-----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, R4xFxbdUCuUIvG6YPWf+qVS3TehTd1NgRX3TIY8VfP4buGnEZSsU9VM2CAYPLZLX VyWPIIP08LNGWROEnP24WQ== 0000950131-98-001605.txt : 19980311 0000950131-98-001605.hdr.sgml : 19980311 ACCESSION NUMBER: 0000950131-98-001605 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980310 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: SEC FILE NUMBER: 000-01220 FILM NUMBER: 98561887 BUSINESS ADDRESS: STREET 1: 770 N WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147657801 MAIL ADDRESS: STREET 1: 770 NORTH WATER ST CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K405 1 FORM 10-K405 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, 1997 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 770 NORTH WATER STREET 53202 MILWAUKEE, WISCONSIN (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 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 $5,654,195,000 as of January 31, 1998. The number of shares of common stock outstanding as of January 31, 1998 is 101,648,447. 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 28, 1998. 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 (the "BHCA"). As of December 31, 1997, M&I had consolidated total assets of approximately $19.5 billion and consolidated total deposits of approximately $14.4 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 26 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 over 225 banking offices in Wisconsin and 12 offices in Arizona. M&I Marshall & Ilsley Bank ("M&I Bank") is M&I's largest bank subsidiary, with consolidated assets as of December 31, 1997 of approximately $8.3 billion. M&I Data Services and three nonbank subsidiaries are major suppliers of financial and data processing services and software to banking, financial and related organizations. M&I Data Services provides services and software to over 600 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, home equity financing, 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 Dealer Finance, Inc. provides lease financing. M&I Mortgage Corp. originates, purchases, sells and services residential mortgages. M&I Home Equity Corp. and M&I Home Equity Corp. of Minnesota provide consumer home equity loans. 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 October 1, 1997, M&I acquired Security Capital Corporation ("Security"), a Wisconsin corporation, for approximately 12.3 million shares of M&I Common Stock and approximately $376 million in cash. The acquisition of Security contributed approximately $2.2 billion of loans and $2.3 billion of deposits. The transaction was accounted for as a purchase. 1 On November 3, 1997, M&I entered into an Agreement and Plan of Merger (the "Merger Agreement") with Advantage Bancorp, Inc., a Wisconsin corporation ("Advantage") which provides for the merger of Advantage with and into M&I (the "Merger"). The Merger Agreement provides that each outstanding share of Advantage Common Stock will be converted into the right to receive 1.2 shares of M&I Common Stock, subject to adjustment based on the average closing price of M&I Common Stock prior to the effective date of the Merger. The Merger is currently expected to be completed on or about April 1, 1998. As of December 31, 1997, Advantage had consolidated total assets of $1.03 billion and consolidated total deposits of $661 million. The Merger will be accounted for as a pooling-of-interests. 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 FEES FOR DATA INTEREST AND INVESTMENT PROCESSING FEES ON LOANS SECURITIES 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) 1997...... $873,179 50.1% $258,599 14.8% $343,846 19.7% $1,742,528 1996...... 758,955 51.5 202,255 13.7 268,526 18.2 1,474,756 1995...... 774,256 57.4 136,980 10.2 213,914 15.9 1,348,842
M&I business segment information is contained in Note 19 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data. COMPETITION M&I and its subsidiaries face substantial competition from hundreds of competitors in the markets they serve, some of which are larger and have greater resources than M&I. M&I's bank subsidiaries compete for deposits and other sources of funds and for credit relationships with other banks, savings associations, credit unions, finance companies, mutual funds, life insurance companies (and other long-term lenders) and other financial and non-financial companies located both within and outside M&I's primary market area, many of which offer products functionally equivalent to bank products. M&I's 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, 1997, M&I and its subsidiaries employed in the aggregate approximately 10,227 employees. M&I considers employee relations to be excellent. None of the employees of M&I or its subsidiaries are represented by a collective bargaining group. 2 SUPERVISION AND REGULATION As a registered bank holding company, M&I is subject to regulation and examination by the FRB under the BHCA. M&I's state bank subsidiaries and savings association are subject to regulation and examination by the Wisconsin Department of Financial Institutions, or in the case of M&I Thunderbird Bank, the Arizona State Banking Department, and the FRB (for state banks). M&I's national bank subsidiary is subject to regulation and examination by the Office of the Comptroller of the Currency. In addition, all of M&I's bank subsidiaries are subject to examination by the FDIC. 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, inter-affiliate liabilities, extensions of credit and branch banking. Information regarding capital requirements for bank holding companies and tables reflecting M&I's regulatory capital position at December 31, 1997 can be found in Note 13 of the Notes to the Consolidated Financial Statements contained in Item 8, Consolidated Financial Statements and Supplementary Data. The federal regulatory agencies have broad power to take prompt corrective action if a depository institution fails to maintain certain capital levels. In addition, a bank holding company's controlled insured depository institutions are liable for any loss incurred by the FDIC in connection with the default of, or any FDIC-assisted transaction involving, an affiliated insured bank or savings association. Current federal law provides that adequately capitalized and managed bank holding companies from any state may acquire banks and bank holding companies located in any other state, subject to certain conditions. Beginning on June 1, 1997, banks were permitted to create interstate branching networks in states that did not "opt out" of interstate branching. The laws and regulations to which M&I is 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, 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 its bank subsidiaries also are affected by the general economic and political conditions in the United States and abroad and by the monetary and fiscal policies of various federal agencies. The 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. 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. (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 and Leases for each of the last five years is included in Item 7, Management's Discussion and Analysis of Financial Position and Results of Operations. 3 (4) Summary of Loan and Lease 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 (in thousands):
1997 1996 1995 ---------- ---------- ---------- U.S. Treasury and government agencies......... $3,739,381 $2,832,067 $2,330,577 States and political subdivisions............. 926,129 770,456 446,998 Other......................................... 227,474 193,057 98,380 ---------- ---------- ---------- $4,892,984 $3,795,580 $2,875,955 ========== ========== ==========
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, 1997 are (in thousands):
AFTER ONE BUT WITHIN FIVE AFTER FIVE BUT AFTER TEN WITHIN ONE YEAR YEARS WITHIN TEN YEARS YEARS TOTAL ---------------- ---------------- ---------------- -------------- ---------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ---------- ----- ---------- ----- ---------- ------- -------- ----- ---------- ----- U.S. Treasury and government agencies.... $1,077,232 6.85% $2,364,995 6.89% $ 289,029 6.99% $ 8,125 7.20% $3,739,381 6.89% States and political subdivisions........... 55,674 6.85 223,083 7.09 385,847 7.37 261,525 8.03 926,129 7.46 Other................... 57,757 6.55 61,547 7.62 5,749 8.01 102,421 6.49 227,474 6.86 ---------- ---- ---------- ---- ---------- ------ -------- ---- ---------- ---- $1,190,663 6.84% $2,649,625 6.92% $ 680,625 7.21% $372,071 7.59% $4,892,984 6.99% ========== ==== ========== ==== ========== ====== ======== ==== ========== ====
TYPES OF LOANS AND LEASES M&I's consolidated loans and leases, classified by type, at December 31 of each year are (in thousands):
1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- Commercial, financial and agricultural....... $ 3,326,393 $2,885,152 $2,903,920 $2,644,928 $2,538,830 Industrial development revenue bonds.......... 49,126 32,241 29,358 31,796 45,889 Real estate: Construction........... 402,892 323,420 303,345 378,316 333,609 Mortgage: Residential........... 3,782,181 2,176,224 2,002,023 2,240,287 2,223,857 Commercial............ 3,339,592 2,379,156 2,189,449 2,062,022 2,000,052 ----------- ---------- ---------- ---------- ---------- Total mortgage...... 7,121,773 4,555,380 4,191,472 4,302,309 4,223,909 Personal................ 1,153,003 1,174,186 1,163,127 1,178,453 1,217,513 Lease financing......... 489,094 331,505 277,680 256,690 257,622 ----------- ---------- ---------- ---------- ---------- 12,542,281 9,301,884 8,868,902 8,792,492 8,617,372 Less: Allowance for loan and lease losses......... 202,818 155,895 161,430 153,961 133,600 ----------- ---------- ---------- ---------- ---------- Net loans and leases.... $12,339,463 $9,145,989 $8,707,472 $8,638,531 $8,483,772 =========== ========== ========== ========== ==========
4 LOAN AND LEASE BALANCES AND MATURITIES The analysis of selected loan and lease maturities at December 31, 1997 and the rate structure for the categories indicated are (in thousands):
RATE STRUCTURE OF LOANS AND LEASES MATURITY DUE AFTER ONE YEAR --------------------------------------------- ------------------------------ OVER ONE WITH PRE- WITH ONE YEAR OR YEAR THROUGH OVER FIVE DETERMINED FLOATING LESS FIVE YEARS YEARS TOTAL RATE RATE TOTAL ----------- ------------ --------- ---------- ---------- -------- ---------- Commercial, financial and agricultural....... $ 2,327,029 $ 922,236 $ 77,128 $3,326,393 $ 845,414 $153,950 $ 999,364 Industrial development revenue bonds.......... 6,643 16,654 25,829 49,126 31,746 10,737 42,483 Real estate-- construction........... 234,692 168,200 -- 402,892 123,088 45,112 168,200 Lease financing......... 295,822 173,994 19,278 489,094 193,272 -- 193,272 ----------- ---------- -------- ---------- ---------- -------- ---------- $ 2,864,186 $1,281,084 $122,235 $4,627,505 $1,193,520 $209,799 $1,403,319 =========== ========== ======== ========== ========== ======== ==========
- -------- 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 over-drafts are reported as due in one year or less. (2) Amounts shown for the rate structure of loans and leases due after one year include the estimated effect arising from the use of interest rate swaps. NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS AND LEASES 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 nonaccrual. Exceptions to these rules are generally only for loans fully collateralized by readily marketable securities or other relatively risk free collateral. POTENTIAL PROBLEM LOANS AND LEASES At December 31, 1997 the Corporation had $18.1 million 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, 1997, the Corporation's commercial finance subsidiary had $0.5 million of corporate debt investment securities on nonaccrual status. The effect on interest income in 1997 was not material. DEPOSITS The average amount of and the average rate paid on selected deposit categories for each of the years ended December 31 is as follows ($ in thousands):
1997 1996 1995 ----------------- ----------------- ---------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ----------- ----- ----------- ----- ---------- ----- Noninterest bearing demand deposits................. $ 2,263,743 $ 2,090,292 $1,980,035 Interest bearing demand deposits................. 967,082 1.88% 940,739 1.81% 959,234 1.85% Savings deposits.......... 3,726,858 3.90% 3,322,332 3.68% 3,006,002 3.61% Time deposits............. 4,609,171 5.77% 3,860,533 5.74% 3,664,144 5.61% ----------- ----------- ---------- Total deposits............ $11,566,854 $10,213,896 $9,609,415 =========== =========== ==========
5 The maturity distribution of time deposits issued in amounts of $100,000 and over and outstanding at December 31, 1997 (in thousands) is: Three months or less............................................. $ 409,485 Over three and through six months................................ 307,274 Over six and through twelve months............................... 271,320 Over twelve months............................................... 402,385 ---------- $1,390,464 ==========
At December 31, 1997, time deposits issued by foreign offices totaled $753.0 million. SHORT-TERM BORROWINGS Information related to M&I's funds purchased and security repurchase agreements for the last three years is as follows ($ in thousands):
1997 1996 1995 ---------- ---------- --------- Amount outstanding at year end........... $1,424,359 $1,337,940 $ 517,576 Average amount outstanding during the year.................................... 1,745,161 1,061,105 739,191 Maximum amount outstanding at any month's end..................................... 1,919,565 1,537,551 1,094,314 Weighted average interest rate at year end..................................... 5.70% 5.69% 4.99% Weighted average interest rate during the year.................................... 5.50% 5.26% 5.70%
SUMMARY OF LOAN AND LEASE 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 overall adequacy of the allowance for loan and lease losses 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, portfolio trends, portfolio composition by segment, assigned credit grades, and estimates of potential loss exposures. The loan and lease portfolios of the Corporation's affiliate banks and leasing subsidiary are subject to continual management oversight and formal quarterly analyses. Management's analyses are based on the Corporation's credit grading system which classifies loans and leases 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 and lease losses. Consolidated net charge-offs decreased in 1997 to $13.1 million from the higher than normal 1996 level of $20.3 million. The 1996 net charge-off level was negatively impacted by the charge-off of one larger commercial loan ($12 million) and one commercial lease ($1.9 million). Other than these 1996 charge-offs, both charge-offs and recoveries have been relatively stable given the growth of loans from $8.6 billion in 1993 to $12.5 billion in 6 1997. The overall positive net charge-off levels reflect the relative strength of the Wisconsin and Arizona economies. The Corporation's Arizona-based loan portfolio, which represents approximately 3% of the total portfolio, has benefitted in recent years by the stabilization of the Arizona economy and real estate values. The allowance for loan and lease losses increased from $155.9 million at December 31, 1996 to $202.8 million at December 31, 1997, due primarily to the assumption of $42.8 million of allowance from Security. The 1997 provision for loan losses of $17.3 million is consistent with the prior four years' general provisions of $15.2 million, $16.2 million, $16.0 million, and $18.0 million. A special provision of $8.9 million was charged to expense in 1994 to conform Valley Bancorporation's loan valuation policies with those of the Corporation, after consummation of that merger. The year-end reserve level is 1.62% of total loans and leases down slightly from the year-end 1996 level of 1.68%. The reserve level at December 31, 1997 is considered adequate based on the analyses of specific credits, portfolio and economic trends, and other factors described above. The Corporation's charge-off and recovery levels across portfolio sectors have been relatively consistent over the last few years, with the exception of 1996 commercial loan and lease financing charge-offs. Commercial loan loss experience in 1996 was negatively impacted by the $12.0 million charge-off referenced above. The charge-offs and recoveries for real estate construction loans continue to be relatively immaterial. The 1997 net charge-offs for real estate mortgages increased from the normal level due primarily to a reduction in recoveries. The 1997 net charge-off and recovery levels for personal loans continued to increase in 1997, due primarily to growth in this portfolio sector. The 1997 charge-offs for the Corporation's lease financing portfolio returned to a more normal level after the one lease referred to above caused the 1996 level to be higher than usual. The Corporation's charge-off and provision levels for 1998 will 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 1998 are not expected to vary significantly from average net charge-offs from 1993 through 1997. At the present time, there are no material loans which are known or believed to be in imminent danger of deteriorating or defaulting which would 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 1998 are expected to approximate normal historic 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 1998 are not expected to vary significantly from historic levels. Based on the current portfolio size, composition and experience, personal loan losses for 1998 are expected to approximate normal historic levels. 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 1998 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. FORWARD-LOOKING STATEMENTS The following statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (1) statements other than historical facts contained or incorporated by reference in this report or in any future filings by M&I with the Securities and Exchange Commission, and (2) statements other than historical facts contained in written material, press releases and oral statements issued by, or on behalf of, M&I. Forward-looking statements are subject to significant risks and uncertainties and M&I's actual results may differ materially from the results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to: (1) 7 general economic conditions, either nationally or in the states in which M&I does business; (2) legislation or regulatory changes which adversely affect the businesses in which M&I is engaged; (3) changes in the interest rate environment which reduce interest margins; (4) significant increases in competition in the banking and financial services industry; (5) changes in consumer spending, borrowing and saving habits; (6) technological changes; (7) acquisitions and unanticipated occurrences which delay or reduce the expected benefits of acquisitions; (8) M&I's ability to increase market share and control expenses; (9) the effect of compliance with legislation or regulatory changes; (10) the effect of changes in accounting policies and practices; and (11) the costs and effects of unanticipated litigation and of unexpected or adverse outcomes in such litigation. ITEM 2. PROPERTIES M&I and M&I Marshall & Ilsley Bank ("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 25 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. In 1997, Data Services completed construction of a 160,000 square foot facility in Milwaukee that houses its software development teams. 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 61 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 56 Ilsley Corporation; President and Director since January 1989, M&I Marshall & Ilsley Bank; Chairman of the Board and Director, M&I Data Services; Director--M&I Financial Corp., M&I Building Corp., M&I Support Services Corp. and M&I New England, Inc.; Director and President--M&I Insurance Company of Arizona, Inc.
8
NAME OF OFFICER OFFICE --------------- ------ G.H. Gunnlaugsson Director since February 1994, Executive Vice President and Age 53 Chief 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, M&I Insurance Services, Inc. and M&I Brokerage Services, Inc. G.D. Strelow Senior Vice President and Human Resources Director of Age 63 Marshall & 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 52 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, Loujo Company, M&I New England, Inc. and Richter-Schroeder Company, Inc.; Secretary, M&I Insurance Services, Inc. and M&I EastPoint Technology, Inc.; Secretary and Treasurer, M&I Mortgage Corp. P.R. Justiliano Senior Vice President since 1994 and Corporate Controller Age 47 since April 1989, Vice President, 1986 to 1994, Marshall & Ilsley Corporation; Director and Treasurer, M&I Insurance Company of Arizona, Inc. J.L. Delgadillo Senior Vice President of Marshall & Ilsley Corporation since Age 45 1993; Chief Executive Officer since January 1998 and 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 from 1989 to 1993; Director and Executive Vice President of M&I EastPoint Technology, Inc.; Director and President of M&I New England, Inc. D.W. Layden, Jr. Senior Vice President since October 1994, Marshall & Ilsley Age 40 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 from March 1992 to October 1994, M&I Data Services. D.R. Jones Senior Vice President since December 1993, Vice President Age 52 and Affiliate Bank Manager since May 1993, Vice President and South Regional Manager from March 1989 to May 1993, Marshall & Ilsley Corporation; Director--M&I Support Services Corp. T.M. Bolger Senior Vice President and Chief Credit Officer since 1994, Age 48 Marshall & Ilsley Corporation; Executive Vice President since 1997, M&I Marshall & Ilsley Bank; Director--Richter- Schroeder Company, Inc. D.H. Wilson Senior Vice President and Treasurer since December 1996, Age 38 Vice President and Treasurer since 1995, Marshall & Ilsley Corporation; Vice President, Treasury from June 1992 to May 1995, ABN AMRO/LaSalle National Bank.
9 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" on the Nasdaq National Market, 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, 1997, M&I had approximately 21,157 record holders of its Common Stock. 10 ITEM 6. SELECTED FINANCIAL DATA CONSOLIDATED SUMMARY OF EARNINGS YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1997 1996 1995 1994 1993 ---------- -------- -------- -------- -------- Interest Income: Loans and Leases............... $ 873,179 $758,955 $774,256 $681,085 $643,679 Investment Securities: Taxable....................... 213,325 171,537 118,868 110,894 123,207 Tax Exempt.................... 45,274 30,718 18,112 16,693 20,692 Short-term Investments......... 11,892 10,226 13,424 8,634 5,899 ---------- -------- -------- -------- -------- Total Interest Income....... 1,143,670 971,436 924,660 817,306 793,477 Interest Expense: Deposits....................... 429,805 360,838 331,734 255,861 272,100 Short-term Borrowings.......... 108,398 62,071 47,740 39,681 18,010 Long-term Borrowings........... 41,420 42,808 53,709 30,537 23,088 ---------- -------- -------- -------- -------- Total Interest Expense...... 579,623 465,717 433,183 326,079 313,198 ---------- -------- -------- -------- -------- Net Interest Income............. 564,047 505,719 491,477 491,227 480,279 Provision for Loan and Lease Losses......................... 17,253 15,194 16,158 24,907 18,034 ---------- -------- -------- -------- -------- Net Interest Income After Provision for Loan and Lease Losses......................... 546,794 490,525 475,319 466,320 462,245 Other Income: Data Processing Services....... 343,846 268,526 213,914 159,418 135,041 Trust Services................. 78,595 70,190 64,176 59,720 61,226 Other.......................... 176,417 164,604 146,092 142,343 175,659 ---------- -------- -------- -------- -------- Total Other Income.......... 598,858 503,320 424,182 361,481 371,926 Other Expense: Salaries and Benefits.......... 450,056 382,430 343,650 323,904 320,717 Other.......................... 325,345 298,274 255,972 260,866 248,870 Merger/Restructuring........... -- -- -- 75,228 -- ---------- -------- -------- -------- -------- Total Other Expense......... 775,401 680,704 599,622 659,998 569,587 ---------- -------- -------- -------- -------- Income Before Taxes............. 370,251 313,141 299,879 167,803 264,584 Provision for Income Taxes...... 125,107 109,711 106,580 73,405 93,190 ---------- -------- -------- -------- -------- Income Before Extraordinary Items.......................... 245,144 203,430 193,299 94,398 171,394 Extraordinary Items............. -- -- -- 11,542 -- ---------- -------- -------- -------- -------- Net Income.................. $ 245,144 $203,430 $193,299 $105,940 $171,394 ========== ======== ======== ======== ========
11 CONSOLIDATED SUMMARY OF EARNINGS--CONTINUED YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1997 1996 1995 1994 1993 ------- ------- ------ ------ ------- Per Share: Basic Net Income Before Extraordinary Items........ $ 2.61 $ 2.18 $ 2.04 $ 0.98 $ 1.74 Basic Net Income After Extraordinary Items......... 2.61 2.18 2.04 1.10 1.74 Diluted Net Income Before Extraordinary Items........ 2.42 2.03 1.90 0.93 1.61 Diluted Net Income After Extraordinary Items......... 2.42 2.03 1.90 1.04 1.61 Common Dividend Declared........... 0.785 0.720 0.645 0.590 0.540 Other Significant Data: Year-End Common Stock Price........ $62.125 $34.625 $26.00 $19.00 $ 23.63 Return on Average Shareholders' Equity Before Extraordinary Items........ 16.77% 15.88% 16.41% 8.60% 15.29% Return on Average Shareholders' Equity After Extraordinary Items......... 16.77 15.88 16.41 9.65 15.29 Return on Average Assets Before Extraordinary Items........ 1.53 1.49 1.52 0.76 1.42 Return on Average Assets After Extraordinary Items......... 1.53 1.49 1.52 0.85 1.42 Dividend Payout Ratio.............. 32.44 35.47 33.95 56.73 33.54 Average Equity to Average Assets Ratio............................. 9.15 9.38 9.26 8.83 9.31 Ratio of Earnings to Fixed Charges* Excluding Interest on Deposits.... 3.31x 3.76x 3.76x 3.18x 6.52x Including Interest on Deposits.... 1.63x 1.66x 1.68x 1.50x 1.83x Stock Splits....................... 3 FOR 1
- -------- * See Exhibit 12 for detailed computation of these ratios. 12 CONSOLIDATED AVERAGE BALANCE SHEETS YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Assets: Cash and Due from Banks................. $ 599,412 $ 573,957 $ 576,943 $ 613,053 $ 616,761 Short-term Investments. 179,867 170,546 222,779 196,653 180,143 Trading Securities..... 40,822 25,264 10,346 4,528 4,860 Investment Securities: Taxable............... 3,191,941 2,722,582 2,026,859 2,116,856 2,236,805 Tax Exempt............ 907,449 668,913 374,014 351,026 400,135 Loans and Leases: Commercial............ 3,109,023 2,935,617 2,832,228 2,680,735 2,572,967 Real Estate........... 5,763,757 4,607,844 4,773,214 4,572,496 4,248,970 Personal.............. 1,139,166 1,141,364 1,159,957 1,201,131 1,109,701 Lease Financing....... 394,024 293,448 262,566 256,344 248,654 ----------- ----------- ----------- ----------- ----------- Total Loans and Leases. 10,405,970 8,978,273 9,027,965 8,710,706 8,180,292 Allowance for Loan and Lease Losses......... 168,737 161,311 160,797 144,917 129,972 ----------- ----------- ----------- ----------- ----------- Net Loans and Leases... 10,237,233 8,816,962 8,867,168 8,565,789 8,050,320 Other Assets........... 820,329 677,333 647,402 584,556 550,444 ----------- ----------- ----------- ----------- ----------- Total Assets.......... $15,977,053 $13,655,557 $12,725,511 $12,432,461 $12,039,468 =========== =========== =========== =========== =========== Liabilities and Shareholders' Equity: Noninterest Bearing Deposits.............. $ 2,263,743 $ 2,090,292 $ 1,980,035 $ 2,051,864 $ 1,997,781 Interest Bearing Deposits: Savings and NOW Accounts.............. 1,825,038 1,812,287 1,981,804 2,426,502 2,339,754 Money Market Savings... 2,868,902 2,450,784 1,983,432 1,527,668 1,534,799 CDs of $100 or more.... 1,252,024 816,712 568,594 436,268 440,573 Other.................. 3,357,147 3,043,821 3,095,550 3,227,795 3,461,825 ----------- ----------- ----------- ----------- ----------- Total Deposits......... 11,566,854 10,213,896 9,609,415 9,670,097 9,774,732 Short-term Borrowings.. 1,970,235 1,180,593 835,230 964,850 641,836 Long-term Borrowings... 591,643 656,786 801,176 447,254 272,041 Accrued Expenses and Other Liabilities..... 386,613 323,441 301,865 252,297 229,545 Shareholders' Equity... 1,461,708 1,280,841 1,177,825 1,097,963 1,121,314 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity. $15,977,053 $13,655,557 $12,725,511 $12,432,461 $12,039,468 =========== =========== =========== =========== =========== Other Significant Data: Book Value Per Share at Year End***........... $ 17.64 $ 13.37 $ 12.92 $ 11.01 $ 11.35 Average Common Shares Outstanding***........ 91,986,679 91,874,886 93,697,513 94,850,595 98,497,435 Shareholders of Record at Year End*.......... 21,157 18,460 18,659 18,919 10,374 Employees at Year End*. 10,227 8,995 9,079 8,634 6,611 Historically Reported Credit Quality Ratios:* Net Loan and Lease Charge-offs to Average Loans and Leases...... 0.13% 0.23% 0.10% 0.05% 0.03% Total Nonperforming Loans and Leases** & OREO to End of Period Loans and Leases & OREO.................. 0.70 0.81 0.79 0.80 0.86 Allowance for Loan and Lease Losses to End of Period Loans and Leases................ 1.62 1.68 1.82 1.75 1.74 Allowance for Loan and Lease Losses to Total Nonperforming Loans and Leases**.......... 275 225 261 265 261
- -------- * Not restated for acquisitions accounted for as pooling of interests. ** Loans and leases nonaccrual, restructured, and past due 90 days or more. *** Restated for 3 for 1 stock split. 13 YIELD & COST ANALYSIS YEARS ENDED DECEMBER 31 (TAX EQUIVALENT BASIS)
1997 1996 1995 1994 1993 ---- ---- ---- ----- ---- Average Rates Earned: Loans & Securitized ARMs....................... 8.36% 8.41% 8.59% 7.84% 7.89% Investment Securities--Taxable................. 6.55 6.14 5.85 5.24 5.51 Investment Securities--Tax Exempt.............. 7.42 6.76 6.89 6.86 7.91 Trading Securities............................. 5.01 4.83 5.05 5.39 4.26 Short-term Investments......................... 5.49 5.29 5.81 4.28 3.17 Average Rates Paid: Interest Bearing Deposits...................... 4.62% 4.44% 4.35% 3.36% 3.50% Short-term Borrowings.......................... 5.50 5.26 5.72 4.11 2.81 Long-term Borrowings........................... 7.00 6.52 6.70 6.83 8.49 M&I Marshall & Ilsley Bank Average Prime Rate.. 8.44 8.27 8.83 7.15 6.00 Summary Yield and Cost Analysis: (As a % of Average Assets) Average Yield.................................. 7.30% 7.23% 7.35% 6.65% 6.70% Average Cost................................... 3.63 3.41 3.40 2.62 2.60 ---- ---- ---- ----- ---- Net Interest Income............................ 3.67 3.82 3.95 4.03 4.10 Provision for Loan and Lease Losses............ 0.11 0.11 0.13 0.20 0.15 ---- ---- ---- ----- ---- Net Interest Income After Provision for Loan and Lease Losses.............................. 3.56 3.71 3.82 3.83 3.95 Net Securities Gains (Losses).................. 0.02 0.11 0.04 (0.05) 0.07 Other Income................................... 3.73 3.58 3.30 2.95 3.02 Other Expense.................................. 4.85 4.99 4.72 5.30 4.74 ---- ---- ---- ----- ---- Income Before Income Taxes..................... 2.46 2.41 2.44 1.43 2.30 Provision for Income Taxes..................... 0.93 0.92 0.92 0.67 0.88 ---- ---- ---- ----- ---- Income Before Extraordinary Items.............. 1.53% 1.49% 1.52% 0.76% 1.42% ==== ==== ==== ===== ==== Net Income.................................... 1.53% 1.49% 1.52% 0.85% 1.42% ==== ==== ==== ===== ====
14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS Net income in 1997 amounted to $245.1 million or $2.42 per share on a diluted basis. The return on average assets and return on average equity were 1.53% and 16.77%, respectively. By comparison, 1996 net income was $203.4 million, diluted earnings per share was $2.03, the return on average assets was 1.49% and the return on average equity was 15.88%. For the year ended December 31, 1995, net income was $193.3 million or $1.90 per share diluted and the returns on average assets and average equity were 1.52% and 16.41%, respectively. The results of operations and average financial position for 1997 includes the effects of the acquisition of Security Capital Corporation ("Security") from the date of merger which was October 1, 1997. M&I paid approximately $376 million in cash and issued 12.3 million shares of its common stock in a transaction that was accounted for as a purchase. Security had approximately $2.2 billion of consolidated loans and $2.3 billion of consolidated deposits at the time of merger. Net income for 1996 includes special one-time charges relating to the 65.7 basis point assessment associated with the Savings Association Insurance Fund (SAIF) recapitalization that was enacted into law in September 1996 and the write-off of in-process research and development costs acquired in conjunction with the purchase of EastPoint Technology, Inc. The following is a summary of the unusual items reported in 1996 and the comparative operating income, earnings per share and return on average equity based on operating income for 1997, 1996, and 1995. ($ IN MILLIONS, EXCEPT PER SHARE DATA)
1997 1996 1995 ------ ------ ------ Net Income.............................................. $245.1 $203.4 $193.3 Special Charges SAIF Assessment....................................... -- 1.7 -- Acquired In-Process Research and Development.......... -- 7.9 -- ------ ------ ------ Total Special Charges................................... -- 9.6 -- ------ ------ ------ Operating Income........................................ $245.1 $213.0 $193.3 ====== ====== ====== Operating Income Per Share ............................. Basic................................................. $ 2.61 $ 2.28 $ 2.04 Diluted............................................... $ 2.42 $ 2.12 $ 1.90 Operating Income to Average Equity...................... 16.77% 16.63% 16.41%
The following reconciles operating income to operating income before amortization of intangibles ("tangible operating income"). Amortization includes amortization of goodwill and core deposit premiums and is net of negative goodwill accretion and the income tax benefit or expense, if any, related to each component. These calculations were specifically formulated by the Corporation and may not be comparable to similarly titled measures reported by other companies. SUMMARY CONSOLIDATED TANGIBLE OPERATING INCOME AND FINANCIAL STATISTICS ($ IN MILLIONS, EXCEPT PER SHARE DATA)
1997 1996 1995 ------ ------ ------ Operating Income........................................ $245.1 $213.0 $193.3 Amortization, Net of Tax................................ 7.7 3.4 3.3 ------ ------ ------ Tangible Operating Income............................... $252.8 $216.4 $196.6 ====== ====== ====== Tangible Operating Income Per Share Basic................................................. $ 2.69 $ 2.32 $ 2.08 Diluted............................................... $ 2.49 $ 2.16 $ 1.94 Return on Average Tangible Assets....................... 1.59% 1.59% 1.55% Return on Average Tangible Equity....................... 18.66% 17.40% 17.18%
15 OPERATING INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS The following table presents a summary of the major elements of the consolidated operating income statements for the years ended December 31, 1997, 1996, and 1995. Each of the elements is stated as a percent of consolidated average total assets outstanding for the respective year and, where appropriate, is converted to a fully taxable equivalent basis (FTE). The results exclude the special charges in 1996 as previously discussed.
1997 1996 1995 ----- ----- ----- Interest Income............................................ 7.30% 7.23% 7.35% Interest Expense........................................... (3.63) (3.41) (3.40) ----- ----- ----- Net Interest Income........................................ 3.67 3.82 3.95 Provision for Loan and Lease Losses........................ (0.11) (0.11) (0.13) Net Securities Gains....................................... 0.02 0.11 0.04 Other Income............................................... 3.73 3.58 3.30 Other Expense.............................................. (4.85) (4.88) (4.72) ----- ----- ----- Income Before Income Taxes................................. 2.46 2.52 2.44 Income Taxes............................................... (0.93) (0.96) (0.92) ----- ----- ----- Operating Income To Average Assets......................... 1.53% 1.56% 1.52% ===== ===== =====
NET INTEREST INCOME Net interest income in 1997 amounted to $564.0 million, an increase of $58.3 million or 11.5% compared with net interest income of $505.7 million in 1996. Average earning assets in 1997 amounted to $14.7 billion compared to $12.6 billion in 1996, an increase of $2.1 billion or 17.2%. Average loans and leases, excluding the effect of securitizing adjustable rate mortgage loans (ARMs) increased $1.6 billion or 16.5% of which, approximately $580 million is attributable to the Security merger. The remaining growth in average earning assets was primarily attributable to investment securities. Approximately $280 million of the growth is attributable to the Security merger while the remainder reflects the Corporation's intent to increase the portfolio size with higher yielding and longer-term securities to adjust the rate sensitivity and leverage of the consolidated balance sheet. During 1997, the Corporation's banking affiliates repositioned investment securities through the sale and purchase of approximately $400 million of securities available for sale. Average interest bearing liabilities increased $1.9 billion or 19.1% in 1997 compared to 1996. Average interest bearing deposits increased $1.2 billion or 14.5%. Average short-term borrowings increased $789.6 million while average long-term borrowings decreased $65.1 million. Average noninterest bearing deposits increased $173.5 million or 8.3% in 1997 compared to the prior year. The Security merger accounted for approximately $590 million of the growth in average deposits, $43 million of the growth in average short-term borrowings and increased average long-term borrowings by approximately $116 million. During the second quarter of 1997, the holder of the Corporation's 8.5% convertible subordinated notes converted $16.8 million of the notes to Series A convertible preferred stock. During 1997, the remaining $130.0 million of the Corporation's banking subsidiaries' Bank Notes matured and were refinanced primarily with short-term borrowings and brokered certificates of deposit. In addition, $104.3 million of the Corporation's Medium Term Notes Series B and C matured and were refinanced with Medium Term Notes Series C and D. 16 The growth and composition of the Corporation's average loan and lease portfolio for the current year and prior two years are reflected in the following table. The securitized ARM loans that are classified as investment securities available for sale are included to provide a more meaningful comparison ($ in millions):
PERCENT GROWTH ------------ 1997 1996 VS VS 1997 1996 1995 1996 1995 --------- -------- -------- ----- ----- Commercial Loans.................... $ 3,109.0 $2,935.6 $2,832.2 5.9% 3.7% Real Estate Loans Construction....................... 344.4 290.0 341.8 18.8 (15.2) Commercial Mortgages............... 2,685.3 2,269.6 2,129.8 18.3 6.6 Residential Mortgages.............. 2,734.1 2,048.3 2,301.6 33.5 (11.0) Securitized ARM Loans.............. 618.2 483.5 78.0 27.9 n.m. --------- -------- -------- ----- ----- Total Real Estate Loans & ARMs...... 6,382.0 5,091.4 4,851.2 25.3 4.9 Personal Loans Student Loans...................... 276.5 289.0 288.0 (4.3) 0.4 Other Personal Loans............... 862.7 852.4 872.0 1.2 (2.2) --------- -------- -------- ----- ----- Total Personal Loans................ 1,139.2 1,141.4 1,160.0 (0.2) (1.6) Lease Financing Receivables Commercial......................... 292.0 260.5 257.8 12.1 1.1 Personal........................... 102.0 32.9 4.8 209.8 585.7 --------- -------- -------- ----- ----- Total Lease Financing Receivables... 394.0 293.4 262.6 34.3 11.8 --------- -------- -------- ----- ----- Total Consolidated Average Loans, Leases & ARMs...................... $11,024.2 $9,461.8 $9,106.0 16.5% 3.9% ========= ======== ======== ===== ===== Total Consolidated Average Loans and Leases............................. $10,406.0 $8,978.3 $9,028.0 15.9% (0.6)% ========= ======== ======== ===== =====
- -------- n.m.--not meaningful During 1997, approximately $218 million of ARM loans were converted into government guaranteed agency pool securities and approximately $580 million of securitized ARMs were acquired from Security. ARM loans totaling approximately $224 million and $455 million were securitized in 1996 and 1995, respectively. Including the securitized ARMs, average residential mortgages increased approximately $820.5 million or 32.4% of which, approximately $500 million is attributable to the Security merger. 17 The growth and composition of the Corporation's consolidated average deposits for the current year and prior two years are reflected below ($ in millions):
PERCENT GROWTH ---------- 1997 1996 VS. VS. 1997 1996 1995 1996 1995 --------- --------- -------- ---- ---- Noninterest Bearing Commercial........................... $ 1,474.9 $ 1,353.5 $1,289.7 9.0% 5.0% Personal............................. 445.9 423.2 409.2 5.4 3.4 Other................................ 342.9 313.6 281.1 9.4 11.5 --------- --------- -------- ---- ---- Total Noninterest Bearing Deposits..... 2,263.7 2,090.3 1,980.0 8.3 5.6 Interest Bearing Savings and NOW...................... 1,825.0 1,812.3 1,981.8 0.7 (8.6) Money Market......................... 2,868.9 2,450.8 1,983.4 17.1 23.6 Other CDs & Time..................... 3,357.2 3,043.8 3,095.6 10.3 (1.7) CDs Greater than $100,000............ 697.3 630.2 553.8 10.6 13.8 Brokered CDs......................... 554.7 186.5 14.8 n.m. n.m. --------- --------- -------- ---- ---- Total Interest Bearing Deposits........ 9,303.1 8,123.6 7,629.4 14.5 6.5 --------- --------- -------- ---- ---- Total Consolidated Average Deposits.... $11,566.8 $10,213.9 $9,609.4 13.2% 6.3% ========= ========= ======== ==== ====
- -------- n.m.--not meaningful Money market savings and brokered CDs exhibited the greatest growth when comparing average deposits in 1997 to average deposits in 1996. Average Money Market savings increased $418.1 million in 1997 over 1996 of which, approximately one-half of the increase is attributable to the Security merger. The Corporation has a brokered CD program to acquire longer-term CDs with maturities of one year or more in order to provide a stable source of funds that over time is less costly than Bank Notes. During the second quarter of 1997, the Corporation began issuing brokered CDs that are callable at the option of the Corporation. Concurrently with the callable issues, the Corporation entered into receive fixed interest rate swaps which are callable at the option of the counterparties. Callable CDs averaged $34.2 million in 1997 and amounted to $124.8 million at December 31, 1997. The brokered callable CDs provide term liquidity at rates below LIBOR. During 1997, M&I disposed of seven branches. Deposits and loans aggregating approximately $64 million and $5 million, respectively were divested in 1997. As part of the Corporation's banking initiatives, certain bank branches were voluntarily divested of during the second half of 1996. Such branches disposed of in 1996 had combined deposits and loans of approximately $26 million and $14 million, respectively. In 1995, purchase acquisitions in February and July contributed approximately $232 million in deposits and $186 million in loans. The net interest margin (FTE) as a percent of average earning assets was 4.00% in 1997 compared to 4.16% in 1996, a decrease of 16 basis points. The yield on earning assets increased 8 basis points from 7.87% in 1996 to 7.95% in 1997 while the cost of interest bearing liabilities increased from 4.68% in 1996 to 4.89% in 1997. The yield on loans, leases and securitized ARMs decreased 5 basis points in 1997 compared to 1996. Loan and lease growth, including acquisitions, and the positive effect of interest rate swaps offset the yield decline and contributed approximately $125.4 million or 70% of the increase in interest on earning assets. The remaining increase in interest on earning assets is primarily attributable to investment securities. The total yield on the investment security portfolio, excluding securitized ARMs, increased by approximately 49 basis points in 1997 compared to 1996 and the average balance of such investment securities, excluding fair value adjustments for securities available for sale, increased $556.7 million or 19.2%. 18 The increase in the volume and cost of interest bearing deposits accounted for $69.0 million or 61% of the increase in interest paid on interest bearing liabilities in 1997. The decrease in volume of long-term borrowings was offset by the increase in cost resulting in a net benefit to the interest margin of $1.4 million. The average cost of short-term borrowings increased 24 basis points and together with the increase in average volume accounted for $46.3 million of the increase in interest paid on interest bearing liabilities. As more fully described in Note 12 to the Consolidated Financial Statements contained in Item 8 herein, in December 1996 the Corporation formed a Trust and issued $200 million of 7.65% cumulative preferred capital securities. The Trust invested the proceeds in 7.65% junior subordinated deferrable interest debentures issued by the Corporation that is the sole asset of the Trust. The proceeds were used by the Corporation for general corporate purposes. For financial statement purposes, the capital securities are classified as long- term borrowings and the distributions as interest expense that caused, in part, the average cost of long-term borrowings to increase in 1997 compared to 1996. At December 31, 1997, the Corporation had $625 million in notional amount of standard receive fixed/pay floating interest rate swaps, $25 million in notional amount of an interest rate floor and $25 million in notional amount of an interest rate cap designated as hedges against the interest rate volatility associated with variable rate loans, variable rate deposits and variable rate debt. The impact on net interest income in 1997 was a positive $2.62 million and increased the yield on average earning assets by 2 basis points. Net interest income in 1996 amounted to $505.7 million, an increase of $14.2 million or 2.9% compared with net interest income of $491.5 million in 1995. The benefit from the increase in earning assets, use of derivative financial instruments, the stable cost of interest bearing liabilities and the increase in noninterest bearing deposits were offset, in part, by a decline in the yield on earning assets. Average earning assets in 1996 amounted to $12.6 billion compared to $11.7 billion in 1995, an increase of $903.6 million or 7.7%. Average loans and leases, excluding the effect of securitizing adjustable rate mortgage loans increased $355.8 million or 3.9%. The remaining growth in average earning assets was primarily attributable to investment securities. Average interest bearing liabilities increased $695.2 million or 7.5% in 1996 compared to 1995. Average interest bearing deposits increased $494.2 million or 6.5%. Average short-term borrowings increased $345.4 million while average long-term borrowings decreased $144.4 million. Average nonintererst bearing deposits increased $110.3 million or 5.6% in 1996 compared to the prior year. During 1996, the holder of the Corporation's 8.5% convertible subordinated notes converted approximately $16.8 million of the notes to Series A convertible preferred stock. During 1996, approximately $309.0 million of the Corporation's banking subsidiaries' Bank Notes matured and were refinanced primarily with short-term borrowings and brokered certificates of deposit. The net interest margin (FTE) as a percent of average earning assets was 4.16% in 1996 compared to 4.30% in 1995, a decrease of 14 basis points. The yield on earning assets decreased 15 basis points from 8.02% in 1995 to 7.87% in 1996 while the cost of interest bearing liabilities remained at 4.68% in both 1996 and 1995. The yield on loans, leases, and securitized ARMs decreased 18 basis points in 1996 compared to 1995. Loan and lease growth and the positive effect of interest rate swaps offset the yield decline and contributed approximately $13.7 million or 26% of the increase in interest on earning assets. At December 31, 1996, the Corporation had $370 million in notional amount of standard receive fixed/pay floating interest rate swaps and $25 million in notional amount of interest rate floors designated as a hedge against the interest rate volatility associated with variable rate loans. The impact on net interest income in 1996 was a positive $1.12 million. The yield on loans and securitized ARMs without these derivative financial instruments would have been 8.40% or one basis point lower than the 8.41% reported for 1996. 19 The remaining increase in interest on earning assets is attributable to investment securities. The total yield on the investment security portfolio, excluding securitized ARMs, increased by approximately 26 basis points in 1996 compared to 1995 and the average balance of such investment securities increased $566.5 million or 24%. At December 31, 1996, the Corporation had $25 million in notional amount of interest rate floors designated as a hedge against the convexity risk associated with investments in collateralized mortgage obligations. The impact on net interest income was negligible. The increase in the volume and cost of interest bearing deposits accounted for $29.1 million or 89% of the increase in interest paid on interest bearing liabilities in 1996. The decrease in cost and volume of long-term borrowings benefited the interest margin by approximately $10.9 million which reflects the maturity and conversion of higher cost debt. The average cost of short-term borrowings decreased 46 basis points in 1996 compared to 1995 which reflects in part, the Corporation's banking affiliates expanded use of the treasury tax and loan note option programs and other vehicles which provide lower cost sources of funds. 20 AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME The Corporation's consolidated average balance sheets, interest earned and interest paid, and the average interest rates earned and paid for each of the last three years are presented in the following table. Securitized ARM loans that are classified as investment securities available for sale are included with loans and leases to provide a more meaningful comparison ($ in thousands):
1997 1996 1995 ------------------------------- ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE INTEREST YIELD INTEREST YIELD INTEREST YIELD AVERAGE EARNED/ OR COST AVERAGE EARNED/ OR COST AVERAGE EARNED/ OR COST BALANCE PAID (3) BALANCE PAID (3) BALANCE PAID (3) ----------- ---------- ------- ----------- -------- ------- ----------- -------- ------- Loans, leases, and securitized ARMs (1,2). $11,024,161 $ 920,806 8.36% $ 9,461,780 $795,423 8.41% $ 9,106,012 $781,719 8.59% Investment securities: Taxable................ 2,573,750 167,569 6.55 2,239,075 136,848 6.14 1,948,812 113,517 5.85 Tax exempt (1)......... 907,449 66,199 7.42 668,913 44,984 6.76 374,014 26,713 6.89 Interest bearing deposits in other banks.................. 28,838 1,527 5.30 28,767 1,505 5.23 28,329 1,624 5.73 Funds sold and security resale agreements...... 66,283 3,820 5.76 57,991 3,195 5.51 65,820 4,195 6.37 Trading securities (1).. 40,822 2,046 5.01 25,264 1,221 4.83 10,346 522 5.05 Other short-term investments............ 84,746 4,529 5.34 83,788 4,324 5.16 128,630 7,122 5.54 ----------- ---------- ---- ----------- -------- ---- ----------- -------- ---- Total interest earning assets................ $14,726,049 $1,166,496 7.95% $12,565,578 $987,500 7.87% $11,661,963 $935,412 8.02% Cash and demand deposits due from banks......... 599,412 573,957 576,943 Premises and equipment, net.................... 321,806 304,544 295,970 Other assets............ 498,523 372,789 351,432 Allowance for loan and lease losses........... (168,737) (161,311) (160,797) ----------- ----------- ----------- Total assets........... $15,977,053 $13,655,557 $12,725,511 =========== =========== =========== Savings and interest bearing demand deposits............... $ 4,693,940 $ 163,703 3.49% $ 4,263,071 $139,186 3.26% $ 3,965,236 $126,196 3.18% Other time deposits..... 3,357,147 192,329 5.73 3,043,821 174,699 5.74 3,095,550 172,146 5.56 CDs greater than $100, brokered and callable CDs.................... 1,252,024 73,773 5.89 816,712 46,953 5.75 568,594 33,392 5.87 ----------- ---------- ---- ----------- -------- ---- ----------- -------- ---- Total interest bearing deposits............... 9,303,111 429,805 4.62 8,123,604 360,838 4.44 7,629,380 331,734 4.35 Short-term borrowings... 1,970,235 108,398 5.50 1,180,593 62,071 5.26 835,230 47,740 5.72 Long-term borrowings.... 591,643 41,420 7.00 656,786 42,808 6.52 801,176 53,709 6.70 ----------- ---------- ---- ----------- -------- ---- ----------- -------- ---- Total interest bearing liabilities........... $11,864,989 $ 579,623 4.89% $ 9,960,983 $465,717 4.68% $ 9,265,786 $433,183 4.68% Noninterest bearing deposits............... 2,263,743 2,090,292 1,980,035 Other liabilities....... 386,613 323,441 301,865 Shareholders' equity.... 1,461,708 1,280,841 1,177,825 =========== =========== =========== Total liabilities and shareholders' equity.. $15,977,053 $13,655,557 $12,725,511 =========== =========== =========== Net interest income.... $ 586,873 $521,783 $502,229 ========== ======== ======== Net yield on interest earning assets........ 4.00% 4.16% 4.30% ==== ==== ====
- ------- Notes: (1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35% for all years presented, and excluding disallowed interest expense. (2) Loans and leases on nonaccrual status have been included in the computation of average balances. (3) Based on average balances excluding fair value adjustments for available for sale securities. 21 ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE The effect on interest income and interest expense due to volume and rate changes in 1997 and 1996 are outlined in the following table. Changes not due solely to either volume or rate are allocated to rate ($ in thousands):
1997 VERSUS 1996 1996 VERSUS 1995 ------------------------------ ------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN DUE TO CHANGE IN ------------------ ------------------- AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE VOLUME (2) RATE (DECREASE) VOLUME (2) RATE (DECREASE) ---------- ------- ---------- ---------- -------- ---------- Interest on earning assets: Loans, leases, and securitized ARMs (1).............. $130,869 $(5,486) $125,383 $29,828 $(16,124) $ 13,704 Investment securities: Taxable................ 20,316 10,405 30,721 16,862 6,469 23,331 Tax-exempt (1)......... 15,268 5,947 21,215 19,169 (898) 18,271 Interest bearing deposits in other banks.................. 4 18 22 25 (144) (119) Funds sold and security resale agreements...... 457 168 625 (499) (501) (1,000) Trading securities (1).. 751 74 825 753 (54) 699 Other short-term investments............ 49 156 205 (2,484) (314) (2,798) -------- ------- -------- ------- -------- -------- Total interest income change............... $167,714 $11,282 $178,996 $63,654 $(11,566) $ 52,088 ======== ======= ======== ======= ======== ======== Expense on interest bearing liabilities: Savings and interest bearing demand deposits.............. $ 13,702 $10,815 $ 24,517 $ 9,471 $ 3,519 $ 12,990 Other time deposits.... 17,421 209 17,630 (2,876) 5,429 2,553 CDs greater than $100, brokered and callable CDs................... 25,553 1,267 26,820 14,565 (1,004) 13,561 -------- ------- -------- ------- -------- -------- Total interest bearing deposits.............. 56,676 12,291 68,967 21,160 7,944 29,104 Short-term borrowings.. 45,168 1,159 46,327 19,755 (5,424) 14,331 Long-term borrowings... (4,365) 2,977 (1,388) (9,674) (1,227) (10,901) -------- ------- -------- ------- -------- -------- Total interest expense change............... $ 97,479 $16,427 $113,906 $31,241 $ 1,293 $ 32,534 ======== ======= ======== ======= ======== ========
- -------- Notes: (1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35% for all years presented, and excluding disallowed interest expense. (2) Based on average balances excluding fair value adjustments for available for sale securities. PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY The provision for loan and lease losses amounted to $17.3 million in 1997, $15.2 million in 1996, and $16.2 million in 1995. Nonperforming assets at December 31, 1997, were $87.3 million compared to $75.0 million at December 31, 1996, an increase of $12.3 million or 16.4%. At the time of merger, Security had nonperforming assets of approximately $5.5 million, of which, approximately $5.0 million was nonaccrual residential real estate loans. Nonaccrual loans and leases, the largest component of nonperforming assets increased $4.0 million since year-end 1996 and increased $2.5 million since September 30, 1997. Renegotiated loans and leases at December 31, 1997 were $1.3 million compared to $1.8 million at December 31, 1996. Loans and leases past due 90 days or more were $8.2 million at the end of 1997 compared to $7.7 million at the end of the third quarter in 1997 and 22 $7.4 million at year-end 1996. Other real estate owned amounted to $13.6 million at December 31, 1997, compared to $3.6 million at September 30, 1997, and $5.6 million at December 31, 1996. At December 31, 1997, and 1996, approximately $11.7 million and $2.2 million, respectively, of other real estate consisted of closed branch facilities. The increase is attributable to the Security merger. The majority of Security's branch and operations facilities were closed due to customer service and operating overlap. The increase in nonaccrual loans and leases compared to the prior year was generally attributable to residential real estate loans. Nonaccrual commercial loans decreased $3.9 million, nonaccrual commercial mortgages decreased $5.9 million, nonaccrual residential real estate increased $11.0 million, nonaccrual personal loans were relatively unchanged, nonaccrual lease receivables increased $2.2 million and nonaccrual construction loans increased $.6 million. Net charge-offs in 1997 amounted to $13.1 million or 0.13% of average loans and leases compared to $20.3 million or 0.23% of average loans and leases in 1996. Net charge-offs in 1996 include one larger commercial loan and one larger lease receivable that accounted for $13.9 million of the total net charge-offs in 1996. CONSOLIDATED CREDIT QUALITY INFORMATION DECEMBER 31, ($000'S)
1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- NONPERFORMING ASSETS BY TYPE Loans and Leases: Nonaccrual.................. $ 64,153 $ 60,176 $ 50,598 $ 44,766 $ 44,186 Renegotiated................ 1,338 1,819 3,087 4,172 4,263 Past Due 90 Days or More.... 8,238 7,366 8,184 9,093 7,906 -------- -------- -------- -------- -------- Total Nonperforming Loans and Leases................. 73,729 69,361 61,869 58,031 56,355 Other Real Estate Owned...... 13,567 5,629 8,648 12,114 12,928 -------- -------- -------- -------- -------- Total Nonperforming Assets.. $ 87,296 $ 74,990 $ 70,517 $ 70,145 $ 69,283 ======== ======== ======== ======== ======== Allowance for Loan and Lease Losses...................... $202,818 $155,895 $161,430 $153,961 $133,600 ======== ======== ======== ======== ======== CONSOLIDATED STATISTICS Net Charge-offs to Average Loans and Leases............ 0.13% 0.23% 0.10% 0.05% 0.11% Total Nonperforming Loans and Leases to Total Loans and Leases...................... 0.59 0.75 0.70 0.66 0.65 Total Nonperforming Assets to Total Loans and Leases and Other Real Estate Owned..... 0.70 0.81 0.79 0.80 0.80 Allowance for Loan and Lease Losses to Total Loans and Leases...................... 1.62 1.68 1.82 1.75 1.55 Allowance for Loan and Lease Losses to Nonperforming Loans and Leases............ 275 225 261 265 237
23 MAJOR CATEGORIES OF NONACCRUAL LOANS AND LEASES ($000'S)
1997 1996 --------------------------- --------------------------- % OF % OF LOAN % OF LOAN % OF NONACCRUAL TYPE NONACCRUAL NONACCRUAL TYPE NONACCRUAL ---------- ---- ---------- ---------- ---- ---------- COMMERCIAL Commercial............... $12,362 0.4% 19.2% $16,257 0.6% 27.0% Lease Financing Receivables............. 3,855 0.8 6.0 1,624 0.5 2.7 ------- --- ----- ------- --- ----- Total Commercial..... 16,217 0.4 25.2 17,881 0.6 29.7 REAL ESTATE Construction and Land Development............. 1,329 0.3 2.1 731 0.2 1.2 Commercial Real Estate... 13,901 0.4 21.7 19,760 0.8 32.8 Residential Real Estate.. 29,320 0.8 45.7 18,284 0.8 30.4 ------- --- ----- ------- --- ----- Total Real Estate.... 44,550 0.6 69.5 38,775 0.8 64.4 PERSONAL................. 3,386 0.3 5.3 3,520 0.3 5.9 ------- --- ----- ------- --- ----- Total................ $64,153 0.5% 100.0% $60,176 0.6% 100.0% ======= === ===== ======= === =====
RECONCILIATION OF CONSOLIDATED ALLOWANCE FOR LOAN AND LEASE LOSSES ($000'S)
1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Allowance for Loan and Lease Losses at Beginning of Year.... $155,895 $161,430 $153,961 $133,600 $123,805 Provision for Loan and Lease Losses (1)..................... 17,253 15,194 16,158 24,907 18,034 Allowance of Banks Acquired..... 42,773 -- 2,843 -- 1,167 Allowance Transfer for Loan Securitizations................ -- (440) (2,275) -- -- Loans and Leases Charged-off Commercial..................... 8,351 16,290 5,130 3,301 8,810 Real Estate-- Construction..... 87 13 407 737 79 Real Estate-- Mortgage......... 3,543 3,320 2,444 3,241 2,729 Personal....................... 7,542 6,388 5,759 4,375 5,033 Leases......................... 1,166 2,397 875 907 815 -------- -------- -------- -------- -------- Total Charge-offs............... 20,689 28,408 14,615 12,561 17,466 Recoveries on Loans and Leases Commercial..................... 3,741 3,222 2,117 3,675 3,431 Real Estate-- Construction..... 53 9 39 6 49 Real Estate-- Mortgage......... 1,047 2,443 1,021 2,468 2,208 Personal....................... 2,484 2,333 2,158 1,789 2,156 Leases......................... 261 112 23 77 216 -------- -------- -------- -------- -------- Total Recoveries................ 7,586 8,119 5,358 8,015 8,060 -------- -------- -------- -------- -------- Net Loans and Leases Charged- off............................ 13,103 20,289 9,257 4,546 9,406 -------- -------- -------- -------- -------- Allowance for Loan and Lease Losses at End of Year.......... $202,818 $155,895 $161,430 $153,961 $133,600 ======== ======== ======== ======== ========
- -------- Note: (1) The amount of the provision for loan and lease losses charged to operating expense for the year ended December 31, 1997, is the amount necessary to bring the allowance for loan and lease losses at December 31, 1997, to a level believed adequate by management to absorb current estimated losses in the loan and lease portfolio. Management's determination of the adequacy of the allowance is based on a continual review of the loan and lease portfolio, loan and lease loss experience, economic conditions, growth and composition of the portfolio, and other relevant factors. As a result of management's continual review, the allowance is adjusted through provisions for loan and lease losses charged against income. See "Summary of Loan and Lease Loss Experience" contained in Item 1, Part 1 for additional discussion. 24 OTHER INCOME Total noninterest income amounted to $598.9 million in 1997 compared to $503.3 million in 1996, an increase of $95.6 million or 19.0%. Fees from data processing services increased $75.3 million or 28.0% from $268.5 million in 1996 to $343.8 million in 1997. Processing fees increased $55.4 million or 30.2%. Conversion revenue of $14.1 million was relatively unchanged. Fees from unique services such as contract programming and consulting increased $3.3 million and software revenue increased $11.5 million or 28.2%. Buyout fees, which vary from year to year, increased $5.1 million and amounted to $11.3 million in 1997. Fees from trust services were $78.6 million in 1997 compared to $70.2 million in 1996, an increase of $8.4 million or 12.0%. All major categories experienced revenue growth in excess of 10% over the prior year. Personal trust fees increased $4.1 million and Corporate trust fees increased $2.8 million. Fees for other customer services increased $9.5 million or 8.1%. Service charges on deposits increased $3.2 million and amounted to $55.4 million in 1997. Credit card, debit card and ATM fees of $25.1 million in 1997 increased $2.4 million. Brokerage and insurance fees increased $2.6 million. Net securities gains in 1997 amounted to $3.2 million. During 1997 the Corporation's Capital Markets Group had net realized securities gains of $6.7 million. Also during 1997, the Corporation's banking affiliates had net securities losses of $5.2 million from the sale of available for sale investment securities as previously discussed and the Corporation had net securities gains of $1.8 million from the sale of equity securities. Other miscellaneous income amounted to $46.5 million in 1997 compared to $32.5 million in 1996, an increase of $14.0 million. Deposit premiums from sales of bank branches were $7.6 million in 1997 compared to $1.5 million in 1996. Gains from the sale of mortgage loans increased $4.0 million in 1997 and amounted to $11.3 million. Foreign exchange revenue increased $1.1 million in 1997 compared to the prior year. Total noninterest income amounted to $503.3 million in 1996 compared to $424.2 million in 1995, an increase of $79.1 million or 18.7%. Fees from data processing services increased $54.6 million or 25.5% from $213.9 million in 1995 to $268.5 million in 1996. Processing fees increased $31.8 million or 21.4%. Conversion revenue increased $1.9 million or 15.2% and amounted to $14.1 million in 1996. Fees from unique services such as contract programming and consulting increased $16.6 million and amounted to $23.7 million in 1996 compared to $7.1 million in 1995. Software revenue increased $3.5 million or 9.3% while buyout fees, which vary from year to year, were relatively unchanged. Fees from trust services were $70.2 million in 1996 compared to $64.2 million in 1995, an increase of $6.0 million or 9.4%. Personal trust fees increased $3.1 million and Corporate trust fees increased $0.8 million. Revenue from outsourcing and securities lending increased $1.2 million. Fees for other customer services increased $6.5 million or 5.9%. Service charges on deposits increased $1.2 million and amounted to $52.2 million in 1996. Credit card and ATM fees increased $2.0 million and discount brokerage fees increased $2.3 million. Corporate finance and management fees increased $0.5 million. Net securities gains in 1996 amounted to $14.9 million compared to $4.6 million in 1995. During 1996 the Corporation's Capital Markets Group realized securities gains of $22.2 million offset in part by realized and unrealized securities losses of $1.9 million. The Corporation's banking affiliates had securities losses of $5.4 million from the sale of approximately $560 million of available for sale investment securities. 25 Other miscellaneous income amounted to $32.5 million in 1996 compared to $30.8 million in 1995, an increase of $1.7 million. During 1996, the Corporation disposed of three bank branches with deposits of approximately $26 million and realized net deposit premium gains of $1.5 million. OTHER EXPENSE Total other expense amounted to $775.4 million in 1997, an increase of $109.5 million or 16.4% from $665.9 million in 1996 before the two special charges as previously discussed. Including these special charges, total other expense for 1996 amounted to $680.7 million. The increase in expenses is primarily attributable to the Corporation's nonbanking businesses, particularly its data processing business segment (Data Services). Data Services expense growth of $69.4 million or 22.9% in 1997 compared to 1996 (before special charges) reflects the cost of adding processing capacity and other related costs associated with increased revenue growth. The introduction of new products late in 1996 and 1997 such as Data Warehouse, Internet and PC Banking, and Banker Insight as well as continued work on Year 2000 also contributed to expense growth in both years. See "Year 2000" for additional discussion of the activities and costs related to this project. Expenses of the Corporation's banking business in 1997 includes the cost of integrating Security into M&I. M&I added approximately 400 full-time equivalent employees as a direct result of the merger excluding job opportunities offered former Security employees for open job positions that existed prior to the merger. In total, it is estimated that 570 M&I positions were filled by former Security employees. At the time of merger, Security employed approximately 850 employees on a full-time equivalent basis. During the fourth quarter of 1997, many former Security employees were temporarily retained to assist in implementing systems and operations conversions, attending to special customers needs and other issues to ensure that the integration was as effective and efficient as possible. The merger with Security was an in-market acquisition which entailed a significant amount of customer service and operating overlap. The Corporation closed the majority of Security's branch and operating facilities in addition to the reduction in work force described above resulting in lower operating expenses. At the time the merger was announced, it was anticipated that the estimated total cost savings to be achieved by the combined companies was approximately $31.8 million. While no assurances can be given, management now expects that the cost savings will meet or exceed the original estimate. Management estimates that on an annualized basis, approximately 60% of the current projected cost savings was achieved in 1997. Expenses of the Corporation's banking business in 1996 include the cost of implementing certain initiatives in the areas of retail and small business lending, loan and deposit operational support consolidation and product and service distribution networks. These initiatives will enable more competitive pricing and achieve improved cost efficiencies. Excluding the SAIF charge of $2.7 million reported in 1996, the expenses of the banking affiliates and support services increased $7.0 million or 1.9% when compared to the prior year. Lower payments to regulatory agencies of $10.6 million were somewhat offset by severance, branch closures and disposals, equipment write-downs and disposals and other related costs associated with the initiatives. In 1996 these banking initiative expenses amounted to $4.7 million. Expense control is sometimes measured in the financial services industry by the efficiency ratio statistic. The efficiency ratio is calculated by taking total other expense (excluding special charges) divided by the sum of total other income (excluding securities gains or losses) and net interest income on a fully taxable equivalent basis. The Corporation's efficiency ratios for the years ended December 31, 1997, 1996, and 1995 were:
EFFICIENCY RATIOS 1997 1996 1995 ----------------- ---- ---- ---- Consolidated Corporation................................ 65.6% 65.9% 65.1% Consolidated Corporation Excluding Data Services........ 56.6% 57.9% 58.7%
26 Total salaries and benefits expense amounted to $450.1 million for 1997 compared to $382.4 million in 1996, an increase of $67.7 million or 17.7%. The data processing business contributed approximately $46.6 million or 69% of the increase. During 1997, Data Services had average full-time equivalent employees and contract programmers of 3,496 compared to 2,810 in the prior year. Net occupancy and equipment expenses increased $10.2 million in 1997 when compared to 1996. Data Services activity resulted in approximately $10.0 million or 98% of the 1997 increase in occupancy and equipment costs. Additional depreciation and maintenance associated with equipment additions and telecommunications equipment and charges accounted for $8.1 million of Data Services' increase. Also during 1997, Data Services completed a 160 thousand square foot facility in addition to upgrades to its existing facilities. Software expense amounted to $19.7 million in 1997 compared to $15.2 million in 1996, an increase of $4.5 million or 29.4%. This increase is primarily related to Data Services growth which accounted for $3.8 million of the increase. Data Services growth consisted of additional and more costly operating software associated with CPU upgrades as well as additional application software including software used for the Year 2000 project. As previously discussed, the Corporation paid $2.7 million in one-time SAIF assessments in 1996 which is the primary reason for the decline in payments to regulatory agencies in 1997 compared to 1996. Processing charges expense increased $4.5 million or 23.9% from $19.1 million in 1996 to $23.6 million in 1997. Both banking and Data Services experienced increased costs in processing charges. Other expenses amounted to $119.3 million in 1997 compared to $109.3 million in the prior year, an increase of $10.0 million or 9.2%. Excluding the $12.1 million write-off of acquired in-process technology attributable to the EastPoint acquisition, other expenses increased $22.1 million in 1997 when compared to the prior year. Intangible amortization increased $8.0 million primarily as a result of the Security transaction. Other operating expenses associated with Data Services revenue growth increased $8.4 million. Customer related expense for banking increased $2.2 million in 1997 compared with 1996. Lease buyouts and writedowns associated with branch closures decreased $0.8 million. Other expense is also affected by the capitalization of costs, net of amortization, associated with software development and customer data processing conversions. The amount of capitalized software development costs, net of amortization and impairment writedowns, increased $6.9 million in 1997 compared to the prior year . The impact of capitalized customer conversion activity, net of amortization, declined $2.2 million as customers continue to pay for conversions upfront. Capitalized software costs are amortized over their estimated useful lives. Despite the Corporation's monitoring of its ability to recover its investment in software, the ever increasing change in technology increases the possibility of obsolescence and may necessitate impairment writedowns. During 1997, capitalized software impairment writedowns were $2.4 million. Total other expense amounted to $680.7 million in 1996, an increase of $81.1 million or 13.5% from that reported in 1995. As previously discussed, two special charges were recognized in 1996. Excluding these special charges, total other expense for 1996 amounted to $665.9 million, an increase of 11% or $66.3 million, when compared to the prior year. Total salaries and benefits expense amounted to $382.4 million for 1996 compared to $343.7 million in 1995, an increase of $38.7 million or 11.3%. Data Services contributed approximately $32.4 million of the increase. As of December 31, 1996 Data Services had approximately 2,800 employees, an increase of approximately 200 full time employees since the end of the prior year. The addition of EastPoint, normal growth and new product development were the primary causes for the increase. The increased use of contract programmers, who are not considered full time employees, resulted in an increase in salaries and benefits expense of $5.1 million in 1996 compared to 1995. 27 Net occupancy expense increased $3.5 million in 1996 when compared to 1995 and amounted to $39.2 million while equipment expense amounted to $77.3 million, an increase of $11.8 million when compared to $65.5 million incurred in the prior year. Data Services activity resulted in approximately 60% of the 1996 increase in occupancy costs and the majority of the increase in equipment expense. Software expense amounted to $15.2 million compared to $12.4 million in 1995, an increase of $2.8 million or 23%. This increase is primarily related to Data Services growth and its new initiatives. Payments to regulatory agencies amounted to $4.8 million in 1996 compared to $12.7 million in 1995. As previously discussed, the Corporation paid $2.7 million in SAIF assessments in 1996. Excluding the one-time assessment, payments to regulatory agencies declined $10.6 million. This decrease in expense is related to the reduction in FDIC insurance rates. Professional services expense declined $1.2 million in 1996 when compared to the prior year. Approximately $1.1 million of the decline represents costs associated with the ARM securitization program that began in the later half of 1995. Also, professional services expense incurred by Data Services declined by approximately $3.0 million which was the result of lower fees paid for technological assistance in software development. These declines were offset somewhat by higher fees paid to operational and branch efficiency consultants. Other expenses amounted to $109.3 million in 1996 compared to $76.8 million in the prior year, an increase of $32.5 million or 42.3%. Excluding the $12.1 million write-off of acquired in-process technology attributable to the EastPoint acquisition, other expenses increased $20.4 million in 1996 when compared to the prior year. Advertising and promotion expense increased $4.0 million in 1996 compared to the prior year. Also contributing to the increase was credit card expense which increased $3.1 million in 1996. This increase is associated with higher data processing revenue growth. Lease buyouts and real estate writedowns associated with branch closures resulted in an increase to other expense in 1996 of approximately $2.0 million. This category of expense is also affected by the capitalization of costs, net of amortization, associated with software development and customer data processing conversions. The amount of capitalized software development costs, net of amortization, declined $2.0 million in 1996 compared to the prior year and is consistent with the decline in professional services expense previously discussed. The impact of capitalized customer conversion activity, net of amortization, also declined $2.0 million. INCOME TAX PROVISION The provision for income taxes was $125.1 million in 1997, $109.7 million in 1996 and $106.6 million in 1995. The effective tax rate in 1997 was 33.8% compared to 35.0% in 1996 and 35.5% in 1995. Increased Federal tax-exempt income lowered the effective tax rate in 1997 and 1996. During 1995, the Corporation recognized a research and experimentation tax credit related to software development of $2.3 million. CAPITAL RESOURCES Shareholders' equity was $1.92 billion or 9.86% of total consolidated assets at December 31, 1997, compared to $1.26 billion or 8.54% of total consolidated assets at December 31, 1996. The Security transaction (12.3 million common shares), earnings retention, stock option exercises and increase in unrealized gains on investment securities available for sale were partially offset by treasury stock acquisitions. The Corporation and its affiliates continue to have a strong capital base and the Corporation's regulatory capital ratios continue to be significantly above the defined minimum regulatory ratios. See Note 13 to the 28 Consolidated Financial Statements contained in Item 8 herein for the Corporation's comparative capital ratios and the capital ratios of its significant subsidiaries. As more fully described in Note 12 to the Consolidated Financial Statements contained in Item 8 herein, in December 1996 the Corporation formed a Trust and issued $200 million of 7.65% cumulative preferred capital securities. The cumulative preferred capital securities qualify as Tier 1 capital subject to certain limitations, for regulatory capital purposes and substantially contributed to the increase in regulatory capital at year end 1996. The Corporation's subsidiaries, primarily its banking subsidiaries, are restricted by regulations from making distributions above prescribed amounts. In addition, banking subsidiaries are limited in making loans and advances to the Corporation. At December 31, 1997, approximately $57 million and $63 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 in circumstances when it might not do so absent such policy. In April 1997, the remaining $16.8 million of 8.5% convertible subordinated notes were converted into 1,922,114 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 168,185 shares of the Corporation's Series A preferred stock. The Corporation had a Stock Repurchase Program. Under the most recent provisions approved by the Corporation's Board of Directors, up to 6 million shares could be repurchased annually. The shares were being acquired 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 1997, the Corporation purchased 1.2 million shares and had cumulatively purchased 19.6 million shares at an aggregate cost of approximately $500.3 million or $26.09 per share on a weighted average basis. On February 19, 1998, the Corporation announced that its Board of Directors voted to rescind the Stock Repurchase Program effective March 16, 1998. YEAR 2000 Year 2000 is the term used to describe the fact that many existing computer programs use only two digits to identify a year in a date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The Year 2000 issue affects virtually all companies and organizations. Data Services began developing its plan to address Year 2000 in 1996. Data Services employs approximately 120 full-time equivalent employees who are dedicated to the Year 2000 project and maintains a dedicated code renovation center and testing facility. Code modifications and testing have been completed for licensed software and upgrades have been distributed to customers. Service bureau code modifications were completed in December 1997 with testing and system verification scheduled to take place throughout 1998. It is estimated that the net cost to change existing computer programs for both internal and external software will be approximately $30 million, an increase of $5 million from the estimate in 1996. During 1997, Data Services incurred approximately $10 million in expense related to this issue compared to $3 million in 1996 and anticipates the 1997 expense level to continue in 1998. The majority of Data Services' contracts do not provide for additional reimbursement over and above the previously contracted maintenance amounts. Future data processing revenue is critically dependent upon the successful implementation of the necessary changes. The Corporation and its other affiliates began addressing Year 2000 in 1997. The overall process is being coordinated through M&I Support Services which has a dedicated function addressing the issue that includes 29 providing an overall plan, communicating and documenting the process and reporting of progress including periodic reporting to the banking affiliates primary regulator(s). In addition, a coordinator has been appointed from each affiliate bank and division of the Corporation. The inventory of hardware, software, electronic equipment and building systems has been completed. The risk assessment phase of analyzing vendor readiness, compiling critical software lists, and testing hardware is substantially complete. The plan for renovation of systems is in process. This phase includes developing an action plan for each inventory item, developing hardware and software upgrades and/or replacement schedules and implementation. The remaining phases include testing of implementation, certification of hardware, software, office machines and building systems and contingency planning. The Corporation anticipates the process to be completed late in 1998 in order to allow for adequate testing and contingency planning. Replacement equipment and software will be capitalized or expensed in accordance with the Corporation's normal accounting policies. The effect of writing off the net book value of equipment or software that is not Year 2000 compliant is not considered material. PENDING ACQUISITION In November 1997, the Corporation announced plans to merge with Advantage Bancorp ("Advantage"). Advantage has approximately $1.0 billion in consolidated assets. The transaction will be accounted for using the pooling- of-interests method and is expected to be completed in the second quarter of 1998. Subsequent to December 31, 1997, Shareholder and regulatory approvals were obtained. The Corporation anticipates that the combined entity will incur merger/restructuring costs as a result of this transaction. The preliminary estimate of the merger/restructuring charge ranges from approximately $20 million to $30 million. It is anticipated that a significant portion of the charge will relate to noncash benefit items. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices, and other relevant market rate or price risk. The Corporation faces market risk through trading and other than trading activities. While market risk that arises from trading activities in the form of foreign exchange and interest rate risk is immaterial to the Corporation, market risk from other than trading activities in the form of interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling techniques which measure the sensitivity of future earnings and the change in fair value due to changing rate environments to measure interest rate risk. Policies established by the Corporate Asset/Liability Committee and approved by the Corporate Board of Directors limit exposure for both earnings and fair value at risk. General interest rate movements are used to develop sensitivity as the Corporation feels it has no primary exposure to a specific point on the yield curve. These limits are based on the Corporation's exposure to a 100 basis point immediate and sustained parallel rate move, either upward or downward. The Corporation manages interest rate risk through the use of a limited array of derivative financial instruments. These instruments allow the Corporation to produce the desired balance sheet repricing structure while simultaneously meeting the desired objectives of both its borrowing and depositing customers. For additional information on the Corporation's derivative financial instruments and foreign exchange position, see Note 17 to the Consolidated Financial Statements contained in Item 8 herein. 30 INTEREST RATE RISK In order to measure earnings and fair value sensitivity to changing rates, the Corporation uses three different measurement tools including static gap analysis, simulation of earnings, and market value sensitivity (fair value at risk). The static gap analysis starts with contractual repricing information for assets, liabilities and off-balance sheet instruments. These items are then combined with repricing estimations for administered rate (NOW, Savings, and Money Market accounts) and non rate related products (DDA accounts, Other Assets and Other Liabilities) to create a baseline repricing balance sheet. In addition to the contractual information, residential mortgage whole loan product and mortgage-backed securities are adjusted based on industry estimates of prepayment speeds that capture the expected prepayment of principle above the contractual amount based on how far away the contractual coupon is from market coupon rates. The resulting static gap is the base for the earnings sensitivity calculation. The following table represents the Corporation's consolidated static gap position as of December 31, 1997 ($ in millions):
1-90 91-180 181-270 271-360 DAYS DAYS DAYS DAYS SUBTOTAL 1 YEAR + TOTAL ------- ------- ------- ------- -------- -------- ------- Loans................... $ 4,870 $ 978 $ 873 $ 730 $7,451 $ 4,888 $12,339 Securities.............. 345 311 304 246 1,206 3,763 4,969 Other Interest Bearing Assets................. 170 -- -- -- 170 -- 170 Other Assets............ -- -- -- -- -- 1,999 1,999 ------- ------- ------- ------- ------ ------- ------- Total Assets........ $ 5,385 $ 1,289 $ 1,177 $ 976 $8,827 $10,650 $19,477 ======= ======= ======= ======= ====== ======= ======= Rate Sensitive Liabilities............ $ 7,200 $ 1,363 $ 758 $ 548 $9,869 $ 4,641 $14,510 Non Rate Sensitive Liabilities & Equity... -- -- -- -- -- 4,967 4,967 ------- ------- ------- ------- ------ ------- ------- Total Liabilities & Equity.................. $ 7,200 $ 1,363 $ 758 $ 548 $9,869 $ 9,608 $19,477 ======= ======= ======= ======= ====== ======= ======= Gap..................... $(1,815) $ (74) $ 419 $ 428 $ 1,042 Cumulative Gap.......... (1,815) (1,889) (1,470) (1,042) Cumulative Gap as a % of Total Assets........... (9.32)% (9.70)% (7.55)% (5.35)% Total Off Balance Sheet. $ (625) $ 65 $ 40 $ 95 $ (425) $ 425 $ -- Gap..................... $(2,440) $ (9) $ 459 $ 523 $ 1,467 Cumulative Gap.......... (2,440) (2,449) (1,990) (1,467) Cumulative Gap as a % of Total Assets........... (12.53)% (12.57)% (10.22)% (7.53)%
- -------- Notes: (1) Off-balance sheet information does not include $50 million of interest rate caps and floors. (2) The interest rate sensitivity assumptions for demand deposits, savings accounts, money market accounts, and NOW accounts are based on current and historical experiences regarding portfolio retention and interest rate repricing behavior. Based on these experiences, a portion of these balances is considered to be long-term and fairly stable and is therefore included in the "1 year+" category. The static gap analysis provides a representation of the Corporations earnings sensitivity to changes in interest rates. Interest rate risk of embedded positions including prepayment and early withdrawal options, lagged interest rate changes, administered interest rate products, and cap and floor options within products require a more dynamic measuring tool to capture earnings and fair value risk. Earnings simulation and fair value sensitivity analysis are used to create a more complete assessment of interest rate risk. Along with the static gap analysis, determining the sensitivity of future earnings to a hypothetical +/- 100 basis point parallel rate shock can be accomplished through the use of simulation modeling. In addition to the assumptions used to create the static gap, simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate 31 sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project income based on a hypothetical change in interest rates. The resulting pretax income for the next 12 month period is compared to the pretax income amount calculated using flat rates. This difference represents the Corporation's earnings sensitivity to a +/- 100 basis point parallel rate shock. The table below illustrates these amounts as of December 31, 1997, which are within the limits established by the Corporation:
HYPOTHETICAL CHANGE IMPACT TO 1998 IN INTEREST RATES PRETAX NET INCOME ------------------- ----------------- 100 basis point Shock Up................................ (7.1%) 100 basis point Shock Down.............................. 6.1%
These results are based solely on immediate and sustained parallel changes in market rates and do not reflect the earnings sensitivity that may arise from other factors such as changes in the shape of the yield curve, the change in spread between key market rates, or accounting recognition for impairment of certain intangibles. The above results are also considered to be conservative estimates due to the fact that no management action to mitigate potential income variances are included within the simulation process. This action would include, but would not be limited to, adjustments to the repricing characteristics of any on or off balance sheet item with regard to short-term rate projections and current market value assessments. Another component of interest rate risk, fair value at risk, is determined by the Corporation through the technique of simulating the fair value of equity in changing rate environments. This technique involves determining the present value of all contractual asset and liability cash flows (adjusted for prepayments) based on a predetermined discount rate. The net result of all these balance sheet items determine the fair value of equity. The fair value of equity resulting from the current flat rate scenario is compared to the fair value of equity calculated using discount rates +/- 100 basis points from flat rates to determine the fair value of equity at risk. Currently, fair value of equity at risk is less than 1.0% of the market value of the Corporation as of December 31, 1997. EQUITY RISK In addition to interest rate risk, the Corporation incurs market risk in the form of equity risk. M&I's Capital Markets Group invests in private, medium- sized companies to help establish new businesses or recapitalize existing ones. Exposure to the change in equity values for the companies that are held in their portfolio exists, but due to the nature of the investments, cannot be quantified within acceptable levels of precision. M&I Trust Services administers more than $35 billion in assets and directly manages a portfolio of more than $8 billion. Exposure exists to changes in equity values due to the fact that fee income is partially based on equity balances. While this exposure is present, quantification remains difficult due to the number of other variables affecting fee income. Interest rate changes can also have an effect on fee income for the above stated reasons. In addition to the above market risks, material limitations exist in determining the overall net market risk exposure of the Corporation. Computation of prospective effects of hypothetical interest rate changes are based on many assumptions, including levels of market interest rates, predicted prepayment speeds, and projected decay rates of core deposits. Other items, such as post retirement benefit obligations can also have fair value at risk exposure due to changes in interest rates. Therefore, the above outcomes should not be relied upon as indicative of actual results. 32 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOR YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 CONSOLIDATED BALANCE SHEETS DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1997 1996 ----------- ----------- ASSETS Cash and Cash Equivalents: Cash and Due from Banks.............................. $ 800,120 $ 780,562 Funds Sold and Security Resale Agreements............ 26,880 123,880 Money Market Funds................................... 62,787 63,482 ----------- ----------- Total Cash and Cash Equivalents........................ 889,787 967,924 Trading Securities, at Market Value.................... 43,644 39,671 Other Short-term Investments, at Cost which Approximates Market Value............................. 37,008 45,711 Investment Securities Available for Sale, at Market Value................................................. 4,038,713 3,065,048 Investment Securities Held to Maturity, Market Value $953,316 ($776,750 in 1996).................................... 930,090 773,804 Loans and Leases, Net of Unearned Income of $98,979 ($58,849 in 1996)..................................... 12,542,281 9,301,884 Less: Allowance for Loan and Lease Losses.............. 202,818 155,895 ----------- ----------- Net Loans and Leases................................... 12,339,463 9,145,989 Premises and Equipment................................. 338,818 313,381 Accrued Interest and Other Assets...................... 859,929 411,785 ----------- ----------- Total Assets....................................... $19,477,452 $14,763,313 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest Bearing.................................. $ 2,722,757 $ 2,470,882 Interest Bearing..................................... 11,633,241 8,481,476 ----------- ----------- Total Deposits..................................... 14,355,998 10,952,358 Short-term Borrowings.................................. 1,902,780 1,834,549 Accrued Expenses and Other Liabilities................. 507,427 379,100 Long-term Borrowings................................... 791,176 336,096 ----------- ----------- Total Liabilities.................................. 17,557,381 13,502,103 Shareholders' Equity: Series A Convertible Preferred Stock, $1.00 par value, 2,000,000 Shares Authorized; 685,314 Shares Issued (517,129 in 1996); Liquidation Preference $68,531 ($51,713 in 1996)........................... 685 517 Common Stock, $1.00 par value, 160,000,000 Shares Authorized; 109,302,590 Shares Issued (99,494,335 in 1996)............................................... 109,303 99,494 Additional Paid-in Capital........................... 608,087 204,135 Retained Earnings.................................... 1,376,336 1,209,167 Less: Treasury Stock, at Cost, 7,765,169 Shares (10,910,798 in 1996)................................ 215,787 279,143 Deferred Compensation............................. 7,132 825 Net Unrealized Securities Gains Net of Taxes........................................ 48,579 27,865 ----------- ----------- Total Shareholders' Equity......................... 1,920,071 1,261,210 ----------- ----------- Total Liabilities and Shareholders' Equity......... $19,477,452 $14,763,313 =========== ===========
The accompanying notes are an integral part of the Consolidated Financial Statements. 33 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31 ($000'S EXCEPT SHARE DATA)
1997 1996 1995 ---------- -------- -------- INTEREST INCOME Loans and Leases.................................. $ 873,179 $758,955 $774,256 Investment Securities: Taxable.......................................... 213,325 171,537 118,868 Exempt from Federal Income Taxes................. 45,274 30,718 18,112 Trading Securities................................ 2,016 1,202 483 Other Short-term Investments...................... 9,876 9,024 12,941 ---------- -------- -------- Total Interest Income......................... 1,143,670 971,436 924,660 INTEREST EXPENSE Deposits.......................................... 429,805 360,838 331,734 Short-term Borrowings............................. 108,398 62,071 47,740 Long-term Borrowings.............................. 41,420 42,808 53,709 ---------- -------- -------- Total Interest Expense........................ 579,623 465,717 433,183 ---------- -------- -------- Net Interest Income............................... 564,047 505,719 491,477 Provision for Loan and Lease Losses............... 17,253 15,194 16,158 ---------- -------- -------- Net Interest Income After Provision for Loan and Lease Losses..................................... 546,794 490,525 475,319 OTHER INCOME Data Processing Services.......................... 343,846 268,526 213,914 Trust Services.................................... 78,595 70,190 64,176 Other Customer Services........................... 126,723 117,263 110,779 Net Securities Gains.............................. 3,238 14,876 4,555 Other............................................. 46,456 32,465 30,758 ---------- -------- -------- Total Other Income............................ 598,858 503,320 424,182 OTHER EXPENSE Salaries and Employee Benefits.................... 450,056 382,430 343,650 Net Occupancy..................................... 39,924 39,215 35,717 Equipment......................................... 86,758 77,250 65,534 Software Expenses................................. 19,702 15,222 12,376 Payments to Regulatory Agencies................... 2,872 4,791 12,715 Processing Charges................................ 23,628 19,069 18,480 Supplies and Printing............................. 16,389 16,015 15,711 Professional Services............................. 16,763 17,441 18,675 Other............................................. 119,309 109,271 76,764 ---------- -------- -------- Total Other Expense........................... 775,401 680,704 599,622 ---------- -------- -------- Income Before Income Taxes........................ 370,251 313,141 299,879 Provision for Income Taxes........................ 125,107 109,711 106,580 ---------- -------- -------- NET INCOME........................................ $ 245,144 $203,430 $193,299 ========== ======== ======== NET INCOME PER COMMON SHARE Basic............................................. $ 2.61 $ 2.18 $ 2.04 Diluted........................................... 2.42 2.03 1.90
The accompanying notes are an integral part of the Consolidated Financial Statements. 34 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 ($000'S)
1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income.............................. $ 245,144 $ 203,430 $ 193,299 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization......... 61,511 53,612 47,167 Provision for Loan and Lease Losses... 17,253 15,194 16,158 Gains on Sales of Assets.............. (31,575) (31,843) (20,448) Proceeds from Sales of Trading Securities and Loans Held for Resale. 4,103,877 4,028,069 3,506,767 Purchases of Trading Securities and Loans Held for Resale................ (4,120,598) (4,052,894) (3,514,512) Other................................. (15,162) 19,521 (727) ----------- ----------- ----------- Total Adjustments................... 15,306 31,659 34,405 ----------- ----------- ----------- Net Cash Provided by Operating Activities............................. 260,450 235,089 227,704 CASH FLOWS FROM INVESTING ACTIVITIES Net (Increase) Decrease in Shorter Term Securities............................. 6,050 52,250 (49,980) Proceeds from Maturities of Longer Term Securities............................. 709,495 846,169 668,708 Proceeds from Sales of Securities Available for Sale..................... 792,573 796,447 133,340 Purchases of Longer Term Securities..... (1,255,316) (2,325,623) (791,172) Decrease in Loans Due to Divestitures... 4,546 13,729 -- Net Increase in Loans................... (1,000,544) (627,790) (332,649) Purchases of Assets to be Leased........ (295,185) (171,395) (132,299) Principal Payments on Lease Receivables. 197,372 145,095 139,155 Purchases of Premises and Equipment, Net.................................... (67,046) (50,672) (39,881) Purchase of Security Capital Corporation, Net of Cash Equivalents Acquired............................... (236,399) -- -- Other................................... 10,469 (18,099) 26,603 ----------- ----------- ----------- Net Cash Used in Investing Activities... (1,133,985) (1,339,889) (378,175) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in Deposits Due to Divestitures........................... (56,294) (25,874) -- Net Increase in Deposits................ 1,097,918 697,454 550,261 Proceeds from Issuance of Commercial Paper.................................. 455,726 641,754 1,406,388 Principal Payments on Commercial Paper.. (360,374) (669,091) (1,439,343) Net Increase (Decrease) in Other Short- term Borrowings........................ (27,904) 954,013 (434,429) Proceeds from Issuance of Long-term Debt................................... 125,371 248,335 216,872 Payment of Long-term Debt............... (321,914) (442,189) (104,676) Dividends Paid.......................... (77,975) (69,878) (62,985) Purchase of Common Stock................ (62,493) (172,023) (61,104) Proceeds from the Issuance of Common Stock.................................. 23,336 12,908 9,079 Other................................... 1 (174) 6 ----------- ----------- ----------- Net Cash Provided by Financing Activities............................. 795,398 1,175,235 80,069 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents............................ (78,137) 70,435 (70,402) Cash and Cash Equivalents, Beginning of Year................................... 967,924 897,489 967,891 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year.. $ 889,787 $ 967,924 $ 897,489 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid During the Year for: Interest.............................. $ 561,316 $ 462,213 $ 406,383 Income Taxes.......................... 100,589 100,401 107,672
The accompanying notes are an integral part of the Consolidated Financial Statements. 35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
NET UNREALIZED SECURITIES GAINS ADDITIONAL TREASURY DEFERRED (LOSSES) PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- NET OF STOCK STOCK CAPITAL EARNINGS STOCK SATION 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 Treasury Common Shares in Acquisitions Accounted for as Purchases.............. -- -- 904 -- (58,791) -- -- Issuance of 884,087 Treasury 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) -- Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes............... -- -- 3,415 -- -- -- -- Net Change in Unrealized Securities Gains (Losses) Net of Taxes.. -- -- -- -- -- -- 55,319 Other................... -- -- -- 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 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
NET UNREALIZED SECURITIES ADDITIONAL TREASURY DEFERRED GAINS PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- NET OF STOCK STOCK CAPITAL EARNINGS STOCK SATION TAXES --------- ------- ---------- ---------- -------- -------- -------------- Balance, December 31, 1995................... $349 $99,494 $190,287 $1,075,789 $128,459 $1,090 $21,247 Net Income.............. -- -- -- 203,430 -- -- -- Issuance of 1,922,114 Treasury Common Shares on Conversion of Convertible Notes...... -- -- (25,660) -- (42,517) -- -- Issuance of 168,185 Preferred Shares on Conversion of 1,922,114 Common Shares.......... 168 -- 42,349 -- 42,517 -- -- Issuance of 982,434 Treasury Common Shares Under Stock Option and Restricted Stock Plans. -- -- (9,285) -- (22,422) -- -- Acquisition of 5,924,601 Common Shares.......... -- -- 77 -- 173,106 -- -- Dividends Declared on Preferred Stock--$7.99 Per Share.............. -- -- -- (3,827) -- -- -- Dividends Declared on Common Stock--$0.72 Per Share.................. -- -- -- (66,051) -- -- -- Net Change in Deferred Compensation........... -- -- -- -- -- (265) -- Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes............... -- -- 6,367 -- -- -- -- Net Change in Unrealized Securities Gains Net of Taxes.................. -- -- -- -- -- -- 6,618 Other................... -- -- -- (174) -- -- -- ---- ------- -------- ---------- -------- ------ ------- Balance, December 31, 1996................... $517 $99,494 $204,135 $1,209,167 $279,143 $ 825 $27,865 ==== ======= ======== ========== ======== ====== =======
The accompanying notes are an integral part of the Consolidated Financial Statements. 37 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S EXCEPT SHARE DATA)
NET UNREALIZED SECURITIES ADDITIONAL TREASURY DEFERRED GAINS PREFERRED COMMON PAID-IN RETAINED COMMON COMPEN- NET OF STOCK STOCK CAPITAL EARNINGS STOCK SATION TAXES --------- -------- ---------- ---------- -------- -------- -------------- Balance, December 31, 1996................... $517 $ 99,494 $204,135 $1,209,167 $279,143 $ 825 $27,865 Net Income.............. -- -- -- 245,144 -- -- -- Issuance of 9,808,255 Common Shares and 2,515,955 Treasury Common Shares in the Acquisition of Security Capital Corporation ("Security")........... -- 9,809 406,726 -- (66,806) -- -- Common Shares Held for Deferred Compensation and Retirement Plans Assumed in the Acquisition of Security--148,997 Common Shares.......... -- -- -- -- -- 5,559 -- Issuance of 1,922,114 Treasury Common Shares on Conversion of Convertible Notes...... -- -- (33,868) -- (50,725) -- -- Issuance of 168,185 Preferred Shares on Conversion of 1,922,114 Common Shares.......... 168 -- 50,557 -- 50,725 -- -- Issuance of 1,862,341 Treasury Common Shares Under Stock Option and Restricted Stock Plans. -- -- (24,847) -- (48,800) -- -- Acquisition of 1,232,667 Common Shares.......... -- -- (10,204) -- 52,250 -- -- Dividends Declared on Preferred Stock--$8.78 Per Share.............. -- -- -- (5,671) -- -- -- Dividends Declared on Common Stock--$0.785 Per Share.............. -- -- -- (72,304) -- -- -- Other Net Changes in Deferred Compensation.. -- -- -- -- -- 748 -- Income Tax Benefit for Compensation Expense for Tax Purposes in Excess of Amounts Recognized for Financial Reporting Purposes............... -- -- 15,588 -- -- -- -- Net Change in Unrealized Securities Gains Net of Taxes.................. -- -- -- -- -- -- 20,714 ---- -------- -------- ---------- -------- ------ ------- Balance, December 31, 1997................... $685 $109,303 $608,087 $1,376,336 $215,787 $7,132 $48,579 ==== ======== ======== ========== ======== ====== =======
The accompanying notes are an integral part of the Consolidated Financial Statements. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996, AND 1995 ($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 25 banks and one savings association located in Wisconsin and one bank in Arizona. Based on total revenues, banking is M&I's largest business. In addition to lending and accepting deposits from retail and commercial customers, banking 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 and three other nonbank subsidiaries. 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 1996 and 1995 Consolidated Financial Statements have been reclassified to conform with the 1997 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 net of the related income tax effects reported as a separate component of shareholders' equity. Short-term Investments, other than Trading Securities, are carried at cost, which approximates market value. Trading Securities are carried at fair value, with adjustments to the carrying value reflected in the Consolidated Statements of Income. Loans and leases--Interest on loans, other than direct financing leases, is recognized as income based on the loan principal outstanding during the period. Unearned income on financing leases is recognized over the lease term on a basis that results in an approximate level rate of return on the lease investment. Loans are generally placed on nonaccrual status when they are past due 90 days as to either interest or principal. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged to interest income on loans. A nonaccrual loan may be restored to an accrual basis when interest and principal payments are brought current and collectibility of future payments is not in doubt. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 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 and lease losses--The allowance for loan and lease losses is maintained at a level believed adequate by management to absorb estimated losses in the loan and lease portfolio. Management's determination of the adequacy of the allowance is based on a continual review of the loan and lease portfolio, loan and lease loss experience, economic conditions, growth and composition of the portfolio, and other relevant factors. As a result of management's continual review, the allowance is adjusted through provisions for loan and lease losses charged against income. Premises and equipment--Land is recorded at cost. Premises and equipment are recorded at cost and depreciated principally on the straight-line method with annual rates varying from 2% to 10% for buildings and 10% to 35% for equipment. Long-lived assets which are considered impaired are carried at fair value and long-lived assets to be disposed of are carried at the lower of the carrying amount or fair value less cost to sell. Maintenance and repairs are charged to expense and betterments are capitalized. Other real estate owned--Other real estate owned includes assets that have been acquired in satisfaction of debts and bank branch premises held for sale. Other real estate acquired in satisfaction of debts is recorded at fair value, less estimated selling costs, and bank branch premises are 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 and lease 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 value, less estimated selling costs, based upon periodic evaluations. Rental income from properties and gains on sales are included in other income, and property expenses, which include carrying costs, required valuation adjustments and losses on sales, are recorded in other expense. At December 31, 1997 and 1996, other real estate amounted to $13,567 and $5,629, respectively. Mortgage servicing--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. Mortgage loans held for sale amounted to $68,488 at December 31, 1997 and $28,101 at December 31, 1996. 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. Such capitalized costs are periodically evaluated for impairment and adjusted to net realizable value when impairment is indicated. Direct costs associated with customer system conversions to the data services operations are capitalized and amortized on the straight-line method over the terms, generally five to seven years, of the related servicing contract. Routine maintenance of software products including maintenance required for the year 2000, design costs and development costs incurred prior to establishment of a product's technological feasibility for software to be sold, are expensed as incurred. Net unamortized costs at December 31 were:
1997 1996 ------- ------- Software................................... $43,426 $28,695 Conversions................................ 14,729 16,474 ------- ------- Total...................................... $58,155 $45,169 ======= =======
Amortization expense was $15,020, $9,851, and $7,122, for 1997, 1996, and 1995, respectively. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Intangibles--Unamortized intangibles resulting from acquisitions, primarily goodwill, core deposit premiums, purchased data processing contract rights and mortgage servicing rights were $349,819 at December 31, 1997 and $77,296 at December 31, 1996. The Corporation recognizes as separate assets rights to service mortgage loans when the loans are purchased or originated and sold with servicing retained. Mortgage servicing rights are amortized over the periods during which the corresponding mortgage servicing revenues are anticipated to be generated. 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. Goodwill is amortized on the straight-line basis over periods ranging from 15 to 25 years while core deposit premiums are amortized principally on an accelerated basis over periods ranging up to 10 years. Total amortization expense was $19,151, $11,121, and $10,708 for 1997, 1996, and 1995, respectively. The Corporation continually evaluates whether later events and circumstances have occurred to indicate that the carrying value of intangibles should be reduced for possible impairment and utilizes estimates of undiscounted net income over the remaining life to measure recoverability. The Corporation also has negative goodwill included in other liabilities, the majority of which, arose from an acquisition in 1992. Negative goodwill amounted to $7,494 and $9,056 at December 31, 1997 and 1996, respectively. The negative goodwill is being accreted on a straight-line basis over a period of 10 years and amounted to $1,562, $1,568, and $1,576 in 1997, 1996, and 1995. Long-term borrowings--The guaranteed preferred beneficial interest of the Corporation's special purpose finance subsidiary which holds as its sole asset, junior subordinated deferrable interest debentures issued by the Corporation, is classified as long-term borrowings and shown net of its related discount. The distributions, including the related accretion of discount, are classified as interest expense for purposes of the Consolidated Financial Statements. Interest risk management instruments--As part of its asset/liability management activities, the Corporation may enter into interest rate futures, forwards, swaps, floors, caps and option contracts. These derivative financial instruments are carried at fair value unless the instrument qualifies for hedge accounting treatment. Fair value adjustments on risk management instruments carried at fair value are reflected in other income. Gains and losses realized on futures and forward contracts qualifying as hedges are deferred and amortized over the terms of the related assets or liabilities and are included as adjustments to interest income or expense. Settlement on interest rate swaps and option contracts are recognized over the lives of the agreements as adjustments to interest income or expense. The hedge accounting method is applied to interest rate swaps that meet the hedge criteria which is discussed below. Under this method, accrued income or expense associated with the swap is recognized as a component of the interest income or expense of the hedged asset or liability. Unrealized gains and losses are recognized on a basis that is consistent with the method of accounting for the hedged asset or liability. Unrealized gains or losses are not recognized for hedged assets or liabilities carried at amortized cost. Unrealized gains and losses on hedged assets and liabilities which are carried at fair value are reported as a component of shareholders' equity, net of applicable income tax effects. The criteria to qualify an interest rate swap for the hedge accounting method is as follows: 1. The swap must be designated as a hedge and reduce the interest rate risk of the designated asset or liability. 2. The notional amount of the swap must be less than or equal to the amortized cost of the asset or liability to be hedged. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 3. The swap must achieve its intended objective of converting the yield on the hedged asset or liability to the desired rate. This criteria is assumed to have been met if the interest rate on the hedged asset or liability is identical to the offsetting rate on the swap. If the two rates are not identical, the correlation between the levels of the two rates since inception of the swap must be measured to ensure that the swap is meeting its intended objective. If an interest risk management instrument is terminated or ceases to qualify for the hedge accounting method, any realized or unrealized gain or loss at that time is deferred and amortized over the remaining period of the original hedge. Any subsequent realized or unrealized gains or losses on instruments that no longer meet the hedge criteria are included in the determination of net income. If the item being hedged is sold, any deferred or unrealized gain or loss on the interest risk management instrument at the time of sale is considered in the determination of the gain or loss on the sale. If the interest risk management instrument is not terminated, it must be carried at fair value on a prospective basis, with changes in fair value included in the determination of periodic net income. Cash flows from interest risk management instruments are reported in the Consolidated Statements of Cash Flows as operating activities. Foreign exchange contracts--Foreign exchange contracts include such commitments as foreign currency spot, forward, future and, to a much lesser 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. Earnings per share--In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement established new standards for computing and presenting earnings per share which was adopted by the Corporation in the fourth quarter of 1997. SFAS 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share." Comparative earnings per share for prior years and all interim periods presented have been restated to conform with the computational requirements of SFAS 128. New accounting pronouncements-- (1) REPORTING COMPREHENSIVE INCOME: In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a complete set of financial statements. Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not includable in reported net income but are reflected in shareholders' equity. SFAS 130 requires that comprehensive net income be reported in a financial statement that is displayed with the same prominence as other financial statements with the aggregate amount of comprehensive income reported in that same financial statement. SFAS 130 permits the statement of changes in shareholders' equity to be used to meet this requirement. Companies are encouraged, but not required, to display the components of other comprehensive income below the total for net income in the income statement or in a separate statement of comprehensive income. Companies are also required to display the cumulative total of other comprehensive income for the period as a separate component of equity in the balance sheet. This statement is effective for fiscal years beginning after December 15, 1997 and requires companies to report comparative totals for comprehensive income in interim reports. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) (2) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION: In June 1997, the FASB also issued SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." This statement supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise" and utilizes the "management approach" for segment reporting. The management approach is based on the way that the chief operating decision maker(s) organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on any manner in which management disaggregates its company such as by products and services, geography, legal structure or management structure. For each segment, SFAS 131 requires disclosures that are similar to those required under current standards with the addition of quarterly disclosure requirements. This statement also requires descriptive information about the way operating segments were determined, the products/services provided by the operating segments, the differences between the measurements used in reporting segment information and those used in general purpose financial statements, and the changes in the measurement of segment amounts from period to period. The provisions of SFAS 131 are effective for fiscal years beginning after December 15, 1997. SFAS 131 does not need to be applied to interim statements in the initial year of application but such comparative information will be required in interim statements for the second year. Comparative information for earlier years must be restated in the initial year of application. The Corporation anticipates that SFAS 131 will increase the number of reportable segments compared to those required under the current standard. 2. EARNINGS PER SHARE A reconciliation of the numerators and denominators of the basic and diluted per share computations are as follows (dollars and shares in thousands, except per share data):
YEAR ENDED DECEMBER 31, 1997 -------------------------------- AVERAGE PER- INCOME SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ Net Income.................................... $245,144 Convertible Preferred Dividends............... (5,671) -------- Basic Earnings Per Share Income Available to Common Shareholders...... $239,473 91,847 $2.61 ===== Effect of Dilutive Securities Convertible Preferred Stock.................. 5,671 7,208 8.5% Convertible Debt........................ 233 469 Stock Option, Restricted Stock and Performance Plans........................... -- 1,866 Forward Repurchase Contract.................. -- 120 -------- ------- Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions................................. $245,377 101,510 $2.42 =====
43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, 1996 -------------------------------- AVERAGE PER- INCOME SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ Net Income.................................... $203,430 Convertible Preferred Dividends............... (3,827) -------- Basic Earnings Per Share Income Available to Common Shareholders...... $199,603 91,683 $2.18 ===== Effect of Dilutive Securities Convertible Preferred Stock.................. 3,827 5,277 8.5% Convertible Debt........................ 1,161 2,400 Stock Option, Restricted Stock and Performance Plans........................... -- 1,475 Forward Repurchase Contract.................. -- 4 -------- ------- Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions......................... $204,591 100,839 $2.03 ===== YEAR ENDED DECEMBER 31, 1995 -------------------------------- AVERAGE PER- INCOME SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ Net Income.................................... $193,299 Convertible Preferred Dividends............... (2,472) -------- Basic Earnings Per Share Income Available to Common Shareholders...... $190,827 93,443 $2.04 ===== Effect of Dilutive Securities Convertible Preferred Stock.................. 2,472 3,833 8.5% Convertible Debt........................ 1,859 3,844 Stock Option, Restricted Stock and Performance Plans........................... -- 1,405 -------- ------- Diluted Earnings Per Share Income Available to Common Shareholders Plus Assumed Conversions......................... $195,158 102,525 $1.90 =====
Options to purchase 996,450 shares of common stock at $57.00 per share were outstanding since December 11, 1997 but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares for the year ended December 31, 1997. 3. BUSINESS COMBINATIONS The Corporation has consummated the following business combinations:
CONSIDERATION ------------------- COMMON METHOD OF ORGANIZATION DATE CONSUMMATED CASH STOCK ACCOUNTING - ------------ ---------------- -------- ---------- ---------- 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 EastPoint Technology, Inc...... August 7, 1996 25,508 -- Purchase Security Capital Corporation... October 1, 1997 375,806 12,324,210 Purchase
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Security Capital Corporation ("Security") was the parent of Security Bank S.S.B., a community-oriented financial institution. At September 30, 1997, Security had consolidated assets of approximately $3.6 billion and consolidated total deposits of approximately $2.3 billion. This merger was accounted for using the purchase method of accounting. Total consideration to Security shareholders was approximately $860 million consisting of cash and Common Stock of the Corporation. Identifiable intangibles recorded in the transaction amounted to $46.8 million and consisted of core deposit premiums and mortgage servicing rights which are being amortized on an accelerated basis over approximately ten years. The amount of goodwill recorded in the transaction amounted to $244.2 million and is being amortized on a straight-line basis over twenty five years. The allocation of purchase price assigned to goodwill is subject to completion of remaining appraisals and adjustments to direct costs and certain exit costs which were recognized as liabilities assumed in the merger. The merger with Security was an in-market acquisition which entailed a significant amount of customer service and operating overlap. Since March 1997 when the merger agreement was announced, management has been assessing the impact of the merger and formulating a plan for the on-going activities of the combined companies. The plan, as approved, included the involuntary termination of certain Security employees across all groups, closure of the majority of Security branch and operations facilities, and termination of certain duplicative service contracts such as data processing contracts. Severance associated with involuntary terminations is based on the severance plan contained in the merger agreement which was communicated to all affected employees. At December 31, 1997, the plan was substantially complete except for the disposal of closed facilities and remaining severance which will be paid over the terms of the severance agreements. Such exit costs recognized as liabilities assumed in the merger consist of the following:
$ IN MILLIONS ------------- Employment Contracts and Severance from Involuntary Terminations.............................................. $15.8 Lease Terminations/Buyouts................................. 1.6 Service Contract Terminations/Buyouts (primarily data processing)............................................... 1.2 ----- Total Liabilities Recognized for Exit Costs................ $18.6 =====
EastPoint Technology, Inc. is a software development company specializing in client/server technology. The allocation of the purchase price to the various classes of assets was determined on the basis of an opinion expressed by a nationally recognized independent appraisal firm. The value determined for in- process research and development, where technological feasibility had not yet been established or was not believed to have an alternative future use, was immediately expensed while the values of completed technology and other assets, including the resulting goodwill, are being amortized over their estimated useful lives. Acquired in-process research and development expensed during 1996 amounted to $12.1 million and is included in other expense in the Consolidated Statements of Income. 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 information below presents, on a pro forma 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) basis, certain historical information for the Corporation, adjusted for the Security transaction, as if the transaction had been consummated on the first of January of the indicated year.
YEAR ENDED DECEMBER 31, --------------------- 1997 1996 ---------- ---------- (UNAUDITED) Pro Forma Corporation and Security Total Revenues (Interest Income plus Other Income). $1,955,400 $1,717,145 Net Income......................................... 207,124 198,632 Net Income Per Share Basic............................................. $ 1.99 $ 1.87 Diluted........................................... 1.87 1.76
The pro forma net income shown above for 1997 includes certain merger related expenses incurred by Security prior to consummation of the merger. Merger related expenses, net of gains from required branch divestitures, incurred by Security prior to the merger were approximately $47.5 million on an after tax basis or approximately $0.47 on a diluted per share basis. In November 1997, M&I announced plans to merge with Advantage Bancorp ("Advantage"). Advantage has approximately $1.0 billion in consolidated assets. The transaction will be accounted for using the pooling-of-interests method and is expected to be completed in the second quarter of 1998, pending regulatory and shareholder approvals. The pro forma impact on the Corporation's Consolidated Financial Statements is not anticipated to be significant. 4. CASH AND DUE FROM BANKS At December 31, 1997, $166,007 of cash and due from banks was restricted, primarily due to requirements of the Federal Reserve System to maintain certain reserve balances. 5. OTHER SHORT-TERM INVESTMENTS Other short-term investments at December 31 were:
1997 1996 ------- ------- Commercial paper......................................... $ 6,950 $13,000 Interest bearing deposits in other banks................. 30,058 29,214 U.S. Treasury Bills...................................... -- 3,497 ------- ------- Total other short-term investments....................... $37,008 $45,711 ======= =======
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 6. SECURITIES The book and market values of securities at December 31 were:
1997 1996 --------------------- --------------------- AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ---------- ---------- ---------- ---------- Investment Securities Available for Sale: U.S. Treasury and government agencies......................... $3,739,381 $3,786,390 $2,832,067 $2,856,625 States and political subdivisions..................... 485 487 708 719 Mortgage backed securities....... 26,775 27,048 34,209 34,248 Other............................ 196,253 224,788 154,792 173,456 ---------- ---------- ---------- ---------- Total........................... $3,962,894 $4,038,713 $3,021,776 $3,065,048 ========== ========== ========== ========== Investment Securities Held to Maturity: States and political subdivisions..................... $ 925,644 $ 948,870 $ 769,748 $ 772,694 Other............................ 4,446 4,446 4,056 4,056 ---------- ---------- ---------- ---------- Total........................... $ 930,090 $ 953,316 $ 773,804 $ 776,750 ========== ========== ========== ==========
The unrealized gains and losses of securities at December 31 were:
1997 1996 --------------------- --------------------- UNREALIZED UNREALIZED UNREALIZED UNREALIZED GAINS LOSSES GAINS LOSSES ---------- ---------- ---------- ---------- Investment Securities Available for Sale: U.S. Treasury and government agencies........................ $62,421 $15,412 $30,061 $5,503 States and political subdivisions.................... 3 1 11 -- Mortgage backed securities....... 273 -- 121 82 Other............................ 28,831 296 18,955 291 ------- ------- ------- ------ Total........................... $91,528 $15,709 $49,148 $5,876 ======= ======= ======= ====== Investment Securities Held to Maturity: States and political subdivisions.................... $23,542 $ 316 $ 6,622 $3,676 Other............................ -- -- -- -- ------- ------- ------- ------ Total........................... $23,542 $ 316 $ 6,622 $3,676 ======= ======= ======= ======
The book value and market value of securities by contractual maturity at December 31, 1997 were:
INVESTMENT INVESTMENT SECURITIES SECURITIES AVAILABLE FOR SALE HELD TO MATURITY --------------------- ------------------ AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ---------- ---------- --------- -------- Within one year..................... $1,134,763 $1,150,248 $ 55,900 $ 56,036 From one through five years......... 2,424,264 2,454,140 225,361 228,737 From five through ten years......... 293,078 297,751 387,547 398,298 After ten years..................... 110,789 136,574 261,282 270,245 ---------- ---------- -------- -------- Total............................... $3,962,894 $4,038,713 $930,090 $953,316 ========== ========== ======== ========
The gross realized gains and losses amounted to $14,087 and $10,849 in 1997, $22,450 and $7,574 in 1996, and $8,821 and $4,266 in 1995, respectively. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) At December 31, 1997, securities with a value of approximately $878,157 were pledged to secure public deposits, short-term borrowings, and for other purposes required by law. During 1997 and 1996, approximately $218 and $224 million, respectively, of adjustable rate mortgage loans (ARMs) were securitized and transferred to investment securities available for sale. The Corporation has agreed to guarantee the first 4% of the loan pools securitized through government agencies against potential loss. Since inception of the program, approximately $896 million of ARMs have been securitized by M&I and no losses have been incurred. These are noncash transactions for purposes of the Consolidated Statements of Cash Flows. 7. LOANS AND LEASES Loans and Leases at December 31 were:
1997 1996 ----------- ---------- Commercial, financial, and agricultural.............. $ 3,375,519 $2,917,393 Real estate: Construction........................................ 402,892 323,420 Residential mortgage................................ 3,782,181 2,176,224 Commercial mortgage................................. 3,339,592 2,379,156 Personal............................................. 1,153,003 1,174,186 Lease financing...................................... 489,094 331,505 ----------- ---------- Total loans and leases............................... $12,542,281 $9,301,884 =========== ==========
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 $1.9 million in foreign credits at December 31, 1997. The Corporation's loan portfolio consists of business loans extending across many industry types, as well as loans to individuals. As of December 31, 1997, total loans to any group of 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 1997 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. Loans to Directors & Executive Officers: Balance, beginning of year......................................... $137,139 New loans.......................................................... 168,579 Repayments......................................................... (135,136) -------- Balance, end of year............................................... $170,582 ========
48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 8. ALLOWANCE FOR LOAN AND LEASE LOSSES An analysis of the allowance for loan and lease losses follows:
1997 1996 1995 -------- -------- -------- Balance, beginning of year..................... $155,895 $161,430 $153,961 Allowance of banks acquired.................... 42,773 -- 2,843 Provision charged to expense................... 17,253 15,194 16,158 Loan securitization transfer................... -- (440) (2,275) Charge-offs.................................... (20,689) (28,408) (14,615) Recoveries..................................... 7,586 8,119 5,358 -------- -------- -------- Balance, end of year........................... $202,818 $155,895 $161,430 ======== ======== ========
As of December 31, 1997 and 1996, nonaccrual loans and leases totaled $64,153 and $60,176, respectively. At December 31, 1997 and 1996 the Corporation's recorded investment in impaired loans and leases and the related valuation allowance are as follows:
1997 1996 -------------------- -------------------- RECORDED VALUATION RECORDED VALUATION INVESTMENT ALLOWANCE INVESTMENT ALLOWANCE ---------- --------- ---------- --------- Total Impaired Loans and Leases (Nonaccrual and Renegotiated)....... $65,491 $61,995 Loans and Leases Excluded from Evaluation under SFAS 114........... (37,899) (25,247) ------- ------- Impaired Loans Evaluated............. $27,592 $36,748 ======= ======= Valuation Allowance Required......... $ 5,260 $1,802 $ 6,071 $1,462 No Valuation Allowance Required...... 22,332 -- 30,677 -- ======= ====== ======= ====== Impaired Loans Evaluated............. $27,592 $1,802 $36,748 $1,462 ======= ====== ======= ======
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 $6,137 in 1997 and $16,697 in 1996 against the loan balance outstanding. The required valuation allowance is included in the allowance for loan and lease losses in the Consolidated Balance Sheets. The average recorded investment in total impaired loans and leases for the years ended December 31, 1997 and 1996 amounted to $63,533 and $71,255, respectively. Interest payments received on impaired loans and leases are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions of principal. Interest income recognized on total impaired loans and leases amounted to $3,605 in 1997, $6,482 in 1996, and $3,594 in 1995. The gross income that would have been recognized had such loans and leases been performing in accordance with their original terms would have been $6,115 in 1997, $9,809 in 1996, and $8,430 in 1995. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 9. PREMISES AND EQUIPMENT The composition of premises and equipment at December 31 was:
1997 1996 -------- -------- Land...................................................... $ 43,462 $ 38,566 Buildings and leasehold improvements...................... 285,452 259,352 Furniture and equipment................................... 360,323 327,088 -------- -------- 689,237 625,006 Less accumulated depreciation............................. 350,419 311,625 -------- -------- Total premises and equipment.............................. $338,818 $313,381 ======== ========
Depreciation expense was $57,791 in 1997, $52,561 in 1996, and $45,153 in 1995. The Corporation leases certain of its facilities and equipment. Rent expense under such operating leases was $30,476 in 1997, $25,908 in 1996, and $21,702 in 1995, respectively. The future minimum lease payments under operating leases that have initial or remaining noncancellable lease terms in excess of one year for 1998 through 2002 are $14,728, $13,308, $8,718, $7,361, and $6,374, respectively. 10. DEPOSITS The composition of deposits at December 31 was:
1997 1996 ----------- ----------- Noninterest bearing demand.......................... $ 2,722,757 $ 2,470,882 Savings and NOW..................................... 5,610,445 4,400,594 Other time deposits $100 and over................... 1,390,464 1,059,066 Other time deposits under $100...................... 4,632,332 3,021,816 ----------- ----------- Total deposits...................................... $14,355,998 $10,952,358 =========== ===========
At December 31, 1997, the scheduled maturities for other time deposits were: 1998............................................. $4,600,896 1999............................................. 908,136 2000............................................. 204,322 2001............................................. 119,306 2002 and thereafter.............................. 190,136 ---------- $6,022,796 ==========
11. SHORT-TERM BORROWINGS Short-term borrowings at December 31 were:
1997 1996 ---------- ---------- Funds purchased and security repurchase agreements.... $1,424,359 $1,337,940 U.S. Treasury demand notes............................ 229,245 146,398 Commercial paper...................................... 109,586 14,234 Current maturities of long-term borrowings............ 122,322 284,023 Other................................................. 17,268 51,954 ---------- ---------- Total short-term borrowings........................... $1,902,780 $1,834,549 ========== ==========
50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Unused lines of credit, primarily to support commercial paper borrowings, were $40,000 at December 31, 1997 and 1996. See Selected Statistical Information "Short-Term Borrowings" for additional information relating to funds purchased and security repurchase agreements. 12. LONG-TERM BORROWINGS Long-term borrowings at December 31 were:
1997 1996 -------- -------- CORPORATION: 8.5% convertible subordinated notes due in 1997........... -- $ 16,819 6.375% subordinated notes due in 2003..................... $ 99,590 99,531 Medium-term Series B, C and D notes....................... 103,680 106,050 7.65% cumulative company-obligated mandatorily redeemable capital trust pass-through securities.................... 199,063 199,031 Other..................................................... 15,676 20,619 SUBSIDIARIES: Bank notes................................................ -- 129,991 Borrowings from Federal Home Loan Bank (FHLB) Floating rate advances................................... 350,000 -- Fixed rate advances...................................... 101,317 -- Nonrecourse notes......................................... 27,704 28,825 9.75% obligation under capital lease due through 2006..... 4,145 4,436 Other..................................................... 12,323 14,817 -------- -------- 913,498 620,119 Less current maturities................................... 122,322 284,023 -------- -------- Total long-term borrowings................................ $791,176 $336,096 ======== ========
The 8.5% convertible subordinated notes (the "Notes") were convertible at the option of the holder into common stock at a conversion price of $8.75. The holder had 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. During 1997, $16,819 of the Notes were converted by the holder into 1,922,114 shares of the Corporation's common stock and in 1996 $16,818 of the Notes were converted into 1,922,114 shares of the Corporation's common stock. The common stock acquired by the conversions of the Notes were exchanged for 168,185 shares in 1997 and 168,185 shares in 1996 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. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) At December 31, 1997, medium-term Series B notes outstanding amounted to $750. Such notes mature in 1998 and have fixed interest rates of 7.15% to 7.30%. There were $28,130 of medium-term Series C notes outstanding at December 31, 1997. The medium-term Series C notes have fixed interest rates of 6.26% to 7.34% and mature at various amounts and times through 2002. No additional borrowings may occur under the Series B or Series C notes. At December 31, 1997, medium-term Series D notes outstanding amounted to $74,800 with fixed interest rates of 6.11% to 6.64%. Series D notes mature at various times and amounts in 1999 through 2002. Approximately $75.2 million of unissued Series D notes are remaining and available to be issued in the future. In December 1996, the Corporation formed M&I Capital Trust A (the "Trust") and issued $200 million in liquidation or principal amount of cumulative preferred capital securities. Holders of the capital securities are entitled to receive cumulative cash distributions at an annual rate of 7.65% payable semiannually. Concurrently with the issuance of the capital securities, the Trust invested the proceeds, together with the consideration paid by the Corporation for the common interest in the Trust, in junior subordinated deferrable interest debentures ("subordinated debt") issued by the Corporation. The subordinated debt, which represents the sole asset of the Trust, bears interest at an annual rate of 7.65% payable semiannually and matures on December 1, 2026. The subordinated debt is junior in right of payment to all present and future senior indebtedness of the Corporation. The Corporation may redeem the subordinated debt in whole or in part at any time on or after December 1, 2006 at specified call premiums and at par on or after December 1, 2016. In addition, in certain circumstances the subordinated debt may be redeemed at par upon the occurrence of certain events. The Corporation's right to redeem the subordinated debt is subject to regulatory approval. The Corporation has the right, subject to certain conditions, to defer payments of interest on the subordinated debt for extension periods, each period not exceeding ten consecutive semiannual periods. As a consequence of the Corporation's extension of the interest payment period, distributions on the capital securities would be deferred. In the event the Corporation exercises its right to extend an interest payment period, the Corporation is prohibited from making dividend or any other equity distributions during such extension period. The payment of distributions, liquidation of the Trust or payment upon the redemption of the capital securities are guaranteed by the Corporation. The Corporation, as owner of the common interest in the Trust, has the right at any time to terminate the Trust, subject to certain conditions. In circumstances other than maturity or redemption of the subordinated debt, the subordinated debt would be distributed to the holders of the Trust securities on a pro rata basis in liquidation of the holders' interests in the Trust. The capital securities qualify as "Tier 1" capital for regulatory capital purposes. The bank notes represent unsecured general obligations of the Corporation's banking subsidiaries. Each of the Corporation's banking subsidiaries 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 not obligations of or guaranteed by the Corporation. The amount outstanding at December 31, 1996 represents the aggregate borrowings of 5 banking subsidiaries which matured at various times in 1997. Borrowings from FHLB were assumed in conjunction with the October 1, 1997 Security merger. The floating rate advances mature in increments of $50 million at various times in 1998 through 2001. The interest 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) rate is reset monthly based on the London Interbank Offered Rate (LIBOR). A floating rate advance in the amount of $50 million is callable by FHLB semiannually after November 1997 upon ten days notice. The fixed rate advances have interest rates which range from 5.48% to 8.47% and mature at various times in 1998 through 2012. A portion of the fixed rate advances are subject to periodic principal payments. Fixed rate advances in the amount of $100 million are callable every three months beginning in February 1998 upon five days notice. Under the agreement assumed in the Security merger, the Corporation is required to maintain unencumbered first mortgage loans and mortgage-related securities such that the outstanding balance of FHLB advances does not exceed 60% of the book value of this collateral. The FHLB borrowings may not be prepaid. 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 8.81% at December 31, 1997 and are due in installments over varying periods through 2002. Lease financing receivables at least equal to the amount of the notes are pledged as collateral. Scheduled maturities of long-term borrowings are: $140,275, $188,171, $134,357, and $25,012 for 1999 through 2002, respectively. 13. SHAREHOLDERS' EQUITY The Corporation has 5,000,000 shares of preferred stock authorized, of which the Board of Directors has designated 2,000,000 shares as Series A convertible, 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. Except under limited circumstances, the holder may not sell, transfer or otherwise dispose of stock acquired by conversion, and then, only under prescribed conditions and subject to the Corporation's right of first refusal. The holder of the convertible subordinated notes had 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 was 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 685,314 shares of its Series A convertible preferred stock in exchange for 7,677,185 shares of common stock. The preferred stock is treated as a common stock equivalent in all applicable per share calculations. The Corporation has a Stock Repurchase Program. Under the most recent provisions approved by the Corporation's Board of Directors, up to 6 million shares may be repurchased annually. The shares are being acquired 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. In conjunction with the Corporation's Repurchase Program, the Corporation entered into a forward contract and purchased 2.0 million shares of its common stock in late 1996. In August 1997, the Corporation settled the contract by paying the counterparty cash in the amount of $11.9 million. The Corporation purchased 1.2 million shares in 1997 and has cumulatively purchased 19.6 million shares since inception of the program. It is anticipated that the Repurchase Program will be rescinded prior to the merger with Advantage. In conjunction with the Security merger, the Corporation assumed certain deferred compensation and nonqualified retirement plans for former directors and executive officers of Security. At December 31, 1997, 157,821 common shares of M&I Stock were maintained in a grantor trust with such shares to be distributed to plan participants in accordance with the provisions of the plans. The aggregate cost of such shares of $6,166 at 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) December 31, 1997 is included in Deferred Compensation as a reduction of shareholders' equity in the Consolidated Balance Sheets. Federal banking regulatory agencies have established capital adequacy rules which take into account risk attributable to balance sheet assets and off- balance sheet activities. All banks and bank holding companies must meet a minimum total risk-based capital ratio of 8%. Of the 8% required, at least half must be comprised of core capital elements defined as Tier 1 capital. The federal banking agencies also have adopted leverage capital guidelines which banking organizations must meet. Under these guidelines, the most highly rated banking organizations must meet a minimum leverage ratio of at least 3% Tier 1 capital to total assets, while lower rated banking organizations must maintain a ratio of at least 4% to 5%. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements. At December 31, 1997 and 1996, the most recent notification from the Federal Reserve Board categorized the Corporation as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Corporation's category. To be well capitalized under the regulatory framework, the Tier 1 capital ratio must meet or exceed 6%, the Total capital ratio must meet or exceed 10% and the leverage ratio must meet or exceed 5%. The Corporation's risk-based capital and leverage ratios are as follows ($ in millions):
RISK-BASED CAPITAL RATIOS ------------------------------------------------ AS OF DECEMBER 31, AS OF DECEMBER 31, 1997 1996 ------------------------ ---------------------- AMOUNT RATIO AMOUNT RATIO -------------- --------- ------------ --------- Tier 1 capital............... $ 1,735.5 12.19% $ 1,361.9 12.71% Tier 1 capital adequacy minimum requirement......... 569.7 4.00 428.5 4.00 -------------- --------- ------------ --------- Excess....................... $ 1,165.8 8.19% $ 933.4 8.71% ============== ========= ============ ========= Total capital................ $ 2,013.9 14.14% $ 1,596.4 14.90% Total capital adequacy minimum requirement......... 1,139.4 8.00 857.1 8.00 -------------- --------- ------------ --------- Excess....................... $ 874.5 6.14% $ 739.3 6.90% ============== ========= ============ ========= Risk-adjusted assets......... $ 14,241.9 $ 10,713.4 ============== ============ LEVERAGE RATIO ------------------------------------------------ AS OF DECEMBER 31, AS OF DECEMBER 31, 1997 1996 ------------------------ ---------------------- AMOUNT RATIO AMOUNT RATIO -------------- --------- ------------ --------- Tier 1 capital to adjusted total assets................ $ 1,735.5 9.25% $ 1,361.9 9.61% Minimum leverage adequacy requirement................. 562.7-937.8 3.00-5.00 425.3-708.8 3.00-5.00 -------------- --------- ------------ --------- Excess....................... $1,172.8-797.7 6.25-4.25% $936.6-653.1 6.61-4.61% ============== ========= ============ ========= Adjusted average total assets...................... $ 18,756.0 $ 14,175.4 ============== ============
54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) All of the Corporation's banking subsidiaries' risk-based capital and leverage ratios meet or exceed the defined minimum requirements, and have been deemed well capitalized as of December 31, 1997 and 1996. The following table presents the risk-based capital ratios for the Corporation's significant banking subsidiaries:
TIER SUBSIDIARY 1 TOTAL LEVERAGE ---------- ----- ----- -------- M&I Marshall & Ilsley Bank December 31, 1997..................................... 10.56% 11.85% 7.95% December 31, 1996..................................... 9.60 10.75 6.88 M&I Bank of Southern Wisconsin December 31, 1997..................................... 9.65 10.90 7.70 December 31, 1996..................................... 9.45 10.70 8.11
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, 1997, the retained earnings of subsidiaries available for distribution as dividends without regulatory approval was approximately $119,776. 14. INCOME TAXES Total income tax expense for the years ended December 31, 1997, 1996, and 1995 was allocated as follows:
1997 1996 1995 -------- -------- -------- Income before income taxes.................... $125,107 $109,711 $106,580 Shareholders' Equity: Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes.......................... (15,588) (6,367) (3,415) Unrealized gains on investment securities available for sale.......................... 11,833 3,552 30,752 -------- -------- -------- $121,352 $106,896 $133,917 ======== ======== ========
The current and deferred portions of the provision for income taxes were:
1997 1996 1995 -------- -------- -------- Current: Federal........................................ $105,074 $ 95,811 $ 91,233 State.......................................... 9,401 13,192 13,900 -------- -------- -------- 114,475 109,003 105,133 Deferred: Federal........................................ 3,846 (167) 1,826 State.......................................... 6,786 875 (379) -------- -------- -------- 10,632 708 1,447 -------- -------- -------- Total provision for income taxes............ $125,107 $109,711 $106,580 ======== ======== ========
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%):
1997 1996 1995 -------- -------- -------- Tax computed at statutory rates............... $129,588 $109,599 $104,958 Increase (decrease) in taxes resulting from: Federal tax-exempt income.................... (13,224) (9,547) (5,972) State income taxes, net of Federal tax benefit..................................... 10,521 9,272 9,891 Other........................................ (1,778) 387 (2,297) -------- -------- -------- Total provision for income taxes.......... $125,107 $109,711 $106,580 ======== ======== ========
55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($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:
1997 1996 -------- ------- Deferred tax assets: Deferred compensation..................................... $ 28,761 $11,656 Allowance for loan losses................................. 63,108 47,110 Accrued postretirement benefits........................... 21,483 18,973 Other..................................................... 45,486 30,049 -------- ------- Total deferred tax assets.............................. 158,838 107,788 Deferred tax liabilities: Lease revenue reporting................................... 40,754 25,101 Deferred expense, net of unearned income.................. 19,408 13,446 Premises and equipment, principally due to depreciation... 17,518 19,691 Pension funding versus expense............................ 5,105 -- Purchase accounting adjustments........................... 38,729 2,800 Unrealized gains and losses............................... 27,240 15,407 Other..................................................... 24,642 8,654 -------- ------- Total deferred tax liabilities......................... 173,396 85,099 -------- ------- Net deferred tax (liability) asset..................... $(14,558) $22,689 ======== =======
The amount of income tax expense related to net securities gains or losses amounted to $1,319, $6,233, and $1,762, in 1997, 1996, and 1995, 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 market value of the shares at the date of grant. The nonqualified and incentive stock option plans generally provide for the grant of options to purchase shares of the Corporation's common stock for a period of ten years from the date of grant. Options granted generally become exercisable over a period of two years from the date of grant however, options granted to Directors of the Corporation vest immediately and options granted after 1996 provide accelerated or immediate vesting for grants to individuals who meet certain age and years of service criteria at the date of grant. 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Activity relating to nonqualified and incentive stock options was:
WEIGHTED- AVERAGE NUMBER OPTION PRICE EXERCISE OF SHARES PER SHARE PRICE ---------- ------------ --------- Shares under option at December 31, 1994. 6,306,628 $ 4.02-23.25 $15.00 Options granted.......................... 741,700 20.25-26.19 25.54 Options lapsed or surrendered............ (32,775) 8.54-22.75 20.82 Options exercised........................ (858,087) 4.02-22.75 10.66 ---------- ------------ ------ Shares under option at December 31, 1995. 6,157,466 $ 6.71-26.19 $16.84 Options granted.......................... 837,050 25.63-31.88 31.54 Options lapsed or surrendered............ (70,038) 8.54-26.19 18.90 Options exercised........................ (973,434) 6.71-26.19 13.33 ---------- ------------ ------ Shares under option at December 31, 1996. 5,951,044 $ 7.68-31.88 $19.46 Options granted and assumed in acquisition............................. 1,635,755 11.56-57.00 40.10 Options lapsed or surrendered............ (32,938) 19.25-31.88 29.02 Options exercised........................ (1,843,841) 7.68-31.88 13.56 ---------- ------------ ------ Shares under option at December 31, 1997. 5,710,020 $ 7.68-57.00 $27.22 ========== ============ ======
The range of options outstanding at December 31, 1997 were:
WEIGHTED- AVERAGE WEIGHTED-AVERAGE REMAINING NUMBER OF SHARES EXERCISE PRICE CONTRACTUAL PRICE -------------------------- -------------------------- LIFE RANGE OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE (IN YEARS) ----- ----------- ----------- ----------- ----------- ----------- $ 7-12 735,533 735,533 $10.72 $10.72 2.4 13-18 966,040 966,040 16.19 16.19 4.0 19-25 1,584,026 1,584,026 20.79 20.79 6.2 26-32 1,390,471 1,049,971 29.28 28.45 8.5 Over $32 1,033,950 156,400 56.35 53.28 9.9 --------- --------- ------ ------ --- 5,710,020 4,491,970 $27.22 $21.07 6.6 ========= ========= ====== ====== ===
Options exercisable at December 31, 1996 and 1995 were 4,831,369 and 5,024,041, respectively. The weighted average exercise price for options exercisable was $16.98 at December 31, 1996 and $12.52 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 established financial accounting and reporting standards for stock based employee compensation plans. 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. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Compensation cost can also be 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 calculated fair value of the options granted. As permitted by SFAS 123, the Corporation continues to measure compensation cost for such plans using the accounting method prescribed by APBO 25. Had compensation cost for the Corporation's options granted after January 1, 1995 been determined consistent with SFAS 123, the Corporation's net income and earnings per share would have been reduced to the following pro forma amounts:
1997 1996 1995 -------- -------- -------- Net income As reported.................................... $245,144 $203,430 $193,299 Pro forma...................................... 239,813 200,983 192,855 Basic earnings per share As reported.................................... $ 2.61 $ 2.18 $ 2.04 Pro forma...................................... 2.55 2.15 2.04 Diluted earnings per share As reported.................................... $ 2.42 $ 2.03 $ 1.90 Pro forma...................................... 2.37 2.01 1.90
The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option pricing model. The resulting compensation cost was amortized over the vesting period. The fair value of options assumed in the Security merger were included in the determination of total consideration. No compensation cost associated with such options was included in determining pro forma net income in 1997. The grant date fair values and assumptions used to determine such value are as follows:
OPTIONS GRANTED DURING 1997 1996 1995 ---------------------- ----------- ----------- ----------- Weighted-average grant date fair value............................... $ 14.80 $ 8.14 $ 6.50 Assumptions: Risk-free interest rates........... 5.75-6.81% 5.48-6.51% 5.66-6.91% Expected volatility................ 17.03-18.47% 19.30-20.36% 19.99-20.50% Expected term (in years)........... 6.0 6.0 6.0 Expected dividend yield............ 1.42% 2.25% 2.19%
58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Activity relating to the Corporation's Restricted Purchase Rights was:
DECEMBER 31, ------------------------ 1997 1996 1995 ------- ------ ------- Restricted stock purchase rights outstanding-- Beginning of Year................................ 15,000 5,000 13,000 Restricted stock purchase rights granted......... 14,000 19,000 18,000 Restricted stock purchase rights exercised....... (18,500) (9,000) (26,000) ------- ------ ------- Restricted stock purchase rights outstanding--End of Year......................................... 10,500 15,000 5,000 Weighted-average grant date market value......... $54.08 $30.08 $24.05 Aggregate compensation expense................... $ 474 $ 444 $ 611
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. Shares reserved for the granting of options and stock purchase rights at December 31, 1997 were 4,934,138. The Corporation also has a Long-term Incentive Plan. Under the plan, performance units may be awarded from time to time. Once awarded, additional performance units will be credited to each participant based on dividends paid by the Corporation on its common stock. At the end of a designated vesting period, participants will receive an amount 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. Units awarded to certain executives of the Corporation were 104,750 in 1997, 88,650 in 1996, and 91,700 in 1995. The vesting period is three years from the date the performance units were awarded. At December 31, 1997, based on the performance criteria, without regard to the vesting, approximately $9,030 would be due to the participants under the 1996 and 1997 awards. In addition, the amount payable to participants under the 1995 award which was fully vested, was $4,679 at December 31, 1997. 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 $31,804, $24,410, and $23,883 in 1997, 1996, and 1995, 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 $1,567 in 1997, $1,456 in 1996, and $1,023 in 1995. Security sponsored a trusteed defined benefit pension plan, and defined contribution ESOP plan for substantially all of its employees. In conjunction with the merger, such plans were terminated for accounting purposes and are in the process of determining final distributions to former participants of the plans. Security also sponsored a defined contribution 401(k) plan that merged with the Corporation's incentive savings plan at December 31, 1997. The Corporation sponsors a defined benefit health plan that provides health care benefits to eligible current and retired employees. Eligibility for retiree benefits is dependent upon age, years of service, and participation in the health plan during active service. The plan is contributory and in 1997 the plan was amended. Employees 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) hired or acquired after September 1, 1997 will be granted access to the Corporation's plan upon retirement however, such retirees must pay 100% of the cost of health care benefits. For active employees employed by the Corporation as of August 31, 1997, participants will contribute 40% of the cost of health care benefits from date of retirement to age 64. At age 65, such participants will contribute 40%-80% of the cost of health care benefits depending on their age on August 31, 1997. For active employees fully eligible for retirement on August 31, 1997, such participants will contribute 40% of the cost of health care benefits upon retirement including post 65 health care benefits which is similar to the provisions of the plan prior to the amendment. The plan continues to contain other cost-sharing features such as deductibles and coinsurance. The plan is not funded. The components of the accumulated postretirement benefit obligation (APBO) for retiree health benefits reconciled with the amount recognized in the Corporation's Consolidated Balance Sheets at December 31, were:
1997 1996 ------- ------- Accumulated postretirement benefit obligation: Retirees................ $23,220 $19,770 Fully eligible active plan participants...... 9,829 7,474 Active plan participants........... 18,653 16,251 ------- ------- 51,702 43,495 Unrecognized gain (loss)................. (971) 1,323 ------- ------- Accrued postretirement benefit cost........... $50,731 $44,818 ======= ======= Weighted average discount rate used in determining APBO....... 7.50% 7.50% ======= =======
Net periodic postretirement benefit cost for the years ended December 31, 1997, 1996, and 1995 includes the following components:
1997 1996 1995 ------ ------ ------ Service cost......................................... $2,794 $3,553 $2,130 Interest on APBO..................................... 3,158 3,322 3,236 Net amortization and deferral........................ (89) 146 127 ------ ------ ------ $5,863 $7,021 $5,493 ====== ====== ====== Assumed health care cost trend....................... 7.5% 9.0% 11.0% Ultimate trend....................................... 5.0% 5.0% 5.5% Ultimate year........................................ 2006 2016 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, 1997 by $7,747 and increase 1997 postretirement benefit expense by $1,227. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Financial instruments with off-balance sheet risk at December 31 were:
1997 1996 ---------- ---------- Financial instruments whose amounts represent credit risk: Commitments to extend credit: To commercial customers............................ $5,007,708 $4,054,140 To individuals..................................... 1,189,059 937,556 Standby letters of credit, net of participations.... 383,510 309,435 Commercial letters of credit........................ 12,042 14,773 Mortgage loans sold with recourse................... 3,419 4,199 Financial instruments whose amounts exceed the amount of credit risk: Foreign exchange contracts: Commitments to purchase foreign exchange........... 418,871 130,718 Commitments to deliver foreign exchange............ 421,575 136,314 Options written/purchased.......................... 5,338 1,000 Interest risk management instruments: Interest rate swaps................................. 625,000 370,000 Interest rate floors................................ 25,000 50,000 Interest rate cap................................... 25,000 --
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require payment of a fee. The majority of the Corporation's commitments to extend credit generally provide for the interest rate to be determined at the time the commitment is utilized. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on an individual basis. Collateral obtained, if any, upon extension of credit, is based upon management's credit evaluation of the customer. Collateral requirements and the ability to access collateral is generally similar to that required on loans outstanding as discussed in Note 7. 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 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 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 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, 1997, the Corporation's foreign currency position 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....................................... $121,017 $121,782 French Franc........................................ 59,579 59,294 English Pound Sterling.............................. 37,781 37,620 Japanese Yen........................................ 22,769 22,135 Canadian Dollar..................................... 71,119 70,509 Swedish Kronor...................................... 29,203 29,202 Australian Dollar................................... 14,554 14,550 Spanish Peseta...................................... 12,901 12,800 Italian Lire........................................ 11,562 11,491 New Zealand Dollar.................................. 10,417 10,416 Swiss Franc......................................... 10,036 8,746 Netherland Guilder.................................. 8,775 8,694 Danish Kronor....................................... 4,978 4,931 Belgian Francs...................................... 3,217 3,174 All Other........................................... 3,667 3,527 -------- -------- Total............................................. $421,575 $418,871 ======== ======== Average Amount of Contracts To Deliver/Purchase Foreign Exchange................................... $468,094 $463,092 ======== ========
These amounts do not represent the actual credit or market exposure. Interest rate swaps are contractual agreements between counterparties to exchange interest payment streams based on notional principal amounts over a set period of time. Swap agreements normally involve the exchange of fixed and floating rate payment obligations without the exchange of the underlying principal amounts. All of the Corporation's interest rate swaps are receive fixed/pay floating standard swaps that are utilized to manage the interest volatility associated with variable rate loans and brokered callable CDs at the Corporation's affiliate banks. At December 31, 1997 the Corporation's interest rate swap portfolio consisted of the following ($ in millions):
REMAINING MATURITY IN YEARS --------------------------------------------------------- OVER 0-1 YRS. 1-2 YRS. 2-3 YRS. 3-4 YRS. 4-5 YRS. 5 YRS. TOTAL -------- -------- -------- -------- -------- ------ ----- Notional value.......... $ 75 $210 $ 95 $120 $ 10 $115 $625 Weighted average receive rate................... 6.03% 6.22% 6.24% 6.63% 6.50% 6.67% 6.37% Weighted average pay rate (variable)........ 5.83% 5.79% 5.81% 5.85% 5.66% 5.65% 5.79%
The impact on net interest income in 1997 and 1996 was a positive $2.71 million and $1.12 million, respectively. 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Interest caps and floors are contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market rate rises/falls above/below the fixed ceiling or floor or index rate on specified future dates. The Corporation uses standard interest rate caps and floors to manage the interest volatility associated with variable rate loans and variable rate borrowings. At December 31, 1997, the Corporation was party to one interest rate floor contract and one interest rate cap contract which are summarized as follows ($ in millions):
WEIGHTED-AVERAGE ------------------------------------------------------- NOTIONAL STRIKE REMAINING TYPE AMOUNT RATE INDEX TERM (YEARS) ---- -------- ------ ----- ------------ Floor $25.0 5.250% 5.906% 3.98 Cap 25.0 6.000 5.758 1.76
No payments were received in 1997 and the effect of amortization of the fee premium was not material. The market risk due to potential fluctuations in interest rates is inherent in swap, cap and floor agreements. Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of the contracts. The Corporation maintains risk management policies that define parameters of acceptable market risk within the framework of its overall asset/liability management strategies and monitor and limit exposure to credit risk. The Corporation believes its credit and settlement procedures serve to minimize its exposure to credit risk. Credit exposure resulting from swaps, caps and floors is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities and other relevant factors. At December 31, 1997 the estimated credit exposure arising from swaps, caps and floors was approximately $7.7 million. 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The book values and estimated fair values for on and off-balance sheet financial instruments as of December 31, 1997 and 1996 are reflected below: BALANCE SHEET FINANCIAL INSTRUMENTS ($ IN MILLIONS)
1997 1996 ----------------- ----------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Financial Assets: Cash and short-term investments.......... $ 926.8 $ 926.8 $1,013.6 $1,013.6 Trading securities....................... 43.6 43.6 39.7 39.7 Investment securities available for sale. 4,038.7 4,038.7 3,065.0 3,065.0 Investment securities held to maturity... 930.1 953.3 773.8 776.8 Net loans................................ 12,339.5 12,662.9 9,146.0 9,330.2 Interest receivable...................... 146.7 146.7 99.1 99.1 Bank-owned life insurance................ 54.9 54.9 -- -- Financial Liabilities: Deposits................................. 14,356.0 14,440.1 10,952.4 11,019.3 Short-term borrowings.................... 1,780.5 1,780.5 1,550.5 1,550.5 Long-term borrowings: Convertible debt....................... -- -- 16.8 66.6 Other long-term borrowings............. 913.5 933.0 603.3 603.4 Interest payable......................... 93.9 93.9 75.6 75.6
63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 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 upon 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 entire 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 6, 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 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. Bank-owned Life Insurance The fair value of the bank-owned life insurance is represented by the cash surrender value as of December 31. 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 had convertible debt in 1996 (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. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS ($ 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.
1997 1996 ---- ---- Loan commitments................................................... $0.7 $1.7 Letters of credit.................................................. 2.2 2.4
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.
1997 1996 ------ ------ Commitments to purchase foreign exchange...................... $418.9 $130.7 Commitments to deliver foreign exchange....................... 421.6 136.3 Options written/purchased..................................... 0.0 0.0
Interest rate swaps, caps and floors are assigned a value based on a discounted cash flow analysis utilizing the forward yield curve.
1997 1996 ---- ---- Interest rate swaps................................................ $4.0 $2.2 Interest rate floors............................................... 0.2 0.4 Interest rate caps................................................. 0.1 --
See Note 17 for additional information on off-balance sheet financial instruments. 19. BUSINESS SEGMENTS The following table reflects certain information regarding our banking and data processing businesses:
ADJUSTMENTS DATA AND BANKING PROCESSING ELIMINATIONS CONSOLIDATED ----------- ---------- ------------ ------------ 1997 Revenue from: Unaffiliated customers........ $ 1,398,682 $343,846 -- $ 1,742,528 Affiliated customers.......... 8,110 77,692 $(85,802) -- ----------- -------- -------- ----------- Total revenue.................. $ 1,406,792 $421,538 $(85,802) $ 1,742,528 =========== ======== ======== =========== Operating profit............... $ 317,371 $ 52,880 -- $ 370,251 =========== ======== ======== =========== Identifiable assets............ $19,211,328 $314,035 $(47,911) $19,477,452 =========== ======== ======== =========== Net capital expenditures....... $ 30,470 $ 36,576 -- $ 67,046 =========== ======== ======== ===========
65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA)
ADJUSTMENTS DATA AND BANKING PROCESSING ELIMINATIONS CONSOLIDATED ----------- ---------- ------------ ------------ 1996 Revenue from: Unaffiliated customers........ $ 1,206,230 $268,526 -- $ 1,474,756 Affiliated customers.......... 7,945 77,100 $(85,045) -- ----------- -------- -------- ----------- Total revenue.................. $ 1,214,175 $345,626 $(85,045) $ 1,474,756 =========== ======== ======== =========== Operating profit............... $ 286,006 $ 27,135 -- $ 313,141 =========== ======== ======== =========== Identifiable assets............ $14,537,602 $274,926 $(49,215) $14,763,313 =========== ======== ======== =========== Net capital expenditures....... $ 11,850 $ 38,822 -- $ 50,672 =========== ======== ======== =========== 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 =========== ======== ======== ===========
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 Parent Corporation, along with three other nonbank subsidiaries (collectively "Data Services"), provides data processing, software, and other related services to both affiliated and unaffiliated customers. Revenues from affiliated customers are charged at rates available to and transacted with unaffiliated customers. Operating profit is pretax net income. The 1996 operating profit for the banking services segment includes the $2.7 million special assessment associated with SAIF deposits enacted into law in September 1996. The 1996 operating profit of Data Services includes the $12.1 million expense for acquired in-process research and development as discussed in Note 3. Net depreciation and amortization expense for the banking services business, excluding amortization affecting net interest income, amounted to $35,866, $27,060, and $28,051 in 1997, 1996, and 1995, respectively, and for Data Services amounted to $62,231 in 1997, $50,201 in 1996, and $38,978 in 1995. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) 20. CONDENSED FINANCIAL INFORMATION--PARENT CORPORATION ONLY CONDENSED BALANCE SHEETS DECEMBER 31
1997 1996 ---------- ---------- ASSETS Cash and cash equivalents............................. $ 51,566 $ 74,432 Data processing services receivables.................. 88,969 65,838 Indebtedness of nonbank affiliates.................... 275,786 184,050 Investments in affiliates: Banks............................................... 1,720,650 1,025,127 Nonbanks............................................ 233,048 220,993 Premises and equipment, net........................... 124,502 120,826 Other assets.......................................... 144,720 177,340 ---------- ---------- Total assets...................................... $2,639,241 $1,868,606 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper issued............................... $ 109,586 $ 14,234 Other liabilities..................................... 185,388 144,926 Long-term borrowings: 7.65% Junior Subordinated Deferrable Interest Debentures due to M&I Capital Trust A.............. 205,249 205,217 Other............................................... 218,947 243,019 ---------- ---------- Total Long-term borrowings........................ 424,196 448,236 ---------- ---------- Total liabilities................................. 719,170 607,396 Shareholders' equity.................................. 1,920,071 1,261,210 ---------- ---------- Total liabilities and shareholders' equity........ $2,639,241 $1,868,606 ========== ==========
Scheduled maturities of long-term borrowings are $9,996 in 1998, $30,991 in 1999, $22,863 in 2000, $31,924 in 2001, and $23,460 in 2002. See Note 12 for a description of the junior subordinated debt due to M&I Capital Trust A. 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31
1997 1996 1995 -------- -------- -------- INCOME Cash dividends: Bank affiliates................................. $246,795 $217,050 $141,928 Nonbank affiliates.............................. 37,034 11,687 11,624 Interest from affiliates.......................... 16,406 12,959 10,491 Data processing income............................ 406,594 335,127 284,141 Service fees and other............................ 51,107 36,988 37,322 -------- -------- -------- Total income.................................. 757,936 613,811 485,506 EXPENSE Interest.......................................... 33,416 23,016 26,851 Salaries and employee benefits.................... 237,647 180,574 151,519 Administrative and general........................ 170,823 151,380 122,276 -------- -------- -------- Total expense................................. 441,886 354,970 300,646 Income before income taxes and equity in undistributed net income of affiliates........... 316,050 258,841 184,860 Provision for income taxes........................ 10,045 11,101 9,549 -------- -------- -------- Income before equity in undistributed net income of affiliates.................................... 306,005 247,740 175,311 Equity in undistributed net income of affiliates, net of dividends paid: Banks........................................... (55,789) (58,481) 5,755 Nonbanks........................................ (5,072) 14,171 12,233 -------- -------- -------- NET INCOME.................................... $245,144 $203,430 $193,299 ======== ======== ========
68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31
1997 1996 1995 --------- --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................. $ 245,144 $ 203,430 $ 193,299 Noncash items included in income: Equity in undistributed net income of affiliates................................ 60,861 44,310 (17,988) Depreciation and amortization.............. 62,789 51,407 42,264 Other...................................... (3,698) 14,058 10,372 --------- --------- ----------- Net cash provided by operating activities... 365,096 313,205 227,947 CASH FLOWS FROM INVESTING ACTIVITIES: Increases in indebtedness of affiliates.... (822,662) (140,684) (256,220) Decreases in indebtedness of affiliates.... 730,926 135,324 228,251 Increases in investments in affiliates..... (24) (27,756) (215) Net capital expenditures................... (20,212) (36,897) (33,755) Acquisition of Security Capital Corporation............................... (259,462) -- -- Other...................................... 18,535 (74,519) (11,298) --------- --------- ----------- Net cash used in investing activities....... (352,899) (144,532) (73,237) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid............................. (77,975) (69,878) (62,985) Proceeds from issuance of commercial paper. 455,726 641,754 1,406,388 Principal payments on commercial paper..... (360,374) (669,091) (1,439,343) Proceeds from issuance of long-term debt... 101,131 197,628 -- Payments on long-term debt................. (114,414) (72,417) (17,619) Purchase of common stock................... (62,493) (172,023) (61,104) Proceeds from exercise of stock options.... 23,336 12,908 9,079 Other...................................... -- 189 406 --------- --------- ----------- Net cash used in financing activities....... (35,063) (130,930) (165,178) --------- --------- ----------- Net increase (decrease) in cash and cash equivalents................................ (22,866) 37,743 (10,468) Cash and cash equivalents, beginning of year....................................... 74,432 36,689 47,157 --------- --------- ----------- Cash and cash equivalents, end of year...... $ 51,566 $ 74,432 $ 36,689 ========= ========= ===========
69 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) DECEMBER 31, 1997, 1996 AND 1995 ($000'S EXCEPT SHARE DATA) Following is unaudited financial information for each of the calendar quarters during the years ended December 31, 1997 and 1996.
QUARTER ENDED ----------------------------------- DEC. 31 SEPT. 30 JUNE 30 MARCH 31 -------- -------- -------- -------- 1997 Total Interest Income...................... $343,884 $274,583 $267,280 $257,923 Net Interest Income........................ 165,647 135,518 133,240 129,642 Provision for Loan Losses.................. 4,378 4,258 4,306 4,311 Income before Income Taxes................. 109,774 93,324 84,994 82,159 Net Income................................. 71,859 61,864 56,622 54,799 Net Income Per Share:* Basic..................................... $ 0.69 $ 0.68 $ 0.62 $ 0.61 Diluted................................... 0.65 0.63 0.58 0.56 1996 Total Interest Income...................... $255,355 $246,625 $236,027 $233,429 Net Interest Income........................ 132,898 126,251 123,933 122,637 Provision for Loan Losses.................. 4,086 3,983 3,548 3,577 Income before Income Taxes................. 96,459 67,298 76,800 72,584 Net Income................................. 61,869 45,038 50,368 46,155 Net Income Per Share:* Basic..................................... $ 0.67 $ 0.48 $ 0.53 $ 0.49 Diluted................................... 0.62 0.45 0.50 0.46
1997 1996 1995 1994 1993 ------ ------ ------ ----- ----- COMMON DIVIDENDS DECLARED First Quarter................................. $0.185 $0.165 $0.150 $0.14 $0.12 Second Quarter................................ 0.200 0.185 0.165 0.15 0.14 Third Quarter................................. 0.200 0.185 0.165 0.15 0.14 Fourth Quarter................................ 0.200 0.185 0.165 0.15 0.14 ------ ------ ------ ----- ----- $0.785 $0.720 $0.645 $0.59 $0.54 ====== ====== ====== ===== =====
- -------- * May not add due to rounding PRICE RANGE OF STOCK (LOW AND HIGH CLOSE)
1997 1996 1995 1994 1993 -------- ------- ------- -------- --------- First Quarter Low................................ $32 3/4 $24 5/8 $18 1/8 $20 $21 1/16 High............................... 40 1/4 26 1/4 21 3/4 23 3/4 23 5/16 Second Quarter Low................................ 35 1/16 24 7/8 19 7/8 19 1/4 22 15/16 High............................... 42 1/2 28 1/8 22 3/4 22 1/4 25 3/4 Third Quarter Low................................ 40 7/8 25 1/2 22 1/8 19 5/8 21 1/4 High............................... 52 5/8 30 1/8 26 1/4 21 3/4 25 Fourth Quarter Low................................ 50 1/16 30 24 18 21 3/4 High............................... 62 1/8 35 3/8 26 3/8 20 9/16 24 1/4
70 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Milwaukee, Wisconsin, January 30, 1998 71 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 28, 1998, 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 28, 1998. 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 28, 1998. 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 28, 1998. 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, 1997 and 1996 Statements of Income--years ended December 31, 1997, 1996, and 1995 Statements of Cash Flows--years ended December 31, 1997, 1996, and 1995 Statements of Shareholders' Equity--years ended December 31, 1997, 1996 and 1995 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 which is incorporated herein by reference. 72 (b) Reports on Form 8-K
DATE OF REPORT ITEMS REPORTED -------------- -------------- October 1, 1997 Items 2, 7 - M&I reported the acquisition of Security Capital Corporation for approximately 12.3 million shares of M&I Common Stock and $376.3 million in cash. The following financial statements were filed as part of such Report: Unaudited Pro Forma Condensed Balance Sheet as of June 30, 1997; Unaudited Pro Forma Condensed Statement of Income for the twelve months ended December 31, 1996; Unaudited Pro Forma Condensed Statement of Income for the six months ended June 30, 1997; Audited Consolidated Statement of Financial Condition of Security as of June 30, 1997; Audited Consolidated Statement of Income of Security for the year ended June 30, 1997; and Audited Consolidated Statement of Cash Flows of Security for the year ended June 30, 1997. November 3, 1997 Items 5, 7 - M&I reported that M&I and Advantage Bancorp, Inc. had entered into an Agreement and Plan of Merger providing for the merger of Advantage with and into M&I.
73 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 /s/ J. B. Wigdale By: _________________________________ J. B. Wigdale Chairman of the Board Date: February 26, 1998 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: /s/ J. B. Wigdale Chairman of the Date: February - ------------------------------------- Board and a 26, 1998 J. B. Wigdale Director (Chief Executive Officer) /s/ G. H. Gunnlaugsson Executive Vice Date: February - ------------------------------------- President and a 26, 1998 G. H. Gunnlaugsson Director (Chief Financial Officer) /s/ P. R. Justiliano Senior Vice Date: February - ------------------------------------- President and 26, 1998 P. R. Justiliano Corporate Controller (Principal Accounting Officer) Directors: Richard A. Abdoo, Oscar C. Boldt, J.P. Bolduc, Wendell F. Bueche, Jon F. Chait, Glenn A. Francke, G. H. Gunnlaugsson, Burleigh E. Jacobs, Jack F. Kellner, James F. Kress, D. J. Kuester, Katharine C. Lyall, Don R. O'Hare, Peter M. Platten, III, J.A. Puelicher, Robert A. Schaefer, Stuart W. Tisdale J. B. Wigdale, James O. Wright and Gus A. Zuehlke. /s/ M. A. Hatfield By___________________________________ M. A. Hatfield As Attorney-in-Fact* Date: February 26, 1998 - -------- * Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 74 MARSHALL & ILSLEY CORPORATION INDEX TO EXHIBITS (ITEM 14(A)3) ITEM (2)(a) Agreement and Plan of Merger dated as of March 14, 1997, between M&I and Security Capital Corporation, incorporated by reference to M&I's Current Report on Form 8-K dated March 14, 1997, SEC File No. 0-1220 (b) Agreement and Plan of Merger dated as of November 3, 1997, between M&I and Advantage Bancorp, Inc., incorporated by reference to M&I's Current Report on Form 8-K dated November 3, 1997, 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, incorporated by reference to M&I's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 0-1220 (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 (j) Amended and Restated Declaration of Trust dated as of December 9, 1996 among Marshall & Ilsley Corporation, as Sponsor, The Chase Manhattan Bank, as Institutional Trustee, Chase Manhattan Bank Delaware, as Delaware Trustee, the Regular Trustees identified thereon, and the holders from time to time of undivided interests in the assets of the Trust, incorporated by reference to M&I's Registration Statement on Form S-4 dated January 15, 1997, SEC File No. 333-19809 1 ITEM (k) Indenture, dated as of December 9, 1996, between Marshall & Ilsley Corporation and The Chase Manhattan Bank, as Indenture Trustee, incorporated by reference to M&I's Registration Statement on Form S-4 dated January 15, 1997, SEC Reg. No. 333-19809 (l) First Supplemental Indenture, dated as of December 9, 1996, between Marshall & Ilsley Corporation and The Chase Manhattan Bank, as Indenture Trustee, incorporated by reference to M&I's Registration Statement on Form S-4 dated January 15, 1997, SEC Reg. No. 333-19809 (m) Form of Capital Security Certificate for M&I Capital Trust A, included as Exhibit A-2 to Exhibit 4(k) (n) Capital Securities Guarantee Agreement, dated as of December 9, 1996, between Marshall & Ilsley Corporation and The Chase Manhattan Bank, as Guarantee Trustee, incorporated by reference to M&I's Registration Statement on Form S-4 dated January 15, 1997, SEC Reg. No. 333-19809 (o) Registration Rights Agreement dated December 2, 1996, by and among Marshall & Ilsley Corporation, M&I Capital Trust A and Salomon Brothers Inc, as Representative of the Initial Purchasers, incorporated by reference to M&I's Registration Statement on Form S-4 dated January 15, 1997, SEC Reg. No. 333-19809 (p) Form of Subordinated Debt Security, included as part of Exhibit 4(m) (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) 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* (e) 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* (f) 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* (g) 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* (h) 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* (i) 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* (j) 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* 2 ITEM (k) 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* (l) 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* (m) 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* (n) 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* (o) 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* (p) 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* (q) Marshall & Ilsley Corporation 1993 Executive Stock Option Plan, as amended, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, SEC File No. 0-1220.* (r) 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* (s) 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)* (t) 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")* (u) Valley Bancorporation 1992 Outside Directors' Stock Option Plan, incorporated by reference to the Valley 1992 Proxy Statement* (v) Valley Bancorporation 1988 Nonqualified Stock Option Plan, incorporated by reference to Valley Bancorporation's Proxy Statement for the 1988 Annual Meeting of Shareholders* (w) 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* (x) 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)* (y) 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* (z) Employment agreement, dated as of December 14, 1995, between M&I and Ms. Patricia R. Justiliano, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, SEC File No. 0-1220* 3 ITEM (aa)Marshall & Ilsley Corporation 1997 Executive Stock Option and Restricted Stock Plan, incorporated by reference to M&I's Proxy Statement for the 1997 Annual Meeting of Shareholders, SEC File No. 0- 1220* (bb)Marshall & Ilsley Corporation Executive Deferred Compensation Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 0-1220* (cc)Deferred Compensation Trust II between Marshall & Ilsley Corporation and Marshall & Ilsley Trust Company, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 0-1220* (dd)Marshall & Ilsley Corporation Annual Executive Incentive Compensation Plan, incorporated by reference to M&I's Proxy Statement for the 1997 Annual Meeting of Shareholders, SEC File No. 0-1220* (ee)Marshall & Ilsley Corporation Amended and Restated Supplementary Retirement Benefits Plan, incorporated by reference to M&I's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 0-1220* (ff)Security Capital Corporation 1993 Incentive Stock Option Plan, incorporated by reference to M&I's Registration Statement on Form S-8 (Reg. No. 333-36909)* (gg)Security Bank S.S.B. Deferred Compensation Plans for Key Executive Officers and Directors, incorporated by reference to Security Capital Corporation's Registration Statement on Form S-1 (Reg. No. 33-68982)* (hh)Security Bank S.S.B. Supplemental Pension Plan, incorporated by reference to Security Capital Corporation's Registration Statement on Form S-1 (Reg. No. 33-68982)* (ii)Directors Deferred Compensation Plan, incorporated by reference to M&I's Proxy Statement for the 1998 Annual Meeting of Shareholders, SEC File No. 0-1220* (jj)Marshall & Ilsley Corporation 1994 Long-Term Incentive Plan for Executives, as amended* (kk)Amendment to Consulting Agreement and Supplemental Retirement Plan dated as of December 11, 1997, between M&I and Mr. J.A. Puelicher* (ll)Employment agreement, dated December 11, 1997, between M&I and Mr. Delgadillo* (mm)Employment agreement, dated December 11, 1997, between M&I and Mr. D.W. Layden, Jr.* (nn)Employment agreement, dated November 5, 1990, between M&I and Mr. D.R. Jones* (oo)Amendment to Employment Agreement dated April 3, 1995, between M&I and Mr. D.R. Jones* (pp)Employment Agreement, dated June 12, 1997, between M&I and Mr. T.M. Bolger* (qq)Employment Agreement, dated October 16, 1997, between M&I and Mr. D.H. Wilson* (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. 4 EX-10.JJ 2 1994 LONG-TERM INCENTIVE PLAN FOR EXECUTIVES Exhibit 10(jj) MARSHALL & ILSLEY CORPORATION 1994 LONG-TERM INCENTIVE PLAN FOR EXECUTIVES, AS AMENDED AMENDED AND RESTATED MARSHALL & ILSLEY CORPORATION 1994 LONG-TERM INCENTIVE PLAN FOR EXECUTIVES (as amended and restated through February 12, 1998) 1. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the best interests of Marshall & Ilsley Corporation and enhance shareholder value by attracting and retaining key personnel and providing such employees with an incentive to put forth maximum effort for the continued success and growth of the Company. 2. DEFINITIONS. (a) "Account" shall mean the account established and administered for the benefit of a Participant under the Plan. (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 3 of the Plan. (d) "Company" shall mean Marshall & Ilsley Corporation, a Wisconsin corporation. (e) "Employees" shall mean those individuals who are executive officers or senior managers of the Company or its Subsidiaries. (f) "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. (g) "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Parent" shall mean a parent corporation of the Company as defined in Section 424(e) of the Code. (i) "Participant" shall mean an Employee designated by the Committee to be a participant in the Plan. (j) "Plan" shall mean the 1994 Long-Term Incentive Plan for Executives of the Company. (k) "Share" or "Shares" shall mean the $ 1.00 par value common stock of the Company. (l) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (m) "Triggering Event" shall mean any of the following: (a) the acquisition, by any person or group of persons other than the Company or a Subsidiary, of twenty-five percent (25%) or more of the outstanding shares of the common stock of the Company pursuant to a tender or exchange offer; (b) 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 thereunder); or (c) the shareholders of the common stock of the Company approve a transaction whereby the Company (or any Subsidiary or Subsidiaries in the aggregate representing at least 25% of the consolidated assets of the Company), will (i) merge or consolidate with, or enter into any similar transaction with any person, in which the Company or Subsidiary is not the survivor (ii) sell, lease or otherwise dispose of all or substantially all of the assets of the Company or such Subsidiary or (iii) sell or otherwise dispose of (including by way of merger, consolidation, share exchange or any similar transaction) securities representing twenty-five percent (25%) or more of the voting power of the Company or such Subsidiary. (n) "Unit" shall mean a bookkeeping entry used by the Company to record and account for the grant of an award under the Plan denominated in Shares until such time as the award is paid, cancelled, forfeited or terminated, as the case may be. 3. 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. (b) The Committee shall have sole authority in its discretion, but always subject to the express provisions of the Plan, to determine the Employees who will be Participants, the number of Units which will be credited to each Account, the performance criteria for earning the Units credited to each Account and the period of time to which the performance criteria will be applied; 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 awards to Participants; 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 matter shall be conclusive and binding on the Company, all Employees, all Participants and all other persons. 2 4. ELIGIBILITY. Only Employees shall be eligible to be Participants under the Plan. In determining which Employees will be Participants and the amount of the award hereunder, 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 award under the Plan may be granted additional awards under the Plan if the Committee shall so determine. The Company shall effect the granting of awards hereunder in such manner as the Committee determines. No award may be granted under the Plan to a member of the Committee. 5. ESTABLISHMENT OF ACCOUNTS. The Company shall establish on its books of account a separate Account for each Participant, which shall be used for the purpose of determining the compensation to which the Participant from time to time may be entitled hereunder. There shall be recorded in each Participant's Account the number of Units from time to time credited to the Participant by the Committee or pursuant to Paragraph 8 hereof. In no event will more than 1,200,000 Units, subject to adjustment under Paragraph 10 hereof, be granted under the Plan (excluding Units credited in lieu of dividends under Paragraph 8 hereof). No more that 300,000 Units will be granted to any one individual (again excluding Units credited in lieu of dividends and subject to adjustment under Paragraph 10). Accounts shall be maintained solely for accounting purposes, and no assets of the Company shall be segregated or subject to any trust for any Participant's benefit by reason of the establishment of the Participant's Account. In addition, no Participant shall acquire any rights as a shareholder of the Company, including the right to vote with respect to any matter before the shareholders of the Company or to receive dividends payable on the common stock, or, except as is specifically provided otherwise herein, any other rights, by reason of the establishment of the Participant's Account. 6. PERFORMANCE CRITERIA. The Committee shall establish performance criteria which will govern whether and to what extent Participants will receive a pay-out of their Accounts. The criteria among which the Committee may choose in establishing performance criteria are one or more of earnings per share, net income, return on average assets, return on average equity, total shareholder return or cost control of the Company and/or one or more of its Subsidiaries, or any other entity in which the Company owns more than 50% of the interests entitled to vote. The length of the performance period, the performance objectives to be achieved during the performance period (including defining the above terms, and if deemed appropriate, the exclusion of extraordinary items or any other adjustments considered proper), and the measure of whether and to what degree such objectives have been attained shall be conclusively determined by the Committee. No payment of awards under this Plan shall be made until the Committee certifies that the performance criteria to which such awards were subject have been met. 3 7. PAYMENT OF AWARDS. The Committee, in its sole discretion, may pay awards earned under the Plan in cash, Shares or a combination of cash or Shares. Any Shares paid may be treasury Shares or authorized, but unissued Shares. 8. DIVIDENDS AND DIVIDEND EQUIVALENTS. At such time as dividends are paid on Shares, an Account of a Participant shall be credited with that number of additional Units equal to the product of (a) the number of Units then in the Account times (b) the amount of the dividend per Share divided by (c) the Market Price of a Share on the date a dividend is paid. 9. TERMINATION OF EMPLOYMENT. (a) Any Participant whose employment with the Company or a Subsidiary is terminated due to retirement on such Participant'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 continue as a Participant in the Plan as to Units already awarded (and any dividends or dividend equivalents earned in connection therewith), but shall not be entitled to the award of any additional Units by the Committee. (b) Any Participant whose employment with the Company or a Subsidiary is terminated due to disability (as defined in Section 22(e)(3) of the Code) or death, or any Participant who dies after retirement, as defined in subparagraph (a), above, but while he still is a Participant in the Plan, shall continue as a Participant in the Plan as to Units already awarded (and any dividends or dividend equivalents earned in connection therewith) until the close of the calendar year in which the Participant dies or is disabled. The Committee will determine if and to what extent the performance criteria it established have been met as of the close of the calendar year. Based on this determination, a Participant, or, in the case of death, his beneficiary as determined pursuant to Paragraph 12, hereof, shall receive a prorated award within 90 days of the end of the calendar year based on a fraction, the numerator of which is the number of days from the beginning of the award period to the date of death or disability and the denominator of which is the total number of days in the award period. (c) If a Participant's employment is terminated for any reason other than those specified in subparagraphs (a) and (b), above, his participation in the Plan shall immediately cease and he shall not be entitled to any award under the Plan, unless the Committee, in its sole discretion, determines otherwise. (d) Notwithstanding the foregoing, if (i) a Participant's employment is terminated as a result of, or in anticipation of, a Triggering Event, or (ii) a Participant's employment is not terminated, but a Triggering Event occurs, a Participant shall receive an amount equal to the amount he would be entitled to receive at the close of the performance period based on the extent to which the performance criteria set by the Committee have been met as of the date of the 4 Triggering Event. Payment of the amount to which the Participant is entitled hereunder shall be made within 30 days after the occurrence of the Triggering Event. (e) The Plan does not confer upon any Participant 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 any Subsidiary to terminate any Participant's employment at any time. 10. 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 Units in each Account and the number of Shares available for payment of awards hereunder shall be appropriately adjusted by the Committee. 11. NONASSIGNABILITY. No Accounts or any payment under the Plan shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution), assignment, pledge, or encumbrance. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any Account or any payment under the Plan shall be void and of no legal effect. 12. BENEFICIARY DESIGNATION. If a Participant dies prior to the distribution to him of all amounts payable to him under the Plan, the amounts otherwise distributable to the Participant if living, shall be distributed to his designated beneficiary or beneficiaries. All beneficiary designations shall be made in the form prescribed by the Committee from time to time and shall be delivered to the Secretary of the Company. If there is no effective beneficiary designation on file at the time of the Participant's death, distribution of amounts otherwise payable to the deceased Participant under the Plan shall be made to his Estate. If the beneficiary designated by the Participant shall survive the Participant but die before receiving all distributions hereunder, all amounts otherwise payable to the deceased beneficiary shall be paid to such deceased beneficiary's Estate unless the Participant's beneficiary designation provides otherwise. The Company shall have no responsibility with respect to the validity of any beneficiary designation made by a Participant and shall be fully protected if it acts thereon in good faith. 13. 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 payment of any amounts under the Plan, and the Company may defer making payments hereunder until arrangements satisfactory to it have been made with respect to any such withholding obligations. A Participant may, at his election, satisfy his obligation for payment of withholding taxes by having the Company retain a number of Shares, if payment of the Account includes Shares, having an aggregate Market Price on the date the Shares are 5 withheld equal to the amount of the withholding tax or by delivering to the Company Shares already owned by the Participant having an aggregate Market Price on the date the Shares are delivered equal to the amount of the withholding tax. The Company shall have the right to rely on a written opinion of legal counsel, which may be independent legal counsel or legal counsel regularly employed by the Company, if any question should arise as to the payment or withholding of taxes. 14. REGULATORY APPROVALS AND RULE 16b-3. (a) Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates for Shares resulting from the payment of an Account hereunder prior to (i) the obtaining of any approval from any governmental agency which the Company shall, it its sole discretion, determine to be necessary or advisable, (ii) the admission of such Shares to listing on the stock exchange on which the Shares may be listed, and (iii) the completion of any registration or other qualification of said Shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable. (b) It is intended that the Plan and any award made to a person subject to Section 16 of the 1934 Act, and any transaction or election hereunder by any such person, meet all of the requirements of Rule 16b-3. If any provision of the Plan or any award hereunder would disqualify the Plan or such award under, or would not comply with, Rule 16b-3, such provision or award shall be construed or deemed to conform to Rule 16b-3. (c) Any election by a Participant subject to Section 16 of the 1934 Act, pursuant to Paragraph 13 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. 15. EFFECTIVENESS OF THE PLAN. The Plan became effective upon approval by the Company's Executive Compensation Committee and Board of Directors on March 30, 1994, subject to ratification of the Plan by the vote of the holders of a majority of the Shares present or represented and entitled to vote at an annual or special meeting of the Company duly called and held which vote was received on August 23, 1994. The amendments hereto were approved by the Board of Directors on February 12, 1998, subject to approval at the April 28, 1998 Annual Meeting of shareholders. If shareholder approval is not obtained, any awards previously made at the December 11, 1997 meeting of the Executive Compensation Committee will be void and of no further effect. 16. TERMINATION AND AMENDMENT. The Plan may be terminated, modified or amended by the Company's Board of Directors, provided, however, that any modification or amendment which would, under applicable law or other regulatory provisions require shareholder approval and any amendment to increase the number of Units available for grant under the Plan shall be subject to the affirmative vote of the holders of a majority of the Shares of the Company present, or represented, and entitled to vote at 6 a meeting of the shareholders of the Company and provided, further, that no termination, modification or amendment of the Plan may, without the consent of a Participant, adversely affect the rights of such Participant in his Account, other than a termination because the requisite shareholder approval is not obtained. In such event, any awards made subject to the consent of the shareholders shall be void and of no further effect. 17. GOVERNING LAW. The Plan shall be construed, administered and governed in all respects under and by the applicable laws of the State of Wisconsin. 7 EX-10.KK 3 AMENDMENT TO CONSULTING AGREEMENT Exhibit 10(kk) AMENDMENT TO CONSULTING AGREEMENT AND SUPPLEMENTAL RETIREMENT PLAN DATED AS OF DECEMBER 11, 1997, BETWEEN M&I AND MR. J.A. PUELICHER AMENDMENT TO CONSULTING AGREEMENT AND SUPPLEMENTAL RETIREMENT PLAN This Amendment to the Consulting Agreement and Supplemental Retirement Plan between J.A. Puelicher ("Executive") and Marshall & Ilsley Corporation (the "Company") dated as of October 1, 1986 (the "Agreement") is dated as of the 11th day of December, 1997. WHEREAS, the five-year consulting period under the Agreement will end on December 31, 1997; and WHEREAS, because of the value of Executive's services to the Company, the Company desires to continue the consulting relationship for an additional five- year period and Executive has consented to same; and WHEREAS, the Company wishes to provide Mr. Puelicher with an office and secretarial services for life. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Amendment to Paragraph 2. In order to extend the consulting period for an additional five years, the word "fifth" in the second line of Paragraph 2 is deleted and the word "tenth" is substituted therefor. 2. Amendment to Paragraph 4B. In order to provide that Executive will receive an office and secretarial services for life, the phrase "during the term of this Agreement" in the third line of Paragraph 4B is deleted and the phrase "for his life" is added at the end of Paragraph 4B. 3. Amendment to Paragraph 7A. Paragraph 7A is deleted in its entirety and the following is substituted therefor: "A. Successors and Assigns. (i) 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. (ii) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, nor shall Executive's rights hereunder be subject to encumbrance or to the claims of the Company's creditors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, Estate, executors, administrators, heirs and beneficiaries." 4. Effect of Amendment. Except as specifically amended above, the Agreement is hereby ratified and confirmed and shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed by the parties as of the date first above written. MARSHALL & ILSLEY CORPORATION By: /s/ James B. Wigdale -------------------------------------- James B. Wigdale, Chairman and Chief Executive Officer Attest: /s/ Michael A. Hatfield ---------------------------------- Michael A. Hatfield, Secretary /s/ J. A. Puelicher ----------------------------------------- J. A. Puelicher 2 EX-10.LL 4 EMPLOYMENT AGREEMENT BETWEEN M&I AND DELGADILLO Exhibit 10(ll) EMPLOYMENT AGREEMENT DATED DECEMBER 11, 1997, BETWEEN M&I AND MR. DELGADILLO EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, entered into as of the 11th day of December, 1997, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and JOSEPH L. DELGADILLO (the "Executive") (hereinafter collectively referred to as "the parties"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as hereinafter defined in Section 2) exists and that the threat of or the occurrence of a Change of Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; and WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its shareholders to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Employment Term. (a) The "Employment Term" shall commence on the first date during the Protected Period (as defined in Section 1(c), below) on which a Change of Control (as defined in Section 2, below) occurs (the "Effective Date") and shall expire on the third anniversary of the Effective Date; provided, however, that at the end of each day of the Employment Term the Employment Term shall automatically be extended for one (1) day unless either the Company or the Executive shall have given written notice to the other at least thirty (30) days prior thereto that the Employment Term shall not be so extended; 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 three (3) year period commencing on the date hereof, provided, however, that at the end of each day the Protected Period shall be automatically extended for one (1) day unless at least thirty (30) days prior thereto the Company shall have given written notice to the Executive that the Protected Period shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the Protected Period shall not end if prior to the expiration thereof any third party has indicated an intention or taken steps reasonably calculated to effect a Change of Control, in which event the Protected Period shall end only after such third party publicly announces that it has abandoned all efforts to effect a Change of Control. 2. Change of Control. For purposes of this Agreement, a "Change of Control" shall mean the first to occur of the following: (a) The acquisition by any individual, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-three percent (33%) or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions of common stock shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege or by one person or a group of persons acting in concert), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger 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 2 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 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, 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. 3 (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. 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, 4 than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, 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 5 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 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 6 demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c)(1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect 7 a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason or for no reason during the sixty (60) day period commencing on the date six (6) months after the Effective Date shall be deemed to be a termination by the Executive for Good Reason for all purposes of this Agreement. (d) Voluntary Termination. The Executive may voluntarily terminate his employment hereunder at any time. (e) Notice of Termination. Any purported termination by the Company or by the Executive (other than by death of the Executive) shall be communicated by Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) the Termination Date. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) Termination Date, etc. "Termination Date" shall mean in the case of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination subject to the following: (1) If the Executive's employment is terminated by the Company, the date specified in the Notice of Termination shall be at least thirty (30) days after the date the Notice of Termination is given to the Executive, provided, however, that in the case of Disability, the Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; (2) If the Executive's employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days after the date the Notice of Termination is given to the Company; and (3) In the event that within thirty (30) days following the date of receipt of the Notice of Termination, one party notifies the other that a dispute exists concerning the basis for termination, the Executive's employment hereunder shall not be terminated except after the dispute is finally resolved and a Termination Date is determined either by 8 a mutual written agreement of the parties, or by a binding and final judgment order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (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) three and (2) the sum of (x) the Executive's Annual Base Salary (increased for this purpose by any Section 401(k) deferrals, cafeteria plan elections, or other deferrals that would have increased Executive's Annual Base Salary if paid in cash to Executive when earned) and (y) the Executive's Highest Annual Bonus; C. A separate lump-sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the most favorable to the Executive actuarial assumptions and Company contribution history with respect to the applicable retirement plan, incentive plans, savings plans and other plans described in Section 4(c) (or any successor plan thereto) (the "Retirement Plans") during the twelve (12) month period immediately preceding 9 the Effective Date) of the benefit payable under the Retirement Plans and any supplemental and/or excess retirement plan providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued for an additional three (3) years after the Termination Date with annual compensation equal to the sum of the Annual Base Salary and Highest Annual Bonus, assuming for this purpose that all accrued benefits and contributions are fully vested and that benefit accrual formulas and Company contributions are no less advantageous to the Executive than those in effect during the twelve (12) month period immediately preceding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plans during the twelve (12) month period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plans and the SERP. For example, if there were a termination today this supplemental retirement benefit would be interpreted with respect to two plans in existence today as follows: (i) with respect to the Retirement Growth Plan of the Company, the Executive would receive no less than three 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 three 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; and D. The amount equal to the product of (i) three and (ii) the sum of (x) the imputed income reflected on Executive's W-2 attributable to the car provided to Executive by the Company or its affiliates for the last calendar year ending before the Effective Date and (y) the club dues for Executive paid by the Company or its affiliates attributable to such year. (ii) For thirty-six (36) months after the Termination Date, 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 10 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 thirty-six (36) 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) The Executive shall have the right to use reasonable office and secretarial assistance for a period of twelve (12) months after the Termination Date. (v) The Executive shall have the option of purchasing any life insurance owned by the Company or its affiliates on the life of Executive for the Company's investment in the contract, exercisable at any time within thirty (30) days after the Termination Date; and the Company agrees during the Employment Term not to terminate, sell, transfer or otherwise dispose of any such insurance without first allowing Executive the opportunity to exercise such option. (vi) 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. 11 (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall terminate without further obligations to the Executive, except that the Company shall pay or provide the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Term, or if the Executive voluntarily terminates employment during the Employment Term for other than Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination, 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 or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except to the extent set forth in Section 6(a)(ii)) whether or not the Executive obtains other employment. 8. Excise Tax Payments. (a) Notwithstanding anything contained in this Agreement to the contrary, in the event that any payment or distribution to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are collectively referred 12 to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) A determination shall be made as to whether and when a Gross-Up Payment is required pursuant to this Section 8 and the amount of such Gross-Up Payment, such determination to be made within fifteen (15) business days of the Termination Date, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). Such determination shall be made by a national independent accounting firm selected by the Executive (the "Accounting Firm"). All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by the Company and the Company shall pay such fees, costs and expenses as they become due. The Accounting Firm shall provide detailed supporting calculations, acceptable to the Executive, both to the Company and the Executive. The Gross-Up Payment, if any, as determined pursuant to this Section 8(b) shall be paid by the Company to the Executive within five (5) business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an unqualified opinion that no Excise Tax will be imposed with respect to any such Payment or Payments. Any such initial determination by the Accounting Firm of the Gross-Up Payment shall be binding upon the Company and the Executive subject to the application of Section 8(c). (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon notice (formal or informal) to the Executive from any governmental taxing authority that the tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any prior taxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable governmental taxing authority a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the expiration of the statute of limitations with respect to the Executive's applicable tax return. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive at least five (5) business days prior to the date on which the 13 applicable governmental taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties imposed on the Underpayment. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Company to the Executive and the Executive shall, within ten (10) business days of the occurrence of such Overpayment, pay to the Company the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Overpayment relates) was paid to the Executive. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable governmental taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments. 9. Unauthorized Disclosure. The Executive shall not make any Unauthorized Disclosure while employed by the Company and for the two-year period subsequent to the termination of his employment with the Company. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any confidential information obtained by the Executive while in the employ of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers or methods of operation) the disclosure of which he knows or has reason to believe will be materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 9) or any information not otherwise considered confidential by a reasonable person engaged in the same business as that conducted by the Company. Notwithstanding the foregoing, the Executive's obligation hereunder not to make any Unauthorized Disclosure shall continue after the end of the two-year period following his termination of employment with the Company as regards any information which is a trade secret as defined in Section 134.90 of the Wisconsin Statutes. In no event shall an asserted violation of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets 14 and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative. 11. Fees and Expenses. From and after the Effective Date, the Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably incurred by the Executive as they become due as a result of (i) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive's hearing before the Board as contemplated in Section 5(b) of this Agreement, (iii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits or (iv) a dispute between the Executive and the Internal Revenue Service (or any other taxing authority) with regard to an "Underpayment" (as defined in Section 8 of this Agreement). 12. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, if to the Company, to Marshall & Ilsley Corporation, 770 North Water Street, Milwaukee, Wisconsin 53202, or if to Executive, to the address set forth below Executive's signature, or to such other address as the party may be notified, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 13. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries for which the Executive may qualify. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 14. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 15. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or 15 conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 16. Employment. The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will" and prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the company terminates then the Executive shall have no further rights under this Agreement. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Wisconsin without giving effect to the conflict of law principles thereof. 18. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 19. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. In consideration of the terms, conditions and benefits to be provided under this Agreement, the Executive hereby expressly waives all rights under that certain Employment Agreement between the Executive and the Company dated November 16, 1987. 20. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 21. Modification. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by both the Executive and the Company. 22. Withholding. The Company shall be entitled to withhold from amounts paid to the Executive hereunder any federal, estate or local withholding or other taxes or charges which it is, from time to time, required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 16 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. MARSHALL & ILSLEY CORPORATION By: /s/ James B. Wigdale --------------------------------- ATTEST: Title: Chairman of the Board and Chief Executive Officer /s/ Michael A. Hatfield - --------------------------------- Secretary EXECUTIVE: /s/ Joseph L. Delgadillo ----------------------------------- Joseph L. Delgadillo Address: __________________________ __________________________ 17 EX-10.MM 5 EMPLOYMENT AGREEMENT BETWEEN M&I AND LAYDEN Exhibit 10(mm) EMPLOYMENT AGREEMENT DATED DECEMBER 11, 1997, BETWEEN M&I AND MR. D.W. LAYDEN, JR. EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, entered into as of the 11th day of December, 1997, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and DONALD W. LAYDEN, JR. (the "Executive") (hereinafter collectively referred to as "the parties"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as hereinafter defined in Section 2) exists and that the threat of or the occurrence of a Change of Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; and WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its shareholders to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Employment Term. (a) The "Employment Term" shall commence on the first date during the Protected Period (as defined in Section 1(c), below) on which a Change of Control (as defined in Section 2, below) occurs (the "Effective Date") and shall expire on the third anniversary of the Effective Date; provided, however, that at the end of each day of the Employment Term the Employment Term shall automatically be extended for one (1) day unless either the Company or the Executive shall have given written notice to the other at least thirty (30) days prior thereto that the Employment Term shall not be so extended; 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 three (3) year period commencing on the date hereof, provided, however, that at the end of each day the Protected Period shall be automatically extended for one (1) day unless at least thirty (30) days prior thereto the Company shall have given written notice to the Executive that the Protected Period shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the Protected Period shall not end if prior to the expiration thereof any third party has indicated an intention or taken steps reasonably calculated to effect a Change of Control, in which event the Protected Period shall end only after such third party publicly announces that it has abandoned all efforts to effect a Change of Control. 2. Change of Control. For purposes of this Agreement, a "Change of Control" shall mean the first to occur of the following: (a) The acquisition by any individual, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-three percent (33%) or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions of common stock shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege or by one person or a group of persons acting in concert), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger 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 2 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 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, 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. 3 (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. 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, 4 than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, 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 5 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 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 6 demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c)(1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect 7 a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason or for no reason during the sixty (60) day period commencing on the date six (6) months after the Effective Date shall be deemed to be a termination by the Executive for Good Reason for all purposes of this Agreement. (d) Voluntary Termination. The Executive may voluntarily terminate his employment hereunder at any time. (e) Notice of Termination. Any purported termination by the Company or by the Executive (other than by death of the Executive) shall be communicated by Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) the Termination Date. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) Termination Date, etc. "Termination Date" shall mean in the case of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination subject to the following: (1) If the Executive's employment is terminated by the Company, the date specified in the Notice of Termination shall be at least thirty (30) days after the date the Notice of Termination is given to the Executive, provided, however, that in the case of Disability, the Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; (2) If the Executive's employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days after the date the Notice of Termination is given to the Company; and (3) In the event that within thirty (30) days following the date of receipt of the Notice of Termination, one party notifies the other that a dispute exists concerning the basis for termination, the Executive's employment hereunder shall not be terminated except after the dispute is finally resolved and a Termination Date is determined either by 8 a mutual written agreement of the parties, or by a binding and final judgment order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (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) three and (2) the sum of (x) the Executive's Annual Base Salary (increased for this purpose by any Section 401(k) deferrals, cafeteria plan elections, or other deferrals that would have increased Executive's Annual Base Salary if paid in cash to Executive when earned) and (y) the Executive's Highest Annual Bonus; C. A separate lump-sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the most favorable to the Executive actuarial assumptions and Company contribution history with respect to the applicable retirement plan, incentive plans, savings plans and other plans described in Section 4(c) (or any successor plan thereto) (the "Retirement Plans") during the twelve (12) month period immediately preceding 9 the Effective Date) of the benefit payable under the Retirement Plans and any supplemental and/or excess retirement plan providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued for an additional three (3) years after the Termination Date with annual compensation equal to the sum of the Annual Base Salary and Highest Annual Bonus, assuming for this purpose that all accrued benefits and contributions are fully vested and that benefit accrual formulas and Company contributions are no less advantageous to the Executive than those in effect during the twelve (12) month period immediately preceding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plans during the twelve (12) month period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plans and the SERP. For example, if there were a termination today this supplemental retirement benefit would be interpreted with respect to two plans in existence today as follows: (i) with respect to the Retirement Growth Plan of the Company, the Executive would receive no less than three 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 three 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; and D. The amount equal to the product of (i) three and (ii) the sum of (x) the imputed income reflected on Executive's W-2 attributable to the car provided to Executive by the Company or its affiliates for the last calendar year ending before the Effective Date and (y) the club dues for Executive paid by the Company or its affiliates attributable to such year. (ii) For thirty-six (36) months after the Termination Date, 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 10 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 thirty-six (36) 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) The Executive shall have the right to use reasonable office and secretarial assistance for a period of twelve (12) months after the Termination Date. (v) The Executive shall have the option of purchasing any life insurance owned by the Company or its affiliates on the life of Executive for the Company's investment in the contract, exercisable at any time within thirty (30) days after the Termination Date; and the Company agrees during the Employment Term not to terminate, sell, transfer or otherwise dispose of any such insurance without first allowing Executive the opportunity to exercise such option. (vi) 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. 11 (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall terminate without further obligations to the Executive, except that the Company shall pay or provide the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Term, or if the Executive voluntarily terminates employment during the Employment Term for other than Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination, 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 or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except to the extent set forth in Section 6(a)(ii)) whether or not the Executive obtains other employment. 8. Excise Tax Payments. (a) Notwithstanding anything contained in this Agreement to the contrary, in the event that any payment or distribution to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are collectively referred 12 to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) A determination shall be made as to whether and when a Gross-Up Payment is required pursuant to this Section 8 and the amount of such Gross-Up Payment, such determination to be made within fifteen (15) business days of the Termination Date, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). Such determination shall be made by a national independent accounting firm selected by the Executive (the "Accounting Firm"). All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by the Company and the Company shall pay such fees, costs and expenses as they become due. The Accounting Firm shall provide detailed supporting calculations, acceptable to the Executive, both to the Company and the Executive. The Gross-Up Payment, if any, as determined pursuant to this Section 8(b) shall be paid by the Company to the Executive within five (5) business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an unqualified opinion that no Excise Tax will be imposed with respect to any such Payment or Payments. Any such initial determination by the Accounting Firm of the Gross-Up Payment shall be binding upon the Company and the Executive subject to the application of Section 8(c). (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon notice (formal or informal) to the Executive from any governmental taxing authority that the tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any prior taxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable governmental taxing authority a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the expiration of the statute of limitations with respect to the Executive's applicable tax return. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive at least five (5) business days prior to the date on which the 13 applicable governmental taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties imposed on the Underpayment. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Company to the Executive and the Executive shall, within ten (10) business days of the occurrence of such Overpayment, pay to the Company the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Overpayment relates) was paid to the Executive. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable governmental taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments. 9. Unauthorized Disclosure. The Executive shall not make any Unauthorized Disclosure while employed by the Company and for the two-year period subsequent to the termination of his employment with the Company. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any confidential information obtained by the Executive while in the employ of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers or methods of operation) the disclosure of which he knows or has reason to believe will be materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 9) or any information not otherwise considered confidential by a reasonable person engaged in the same business as that conducted by the Company. Notwithstanding the foregoing, the Executive's obligation hereunder not to make any Unauthorized Disclosure shall continue after the end of the two-year period following his termination of employment with the Company as regards any information which is a trade secret as defined in Section 134.90 of the Wisconsin Statutes. In no event shall an asserted violation of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets 14 and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative. 11. Fees and Expenses. From and after the Effective Date, the Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably incurred by the Executive as they become due as a result of (i) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive's hearing before the Board as contemplated in Section 5(b) of this Agreement, (iii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits or (iv) a dispute between the Executive and the Internal Revenue Service (or any other taxing authority) with regard to an "Underpayment" (as defined in Section 8 of this Agreement). 12. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, if to the Company, to Marshall & Ilsley Corporation, 770 North Water Street, Milwaukee, Wisconsin 53202, or if to Executive, to the address set forth below Executive's signature, or to such other address as the party may be notified, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 13. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries for which the Executive may qualify. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 14. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 15. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or 15 conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 16. Employment. The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will" and prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the company terminates then the Executive shall have no further rights under this Agreement. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Wisconsin without giving effect to the conflict of law principles thereof. 18. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 19. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. In consideration of the terms, conditions and benefits to be provided under this Agreement, the Executive hereby expressly waives all rights under that certain Employment Agreement between the Executive and the Company dated November 16, 1987. 20. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 21. Modification. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by both the Executive and the Company. 22. Withholding. The Company shall be entitled to withhold from amounts paid to the Executive hereunder any federal, estate or local withholding or other taxes or charges which it is, from time to time, required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 16 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. MARSHALL & ILSLEY CORPORATION By: /s/ James B. Wigdale ----------------------------------- ATTEST: Title: Chairman of the Board and Chief Executive Officer /s/ Michael A. Hatfield - -------------------------------- Secretary EXECUTIVE: /s/ Donald W. Layden, Jr. -------------------------------------- Donald W. Layden, Jr. Address: ------------------------------ ------------------------------ 17 EX-10.NN 6 EMPLOYMENT AGREEMENT BETWEEN M&I AND JONES Exhibit 10(nn) EMPLOYMENT AGREEMENT DATED NOVEMBER 5, 1990, BETWEEN M&I AND MR. D.R. JONES EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, entered into as of the 5th day of November, 1990, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and DENNIS R. JONES (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 Periods 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. 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 2 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 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 Vice President-South Regional Manager of the Company 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 3 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. 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 4 affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, 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. 5 (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 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 6 resulting or intended to result in gain to or personal enrichment of the Executive at the Company's expense, provided, however, that no termination of the Executive's employment shall be for Cause as set forth in (i), above, until (a) Executive shall have had at least sixty (60) days to cure any conduct or act alleged to provide Cause for termination after a written notice of demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c)(1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of 7 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). 8 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (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 9 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 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 10 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) The Executive shall have the option of purchasing any life insurance owned by the Company or its affiliates on the life of Executive for the Company's investment in the contract, exercisable at any time within thirty (30) days after the Termination Date; and the company agrees during the Employment Term not to terminate, sell, transfer or otherwise dispose of any such insurance without first allowing Executive the opportunity to exercise such option. (v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive pursuant to this Agreement under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Term, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, except that the Company shall pay or provide the Accrued Obligations, six (6) months of Annual Base Salary, and the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Termination Date. The six (6) months of Annual Base Salary shall be paid during the six (6) month period following the Termination Date on a monthly basis. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, and the Executive's family shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and any of its affiliated companies to surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to family death benefits, if any, as in effect with respect to other peer executives and their families at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their families. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall terminate without further obligations to the Executive, except that the Company shall pay or provide the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, 11 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 or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except to the extent set forth in Section 6(a)(ii)) whether or not the Executive obtains other employment. 8. 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. 12 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 13 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 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. In consideration of the terms, conditions and benefits to be provided under this Agreement, the Executive hereby expressly waives all rights under that certain Employment Agreement between the Executive and the Company dated November 16, 1987. 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. 14 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: ATTEST: By: /s/ J.B. Wigdale, Vice Chairman ---------------------------------- /s/ M.A. Hatfield Title: - ------------------------------- Secretary EXECUTIVE: /s/ Dennis R. Jones -------------------------------------- Dennis R. Jones Address: 19030 Cavindish Road Brookfield, Wisconsin 53045 15 WAIVER ------ The undersigned agree that the merger of Marshall & Ilsley Corporation ("Corporation") with Valley Bancorporation pursuant to the Merger Agreement dated as of September 19, 1993, and the transactions contemplated in the Merger Agreement, shall not constitute a "Change of Control" pursuant to the Employment Agreement between the undersigned Executive and the Corporation. EXECUTIVE: MARSHALL & ILSLEY CORPORATION /s/ Dennis R. Jones By: /s/ J.B. Wigdale - ------------------------------- -------------------------------- Signature J.B. Wigdale Dennis R. Jones 2/3/93 - ------------------------------- ------------------------------------ Print Name Date 12/10/93 - ------------------------------- Date 16 EX-10.OO 7 AMDT. TO EMPLOYMENT AGREEMENT BETWEEN M&I AND JONE Exhibit 10(oo) AMENDMENT TO EMPLOYMENT AGREEMENT DATED APRIL 3, 1995, BETWEEN M&I AND MR. D.R. JONES AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into as of the 3rd day of April, 1995, by and between MARSHALL & ILSLEY CORPORATION (the "Company") and DENNIS R. JONES (the "Executive") (herein collectively referred to as "the parties") W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an Employment Agreement dated as of the 5th day of November, 1990 (the "Employment Agreement"); and WHEREAS, the parties wish to amend the Employment Agreement. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. The following Section 22 is hereby added to the Employment Agreement. "22. Limitation on Payments. (a) Notwithstanding anything contained herein to the contrary, prior to the payment of any amounts pursuant to Section 6(a) hereof, 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 three (3) times the "base amount" as defined in Section 280G of the Code, less One Dollar ($1.00), 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 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(d) 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." 2. The Employment Agreement, as amended hereby, shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to Employment Agreement to be executed by its duly authorized officer and the Executive has executed this Amendment as of the day and year first above written. MARSHALL & ILSLEY CORPORATION: ATTEST: By: /s/ G.D. Strelow ---------------------------------- /s/ M.A. Hatfield G.D. Strelow, Senior Vice President - ------------------------------- M.A. Hatfield, Secretary EXECUTIVE: /s/ Dennis R. Jones -------------------------------------- Dennis R. Jones Address: 19030 Cavendish Road Brookfield, WI 53045 2 EX-10.PP 8 EMPLOYMENT AGREEMENT BETWEEN M&I AND BOLGER Exhibit 10(pp) EMPLOYMENT AGREEMENT DATED JUNE 12, 1997, BETWEEN M&I AND MR. T.M. BOLGER EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, entered into as of the 12th day of June, 1997, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and Thomas M. Bolger 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. 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 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 2 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 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. 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, 3 practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) 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. (h) 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: 4 (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 bythe Executive (the "Disability Effective Date"), provided that, within thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative, provided if the parties are unable to agree, the parties shall request the Dean of the Medical College of Wisconsin to choose such physician. (b) Cause. The Company may terminate the Executive's employment for "Cause." A termination for Cause is a termination evidenced by a resolution adopted in good faith by a majority of the Board that the Executive (i) willfully, deliberately and continually failed to substantially perform his duties under Section 3, above (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure constitutes gross misconduct, and results in and was intended to result in demonstrable material injury to the Company, monetary or otherwise, or (ii) committed acts of fraud and dishonesty constituting a felony, as determined by a final judgment or order of a court of competent jurisdiction, and resulting or intended to result in gain to or personal enrichment of the Executive at the Company's expense, provided, however, that no termination of the Executive's employment shall be for Cause as set forth in (i), above, until (a) Executive shall have had at least sixty (60) days to cure any conduct or act alleged to provide Cause for termination after a written notice of demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior tosuch 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; 5 (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c) (1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. (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 theprovision 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 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (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 7 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 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 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 8 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. 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. 9 (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 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. 10 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 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. 11 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. MARSHALL & ILSLEY CORPORATION By: /s/ James B. Wigdale ------------------------------ James B. Wigdale, Chairman ATTEST: /s/ Michael A. Hatfield - --------------------------------- Michael A. Hatfield, Secretary EXECUTIVE: /s/ Thomas M. Bolger --------------------------------- Thomas M. Bolger Address: 2240 Menomonee River Parkway Wauwatosa, WI 53276 12 EX-10.QQ 9 EMPLOYMENT AGREEMENT BETWEEN M&I AND WILSON Exhibit 10(qq) EMPLOYMENT AGREEMENT DATED OCTOBER 16, 1997, BETWEEN M&I AND MR. D.H. WILSON EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, entered into as of the 16th day of October, 1997, by and between MARSHALL & ILSLEY CORPORATION (the "Company"), and Donald H. Wilson 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. 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 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 2 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 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. 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, 3 practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the twelve (12) month period immediately preceding the Effective Date, or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies and their families; but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies and their families. (e) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits (including but not limited to Company cars, club dues and physical examinations) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the twelve (12) month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) 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. (h) 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: 4 (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Term. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Term (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 5 of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative, provided if the parties are unable to agree, the parties shall request the Dean of the Medical College of Wisconsin to choose such physician. (b) Cause. The Company may terminate the Executive's employment for "Cause." A termination for Cause is a termination evidenced by a resolution adopted in good faith by a majority of the Board that the Executive (i) willfully, deliberately and continually failed to substantially perform his duties under Section 3, above (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure constitutes gross misconduct, and results in and was intended to result in demonstrable material injury to the Company, monetary or otherwise, or (ii) committed acts of fraud and dishonesty constituting a felony, as determined by a final judgment or order of a court of competent jurisdiction, and resulting or intended to result in gain to or personal enrichment of the Executive at the Company's expense, provided, however, that no termination of the Executive's employment shall be for Cause as set forth in (i), above, until (a) Executive shall have had at least sixty (60) days to cure any conduct or act alleged to provide Cause for termination after a written notice of demand has been delivered to the Executive specifying in detail the manner in which the Executive's conduct violates this Agreement, and (b) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, or failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act in bad faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) Good Reason. (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) A change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities in effect immediately prior to such assignment; or any removal of the Executive from or failure to reappoint or reelect him to any position, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) Any failure by the Company to comply with any of the provisions of Section 4 of this Agreement. (iii) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; (iv) Any material breach by the Company of any provision of this Agreement; 5 (v) Any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 5 of this Agreement; and (vi) The failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company, to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. (2) Any event or condition described in Section 5(c) (1) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control, or (ii) otherwise arose in connection with or in anticipation of a Change of Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment or failure to give Notice of Termination shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (4) For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. (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 theprovision 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 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within five (5) days after the Termination Date the aggregate of the following amounts: A. The sum of: (1) The Executive's Annual Base Salary through the Termination Date to the extent not theretofore paid. (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 7 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 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 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 8 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. 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. 9 (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 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. 10 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 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. 11 (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/ James B. Wigdale --------------------------------- James B. Wigdale, Chairman ATTEST: /s/ Michael A. Hatfield - ------------------------------- Michael A. Hatfield, Secretary EXECUTIVE: /s/ Donald H. Wilson ------------------------------------ Donald H. Wilson Address: 1254 Church St. Northbrook, IL 60062 12 EX-11 10 COMPUTATION OF NET INCOME PER COMMON SHARE Exhibit 11 Marshall & Ilsley Corporation Computation of Earnings Per Share ($000's, except per share data)
1997 1996 1995 -------- -------- -------- Basic: Earnings: Net income..................................... $245,144 $203,430 $193,299 Less: Convertible preferred dividends.......... (5,671) (3,827) (2,472) -------- -------- -------- Income available to common shareholders.......... $239,473 $199,603 $190,827 ======== ======== ======== Shares: Weighted average number of common shares outstanding................................... 91,987 91,875 93,697 Less: Unvested restricted stock................ (140) (192) (254) -------- -------- -------- Total average basic shares outstanding........... 91,847 91,683 93,443 ======== ======== ======== Basic earnings per share......................... $ 2.61 $ 2.18 $ 2.04 ======== ======== ======== Diluted: Earnings: Net income..................................... $245,144 $203,430 $193,299 Add: Interest on convertible notes, net of income tax effect............................. 233 1,161 1,859 -------- -------- -------- Income available to common shareholders plus conversions..................................... $245,377 $204,591 $195,158 ======== ======== ======== Shares: Weighted average number of common shares outstanding................................... 91,987 91,875 93,697 Additional shares relating to: Convertible preferred stock.................. 7,208 5,277 3,833 8.5% convertible debt........................ 469 2,400 3,844 Stock options, restricted stock and performance plans........................... 1,726 1,283 1,151 Forward repurchase contracts................. 120 4 -- -------- -------- -------- Total average diluted shares outstanding......... 101,510 100,839 102,525 ======== ======== ======== Diluted earnings per share....................... $ 2.42 $ 2.03 $ 1.90 ======== ======== ========
EX-12 11 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 Marshall & Ilsley Corporation Computation of Ratio of Earnings to Fixed Charges ($000's)
Years Ended December 31, ------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Earnings: Earnings before income taxes and extraordinary items..... $370,251 $313,141 $299,879 $167,803 $264,584 Fixed charges, excluding interest on deposits........ 159,977 113,515 108,683 77,074 47,905 -------- -------- -------- -------- -------- Earnings including fixed charges but excluding interest on deposits........ 530,228 426,656 408,562 244,877 312,489 Interest on deposits......... 429,805 360,838 331,734 255,861 272,100 -------- -------- -------- -------- -------- Earnings including fixed charges and interest on deposits.................... $960,033 $787,494 $740,296 $500,738 $584,589 ======== ======== ======== ======== ======== Fixed Charges: Interest Expense: Short-term borrowings...... $108,398 $ 62,071 $ 47,740 $ 39,681 $ 18,010 Long-term borrowings....... 41,420 42,808 53,709 30,537 23,088 One-third of rental expense for all operating leases (the amount deemed representative of the interest factor).......... 10,159 8,636 7,234 6,856 6,807 -------- -------- -------- -------- -------- Fixed charges excluding interest on deposits........ 159,977 113,515 108,683 77,074 47,905 Interest on deposits......... 429,805 360,838 331,734 255,861 272,100 -------- -------- -------- -------- -------- Fixed charges including interest on deposits........ $589,782 $474,353 $440,417 $332,935 $320,005 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges: Excluding interest on deposits.................... 3.31x 3.76x 3.76x 3.18x 6.52x Including interest on deposits.................... 1.63x 1.66x 1.68x 1.50x 1.83x
EX-21 12 SUBSIDIARIES Exhibit 21 MARSHALL & ILSLEY CORPORATION SUBSIDIARIES February 27, 1998 M&I Bank (Ashland) M&I Bank (Superior) M&I Bank of Burlington M&I Bank of Eagle River M&I Bank of LaCrosse M&I Bank of Mayville M&I Bank of Menomonee Falls M&I Bank of Racine M&I Bank of Shawano M&I Bank of Southern Wisconsin M&I Bank Fox Valley M&I Bank Northeast M&I Bank South M&I Bank South Central M&I Bank S.S.B. M&I Central Bank & Trust M&I Central State Bank M&I Citizens American Bank M&I Community State Bank M&I First American Bank M&I First National Bank (West Bend) M&I Lake Country Bank M&I Marshall & Ilsley Bank M&I Merchants Bank M&I Mid-State Bank M&I Northern Bank M&I Thunderbird Bank M&I Asia Pacific Sdn. Bhd. M&I Brokerage Services, Inc. M&I Capital Markets Group, Inc. M&I EastPoint Technology, Inc. M&I Financial Corp. M&I First National Leasing Corp. M&I Insurance Company of Arizona, Inc. M&I Investment Management Corp. M&I Marshall & Ilsley Trust Company of Arizona M&I Mortgage Corp. M&I New England, Inc. M&I Servicing Corp. M&I Support Services Corp. Community Life Insurance Company Marshall & Ilsley Trust Company 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 New England, Inc., which was incorporated in Massachusetts; M&I EastPoint Technology, Inc., which was incorporated in New Hampshire; M&I Asia Pacific Sdn. Bhd., which was incorporated in Malaysia; and M&I First National Bank (West Bend), which was organized under the laws of the United States. EX-23 13 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the inclusion in this Form 10-K for the year ended December 31, 1997, of our report dated January 30, 1998. It should be noted that we have not audited any financial statements of Marshall & Ilsley Corporation and subsidiaries subsequent to December 31, 1997, or performed any audit procedures subsequent to the date of our report. We also consent to the incorporation by reference of such report in the following Registration Statements of Marshall & Ilsley Corporation ("M&I"): No. 2-89605 (Form S-8) pertaining to the M&I 1983 Executive Stock Option and Restricted Stock Plan, No. 33-2642 (Form S-8) pertaining to the M&I 1985 Executive Stock Option and Restricted Stock Plan, No. 33-3415 (Form S-8) pertaining to the M&I Retirement Growth Plan, No. 33-33090 (Form S-8) pertaining to the M&I 1988 Restricted Stock Plan, No. 33-33153 (Form S-8) pertaining to the M&I 1989 Executive Stock Option and Restricted Stock Plan, No. 33-53155 (Form S-8) pertaining to the M&I 1993 Executive Stock Option Plan, No. 33-53897 (Form S-8) pertaining to the stock option plans of Valley Bancorporation assumed by M&I, No. 33-55317 (Form S-8) pertaining to the M&I 1994 Long-Term Incentive Plan for Executives, No. 33-58787 (Form S-8) pertaining to the M&I 1995 Directors Stock Option Plan, No. 333-02017 (Form S-8) pertaining to the M&I 1986 Non-qualified Stock Option Plan, No. 333-36909 (Form S-8) pertaining to the M&I 1997 Executive Stock Option and Restricted Stock Plan and to the Security Capital Corporation 1993 Incentive Stock Option Plan assumed by M&I, No. 2-80293 (Form S-3) pertaining to shares of M&I held by those persons named in such Registration Statement, No. 33-21377 (Form S-3) pertaining to the issuance by M&I of Debt Securities, No. 33-64054 (Form S-3) pertaining to the issuance by M&I of Debt Securities, and No. 33-64425 (Form S-3) pertaining to the issuance by M&I of Debt Securities. Milwaukee, Wisconsin, /s/ ARTHUR ANDERSEN LLP February 25, 1998 EX-24 14 POWERS OF ATTORNEY Exhibit 24 DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Glenn A. Francke -------------------- Glenn A. Francke DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ James O. Wright ------------------- James O. Wright DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Wendell F. Bueche --------------------- Wendell F. Bueche DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Robert A. Schaefer ---------------------- Robert A. Schaefer DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Jack F. Kellner ------------------- Jack F. Kellner DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ D.J. Kuester ---------------- D.J. Kuester DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Oscar C. Boldt ------------------ Oscar C. Boldt DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ G.H. Gunnlaugsson --------------------- G.H. Gunnlaugsson DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 11th day of February, 1998. /s/ Gus A. Zuehlke ------------------ Gus A. Zuehlke DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Burleigh E. Jacobs ---------------------- Burleigh E. Jacobs DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Jon F. Chait ---------------- Jon F. Chait DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Stuart W. Tisdale --------------------- Stuart W. Tisdale DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Richard A. Abdoo -------------------- Richard A. Abdoo DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ J.B. Wigdale ---------------- J.B. Wigdale DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Don R. O'Hare ----------------- Don R. O'Hare DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as her true and lawful attorney-in-fact for the purpose of: (i) executing in her name and on her behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in her name and on her behalf in her 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 (iii) ratifying and confirming her signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Katharine C. Lyall ---------------------- Katharine C. Lyall DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ J.A. Puelicher ------------------ J.A. Puelicher DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ J.P. Bolduc --------------- J.P. Bolduc DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 12th day of February, 1998. /s/ Peter M. Platten, III ------------------------- Peter M. Platten, III DIRECTOR'S POWER OF ATTORNEY (1997 Form 10-K) The undersigned director of Marshall & Ilsley Corporation designates each of J.B. Wigdale and M.A. Hatfield, with the power of substitution, as his true and lawful attorney-in-fact for the purpose of: (i) executing in his name and on his behalf Marshall & Ilsley Corporation's Form 10-K for the fiscal year ended December 31, 1997 and any related amendments and/or supplements; (ii) generally doing all things in his name and on his 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 (iii) ratifying and confirming his signature as it may be signed by the attorney-in-fact to the Form 10-K and any related amendments and/or supplements. Dated this 20th day of February, 1998. /s/ James F. Kress ------------------ James F. Kress EX-27 15 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1997 DEC-31-1997 800,120 99,795 26,880 43,644 4,038,713 930,090 953,316 12,542,281 202,818 19,477,452 14,355,998 1,902,780 507,427 791,176 0 685 109,303 1,810,083 19,477,452 873,179 258,599 11,892 1,143,670 429,805 579,623 564,047 17,253 3,238 775,401 370,251 245,144 0 0 245,144 2.61 2.42 4.00 64,153 8,238 1,338 73,729 155,895 20,689 7,586 202,818 202,818 0 0
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