Director, Officer, Employee or Agent provides the Corporation with all of the following: 21 22 (i) A written affirmation of his or her good faith belief that he or she is entitled to indemnification under Article 7.1; and (ii) A written undertaking, executed personally or on his or her behalf, to repay all amounts advanced without interest to the extent that it is ultimately determined that indemnification under 7.1(b)(2) is prohibited. The undertaking under this subsection shall be accepted without reference to the Director's, Officer's, Employee's or Agent's ability to repay the allowance. The undertaking shall be unsecured. (6) The right to indemnification under this Article may be amended only by a subsequent vote of not less than two-thirds of the Corporation's outstanding capital stock entitled to vote on such matters. Any reduction in the right to indemnification may only be prospective from the date of such vote. (d) Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is a Director, Officer, Employee or Agent against any Liability asserted against or incurred by the individual in any such capacity or arising out of his status as such, regardless of whether the Corporation is required or authorized to indemnify or allow Expenses to the individual under this section. (e) Severability. The provisions of this Article shall not apply in any circumstance where a court of competent jurisdiction determines that indemnification would be invalid as against public policy. 8. AMENDMENT These By-laws may be amended, altered or repealed, and new By-laws may be enacted, only by the affirmative vote of not less than two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote at a meeting of shareholders duly called for such purpose, upon a proposal adopted by the Board of Directors, or by a vote of not less than three-quarters of the entire Board of Directors then in office; provided, however, that no By-law hereafter adopted, amended or repealed by the shareholders as provided herein shall thereafter be enacted, amended or repealed by the directors unless such action by the 22 23 shareholders shall expressly confer upon the directors authority to thereafter enact, amend or repeal such By-law as so amended, and; provided, further, that any By-law adopted, repealed or amended by the Board of Directors as provided herein shall be subject to reenactment, repeal or amendment by the shareholders acting at any meeting of the shareholders in accordance with the terms hereof. 23 EX-10.(CC) 3 EMPLOYMENT AGREEMENT 1 Exhibit 10(cc) EMPLOYMENT AGREEMENT THIS AGREEMENT, entered into as of the 14th day of December, 1995, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and Patricia R. Justiliano (the "Executive") (hereinafter collectively referred to as "the parties"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as hereinafter defined in Section 2) exists and that the threat of or the occurrence of a Change of Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; and WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its shareholders to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Employment Term. (a) The "Employment Term" shall commence on the first date during the Protected Period (as defined in Section 1(c), below) on which a Change of Control (as defined in Section 2, below) occurs (the "Effective Date") and shall expire on the second anniversary of the Effective Date; provided, however, that at the end of each day of the Employment Term the Employment Term shall automatically be extended for one (1) day unless either the Company or the Executive shall have given written notice to the other at least thirty (30) days prior thereto that the Employment Term shall not be so extended; and provided, further, that the Employment Term shall not be automatically extended beyond the first day of the month following the month in which the Executive attains age sixty-five (65). (b) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated prior to the Effective Date and the Executive reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise occurred in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement, the Effective Date shall mean the date immediately prior to the date of such termination of the Executive's employment. (c) For purposes of this Agreement, the "Protected Period" shall be the two (2) year period commencing on the date hereof, provided, however, that at the end of each day the Protected Period shall be automatically extended for one (1) day unless at least thirty (30) days prior thereto the Company shall have given written notice to the Executive that the Protected Period shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the Protected Period shall not end if prior to the expiration thereof any third party has indicated an intention or taken steps reasonably calculated to effect a Change of Control, in which event the Protected Period shall end only after such third party publicly announces that it has abandoned all efforts to effect a Change of Control. 2 2. Change of Control. For purposes of this Agreement, a "Change of Control, shall mean the first to occur of the following: (a) The acquisition by any individual, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-three percent (33%) or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions of common stock shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege or by one person or a group of persons acting in concert), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation which would not be a Change of Control under subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened "election contest" or other actual or threatened "solicitation" (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) of proxies or consents by or on behalf of a person other than the Incumbent Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, (i) more than two-thirds (2/3) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, (ii) no person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a 2 3 corporation, with respect to which following such sale or other disposition, (A) more than two-thirds (2/3) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment. (a) Subject to the provisions of Section 3, hereof, the Company agrees to continue to employ the Executive and the Executive agrees to remain in the employ of the Company during the Employment Term. During the Employment Term, the Executive shall be employed as Senior Vice President of M&I Marshall & Ilsley Corporation or in such other executive capacity as may be mutually agreed to in writing by the parties. During the Employment Term, Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or assigned at any time during the twelve (12) month period immediately preceding the Effective Date, and Executive's services shall be performed at the location where Executive was employed immediately preceding the Effective Date or at any office or location less than thirty-five (35) miles from such location, unless mutually agreed to in writing by the parties. (b) Excluding periods of vacation and sick leave to which the Executive is entitled, during the Employment Term the Executive agrees to devote full time attention to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, provided that the Executive may take reasonable amounts of time to (i) serve on corporate, civil or charitable boards or committees, and (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, if such activities do not significantly interfere with the performance of the Executive's responsibilities hereunder. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of Executive's responsibilities hereunder. 4. Compensation. (a) Base Salary. During the Employment Term, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve (12) month period immediately preceding the month in which the Effective Date occurs. During the Employment Term, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 3 4 Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (b) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Term, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve (12) full months or with respect to which the Executive has been employed by the Company for less than twelve (12) full months) bonuses paid or payable, including any amounts which were deferred under any plans of the Company and its affiliated companies, to the Executive by the Company and its affiliated companies in respect of the three (3) fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the "Recent Average Bonus"). Each such Annual Bonus shall be paid no later than seventy-five (75) days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus under any plan or arrangement of the Company allowing therefor. (c) Incentive, Savings and Retirement Plans. During the Employment Term, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club 4 5 dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (h) Vacation and Sick Leave. During the Employment Term, the Executive shall be entitled to paid vacation and sick leave (without loss of pay) in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (i) Restrictions. As of the Effective Date, all restrictions limiting the exercise, transferability or other incidents of ownership of any outstanding award, including but not limited to restricted stock, options, stock appreciation rights, or other property or rights of the Company granted to the Executive shall lapse, and such awards shall become fully vested and be held by the Executive free and clear of all such restrictions. This provision shall apply to all such property or rights notwithstanding the provisions of any other plan or agreement, unless the effect of the application of this provision to a particular right or property would result in such right or property failing to qualify for favorable tax treatment under the particular section of the Internal Revenue Code for which it was designed to qualify, or would result in the loss of favorable securities law treatment for participants under the plan pursuant to which the award was granted. 5. Termination of Employment. During the Employment Term, the Executive's employment hereunder may be terminated under the following circumstances: (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Term. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Term (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 5 of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative, provided if the parties are unable to agree, the parties shall request the Dean of the Medical College of Wisconsin to choose such physician. (b) Cause. The Company may terminate the Executive's employment for "Cause." A termination for Cause is a termination evidenced by a resolution 5 6 adopted in good faith by a majority of the Board that the Executive (i) willfully, deliberately and continually failed to substantially perform his duties under Section 3, above (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure constitutes gross misconduct, and results in and was intended to result in demonstrable material injury to the Company, monetary or otherwise, or (ii) committed acts of fraud and dishonesty constituting a felony, as determined by a final judgment or order of a court of competent jurisdiction, and resulting or intended to result in gain to or personal enrichment of the Executive at the Company's expense, provided, however, that no termination of the Executive's employment shall be for Cause as set forth in (i), above, until (a) Executive shall have had at least sixty (60) days to cure any conduct or act alleged to provide Cause for termination after a written notice of demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c) (1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an 6 7 intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. (d) Voluntary Termination. The Executive may voluntarily terminate his employment hereunder at any time. (e) Notice of Termination. Any purported termination by the Company or by the Executive (other than by death of the Executive) shall be communicated by Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) the Termination Date. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) Termination Date, Etc. "Termination Date" shall mean in the case of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination subject to the following: (1) If the Executive's employment is terminated by the Company, the date specified in the Notice of Termination shall be at least thirty (30) days after the date the Notice of Termination is given to the Executive, provided, however, that in the case of Disability, the Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; (2) If the Executive's employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days after the date the Notice of Termination is given to the Company; and (3) In the event that within thirty (30) days following the date of receipt of the Notice of Termination, one party notifies the other that a dispute exists concerning the basis for termination, the Executive's employment hereunder shall not be terminated except after the dispute is finally resolved and a Termination Date is determined either by a mutual written agreement of the parties, or by a binding and final judgment order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: 7 8 A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (2) The product of (x) the higher of (I) the Recent Average Bonus and (II) the Annual Bonus paid or payable, including any amount deferred, (and annualized for any fiscal year consisting of less than twelve (12) full months or for which the Executive has been employed for less than twelve (12) full months) for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days completed in the current fiscal year through the Termination Date, and the denominator of which is 365; and (3) Any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. The sum of the amounts described in Clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations." B. The amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary (increased for this purpose by any Section 401(k) deferrals, cafeteria plan elections, or other deferrals that would have increased Executive's Annual Base Salary if paid in cash to Executive when earned) and (y) the Executive's Highest Annual Bonus; C. A separate lump-sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the most favorable to the Executive actuarial assumptions and Company contribution history with respect to the applicable retirement plan, incentive plans, savings plans and other plans described in Section 4(c) (or any successor plan thereto) (the "Retirement Plans") during the twelve (12) month period immediately preceding the Effective Date) of the benefit payable under the Retirement Plans and any supplemental and/or excess retirement plan providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued for an additional two (2) years after the Termination Date with annual compensation equal to the sum of the Annual Base Salary and Highest Annual Bonus, assuming for this purpose that all accrued benefits and contributions are fully vested and that benefit accrual formulas and Company contributions are no less advantageous to the Executive than those in effect during the twelve (12) month period immediately preceding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plans during the twelve (12) month period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plans and the SERP. For example, if there were a termination today this supplemental retirement benefit would be interpreted with respect to two plans in existence today as follows: (i) with respect to the Retirement Growth Plan of the Company, the Executive would receive no less than two times eight percent (8%) of the maximum compensation that can be taken into account under the Plan assuming Executive's compensation is as set forth above, and (ii) with respect to the Incentive Savings Plan of the Company, the Executive would receive no less than two times an annual Company match of fifty percent (50%) of Employee's maximum allowable contribution to the Plan assuming Executive's compensation is as set forth above; D. The amount equal to the product of (i) two and (ii) the sum of (x) the imputed income reflected on Executive's W-2 attributable to the car provided to Executive by the Company or its affiliates for the last 8 9 calendar year ending before the Effective Date and (y) the club dues for Executive paid by the Company or its affiliates attributable to such year. (ii) For twenty-four (24) months after the Termination Date, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(d) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives and their families during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other benefits under another employer provided plan, the medical and other benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility, provided that the aggregate coverage of the combined benefit plans is no less favorable to the Executive, in terms of amounts and deductibles and costs to him, than the coverage required hereunder. For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of such twenty-four (24) month period and to have retired on the last day of such period. (iii) The Executive shall have the right to purchase the car provided to him by the Company or its affiliates during the twelve (12) month period immediately preceding the Effective Date (or a comparable car acceptable to the Executive if such car is no longer owned by the Company or its affiliates), at the book value thereof on the Termination Date, exercisable within thirty (30) days after the Termination Date; and if the car is not purchased, Executive shall return the car to the Company. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive pursuant to this Agreement under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Term, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, except that the Company shall pay or provide the Accrued Obligations, six (6) months of Annual Base Salary, and the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Termination Date. The six (6) months of Annual Base Salary shall be paid during the six (6) month period following the Termination Date on a monthly basis. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, and the Executive's family shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and any of its affiliated companies to surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to family death benefits, if any, as in effect with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their families. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall 9 10 terminate without further obligations to the Executive, except that the Company shall pay or provide the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Term, or if the Executive voluntarily terminates employment during the Employment Term for other than Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination, any other amounts earned or accrued through the Termination Date, and the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid; provided that if Executive voluntarily terminates Executive shall receive the benefits normally provided upon normal or early retirement with respect to other peer Executives and their families to the extent he qualifies therefore. All salary or compensation hereunder shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination. (e) If any of the payments referred to in this Section 6 are not paid within the time specified after the Termination Date (hereinafter a "Delinquent Payment"), in addition to such principal sum, the Company will pay to the Executive interest on all such Delinquent Payments computed at the prime rate as announced from time to time by M&I Marshall & Ilsley Bank, or its successor, compounded monthly. 7. No Mitigation. In no event shall the Executive be obligated to seek other employment to take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except to the extent set forth in Section 6(a)(ii)) whether or not the Executive obtains other employment. 8. Unauthorized Disclosure. The Executive shall not make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any confidential information obtained by the Executive while in the employ of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers or methods of operation) the disclosure of which he knows or has reason to believe will be materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 8) or any information not otherwise considered confidential by a reasonable person engaged in the same business as that conducted by the Company. In no event shall an asserted violation of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10 11 9. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative. 10. Fees and Expenses. From and after the Effective Date, the Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably incurred by the Executive as they become due as a result of (i) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive's hearing before the Board as contemplated in Section 5(b) of this Agreement or (iii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits. 11. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, if to the Company, to Marshall & Ilsley Corporation, 770 North Water Street, Milwaukee, Wisconsin 53202, or if to Executive, to the address set forth below Executive's signature, or to such other address as the party may be notified, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 12. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries for which the Executive may qualify. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 13. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 14. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions 11 12 at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 15. Employment. The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will" and prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates then the Executive shall have no further rights under this Agreement. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Wisconsin without giving effect to the conflict of law principles thereof. 17. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 18. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 19. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 20. Modification. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by both the Executive and the Company. 21. Withholding. The Company shall be entitled to withhold from amounts paid to the Executive hereunder any federal, estate or local withholding or other taxes or charges which it is, from time to time, required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 22. Limitation on Payments. (a) Within fifteen (15) business days of the Termination Date, an independent national accounting firm designated by the Company (the "Accounting Firm") shall compute whether there would be any "excess parachute payments" payable to the Executive, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), taking into account the total "parachute payments," within the meaning of Section 280G of the Code, payable to the Executive by the Company or any successor thereto under this Agreement and any other plan, agreement or otherwise. If there would be any excess parachute payments, the Accounting Firm will compute the net after-tax proceeds to the Executive, taking into account the excise tax imposed by Section 4999 of the Code, if (i) the payments hereunder were reduced, but not below zero, such that the total parachute payments payable to the Executive would not exceed 299% of the "base amount" as defined in Section 280G of the Code, or (ii) the payments hereunder were not reduced. If reducing the payments hereunder would result in a greater after-tax amount to the Executive, such lesser amount shall be paid to the Executive. If not reducing the payments hereunder would result in a greater after-tax amount to the Executive, such payments shall not be reduced. The determination by the Accounting Firm shall be binding upon the Company and the Executive subject to the application of Section 22(b) hereof. (b) As a result of the uncertainty in the application of Sections 280G of the Code, it is possible that excess parachute payments will be paid when such payment would result in a lesser after-tax amount to the Executive; this is not 12 13 the intent hereof. In such cases, the payment of any excess parachute payments will be void ab initio as regards any such excess. Any excess will be treated as a loan by the Company to the Executive. The Executive will return the excess to the Company, within fifteen (15) business days of any determination by the Accounting Firm that excess parachute payments have been paid when not so intended, with interest at an annual rate equal to the rate provided in Section 1274(b)(2)(B) of the Code (or 120% of such rate if the Accounting Firm determines that such rate is necessary to avoid an excise tax under Section 4999 of the Code) from the date the Executive received the excess until it is repaid to the Company. (c) All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by the Company and the Company shall pay such fees, costs and expenses as they become due. In performing the computations required hereunder, the Accounting Firm shall assume that taxes will be paid for state and federal purposes at the highest possible marginal tax rates which could be applicable to the Executive in the year of receipt of the payments, unless the Executive agrees otherwise." IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. MARSHALL & ILSLEY CORPORATION By: /s/ J.B. Wigdale -------------------------------- Chairman ATTEST: /s/ M.A. Hatfield - ----------------------------------- Secretary EXECUTIVE: /s/ Patricia R. Justiliano ------------------------------------ (employee) Address: W265 N6920 Thousand Oaks -------------------------- Sussex, WI 53089 -------------------------- 13 EX-10.(S) 4 1993 EXECUTIVE STOCK OPTION PLAN 1 Exhibit 10(s) MARSHALL & ILSLEY CORPORATION 1993 EXECUTIVE STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the best interests of Marshall & Ilsley Corporation and its shareholders by providing key employees of Marshall & Ilsley Corporation and its Subsidiaries with an opportunity to acquire a proprietary interest in Marshall & Ilsley Corporation thereby providing a stronger incentive for them to put forth maximum effort for the continued success and growth of Marshall & Ilsley Corporation. In addition, the opportunity to acquire a proprietary interest in Marshall & Ilsley Corporation will aid in attracting and retaining key personnel. 2. DEFINITIONS. Unless the context otherwise requires, the following terms shall have the meanings set forth below: (a) "Cause" shall mean the discharge of an Employee on account of fraud or embezzlement against the Company or its Subsidiaries or serious and wilful acts of misconduct detrimental to the business of the Company or its Subsidiaries or their reputations. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Committee" shall mean the Committee of the Board of Directors constituted as provided in Paragraph 4 of the Plan. (d) "Company" shall mean Marshall & Ilsley Corporation, a Wisconsin corporation. (e) "Employees" shall mean those individuals who are full-time employees of the Company or its Subsidiaries, from among whom the Committee may select the holders of Options. (f) "Holder" shall mean an Employee to whom an Option has been granted. (g) "Incentive Stock Option" shall mean an option to purchase Shares which complies with the provisions of Section 422 of the Code. 2 (h) "Market Price" shall mean the closing sale price of a Share on the NASDAQ National Market System as reported in the Midwest Edition of the Wall Street Journal, or such other market price as the Committee may determine in conformity with pertinent law and regulations of the Treasury Department. (i) "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (j) "Nonstatutory Stock Option" shall mean an option to purchase Shares which does not comply with the provisions of Section 422 of the Code. (k) "Option" shall mean an Incentive Stock Option or Nonstatutory Stock Option granted under the Plan. (l) "Option Agreement" shall mean the agreement between the Company and an Employee whereby an Option is granted to such Employee. (m) "Parent" shall mean a parent corporation of the Company as defined in Section 424(e) of the Code. (n) "Plan" shall mean the 1993 Executive Stock Option Plan of the Company. (o) "Share" or "Shares" shall mean the $1.00 par value Common Stock of the Company. (p) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (q) "Triggering Event" shall mean any of the following: (A) the commencement by any person or group of persons, other than the Company or a Subsidiary, of a tender or exchange offer for twenty-five percent (25%) or more of the outstanding shares of the common stock of the Company; (b) the acceptance by the Board of Directors of the Company of, or the public recommendation by the Board that the stockholders of the Company accept, an offer from any person or group of persons, other than the Company or a Subsidiary, to acquire twenty-five percent (25%) or more of either the outstanding shares of the common stock of the Company or the consolidated assets of the Company; (c) the acquisition, by any person or group of persons, of the beneficial ownership or the right to acquire beneficial ownership of twenty-five percent (25%) or more of the outstanding shares of the common stock of the Company (the term "group" and "beneficial ownership" as used in this paragraph having the meanings assigned thereto in Section 13(d) of the 1934 Act and the regulations promulgated there- 2 3 under); or (d) the Company (or any Subsidiary or Subsidiaries in the aggregate representing at least 25% of the consolidated assets of the Company), shall have entered into an agreement with any person, or any person shall have filed a draft or final application or notice with the Board of Governors of the Federal Reserve System or the Office of the Comptroller of the Currency or any other federal or state regulatory agency for approval, to (i) merge or consolidate with, or enter into any similar transaction with, the Company or such Subsidiary, in which the Company or Subsidiary is not the survivor (ii) purchase, lease or otherwise acquire all or substantially all of the assets of the Company or such Subsidiary or (iii) purchase or otherwise acquire (including by way of merger, consolidation, share exchange or any similar transaction) or otherwise hold or own, securities representing twenty-five percent (25%) or more of the voting power of the Company or such Subsidiary. 3. SHARES RESERVED UNDER PLAN. The aggregate number of Shares which may be issued or sold under the Plan shall not exceed 3,000,000 Shares, which may be treasury Shares or authorized but unissued Shares, or a combination of the two, subject to adjustment as provided in Paragraph 12 hereof. Any Shares subject to an Option which expires or terminated for any reason (whether by voluntary surrender, lapse of time, termination of employment or otherwise) and is unexercised as to such Shares may again be the subject of an Option under the Plan. The Holder of an Option shall be entitled to the rights and privileges of ownership with respect to the Shares subject to the Option only after actual purchase and issuance of such Shares pursuant to exercise of all or part of an Option. No Employee shall be eligible to receive Options for Shares aggregating more than 600,000 of the Shares reserved under the Plan during the term of the Plan, subject to adjustment as provided in Paragraph 12 hereof. 4. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the Committee. The Committee shall consist of not less than three members of the Board of Directors of the Company and shall be so constituted as to permit the Plan to comply with Rule 16b-3 under the 1934 Act, as such rule is currently in effect or as hereafter modified or amended ("Rule 16b-3"), Section 162(m) of the Code, or any successor rule or other statutory or regulatory requirements. The members of the Committee shall be appointed from time to time by the Board of Directors. 3 4 (b) The Committee shall have sole authority in its discretion, but always subject to the express provisions of the Plan, to determine the Employees to whom and the time or times at which Options shall be granted, the number of Shares to be subject to each Option, and the extent to which Options may be exercised in installments; to interpret the Plan; to prescribe, amend, and rescind rules and regulations pertaining to the Plan; to determine the terms and provisions of the respective Option Agreements; and to make all other determinations and interpretations deemed necessary or advisable for the administration of the Plan. The Committee's determination of the foregoing matters shall be conclusive and binding on the Company, all Employees, all Holders, and all other persons. 5. ELIGIBILITY. Only Employees shall be eligible to receive Options under the Plan. In determining the Employees to whom Options shall be granted and the number of Shares to be covered by each Option, the Committee may take into account the nature of the services rendered by the respective Employees, their present and potential contributions to the success of the Company, and other such factors as the Committee in its discretion shall deem relevant. An Employee who has been granted an Option under the Plan may be granted additional Options under the Plan if the Committee shall so determine. The Company shall effect the granting of Options under the Plan by execution of Option Agreements in such form as shall be approved by the Committee. No Option may be granted under the Plan to any person who is then a member of the Committee. 6. OPTIONS: GENERAL PROVISIONS. (a) Types of Options. Options to purchase Shares granted pursuant to this Plan shall be specified to be either an Incentive Stock Option (as described in Paragraph 7) or a Nonstatutory Stock Option. An Option Agreement executed pursuant to this Plan may include both an Incentive Stock Option and a Nonstatutory Stock Option. An Option Agreement executed pursuant to this Plan shall in no event provide for the grant of a tandem Option, wherein two Options are issued together and the exercise of one affects the right to exercise the other. (b) Option Exercise Price. The per share exercise price of the Shares under each Option granted pursuant to this Plan shall be determined by the Committee but shall not be less than one hundred percent (100%) of the fair market value per share on the date of grant of such Option. The fair market value per Share on 4 5 the date of grant shall be the Market Price for the business day immediately preceding the date of grant of such Option. (c) General Exercise Period. No Option granted under this Plan shall provide for its exercise earlier than six (6) months from its date of grant. The Committee may, in its discretion, (i) require that a Holder be employed by the Company or a Subsidiary for a designated number of years prior to the exercise by the Holder of any Option or portion of an Option granted under this Plan or (ii) impose additional restrictions on exercise of any Option. The Committee may, in its discretion, determine the periods during which Options or portions of Options may be exercised by a Holder, subject only to the terms of this Plan. Any of the foregoing requirements or limitations subsequently may be reduced or waived by the Committee in its discretion, unless such reduction or waiver is prohibited by the Code or other applicable law. (d) Vesting. If an Option Agreement provides that a Holder must be employed by the Company or a Subsidiary for a designated period before an Option becomes exercisable, such Option will become immediately exercisable upon the occurrence of a Triggering Event. (e) Payment of Exercise Price. The exercise price shall be payable in whole or in part in cash or in Shares held by the Holder for more than six months. If the Employee elects to pay all or a part of the exercise price in Shares, such Employee may make such payment by delivering to the Company a number of Shares already owned by the Employee equal in value to the exercise price. All Shares so delivered shall be valued at their Market Price on the date delivered. 7. INCENTIVE STOCK OPTIONS. This Paragraph sets forth the special provisions that govern Incentive Stock Options granted under this Plan. (a) Maximum Calendar Year Grant to Any Employee. The aggregate fair market value (determined at the time the Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time during any calendar year under this Plan (and under all other plans of the Company or any Parent or Subsidiary qualifying under Section 422 of the Code) shall not exceed $100,000 per Employee, and/or any other limit as may be prescribed by the Code from time to time. (b) Grant and Exercise Period. No Incentive Stock Option shall (i) be granted after ten (10) years from the date this Plan 5 6 is adopted by the Company's Board of Directors, or (ii) be exercisable after the expiration of ten (10) years from its date of grant. Every Incentive Stock Option which has not been exercised within ten years of its date of grant shall lapse upon the expiration of said ten-year period unless it shall have lapsed at an earlier date. 8. TERMINATION OF EMPLOYMENT. (a) Any Holder whose employment with the Company or a Subsidiary is terminated due to retirement on such Holder's normal retirement date (as defined in the M&I Retirement Growth Plan or any successor thereto) or due to early retirement with the consent of the Committee shall have one (1) year from the date of such termination of employment to exercise any Option granted hereunder as to all or part of the Shares subject to such Option, provided, however, that no Incentive Stock Option shall be exercisable subsequent to ten (10) years after its date of grant; and provided, further, that on the date of termination of employment, the Holder then had a present right to exercise such Option. (b) Any Holder whose employment with the Company or a Subsidiary is terminated due to disability (as defined in Section 22(e)(3) of the Code) shall have one (1) year from the date of termination of employment to exercise any Option granted hereunder as to all or part of the Shares subject to such Option; provided, however that no Incentive Stock Option shall be exercisable subsequent to ten (10) years after its date of grant; and provided, further, that on the date of termination of employment, the Holder then had a present right to exercise such Option. (c) In the event of the death of a Holder while in the employ of the Company or a Subsidiary, any Option theretofore granted to such Holder shall be exercisable: (1) For one (1) year after the Holder's death, but in no event later than ten (10) years from its date of grant in the case of an Incentive Stock Option; (2) Only by the personal representative, administrator or other representative of the estate of the deceased Holder or by the person or persons to whom the deceased Holder's right under the Option shall pass by will or the laws of descent and distribution; and (3) Only to the extent that the deceased Holder would have been entitled to exercise such Option on the date of the Holder's death. 6 7 (d) If a Holder's employment is terminated for a reason other than those specified above, the Holder shall have three (3) months from the date of termination of employment to exercise any Option granted hereunder as to all or part of the Shares subject thereto, provided, however, that no Incentive Stock Option shall be exercisable subsequent to ten (10) years after its date of grant; and provided, further, that on the date of termination of employment, the Holder then had a present right to exercise such Option. Notwithstanding the foregoing, (i) if a Holder's employment is terminated for Cause, to the extent an Option is not effectively exercised prior to such termination, it shall lapse immediately upon termination and (ii) if a Holder's employment is terminated in anticipation of, or as a result of, a Triggering Event which results in a transaction which will be accounted for using the pooling of interests accounting method, any Holder who is an executive officer for purposes of Section 16(b) of the 1934 Act shall have the greater of (a) six (6) months and (1) day or (b) ten (10) business days following the release of 30 days of combined results of the Company and any acquiring company, to exercise any Option granted hereunder as to all or part of the Shares subject thereto. (e) The Committee may in its sole discretion increase the periods permitted for exercise of an Option following a termination of employment as provided in Subparagraphs 8(a), (b), (c), and (d), above if allowable under applicable law; provided, however, in no event shall an Incentive Stock Option be exercisable subsequent to ten (10) years after its date of grant. (f) The Plan shall not confer upon any Holder any right with respect to continuation of employment by the Company or a Subsidiary, nor shall it interfere in any way with the right of the Company or such Subsidiary to terminate any Holder's employment at any time. 9. TRANSFERABILITY. (a) Except as provided in this Paragraph 9, Options granted to a Holder under this Plan shall be not transferable and during the lifetime of the Holder shall be exercisable only by the Holder. A Holder shall have the right to transfer the Options granted to such Holder upon such Holder's death, either by the terms of such Holder's will or under the laws of descent and distribution, subject to the limitations set forth in Paragraph 8 above, and all such distributees shall be subject to all terms and conditions of this Plan to the same extent as would the Holder if still alive, except as otherwise expressly provided herein or as determined by the Committee. 7 8 (b) An Option Agreement may provide that Options are transferable to members of a Holder's immediate family, to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners. For purposes of the preceding sentence, "immediate family" shall mean a Holder's children, grandchildren and spouse. 10. EXERCISE. An Option Agreement may provide for exercise of its respective Option in such amounts and at such times as shall be specified therein; provided, however, except as provided in Paragraph 8, above, no Option may be exercised unless the Holder is then in the employ of the Company or a Subsidiary and shall have been continuously so employed since its date of grant. An Option shall be exercisable by a Holder's giving written notice of exercise to the Secretary of the Company accompanied by payment of the required exercise price. The Company shall have the right to delay the issue or delivery of any Shares under the Plan until (a) the completion of such registration or qualification of such Shares under any federal or state law, ruling or regulation as the Company shall determine to be necessary or advisable, and (b) receipt from the Holder of such documents and information as the Committee may deem necessary or appropriate in connection with such registration or qualification. 11. SECURITIES LAWS. Each Option Agreement shall contain such representations, warranties and other terms and conditions as shall be necessary in the opinion of counsel to the Company to comply with all applicable federal and state securities laws. 12. ADJUSTMENT PROVISIONS. If the Company shall effect a subdivision or consolidation of Shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction in the number of Shares outstanding, or shall effect a spin-off, split-off, or other distribution of assets to shareholders, without receiving consideration therefor in money, services or property, the number of Shares then remaining subject to or available for Options, including Shares as to which Options have been granted but which remain unexercised and Shares reserved for Options, shall be appropriately adjusted by the Company's Board of Directors upon the recommendation of the Committee, subject to the express terms and conditions of this Plan. The limitation on the number of Options for shares which may be awarded to any Employee contained in Paragraph 3 hereof shall be adjusted in the same manner. 8 9 Subject to any required action by the Company's shareholders, if the Company shall be a party to any merger or consolidation in which the Company is not the surviving corporation or any other transaction or series of transactions which has a reasonable likelihood or a purpose of causing the Shares to be neither listed on any national securities exchange nor authorized to be quoted on an inter-dealer quotation system of any registered national securities association, or registered under Section 12 of the 1934 Act, each outstanding Option shall pertain to and apply to the securities which a Holder of the number of Shares subject to the Option would have been entitled to receive pursuant to such transaction, with any such adjustment in the exercise price as the Committee shall deem appropriate. A dissolution of the Company or a sale of all or substantially all of the assets and property of the Company shall cause each outstanding Option to terminate forthwith; provided, however, that the Holders of outstanding Options may exercise such Options to the extent exercisable immediately prior to such dissolution or sale. 13. TIME OF GRANTING. Nothing contained in the Plan or in any resolution adopted or to be adopted by the Board of Directors or the shareholders of the Company and no action taken by the Committee shall constitute the granting of any Option hereunder. The granting of an Option pursuant to the Plan shall take place only when a written Option Agreement shall have been duly executed by and on behalf of the Company. 14. TAXES. The Company shall be entitled to pay or withhold the amount of any tax which it believes is required as a result of the grant or exercise of any Option under the Plan, and the Company may defer making delivery with respect to Shares obtained pursuant to exercise of any Option, until arrangements satisfactory to it have been made with respect to any such withholding obligations. An Employee exercising a Nonstatutory Stock Option may, at his election, satisfy his obligation for payment of withholding taxes either by having the Company retain a number of Shares having an aggregate Market Price on the date the Shares are withheld equal to the amount of the withholding tax or by delivering to the Company Shares already owned by the Employee having an aggregate Market Price on the date the Shares are delivered equal to the amount of the withholding tax. 9 10 15. EFFECTIVENESS OF THE PLAN. The Plan shall become effective, upon approval of the Company's Compensation Committee and the Board of Directors on December 16, 1993, subject to ratification of the Plan by the vote of the holders of a majority of Shares present or represented and entitled to vote at an annual or special meeting thereof duly called and held. 16. TERMINATION AND AMENDMENT. Unless the Plan shall theretofore have been terminated as hereinafter provided, no Incentive Stock Option hereunder shall be granted after December 15, 2003. The Plan may be terminated, modified or amended by the affirmative vote of the holders of a majority of the Shares of the Company present, or represented, and entitled to vote at a meeting of the shareholders of the Company. The Board of Directors of the Company may also terminate the Plan or make such modifications or amendments thereof as it shall deem advisable, including such modifications or amendments as it shall deem advisable in order to conform to any law or regulation applicable thereto; provided, however, that the Board of Directors may not, unless otherwise permitted under the federal securities laws, without further approval of the shareholders of the Company, adopt any amendment to the Plan which would cause the Plan to no longer comply with Rule 16b-3, or any successor rule or other regulatory requirements. No termination, modification or amendment of the Plan may, without the consent of the Holder, adversely affect the rights of such Holder under an outstanding Option then held by the Holder. 17. RULE 16b-3. (a) It is intended that the Plan meet all of the requirements of Rule 16b-3. If any provision of the Plan would disqualify the Plan, or would not comply with Rule 16b-3, such provision shall be construed or deemed amended to conform to Rule 16b-3. (b) Any election by an Employee subject to Section 16 of the 1934 Act, pursuant to Paragraph 6(e) or 14 hereof, may be made only during such times as permitted by Rule 16b-3 and may be disapproved by the Committee at any time after the election. 10 EX-11 5 COMPUTATION OF NET INCOME 1 EXHIBIT 11 MARSHALL & ILSLEY CORPORATION COMPUTATION OF NET INCOME PER COMMON SHARE ($000'S, EXCEPT PER SHARE DATA)
1995 1994 1993 ------------ ------------ ------------ PRIMARY: Weighted average common shares outstanding during each year......................................... 93,697,513 94,850,595 98,497,435 Incremental shares relating to: Conversion of preferred stock..................... 3,832,957 3,095,181 1,962,900 Dilutive stock options outstanding at end of each year and exercised during each year(1)......... 1,226,577 1,474,294 2,212,026 ----------- ----------- ----------- Average number of common and common equivalent shares for primary net income per share........... 98,757,047 99,420,070 102,672,361 =========== =========== =========== FULLY DILUTED: Weighted average common shares outstanding during each year......................................... 93,697,513 94,850,595 98,497,435 Incremental shares relating to: Conversion of preferred stock..................... 3,832,957 3,095,181 1,962,900 Dilutive stock options outstanding at end of each year and exercised during each year(2)......... 1,580,124 1,523,584 2,594,292 Conversion of convertible notes................... 3,844,229 4,582,005 5,819,973 ----------- ----------- ----------- Average number of common and common equivalent shares for fully diluted net income per share..... 102,954,823 104,051,365 108,874,600 =========== =========== ===========
2 EXHIBIT 11 (CONTINUED) MARSHALL & ILSLEY CORPORATION COMPUTATION OF NET INCOME PER COMMON SHARE ($000'S, EXCEPT PER SHARE DATA)
1995 1994 1993 -------- -------- -------- PRIMARY: Income before extraordinary items and cumulative effect of changes in accounting principles......................... $193,299 $ 94,398 $171,394 Extraordinary items, net of income taxes................... -- 11,542 -- -------- -------- -------- Net income applicable to common shares..................... $193,299 $105,940 $171,394 ======== ======== ======== FULLY DILUTED: Income before extraordinary items and cumulative effect of changes in accounting principles......................... $193,299 $ 94,398 $171,394 Add: interest expense, less income tax effect on convertible notes..................................... 1,859 2,047 2,938 -------- -------- -------- 195,158 96,445 174,332 Extraordinary items, net of income taxes................... -- 11,542 -- -------- -------- -------- Net income applicable to common shares..................... $195,158 $107,987 $174,332 ======== ======== ======== PER COMMON SHARE AMOUNTS: Primary: Income before extraordinary items and cumulative effect of changes in accounting principles................... $ 1.96 $ 0.95 $ 1.67 Extraordinary items...................................... -- .12 -- -------- -------- -------- Net income................................................. $ 1.96 $ 1.07 $ 1.67 ======== ======== ======== Fully diluted: Income before extraordinary items and cumulative effect of changes in accounting principles................... $ 1.90 $ 0.93 $ 1.60 Extraordinary items...................................... -- .11 -- -------- -------- -------- Net income................................................. $ 1.90 $ 1.04 $ 1.60 ======== ======== ========
- --------------- (1) Based on treasury stock method using average market price. (2) Based on treasury stock method using year-end market price, if higher than average market price for options outstanding at end of each year and market price at date of exercise for options exercised during each year. EX-12 6 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 MARSHALL & ILSLEY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($000'S)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- EARNINGS: Earnings before income taxes, extraordinary items and cumulative effect of changes in accounting principles....................... $299,879 $167,803 $264,584 $231,792 $186,738 Fixed charges, excluding interest on deposits.................................... 108,683 77,074 47,905 50,687 66,641 Earnings including fixed charges but excluding interest on deposits........................ 408,562 244,877 312,489 282,479 253,379 Interest on deposits.......................... 331,734 255,861 272,100 334,443 448,757 -------- -------- -------- -------- -------- Earnings including fixed charges and interest on deposits................................. $740,296 $500,738 $584,589 $616,922 $702,136 ======== ======== ======== ======== ======== FIXED CHARGES: Interest expense: Borrowings: Short-term.................................. $ 47,740 $ 39,681 $ 18,010 $ 17,606 $ 32,065 Long-term................................... 53,709 30,537 23,088 26,439 27,770 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor)........................ 7,234 6,856 6,807 6,642 6,806 -------- -------- -------- -------- -------- Fixed charges excluding interest on deposits.................................... 108,683 77,074 47,905 50,687 66,641 Interest on deposits.......................... 331,734 255,861 272,100 334,443 448,757 -------- -------- -------- -------- -------- Fixed charges including interest on deposits.................................... $440,417 $332,935 $320,005 $385,130 $515,398 ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES: Excluding interest on deposits................ 3.76x 3.18x 6.52x 5.57x 3.80x Including interest on deposits................ 1.68x 1.50x 1.83x 1.60x 1.36x
EX-21 7 M & I CORP. SUBSIDIARIES 1 Exhibit 21 MARSHALL & ILSLEY CORPORATION SUBSIDIARIES February 29, 1996 M&I Bank (Ashland) M&I First National Bank M&I Bank (Superior) M&I Lake Country Bank M&I Bank of Beloit M&I Madison Bank M&I Bank of Burlington M&I Marshall & Ilsley Bank M&I Bank of Delavan M&I Merchants Bank M&I Bank of Eagle River M&I Mid-State Bank M&I Bank of Janesville M&I Northern Bank M&I Bank of LaCrosse M&I Thunderbird Bank M&I Bank of Mayville M&I Asia Pacific Sdn. Bhd. M&I Bank of Menomonee Falls M&I Brokerage Services, Inc. M&I Bank of Racine M&I Capital Markets Group, Inc. M&I Bank of Shawano M&I Financial Corp. M&I Bank Fox Valley M&I First National Leasing Corp. M&I Bank Northeast M&I Insurance Company of Arizona, Inc. M&I Bank South Central M&I Investment Management Corp. M&I Bank Southwest M&I Marshall & Ilsley Trust Company of Arizona M&I Bank S.S.B. M&I Mortgage Corp. M&I Central Bank & Trust M&I Servicing Corp. M&I Central State Bank M&I Support Services Corp. M&I Citizens American Bank Community Life Insurance Company M&I Community State Bank Marshall & Ilsley Trust Company M&I First American Bank Marshall & Ilsley Trust Company of Florida Richter-Schroeder Company, Inc.
Each subsidiary was incorporated in Wisconsin, except M&I Marshall & Ilsley Trust Company of Arizona, M&I Insurance Company of Arizona, Inc., M&I Thunderbird Bank and Community Life Insurance Company, which were incorporated in Arizona; Marshall & Ilsley Trust Company of Florida, which was incorporated in Florida; M&I Servicing Corp., which was incorporated in Nevada; M&I First National Bank, which was organized under the laws of the United States; and M&I Asia Pacific Sdn. Bhd., which was organized under the laws of Malaysia. EX-23 8 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated January 26, 1996, included in and made a part of the Annual Report on Form 10-K for the year ended December 31, 1995 of Marshall & Ilsley Corporation. We also consent to the incorporation by reference of such report in the following Registration Statements of Marshall & Ilsley Corporation: Registration Statement No. 33-3415 (Form S-8) pertaining to the Marshall & Ilsley Corporation Retirement Growth Plan; Registration Statement No. 33-33153 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1989 Executive Stock Option and Restricted Stock Plan; Registration Statement No. 33-33090 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1988 Restricted Stock Plan; Registration Statement No. 33-2642 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1985 Executive Stock Option and Restricted Stock Plan; Registration Statement No. 2-89605 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1983 Executive Stock Option and Restricted Stock Plan; Registration Statement No. 33-53155 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1993 Executive Stock Option Plan; Registration Statement No. 33-53897 (Form S-8) pertaining to the stock option plans of Valley Bancorporation assumed by Marshall & Ilsley Corporation; Registration Statement No. 33-55317 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1994 Long-Term Incentive Plan for Executives; Registration Statement No. 33-58787 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1995 Directors Stock Option Plan; Registration Statement No. 2-80293 (Form S-3) pertaining to shares of Marshall & Ilsley Corporation held by those persons named in such Registration Statement; Registration Statement No. 33-21377 (Form S-3) pertaining to the issuance by Marshall & Ilsley Corporation of Debt Securities; Registration Statement No. 33-64054 (Form S-3) pertaining to the issuance by Marshall & Ilsley Corporation of Debt Securities; and Registration Statement No. 33-64425 (Form S-3) pertaining to the issuance by Marshall & Ilsley Corporation of Debt Securities. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, February 27, 1996 EX-24 9 POWER OF ATTORNEY 1 Exhibit 24 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Richard A. Abdoo -------------------- Richard A. Abdoo 2 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ J.P. Bolduc ------------------ J.P. Bolduc 3 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Wendell F. Bueche ---------------------- Wendell F. Bueche 4 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ G.H. Gunnlaugsson ----------------------- G.H. Gunnlaugsson 5 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Burleigh E. Jacobs ------------------------ Burleigh E. Jacobs 6 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Jack F. Kellner --------------------- Jack F. Kellner 7 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ D.J. Kuester ------------------ D.J. Kuester 8 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Edward L. Meyer, Jr. ------------------------- Edward L. Meyer, Jr. 9 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Don R. O'Hare ------------------- Don R. O'Hare 10 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Oscar C. Boldt ------------------- Oscar C. Boldt 11 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Peter M. Platten, III -------------------------- Peter M. Platten, III 12 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Stuart W. Tisdale ---------------------- Stuart W. Tisdale 13 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ J.B. Wigdale ------------------ J.B. Wigdale 14 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ James O. Wright -------------------- James O. Wright 15 DIRECTOR'S POWER OF ATTORNEY The undersigned Director of Marshall & Ilsley Corporation, a Wisconsin corporation, hereby constitutes and designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, the true and lawful attorney-in-fact of the undersigned to sign for him in his name, the Form 10-K of Marshall & Ilsley Corporation for its fiscal year ended December 31, 1995 and any and all amendments and/or supplements to said Form 10-K, generally to do all such things in his name and behalf in his capacity as a director to enable Marshall & Ilsley Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, and hereby ratifying and confirming his signature as it may be signed by said attorney-in-fact to said Form 10-K and any and all amendments and/or supplements thereto. Dated this 15th day of February, 1996. /s/ Gus A. Zuehlke -------------------- Gus A. Zuehlke EX-27 10 FDS
9 EXHIBIT 27 1000 YEAR DEC-31-1995 DEC-31-1995 745911 28812 66618 38601 2458600 450457 453240 8868902 161430 13343097 10280777 1015022 367131 422550 0 349 99494 1157774 13343097 774256 136980 13424 924660 331734 101449 491477 16158 4555 599622 299879 193299 0 0 193299 1.96 1.90 4.30 50598 8184 3087 61869 153961 14615 5358 161430 161430 0 0
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