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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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-1220
MARSHALL & ILSLEY CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0968604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
770 North Water Street
Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 765-7801
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant is $1,952,975,000 as of February 28, 1995. The number of shares
of common stock outstanding as of February 28, 1995 is 94,119,258.
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 25,
1995.
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<PAGE>
PART I
Item 1. Business.
THE CORPORATION
Marshall & Ilsley Corporation ("M&I" or the "Corporation") is a Wisconsin
corporation incorporated in 1959, a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, and a registered savings and loan
holding company under the Home Owners' Loan Act of 1933, as amended. M&I's
principal assets are the stock of its subsidiaries and the assets of its M&I
Data Services Division. M&I presently owns substantially all the capital stock
of 35 operating banks and one savings association with a total of 225 offices
in Wisconsin and 12 offices in Arizona. M&I also owns all of the stock of a
number of companies engaged in businesses that the Federal Reserve Board (the
"Board") has determined to be closely-related to banking, including the
businesses of investment management, trust, equipment leasing, mortgage banking,
venture capital, brokerage services and financial advisory services. As a bank
and savings and loan holding company, M&I provides financial and managerial
assistance and services to its subsidiaries. At December 31, 1994, M&I had
consolidated total assets of approximately $12.6 billion and consolidated total
deposits of approximately $9.5 billion. Based on consolidated assets as of
December 31, 1994, M&I was the second largest bank holding company headquartered
in the State of Wisconsin.
On May 31, 1994, Valley Bancorporation merged into M&I in a transaction
accounted for on a pooling of interests basis. Financial data for periods prior
to May 31, 1994 has been restated to reflect the merger with Valley
Bancorporation. On February 1, 1995, M&I acquired the Bank of Burlington,
Burlington, Wisconsin, which had total assets of approximately $170.4 million
at December 31, 1994.
M&I also has pending applications with bank regulators to acquire Citizens
Bancorp of Delavan, Inc. and Sharon State Bank. M&I expects these acquisitions
to be completed in the first half of 1995. At December 31, 1994, Citizens
Bancorp of Delavan, Inc. had assets of approximately $98.6 million, and Sharon
State Bank had assets of approximately $19.8 million.
The executive offices of M&I are located at 770 North Water Street,
Milwaukee, Wisconsin 53202 (telephone number: (414) 765-7801).
BUSINESS OF M&I
M&I and its subsidiaries engage principally in one line of business, that
of providing financial services to a wide variety of corporate, institutional,
government and individual customers. Activities in which M&I and its
subsidiaries are presently engaged or may undertake in the future are subject
to certain statutory and regulatory restrictions. In addition, applicable law
and regulations limit the amount of dividends payable to M&I by its bank
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subsidiaries (which indirectly limits the amount of dividends payable by M&I to
its shareholders), the amount of loans made by M&I's bank subsidiaries to any
one borrower, the amount of funds transferred by M&I's bank subsidiaries to
M&I's other subsidiaries, and the total assets owned by M&I in relation to its
capital (which indirectly limits the total income generated by M&I). See
"Government Supervision and Regulation."
M&I owns directly or indirectly all or substantially all of the capital
stock of 34 operating commercial banks and one savings association in Wisconsin,
one commercial bank in Phoenix, Arizona, and all of the capital stock of
subsidiaries engaged in the following non-banking businesses approved by the
Board for bank holding companies: personal property lease financing; investment
management and advisory activities; commercial mortgage banking; residential
mortgage banking; venture capital and financial advisory services; trust
services to residents of Wisconsin, Arizona and Florida; and brokerage services.
In addition, M&I provides banking, financial and economic data processing
services and software sales through its M&I Data Services Division. The data
processing business was previously conducted in a subsidiary which was merged
into M&I effective January 1, 1995.
The Bank Holding Company Act and rules promulgated thereunder authorize
M&I to engage in activities deemed by the Board to be so closely related to
banking as to be a proper incident thereto. Financial services and products
which are or may be provided by M&I and its direct and indirect subsidiaries are
subject to certain statutory and regulatory restrictions. See "Government
Supervision and Regulation."
M&I provides its subsidiaries with financial and managerial assistance.
M&I assists its subsidiaries in such areas as budgeting, tax planning and
compliance, asset and liability management, investment administration and
portfolio planning, business development, advertising, and human resources
management. Although the officers and directors of each subsidiary are
responsible for conducting the day to day affairs of the subsidiary, M&I
establishes lending and accounting policies, budgetary goals and long-range
plans and assures compliance therewith through its centralized audit and
accounting systems and loan examinations.
In 1994, M&I derived substantially all its income from investments in,
advances to and service fees from its subsidiaries. Dividends and interest from
subsidiaries were M&I's major sources of cash in 1994. Dividend payments from
subsidiaries are determined on an individual basis and generally in relation to
the earnings, credit quality and capital position of each subsidiary.
M&I increases the capital of its banking subsidiaries primarily through
the retention of earnings and, if necessary, the purchase of securities by M&I,
rather than through direct capital financing by the subsidiary banks. In 1994,
M&I established a $1 billion bank note program pursuant to which subsidiary
banks may issue debt securities directly in order to fund their operations. At
December 31, 1994, subsidiary banks had issued an aggregate of approximately
$309 million in principal amount of bank notes under the program.
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BANKING AND BANK-RELATED SUBSIDIARIES
M&I's 36 operating bank and savings association subsidiaries ("M&I bank
subsidiaries") are located in communities throughout the State of Wisconsin and
the Phoenix, Arizona metropolitan area and provide a full range of banking
services to individuals, corporations and local governments in each of the areas
they serve. M&I's largest bank subsidiary is M&I Marshall & Ilsley Bank ("M&I
Bank"), which was founded in 1847. Based on consolidated assets of
approximately $3.9 billion as of December 31, 1994, M&I Bank was the third
largest bank and the largest state-chartered bank in the State of Wisconsin.
M&I Bank maintains its headquarters in the City of Milwaukee and operates 23
additional branches and divisions in Milwaukee and in surrounding suburban
communities, as well as a branch in the Cayman Islands. Banking services
provided by M&I Bank and other M&I bank subsidiaries include retail,
international and corporate banking, investment, and trust activities. In
addition, M&I Bank engages in correspondent banking services.
All M&I bank subsidiaries are insured by the Federal Deposit Insurance
Corporation ("FDIC"). In addition, M&I Bank and M&I's seven operating national
bank subsidiaries are members of the Federal Reserve System (the "System"). All
M&I bank subsidiaries operate under names which incorporate the designation
"M&I."
Investment Management and Trust Services
M&I Investment Management Corp., a subsidiary of M&I, located in
Milwaukee, Wisconsin, offers a full range of asset management services to the
M&I trust company subsidiaries and to other corporate, institutional and
individual customers, including the Marshall Funds, an open-end investment
company consisting of thirteen portfolios. As of December 31, 1994, M&I
Investment Management Corp. had $6.3 billion in assets under management.
Marshall and Ilsley Trust Company, a subsidiary of M&I ("M&I Trust"),
provides a full range of trust services to individual, not-for-profit and
corporate customers. The Personal Trust Administrative Group provides trust,
estate and agency services for individuals. The Employee Benefits
Administrative Group administers pension, profit sharing and other forms of
employee benefit plans, including a Keogh Plan for self-employed individuals.
In addition to trust services provided by its Milwaukee office, M&I Trust
operates eight trust service offices located in M&I subsidiary banks in Beloit,
Madison, Racine, Stevens Point, Appleton, Green Bay, Janesville and Wausau,
Wisconsin, and another office in Brookfield, Wisconsin (not a trust service
office).
M&I also provides trust and investment counseling services through two
out-of-state subsidiaries. M&I Marshall and Ilsley Trust Company of Arizona
("M&I Trust Arizona") was organized in 1976, with a primary emphasis on
providing trust and investment counseling services to the growing number of
Wisconsin natives retired in the Southwest. M&I Trust Arizona has offices in
Phoenix, Scottsdale and in Sun City serving residents of those areas. The
Marshall and Ilsley Trust Company of Florida, located in Naples, was organized
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in 1984 to provide trust and investment counseling services to residents of the
area, including Wisconsin natives who have retired in Florida. As of December
31, 1994, the market value of assets held in trust by M&I's three trust
companies totalled $19.8 billion.
Equipment Leasing
M&I's subsidiary, M&I First National Leasing Corp. ("FNL"), acting as
owner and lessor, leases a variety of equipment and machinery, including
industrial machinery, computers, hospital and nursing home equipment and
construction equipment to both large and small businesses. FNL has its
headquarters in Milwaukee, Wisconsin and has offices in numerous other states.
Approximately 30% of its business comes from Wisconsin and 70% from other
states. At December 31, 1994, FNL held net lease and installment receivables
of approximately $240 million. FNL's competitors include other independent
leasing companies, banks and other institutions, some of which have larger
volume businesses and substantially greater resources.
Mortgage Banking
M&I has two subsidiaries engaged in mortgage banking, one providing
commercial financing and the other providing residential financing.
M&I Mortgage Corp. ("M&I Mortgage"), located in Milwaukee, Wisconsin,
originates and purchases long-term mortgages on one-to-four family owner-
occupied residences for sale in the secondary market. After sale to the
secondary market, these mortgages are serviced for the investor by M&I Mortgage.
At December 31, 1994, M&I Mortgage had a mortgage servicing portfolio of
approximately $2.8 billion. M&I Mortgage serves homeowners throughout the State
of Wisconsin and offers financing alternatives beyond those offered through
traditional banking institutions. M&I Mortgage also assists M&I bank
subsidiaries in originating, selling and servicing residential mortgage loans.
Richter-Schroeder Company ("RSC"), located in Milwaukee, Wisconsin,
originates long-term commercial real estate loans for institutional investors
such as large life insurance companies. RSC services the mortgages for the
purchasing investor. RSC is one of the few mortgage banking firms in Wisconsin
that specializes in income property financing, seeking investment opportunities
for mortgage lenders in the retail, industrial and office sectors. RSC is one
of the largest income property mortgage banking firms in Wisconsin, servicing
a portfolio of approximately $180 million for investors.
Venture Capital and Financial Advisory Services
M&I Capital Markets Group, Inc. ("Capital Markets"), a subsidiary of M&I,
located in Milwaukee, Wisconsin, provides venture capital and financial advisory
services to a variety of customers, primarily in Southeastern Wisconsin and
surrounding areas. Capital Markets seeks to invest in businesses that have
talented management and technological advantages in their particular field.
Capital Markets also provides a broad range of financial advisory and strategic
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planning services, including assistance in connection with the private placement
of securities, raising of funds for expansion, leveraged buy-outs, divestitures
and mergers and acquisitions. A subsidiary company of Capital Markets, M&I
Ventures Corporation, is licensed as a small business investment company.
Brokerage Services
M&I Brokerage Services, Inc. ("M&I Brokerage"), a subsidiary of M&I
Capital Markets Group, Inc., located in Milwaukee, Wisconsin, provides brokerage
and other investment related services to a variety of retail and commercial
customers. As a broker-dealer firm registered with the National Association of
Securities Dealers and the Securities Exchange Commission, M&I Brokerage serves
as an introducing broker-dealer. Customer accounts and securities are carried
on a "fully disclosed" basis with the Pershing division of Donaldson, Lufkin and
Jenrette.
Data Services
The M&I Data Services Division of the Corporation ("M&I Data Services")
is a major supplier of data processing services and software to the banking,
financial, and related industries. M&I Data Services presently serves over 500
financial institutions in 40 states and the District of Columbia. In addition
to data processing services, M&I Data Services develops a comprehensive line of
financial services software products. M&I Data Services also sells software to
foreign institutions and currently has customers in Canada, Great Britain,
India, Indonesia, Italy, Malaysia, Switzerland, and Thailand. M&I Data
Services' processing systems for financial institutions encompass five major
processing functions: Deposits, Loans, Financial Accounting, Customer
Information, and Trust Accounting. In 1994, M&I Data Services signed a long-
term data processing contract with its first utility customer, Wisconsin
Electric Power Company ("WEPCO"). By using a number of current banking software
products which share common requirements with the utility industry, M&I Data
Services will provide data processing and banking-related services to WEPCO.
M&I Data Services' main data processing center and headquarters are
located in a 328,000 square foot building on 20 acres of land situated in Brown
Deer, a Milwaukee suburb (the "Brown Deer Operations Center"). A new addition
that nearly doubled the size of the Brown Deer Operations Center was completed
in 1993. A second processing site located in Oak Creek, Wisconsin was
established in 1994. M&I Data Services also leases 62,000 square feet of
commercial office space in Brown Deer for the development and sale of software
packages, the sale and support of personal computer networks and the development
and support of trust processing services. The Brown Deer Operations Center acts
as an intermediary in bank-to-bank transactions and provides funds processing
services in connection with both incoming deposits and outgoing payments,
including transfers by check and by the bank's wire and money transfer systems.
M&I Data Services operates eight remote processing centers in Arizona, Illinois,
New York, Florida and Wisconsin. All remote processing centers transmit
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information taken from checks and other documents to the host sites, where the
information is processed and printed on reports which are subsequently sent to
customers.
During recent years the financial services industry has witnessed an
acceleration of both state and federal deregulation, advances in technology,
increased consumer awareness and expectations as to banking services, and new
product development. These factors have lessened distinctions between the
various types of financial institutions and have increased competition and pres-
sure on operating margins. Accordingly, the financial services industry has
emphasized the development of new technology-based products and services in
order to reduce operating costs while responding to consumer demands and the
need for product differentiation. Software, support operations, and new product
development have become more complex and expensive for financial institutions
to do on their own, and hence there is an increased need for the services
offered by third-parties such as M&I Data Services. Large third-party servicers
have the technical ability to respond to the data processing requirements of new
products and services and are able to spread development and maintenance costs
over a broader customer base, resulting in more efficient service. Some larger
financial institutions have ceased providing data processing services to their
correspondent banks or have decided to terminate their in-house data processing
operations in order to conserve resources and concentrate on core banking
business. M&I Data Services is concentrating its sales efforts on the
outsourcing opportunities at these larger financial institutions.
The market for banking technology services is national in scope because
customers' data can be transmitted to and from, and processed on-line by, a data
center in any part of the United States. 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.
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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:
<TABLE>
<CAPTION>
Interest and Interest on Fees for Data
Fees on Loans Investment Securities Processing Services
---------------- --------------------- -------------------
Percent Percent Percent
of Total of Total of Total Total
Year Ended Operating Operating Operating Operating
December 31 Amount Income Amount Income Amount Income Income
---------- ------------------ --------------------- ------------------- ----------
($000's) ($000's) ($000's) ($000's)
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $681,085 57.8% $127,587 10.8% $159,418 13.5% $1,178,787
1993 643,679 55.2 143,899 12.3 135,041 11.6 1,165,403
1992 665,634 56.4 171,248 14.5 112,056 9.5 1,179,450
</TABLE>
M&I business segment information is contained in note 19 of the Notes to
the Consolidated Financial Statements contained in Item 8 hereof.
COMPETITION
M&I and its subsidiaries face substantial competition in the financial
service markets they serve. M&I's banking subsidiaries compete for deposits and
other sources of funds and for credit relationships with other national and
state banks, savings and loan associations, credit unions, finance companies,
mutual funds, life insurance companies (and other long-term lenders) and other
financial and non-financial companies, many of which offer products functionally
equivalent to bank products and located both within and outside M&I's primary
market area. 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. In addition,
M&I competes for funds with both financial and non-financial institutions in a
variety of financial markets. Improving the quality and broadening the range
of financially related services to customers, easier access to facilities and
competitive pricing are among the principal methods of meeting competition in
the financial service industry.
EMPLOYEES
As of December 31, 1994, M&I and its subsidiaries employed in the
aggregate approximately 8,600 full and part-time employees. M&I and its
subsidiaries maintain retirement plans for the benefit of all qualified
employees. M&I considers employee relations to be excellent. None of the
employees of M&I and its subsidiaries are represented by a collective bargaining
group.
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GOVERNMENT SUPERVISION AND REGULATION
Governance of Bank Holding Companies
M&I is a bank holding company registered with and subject to regulation
by the Board of Governors of the Federal Reserve System (the "Board") under the
Bank Holding Company Act of 1956, as amended (the "Act"). M&I also is a savings
and loan holding company registered with and subject to regulation by the Office
of Thrift Supervision ("OTS") under the Home Owner's Loan Act of 1933, as
amended ("HOLA"). The Act and HOLA, as the case may be, require M&I to file
annual reports and certain other information with the Board and the OTS and
authorizes the Board and the OTS to conduct examinations of M&I and its
subsidiaries.
The Act requires M&I to obtain the prior approval of the Board before it
may acquire substantially all the assets of any bank, or ownership or control
of any voting shares of any bank, if it would directly or indirectly own or
control more than 5% of the voting shares of such bank after the acquisition.
The Act currently prohibits the Board from approving an application by M&I to
acquire the voting shares of, or substantially all the assets of, any bank
located outside the state in which the operations of M&I's banking subsidiaries
are principally conducted, except for the acquisition of certain failing banks
or as otherwise specifically authorized by the laws of the state in which the
bank to be acquired is located.
Under the recently enacted Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), which became effective
on September 29, 1994, the restriction in the Act on interstate acquisitions
will be abolished effective September 29, 1995, and thereafter adequately
capitalized and managed bank holding companies from any state will be able to
acquire banks and bank holding companies located in any other state, subject to
certain conditions which include nationwide and state imposed concentration
limits. In addition, the Interstate Banking Act amended the Federal Deposit
Insurance Act to allow banks to branch across state lines de novo or by
acquisition or merger effective no later than June 1, 1997, provided certain
conditions are met which include an express provision of applicable state law
allowing such interstate branching.
The Act limits the activities of M&I to managing, controlling, and
servicing its subsidiary banks and to engaging in certain non-banking activities
determined by the Board to be so "closely related" to banking or to managing or
controlling banks as to be a "proper incident" thereto. With the exception of
such closely related activities, M&I is prohibited from acquiring direct or
indirect ownership of more than 5% of the voting stock of any company which is
not a bank. In addition, M&I must obtain Board approval prior to engaging in
any closely-related activities or in acquiring more than 5% of the voting shares
of any company engaged in such activities, or in some instances expanding the
nature of such activities or opening new offices.
The Board also has permitted bank holding companies to engage in certain
additional activities on a case-by-case basis. The Board generally has followed
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a restrictive policy in permitting the entry or expansion of bank holding
companies and other bank affiliates into domestic and foreign bank and bank-
related activities.
The Act, the Federal Reserve Act (which applies to subsidiary banks of M&I
that are members of the Federal Reserve System) and other state and federal laws
and regulations promulgated thereunder limit the products and services offered
by M&I and its subsidiaries (as discussed above), the amount of loans made to
any one borrower, the nature of securities in which M&I may invest, deal in or
underwrite and the total assets owned by M&I relative to its capital. The Act
and regulations of the Board also prohibit M&I and its subsidiaries from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
M&I is a legal entity separate and distinct from its subsidiaries.
Accordingly, the right of M&I, and therefore the right of M&I's creditors and
shareholders, to participate in any distribution of the assets or income of any
subsidiary is necessarily subject to the prior claims of creditors of such
subsidiary, except to the extent that claims of M&I itself as a creditor may be
recognized. The payment of dividends to M&I by M&I's bank subsidiaries is
subject to various state and federal regulatory limitations. In general, under
Wisconsin banking law the board of directors of a state chartered subsidiary
bank may declare and pay a dividend from so much of the bank's undivided profits
as the board shall deem expedient, provided the payment of such dividend does
not in any way impair or diminish the bank's capital or reduce the capital level
below minimum required levels set by regulatory agencies. Under federal law,
which applies to national banks and state chartered banks which are members of
the Federal Reserve System, regulatory approval is required for the payment of
dividends by any bank in any calendar year in an amount in excess of such bank's
net income for that year combined with the retained net income of the two
preceding years, plus any required transfers to surplus. Under these
provisions, at December 31, 1994, M&I's bank subsidiaries would have been
permitted to pay dividends to M&I of approximately $165 million without prior
regulatory approval. At December 31, 1994, M&I's subsidiaries (both bank and
non-bank) would have been permitted to pay dividends to M&I of approximately
$259 million.
The federal and state bank regulatory agencies also have authority to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe and unsound banking practice. The Board and the
Comptroller of the Currency have indicated that paying dividends out of anything
other than current operating earnings generally would be an unsafe and unsound
banking practice. Dividends paid to M&I by the M&I bank subsidiaries in 1994
totaled $94.8 million. M&I does not expect that the restrictions referred to
above will impair M&I's ability to pay normal quarterly dividends to its
stockholders.
Commitments to Affiliated Institutions
Under Board policy, M&I is expected to act as a source of financial
strength to each of its bank subsidiaries and to commit resources to support
each bank subsidiary in circumstances when it might not do so absent such
requirements. In addition, any capital loans by M&I to any of its bank
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subsidiaries would also be subordinate in right of payment to depositors and to
certain other indebtedness of such bank. A depository institution insured by
the FDIC can be held liable for any loss incurred by the FDIC in connection
with: (i) the default of a commonly controlled FDIC insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC insured depository institution in danger of default.
Capital Requirements
Information regarding capital requirements for bank holding companies and
tables reflecting M&I's regulatory capital position at December 31, 1994 can be
found in note 13 of the Notes to the Consolidated Financial Statements contained
in Item 8 hereof.
Other Regulation of M&I and its Subsidiaries
Section 23A of the Federal Reserve Act restricts the extent to which M&I's
bank subsidiaries may supply funds to M&I, or to M&I's non-bank subsidiaries
("Affiliates") whether through direct extensions of credit or through purchase
of securities, issuance of guaranties and the like. Unless fully secured by
obligations of or guaranteed by the U.S. Government or its agencies, or by
certain bank deposits, M&I bank subsidiaries may not, with certain limited
exceptions: (i) loan money or otherwise extend credit to; (ii) purchase or
invest in the stock of securities of; (iii) purchase the assets of; (iv) issue
a guarantee, acceptance, or letter of credit on behalf of; or (v) accept as
collateral for a loan or extension of credit the stock or securities of, a bank
holding company or its non-bank subsidiaries in an amount exceeding 10% of the
capital stock and surplus of the bank in the case of any Affiliate and in an
amount exceeding 20% of the capital stock and surplus of the bank in the case
of all Affiliates in the aggregate. In addition, every such loan, extension of
credit, investment, purchase, guarantee, letter of credit or acceptance must be
secured to the extent required under the Federal Reserve Act (at a minimum of
100%).
Section 23B of the Federal Reserve Act applies to certain transactions by
M&I's bank subsidiaries with Affiliates that are not covered by Section 23A.
Section 23B's basic purpose is to ensure that an insured bank does not subsidize
its bank holding company or its sister non-bank subsidiaries by giving them more
advantageous terms, whether on loans or any other contracts with the bank, than
they would be able to obtain from an unrelated party.
M&I's state chartered bank subsidiaries are subject to regulation and
examination by the Commissioner of Banking for the state of Wisconsin, or in the
case of M&I Thunderbird Bank the Arizona State Banking Department, and the Board
(for state chartered banks which are members of the Federal Reserve System) or
the FDIC (for state chartered banks which are not members of the Federal Reserve
System). M&I's nationally chartered bank subsidiaries are subject to regulation
and examination by the Comptroller of the Currency. M&I's savings association
subsidiary is subject to regulation and examination by the Commissioner of
Savings and Loans for the state of Wisconsin and the OTS. Federal and state law
regulate the activities of M&I's bank subsidiaries in a number of areas,
<PAGE>
including reserve requirements, investments, loans, mergers, issuances of
securities, dividend payments and branch banking. Federal and state laws also
impose restrictions on the ability of M&I's non-bank subsidiaries to conduct
certain activities and offer credit.
Additionally, the Securities Exchange Act of 1934, as amended (the "1934
Act"), imposes regulatory and reporting requirements on various activities
conducted by banks, including beneficial ownership of certain securities,
dealing in municipal securities, acting as transfer agent, providing certain
types of investment management services, and in certain instances, acting as a
securities broker. M&I Bank is licensed as a municipal securities broker under
the Federal Municipal Securities Rule-Making Act. A subsidiary of M&I, M&I
Investment Management Corp., is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Advisers Act of 1940. M&I
Brokerage Services, Inc., a subsidiary of M&I Capital Markets Group Inc., is
registered with the Commission as a broker-dealer and is regulated by the
Commission under the 1934 Act. The 1934 Act also requires certain types of
investment managers, including M&I Bank, to file reports with the Commission
with respect to the holding of certain securities. M&I Bank has also registered
with the Commission as a transfer agent and must comply with certain record
keeping and reporting requirements. Pursuant to the Government Securities Act
of 1986, M&I Bank has filed notice with the Board that it is acting as a
government securities broker-dealer.
The activities and operations of banks are subject to a number of other
federal and state laws and regulations, including state usury and consumer
credit laws, state laws relating to fiduciaries, the federal Truth-In-Lending
Act and Regulation Z promulgated thereunder, the federal Equal Credit
Opportunity Act and Regulation B, the federal Home Mortgage Disclosure Act and
Regulation C, the federal Expedited Funds Availability Act and Regulation CC,
the federal Truth-In-Savings Act and Regulation DD, the federal Fair Credit
Reporting Act, the federal Bank Secrecy Act, the federal Community Reinvestment
Act, the federal antitrust laws, insider transactions, changes in Bank
ownership, management interlocks between depository institutions and the
disclosure of bank records.
Federal bank agencies have comprehensive enforcement authority over
banking institutions within their jurisdiction. These agencies possess broad
powers over undercapitalized institutions. Actions available to the agencies
include the termination of deposit insurance, restrictions on asset growth,
denying approval for acquisitions, branching or new lines of business, requiring
an institution to recapitalize, requiring divestiture of a financial
institution, issuance of temporary and permanent cease and desist orders,
imposition of civil money penalties, restrictions on senior officers'
compensation and suspension and removal of directors and officers and the
prohibition of other persons from participating in the management of a bank.
The agencies frequently use their authority to institute formal enforcement
actions to persuade banking organizations on an informal basis to take specified
actions designed to insure compliance with applicable laws and regulations. The
federal bank agencies are broadly empowered to define "unsafe and unsound"
practices.
<PAGE>
M&I, as the holder of stock of subsidiary banks, may be subject to
assessment to restore impaired capital of its national bank subsidiaries to the
extent provided in Section 5205 of the Revised Statutes of the United States (12
U.S.C. Section 55) and of its state banks to the extent provided in Section
220.07 of the Wisconsin Statutes. At present, there is no such impairment of
capital of any M&I bank subsidiaries. Any such assessment would be applicable
only to M&I and not to any M&I shareholder.
Under Section 221.56 of the Wisconsin Statutes, M&I, as a Wisconsin
corporation that owns, holds or controls a majority of stock in a state bank or
trust company, is deemed to be engaged in the banking business and subject to
supervision of the Office of the Commissioner, including the requirement that
it file reports with and be subject to examination by the Office of the
Commissioner. The Office of the Commissioner also is empowered to issue orders
to bank holding companies to remedy any condition or policy that, in the opinion
of the Office of the Commissioner, endangers the safety of deposits in any M&I
subsidiary bank or trust company. In the event of noncompliance with such an
order, the Office of the Commissioner has power to direct the operations of the
bank or trust company and to withhold dividends from the holding company.
The foregoing references to applicable laws, statutes, regulations and
legislation are brief summaries thereof which do not purport to be complete and
are qualified in their entirety by reference to such statutes, regulations and
legislation.
GOVERNMENT POLICIES AND ECONOMIC CONDITIONS
The earnings and business of M&I and the M&I bank subsidiaries are and
will be 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, particularly those of the Board. In addition to the functions
enumerated under "Government Supervision and Regulation," the Board regulates
the supply (and thereby the cost) of funds and bank credit and deals with
general economic conditions in the United States and internationally. From time
to time, the Board has taken specific steps to curtail domestic inflation, to
support the value of U.S. dollars in foreign currency markets and to control the
nation's money supply. Policies employed by the Board for these purposes
influence the interest rates paid on interest bearing liabilities, the interest
received on earning assets, and the levels of bank loans, investments and
deposits.
The economic conditions in which M&I has operated have varied greatly over
recent years, ranging from extremely high to low rates of inflation, volatile
interest rates, and sharp fluctuations in the value of the U.S. dollar compared
to other currencies. Government and Board monetary policies have significantly
affected the operating results of commercial banks in the past and are expected
to do so in the future. 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.
<PAGE>
The cost of funding bank assets has shifted from a reliance on fixed rate
sources of funds to funding sources which reflect market rates of interest.
This shift was commenced in 1980 pursuant to federal legislation which began a
gradual phase out of interest rate ceilings applicable to time and savings
deposits at commercial banks and thrift institutions. The only remaining
limitation on interest rates payable on transaction deposit accounts, with
certain minor exceptions and conditions, is the prohibition on the payment of
interest on demand deposits. The legislative and regulatory changes relating
to interest rate ceilings have enabled banks to compete more effectively with
other unregulated entities for deposits by offering market rates of interest,
but have increased the cost of core deposits.
SELECTED STATISTICAL INFORMATION
The following tables set forth certain statistical information relating
to M&I and its subsidiaries on a consolidated basis.
<PAGE>
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 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------- ---------------------------- ---------------------------
Average Interest Average Average Interest Average Average Interest Average
Balance Earned Yield Balance Earned Yield Balance Earned Yield
--------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1, 2) $8,710,706 $683,265 7.84% $8,180,292 $645,434 7.89% $7,694,097 $667,582 8.68%
Investment securities:
Taxable 2,116,856 110,894 5.24 2,236,805 123,207 5.51 1,950,155 139,302 7.14
Tax-exempt (1) 351,026 24,065 6.86 400,135 31,650 7.91 523,551 47,201 9.02
Interest bearing deposits in
other banks 93,504 3,752 4.01 98,220 2,915 2.97 146,943 5,689 3.87
Funds sold and security
resale agreements 91,090 4,147 4.55 40,401 1,224 3.03 153,730 5,540 3.60
Trading securities (1) 4,528 244 5.39 4,860 207 4.26 6,049 284 4.69
Other short-term investments 12,059 517 4.29 41,522 1,574 3.79 65,459 2,668 4.08
--------------------------- --------------------------- --------------------------
Total interest earning
assets 11,379,769 826,884 7.27 11,002,235 806,211 7.33 10,539,984 868,266 8.24
Cash and demand deposits
due from banks 613,053 616,761 572,132
Premises and equipment, net 289,300 281,952 265,128
Other assets 295,256 268,492 262,211
Allowance for loan losses (144,917) (129,972) (114,046)
----------- ----------- -----------
Total Assets $12,432,461 $12,039,468 $11,525,409
=========== =========== ===========
</TABLE>
<PAGE>
Average Balance Sheets and Analysis of Net Interest Income - continued
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------- ---------------------------- ---------------------------
Average Interest Average Average Interest Average Average Interest Average
Balance Paid Cost Balance Paid Cost Balance Paid Cost
--------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and interest bearing
demand deposits $3,954,170 $ 90,788 2.30% $3,874,553 $ 92,074 2.38% $3,646,978 $111,620 3.06%
Other time deposits 3,664,063 165,073 4.51 3,902,398 180,026 4.61 4,006,545 222,823 5.56
Short-term borrowings 964,850 39,681 4.11 641,836 18,010 2.81 529,528 17,606 3.32
Long-term borrowings 447,254 30,537 6.83 272,041 23,088 8.49 284,333 26,439 9.30
--------------------------- --------------------------- --------------------------
Total interest bearing
liabilities 9,030,337 326,079 3.61 8,690,828 313,198 3.60 8,467,384 378,488 4.47
Noninterest bearing
deposit 2,051,864 1,997,781 1,799,072
Other liabilities 252,297 229,545 248,286
Shareholders' equity 1,097,963 1,121,314 1,010,667
----------- ----------- -----------
Total liabilities and
shareholders' equity $12,432,461 $12,039,468 $11,525,409
=========== =========== ===========
Net interest income $500,805 $493,013 $489,778
======== ======== ========
Net yield on interest
earning assets 4.40% 4.48% 4.65%
===== ===== =====
</TABLE>
Notes:
(1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35%
for 1994 and 1993, and 34% for 1992, and excluding disallowed interest
expense.
(2) Loans on a nonaccrual status have been included in the computation of
average balances.
<PAGE>
Analysis of Changes in Interest Income and Interest Expense
The effect on interest income and interest expense of volume and rate changes
for 1994 and 1993 are outlined below. Changes not due solely to either volume
or rate are allocated to rate (in thousands of dollars).
<TABLE>
<CAPTION>
1994 versus 1993 1993 versus 1992
--------------------------- ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
------------------ Total ------------------ Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest on earning assets:
Loans (1) $41,850 ($4,019) $37,831 $42,185 ($64,333) ($22,148)
Investment securities:
Taxable (6,607) (5,706) (12,313) 20,476 (36,571) (16,095)
Tax-exempt (1) (3,884) (3,701) (7,585) (11,127) (4,424) (15,551)
Interest bearing deposits in other banks (140) 977 837 (1,886) (888) (2,774)
Funds sold and security resale agreements 1,536 1,387 2,923 (4,084) (232) (4,316)
Trading securities (1) (14) 51 37 (56) (21) (77)
Other short-term investments (1,117) 60 (1,057) (976) (118) (1,094)
--------------------------- ----------------------------
Total interest income change $31,624($10,951) $20,673 $44,532($106,587) ($62,055)
=========================== ============================
Expense on interest bearing liabilities:
Savings and interest bearing demand deposits $1,892 ($3,178) ($1,286) $6,965 ($26,511)($19,546)
Other time deposits (10,995) (3,958) (14,953) (5,792) (37,005) (42,797)
Short-term borrowings 9,064 12,607 21,671 3,734 (3,330) 404
Long-term borrowings 14,870 (7,421) 7,449 (1,143) (2,208) (3,351)
--------------------------- ----------------------------
Total interest expense change $14,831 ($1,950) $12,881 $3,764($69,054) ($65,290)
=========================== ============================
</TABLE>
Notes:
(1) Fully taxable equivalent basis, assuming a Federal income tax rate of 35%
for 1994 and 1993, and 34% for 1992, and excluding disallowed interest
expense.
<PAGE>
Investment Securities
The amortized cost of the Corporation's consolidated investment securities at
December 31 of each year are:
<TABLE>
<CAPTION>
(In thousands)
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
U.S. Treasury and government agencies $1,970,566 $2,139,866 $2,116,580
States and political subdivisions 290,483 326,154 434,296
Other 86,533 106,538 190,776
-------------------------------------
$2,347,572 $2,572,558 $2,741,652
=====================================
</TABLE>
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, 1994, are (in thousands):
<TABLE>
<CAPTION>
After One but After Five but
Within One Year Within Five Years Within Ten Years After Ten Years Total
---------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
government agencies $566,515 5.23% $1,375,788 5.74% $28,135 6.26% $118 9.01% $1,970,556 5.60%
States and other
political subdivisions 99,786 7.80 135,156 7.36 54,109 8.10 1,432 10.27 290,483 7.66
Other 9,462 6.53 18,866 9.73 5,284 9.37 52,921 3.36 86,533 5.46
---------------------------------------------------------------------------------------------
$ 675,763 5.63% $1,529,810 5.93% $87,528 7.59% $54,471 3.55% $2,347,572 5.85%
=============================================================================================
</TABLE>
<PAGE>
Types of Loans
The Corporation's consolidated loans, classified by type, at December 31 of
each year are:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural. . $2,644,928 $2,538,830 $2,471,150 $2,620,594 $2,466,569
Industrial development revenue bonds. . . 31,796 45,889 58,388 52,288 70,928
Real estate:
Construction. . . . . . . . . . . . . 378,316 333,609 273,556 260,353 274,407
Mortgage:
Residential. . . . . . . . . . . . 2,240,287 2,223,857 2,160,116 1,977,673 2,229,155
Commercial . . . . . . . . . . . . 2,062,022 2,000,052 1,718,452 1,320,346 879,470
Total mortgage. . . . . . . . . . . . 4,302,309 4,223,909 3,878,568 3,298,019 3,108,625
Personal. . . . . . . . . . . . . . . . . 1,178,453 1,217,513 1,056,901 1,010,682 965,133
Lease financing . . . . . . . . . . . . . 256,690 257,622 242,282 219,164 194,515
8,792,492 8,617,372 7,980,845 7,461,100 7,080,177
Less: Allowance for loan losses. . . . . 153,961 133,600 123,805 105,156 94,145
----------------------------------------------------------
Net loans . . . . . . . . . . . . . . . . $8,638,531 $8,483,772 $7,857,040 $7,355,944 $6,986,032
==========================================================
</TABLE>
<PAGE>
Loan Maturity and Interest Rate Sensitivity
The analysis of loan maturities at December 31, 1994, and the rate structure
for the categories indicated are:
<TABLE>
<CAPTION>
Rate Structure of Loans
Maturity(1) Due After One Year
------------------------------------------------ -----------------------------------
Over One With Pre- With
One Year Year Through Over Five determined Floating
Or Less Five Years Years Total Rate Rate Total
------------------------------------------------ -----------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $1,762,151 $832,883 $49,694 $2,644,728 $485,320 $397,257 $882,577
Industrial development revenue bonds. 9,312 9,782 12,702 31,796 7,152 15,332 22,484
Real estate - construction. . . . . . 231,774 146,542 - 378,316 91,046 55,496 146,542
Lease financing . . . . . . . . . . . 93,498 160,356 2,836 256,690 163,192 - 163,192
------------------------------------------------ -----------------------------------
$2,096,735 $1,149,563 $65,232 $3,311,530 $746,710 $468,085 $1,214,795
================================================ ===================================
</TABLE>
Notes:
(1) Scheduled repayments are reported in the maturity category in which the
payments are due based on the terms of the loan agreements. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
<PAGE>
Nonaccrual, Past Due and Restructured Loans
The Corporation's nonaccrual, past due and restructured loans at December 31,
of each year are:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans. . . . . . . . . . . . . . . . . $44,766 $44,186 $52,811 $78,887 $66,539
Loans past due 90 days or more. . . . . . . . . . 9,093 7,906 7,097 9,330 5,963
Restructured loans. . . . . . . . . . . . . . . . 4,172 4,263 6,325 8,026 8,461
-----------------------------------------------------------
$58,031 $56,355 $66,233 $96,243 $80,963
===========================================================
</TABLE>
Generally, a loan is placed on nonaccrual if payment of interest is more than
60 days delinquent and the loan has been determined by management to be a
"problem" loan. In addition, loans which are past due 90 days or more as to
interest or principal are also placed on non-accrual. Exceptions to these
rules are generally only for loans fully collateralized by readily marketable
securities or other relatively risk free collateral.
Information with respect to nonaccrual and restructured loans (in thousands)
at December 31, 1994, is as follows:
Gross interest income which would have been
recorded under original terms . . . . . . . . . . . . . $ 5,759
Interest income recorded during the period. . . . . . . . $ 2,421
Potential Problem Loans
At December 31, 1994, the Corporation had $19,218 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, 1994, the Corporation's commercial finance subsidiary had
$1,056 of corporate debt investment securities on nonaccrual status. The gross
interest that would have been recorded in 1994 under the original terms
amounted to $96. There was no interest income recorded during 1994 with
respect to such debt securities.
<PAGE>
Summary of Loan Loss Experience
Information relating to the Corporation's consolidated allowance for loan
losses and the amount of loans charged off and recoveries, by type, for each
of the years ended December 31 is:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Average loans outstanding during the year,
net of unearned income. . . . . . . . . . . . . . . . . . $8,710,706 $8,180,292 $7,694,097 $7,318,541 $6,921,333
==================================================================
Allowance for loan losses at beginning of year. . . . . . . . $133,600 $123,805 $105,156 $94,145 $79,458
Allowance of banks acquired or sold . . . . . . . . . . . . . - 1,167 4,284 4,344 3,201
Loans charged off:
Commercial, financial and agricultural. . . . . . . . . . 3,301 8,810 8,863 12,614 22,676
Real estate--construction . . . . . . . . . . . . . . . . 737 79 513 352 851
Real estate--mortgage . . . . . . . . . . . . . . . . . . 3,241 2,729 4,655 7,440 7,309
Personal. . . . . . . . . . . . . . . . . . . . . . . . . 4,375 5,033 6,887 8,220 11,802
Lease financing . . . . . . . . . . . . . . . . . . . . . 907 815 1,426 1,430 925
------------------------------------------------------------------
Total loans charged off . . . . . . . . . . . . . . . . . . . 12,561 17,466 22,344 30,056 43,563
Recoveries on loans previously charged off:
Commercial, financial and agricultural. . . . . . . . . . 3,675 3,431 9,149 4,285 3,136
Real estate--construction . . . . . . . . . . . . . . . . 6 49 92 175 116
Real estate--mortgage . . . . . . . . . . . . . . . . . . 2,468 2,208 1,493 790 356
Personal. . . . . . . . . . . . . . . . . . . . . . . . . 1,789 2,156 2,306 2,503 3,763
Lease financing . . . . . . . . . . . . . . . . . . . . . 77 216 123 46 39
------------------------------------------------------------------
Total recoveries on loans previously charged off. . . . . . . 8,015 8,060 13,163 7,799 7,410
==================================================================
</TABLE>
<PAGE>
Summary of Loan Loss Experience - continued
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net loans charged off . . . . . . . . . . . . . . . . . . . . 4,546 9,406 9,181 22,257 36,153
Additions to allowance charged to operating expense (1) . . . 24,907 18,034 23,546 28,924 47,639
------------------------------------------------------------------
Allowance for loan losses at end of year. . . . . . . . . . . $153,961 $133,600 $123,805 $105,156 $94,145
==================================================================
Ratio of net loans charged off to average loans outstanding . 0.05% 0.11% 0.12% 0.30% 0.52%
==================================================================
</TABLE>
(1) The amount of the addition to the allowance charged to operating expense
for the year ended December 31, 1994, is the amount necessary to bring
the allowance for loan losses at December 31, 1994, to a level believed
adequate by management to absorb current estimated potential losses in
the loan portfolio. Management's determination of the adequacy of the
allowance is based on a continual review of the loan portfolio, loan loss
experience, economic conditions, growth and composition of the portfolio,
and other relevant factors. As a result of management's continual
review, the allowance is adjusted through provisions for loan losses
charged against income.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE - CONTINUED
The Corporation's evaluation of the adequacy of the allowance
for loan losses broadly consists of two levels of analysis. The
first level focuses primarily on assessments of specific credits,
as described more fully below. The second more general level of
analysis focuses on categories of similar type loans and portfolio
segments (e.g., commercial/individual; real estate/non-real
estate; geographical regions related to the locations of affiliate
banks). These methodologies include multiple analytical
approaches which are viewed together to assess overall reserve and
provision levels. The analyses consider, among other factors,
historical loss experience, current and anticipated economic
conditions, loan portfolio trends, portfolio composition by
segment, assigned credit grades, and estimates of potential loss
exposures.
The loan portfolios of the Corporation's affiliate banks and
leasing subsidiary are subject to continual management oversight
and quarterly analyses. Management's analyses are based on the
Corporation's credit grading system which classifies loans in a
manner similar to that of bank regulatory examiners, with
estimates of probable and potential losses derived. Management's
assigned credit grades and quarterly portfolio analyses are
subject to independent monitoring by the Corporation's credit
review group, which also performs periodic portfolio reviews at
each affiliate. The credit review group prepares reports on the
results of its evaluations of affiliate loan portfolios, which
together with quarterly analyses of credit exposure provided by
affiliate management, serve as the basis for determining the
adequacy of the allowance for loan losses.
Management utilizes the above-described reserve analysis
approaches to determine the overall adequacy of the allowance for
loan losses. Management's overall assessment is based on its view
of the loan portfolio as consisting of commercial business loans,
real estate loans, personal loans, and direct financing leases.
Industrial development revenue bonds are viewed as commercial real
estate loans.
During 1994, consolidated net charge-offs decreased to $4.5
million, representing $12.5 million of charge-offs, offset by $8.0
million of recoveries. This decrease follows the lower than
normal net charge-off levels experienced in 1992 and 1993, of $9.2
million and $9.4 million, respectively, which contrast with the
higher than historic levels of net charge-offs experienced in 1990
and 1991. These contrasting net charge-off levels reflect the
steadily declining levels of gross charge-offs over the 1990-1994
period, coupled with relatively consistent recovery levels in each
of these years, except 1992. Recoveries in 1992 were abnormally
high due to collection of a large commercial loan charge-off
recorded in 1990. The reduction in net charge-off levels in 1992
and 1993 and the further reduction in 1994, reflect the relative
strength of the Wisconsin economy and stabilization in the Arizona
economy and real estate values. The Corporation's Arizona-based
loan portfolio represents approximately 3.0% of the total
portfolio.
The Corporation's 1994 provision level of $24.9 million
reflects a $16.0 million general provision, which is based in part
on actual and anticipated loan growth, and an $8.9 million special
<PAGE>
provision. This special provision was charged to expense, after
consummation of the merger with Valley, to conform Valley's loan
valuation policies with those of the Corporation. The $16.0
million general provision level for 1994, which is the lowest
general provision level in the last five years, together with the
$8.9 million special provision, result in a year-end 1994 loan
loss reserve of $154 million of 1.75% of total loans, as compared
to the year-end 1993 reserve level of 1.55% The increased reserve
levels in 1992 through 1994 reflect the Corporation's favorable
net charge-off experience and the inherent cyclical nature of
economic conditions and related credit impacts. The year-end 1994
reserve level is considered adequate given uncertainties regarding
the economic conditions in the country and the Corporation's
primary service areas.
The Corporation's 1994 charge-off and recovery levels across
portfolio sectors generally reflect the current stability of the
Wisconsin and Arizona economies. These conditions contrast with
the 1990-1991 period during which conditions were generally less
favorable and weaknesses in economic conditions and real estate
values significantly impacted the Corporation's Arizona-based
portfolio, resulting in higher than historic levels of losses.
The 1994 charge-off levels for commercial loans, which decreased
to the lowest level in five years, were offset by a near normal
level of recoveries, resulting in a small net recovery position
similar to that experienced in 1992 when a large recovery occurred
relating to a 1990 charge-off. The 1994 charge-off levels for
construction real estate loans which were offset by negligible
recoveries, increased from the five-year low in 1993, but continue
to be relatively immaterial. The 1994 charge-off levels for real
estate mortgages, which increased slightly from the 1993 low, were
offset by increased recovery levels, resulting in a net charge-off
level which was near the five-year low experienced in 1993 and
well below 1990-1992 levels. The 1994 charge-off and recovery
levels for personal loans decreased to the lowest levels in five
years, with resulting net charge-offs also decreasing to a five-
year low. The 1994 charge-off levels for the Corporation's lease
financing portfolio increased slightly from the 1993 low
reflecting, in part, portfolio growth. Lease recoveries were
slightly below average, resulting in net charge-offs which were
above the 1993 low, but below the 1990-1992 levels.
The Corporation's charge-off and provision levels for 1995 are
expected to continue to be largely dependent on economic
conditions in the Corporation's primary service areas. While
general economic conditions continue to be relatively stable,
should national or regional conditions deteriorate, the
Corporation's Wisconsin and Arizona markets may be adversely
affected. Absent deterioration in these conditions, total charge-
offs for 1995 are not currently expected to vary significantly
from 1994 levels, with offsetting recoveries currently expected to
decrease from 1994 levels. At the present time, there are no
material loans which are known or believed to be in imminent
danger of deteriorating or defaulting which are currently expected
to give rise to material charge-offs; however, loss levels can be
significantly impacted by a few large loans which could
deteriorate unexpectedly or be adversely impacted by economic
conditions. Based on current conditions, commercial loan losses
for 1995 are expected to remain below peak 1990 levels, with net
charge-offs anticipated to return to more normal historic levels.
Commercial real estate loans continue to be highly vulnerable to
regional economic conditions and real estate values; however,
<PAGE>
based on current conditions, real estate and construction loan
losses for 1995 are expected to remain below the higher than
normal levels experienced in 1990 and 1991. Based on the existing
portfolio size and composition, personal loan losses for 1995 are
currently expected to increase somewhat from 1994 levels, but
remain below the peak levels experienced in 1990. At the present
time, direct lease financing losses for 1995 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.
In May, 1993 and October, 1994, the Financial Accounting
Standards Board issued Statements of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, an amendment to SFAS No. 114. These
new standards, which must be adopted by the first quarter of 1995,
require that a loan's value be measured, and if appropriate a
valuation reserve established, when it has been determined that
the loan is impaired and loss is probable. Based on the current
status of the Corporation's loan portfolio, it is not anticipated
that these pronouncements will have a material impact on the
allowance or provision for loan losses in 1995.
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:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
--------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $2,051,864 $1,997,781 $1,799,072
Interest bearing demand deposits 1,084,552 1.65% 1,081,702 1.88% 1,000,136 2.61%
Savings deposits 2,869,618 2.54% 2,792,851 2.57% 2,646,842 3.23%
Time deposits 3,664,063 4.51% 3,902,398 4.61% 4,006,545 5.56%
---------- ---------- ----------
Total deposits $9,670,097 $9,774,732 $9,452,595
========== ========== ==========
</TABLE>
The maturity distribution of time deposits issued in amounts of $100,000
and over and outstanding at December 31, 1994 (in thousands) is:
Three months or less . . . . . . . . . . . . . . . . . . . . . .$265,057
Over three and through six months. . . . . . . . . . . . . . . . 99,440
Over six and through twelve months . . . . . . . . . . . . . . . 94,765
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . 81,996
--------
$541,258
========
At December 31, 1994, time deposits issued by foreign offices totalled $54,064.
<PAGE>
Return on Equity and Assets
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on assets:
Before extraordinary items and
accounting changes 0.76% 1.42% 1.36% 1.18% 0.96%
After extraordinary items and
accounting changes 0.85 1.42 1.28 1.18 0.96
Return on equity:
Before extraordinary items and
accounting changes 8.60 15.29 15.48 14.44 12.06
After extraordinary items and
accounting changes 9.65 15.29 14.57 14.44 12.06
Dividend payout ratio 56.73 33.75 34.20 33.86 39.00
Average equity to average assets ratio 8.83 9.31 8.77 8.18 7.98
Ratio of earnings to fixed charges (a)
Excluding interest on deposits 3.18 x 6.52 x 5.57 x 3.80 x 2.68 x
Including interest on deposits 1.50 x 1.83 x 1.60 x 1.36 x 1.26 x
</TABLE>
(a) - See Exhibit 12 for detailed computation of these ratios.
Short-Term Borrowings
Information related to the Corporation's funds purchased and security
repurchase agreements for the last three years is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------
(In thousands)
<S> <C> <C> <C>
Amount outstanding at year end $944,843 $515,028 $469,410
Average amount outstanding during the year 835,472 556,812 505,303
Maximum amount outstanding at any month's end 1,011,509 907,247 679,425
Weighted average interest rate at year end 5.17% 2.78% 2.61%
Weighted average interest rate during the year 4.09% 2.87% 3.33%
</TABLE>
<PAGE>
Item 2. Properties.
Both M&I and M&I Bank occupy offices on all or portions of 16 floors of
a 21-story building, completed in 1969 and 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 unoccupied floors to a professional
tenant. Bank facilities at this location include five closed circuit TV
<PAGE>
drive-in stations and six closed circuit TV walk-in stations. 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 operates 23 branch offices or divisions located in Milwaukee and
in surrounding suburban communities. A wholly-owned subsidiary of M&I Bank owns
the buildings at four branch sites, located in the western and in the southern
sections of downtown Milwaukee, and in Glendale, a Milwaukee suburb. Eight
branches, located in Milwaukee suburbs, occupy buildings owned by M&I Bank. The
remaining branches occupy leased facilities.
M&I has 34 subsidiary banks and one savings association located in cities
throughout Wisconsin. M&I Thunderbird Bank, a wholly-owned subsidiary of M&I,
is located in Phoenix, Arizona and has 12 offices in surrounding Maricopa County
communities. The subsidiary banks and savings association occupy modern
facilities which are owned or leased.
M&I owns a 328,000 square foot data processing facility located in Brown
Deer, a suburb of Milwaukee, from which M&I Data Services conducts data
processing activities. Other properties leased by M&I for M&I Data Services
include 62,000 square feet of 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.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Officer Office
--------------- ------
J.B. Wigdale Chairman of the Board since December, 1992,
Age 58 Chief Executive Officersince October, 1992,
Director since December, 1988, Vice Chairman of
the Board, December, 1988 to December, 1992, Vice
President, 1984 to December, 1988, Marshall &
Ilsley Corporation; Chairman of the Board since
January, 1989, Chief Executive Officer since
1987, Director since 1981, President, 1981 to
January, 1989, M&I Marshall & Ilsley Bank;
President and Director - M&I Financial Corp., M&I
Insurance Company of Arizona, Inc., M&I Building
Corp. and M&I Capital Markets Group, Inc.;
Director - M&I First National Leasing Corp., M&I
Mortgage Corp., Richter-Schroeder Company, Inc.,
M&I Data Services, Loujo Company and Marshall &
Ilsley Trust Company.
D.J. Kuester Director since February, 1994, President since
Age 53 1987, Marshall & Ilsley Corporation; President
and Director since January, 1989, Vice President,
1979 to January, 1989, M&I Marshall & Ilsley
Bank; Chairman of the Board, Chief Executive
Officer and Director, M&I Data Services; Director
- M&I Financial Corp., M&I Building Corp and M&I
Insurance Company of Arizona, Inc.
P.M. Platten, III Vice Chairman of the Board and a Director
Age 55 since May 1994, Marshall & Ilsley Corporation;
Chairman of the Board, January 1993 to May 1994,
President and Chief Executive Officer, January
1989 to May 1994, and Chief Operating Officer,
prior to January 1989, Valley Bancorporation;
Chairman and Chief Executive officer, prior to
January 1989, Valley Bank, Northeast.
G.H. Gunnlaugsson Director since February, 1994,
Age 50 Executive Vice President and 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.;
Director - M&I Mortgage Corp. and M&I Data
Services; Director - Loujo Company.
G.D. Strelow Senior Vice President and Human Resources
Age 60 Director of Marshall & Ilsley Corporation since
1993; Vice President and Human Resources Director
of M&I Marshall & Ilsley Bank since 1980.
<PAGE>
M.A. Hatfield Senior Vice President since 1993, Treasurer
Age 49 since 1986 and Secretary since 1981, 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., M&I Building Corp., M&I Insurance Company
of Arizona, Inc. and M&I Insurance Services,
Inc.; Secretary and Treasurer, M&I Mortgage
Corp.; Secretary and Director, M&I Data Services;
Director - Richter-Schroeder Company, Inc., Loujo
Company and M&I Wauwatosa State Bank.
P.R. Justiliano Senior Vice President since 1994 and
Age 44 Corporate Controller since April, 1989, Vice
President, 1986 to 1994, Marshall & Ilsley
Corporation.
G.A. Lichtenberg Senior Vice President and Corporate
Age 51 Banking Controller since May 1994, Marshall &
Ilsley Corporation; Senior Vice President/Chief
Financial Officer and Secretary 1984 to 1994,
Valley Bancorporation.
J.L. Delgadillo Senior Vice President of Marshall &
Age 42 Ilsley Corporation since 1993; Director of M&I
Data Services since 1994; President and Chief
Operating Officer of M&I Data Services since
1993; Senior Vice President of M&I Data Services
since 1989.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Stock Listing
Marshall & Ilsley Corporation common stock is traded under the symbol
"MRIS" in the NASDAQ National Market System, and quotations are supplied by the
National Association of Securities Dealers.
Common Dividends Declared
1994 1993
First Quarter $0.14 $0.12
Second Quarter 0.15 0.14
Third Quarter 0.15 0.14
Fourth Quarter 0.15 0.14
----- -----
$0.59 $0.54
===== =====
Price Range of Stock (Low and High Bid)
First Quarter $20 - $23 3/4 $21 1/16 - $23 5/16
Second Quarter 19 1/4 - 22 1/4 22 15/16 - 25 3/4
Third Quarter 19 5/8 - 21 3/4 21 1/4 - 25
Fourth Quarter 18 - 20 9/16 21 3/4 - 24 1/4
A discussion of the regulatory restrictions on the payment of dividends can be
found under Item 1. Business, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation, and in footnote 13 to M&I's
Consolidated Financial Statements in Item 8 of this Form 10-K.
Holders of Common Equity
At December 31, 1994 M&I had approximately 18,919 record holders of its
Common Stock.
<PAGE>
Item 6. Selected Financial Data
CONSOLIDATED SUMMARY OF EARNINGS
Years ended December 31 ($000's except share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans $681,085 $643,679 $665,634 $730,696 $740,995
Investment Securities:
Taxable 110,894 123,207 139,302 140,261 140,239
Tax Exempt 16,693 20,692 31,946 42,438 45,884
Short-term Investments 8,634 5,899 14,157 24,695 21,253
------------------------------------------------------
Total Interest Income 817,306 793,477 851,039 938,090 948,371
Interest Expense:
Deposits 255,861 272,100 334,443 448,757 466,537
Short-term Borrowings 39,681 18,010 17,606 32,065 56,849
Long-term Borrowings 30,537 23,088 26,439 27,770 22,524
------------------------------------------------------
Total Interest Expense 326,079 313,198 378,488 508,592 545,910
------------------------------------------------------
Net Interest Income 491,227 480,279 472,551 429,498 402,461
Provision for Loan Losses 24,907 18,034 23,546 28,924 47,639
------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 466,320 462,245 449,005 400,574 354,822
Other Income:
Data Processing Services 159,418 135,041 112,056 90,582 71,979
Trust Services 59,720 61,226 58,050 54,060 49,212
Other 142,343 175,659 158,305 132,106 107,410
------------------------------------------------------
Total Other Income 361,481 371,926 328,411 276,748 228,601
Other Expense:
Salaries and Benefits 323,904 320,717 299,540 260,289 233,183
Other 260,866 248,870 246,084 230,295 205,445
Merger/Restructuring 75,228 - - - 1,603
------------------------------------------------------
Total Other Expense 659,998 569,587 545,624 490,584 440,231
Income Before Taxes 167,803 264,584 231,792 186,738 143,192
Provision for Income Taxes 73,405 93,190 75,391 56,725 42,830
------------------------------------------------------
Income Before Accounting Changes
and Extraordinary Items 94,398 171,394 156,401 130,013 100,362
Extraordinary Items and
Accounting Changes 11,542 - (9,134) - -
------------------------------------------------------
Net Income $105,940 $171,394 $147,267 $130,013 $100,362
======================================================
</TABLE>
<PAGE>
CONSOLIDATED SUMMARY OF EARNINGS - continued
Years ended December 31 ($000's except share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share:
Primary Net Income
Before Extraordinary Items and
Accounting Changes $0.95 $1.67 $1.55 $1.33 $1.03
Primary Net Income
After Extraordinary Items and
Accounting Changes 1.07 1.67 1.46 1.33 1.03
Fully Diluted Net Income
Before Extraordinary Items and
Accounting Changes 0.93 1.60 1.48 1.27 1.00
Fully Diluted Net Income
After Extraordinary Items and
Accounting Changes 1.04 1.60 1.40 1.27 1.00
Fully Diluted Net Income
(Historical)* 1.04 1.76 1.52 1.40 1.03
Common Dividend Declared 0.59 0.54 0.48 0.43 0.39
Other Significant Data:
Year-End Common Stock Price $19.00 $23.63 $21.17 $18.33 $9.58
Return on Average Shareholders' Equity
Before Extraordinary Items and
Accounting Changes 8.60% 15.29% 15.48% 14.44% 12.06%
Return on Average Shareholders' Equity
After Extraordinary Items and
Accounting Changes 9.65 15.29 14.57 14.44 12.06
Return on Average Assets
Before Extraordinary Items and
Accounting Changes 0.76 1.42 1.36 1.18 0.96
Return on Average Assets
After Extraordinary Items and
Accounting Changes 0.85 1.42 1.28 1.18 0.96
Stock Splits 3 FOR 1
_______________
</TABLE>
* Not restated for acquisitions accounted for as a pooling of interests.
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS
Years ended December 31 ($000's except share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and Due from Banks $613,053 $616,761 $572,132 $538,068 $558,663
Short-term Investments 196,653 180,143 366,132 428,543 266,558
Trading Securities 4,528 4,860 6,049 6,185 7,165
Investment Securities:
Taxable 2,116,856 2,236,805 1,950,155 1,692,476 1,632,281
Tax Exempt 351,026 400,135 523,551 604,753 611,785
Loans:
Commercial 2,680,735 2,572,967 2,643,726 2,813,243 2,558,179
Real Estate 4,572,496 4,248,970 3,798,180 3,314,452 3,162,613
Personal 1,201,131 1,109,701 1,017,625 991,600 1,017,563
Lease Financing 256,344 248,654 234,566 199,246 182,978
---------------------------------------------------------------
8,710,706 8,180,292 7,694,097 7,318,541 6,921,333
Allowance for Loan Losses 144,917 129,972 114,046 100,726 86,027
---------------------------------------------------------------
Net Loans and Leases 8,565,789 8,050,320 7,580,051 7,217,815 6,835,306
Other Assets 584,556 550,444 527,339 527,485 514,516
---------------------------------------------------------------
Total Assets $12,432,461 $12,039,468 $11,525,409 $11,015,325 $10,426,274
===============================================================
Liabilities and Shareholders' Equity:
Noninterest Bearing Deposits $2,051,864 $1,997,781 $1,799,072 $1,576,525 $1,508,219
Interest Bearing Deposits:
Savings and NOW Accounts 2,426,502 2,339,754 2,086,065 1,769,710 2,019,240
Money Market Savings 1,527,668 1,534,799 1,560,913 1,441,169 939,803
CDs of $100 or more 436,268 440,573 416,555 565,614 702,237
Other 3,227,795 3,461,825 3,589,990 3,668,741 3,238,755
---------------------------------------------------------------
Total Deposits 9,670,097 9,774,732 9,452,595 9,021,759 8,408,254
Short-term Borrowings 964,850 641,836 529,528 591,602 732,910
Long-term Borrowings 447,254 272,041 284,333 290,724 236,745
Accrued Expenses and Other Liabilities 252,297 229,545 248,286 210,575 216,084
Redeemable Preferred Stock - - - - -
Shareholders' Equity 1,097,963 1,121,314 1,010,667 900,665 832,281
---------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,432,461 $12,039,468 $11,525,409 $11,015,325 $10,426,274
===============================================================
Other Significant Data:
Book Value Per Share at Year End*** $11.01 $11.35 $10.76 $9.74 $8.90
Average Common Shares
Outstanding*** 94,850,595 98,497,435 96,958,290 94,601,491 94,270,362
Shareholders of Record at
Year End* 18,919 10,374 9,381 9,462 10,129
Employees at Year End* 8,634 6,611 6,315 6,137 6,001
Historically Reported Credit Quality Ratios:*
Net Loan Charge-offs to Average Loans 0.05% 0.03% 0.07% 0.32% 0.64%
Total Nonperforming Loans** & OREO to
End of Period Loans & OREO 0.80 0.86 1.14 1.49 1.41
Allowance for Loan Losses to
End of Period Loans 1.75 1.74 1.76 1.55 1.44
Allowance for Loan Losses to
Total Nonperforming Loans** 265 261 213 128 125
____________
</TABLE>
* Not restated for acquisitions accounted for as pooling of interests.
** Nonaccrual loans, restructured loans, and loans past due 90 days or more.
*** Restated for 3 for 1 stock split.
<PAGE>
YIELD & COST ANALYSIS
(Tax equivalent basis) Years ended December 31
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Rates Earned:
Loans 7.84% 7.89% 8.68% 10.02% 10.76%
Investment Securities - Taxable 5.24 5.51 7.14 8.29 8.59
Investment Securities - Tax Exempt 6.86 7.91 9.02 10.27 10.59
Trading Securities 5.39 4.26 4.69 6.42 7.68
Short-term Investments 4.28 3.17 3.80 5.68 7.78
Average Rates Paid:
Interest Bearing Deposits 3.36% 3.50% 4.37% 6.03% 6.76%
Short-term Borrowings 4.11 2.81 3.32 5.42 7.76
Long-term Borrowings 6.83 8.49 9.30 9.55 9.51
M&I Marshall & Ilsley Bank Average
Prime Rate 7.15 6.00 6.25 8.46 10.01
Summary Yield and Cost Analysis:
(As a % of Average Assets)
Average Yield 6.65% 6.70% 7.53% 8.72% 9.32%
Average Cost 2.62 2.60 3.28 4.62 5.24
Net Interest Income 4.03 4.10 4.25 4.10 4.08
Provision for Loan Losses 0.20 0.15 0.20 0.26 0.46
Net Interest Income After
Provision for Loan Losses 3.83 3.95 4.05 3.84 3.62
Net Securities Gains (Losses) (0.05) 0.07 0.08 0.05 0.02
Other Income 2.95 3.02 2.77 2.47 2.18
Other Expense 5.30 4.74 4.74 4.46 4.23
Income Before Income Taxes 1.43 2.30 2.16 1.90 1.59
Provision for Income Taxes 0.67 0.88 0.80 0.72 0.63
Income Before Cumulative
Effect of Accounting Changes
and Extraordinary Items 0.76% 1.42% 1.36% 1.18% 0.96%
====================================================
Net Income 0.85% 1.42% 1.28% 1.18% 0.96%
====================================================
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Position and Results
of Operations
In 1994, Marshall & Ilsley Corporation reported consolidated net income of
$105.9 million compared to $171.4 in 1993, a decline of $65.5 million. Fully
diluted net income per share in 1994 amounted to $1.04 compared to $1.60 per
share for 1993. The return on average assets and average shareholders' equity
was 0.85% and 9.65%, respectively, for the year ended December 31, 1994 and
1.42% and 15.29%, respectively, for the prior year. During the second quarter
of 1994 the Corporation recorded a one-time merger/restructuring charge and an
increase in loan loss provisions associated with the May 31, 1994 acquisition
of Valley Bancorporation (Valley). In addition, security losses and other
miscellaneous charges were taken at that time.
The following table summarizes the unusual items reported in the second quarter
of 1994 adjusted for merger related gains realized in the third and fourth
quarter of 1994 and its impact on net income.
After-tax
Gain Fully Diluted
(Charge) Per Share Increase
($ Millions) (Decrease)
____________ __________________
Income from Operations $169.9 $1.65
Recognition of $75.2 million
merger/restructuring charge (58.9) (.56)
Additional loan loss provisions
of $8.9 million (5.8) (.06)
Other miscellaneous charges
of $8.5 million (6.2) (.06)
Securities losses of
$7.3 million (4.6) (.04)
Net extraordinary gain of
$20.6 million 11.5 .11
______ _____
Reported Net Income $105.9 $1.04
====== =====
Net income for 1994 before unusual items was $169.9 million and fully diluted,
net income per share was $1.65. The return on average assets and shareholders'
equity was 1.37% and 14.94%, respectively. The decline in income from
<PAGE>
operations of $1.5 million in 1994 compared to the prior year was due to lower
noninterest income and normal expense growth offset by higher net interest
income and the merger/restructuring cost savings achieved during 1994.
The $75.2 million merger/restructuring charge was the result of the acquisition
of Valley and reflected the costs associated with executive contracts and the
reduction in workforce, the write-off of duplicate computer and software costs,
system conversion costs, professional fees and other net costs associated with
the merger. See Note 3 to the Consolidated Financial Statements for a more
detailed discussion of merger/restructuring charges. As part of the
merger/restructuring process the Corporation merged 15 bank charters and 4
financial service affiliates into other M&I affiliates which were providing
similar services. The Corporation also closed 49 branch locations which
included 19 required branch divestitures. These activities resulted in a
reduction of approximately 1,000 employees and lower operating expenses. At the
time the merger was announced, it was anticipated that the estimated annual cost
savings to be achieved by the combined companies beginning in 1995 was
approximately $36 million. While no assurances can be given, management now
expects that the cost savings will meet or exceed the original estimate.
Management estimates that in excess of 60% of the annual cost savings was
achieved during 1994.
The additional loan loss provision of $8.9 million was recorded at the time of
the merger to conform Valley's loan valuation policies with those of the
Corporation.
The securities losses of $7.3 million were realized in the second quarter of
1994 to reposition our balance sheet in light of current interest rates.
Approximately $568 million of securities with a remaining average maturity of
one year were sold. The proceeds were reinvested in higher yielding securities
with an average maturity of less than two years. The securities sold were
classified as available for sale, therefore, the resulting realized loss had no
impact on shareholders' equity.
The other miscellaneous charge of $8.5 million included goodwill asset
adjustments, other real estate write-downs and other accrual adjustments such
as professional fees not resulting from the merger/restructuring.
The Corporation also realized extraordinary gains of $22.1 million resulting
from certain required branch divestitures with deposits of $267 million. The
Corporation also prepaid $53 million of Valley's long-term debt. The prepayment
premium amounted to $1.5 million and is included in the net extraordinary gain
for 1994.
Operating earnings amounted to $171.4 million in 1993 compared to $156.4 million
in 1992, an increase of $15.0 million or 9.6%. The increase was due to higher
net interest income, a lower loan loss provision and higher noninterest related
revenue.
During 1992, the Corporation adopted two new accounting standards which required
the recognition of unrecorded postretirement benefits and that current enacted
<PAGE>
tax rates be used in determining deferred taxes. The cumulative effect of the
adoption of these accounting standards amounted to an after-tax charge of $9.1
million or $.08 per share on a fully diluted basis.
PROVISION FOR LOAN LOSSES AND CREDIT QUALITY
____________________________________________
Excluding the previously noted additional provision for certain Valley banks of
$8.9 million, the provision for loan losses amounted to $16.0 million in 1994
compared to $18.0 million in 1993 and $23.5 million in 1992. The adjusted 1994
provision level reflects the relatively stable trend in nonperforming assets
since year-end 1993 and a decline in net charge-offs.
Nonperforming assets at December 31, 1994 were $70.1 million compared to $69.3
million reported at December 31, 1993. Nonaccrual loans, the largest component
of nonperforming assets, were up slightly when compared to December 31, 1993 and
loans past due 90 days or more increased $1.2 million. The chart on the next
page shows that the categories of nonaccrual loans did not change significantly
in 1994 when compared to the prior year. At December 31, 1994, other real
estate owned, which is down slightly from the prior year, includes $2.3 million
of closed branch facilities.
Net charge-offs in 1994 amounted to $4.5 million or .05% of average loans
compared to $9.4 million or .11% for the prior year and .12% for 1992.
The allowance for loan losses amounted to $154.0 million or 1.75% of total loans
at December 31, 1994 compared to $133.6 million or 1.55% of total loans at
December 31, 1993. The coverage of the allowance for loan losses to
nonperforming loans increased from 237% at December 31, 1993 to 265% at the end
of the current year. The special second quarter charge contributed to the
increased coverage ratio.
Since the third quarter of 1994, nonperforming assets declined $6.8 million or
8.9%. Nonaccrual loans decreased $9.2 million or 17.1%, while other real estate
owned increased $2.4 million. Net charge-offs in the fourth quarter amounted
to $2.8 million and was $2.3 million higher than the third quarter of 1994.
<PAGE>
CREDIT QUALITY December 31,
($ 000's)
Consolidated Credit Quality Information
_______________________________________
Nonperforming Assets by Type
1994 1993 1992 1991 1990
_______ _______ _______ _______ _______
Loans:
Nonaccrual $44,766 $44,186 $52,811 $78,887 $66,539
Renegotiated 4,172 4,263 6,325 8,026 8,461
Past Due 90
Days or More 9,093 7,906 7,097 9,330 5,963
_______ _______ _______ _______ _______
Total Nonperforming
Loans 58,031 56,355 66,233 96,243 80,963
Other Real Estate
Owned (OREO) 12,114 12,928 19,286 18,510 16,223
_______ _______ _______ _______ _______
Total Nonperforming
Assets $70,145 $69,283 $85,519 $114,753 $97,186
======= ======= ======= ======== =======
Allowance for
Loan Losses $153,961 $133,600 $123,805 $105,156 $94,145
======== ======== ======== ======== =======
Net Loan Charge-offs
Loan Charge-offs $12,561 $17,466 $22,344 $30,056 $43,563
Loan Recoveries (8,015) (8,060) (13,163) (7,799) (7,410)
_______ _______ _______ _______ _______
Total Net Loan
Charge-offs $4,546 $ 9,406 $ 9,181 $22,257 $36,153
======= ======= ======= ======= =======
Consolidated Statistics
Net Charge-offs to
Average Loans .05% .11% .12% .30% .52%
Total Nonperforming Loans
to Total Loans .66 .65 .83 1.29 1.14
Total Nonperforming Assets
to Total Loans and Other
Real Estate Owned .80 .80 1.07 1.53 1.37
Allowance for Loan Losses
to Total Loans 1.75 1.55 1.55 1.41 1.33
Allowance for Loan Losses
to Nonperforming Loans 265 237 187 109 116
<PAGE>
Major Categories of Nonaccrual Loans
____________________________________
1994 1993
_________________________________________________________
% of % of
Loan % of Loan % of
Nonaccrual Type Nonaccrual Nonaccrual Type Nonaccrual
________________ __________ _______________ __________
Commercial
Commercial $ 8,372 .3% 18.7% $10,055 .4% 22.8%
Lease Financing
Receivables 1,601 .6 3.6 2,868 1.1 6.5
_______ _____ _______ _______ ______ _______
Total Commercial 9,973 .3 22.3 12,923 .5 29.3
Real Estate
Construction and
Land Development 902 .2 2.0 538 .2 1.2
Commercial Real
Estate 19,706 1.0 44.0 18,433 .9 41.7
Residential Real
Estate 11,453 .5 25.6 9,631 .4 21.8
_______ _____ _______ _______ ______ _______
Total Real Estate 32,061 .7 71.6 28,602 .6 64.7
Personal 2,732 .2 6.1 2,661 .2 6.0
_______ ______ ________ _______ _______ ________
Total $44,766 .5% 100.0% $44,186 .5% 100.0%
======= ====== ======== ======= ======= ========
<PAGE>
INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS
________________________________________________________________
The table below presents a summary of the major elements of the income statement
for 1994, 1993, and 1992. Each of the elements is stated as a percent of
average total assets outstanding for the respective year and, where appropriate,
is converted to a fully taxable equivalent basis (FTE).
1994 1993 1992
_______________________
Interest Income 6.65% 6.70% 7.53%
Interest Expense (2.62) (2.60) (3.28)
______ ______ ______
Net Interest Income 4.03 4.10 4.25
Provision for Loan Losses (.20) (.15) (.20)
Net Securities
Gains (Losses) (.05) .07 .08
Other Income 2.95 3.02 2.77
Other Expense (4.69) (4.74) (4.74)
Merger/Restructuring (.61) -- --
______ ______ ______
Income Before Income Taxes 1.43 2.30 2.16
Income Taxes (.67) (.88) (.80)
______ ______ ______
Income before Cumulative
effect of Accounting
Changes and Net
Extraordinary Credits .76% 1.42% 1.36%
Net Income .85% 1.42% 1.28%
====== ====== ======
NET INTEREST INCOME
___________________
Net interest income was $491.2 million in 1994, an increase of $10.9 million or
2.3% from $480.3 million earned in 1993. The benefit of the increase in average
earning assets was partially offset by the slight decline in the average earning
asset yield and increased volume of higher cost short-term and long-term
borrowings fueled in part by the decline in average deposits.
Average earning assets amounted to $11.4 billion for 1994 compared to $11.0
billion in the prior year, an increase of 3.4%. Long-term taxable securities
declined $119.9 million or 5.4% from $2.24 billion reported for 1993. Tax
exempt long-term investments declined 12.3% in 1994. Short-term investments
were up slightly in 1994 and amounted to $201.2 million. The decline in total
investment securities was primarily due to the funding of loan growth.
<PAGE>
The growth and composition of the Corporation's average loan portfolio for the
last two years is as follows (amounts in thousands):
Annual
1994 1993 Growth
__________ __________ ______
Commercial Loans $2,680,735 $2,572,967 4.2%
Real Estate Loans
Construction 262,707 277,902 (5.5)
Commercial Mortgages 2,098,590 1,825,532 15.0
Residential Mortgages 2,211,199 2,145,536 3.1
__________ __________ ______
Total Real Estate Loans 4,572,496 4,248,970 7.6
Personal Loans
Personal Loans 936,731 901,036 4.0
Student Loans 264,400 208,665 26.7
__________ __________ ______
Total Personal Loans 1,201,131 1,109,701 8.2
Leasing Financing
Receivables 256,344 248,654 3.1
__________ __________ ______
Total Consolidated
Average Loans $8,710,706 $8,180,292 6.5%
========== ========== ======
Total real estate loans provided $323.5 million or 61% of the total average loan
growth in 1994, of which, commercial real estate loans accounted for $273.1
million of the increase. All other categories of loans also increased over the
prior year. Commercial loans increased $107.8 million and personal loans
increased $91.4 million. Student loan growth provided more than half of the
growth in personal loans in 1994.
<PAGE>
The composition of the Corporation's average deposits for the last two years is
as follows (amounts in thousands):
Annual
1994 1993 Growth
__________ __________ ________
Noninterest Bearing
Commercial $1,302,692 $1,252,074 4.0%
Personal 428,697 404,831 5.9
Other 320,475 340,876 (6.0)
__________ __________ ______
Total Noninterest
Bearing Deposits 2,051,864 1,997,781 2.7
Interest Bearing
Savings & NOW 2,426,502 2,339,754 3.7
Money Market 1,527,668 1,534,799 (.5)
Other CDs &
Time Deposits 3,227,795 3,461,825 (6.8)
CDs Greater
than $100,000 436,268 440,573 (1.0)
__________ __________ ______
Total Interest
Bearing Deposits 7,618,233 7,776,951 (2.0)
__________ __________ ______
Total Consolidated
Average Deposits $9,670,097 $9,774,732 (1.1%)
========== ========== ======
During 1994, the Corporation experienced a shift in its deposit mix.
Noninterest bearing deposit accounts increased $54.1 million or 2.7%, however,
the increase did not offset the decline in interest bearing deposits, which
declined $158.7 million in 1994. Our core interest bearing deposits increased
$79.6 million while certificates of deposit and other time deposits declined
$238.3 million.
Average loans and deposits were affected by the branch divestitures that
occurred in 1994. During the later part of 1994, $199.5 million of loans and
$300.7 of deposits were sold. These transactions will have a more significant
impact on the change in average balances in 1995 when compared to 1994.
The net interest margin as a percentage of average earning assets declined from
4.48% for the year ended December 31, 1993 to 4.40% in the current year. The
average yield on our interest earning assets was 7.27%, a decline of 6 basis
points from 1993. Loan yields declined 5 basis points while our total
investment securities yield declined 40 basis points due to the maturity of
higher yielding securities. The total cost of our interest bearing liabilities
remained relatively unchanged. The cost of our core interest bearing deposit
<PAGE>
accounts declined from 2.38% in 1993 to 2.30% in the current year while other
time deposit rates declined from 4.61% in 1993 to 4.51% in 1994. While the drop
in the cost of deposits helped the net interest margin, the lack of deposit
growth caused short-term borrowings to increase $323.0 million. The cost of
short-term borrowings increased from 2.81% in 1993 to 4.11% in 1994, an increase
of 130 basis points. During the second quarter of 1994, the Corporation's
banking subsidiaries began offering Bank Notes. The Bank Notes provide an
additional funding source along with those traditionally available to our
banking affiliates. As of December 31, 1994, total Bank Notes outstanding
amounted to $308.6 million. These notes were issued for a two-year term and
have floating interest rates. The average cost for this source of funding was
5.21%. Management has also developed new products such as a money market index
account to attract new deposits and has put into place a nationally marketed
brokered CD program. The lack of deposit growth to fund earning asset growth
in the future may continue to put pressure on the margins.
During the third quarter of 1994, the Corporation prepaid $53 million of
Valley's long-term debt consisting of Series A 9.86% and Series B 9.97% senior
unsecured notes. The debt was refinanced with the Corporation's medium-term
notes which had an average cost of 7.46% in 1994.
In April 1993, the Corporation's Board of Directors approved a common share
repurchase program. Since the announcement, the Corporation has cumulatively
repurchased 9.8 million common shares at an aggregate cost of approximately
$216.5 million through December 31, 1994. The estimated impact of the program
in 1994 compared to 1993 was to increase interest expense by approximately $7.5
million.
Net interest income was $480.3 million in 1993, an increase of $7.7 million or
1.6% from that earned in 1992. The improvement was primarily due to an increase
in earning assets and a favorable shift in the asset and funding mix.
Average earning assets increased $462.3 million or 4.4% in 1993 compared to the
prior year. The growth in average loans of $486.2 million was the primary
contributor to average earning asset growth. Total average noninterest bearing
deposit accounts increased $198.7 million or 11% and amounted to $2.0 billion
at December 31, 1993. Core interest bearing deposit accounts amounted to $3.9
billion at December 31, 1993, an increase of $227.6 million or 6.2%, while
higher cost time deposit accounts decreased $104.1 million in 1993 compared to
the prior year.
The net interest margin as a percent of average earning assets declined from
4.65% for the year ended December 31, 1992 to 4.48% in 1993. The average yield
on our earning assets was 7.33%, a decline of 91 basis points while the average
cost of interest-bearing liabilities declined 87 basis points and amounted to
3.60%.
<PAGE>
The table below shows the composition of net interest income on a FTE basis:
ANALYSIS OF NET INTEREST INCOME
($ 000's)
1994 1993
______________________________ ____________________________
Average Average
Average Yield or Average Yield or
Balance Interest Cost Balance Interest Cost
______________________________ ____________________________
Average Assets
Loans $8,710,706 $683,265 7.84% $8,180,292 $645,434 7.89%
Investment Securities:
Taxable 2,116,856 110,894 5.24 2,236,805 123,207 5.51
Tax Exempt 351,026 24,065 6.86 400,135 31,650 7.91
Interest bearing
deposits in
other banks 93,504 3,752 4.01 98,220 2,915 2.97
Funds sold and
security resale
agreements 91,090 4,147 4.55 40,401 1,224 3.03
Trading securities 4,528 244 5.39 4,860 207 4.26
Other short-term
investments 12,059 517 4.29 41,522 1,574 3.79
__________ ________ _____ __________ ________ _____
Total interest
earning assets 11,379,769 826,884 7.27% 11,002,235 806,211 7.33%
Cash and demand
deposits due
from banks 613,053 616,761
Premises and
equipment, net 289,300 281,952
Other assets 295,256 268,492
Allowance for
loan losses (144,917) (129,972)
___________ ___________
Total Assets $12,432,461 $12,039,468
=========== ===========
<PAGE>
ANALYSIS OF NET INTEREST INCOME - continued
($ 000's)
1994 1993
______________________________ ____________________________
Average Average
Average Yield or Average Yield or
Balance Interest Cost Balance Interest Cost
______________________________ ____________________________
Average Liabilities and Shareholders' Equity
Savings and interest
bearing demand
deposits $3,954,170 $ 90,788 2.30% $3,874,553 $ 92,074 2.38%
Other time deposits 3,664,063 165,073 4.51 3,902,398 180,026 4.61
Short-term
borrowings 964,850 39,681 4.11 641,836 18,010 2.81
Long-term
borrowings 447,254 30,537 6.83 272,041 23,088 8.49
__________ ________ _____ __________ ________ _____
Total interest
bearing
liabilities 9,030,337 326,079 3.61% 8,690,828 313,198 3.60%
Noninterest bearing
deposits 2,051,864 1,997,781
Other liabilities 252,297 229,545
Shareholders' equity 1,097,963 1,121,314
__________ ___________
Total Liabilities
and Shareholders'
Equity $12,432,461 $12,039,468
========== ===========
<PAGE>
ANALYSIS OF NET INTEREST INCOME - continued
($ 000's)
1994 1993
______________________________ ____________________________
Average Average
Average Yield or Average Yield or
Balance Interest Cost Balance Interest Cost
______________________________ ____________________________
Net interest margin
(FTE) as a percent
of earning assets 500,805 4.40% 493,013 4.48%
===== =====
Fully taxable
equivalent
adjustment (9,578) (12,734)
________ ________
Net Interest Income $491,227 $480,279
======== ========
<PAGE>
OTHER INCOME
____________
Total other income was $361.5 million for the year ended December 31, 1994, a
decline of $10.4 million when compared to $371.9 million earned in the prior
year. Fees from data processing services increased $24.4 million or 18.1% when
compared to 1993. This increase was primarily due to processing fees. Trust
fees declined $1.5 million or 2.5% in 1994 and amounted to $59.7 million. The
primary revenue basis for trust services is based upon market value of assets
under management. Revenue from these services has decreased due to the general
decline in market values, increased price competition and a slight reduction in
assets under management. Other customer service fees amounted to $117.1 million
for the year ended December 31, 1994 compared to $124.5 a year ago, a decline
of $7.4 million or 6.0%. Service charge on deposit accounts declined $3.1
million or 5.5%, while fees on loans declined $2.3 million or 10.8% in 1994.
The decline in service charge on deposit accounts was primarily due to the
higher interest rate environment in 1994 causing higher earnings credit to be
given on commercial deposit accounts. Other miscellaneous income amounted to
$31.0 million, a decline of $11.8 million or 27.6% when compared to $42.8
million earned in 1993. The decline in revenue from the origination and sale
of mortgage loans to the secondary market, as was seen throughout all of 1994,
accounted for a majority of the decrease in fees on loans and other
miscellaneous income. As part of the merger/restructuring that occurred during
1994, the Corporation also sold one insurance agency and other insurance lines
of business. These sales resulted in lower commission revenue, which is a
component of miscellaneous income. The sale of other real estate owned not
associated with merger/restructuring activities resulted in an increase in net
gains of approximately $1.0 million in 1994 compared to 1993.
Securities losses in 1994 amounted to $5.8 million compared to a net gain of
$8.3 million in 1993. Excluding the securities losses taken in the second
quarter of $7.3 million, net securities gains amounted to $1.5 million in 1994.
Capital Markets Group realized net gains of $2.0 million in 1994 compared to
$3.3 million in 1993. The Corporation also sold certain equity securities and
realized a gain of $0.9 million in 1994 and $4.2 million in 1993.
Other income amounted to $371.9 million in 1993, a $43.5 million or 13.3%
increase from $328.4 million reported in 1992. Data processing revenue
increased $23.0 million. Processing and software related revenue contributed
to the increase. Trust services revenue increased $3.2 million in 1993 compared
to the prior year. Other customer service revenue increased $10.3 million in
1993 and amounted to $124.5 million for the year ended December 31, 1993.
Increases in fees charged on commercial deposit accounts, increased brokerage
commissions, and higher loan fees all contributed to the revenue increase.
Other miscellaneous income which amounted to $42.8 million in 1993 compared to
$34.9 million in 1992, was impacted by the mortgage refinancing activity which
increased in 1993. Income from the sale of 15 and 30 year mortgages acquired
and sold in the secondary market increased $6.8 million in 1993 compared to
1992.
<PAGE>
OTHER EXPENSE
_____________
Total other expense amounted to $660.0 million compared to $569.6 million in
1993. As noted earlier, several one-time charges were recorded in the second
quarter. The merger/restructuring charge of $75.2 million reflected the costs
associated with executive contracts and a reduction in work force, the write-off
of duplicate computer and software costs, system conversion costs and losses
associated with the elimination of facility leases and equipment. Also taken
at that time, were other miscellaneous charges of $8.5 million which represented
goodwill and other real estate write-downs and other accrual related
adjustments.
Total other expense, excluding the above noted unusual expense items, amounted
to $576.3 million, an increase of $6.7 million or 1.2% when compared to the
prior year. This nominal expense growth is attributable to the cost savings
achieved by the Corporation in 1994 due to the merger. Salary and benefits
expense amounted to $323.9 million compared to $320.7 million, an increase of
$3.2 million or 1.0%. This slight increase primarily reflects the cost savings
associated with the elimination of duplicate job functions that occurred since
the May 31 Valley merger. Total salaries and benefit expense for the first
quarter of 1994 amounted to $84.2 million while the fourth quarter of 1994
amounted to $77.4 million.
Total net occupancy expense increased $.2 million in 1994 compared to the prior
year. The sale of branch facilities during the second half of the year resulted
in almost no growth in this expense category. Total equipment expense amounted
to $59.6 million for the year ended December 31, 1994 compared to $57.9 million
in the prior year, and increase of 2.9%. The increased cost associated with the
need for more computer capacity, data storage devices and other data processing
equipment by M&I Data Services (DSI), our data processing company, did not
totally offset the cost savings associated with the merger. In the fourth
quarter of 1994, M&I Data Services opened a second computer facility. The
increased cost of this site will be fully reflected in 1995. Processing,
supplies and printing expenses were not affected by the merger and were higher
in 1994 compared to the prior year due primarily to increased business by DSI.
Professional services expense increased in 1994 compared to the prior year due
to a $1.1 million accrual adjustment recognized in the second quarter of 1994.
As noted in the past, M&I Data Services has been a large contributor to the
Corporation's overall expense growth. As part of the Valley merger, Valley's
data processing and operations subsidiary which performed data processing and
operational functions for their affiliated companies only, was merged into DSI.
While DSI continues to grow and expand, the merger efficiencies have resulted
in DSI's expense growth in 1994 to be slower than historically reported.
Other miscellaneous expense amounted to $96.1 million in 1994 compared to $88.9
million in 1993 and included goodwill and other real estate write-downs of $5.3
million taken in the second quarter of 1994. Software expense increased $1.1
million or 13.9% in 1994 compared to the prior year, while postage and delivery
expense increased from $12 million in 1993 to $13.3 million in the current year.
<PAGE>
Total other expense amounted to $569.6 million in 1993 compared to $545.6
million in 1992, an increase of $24.0 million or 4.4%. Salaries and benefits
expense, the largest contributor to other expense, increased $21.2 million in
1993 compared to the prior year.
Our data processing subsidiary continued to be the major factor in the increase.
Increased employment which included the purchase of a data center in the
Southeast contributed to higher salaries and benefit expense. Equipment expense
which increased 8.3% in 1993 compared to 1992 and higher processing expense are
also attributable to DSI. An increase in DSI's customer base caused a need for
more computer capacity and other related equipment. The outsourcing of certain
record retention functions caused processing expense to increase.
Professional fees increased $1.0 million in 1993 compared to the prior year and
reflects the costs associated with complying with additional governmental and
accounting regulations.
Other miscellaneous expense amounted to $88.9 in 1993 compared to $95.7 million
in 1992. During 1993, the amount of expense capitalized for software
development and conversions, net of amortization, exceeded the amount recorded
in 1992 by approximately $8.0 million. Of the net increase, $4.9 million
related to costs associated with conversions of new customers to our data
processing systems while $3.1 million related to increased software development
work.
INCOME TAX PROVISION
____________________
The provision for income taxes was $73.4 million in 1994 compared to $93.2
million in 1993 and $75.4 million in 1992. The decrease in 1994 when compared
to the prior year was due to lower pretax income, offset somewhat by an increase
in nondeductible expenses due to the merger/restructuring and a decline in tax
exempt income. The provision for income taxes in 1993 compared to the prior
year was higher due to higher pretax earnings, a decline in tax exempt income
and the increase in the Federal income tax rate from 34% in 1992 to 35% in 1993.
ASSET/LIABILITY MANAGEMENT
__________________________
Asset/Liability management involves the funding and investment strategies
necessary to maintain an appropriate balance between interest sensitive assets
and liabilities as well as to assure adequate liquidity. These strategies
determine the characteristics and mix of the balance sheet. They affect net
interest margins, maturity patterns, interest rate sensitivity and risk, as well
as resource allocations.
The Corporation combines the active management of the balance sheet position
over interest rate cycles to confine interest rate risk within prudent
parameters. Financial derivative instruments are used on a limited basis and
are generally straightforward and involve little complexity. We position the
balance sheet in a manner which will match asset and liability repricing
schedules to insulate our net interest margin from cyclical swings in interest
rates, while consciously matching or mismatching discretionary asset and
liability repricing schedules to take advantage of interest rate swings over
short periods of time.
<PAGE>
Adequate funding sources are maintained through a full line of deposit and
short-term borrowing products, competitively priced to a diversified customer
base. Asset diversification provides a proper mix of variable and fixed rate
loans, while investment decisions are primarily designed to balance the overall
interest rate risk in the balance sheet. Liquidity is provided through
marketability and an appropriate schedule of maturing investments.
A portion of demand deposits are considered rate sensitive under the following
assumptions. A core amount of demand deposits is calculated at the beginning
of each year. This core number is the average of the previous six months actual
and upcoming twelve months forecasted balances. The core balance is considered
nonrate sensitive and classified as a nonrate sensitive liability in the "1
year +" time frame. Actual demand deposit balances are compared to the core
balance monthly. The difference, positive or negative, is considered rate
sensitive and classified as a rate sensitive liability. At December 31, 1994,
$285 million of demand deposits were classified as rate sensitive in the "1-30
Days" time frame. In addition, a percentage of various interest-bearing
accounts are classified (rate sensitive or nonrate sensitive) according to
assumptions which approximate the extent to which the rates on these accounts
are expected to increase (decrease) relative to a change in the general level
of interest rates.
<PAGE>
ASSET/LIABILITY MANAGEMENT
__________________________
($ in millions)
1-30 31-90 91-180 181-364 1
Days Days Days Days Subtotal Year + Total
_____________________________________________________________________________
Loans $3,026 $ 679 $ 588 $ 952 $5,245 $3,394 $8,639
Securities 17 131 203 319 670 1,625 2,295
Other Interest
Bearing Assets 346 -- -- -- 346 -- 346
Other Assets -- -- -- -- -- 1,333 1,333
_____________________________________________________________________________
Total Assets $3,389 $ 810 $ 791 $1,271 $6,261 $6,352 $12,613
Rate Sensitive
Liabilities $3,719 $ 452 $ 605 $ 940 $5,716 $3,634 $9,350
Nonrate Sensitive
Liabilities -- -- -- -- -- 3,263 3,263
_____________________________________________________________________________
Total Liabilities
& Equity $3,719 $ 452 $ 605 $ 940 $5,716 $6,897 $12,613
Gap (330) 358 186 331 (545)
Cumulative Gap (330) 28 214 545
Cumulative Gap as a
% of Total Assets -2.62% 0.22% 1.70% 4.32%
<PAGE>
CAPITAL RESOURCES
_________________
Shareholders' equity was $1.06 billion at December 31, 1994 compared to $1.11
billion at December 31, 1993. This decrease was partially due to the repurchase
of treasury shares which amounted to $99.3 million in 1994. The impact of the
adoption of FAS 115 on January 1, 1994 and change in the interest rate
environment throughout 1994 also resulted in a decrease in shareholders' equity
of $34.1 million at December 31, 1994.
The Corporation continues to have a strong capital base and its regulatory
capital ratios are significantly above the defined minimum regulatory ratios.
At December 31, 1994, the Corporation had a total risk-based capital ratio of
13.62% and a 11.15% core capital to risk-based asset ratio. Selected leverage
capital ratios must also be maintained. The Corporation's leverage ratio at
December 31, 1994 was substantially in excess of the minimum 3% to 5%
guidelines.
The Corporation's subsidiaries, primarily its banking subsidiaries, are
restricted by regulations from making dividend distributions above prescribed
amounts. In addition, banking subsidiaries are limited in making loans and
advances to the Corporation. At December 31, 1994 approximately $165.2 million
and $93.3 million were available for distribution without regulatory approval
from the Corporation's banking and nonbanking subsidiaries, respectively.
Under Federal Reserve Board policy, the Corporation is expected to act as a
source of financial strength to each subsidiary bank and to commit resources to
support each subsidiary bank in circumstances when it might not do so absent
such policy.
In May of 1994, $16.4 million of 8.5% convertible subordinated notes were
converted into 1,870,057 shares of common stock. As provided for in the note
agreement, the noteholder, subsequent to conversion, exchanged the common shares
acquired by conversion of the debt for 163,630 shares of Series A preferred
stock.
The Corporation has a Stock Repurchase Program which was approved by the
Corporation's Board of Directors in April, 1993 and reaffirmed in October, 1994.
In October 1994, the Board of Directors also authorized an increase in the
number of shares to be repurchased through 1995 from 9.0 million shares to 15.1
million shares. The shares are being acquired in anticipation of the remaining
conversion of the Corporation's 8.5% convertible subordinated notes, to fund the
on-going program to deliver or have available shares of common stock for stock
option and other employee benefit plans and other corporate needs. During 1994
the Corporation purchased 4.8 million shares and has cumulatively purchased 9.8
million shares since inception of the program.
It is anticipated that the Corporation will register additional debt securities
with the Securities and Exchange Commission in the near future in order to
maintain ready access to funding sources for general corporate purposes which
include, but are not limited to, refinancing existing Corporate debt as it
matures, and other corporate needs.
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data For Years
Ended December 31, 1994, 1993, and 1992
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<PAGE>
Consolidated Balance Sheets
December 31 ($000's except share data)
1994 1993
---------- ----------
Assets
------
Cash and Cash Equivalents:
Cash and Due from Banks $ 685,919 $ 667,114
Funds Sold and Security
Resale Agreements 205,248 49,336
Money Market Funds 76,724 68,184
---------- ----------
Total Cash and Cash Equivalents 967,891 784,634
Trading Securities, at Market Value 20,361 2,852
Other Short-term Investments, at Cost which
Approximates Market Value 43,519 50,121
Investment Securities Available for Sale, at
Market Value in 1994, Amortized cost in 1993,
(Market Value $2,261,117 in 1993) 1,865,147 2,237,158
Investment Securities Held to Maturity,
Market Value $419,521 ($341,877 in 1993) 429,456 335,400
Loans, Net of Unearned Income of $39,569
($41,094 in 1993) 8,792,492 8,617,372
Less: Allowance for Loan Losses 153,961 133,600
---------- ----------
Net Loans 8,638,531 8,483,772
Premises and Equipment 286,435 299,801
Accrued Interest and Other Assets 361,609 292,199
------------ -----------
Total Assets $12,612,949 $12,485,937
============ ===========
<PAGE>
Consolidated Balance Sheets
December 31 ($000's except share data) - continued
1994 1993
---------- ----------
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Noninterest Bearing $ 2,199,016 $ 2,290,233
Interest Bearing 7,300,064 7,881,576
---------- ----------
Total Deposits 9,499,080 10,171,809
Short-term Borrowings 1,111,142 716,716
Accrued Expenses and Other Liabilities 287,654 248,481
Long-term Borrowings 653,777 234,418
---------- ----------
Total Liabilities 11,551,653 11,371,424
Shareholders' Equity:
Series A Convertible Preferred Stock,
$1.00 par value, 3,000,000 Shares Authorized,
(500,000 in 1993) 348,944 Shares Issued
(185,314 in 1993); Liquidation Preference
$34,894 ($18,531 in 1993) 349 185
Common Stock, $1.00 par value, 160,000,000 Shares
Authorized, 99,494,335 Shares Issued
(102,073,005 in 1993) 99,494 102,073
Additional Paid-in Capital 194,697 238,130
Retained Earnings 945,469 897,123
Less: Treasury Stock, at Cost, 6,964,920
Shares (5,821,786 in 1993) 143,438 121,106
Deferred Compensation 1,203 1,892
Net Unrealized Securities Losses
Net of Tax 34,072 --
---------- ----------
Total Shareholders' Equity 1,061,296 1,114,513
----------- -----------
Total Liabilities and Shareholders' Equity $12,612,949 $12,485,937
=========== ===========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Statements of Income
Years ended December 31 ($000's except share data)
Interest Income 1994 1993 1992
--------------- --------- -------- --------
Loans $ 681,085 $643,679 $665,634
Investment Securities:
Taxable 110,894 123,207 139,302
Exempt from Federal Income Taxes 16,693 20,692 31,946
Trading Securities 218 186 260
Other Short-term Investments 8,416 5,713 13,897
--------- -------- --------
Total Interest Income 817,306 793,477 851,039
Interest Expense
----------------
Deposits 255,861 272,100 334,443
Short-term Borrowings 39,681 18,010 17,606
Long-term Borrowings 30,537 23,088 26,439
--------- -------- --------
Total Interest Expense 326,079 313,198 378,488
--------- -------- --------
Net Interest Income 491,227 480,279 472,551
Provision for Loan Losses 24,907 18,034 23,546
--------- -------- --------
Net Interest Income After Provision for
Loan Losses 466,320 462,245 449,005
Other Income
------------
Data Processing Services 159,418 135,041 112,056
Trust Services 59,720 61,226 58,050
Other Customer Services 117,089 124,505 114,164
Net Securities Gains (Losses) (5,752) 8,334 9,207
Other 31,006 42,820 34,934
--------- -------- --------
Total Other Income 361,481 371,926 328,411
Other Expense
-------------
Salaries and Employee Benefits 323,904 320,717 299,540
Net Occupancy 36,579 36,389 35,415
Equipment 59,569 57,863 53,438
Payments to Regulatory Agencies 23,359 23,142 22,595
Processing Charges 18,293 17,379 15,079
Supplies and Printing 14,416 13,169 12,841
Professional Services 12,504 12,036 11,034
Merger/Restructuring 75,228 -- --
Other 96,146 88,892 95,682
--------- -------- --------
Total Other Expense 659,998 569,587 545,624
--------- -------- --------
<PAGE>
Consolidated Statements of Income
Years ended December 31 ($000's except share data) - continued
1994 1993 1992
--------- -------- --------
Income Before Income Taxes,
Extraordinary Items, and
Cumulative Effect of Changes
in Accounting Principles 167,803 264,584 231,792
Provision for Income Taxes 73,405 93,190 75,391
--------- -------- --------
Income Before Extraordinary Items
and Cumulative Effect of Changes
in Accounting Principles 94,398 171,394 156,401
Extraordinary Items, Net of Income Taxes 11,542 -- --
Cumulative Effect of Changes in
Accounting Principles, Net of Income Taxes -- -- (9,134)
---------- -------- --------
Net Income $ 105,940 $171,394 $147,267
========== ======== ========
Net Income Per Common Share
---------------------------
Primary:
Income Before Extraordinary Items
and Cumulative Effect of Changes
in Accounting Principles $ 0.95 $ 1.67 $ 1.55
Extraordinary Items 0.12 -- --
Cumulative Effect of Changes in
Accounting Principles -- -- (.09)
--------- -------- --------
Net Income $ 1.07 $ 1.67 $ 1.46
========= ======== ========
Fully Diluted:
Income Before Extraordinary Items
and Cumulative Effect of Changes
in Accounting Principles $ 0.93 $ 1.60 $ 1.48
Extraordinary Items 0.11 -- --
Cumulative Effect of Changes in
Accounting Principles -- -- (.08)
--------- ------- ------
Net Income $ 1.04 $ 1.60 $ 1.40
========= ======= ======
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Statements of Cash Flows
Years ended December 31 ($000's)
1994 1993 1992
---------- ---------- ----------
Cash Flows From Operating Activities
Net Income $ 105,940 $ 171,394 $ 147,267
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization 71,957 57,058 41,377
Provision for Loan Losses 24,907 18,034 23,546
Gains on Sales of Assets ( 2,434) (21,487) (19,307)
Proceeds from Sales of Trading
Securities and Loans Held for
Resale 3,657,575 3,192,622 3,330,463
Purchases of Trading Securities and
Loans Held for Resale (3,547,732) (3,220,184) (3,394,249)
Other (2,765) (6,743) (20,291)
---------- ---------- ----------
Total Adjustments 201,508 19,300 (38,461)
---------- ---------- ----------
Net Cash Provided by Operating
Activities 307,448 190,694 108,806
Cash Flows From Investing Activities
Net Decrease in Shorter
Term Securities 7,676 53,244 59,217
Proceeds from Maturities of Longer
Term Securities 861,428 1,742,984 1,400,797
Proceeds from Sales of Securities
Available for Sale 595,476 29,892 58,393
Purchases of Longer Term
Securities (1,254,651) (1,419,314) (1,843,079)
Decrease in Loans
Due to Divestitures 199,455 -- --
Net Increase in Loans (497,075) (543,812) (199,223)
Purchases of Assets to be Leased (88,826) (94,187) (95,964)
Principal Payments on
Lease Receivables 113,976 105,352 96,062
Purchases of Premises and Equipment,
Net (28,995) (65,731) (48,039)
Other (29,829) (10,431) 37,482
---------- ---------- ----------
Net Cash Used in Investing
Activities (121,365) (202,003) (534,354)
Cash Flows From Financing Activities
Decrease in Deposits
Due to Divestitures (300,736) -- --
Net Increase (Decrease)
in Deposits (371,993) 33,124 201,431
Proceeds from Issuance of
Commercial Paper 1,578,618 1,348,661 597,794
Principal Payments on
Commercial Paper (1,604,384) (1,325,634) (522,616)
Net Increase (Decrease) in Other
Short-term Borrowings 440,501 53,320 (62,085)
Proceeds from Issuance of Long-term
Debt 497,560 116,959 53,121
Payment of Long-term Debt (96,299) (63,718) (103,300)
Dividends Paid (57,575) (54,435) (48,060)
Purchase of Common Stock (101,887) (114,686) (99)
Proceeds from the Issuance of
Common Stock 11,682 19,887 37,820
Other 1,687 (630) 401
---------- ---------- ----------
Net Cash Provided by (Used in) Financing
Activities (2,826) 12,848 154,407
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 183,257 1,539 (271,141)
Cash and Cash Equivalents, Beginning
of Year 784,634 783,095 1,054,236
---------- ---------- ----------
Cash and Cash Equivalents,
End of Year $ 967,891 $ 784,634 $ 783,095
========== ========== ==========
Supplemental Cash Flow Information:
Cash Paid During the Year for:
Interest $ 319,398 $ 313,073 $ 395,870
Income Taxes 91,797 88,398 84,948
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
($000's except share data)
<TABLE>
<CAPTION>
Additional Treasury Deferred
Preferred Common Paid-in Retained Common Compen-
Stock Stock Capital Earnings Stock sation
------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991,
as Previously Reported $ 185 $ 22,064 $ 92,583 $588,973 $ 26,195 $ 2,608
Adjustment to Retroactively Restate for
1994 Business Combination Accounted for
as a Pooling of Interests -- 7,021 170,756 92,072 -- --
----- ------- ------- ------- -------- -------
Balance, December 31, 1991, Restated 185 29,085 263,339 681,045 26,195 2,608
Net Income -- -- -- 147,267 -- --
Transactions by Affiliates Prior to
Combination -- -- -- (16,426) -- --
Issuance of 32,558 Common Shares on Conversion
of Convertible Notes -- 32 345 -- -- --
Issuance of 355,463 Common Shares Under
Stock Option and Restricted Stock Plans -- 96 1,907 -- (7,589) --
Acquisition of 5,148 Common Shares -- -- -- -- 192 --
Acquisition of Savings Associations -- 575 29,290 -- -- --
Dividends Declared on Preferred Stock -
$5.08 Per Share -- -- -- (942) -- --
Dividends Declared on Common Stock -
$0.48 Per Share -- -- -- (30,692) -- --
Net Change in Deferred Compensation -- -- -- -- -- 527
Other -- -- 2,571 (75) -- --
----- -------- -------- -------- -------- -------
Balance, December 31, 1992 $ 185 $ 29,788 $297,452 $780,177 $18,798 $3,135
</TABLE>
<PAGE>
Consolidated Statements of Shareholders' Equity
($000's except share data)
<TABLE>
<CAPTION>
Additional Treasury Deferred
Preferred Common Paid-in Retained Common Compen-
Stock Stock Capital Earnings Stock sation
------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 185 $ 29,788 $297,452 $780,177 $ 18,798 $ 3,135
Net Income -- -- -- 171,394 -- --
3 for 1 Stock Split Effected in the Form
of a 200% Stock Dividend -- 59,576 (59,576) -- -- --
Transactions by Affiliates Prior to
Combination -- 11,513 (11,513) (19,014) -- --
Issuance of 134,150 Common Shares on Conversion
of Convertible Notes -- 134 383 -- -- --
Issuance of 2,228,186 Common Shares Under
Stock Option and Restricted Stock Plans -- 1,062 3,230 -- (15,582) --
Acquisition of 5,053,317 Common Shares -- -- -- -- 117,890 --
Dividends Declared on Preferred Stock -
$5.76 Per Share -- -- -- (1,067) -- --
Dividends Declared on Common Stock -
$0.54 Per Share -- -- -- (34,354) -- --
Net Change in Deferred Compensation -- -- -- -- -- (1,243)
Other -- -- 8,154 (13) -- --
----- -------- -------- --------- -------- ---------
Balance, December 31, 1993 $ 185 $102,073 $238,130 $897,123 $121,106 $1,892
</TABLE>
<PAGE>
Consolidated Statements of Shareholders' Equity
($000's except share data)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Treasury Deferred Securities
Preferred Common Paid-in Retained Common Compen- Gains (Losses)
Stock Stock Capital Earnings Stock sation Net of Taxes
------- -------- --------- -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 185 $102,073 $238,130 $897,123 $121,106 $ 1,892 --
Net Income -- -- -- 105,940 -- -- --
Adoption of Statement of Financial Accounting
Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" -- -- -- -- -- -- (13,858)
Issuance of 2,653,689 Treasury Shares
in the 1994 Business Combination -- (2,654) (52,569) -- (55,223) -- --
Transactions by Affiliates Prior to
Combination -- -- -- (9,963) -- -- --
Issuance of 1,870,057 Treasury Common Shares
on Conversion of Convertible Notes -- -- (22,365) -- (38,916) -- --
Issuance of 163,630 Preferred Shares on
Conversion of 1,870,057 Common Shares 164 -- 38,752 -- 38,916 -- --
Issuance of 1,154,218 Common Shares Under
Stock Option and Restricted Stock Plans -- 78 (10,628) -- (22,294) -- --
Acquisition of 4,827,637 Common Shares -- -- -- -- 99,271 -- --
Dividends Declared on Preferred Stock -
$6.43 Per Share -- -- -- (2,000) -- -- --
Dividends Declared on Common Stock -
$0.59 Per Share -- -- -- (45,612) -- -- --
Net Change in Deferred Compensation -- -- -- -- -- (689) --
Net Change in Unrealized Securities (Gains) Losses
Net of Taxes -- -- -- -- -- -- 47,930
Other -- (3) 3,377 (19) 578 -- --
------- -------- -------- -------- -------- ------- -------
Balance, December 31, 1994 $ 349 $ 99,494 $194,697 $945,469 $143,438 $ 1,203 $34,072
======= ======== ======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992 ($000's except share data)
1. Summary of Significant Accounting Policies
Consolidation principles - The Consolidated Financial Statements include the
accounts of Marshall & Ilsley Corporation (the "Corporation") and all
subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. Certain amounts in the 1993 and 1992 Consolidated
Financial Statements have been reclassified to conform with the 1994
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. Beginning in 1994,
Investment Securities Available for Sale are carried at fair value with fair
value adjustments and the related income tax effects reported as a separate
component of shareholders' equity in accordance with Statement of Financial
Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in
Debt and Equity Securities". Previously, Investment Securities Available for
Sale were carried at the lower of amortized cost or market. Short-term
Investments, other than Trading Securities, are carried at cost, which
approximates market value. Trading Securities are carried at market value, with
adjustments to the carrying value reflected in the Consolidated Statements of
Income.
Loans - Interest on loans, other than direct financing leases, is recognized as
income based on the loan principal outstanding during the period. Unearned
income on direct financing leases is recognized over the lease term on a basis
that results in an approximate level rate of return on the lease investment.
Loans are generally placed on nonaccrual status when they are past due 90 days
as to either interest or principal. When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is charged to interest income on
loans. A nonaccrual loan may be restored to an accrual basis when interest and
principal payments are brought current and collectibility of future payments is
not in doubt.
The Corporation defers and amortizes fees and certain incremental direct costs,
primarily salary and employee benefit expenses, over the contractual term of the
loan or lease as an adjustment to the yield. The unamortized net fees and costs
are reported as part of the loan balance outstanding.
<PAGE>
Allowance for loan losses - The allowance for loan losses is maintained at a
level believed adequate by management to absorb estimated potential losses in
the loan portfolio. Management's determination of the adequacy of the allowance
is based on a continual review of the loan portfolio, loan loss experience,
economic conditions, growth and composition of the portfolio, and other relevant
factors. As a result of management's continual review, the allowance is
adjusted through provisions for loan losses charged against income.
Premises and equipment - Premises and equipment are recorded at cost and
depreciated principally on the straight-line method with annual rates varying
from 2% to 10% for buildings and 10% to 35% for equipment. Maintenance and
repairs are charged to expense and betterments are capitalized.
Other real estate owned - Other real estate owned includes assets that have been
acquired in satisfaction of debts, accounted for as insubstance foreclosures,
or bank branch premises held for sale. Other real estate is recorded at the
lower of cost or fair value, less estimated selling costs, at the date of
transfer. Valuation adjustments required at the date of transfer for assets
acquired in satisfaction of debts or accounted for as insubstance foreclosures
are charged to the allowance for loan losses, whereas any valuation adjustments
on premises are reported in other expense. Subsequent to transfer, other real
estate owned is carried at the lower of cost or fair market value, less
estimated selling costs, based upon periodic evaluations. Rental income from
properties and gains on sales are included in other income, and property
expenses, which include carrying costs, required valuation adjustments and
losses on sales, are recorded in other expense.
Mortgage servicing - Normal fees related to the servicing of mortgage loans are
recorded as income when payments are received from mortgagors. Gains or losses
recognized on the sale of mortgage loans are adjusted to reflect any excess or
below market servicing fee generated at the time of sale. Mortgage loans held
for sale to investors are carried at the lower of cost or market, determined on
an aggregate basis, based on outstanding firm commitments received for such
loans or on current market prices.
Data processing services - Direct costs associated with the production of
computer software which will be marketed or used in data processing operations
are capitalized and amortized on the straight-line method over the estimated
economic life of the product, generally four years. Direct costs associated
with customer system conversions to the data services operations are capitalized
and amortized on the straight-line method over the terms, generally five to
seven years, of the related servicing contract. Routine maintenance of software
products, design costs and development costs incurred prior to establishment of
a product's technological feasibility are expensed as incurred. Net unamortized
capitalized costs were $21,696 at December 31, 1994, and $16,979 at December 31,
1993. Amortization expense was $6,960, $4,668, and $5,161, for 1994, 1993, and
1992, respectively.
Intangibles - Unamortized intangibles resulting from acquisitions, primarily
goodwill, core deposit premiums, purchased data processing contract rights and
purchased mortgage servicing rights were $64,171 at December 31, 1994 and
$58,647 at December 31, 1993. Purchased mortgage servicing rights are amortized
<PAGE>
primarily over the periods during which the corresponding mortgage servicing
revenues are anticipated to be generated. Adjustments for portfolio runoff in
excess of that originally anticipated are made in the period when the excess
runoff appears permanent. Purchased data processing contract rights represent
the costs to acquire the rights to data processing and software distribution.
Such costs are generally amortized over the average contract lives, which range
from 5 to 8 years. The other intangibles are amortized principally on the
straight-line method over periods ranging from 6 to 25 years. Total
amortization expense was $9,176, $7,204 and $7,159 for 1994, 1993 and 1992,
respectively. The Corporation continually evaluates whether later events and
circumstances have occurred to indicate that goodwill should be evaluated for
possible impairment and utilizes estimates of undiscounted net income over the
remaining life of the goodwill 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 $12,387 and $13,963 at December 31, 1994 and 1993, respectively.
The negative goodwill is being accreted on a straight-line basis over a period
of 10 years and amounted to $1,576 in 1994 and 1993 and $807 in 1992.
Foreign exchange contracts - Foreign exchange contracts include such commitments
as foreign currency spot, forward, future and, to a much lessor extent, option
contracts. Foreign exchange contracts and the premiums on options written or
sold are carried at market value, with realized and unrealized gains and losses
included in other income.
Stock split - Common stock per share and average share information for years
1992 and prior have been retroactively restated for the 3 for 1 stock split
effected in the form of a 200% stock dividend which was distributed to
shareholders in May 1993.
Net income per share - Primary net income per share is computed using the
weighted average number of common shares outstanding plus common equivalent
shares issuable upon the assumed conversion of the preferred stock outstanding
and shares issuable under outstanding stock option plans. The average number
of common and common equivalent shares used in computing primary net income per
share was 99,420,070 in 1994, 102,672,361 in 1993, and 101,028,932 in 1992.
Fully diluted net income per share also includes dilution resulting from the
assumed conversion of the convertible notes. The average number of shares used
in the computation of fully diluted net income per share was 104,051,365 in
1994, 108,874,600 in 1993, and 107,411,875 in 1992.
2. Business Combination
On May 31, 1994, Valley Bancorporation ("Valley") merged with and into the
Corporation in a tax-free reorganization accounted for as a pooling of
<PAGE>
interests. Accordingly, prior year financial statements have been restated to
give effect to this transaction. In accordance with the terms of the merger,
each share of Valley Common Stock was converted into the right to receive 1.72
shares of the Corporation's Common Stock (approximately 35.7 million shares).
A reconciliation of net interest income and net income of the Corporation as
previously reported to the amounts for that period in the accompanying Con-
solidated Financial Statements as restated for the 1994 pooling of interests is
as follows:
1993 1992
--------- --------
Net Interest Income:
Corporation, as previously reported $ 309,178 $ 307,805
Valley Bancorporation 171,101 164,746
Combined $ 480,279 $ 472,551
Net Income:
Corporation, as previously reported $ 125,491 $ 109,235
Valley Bancorporation 45,903 38,032
Combined $ 171,394 $ 147,267
The Corporation has also consummated the following business combinations:
Date Method of
Organization Consummated Cash Consideration Accounting
------------ ----------- ------------------ ----------
United Savings &
Loan Association,
S.S.B. July 1, 1992 -- Purchase
Pierce County Bank
and Trust Company November 6, 1993 $14,678 Purchase
Software Alliance
Corporation December 30, 1994 $15,700 Purchase
The results of operations for the acquired companies accounted for as purchases
are included in the Consolidated Financial Statements from the dates of
acquisition.
The Corporation will purchase the Bank of Burlington with assets of
approximately $171 million in February, 1995. The Corporation also has pending
applications to acquire Citizens Bancorp of Delavan and Sharon State Bank with
assets of approximately $95 million and $19 million, respectively. The
acquisitions of Citizens Bancorp of Delavan and Sharon State Bank are expected
to be completed during the first half of 1995.
<PAGE>
3. Merger/Restructuring
Certain one-time expenses associated with the 1994 merger with Valley are shown
in the consolidated statements of income as Merger/Restructuring and consist of
the following:
Executive contracts $26,371
Employee severance costs 14,775
Duplicative computer and software write-offs 12,741
System conversion and standardization costs 2,888
Investment advisor fees 3,420
Legal, accounting and other professional fees 3,826
Lease terminations and equipment disposals 4,232
Net gain on sale of duplicative facilities and
voluntary divestitures (1,334)
Other 8,309
-------
Total merger/restructuring $75,228
=======
The executive contracts accrual represents the present value of the amounts due
to certain Valley executives under their former employment contracts. During
1994, payments of $10.2 million were made and the remaining liability is
expected to be paid beginning in 1997.
Employee severance costs represents the planned general reduction in work force
resulting from the on-going merger and restructuring activities which affected
all employee groups. Since the merger was announced, the reduction in the
combined work force has been approximately 1,000 employees. The remaining
number of employees to be terminated in 1995 is not significant. The severance
policy, which was distributed to all employees, generally provides for a minimum
of 2 weeks of severance payments up to a maximum of 52 weeks depending upon
years of service and job classification with certain adjustments if subsequent
employment is found during the severance period. The amount expensed represents
the costs for all employees who have been formally notified of job loss and the
costs associated with other identified employees who have not been notified.
Approximately $8.6 million of severance costs were paid in 1994.
Duplicative computer and software write-offs represents the capitalized costs
of Valley's own internal data processing center which was closed. System
conversion and standardization costs represent the costs associated
with the one-time conversion and standardization of Valley's records to the
Corporation's data processing systems.
Investment advisors and legal, accounting and other professional fees represent
fees paid to consumate the mergers.
Lease terminations and equipment disposals represent the costs to terminate
branch office and other corporate facilities leases, equipment leases and the
<PAGE>
disposal of equipment that will no longer be used and includes such items as
lease buyout fees, write-offs of leasehold improvements and the write-down or
loss on disposal of equipment.
Net gain on sale of duplicative facilities and voluntary divestitures
represents the gain or loss from the sale of duplicative branch offices and
other corporate facilities which were owned. The Corporation voluntarily
divested 4 bank branches with deposits of approximately $34 million and certain
portions of its insurance agencies. The estimated net gain on the remaining
sales of excess facilities, which are not considered significant, will be
recorded when realized.
Other charges include the one-time expenses associated with the curtailment of
certain Valley defined benefit plans, approximately $3.3 million, costs to
eliminate duplicate customer accounts, unusable capitalized inventory and other
costs not deemed to be realizable due to the merger.
There have not been any material adjustments to the liabilities subsequent to
the initial recognition which occured during the second quarter of 1994.
4. Extraordinary Items
During the third and fourth quarters of 1994, the Corporation realized
extraordinary gains from the sale of certain bank branches with deposits of $267
million which were required to be divested in conjunction with the regulatory
approvals obtained for the merger with Valley.
During the third quarter of 1994, the Corporation prepaid $ 53 million of
Valley's long-term debt consisting of the senior unsecured notes, Series A 9.86%
due in 1994 and Series B 9.97% due in 1995. In accordance with the note
agreements, a prepayment premium was paid in connection with the early
retirement of the debt. The debt was refinanced with the Corporation's
medium-term notes.
The following table summarizes these 1994 transactions.
Income Earnings Per Share
Gross Tax Net Increase (Decrease)
Gain Expense Gain Fully
(Loss) (Benefit) (Loss) Primary Diluted
------- ------- ------- ------- -------
Required Divestitures $22,034 $9,527 $12,507 $0.13 $0.12
Debt Prepayment (1,484) (519) (965) (0.01) (0.01)
------- ------- ------- ------- -------
$20,550 $9,008 $11,542 $0.12 $0.11
======= ======= ======= ======= =======
<PAGE>
5. Changes in Method of Accounting
During 1992, the Corporation adopted Financial Accounting Standard No. 106
"Employers' Accounting for Postretirement Benefits, Other than Pensions" (FAS
106). This standard, which applies to the Corporation's employee health plans,
requires that the expected cost of these postretirement benefits be charged to
expense in the years the employees render the services necessary to earn their
benefits. The Corporation elected immediate recognition of the accumulated
postretirement benefit obligation at January 1, 1992.
The Corporation also adopted during 1992, Financial Accounting Standard No. 109
"Accounting for Income Taxes." Statement 109 requires a change from the
deferred method of accounting for income taxes to an asset and liability method.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect of the change in accounting for income taxes at January 1,
1992, amounted to a $4.8 million reduction of beginning net deferred tax
liabilities.
The following table summarizes the January 1, 1992 effects of these changes in
methods of accounting:
Earnings Per Share
Net Income Increase (Decrease)
Increase Primary Fully
(Decrease) Diluted
--------- ------- -------
Adoption of accounting
standard on postretirement
benefits, net of income tax
benefits of $8,852 $(13,937) $ (.14) $ (.13)
Adoption of accounting
standard on income taxes 4,803 .05 .05
-------- ------- ------
$ (9,134) $ (.09) $ (.08)
======== ======= ======
6. Cash and Due from Banks
At December 31, 1994, $166,500 of cash and due from banks was restricted,
primarily due to requirements of the Federal Reserve System to maintain certain
reserve balances.
<PAGE>
7. Other Short-term Investments
Other short-term investments at December 31 were:
1994 1993
-------- --------
Commercial paper $ 15,270 $ 22,550
Interest bearing deposits in other banks 28,249 27,571
-------- --------
Total other short-term investments $ 43,519 $ 50,121
======== ========
8. Securities
The book and market values of securities at December 31 were:
1994 1993
--------------------- --------------------
Amortized Market Amortized Market
Cost Value Cost Value
---------- -------- --------- ---------
Investment Securities Held to Maturity:
U.S. Treasury and government
agencies $134,080 $129,737 -- --
States and political
subdivisions 290,483 284,885 $326,154 $332,614
Mortgage backed securities -- -- 58 58
Other 4,893 4,899 9,188 9,205
----------- ---------- ---------- ----------
Total $429,456 $419,521 $335,400 $341,877
=========== ========== ========== ==========
Investment Securities Available for Sale:
U.S. Treasury and
government agencies $1,836,476 $1,772,883 $2,139,866 $2,149,011
Mortgage backed securities 12,099 11,759 -- --
Other 69,541 80,505 97,292 112,106
----------- ----------- ---------- ----------
Total $1,918,116 $1,865,147 $2,237,158 $2,261,117
=========== =========== ========== ==========
<PAGE>
The unrealized gains and losses of securities at December 31 were:
1994 1993
---------------------- ----------------------
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ----------
Investment Securities Held to Maturity:
U.S. Treasury and government
agencies -- $ 4,343 -- --
States and political
subdivisions $ 1,501 7,099 $ 7,681 $ 1,221
Mortgage backed securities -- -- -- --
Other 8 2 23 6
---------- ---------- ---------- ----------
Total $ 1,509 $ 11,444 $ 7,704 $ 1,227
========== ========== ========== ==========
Investment Securities Available for Sale:
U.S. Treasury and
government agencies $ 120 $ 63,713 $ 11,413 $ 2,268
Mortgage backed securities 14 354 -- --
Other 11,003 39 15,885 1,071
---------- ---------- ----------- ---------
Total $ 11,137 $ 64,106 $ 27,298 $ 3,339
========== ========== =========== =========
The book value and market value of securities by contractual maturity at
December 31, 1994 were:
Investment Securities Investment Securities
Held to Maturity Available for Sale
--------------------- ---------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- --------
Within one year $100,926 $100,911 $574,837 $568,849
From one through five years 255,254 247,290 1,274,556 1,217,250
From five through ten years 71,531 69,591 15,997 15,321
After ten years 1,745 1,729 52,726 63,727
--------- --------- ---------- ----------
Total $429,456 $419,521 $1,918,116 $1,865,147
========= ========= ========== ==========
<PAGE>
The gross realized gains and losses amounted to $3,499 and $9,251 in 1994 and
$8,552 and $218 in 1993, and $14,743 and $5,536 in 1992, respectively.
At December 31, 1994, securities with a value of approximately $348,058 were
pledged to secure public deposits, short-term borrowings, and for other purposes
required by law.
9. Loans
Loans at December 31 were:
1994 1993
---------- ----------
Commercial, financial, and agricultural $2,644,928 $2,538,830
Industrial development revenue bonds 31,796 45,889
Real estate:
Construction 378,316 333,609
Residential mortgage 2,240,287 2,223,857
Commercial mortgage 2,062,022 2,000,052
Personal 1,178,453 1,217,513
Lease financing 256,690 257,622
---------- ----------
Total loans $8,792,492 $8,617,372
========== ==========
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 $1,987 in foreign credits at December 31, 1994.
The Corporation's loan portfolio consists of business loans extending across
many industry types, as well as loans to individuals. As of December 31, 1994,
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 1994
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
<PAGE>
directors and executive officers and directors and executive officers of
subsidiaries previously not considered significant.
Balance, beginning of year $116,776
New loans 257,962
Repayments (227,040)
--------
Balance, end of year $147,698
========
An analysis of the allowance for loan losses follows:
1994 1993 1992
-------- -------- --------
Balance, beginning of year $133,600 $123,805 $105,156
Allowance of banks acquired -- 1,167 4,284
Provision charged to expense 24,907 18,034 23,546
Charge-offs (12,561) (17,466) (22,344)
Recoveries 8,015 8,060 13,163
-------- -------- --------
Balance, end of year $153,961 $133,600 $123,805
======== ======== ========
As of December 31, 1994, and 1993, nonaccrual loans totalled $44,766 and
$44,186, respectively. The effect of nonaccrual loans on net income in 1994,
1993, and 1992, was not significant.
During the second quarter of 1994, a loan loss provision of $8,950 was charged
to expense, after consummation of the merger with Valley, to conform Valley's
loan valuation policies with those of the Corporation.
In May 1993 and October 1994, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, an amendment to SFAS
No. 114. These new standards require that a loan's value be measured, and if
appropriate a valuation reserve established, when it has been determined that
the loan is impaired and loss is probable. These standards must be adopted by
the first quarter of 1995. Based upon the current status of the Corporation's
loan portfolio, it is not anticipated that these pronouncements will have a
material impact on the Consolidated Financial Statements.
<PAGE>
10. Premises and Equipment
The composition of premises and equipment at December 31 was:
1994 1993
-------- --------
Land $ 37,894 $ 42,076
Buildings and leasehold improvements 246,679 248,256
Furniture and equipment 288,507 286,311
-------- --------
573,080 576,643
Less accumulated depreciation 286,645 276,842
-------- --------
Total premises and equipment $286,435 $299,801
======== ========
Depreciation expense was $43,006 in 1994, $42,417 in 1993, and $37,171 in 1992.
The Corporation leases certain of its facilities and equipment. Rent expense
under such operating leases was $20,567 in 1994, $20,420 in 1993, and $19,925
in 1992, respectively.
The future minimum lease payments under operating leases that have initial or
remaining noncancellable lease terms in excess of one year for 1995 through 1999
are $6,909, $6,153, $5,861, $5,522, and $4,305, respectively.
11. Short-term Borrowings
Short-term borrowings at December 31 were:
1994 1993
-------- --------
Funds purchased and security repurchase
agreements $944,843 $515,028
U.S. Treasury demand notes 29,976 33,977
Commercial paper 74,526 100,292
Current maturities of long-term borrowings 37,286 63,148
Other 24,511 4,271
---------- --------
Total short-term borrowings $1,111,142 $716,716
========== ========
Unused lines of credit primarily to support commercial paper borrowings were
$40,000 at December 31, 1994 and $55,000 at December 31, 1993.
<PAGE>
12. Long-term Borrowings
Long-term borrowings at December 31 were:
Corporation: 1994 1993
-------- --------
Senior unsecured notes, Series A
9.86% -- $ 23,000
Senior unsecured notes, Series B
9.97% -- 30,000
8.5% convertible subordinated notes due in 1997 $ 33,637 50,000
6.375% subordinated notes due in 2003 99,422 99,373
Medium-term Series B and C notes 183,700 38,000
Subsidiaries:
Bank notes 308,638 --
Nonrecourse notes 33,043 34,116
Mortgages 3,086 4,196
9.75% obligation under capital lease
due through 2006 4,939 5,156
Other 24,598 13,725
-------- --------
691,063 297,566
Less current maturities 37,286 63,148
-------- --------
Total long-term borrowings $653,777 $234,418
======== ========
During 1994 the Corporation elected to prepay the Senior Series A and B notes.
In accordance with the note agreements, the Corporation paid a premium of $1,484
to retire the debt. See Note 4, Extraordinary Items.
The 8.5% convertible subordinated notes (the "Notes") require semi-annual
interest payments and are convertible at the option of the holder into common
stock at a conversion price of $8.75. The holder has the right to exchange
common stock, acquired by conversion of the Notes or otherwise, for Series A
convertible preferred stock ("Series A"). The holder may own up to 24.9%
(computed as the percentage of common shares owned directly or indirectly
through conversion privileges) of the Corporation's outstanding common stock and
convertible securities, but may not own directly more than 5% of the
Corporation's outstanding common stock. Except under limited circumstances, the
holder may not sell, transfer or otherwise dispose of the Notes or common stock
acquired by conversion, and then, only under prescribed conditions and subject
to the Corporation's right of first refusal.
<PAGE>
A portion of the Notes qualify as equity contract notes as defined by the
applicable guidelines of the Board of Governors of the Federal Reserve System.
The Notes require the holder to take common stock (or other equity securities)
in lieu of cash in satisfaction of the claim for principal repayment, unless the
Corporation sells new common stock (or certain other equity securities) and
dedicates the proceeds thereof to the redemption or retirement of the Notes.
During 1994, $16,363 of the Notes were converted by the holder into 1,870,057
shares of the Corporation's common stock. The common stock acquired by
conversion of the Notes was exchanged for 163,630 shares of the Corporation's
Series A convertible preferred stock. These are noncash transactions for
purposes of the Consolidated Statements of Cash Flows.
In July 1993, the Corporation issued $100 million of unsecured subordinated
notes at a price of 99.351%. Interest is payable semiannually in January and
July of each year and the notes mature July 15, 2003. The notes are not
redeemable prior to maturity and qualify as "Tier 2" or supplementary capital
for regulatory capital purposes.
The Corporation has filed registration statements with the Securities and
Exchange Commission to issue up to $100 million of medium-term unsecured and
unsubordinated Series B and up to $150 million of medium-term unsecured and
unsubordinated Series C notes. Both issues have maturities which range from 9
months to 30 years from the date of issue, at a fixed or floating rate.
At December 31, 1994, medium-term Series B notes outstanding amounted to
$60,830. Such notes mature in 1995 through 1998 and have fixed interest rates
of 4.60% to 8.65%. No additional borrowings may occur under the Series B notes.
There were $122,870 of medium-term Series C notes outstanding at December 31,
1994. The medium-term Series C notes have fixed interest rates of 6.74% to
7.84% and mature in 1996 and 1997. Approximately $27,130 of unissued Series C
notes are remaining and available to be issued in the future.
The bank notes represent unsecured general obligations of the Corporation's
banking subsidiaries "Issuing Banks". Each of the Corporation's banking
subsidiaries is a potential Issuing Bank which may issue bank notes with
maturities ranging from 30 days to 15 years at a fixed or floating rate up to
a maximum of $1.0 billion aggregate principal amount outstanding at any time.
The bank notes are offered through certain designated agents and are offered and
sold only to institutional investors. The bank notes are sole obligations of
the respective Issuing Banks and are not obligations of or guaranteed by the
Corporation. The amount outstanding at December 31, 1994 represents the
aggregate borrowings of 12 banking subsidiaries and mature at various times in
May through October, 1996. Each bank note outstanding has a floating rate which
is based on LIBOR plus 1/16 which ranged from 6.00% to 6.19% at December 31,
1994. Interest is payable and the interest rate is reset monthly.
The nonrecourse notes are reported net of prepaid interest and represent
borrowings by the leasing subsidiary from banks and other financial
institutions. These notes have a weighted average interest rate of 8.45% at
December 31, 1994, and are due in installments over varying periods through
<PAGE>
2001. Lease financing receivables at least equal to the amount of the notes are
pledged as collateral.
The mortgages are secured by land and buildings with a net book value of $8,748
at December 31, 1994.
Scheduled maturities of long-term borrowings are: $390,135, $150,719, $5,912,
and $1,923 for 1996 through 1999, respectively.
13. Shareholders' Equity
The Corporation has 5,000,000 shares of preferred stock authorized, of which the
Board of Directors has designated 3,000,000 shares as Series A convertible, with
a $100 value per share for conversion purposes. Series A is nonvoting preferred
stock. The same cash dividends will be paid on Series A as would have been paid
on the common stock exchanged for Series A. Series A has the same restrictions
on sale as are applicable to the 8.5% convertible subordinated notes.
The holder of the convertible subordinated notes has the option through 1997 to
exchange common stock of the Corporation for Series A. If the common stock is
acquired by the holder in conversion of the Notes, the exchange ratio is one
share of Series A for 11.43 shares of common stock. If acquired otherwise, the
exchange ratio is one share of Series A, valued at $100, to the holder's
weighted average purchase price per common share. Also, the holder has the
option to convert Series A into common stock at the same ratio that the common
stock was exchanged for Series A. The Corporation has issued 348,944 shares of
its Series A convertible preferred stock in exchange for 3,832,957 shares of
common stock.
The preferred stock is treated as a common stock equivalent in all per share
calculations.
The Corporation has a Stock Repurchase Program which was approved by the
Corporation's Board of Directors in April, 1993 and reaffirmed in October, 1994.
In October 1994, the Board of Directors also authorized an increase in the
number of shares to be repurchased through 1995 from 9.0 million shares to 15.1
million shares. The shares are being acquired in anticipation of the conversion
of the Corporation's 8.5% convertible subordinated notes, to fund the on-going
program to deliver or have available shares of common stock for stock option and
other employee benefit plans and other corporate needs. During 1994 the
Corporation purchased 4.8 million shares and has cumulatively purchased 9.8
million shares since inception of the program.
Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and off-
balance sheet activities. All banks and bank holding companies must meet a
minimum total risk-based capital ratio of 8%. Of the 8% required, half must be
comprised of core capital elements defined as Tier 1 capital. The federal
banking agencies also have adopted leverage capital guidelines which banking
organizations must meet. Under these guidelines, the most highly rated banking
organizations must meet a minimum leverage ratio of at least 3% Tier 1 capital
to total assets, while lower rated banking organizations must maintain a ratio
of at least 4% to 5%.
<PAGE>
The Corporation's risk-based capital and leverage ratios are as follows:
RISK-BASED CAPITAL RATIOS
As of December 31, 1994
($ in millions)
Amount Ratio
------ -----
Tier 1 capital $1,040 11.15%
Tier 1 capital
minimum requirement 373 4.00
------ -----
Excess $ 667 7.15%
====== =====
Total capital $1,270 13.62%
Total capital
minimum requirement 746 8.00
------ -----
Excess $ 524 5.62%
====== =====
Risk-adjusted assets $9,331
LEVERAGE RATIO
as of December 31, 1994
($ in millions)
-----------------------------
Amount Ratio
-------- -----------
Tier 1 capital to
adjusted total assets $ 1,040 8.39%
Minimum leverage
requirement 372-620 3.00 - 5.00
-------- -----------
Excess $668-420 5.39 - 3.39%
======== ===========
Adjusted average total assets $ 12,392
<PAGE>
All of the Corporation's banking subsidiaries' risk-based capital and leverage
ratios meet or exceed the defined minimum requirements.
Banking subsidiaries are restricted by banking regulations from making dividend
distributions above prescribed amounts and are limited in making loans and
advances to the Corporation. At December 31, 1994, the retained earnings of
subsidiaries available for distribution as dividends without regulatory approval
was approximately $258,509.
<PAGE>
14. Income Taxes
Total income tax expense for the years ended December 31, 1994, 1993 and 1992
was allocated as follows:
1994 1993 1992
------- ------- --------
Income before extraordinary items
and cumulative changes in
accounting $73,405 $93,190 $75,391
Extraordinary items 9,008 -- --
Cumulative effects of changes in accounting -- -- (13,655)
Shareholders' Equity:
Compensation expense for tax purposes
in excess of amounts recognized for
financial reporting purposes (3,442) (8,154) (2,571)
Unrealized losses on investment
securities available for sale (18,897) -- --
------- ------- -------
$60,074 $85,036 $59,165
======= ======= =======
As discussed in Note 5, the Corporation adopted Financial Accounting Standard
No. 109 in 1992. This change had no significant effect on net income, excluding
the cumulative effect, in 1992.
<PAGE>
The current and deferred portions of the provision for income taxes were:
1994 1993 1992
-------- ------- -------
Current:
Federal $ 80,758 $81,561 $71,896
State 12,686 14,746 13,272
-------- ------- -------
93,444 96,307 85,168
Deferred:
Federal (21,075) (3,412) (9,545)
State 1,036 295 (232)
-------- -------- -------
(20,039) (3,117) (9,777)
-------- -------- -------
Total provision for income taxes $73,405 $93,190 $75,391
======== ======== =======
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% in 1994 and 1993 and 34% in 1992, respectively):
1994 1993 1992
------- ------- -------
Tax computed at statutory rates $58,731 $92,604 $78,809
Increase (decrease) in taxes
resulting from:
Federal tax-exempt income (5,972) (7,714) (11,622)
State income taxes,
net of Federal tax benefit 10,605 9,832 9,039
Adjustment to deferred tax
assets/liabilities for an
enacted change in tax rate -- (469) --
Merger/Restructuring 7,191 -- --
Other 2,850 (1,063) (835)
------- ------- -------
Total provision for income taxes $73,405 $93,190 $75,391
======= ======= =======
<PAGE>
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:
1994 1993
------- ---------
Deferred tax assets:
Deferred compensation $ 8,170 $ 7,996
Allowance for loan losses 43,537 36,016
Accrued postretirement benefits 14,275 11,769
Purchase accounting adjustments -- 1,046
Unrealized gains and losses 18,897 --
Other 26,504 16,928
------- ---------
Total deferred tax assets 111,383 73,755
Deferred tax liabilities:
Lease revenue reporting 20,683 21,015
Deferred expense, net of unearned
income 5,563 7,224
Fixed assets, principally due to
depreciation 17,683 17,839
Pension funding versus expense 1,833 3,143
Purchase accounting adjustments 336 --
Other 6,122 4,306
------- ---------
Total deferred tax liabilities 52,220 53,527
------- ---------
Net deferred tax assets $59,163 $ 20,228
======= =========
The amount of income tax expense (benefit) related to net securities gains or
losses amounted to ($2,171), $3,103, and $3,675, in 1994, 1993, and 1992,
respectively.
15. Stock Option and Restricted Stock Plans
The Corporation has Executive Stock Option and Restricted Stock Plans which
provide for the grant of nonqualified and incentive stock options, stock
appreciation rights and rights to purchase restricted shares to key employees
at prices ranging from not less than the par value of the common shares to the
fair market value of the shares at the date of grant.
<PAGE>
Activity relating to common stock options was:
Number Option Price
Of Shares Per Share
--------- ---------------
Shares under option at December 31, 1992 7,802,794 $ 3.35 - 19.92
Options granted 839,040 15.38 - 23.25
Options lapsed or surrendered (18,215) 9.34 - 19.50
Options exercised (2,228,186) 3.35 - 19.50
--------- ---------------
Shares under option at December 31, 1993 6,395,433 $ 4.02 - 23.25
Options granted 1,096,800 19.25 - 21.75
Options lapsed or surrendered (29,889) 5.39 - 22.75
Options exercised (1,151,218) 4.02 - 19.50
---------- ---------------
Shares under option at December 31, 1994 6,311,126 $ 4.02 - 23.25
========== ===============
Options exercisable at December 31, 1994, and 1993, were 4,825,426 and
5,542,645, respectively. Shares reserved for the granting of additional options
at December 31, 1994, were 1,956,386.
There were 13,000 restricted stock purchase rights outstanding at December 31,
1994 and no restricted stock purchase rights outstanding at December 31, 1993.
During 1994, 3,000 stock purchase rights were exercised. No stock purchase
rights were exercised in 1993.
Restrictions on stock issued pursuant to the exercise of stock purchase rights
lapse within a seven-year period. Accordingly, the compensation related to
issuance of the rights is deferred and amortized over the vesting period.
Unamortized deferred compensation is reflected as a reduction of shareholders'
equity.
Aggregate compensation expense related to stock purchase rights was $747,
$1,008, and $1,004, in 1994, 1993, and 1992, respectively.
The Corporation also has a Long-term Incentive Plan (the plan). Under the plan,
performance units may be awarded from time to time. Once awarded, additional
performance units will be credited to each participant based on dividends paid
by the Corporation on its common stock. At the end of a designated vesting
period, participants will receive an amount, either in cash, common stock or
some combination thereof, equal to some percent (0%-275%) of the initial
performance units credited plus those additional units credited as dividends
based on the established performance criteria. During 1994, 156,500 units were
awarded to certain executives of the Corporation. The vesting period is three
<PAGE>
years from the date the performance units were awarded. Based on the
performance criteria, without regard to the vesting, no amount would be due to
the participants at December 31, 1994.
16. Employee Retirement and Health Plans
The Corporation has a defined contribution retirement plan and an incentive
savings plan for substantially all employees, including eligible former Valley
employees beginning in June, 1994 after consummation of the merger. 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 $21,631, $17,771 and $19,053 in 1994,
1993 and 1992, 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 $910 in 1994, $2,703 in 1993, and $4,561 in 1992.
Valley maintained a trusteed defined benefit retirement plan which covered
substantially all its employees. Upon consummation of the merger the plan was
curtailed. The following table reflects the plan's funded status and amounts
recognized in the financial statements at December 31:
1994 1993
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 34,680 $ 38,326
Nonvested benefit obligation 520 1,820
-------- --------
Accumulated benefit obligation 35,200 40,146
Effect of projected future compensation levels -- 19,911
-------- --------
Projected benefit obligation 35,200 60,057
Plan assets at fair value 43,913 45,159
-------- --------
Plan assets greater (less) than projected
benefit obligations 8,713 (14,898)
Unrecognized net (gain) loss (2,855) 23,148
Unrecognized prior service cost -- 2,401
Unrecognized net asset (1,534) (1,672)
-------- --------
Prepaid pension cost $ 4,324 $ 8,979
======== ========
<PAGE>
The net pension cost for 1994, 1993, and 1992, included the following
components:
1994 1993 1992
-------- -------- --------
Service cost $ 2,011 $ 3,361 $ 2,348
Interest cost 3,393 3,283 2,502
Actual return on plan assets (777) (2,885) (1,852)
Net amortization and deferral (2,279) (416) (882)
-------- -------- --------
Net periodic pension cost before
curtailment 2,348 3,343 2,116
Curtailment 2,301 -- --
-------- -------- --------
Total expense $ 4,649 $ 3,343 $ 2,116
======== ======== ========
The expense associated with the curtailment is classified as
Merger/Restructuring in the Consolidated Statements of Income.
The following assumptions were used in determining the projected benefit
obligation:
1994 1993
------ ------
Discount rate 8.25% 6.75%
Rate of increase in compensation levels - 5.00%
Expected long-term rate of return
on assets 7.00% 10.00%
<PAGE>
The Corporation sponsors a defined benefit health plan that provides health care
benefits to all eligible current and retired employees. The plan is
contributory, with contributions adjusted periodically such that participants
contribute approximately 40% of the cost of health care benefits. The plan also
contains other cost-sharing features such as deductibles and coinsurance.
Retiree eligibility is dependent upon age, years of service, and participation
in the health plan during active service. The plan is not funded.
Valley provided postretirement health care benefits to retired employees. These
benefits were subject to deductibles, copayment provisions and other
limitations. Only those employees retiring on or before December 31, 1994 were
eligible for such benefits. As part of the merger, all former Valley employees
became eligible to participate in the Corporation's postretirement health plan.
The Corporation did not recognize years of service with Valley prior to the
merger.
As discussed in Note 5, the Corporation adopted FAS 106, "Employers' Accounting
for Postretirement Benefits, Other than Pensions" as of January 1, 1992. The
Corporation elected immediate recognition of the accumulated postretirement
benefit obligation as of the beginning of the year through a one-time charge to
earnings of $19,934 before income taxes. Valley's results of operations have
<PAGE>
been restated to conform their policy to the Corporation's, thereby resulting
in a total charge to earnings of $22,789.
The components of the accumulated postretirement benefit obligation (APBO)
reconciled with the amount recognized in the Corporation's Consolidated Balance
Sheets at December 31, were:
1994 1993
-------- --------
Accumulated postretirement benefit
obligation:
Retirees $ 17,541 $ 13,602
Fully eligible active plan
participants 8,187 9,019
Active plan participants 13,890 16,679
-------- --------
39,618 39,300
Unrecognized loss (5,836) (10,837)
-------- --------
Accrued postretirement benefit cost $ 33,782 $ 28,463
======== ========
Weighted average discount rate
used in determining APBO 8.25% 7.50%
======== ========
Net periodic postretirement benefit cost for the years ended December 31, 1994,
1993 and 1992 includes the following components:
1994 1993 1992
-------- -------- --------
Service cost $ 2,510 $ 1,385 $ 1,212
Interest on APBO 2,950 2,279 1,668
Net amortization and deferral 617 -- --
-------- -------- --------
$ 6,077 $ 3,664 $ 2,880
======== ======== ========
For measurement purposes, the assumed health care cost trend rate was 12% and
13% in 1994 and 1993, respectively, and gradually declines to 6.5% in the year
2016.
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, 1994 by $7,259 and
increase 1994 postretirement benefit expense by $692.
<PAGE>
17. Financial Instruments with Off-Balance Sheet Risk
Financial instruments with off-balance sheet risk at December 31 were:
1994 1993
------- ----------
Financial instruments whose amounts
represent credit risk:
Commitments to extend credit:
To commercial customers $2,585,065 $3,210,573
To individuals 634,350 725,122
Standby letters of credit, net of
participations 332,142 295,382
Commercial letters of credit 26,278 17,032
Mortgage loans sold with recourse 6,145 8,408
Financial instruments whose amounts
exceed the amount of credit risk:
Foreign exchange contracts:
Commitments to purchase foreign exchange 148,832 229,061
Commitments to deliver foreign exchange 151,135 231,925
Options written/purchased 6,714 24,251
Interest rate swaps -- 105,000
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 9.
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
<PAGE>
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.
Interest rate swaps are agreements to exchange, at specified intervals, interest
payment streams calculated on an agreed upon notional principal amount with at
least one stream based on a floating rate index. Periodic payments between
counterparties are typically settled on a net basis over the life of the swap.
Interest rate swaps are subject to the market risk inherent in such agreements
and the risk that a counterparty will fail to meet the terms of the agreement.
During 1993 certain former Valley banks entered into interest rate swaps to
hedge against the net interest margin exposure arising from existing variable
rate loans and fixed rate deposits in a declining interest rate environment.
The Valley banks were floating rate payors. Approximately $30 million of
notional amount was based on a floating prime rate and the remainder was based
on a floating three month LIBOR. Payments under the swap agreements were
accounted for as adjustments to the yields on the variable rate loan portfolios.
Such agreements had terms of approximately one year and expired prior to
consummation of the merger in May, 1994.
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 lessor extent, option contracts. The risks in these transactions arise
from the ability of the counterparties to perform under the terms of the
contracts and the risk of trading in a volatile commodity. The Corporation
actively monitors all transactions and positions against predetermined limits
established on traders and types of currency to ensure reasonable risk taking.
The Corporation's market risk from unfavorable movements in currency exchange
rates is minimized by essentially matching commitments to deliver foreign
exchange with commitments to purchase foreign exchange.
<PAGE>
At December 31, 1994, the Corporation's foreign currency positions resulting
from foreign exchange contracts by major currency was as follows: ($000's US):
Commitments Commitments
To Deliver To Purchase
Foreign Foreign
Currency Exchange Exchange
----------------------------- ----------- -----------
Japanese Yen $ 34,395 $ 33,980
Deutsche Mark 33,922 33,799
French Franc 32,315 32,362
English Pound Sterling 17,657 17,413
Italian Lire 7,311 7,190
Canadian Dollars 8,031 7,064
All Other 17,504 17,024
----------- -----------
Total $151,135 $148,832
=========== ===========
Average Amount of Contracts
To Deliver/Purchase
Foreign Exchange $296,033 $293,945
=========== ===========
These amounts do not represent the actual credit or market exposure.
<PAGE>
18. Fair Value of Financial Instruments
The book values and estimated fair values for on and off-balance sheet financial
instruments as of December 31, 1994 and 1993 are reflected below.
BALANCE SHEET FINANCIAL INSTRUMENTS ($ In Millions)
1994 1993
------------------- -------------------
Book Fair Book Fair
Value Value Value Value
--------- -------- -------- --------
Financial Assets:
Cash and short-term
investments $ 1,011.4 $1,011.4 $ 834.8 $ 834.8
Trading securities 20.4 20.4 2.9 2.9
Investment securities held to
maturity 429.5 419.5 335.4 341.9
Investment securities available
for sale 1,865.1 1,865.1 2,237.2 2,261.1
Net loans 8,638.5 8,668.6 8,483.8 8,683.1
Interest receivable 85.9 85.9 77.8 77.8
Financial Liabilities:
Deposits 9,499.1 9,494.3 10,171.8 10,221.1
Short-term borrowings 1,073.9 1,073.9 653.6 653.6
Long-term borrowings:
Convertible debt 33.6 73.0 50.0 135.0
Other long-term borrowings 657.4 639.6 247.6 255.6
Interest payable 44.7 44.7 39.1 39.1
Where readily available, quoted market prices were utilized by the Corporation.
If quoted market prices were not available, fair values were based on estimates
using present value or other valuation techniques. These techniques were
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. The calculated fair value estimates, therefore,
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial assets and
liabilities from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following methods and assumptions were used in estimating the fair value for
financial instruments.
<PAGE>
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 8,
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.
Deposits
--------
The fair value for demand deposits or any interest bearing deposits with no
fixed maturity date was considered to be equal to the carrying value. Time
deposits with defined maturity dates were considered to have a fair value equal
to the book value if the maturity date was within three months of December 31.
The remaining time deposits were assigned fair values based on a discounted cash
flow analysis using discount rates which approximate interest rates currently
being offered on time deposits with comparable maturities.
Borrowings
----------
Short-term borrowings are carried at cost which approximates fair value. The
Corporation has convertible debt (see Note 12) for which fair value was
considered to be the current market value of the shares that would be issued in
a full conversion. Other long-term debt was generally valued using a discounted
cash flow analysis with a discount rate based on current incremental borrowing
rates for similar types of arrangements or, if not readily available, based on
a build up approach similar to that used for loans and deposits. Long-term
borrowings include their related current maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS ($ in millions)
Fair values of loan commitments and letters of credit have been estimated based
on the equivalent fees, net of expenses, that would be charged for similar
contracts and customers at December 31. The fair value of interest rate swaps
are based on pricing models using current assumptions.
<PAGE>
1994 1993
------ ------
Loan commitments $ 1.2 $ 2.2
Letters of credit 2.7 2.3
Interest rate swaps -- .1
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.
1994 1993
------ ------
Commitments to purchase foreign exchange $148.8 $229.1
Commitments to deliver foreign exchange 151.1 231.9
Options written/purchased .8 1.0
See Note 17 for additional information on financial off-balance sheet
instruments.
<PAGE>
19. Business Segments
The following table reflects certain information regarding our banking and data
processing businesses:
Adjustments
Data and
1994 Banking Processing Eliminations Consolidation
---- ---------- ---------- ------------ -------------
Revenue from:
Unaffiliated customers $1,019,369 $ 159,418 -- $ 1,178,787
Affiliated customers 6,815 72,068 $ (78,883) --
--------- ---------- ------------ -------------
Total revenue $1,026,184 $ 231,486 $ (78,883) $ 1,178,787
========== ========== ============ =============
Operating profit before
Merger/Restructuring $ 211,897 $ 31,134 -- $ 243,031
========== ========== ============ =============
Operating profit $ 150,352 $ 17,451 -- $ 167,803
========== ========== ============ =============
Identifiable assets $12,463,178 $ 208,216 $ (58,445) $ 12,612,949
========== ========== ============ =============
Net capital expenditures $ (3,184) $ 32,179 -- $ 28,995
========== ========== ============ =============
1993
----
Revenue from:
Unaffiliated customers $1,030,362 $ 135,041 -- $ 1,165,403
Affiliated customers 7,920 71,775 $ (79,695) --
---------- ---------- ------------ -------------
Total revenue $1,038,282 $ 206,816 $ (79,695) $ 1,165,403
========== ========== ============ =============
Operating profit $ 243,285 $ 21,299 -- $ 264,584
========== ========== ============ =============
Identifiable assets $12,372,154 $ 162,748 $ (48,965) $ 12,485,937
========== ========== ============ =============
Net capital expenditures $ 20,004 $ 45,727 -- $ 65,731
========== ========== ============ =============
Adjustments
Data and
1992 Banking Processing Eliminations Consolidation
---- ---------- ---------- ------------ -------------
Revenue from:
Unaffiliated customers $1,067,394 $ 112,056 -- $ 1,179,450
Affiliated customers 7,619 69,234 $ (76,853) --
---------- ---------- ------------ -------------
Total revenue $1,075,013 $ 181,290 $ (76,853) $ 1,179,450
========== ========== ============ =============
Operating profit $ 211,579 $ 20,213 -- $ 231,792
========== ========== ============ =============
Identifiable assets $12,125,497 $ 125,976 $ (37,002) $ 12,214,471
========== ========== ============ =============
Net capital expenditures $ 21,630 $ 26,409 -- $ 48,039
========== ========== ============ =============
The Corporation owns 36 banks, 1 savings association, and numerous nonbank
subsidiaries. Each subsidiary is a separate legal and operating entity. Our
banking operations provide traditional banking products along with trust,
mortgage banking, leasing, and venture capital services. M&I Data Services,
Inc. (DSI) provides data processing, software, and other related services to
both affiliated and unaffiliated customers. In addition, a Valley affiliate
provided similar services and other operational support to affiliated customers
and merged with DSI upon consummation of the merger.
Revenues from affiliated customers are charged at rates available to and
transacted with unaffiliated customers.
Operating profit is pretax net income. Depreciation and amortization expense
for the banking services business amounted to $40,733, $30,378, and $18,975 in
1994, 1993, and 1992, respectively, and for DSI amounted to $31,224 in 1994,
$26,680 in 1993, and $22,402 in 1992.
<PAGE>
20. Condensed Financial Information - Parent Corporation Only
Condensed Balance Sheets
December 31 1994 1993
---------- ----------
Assets
------
Cash and cash equivalents $ 40,977 $ 1,479
Indebtedness of affiliates:
Banks 5,000 5,200
Nonbanks 190,144 343,397
Investments in affiliates:
Banks 957,731 966,881
Nonbanks 248,743 193,314
Other assets 72,110 39,090
---------- ----------
Total assets $1,514,705 $1,549,361
========== ==========
Liabilities and shareholders' equity
------------------------------------
Commercial paper issued $ 74,526 $ 100,292
Other short-term borrowings -- 50,000
Other liabilities 62,124 44,183
Long-term borrowings 316,759 240,373
---------- ----------
Total liabilities 453,409 434,848
Shareholders' equity 1,061,296 1,114,513
---------- ----------
Total liabilities and shareholders' equity $1,514,705 $1,549,361
========== ==========
Scheduled maturities of long-term borrowings are $13,500 in 1995, $64,150
in 1996, $137,937 in 1997, $1,750 in 1998, and $100,000 in 2003.
<PAGE>
Condensed Statements of Income
Years Ended December 31 1994 1993 1992
-------- -------- --------
Income
------
Cash dividends:
Bank affiliates $94,812 $105,738 $ 90,269
Nonbank affiliates 18,690 17,259 12,527
Interest from affiliates 13,412 14,090 12,626
Service fees and other 35,453 35,701 29,859
-------- -------- --------
Total income 162,367 172,788 145,281
Expense
-------
Interest 22,982 19,968 22,073
Administrative and general 72,259 37,665 47,754
-------- -------- --------
Total expense 95,241 57,633 69,827
Income before income taxes, extraordinary
items, cummulative effect of changes in
accounting principles and equity
in undistributed net income of
affiliates 67,126 115,155 75,454
Income tax benefit 7,926 2,057 10,080
-------- -------- --------
Income before extraordinary items,
cummulative effect of changes in
accounting principles and
equity in undistributed net income
of affiliates 75,052 117,212 85,534
Extraordinary items, net of income taxes (610) -- --
Cumulative effect of changes in accounting
principles, net of income taxes -- -- (1,380)
-------- -------- --------
Income before equity in undistributed
net income of affiliates 74,442 117,212 84,154
Equity in undistributed net
income of affiliates:
Banks 29,430 36,527 36,715
Nonbanks 2,068 17,655 26,398
-------- -------- --------
Net income $105,940 $171,394 $147,267
======== ======== ========
<PAGE>
Condensed Statements of Cash Flows
Years Ended December 31
1994 1993 1992
---------- --------- ----------
Cash Flows From Operating Activities:
Net income $ 105,940 $ 171,394 $ 147,267
Noncash items included in income:
Equity in undistributed net income
of affiliates (31,498) (54,182) (63,113)
Depreciation and amortization 9,372 6,092 6,527
Other (25,619) (5,741) 1,430
--------- --------- ----------
Net cash provided by operating
activities 58,195 117,563 92,111
Cash Flows From Investing Activities:
Increases in indebtedness of
affiliates (519,674) (557,882) (300,227)
Decreases in indebtedness of
affiliates 622,552 436,122 237,390
Increases in investments in affiliates (20,300) (15,040) (29,733)
Other 30,824 3,843 2,924
--------- --------- ----------
Net cash provided by (used in)
investing activities 113,402 (132,957) (89,646)
Cash Flows From Financing Activities:
Dividends paid (57,575) (54,435) (48,060)
Proceeds from issuance of commercial
paper 1,578,618 1,348,661 597,794
Principal payments on commercial
paper (1,604,384) (1,325,634) (522,990)
Proceeds from issuance of long-term
debt 158,563 99,351 24,598
Payments on long-term debt (65,900) (36,677) (79,413)
Increase (decrease) in other short-
term borrowings (50,000) 50,000 (374)
Purchase of common stock (101,887) (114,686) (99)
Proceeds from exercise of stock
options 11,682 19,887 5,014
Proceeds from the issuance of common
stock -- -- 32,806
Other (1,216) (14) (74)
---------- --------- ----------
Net cash provided by (used in)
financing activities (132,099) (13,547) 9,202
---------- --------- ----------
<PAGE>
Condensed Statements of Cash Flows
Years Ended December 31 - continued
1994 1993 1992
---------- --------- ----------
Net increase (decrease) in cash and
cash equivalents 39,498 (28,941) 11,667
Cash and cash equivalents, beginning
of year 1,479 30,420 18,753
---------- --------- ----------
Cash and cash equivalents, end of year $ 40,977 $ 1,479 $ 30,420
========== ========= ==========
<PAGE>
Quarterly Financial Information (Unaudited)
($000's except share data)
Following is unaudited financial information for each of the calendar quarters
during the years ended December 31, 1994 and 1993. All per share information
has been restated for the 3 for 1 stock split effected in the form of a 200%
stock dividend distributed to shareholders in May 1993.
Quarter Ended
-----------------------------------------
Dec. 31 Sept. 30 June 30 March 31
-------- -------- -------- --------
1994
----
Total Interest Income $216,323 $210,480 $198,539 $191,964
Net Interest Income 126,816 126,165 120,711 117,535
Provision for Loan Losses 4,299 3,655 13,001 3,952
Income (loss) before Income Taxes
and Extraordinary Items 76,090 71,338 (39,636) 60,011
Income (loss) before Extraordinary
Items 48,054 44,892 (37,061) 38,513
Net Income (loss) 58,473 46,015 (37,061) 38,513
Net Income (Loss) Per Share:
Primary:
Income (Loss) before Extraordinary
Items 0.49 0.45 (0.39) 0.39
Net Income (Loss) 0.60 0.46 (0.39) 0.39
Fully Diluted:
Income (Loss) before Extraordinary
Items 0.48 0.44 (0.39) 0.37
Net Income (Loss) 0.58 0.45 (0.39) 0.37
1993
----
Total Interest Income $197,155 $197,439 $198,856 $200,027
Net Interest Income 121,554 119,705 120,260 118,760
Provision for Loan Losses 4,883 4,400 4,440 4,311
Income before Income Taxes 68,093 66,878 66,248 63,365
Net Income 43,513 42,535 43,417 41,929
Net Income Per Share:
Primary 0.43 0.42 0.42 0.41
Fully Diluted 0.41 0.40 0.40 0.39
<PAGE>
Common Dividends
Declared* 1994 1993 1992 1991 1990
---------------------------------------------------------------------------
First Quarter $0.14 $0.12 $0.11 $0.10 $0.09
Second Quarter 0.15 0.14 0.12 0.11 0.10
Third Quarter 0.15 0.14 0.12 0.11 0.10
Fourth Quarter 0.15 0.14 0.12 0.11 0.10
--------------------------------------------------
$0.59 $0.54 $0.48 $0.43 $0.39
==================================================
* May not add due to rounding
<PAGE>
Price Range of Stock
(Low and High Bid) 1994 1993 1992 1991 1990
------------------------------------------------------------------------
First Quarter
Low $20 $21 1/6 $17 1/4 $8 15/16 $10 5/8
High 23 3/4 23 5/16 18 1/4 11 3/16 11 13/16
Second Quarter
Low 19 1/4 22 15/16 16 15/16 10 9/16 10 1/4
High 22 1/4 25 3/4 20 9/16 13 11/16 11
Third Quarter
Low 19 5/8 21 1/4 19 3/16 12 3/4 8 1/2
High 21 3/4 25 21 13/16 15 1/16 10 9/16
Fourth Quarter
Low 18 21 3/4 20 1/16 14 3/16 7 3/4
High 20 9/16 24 1/4 22 1/16 18 9/16 9 11/16
<PAGE>
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, 1994 and 1993, and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1994, 1993
and 1992. 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, 1994 and 1993, and the
results of their operations and cash flows for the years ended December 31,
1994, 1993 and 1992, in conformity with generally accepted accounting
principles.
As discussed in note one to the consolidated financial statements,
effective January 1, 1994, the Corporation changed its method of accounting for
certain investments in debt and equity securities. Effective January 1, 1992,
the Corporation changed its method of accounting for postretirement benefits
other than pensions and income taxes as described in note five to the
consolidated financial statements.
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin,
January 27, 1995.
<PAGE>
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 25, 1995, 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 25, 1995.
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 25, 1995.
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 25, 1995.
<PAGE>
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, 1994 and 1993
Statements of Income - years ended December 31, 1994, 1993,
and 1992
Statements of Cash Flows - years ended December 31, 1994, 1993,
and 1992
Statements of Shareholders' Equity - years ended December 31,
1994, 1993, and 1992
Notes to Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
All schedules are omitted because they are not required, not
applicable or the required information is contained elsewhere.
3. Exhibits
See Index to Exhibits of this Form 10-K.
(b) Reports on Form 8-K
During the last quarter of 1994, M&I did not file any Current Reports on
Form 8-K with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARSHALL & ILSLEY CORPORATION
By /s/ J.B. Wigdale
-----------------------------
J. B. Wigdale
Chairman of the Board
Date: March 22, 1995
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
-----------------------------------------------
J. B. Wigdale
Chairman of the Board and a Director
(Chief Executive Officer) Date: March 22, 1995
/s/ G.H. Gunnlaugsson
-----------------------------------------------
G. H. Gunnlaugsson
Executive Vice President and a Director
(Chief Financial Officer) Date: March 22, 1995
/s/ P.R. Justiliano
-----------------------------------------------
P. R. Justiliano
Senior Vice President and Corporate Controller
(Principal Accounting Officer) Date: March 22, 1995
Directors: Richard A. Abdoo, Oscar C. Boldt, J.P. Bolduc, Wendell F. Bueche,
Jon F. Chait, Burleigh E. Jacobs, Jack F. Kellner, D.J. Kuester,
Edward L. Meyer, Jr., Don R. O'Hare, San W. Orr, Jr., Peter M.
Platten III, Stuart W. Tisdale, James O. Wright and Gus A.
Zuehlke.
By /s/ M.A. Hatfield Date: March 22, 1995
-----------------------------------------------
M. A. Hatfield
As Attorney-In-Fact*
* Pursuant to authority granted by powers of attorney, copies of which are
filed herewith.
<PAGE>
MARSHALL & ILSLEY CORPORATION
INDEX TO EXHIBITS
(Item 14(a)3)
ITEM
----
(2) Agreement and Plan of Merger dated as of September 19, 1993,
between M&I and Valley Bancorporation, incorporated by reference
to M&I's Current Report on Form 8-K dated September 19, 1993
(as amended by M&I's Current Report on Form 8-K/A dated
September 19, 1993), SEC File No. 0-1220
(3) (a) Restated Articles of Incorporation, incorporated by reference to
M&I's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, SEC File No. 0-1220
(b) By-laws, as amended, 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
(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, issued pursuant to the
Senior Indenture, incorporated by reference to M&I's
Registration Statement on Form S-3 (Reg. No. 33-64054)
(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
<PAGE>
(e) Form of Subordinated Note issued pursuant to the Subordinated
Indenture, incorporated by reference to M&I's Registration
Statement on Form S-3 (Reg. No. 33-64054)
(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
(10) (a) 1983 Executive Stock Option and Restricted Stock Plan, as
amended, incorporated by reference to M&I's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987, SEC
File No. 0-1220*
(b) 1985 Executive Stock Option and Restricted Stock Plan, as
amended, incorporated by reference to M&I's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987,
SEC File No. 0-1220*
(c) M&I Marshall & Ilsley Bank Supplementary Retirement Benefits
Plan,incorporated by reference to M&I's Annual Report on Form
10-K for the fiscal year ended December 31, 1983,
SEC File No. 0-1220*
(d) Directors Deferred Compensation Plan, adopted on February 14,
1985, incorporated by reference to M&I's Annual Report on Form
10-K for the fiscal year ended December 31, 1984,
SEC File No. 0-1220*
(e) Consulting Agreement and Supplemental Retirement Plan dated as
of October 1, 1986 between M&I and Mr. J.A. Puelicher,
incorporated by reference to M&I's Annual Report on Form 10-K
for the fiscal year ended December 31, 1986, SEC File No. 0-1220*
(f) Amendment to Consulting Agreement and Supplemental Retirement
Plan dated as of August 13, 1992, between M&I and Mr. J.A.
Puelicher, incorporated by reference to M&I's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993,
SEC File No. 0-1220*
<PAGE>
(g) Deferred Compensation Trust between Marshall & Ilsley Corporation
and Bessemer Trust Company dated April 28, 1987, as amended,
incorporated by reference to M&I's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, SEC File No. 0-1220*
(h) 1986 Non-Qualified Stock Option Plan of M&I and related Stock
Option Agreement between M&I and Mr. J.A. Puelicher, incorporated
by reference to M&I's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986, SEC File No. 0-1220*
(i) Form of employment agreements, dated November 5, 1990, between M&I
and Messrs. Gunnlaugsson, Kuester, Strelow and Wigdale incorporated
by reference to M&I's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, SEC File No. 0-1220*
(j) Employment agreement, dated November 5, 1990, between M&I and Mr.
Michael A. Hatfield incorporated by reference to M&I's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990,
SEC File No. 0-1220*
(k) Employment agreement, dated as of November 5, 1990, between M&I and
Mr. Delgadillo, incorporated by reference to M&I's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, SEC File No.
0-1220*
(l) Restricted Stock Plan of Marshall & Ilsley Corporation,
incorporated by reference to M&I's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, SEC File No. 0-1220*
(m) 1989 Executive Stock Option and Restricted Stock Plan, incorporated
by reference to M&I's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, as amended by M&I's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, SEC File No.
0-1220*
(n) Marshall & Ilsley Corporation Nonqualified Retirement Benefit Plan,
incorporated by reference to M&I's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, SEC File No. 0-1220*
(o) Marshall & Ilsley Corporation Supplemental Retirement Benefits
Plan, incorporated by reference to M&I's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, SEC File No. 0-1220*
(p) Marshall & Ilsley Trust Company Supplemental Retirement Benefits
Plan, incorporated by reference to M&I's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, SEC File No. 0-1220*
<PAGE>
(q) Supplemental Retirement Agreement dated December 10, 1992,
between M&I and Mr. J.A. Puelicher, incorporated by reference to
M&I's Annual Report on Form 10-K for the fiscal year ended December
31, 1992, SEC File No. 0-1220*
(r) Amendment to Supplemental Retirement Agreement dated December 16,
1993, between M&I and Mr. J.A. Puelicher, incorporated by reference
to M&I's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, SEC File No. 0-1220*
(s) Marshall & Ilsley Corporation 1993 Executive Stock Option Plan,
incorporated by reference to M&I's Registration Statement on Form
S-4 (Reg. No. 33-51753)*
(t) Marshall & Ilsley Corporation 1994 Long-Term Incentive Plan for
Executives, incorporated by reference to M&I's Proxy Statement for
the 1994 Annual Meeting of Shareholders, SEC File No. 0-1220*
(u) Marshall & Ilsley Corporation 1995 Directors Stock Option Plan,
incorporated by reference to M&I's Proxy Statement for the 1995
Annual Meeting of Shareholders, SEC File No. 0-1220*
(v) Marshall & Ilsley Corporation Assumption Agreement dated May 31,
1994 assuming rights, obligations and interests of Valley
Bancorporation under various stock option plans, incorporated by
reference to M&I's Registration Statement on Form S-8 (Reg. No.
33-53897)*
(w) Valley Bancorporation 1992 Incentive Stock Plan, incorporated by
reference to Valley Bancorporation's Proxy Statement for the 1992
Annual Meeting of Shareholders (the "Valley 1992 Proxy Statement")*
(x) Valley Bancorporation 1992 Outside Directors' Stock Option Plan,
incorporated by reference to the Valley 1992 Proxy Statement*
(y) Valley Bancorporation 1988 Nonqualified Stock Option Plan,
incorporated by reference to Valley Bancorporation's Proxy
Statement for the 1988 Annual Meeting of Shareholders*
(z) Valley Bancorporation 1986 Amended and Restated Stock Option Plan,
incorporated by reference to Valley Bancorporation's Proxy
Statement for the 1987 Annual Meeting of Shareholders*
(aa) Employment agreement between M&I and Mr. Peter M. Platten, III,
incorporated by reference to M&I's Registration Statement on Form
S-4 (Reg. No. 33-51753)*
<PAGE>
(bb) Letter agreement dated January 25, 1994 between Valley
Bancorporation and Mr. Peter M. Platten, III*
(cc) Employment agreement between M&I and Mr. Gary A. Lichtenberg,
incorporated by reference herein to M&I's Registration Statement on
Form S-4 (Reg. No. 33-51753)*
(dd) Letter agreement dated January 25, 1994 between M&I and Mr. Gary A.
Lichtenberg*
(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 for Messrs. Abdoo, Boldt, Bolduc, Bueche, Chait,
Jacobs, Kellner, Kuester, Meyer, O'Hare, Orr, Platten, Tisdale, Wright,
and Zuehlke
(27) Financial Data Schedule.
The Company 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.
<PAGE>
Exhibit 10(bb)
VALLEY BANCORPORATION
100 West Lawrence Street
P.O. Box 1061
Appleton, Wisconsin 54912-1061
(414) 738-3830
January 25, 1994
Mr. Peter M. Platten, III
Valley Bancorporation
100 West Lawrence Street
Appleton, Wisconsin 54912
Dear Pete:
The purpose of this letter is to confirm our understanding with respect to the
compensation and other benefits to be paid or provided to you in full and final
settlement of any claims under the Employment Agreement dated July 31, 1992,
between you and Valley Bancorporation ("Valley") (the "Employment Agreement")
and the Executive Life Insurance Plan Agreement dated October 13, 1992, between
you and Valley, as amended (the "Executive Life Agreement").
As a result of the planned merger (the "Merger") between Valley and Marshall &
Ilsley Corporation ("M&I"), we agree that your election to apply the Employment
Agreement as if a change of control termination has occurred, assuming you
remain eligible as specified in Paragraph 5, below, will be effective on the
date immediately preceding the Merger, and that your employment will be
considered terminated on that date for all purposes of the Employment Agreement
and you will be entitled to the contract benefits.
Attached is a chart entitled "Outline for Settlement of Employment Agreement and
Executive Life Agreement" which sets out amounts to be paid in settlement of
your rights to compensation and benefits under the Employment Agreement and
Executive Life Agreement. The payments will be made in the following manner:
(1) No later than the day prior to the effective date of the Merger,
you will be paid an amount equal to the "Total" listed under "Cash
Amount on Closing" in the chart.
<PAGE>
(2) You will be paid an amount equal to the difference between the
"Gross Value of Contract" and the "Cash Amount on Closing" listed
next to "Benefits" in the chart (the "Difference"). This amount
will be paid in ten quarterly installments, each one-tenth (1/10)
of the Difference, commencing with the first installment 180 days
after the date of the Merger.
(3) You will be paid the Supplemental Pension Benefit (referred to as
the "Contract Benefit" in the Employment Agreement) commencing on
July 1, 1997, if you are then surviving. The monthly amount of the
Supplemental Pension Benefit will be as listed in Note C of the
chart under "Supplemental Pension Benefit," subject to actuarial
adjustment if you are single or have a different spouse on July 1,
1997. If you die before July 1, 1997, your spouse will be paid a
monthly Supplemental Pension Benefit equal to the 50% survivor
portion of the amount listed in such Note C starting on July 1,
1997, subject to actuarial adjustment if such spouse elects earlier
commencement or if you have a different spouse on your death.
(4) In addition to the above, you will be paid the amounts, if any,
required under Section 7 of the Employment Agreement regarding the
excise tax imposed by Section 4999 of the Internal Revenue Code.
(5) You will be entitled to the above payments and benefits only if your
employment with Valley has not been terminated under either Section
5A or 5B of the Employment Agreement, and you have not given notice
of a voluntary termination under Section 5C of the Employment
Agreement, prior to the date of the Merger, unless such termination
is deemed a change in control termination under Section 5E of the
Employment Agreement. The foregoing payments (whether made before
or after the Merger) will fully satisfy the obligations of Valley
(and M&I as its successor) under Section 5F of the Employment
Agreement and the Executive Life Agreement, and you will not be
entitled to any payments or benefits under that Section or the
Executive Life Agreement except in accordance with the terms of this
letter.
(6) The payments to be made to you hereunder will be reduced by any
Federal, State or local withholding or other taxes or charges as
required under applicable law, and all amounts payable to you
hereunder are stated before any such deduction. Valley (and M&I as
its successor) shall have the right to rely on a written opinion of
legal counsel if any question should arise as to any such deduction.
Furthermore, none of the payments hereunder shall be included as
compensation for purposes of any pension, deferred compensation or
welfare benefit plan or program of Valley or M&I as its successor,
whether qualified or nonqualified.
<PAGE>
If you agree to the foregoing terms, please sign a copy of this letter in the
space provided below and return it to us, in which event this letter will become
a binding agreement between us. Until signed and returned as so provided,
neither of us will be bound by these proposed terms. Such agreement will
terminate upon the termination of the Agreement and Plan of Merger between M&I
and Valley for any reason.
Very truly yours,
/s/ Charles H. Sauter
--------------------------------
[Officer of Valley]
Charles H. Sauter
I hereby confirm my agreement to the terms of this letter.
2/7/94 /s/ Peter M. Platten, III
---------- ---------------------------------
Date Peter M. Platten, III
Marshall & Ilsley Corporation hereby confirms its agreement to the terms
of this letter.
MARSHALL & ILSLEY CORPORATION
2/7/94 By: /s/ James B. Wigdale
---------- ---------------------------------
Date James B. Wigdale,
Chairman
<PAGE>
PETER PLATTEN, III
OUTLINE FOR SETTLEMENT OF EMPLOYMENT AGREEMENT AND
EXECUTIVE LIFE AGREEMENT
I. Payments under Existing Employment Agreement
Gross Value Cash Amount
of Contract on Closing
A. Salary & Bonus $ 1,467,192 $1,467,192
B. Benefits 121,377 78,917
C. Supplemental Pension Benefit 3,185,797 -0-
D. Executive Life 124,032 98,884
----------- ----------
Total $ 4,898,398 $1,644,993
II. December 1993 Payments
A. 1994 Bonus at 20% of 1993 Base $ 74,600
B. Pay-out of Nonqualified 401(k) Plan $ 177,128
----------
Total $ 251,728
____________________________
1 Determined by Valley's actuaries based on (i) joint and 50% survivor payout,
(ii) Merger date of, and benefit accrual under Valley plan ceasing on, July 1,
1994, (iii) qualified plan payments commencing at age 65 and (iv) 1994
compensation.
2 Payments have already been made.
<PAGE>
Notes
A. Salary & Bonus
1. 1994 projected base salary $ 387,920
2. Average of following:
'92 bonus $ 93,060
'93 bonus 135,772
'94 bonus 74,600 101,144
---------
3. Sub-total $ 489,064
4. Total payment at closing 1,467,192
(Sub-total * 3)
B. Benefits
Gross Payment
Payment at Closing
1. 401(k) match at 80% of 6%
or 4.8% * $1,467,192 $ 70,425 $ 70,425
2. Car at $10,000 per year
for 3 years 30,000 5,000
3. Health and dental at $334
per month for 36 months 12,024 2,004
4. Long-term disability at
$248 per month for 36 months 8,928 1,488
-------- --------
5. Total $121,377 $ 78,917
<PAGE>
C. Supplemental Pension Benefit
Monthly Annual
1. Supplemental pension benefit
(on joint and 50% survivor
basis) starting 7/1/97
through age 65: $ 17,903 $ 214,839
2. Pension benefit (on
joint and 50% survivor
basis) starting at age 65:
Supplemental pension benefit
(this amount is fixed regard-
less of when and in what
amounts pensions become
payable from the qualified
and nonqualified plan) $8,259
From qualified and non-
qualified plan (this amount
is estimated based on the
executive's current marital
status and entitlement at 65,
assuming benefit accrual
ceases as of 7/1/94) 9,644 $ 17,903 $ 214,839
D. Executive Life Plan
1. Paid-up life insurance policy
at 1x base pay for 1993 $373,000
2. Cash payments
Net premium $44,310
Tax gross-up 54,574
3. Total payment at closing $ 98,884
__________________________
3 See footnote 1; any mathematical differences due to rounding.
<PAGE>
Exhibit 10(dd)
MARSHALL & ILSLEY CORPORATION
770 North Water Street
Milwaukee, Wisconsin 53202-3523
Telephone: (414) 765-7801
January 25, 1994
Mr. Gary A. Lichtenberg
Valley Bancorporation
100 West Lawrence Street
Appleton, Wisconsin 54912
Dear Gary:
The purpose of this letter is to confirm our understanding with respect to the
compensation and other benefits to be paid or provided to you in full and final
settlement of any claims under the Employment Agreement dated July 31, 1992,
between you and Valley Bancorporation ("Valley") (the "Employment Agreement")
and the Executive Life Insurance Plan Agreement dated October 26, 1992, between
you and Valley, as amended (the "Executive Life Agreement").
As a result of the planned merger (the "Merger") between Valley and Marshall &
Ilsley Corporation ("M&I"), we agree that your election to apply the Employment
Agreement as if a change of control termination has occurred, assuming you
remain eligible as specified in paragraph 5, below, will be effective on the
date of the Merger, and that your employment will be considered terminated on
that date for all purposes of the Employment Agreement and you will be entitled
to the contract benefits.
Attached is a chart entitled "Outline for Settlement of Employment Agreement and
Executive Life Agreement" which sets out amounts to be paid in settlement of
your rights to compensation and benefits under the Employment Agreement and
Executive Life Agreement. The payments will be made in the following manner:
(1) No later than thirty (30) days after the date of the Merger, you
will be paid an amount equal to the "Total" listed under "Cash
Amount on Closing" in the chart.
<PAGE>
(2) You will be paid an amount equal to the difference between the
"Gross Value of Contract" and the "Cash Amount on Closing" listed
next to "Benefits" in the chart (the "Difference"). This amount
will be paid in ten quarterly installments, each one-tenth (1/10)
of the Difference, commencing with the first installment 180 days
after the date of the Merger.
(3) You will be paid the Supplemental Pension Benefit (referred to as
the "Contract Benefit" in the Employment Agreement) commencing on
July 1, 1997, if you are then surviving. The monthly amount of the
Supplemental Pension Benefit will be as listed in Note C of the
chart under "Supplemental Pension Benefit," subject to actuarial
adjustment if you are single or have a different spouse on July 1,
1997. If you die before July 1, 1997, your spouse will be paid a
monthly Supplemental Pension Benefit equal to the 50% survivor
portion of the amount listed in such Note C starting on July 1,
1997, subject to actuarial adjustment if such spouse elects earlier
commencement or if you have a different spouse on your death.
(4) In addition to the above, you will be paid the amounts, if any,
required under Section 7 of the Employment Agreement regarding the
excise tax imposed by Section 4999 of the Internal Revenue Code.
(5) You will be entitled to the above payments and benefits only if
your employment with Valley has not been terminated under either
Section 5A or 5B of the Employment Agreement, and you have not
given notice of a voluntary termination under Section 5C of the
Employment Agreement, prior to the date of the Merger, unless such
termination is deemed a change in control termination under Section
5E of the Employment Agreement. The foregoing payments (whether
made before or after the Merger) will fully satisfy the obligations
of Valley (and M&I as successor) under Section 5F of the Employment
Agreement and the Executive Life Agreement, and you will not be
entitled to any payments or benefits under that Section or the
Executive Life Agreement except in accordance with the terms of
this letter.
(6) The payments to be made to you hereunder will be reduced by any
Federal, State or local withholding or other taxes or charges as
required under applicable law, and all amounts payable to you
hereunder are stated before any such deduction. M&I shall have the
right to rely on a written opinion of legal counsel if any
questions should arise as to any such deduction. Furthermore, none
of the payments hereunder shall be included as compensation for
purposes of any pension, deferred compensation or welfare benefit
plan or program of M&I or Valley, whether qualified or
nonqualified.
If you agree to the foregoing terms, please sign a copy of this letter in the
space provided below and return it to us, in which event this letter will become
<PAGE>
a binding agreement between us. Until signed and returned as so provided,
neither of us will be bound by these proposed terms. Such agreement will
terminate upon the termination of the Agreement and Plan of Merger between M&I
and Valley for any reason.
Very truly yours,
/s/ James B. Wigdale
-----------------------------
James B. Wigdale,
Chairman
I hereby confirm my agreement to the terms of this letter.
2/1/94 /s/ Gary A. Lichtenberg
-------- -------------------------------
Date Gary A. Lichtenberg
<PAGE>
GARY LICHTENBERG
OUTLINE FOR SETTLEMENT OF EMPLOYMENT AGREEMENT AND
EXECUTIVE LIFE AGREEMENT
I. Payments under Existing Employment Agreement
Gross Value Cash Amount
of Contract on Closing
A. Salary & Bonus $ 672,357 $ 672,357
B. Benefits 83,225 40,765
C. Supplemental Pension Benefit 2,321,452 -0-
D. Executive Life 73,327 59,137
---------- ---------
Total $3,150,361 $ 772,259
II. December 1993 Payments
A. 1994 Bonus at 20% of 1993 Base $ 34,200
B. Pay-out of Nonqualified 401(k) Plan 34,144
---------
Total $ 68,344
____________________________
1 Determined by Valley's actuaries based on (i) joint and 50% survivor payout,
(ii) Merger date of, and benefit accrual under Valley plan ceasing on, July 1,
1994, (iii) qualified plan payments commencing at age 65 and (iv) 1994
compensation.
2 Payments have already been made.
<PAGE>
Notes
A. Salary & Bonus
1. 1994 projected base salary $ 177,840
2. Average of following:
'92 bonus $ 42,394
'93 bonus 62,244
'94 bonus 34,200 46,279
3. Sub-total $ 224,119
4. Total payment at closing $ 672,357
(Sub-total * 3)
B. Benefits
Gross Payment
Payment at Closing
1. 401(k) match at 80% of 6%
or 4.8% * $672,357 $ 32,273 $ 32,273
2. Car at $10,000 per year
for 3 years 30,000 5,000
3. Health and dental at $334
per month for 36 months 12,024 2,004
4. Long-term disability at
$248 per month for 36 months 8,928 1,488
5. Total $ 83,225 $ 40,765
<PAGE>
C. Supplemental Pension Benefit
Monthly Annual
1. Supplemental pension benefit
(on joint and 50% survivor
basis) starting 7/1/97
through age 65 $ 11,572 $ 138,864
2. Pension benefit (on
joint and 50% survivor
basis) starting at age 65:
Supplemental pension benefit
(this amount is fixed regard-
less of when and in what
amounts pensions become
payable from the qualified
and nonqualified plan) $4,063
From qualified and non-
qualified plan (this amount
is estimated based on the
executive's current marital
status and entitlement at 65,
assuming benefit accrual
ceases as of 7/1/94) 7,509 $ 11,572 $ 138,864
D. Executive Life Plan
1. Paid-up life insurance policy
at 1x base pay for 1993 $171,000
2. Cash payments
Net premium $26,873
Tax gross-up 32,264
3. Total payment at closing $ 59,137
__________________________
3 See footnote 1; any mathematical differences due to rounding.
<PAGE>
Exhibit 11
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands,except per share data)
<TABLE>
<CAPTION>
Primary: 1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding
during each year 94,850,595 98,497,435 96,958,290
Incremental shares relating to:
Conversion of preferred stock 3,095,181 1,962,900 1,962,900
Dilutive stock options outstanding
at end of each year and exercised
during each year (1) 1,474,294 2,212,026 2,107,742
-------------------------------------
Average number of common and common equivalent
shares for primary net income per share 99,420,070 102,672,361 101,028,932
=====================================
Fully diluted:
Weighted average common shares outstanding
during each year 94,850,595 98,497,435 96,958,290
Incremental shares relating to:
Conversion of preferred stock 3,095,181 1,962,900 1,962,900
Dilutive stock options outstanding
at end of each year and exercised
during each year (2) 1,523,584 2,594,292 2,543,839
Conversion of convertible notes 4,582,005 5,819,973 5,946,846
-------------------------------------
Average number of common and common equivalent
shares for fully diluted net income per share 104,051,365 108,874,600 107,411,875
=====================================
Primary:
Income before extraordinary items and cumulative
effect of changes in accounting principles $94,398 $171,394 $156,401
Extraordinary items, net of income taxes 11,542 - -
Cumulative effect of changes in accounting principles,
net of income taxes - - (9,134)
-------------------------------------
Net income applicable to common shares $105,940 $171,394 $147,267
=====================================
Fully diluted:
Income before extraordinary items and cumulative
effect of changes in accounting principles $94,398 $171,394 $156,401
Add: interest expense, less income tax effect
on convertible notes 2,047 2,938 2,884
-------------------------------------
96,445 174,332 159,285
</TABLE>
<PAGE>
Exhibit 11
(continued)
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands,except per share data)
<TABLE>
<CAPTION>
Primary: 1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Extraordinary items, net of income taxes 11,542 - -
Cumulative effect of changes in accounting principles,
net of income taxes - - (9,134)
-------------------------------------
Net income applicable to common shares $107,987 $174,332 $150,151
=====================================
Per common share amounts:
Primary:
Income before extraordinary items and cumulative
effect of changes in accounting principles $0.95 $1.67 $1.55
Extraordinary items 0.12 - -
Cumulative effect of changes in accounting principles - - (0.09)
-------------------------------------
Net income $1.07 $1.67 $1.46
=====================================
Fully diluted:
Income before extraordinary items and cumulative
effect of changes in accounting principles $0.93 $1.60 $1.48
Extraordinary items 0.11 - -
Cumulative effect of changes in accounting principles - - (0.08)
-------------------------------------
Net income $1.04 $1.60 $1.40
=====================================
(1) Based on treasury stock method using average market price.
(2) Based on treasury stock method using year-end market price, if higher than average market price
for options outstanding at end of each year and market price at date of exercise for options
exercised during each year.
</TABLE>
<PAGE>
Exhibit 12
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
_____________________________________________________
Earnings: 1994 1993 1992 1991 1990
_____________________________________________________
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary items and
cumulative effect of changes in accounting principles $167,803 $264,584 $231,792 $186,738 $143,192
Fixed charges, excluding interest on deposits 77,074 47,905 50,687 66,641 85,234
------------------------------------------------------
Earnings including fixed charges but excluding
interest on deposits 244,877 312,489 282,479 253,379 228,426
Interest on deposits 255,861 272,100 334,443 448,757 466,537
------------------------------------------------------
Earnings including fixed charges and interest
on deposits $500,738 $584,589 $616,922 $702,136 $694,963
======================================================
Fixed Charges:
Interest Expense:
Short-term borrowings $39,681 $18,010 $17,606 $32,065 $56,849
Long-term borrowings 30,537 23,088 26,439 27,770 22,524
One-third of rental expense for all operating
leases (the amount deemed representative of
the interest factor) 6,856 6,807 6,642 6,806 5,861
Fixed charges excluding interest on deposits 77,074 47,905 50,687 66,641 85,234
------------------------------------------------------
Interest on deposits 255,861 272,100 334,443 448,757 466,537
------------------------------------------------------
Fixed charges including interest on deposits $332,935 $320,005 $385,130 $515,398 $551,771
======================================================
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 3.18 x 6.52 x 5.57 x 3.80 x 2.68 x
Including interest on deposits 1.50 x 1.83 x 1.60 x 1.36 x 1.26 x
</TABLE>
<PAGE>
Exhibit 21
MARSHALL & ILSLEY CORPORATION
SUBSIDIARIES
February 28, 1995
M&I Bank of Antigo M&I Lake Country Bank
M&I Bank of Beloit M&I Lancaster State Bank
M&I Bank of Burlington M&I Madison Bank
M&I Bank of Cambridge M&I Marshall & Ilsley Bank
M&I Bank of Eagle River M&I Merchants Bank
M&I Bank Fox Valley M&I Mid-State Bank, N.A.
M&I Bank of Janesville M&I National Bank of Ashland
M&I Bank of LaCrosse M&I National Bank of Neillsville
M&I Bank of Mayville M&I Northern Bank
M&I Bank of Menomonee Falls M&I South Shore Bank
M&I Bank of Mosinee M&I Thunderbird Bank
M&I Bank Northeast M&I Bank S.S.B.
M&I Bank of Oshkosh M&I Bank Support Services
M&I Bank of Racine M&I Capital Markets Group, Inc.
M&I Bank of Shawano, N.A. M&I Financial Corp.
M&I Bank South Central M&I First National Leasing Corp.
M&I Bank Southwest M&I Insurance Company of Arizona, Inc.
M&I Central Bank & Trust M&I Investment Management Corp.
M&I Central State Bank M&I Marshall & Ilsley Trust Company of
Arizona
M&I Citizens American Bank M&I Mortgage Corp.
M&I Community State Bank M&I Servicing Corp.
M&I First American National Bank Community Life Insurance Company
M&I First National Bank Marshall & Ilsley Trust Company
M&I First National Bank of Superior Marshall & Ilsley Trust Company of
Florida
Valley First National Bank (inactive) Richter-Schroeder Company, Inc.
M&I Western State Bank (inactive)
(Each subsidiary was incorporated in Wisconsin, except the M&I Marshall & Ilsley
Trust Company of Arizona, M&I Insurance Company of Arizona, Inc., M&I
Thunderbird Bank, and Community Life Insurance Company, incorporated in Arizona;
the Marshall & Ilsley Trust Company of Florida, incorporated in Florida; M&I
Servicing Corp., incorporated in Nevada; M&I Bank of Shawano, N.A., M&I First
American National Bank, M&I First National Bank, M&I First National Bank of
Superior, M&I Mid-State Bank, N.A., M&I National Bank of Ashland, M&I National
Bank of Neillsville and Valley First National Bank (inactive) organized as
national banking associations; M&I Bank S.S.B., organized as a savings
association.)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 27, 1995, in this Annual Report on Form 10-K for the year ended
December 31, 1994 of Marshall & Ilsley Corporation.
We also consent to the incorporation by reference of such report in the
following Registration Statements of Marshall & Ilsley Corporation:
Registration Statement No. 33-3415 (Form S-8) pertaining to the Marshall &
Ilsley Corporation Retirement Growth Plan; Registration Statement No. 33-33153
(Form S-8) pertaining to the Marshall & Ilsley Corporation 1989 Executive Stock
Option and Restricted Stock Plan; Registration Statement No. 33-33090 (Form S-8)
pertaining to the Marshall & Ilsley Corporation 1988 Restricted Stock Plan;
Registration Statement No. 33-2642 (Form S-8) pertaining to the Marshall &
Ilsley Corporation 1985 Executive Stock Option and Restricted Stock Plan;
Registration Statement No. 2-89605 (Form S-8) pertaining to the Marshall &
Ilsley Corporation 1983 Executive Stock Option and Restricted Stock Plan;
Registration Statement No. 33-53155 (Form S-8) pertaining to the Marshall &
Ilsley Corporation 1993 Executive Stock Option Plan; Registration Statement No.
33-53897 (Form S-8) pertaining to the stock option plans of Valley
Bancorporation assumed by Marshall & Ilsley Corporation; Registration Statement
No. 33-55317 (Form S-8) pertaining to the Marshall & Ilsley Corporation 1994
Long-Term Incentive Plan for Executives; Registration Statement No. 2-80293
(Form S-3) pertaining to shares of Marshall & Ilsley Corporation held by those
persons named in such Registration Statement; Registration Statement No.
33-21377 (Form S-3) pertaining to the issuance by Marshall & Ilsley Corporation
of Debt Securities; and Registration Statement No. 33-64054 (Form S-3)
pertaining to the issuance by Marshall & Ilsley Corporation of Debt Securities.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 22, 1995
<PAGE>
Exhibit 24
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Richard A. Abdoo
-------------------------------------
Richard A. Abdoo
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Oscar C. Boldt
-------------------------------------
Oscar C. Boldt
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ J.P. Bolduc
-------------------------------------
J.P. Bolduc
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Wendell F. Bueche
-------------------------------------
Wendell F. Bueche
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Jon F. Chait
-------------------------------------
Jon F. Chait
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Burleigh E. Jacobs
-------------------------------------
Burleigh E. Jacobs
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Jack F. Kellner
-------------------------------------
Jack F. Kellner
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ D.J. Kuester
-------------------------------------
D.J. Kuester
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Edward L. Meyer, Jr.
-------------------------------------
Edward J. Meyer, Jr.
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Don R. O'Hare
-------------------------------------
Don R. O'Hare
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ San W. Orr, Jr.
-------------------------------------
San W. Orr, Jr.
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Peter M. Platten, III
-------------------------------------
Peter M. Platten, III
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Stuart W. Tisdale
-------------------------------------
Stuart W. Tisdale
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ James O. Wright
-------------------------------------
James O. Wright
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
The undersigned director of Marshall & Ilsley Corporation, a Wisconsin
corporation, hereby constitutes and designates each of J. B. Wigdale and M. A.
Hatfield, with the power of substitution, the true and lawful attorney-in-fact
of the undersigned to sign for him in his name, the Form 10-K of Marshall &
Ilsley Corporation for its fiscal year ended December 31, 1994 and any and all
amendments and/or supplements to said Form 10-K, generally to do all such things
in his name and behalf in his capacity as a director to enable Marshall & Ilsley
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, and hereby ratifying and confirming his signature as it may be
signed by said attorney to said Form 10-K and any and all amendments and/or
supplements thereto.
Dated this 16th day of February, 1995.
/s/ Gus A. Zuehlke
-------------------------------------
Gus A. Zuehlke
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