<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-1220
------------------------------
MARSHALL & ILSLEY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0968604
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
770 North Water Street
Milwaukee, Wisconsin 53202
---------------------- -----
(Address of principal executive offices) (Zip Code)
(414) 765 - 7801
------------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1996
----- --------------
Common Stock, $1.00 Par Value 92,464,221
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
($000's except share data)
March 31 December 31 March 31
Assets 1996 1995 1995
- ------ ---------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 617,746 $ 745,911 $ 570,748
Federal funds sold and
security resale agreements 91,878 66,618 208,250
Money market funds 56,748 84,960 115,765
---------------------------------------
Total cash and cash equivalents 766,372 897,489 894,763
Trading securities 31,211 38,601 4,554
Other short-term investments 74,599 95,635 28,509
Investment securities held to maturity,
market value $509,557 ($453,240 December 31,
and $417,615 March 31, 1995) 509,487 450,457 421,301
Investment securities available for sale at
market value 2,699,621 2,458,600 1,860,232
---------------------------------------
Total investment securities 3,209,108 2,909,057 2,281,533
Loans 8,782,236 8,868,902 8,967,409
Less: Allowance for loan losses 161,841 161,430 157,689
---------------------------------------
Net loans 8,620,395 8,707,472 8,809,720
Premises and equipment, net 302,334 306,988 294,786
Accrued interest and other assets 372,553 387,855 346,766
---------------------------------------
Total Assets $ 13,376,572 $ 13,343,097 $ 12,660,631
=======================================
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,079,165 $ 2,363,194 $ 1,966,315
Interest bearing 7,982,109 7,917,583 7,468,690
---------------------------------------
Total deposits 10,061,274 10,280,777 9,435,005
Funds purchased and security
repurchase agreements 813,479 517,576 918,878
Other short-term borrowings 606,362 497,446 122,353
Long-term borrowings 310,036 422,550 765,375
Accrued expenses and other liabilities 329,197 367,131 290,731
---------------------------------------
Total liabilities 12,120,348 12,085,480 11,532,342
Shareholders' equity:
Series A convertible preferred stock,
$1.00 par value; 348,944 shares issued 349 349 349
Common stock, $1.00 par value; 99,494,335
shares issued 99,494 99,494 99,494
Additional paid-in capital 188,884 190,287 189,743
Retained earnings 1,105,836 1,075,789 976,882
Less: Treasury common stock, at cost;
6,854,035 shares (5,968,631 December 31,
and 5,896,692 March 31, 1995) 151,620 128,459 121,983
Deferred compensation 1,098 1,090 1,281
Net unrealized gains (losses) on securities
available for sale, net of related taxes 14,379 21,247 (14,915)
---------------------------------------
Total shareholders' equity 1,256,224 1,257,617 1,128,289
---------------------------------------
Total Liabilities and
Shareholders' Equity $ 13,376,572 $ 13,343,097 $ 12,660,631
=======================================
See notes to financial statements.
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except per share data)
Three Months Ended March 31,
----------------------------
Interest income 1996 1995
- --------------- ----------------------------
Loans $ 185,816 $ 185,663
Investment securities:
Taxable 38,573 28,271
Exempt from Federal income taxes 6,156 4,066
Trading securities 257 125
Short-term investments 2,627 3,558
----------------------------
Total interest income 233,429 221,683
Interest expense
- ----------------
Deposits 87,602 73,498
Short-term borrowings 10,026 14,807
Long-term borrowings 13,164 12,434
----------------------------
Total interest expense 110,792 100,739
----------------------------
Net interest income 122,637 120,944
Provision for loan losses 3,577 3,983
----------------------------
Net interest income after
provision for loan losses 119,060 116,961
Other income
- ------------
Data processing services 58,382 47,849
Trust services 16,803 15,207
Other customer services 28,901 27,599
Net securities gains 50 18
Other 8,577 7,029
----------------------------
Total other income 112,713 97,702
Other expense
- -------------
Salaries and employee benefits 91,628 80,864
Net occupancy 9,974 8,939
Equipment 19,401 14,847
Payments to regulatory agencies 540 5,482
Processing charges 4,942 4,493
Supplies and printing 4,611 3,429
Professional services 3,958 3,651
Other 24,135 20,980
----------------------------
Total other expense 159,189 142,685
----------------------------
Income before income taxes 72,584 71,978
Provision for income taxes 26,429 25,843
----------------------------
Net income $ 46,155 $ 46,135
============================
Net income per common share
- ---------------------------
Primary $ 0.47 $ 0.47
Fully Diluted 0.46 0.46
Dividends paid per common share $ 0.165 $ 0.150
Weighted average common shares outstanding:
Primary 98,192 98,492
Fully diluted 102,089 102,407
See notes to financial statements
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($000's)
Three Months Ended March 31,
----------------------------
1996 1995
----------------------------
Net Cash Provided by Operating Activities $ 22,862 $ 86,813
Cash Flows From Investing Activities:
- -------------------------------------
Net decrease in securities with maturities
of three months or less 21,135 15,270
Proceeds from sales of securities
available for sale 190,943 211
Proceeds from maturities of longer
term securities 205,007 167,214
Purchases of longer term securities (619,478) (81,970)
Net (increase)decrease in loans 22,297 (62,901)
Purchases of assets to be leased (31,715) (30,206)
Principal payments on lease receivables 33,441 31,282
Fixed asset purchases, net (6,374) (10,138)
Cash of banks acquired, net -- 11,408
Other 625 4,078
----------------------------
Net cash provided by (used in)
investing activities (184,119) 44,248
----------------------------
Cash Flows From Financing Activities:
- -------------------------------------
Net decrease in deposits (219,503) (212,959)
Proceeds from issuance of commercial paper 285,889 201,403
Payments for maturity of commercial paper (265,361) (218,090)
Net increase (decrease) in other
short-term borrowings 276,713 (57,370)
Proceeds from issuance of long-term debt 4,923 179,185
Payments of long-term debt (11,072) (70,099)
Dividends paid (15,926) (14,710)
Purchases of treasury stock (27,566) (14,415)
Other 2,043 2,866
----------------------------
Net cash provided by (used in)
financing activities 30,140 (204,189)
----------------------------
Net decrease in cash and cash equivalents (131,117) (73,128)
Cash and cash equivalents, beginning of year 897,489 967,891
----------------------------
Cash and cash equivalents, end of period $ 766,372 $ 894,763
============================
Supplemental cash flow information:
- -----------------------------------
Cash paid during the period for:
Interest $ 115,494 $ 93,195
Income taxes 6,599 11,616
See notes to financial statements
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements
March 31, 1996 & 1995 (Unaudited)
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with Marshall & Ilsley Corporation's ("Corporation")
1995 Annual Report on Form 10-K. The unaudited financial information
included in this report reflects all adjustments (consisting only of
normal recurring accruals) which are necessary for a fair statement of
the financial position and results of operations as of and for the three
months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 and 1995 are not necessarily indicative
of results to be expected for the entire year.
2. 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 and liquidation
purposes.
The Corporation has 160,000,000 shares of its $1.00 par value common
stock authorized.
3. The Corporation's loan portfolio consists of the following ($000's):
March 31 December 31 March 31
1996 1995 1995
---------------------------------
Commercial financial & agricultural $2,974,790 $2,933,278 $2,761,004
Real estate:
Construction 273,594 303,345 358,390
Residential Mortgage 1,923,288 2,002,023 2,332,221
Commercial Mortgage 2,195,744 2,189,449 2,095,285
---------------------------------
Total real estate 4,392,626 4,494,817 4,785,896
Personal 1,133,406 1,163,127 1,158,305
Lease financing 281,414 277,680 262,204
---------------------------------
$8,782,236 $8,868,902 $8,967,409
=================================
4. Investment securities, by type, held by the Corporation are as follows
($000's):
March 31 December 31 March 31
1996 1995 1995
---------------------------------
Investment securities held to maturity:
U.S. treasury and
government agencies $ -- $ -- $ 134,207
State and political subdivisions 505,430 446,113 282,234
Other 4,057 4,344 4,860
---------------------------------
Investment securities
held to maturity 509,487 450,457 421,301
Investment securities available for sale:
U.S. treasury and
government agencies 2,563,789 2,346,866 1,767,147
State and political subdivisions 896 894 --
Other 134,936 110,840 93,085
---------------------------------
Investment securities
available for sale 2,699,621 2,458,600 1,860,232
---------------------------------
Total investment securities $3,209,108 $2,909,057 $2,281,533
=================================
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
March 31, 1996 & 1995 (Unaudited)
5. As part of its asset/liability management activities, the Corporation may
enter into interest rate futures, forwards, swaps and option contracts.
These derivative financial instruments are categorized as risk management
instruments and are carried at fair value unless the instrument qualifies
for hedge accounting treatment. Fair value adjustments on risk
management instruments carried at fair value are reflected in other
operating income. Gains and losses realized on futures and forward
contracts qualifying as hedges are deferred and amortized over the terms
of the related assets or liabilities and are included as adjustments to
interest income or expense. Settlement on interest rate swaps and option
contracts are recognized over the lives of the agreements as adjustments
to interest income or interest expense.
Interest rate contracts used in connection with the securities portfolio
that is designated as available for sale are carried at fair value with
gains and losses, net of applicable deferred income taxes, reported in a
separate component of shareholders' equity, consistent with the reporting
of unrealized gains and losses on such securities.
6. On February 1, 1995, the Corporation acquired the Bank of Burlington
("Burlington") in a tax-free reorganization accounted for as a purchase.
Approximately 1.5 million of the Corporation's treasury common shares
with an aggregate estimated market value of $29.1 million were exchanged
for the outstanding common shares of Burlington. The results of
operations for Burlington are included form the date of acquisition and
are not material to the Corporation.
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
Three Months Ended March 31,
----------------------------
Assets 1996 1995
- ------ ----------------------------
Cash and due from banks $ 590,807 $ 579,909
Short-term investments 192,583 238,508
Trading securities 20,322 10,731
Investment securities:
Taxable 2,526,363 1,975,106
Tax-exempt 533,576 322,093
----------------------------
Total investment securities 3,059,939 2,297,199
Loans:
Commercial 2,896,492 2,696,723
Real estate 4,422,370 4,731,465
Personal 1,146,921 1,165,968
Lease financing 277,227 258,687
----------------------------
8,743,010 8,852,843
Less: Allowance for loan losses 162,517 156,104
----------------------------
Total loans 8,580,493 8,696,739
Premises and equipment, net 304,693 290,486
Accrued interest and other assets 350,957 343,648
----------------------------
Total Assets $ 13,099,794 $ 12,457,220
============================
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,013,864 $ 1,908,012
Interest bearing 7,922,347 7,372,537
----------------------------
Total deposits 9,936,211 9,280,549
Funds purchased and security repurchase
agreements 678,786 948,142
Other short-term borrowings 90,114 91,965
Long-term borrowings 819,374 742,231
Accrued expenses and other liabilities 309,430 287,665
----------------------------
Total liabilities 11,833,915 11,350,552
Shareholders' equity 1,265,879 1,106,668
----------------------------
Total Liabilities and Shareholders' Equity $ 13,099,794 $ 12,457,220
============================
<PAGE>
MANAGEMENT'S DISCUSSION OF AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS
Net income for the first quarter of 1996 amounted to $46.2 million compared to
$46.1 million for the same period in the prior year. Primary and fully diluted
earnings per share were $.47 and $.46, respectively for both periods. The
return on average assets and return on average equity were 1.42% and 14.66% for
the quarter ended March 31, 1996 and 1.50% and 16.91% for the quarter ended
March 31, 1995, respectively.
Earnings remained unchanged due to slower interest margin growth, slower
revenue growth from the Corporation's Data Services Division and the continued
growth in expenses associated with the investment in new products and
technology being developed by Data Services. Total noninterest expense in the
first quarter of 1996 also include costs incurred for implementing certain
initiatives to make the Corporation's banking business more effective and
efficient.
The following tables present a summary of each of the major elements of the
consolidated income statement , certain financial statistics and a summary
of the major income statement elements stated as a percent of average
consolidated assets - converted to a fully taxable equivalent basis (FTE) where
appropriate - for the current quarter and previous four quarters.
SUMMARY CONSOLIDATED INCOME STATEMENTS AND FINANCIAL STATISTICS
($000's except per share data)
- ---------------------------------------------------------------
1996 1995
--------- ---------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
Interest Income $ 233,429 $ 236,598 $ 235,587 $ 230,792 $ 221,683
Interest Expense (110,792) (111,232) (112,703) (108,509) (100,739)
--------- --------- --------- --------- ---------
Net Interest Income 122,637 125,366 122,884 122,283 120,944
Provision for Loan Losses (3,577) (4,100) (4,070) (4,005) (3,983)
Net Securities Gains (Losses) 50 3,297 1,291 (51) 18
Other Income 112,663 112,012 107,637 102,295 97,684
Other Expense (159,189) (156,572) (150,879) (149,488) (142,685)
--------- --------- --------- --------- ---------
Income Before Taxes 72,584 80,003 76,863 71,034 71,978
Income Tax Provision (26,429) (27,655) (28,284) (24,797) (25,843)
--------- --------- --------- --------- ---------
Net Income $ 46,155 $ 52,348 $ 48,579 $ 46,237 $ 46,135
========= ========= ========= ========= =========
Per Share
Earnings Per Share
Primary $ 0.47 $ 0.53 $ 0.49 $ 0.47 $ 0.47
Fully Diluted 0.46 0.51 0.48 0.46 0.46
Dividends 0.165 0.165 0.165 0.165 0.150
Return on Average Equity 14.66% 16.76% 15.96% 16.04% 16.91%
<PAGE>
CONSOLIDATED INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE TOTAL ASSETS
- -----------------------------------------------------------------------------
1996 1995
--------- ---------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
Interest Income (FTE) 7.26% 7.32% 7.33% 7.43% 7.29%
Interest Expense (3.40) (3.40) (3.47) (3.46) (3.28)
--------- --------- --------- --------- ---------
Net Interest Income 3.86 3.92 3.86 3.97 4.01
Provision for Loan Losses (0.11) (0.13) (0.13) (0.13) (0.13)
Net Securities Gains 0.00 0.10 0.04 0.00 0.00
Other Income 3.46 3.43 3.31 3.26 3.18
Other Expense (4.89) (4.79) (4.65) (4.77) (4.64)
--------- --------- --------- --------- ---------
Income Before Taxes 2.32 2.53 2.43 2.33 2.42
Income Tax Provision (0.90) (0.93) (0.94) (0.86) (0.92)
--------- --------- --------- --------- ---------
Return on Average Assets 1.42% 1.60% 1.49% 1.47% 1.50%
========= ========= ========= ========= =========
NET INTEREST INCOME
- -------------------
Net interest income for the first quarter of 1996 amounted to $122.6 million,
an increase of $1.7 million or 1.4% from the $120.9 million reported for the
first quarter of 1995. The benefit from the increase in the volume of average
earning assets offset the slight decline in the yield on earning assets and the
increase in both the volume and rate of interest bearing liabilities. As a
result there was a slight increase in net interest income in the first quarter
of 1996 compared to the first quarter of 1995.
Average earning assets increased $548.5 million or 4.8% in the first quarter of
1996 compared to the same period a year ago. Excluding the effect of
securitizing adjustable rate mortgage loans (ARMS), average loans grew
approximately $379 million or 4.3% compared to the first quarter of last year.
Average loans in the first quarter of 1996 include the effect of 1995
acquisitions which were accounted for as purchases with aggregate loans of
approximately $186 million. The remaining average earning asset growth was
primarily in tax-exempt investment securities.
Average interest bearing liabilities increased $355.7 million or 3.9% in the
first quarter of 1996 compared to the same period in 1995. Average interest
bearing deposits increased $549.8 million or 7.5%, average short-term borrowings
decreased $271.2 million or 26.1% and average long-term borrowings increased
$77.1 million or 10.4%. Average noninterest bearing deposits increased $105.9
million or 5.5% during the first quarter of 1996 compared to the first quarter
of 1995.
<PAGE>
The growth and composition of the Corporation's quarterly average loan portfolio
for the current quarter and previous four quarters are reflected below. The
amortized cost of the securitized ARM loans which are classified as investment
securities available for sale are included to provide a more meaningful
comparison ($ in millions):
1996 1995
--------- ------------------------------------- Annual
First Fourth Third Second First Growth
Quarter Quarter Quarter Quarter Quarter PCT
--------- ------------------------------------- ------
Commercial Loans $ 2,897 $ 2,888 $ 2,913 $ 2,828 $ 2,697 7.4%
Real Estate Loans
Construction 288 317 329 354 367 (21.6)
Commercial Mortgages 2,190 2,174 2,169 2,102 2,072 5.7
Residential Mortgages 1,944 2,159 2,401 2,355 2,292
(15.2)
Securitized ARM loans 489 282 26 - - 100.0
--------- --------- -------- --------- -------- ------
Residential Mortgages 2,433 2,441 2,427 2,355 2,292 6.2
--------- --------- -------- --------- -------- ------
Total Real Estate Loans 4,911 4,932 4,925 4,811 4,731 3.8
Personal Loans
Personal Loans 847 868 876 873 872 (2.8)
Student Loans 300 287 285 285 294 1.8
--------- --------- -------- --------- -------- ------
Total Personal Loans 1,147 1,155 1,161 1,158 1,166 (1.6)
Lease Financing
Receivables 277 270 262 260 259 7.2
--------- --------- -------- --------- -------- ------
Total Consolidated
Average Loans & ARMs $ 9,232 $ 9,245 $ 9,261 $ 9,057 $ 8,853 4.3%
========= ========= ======== ========= ======== ======
Total Consolidated
Average Loans $ 8,743 $ 8,963 $ 9,235 $ 9,057 $ 8,853 (1.2)%
========= ========= ======== ========= ======== ======
Beginning in the third quarter of 1995, the Corporation began converting ARM
loans into Federal National Mortgage Association ARM pool securities to enhance
liquidity. During the first quarter of 1996 an additional $88 million of such
loans were securitized . As of March 31, 1996, the total amount of ARM loans
that have been securitized and transferred to investment securities available
for sale was approximately $542 million. As part of this process, the
Corporation pays a fee of 7.5 basis points to guarantee the securities which
negatively impacts net interest income.
<PAGE>
The growth and composition of the Corporation's quarterly average deposits for
the current and prior year's quarters are as follows ($ in millions):
1996 1995
--------- ------------------------------------- Annual
First Fourth Third Second First Growth
Quarter Quarter Quarter Quarter Quarter PCT
--------- ------------------------------------- ------
Noninterest Bearing
Commercial $ 1,280 $ 1,379 $ 1,282 $ 1,248 $ 1,248 2.5%
Personal 418 418 409 410 400 4.4
Other 316 298 290 275 260 21.9
--------- --------- -------- --------- -------- ------
Total Noninterest
Bearing Deposits 2,014 2,095 1,981 1,933 1,908 5.5
Interest Bearing
Savings & NOW 1,842 1,912 1,961 1,973 2,084 (11.6)
Money Market 2,386 2,237 2,049 1,875 1,767 35.1
Other CDs & Time Deposits 3,060 3,069 3,145 3,135 3,037 0.8
CDs Greater than $100 634 623 619 541 485 30.6
--------- --------- -------- --------- -------- ------
Total Interest
Bearing Deposits 7,922 7,841 7,774 7,524 7,373 7.5
--------- --------- -------- --------- -------- ------
Total Consolidated
Average Deposits $ 9,936 $ 9,936 $ 9,755 $ 9,457 $ 9,281 7.1%
========= ========= ======== ========= ======== ======
Money market savings, CDs greater than $100 and noninterest bearing deposits
exhibited the greatest growth when comparing average deposits in the first
quarter of 1996 to the first quarter of 1995. Average deposits in the first
quarter of 1996 include the effect of 1995 acquisitions which were accounted for
as purchases with total deposits of approximately $232 million. As previously
discussed throughout 1995, the money market index account, which was introduced
in the third quarter of 1994, has been a substantial contributor to deposit
growth. The average amount of money market index accounts was $1.49 billion in
the first quarter of 1996 compared to $610 million in the same period one year
ago. The increase in this deposit type represents both new deposits and
disintermediation from the Corporation's other deposit accounts.
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the current quarter
and comparative prior year quarter are presented below. Securitized ARM loans
are included with loans at amortized cost and other investment securities
classified as available for sale are stated at amortized cost in order to make
the comparative information more meaningful.
<PAGE>
YIELD & COST ANALYSIS FIRST QUARTER
($ in millions) -----------------------------------------------------
1996 1995
------------------------- --------------------------
Average Average
Average Yield or Average Yield or
Balance Interest Cost Balance Interest Cost
-------------------------- --------------------------
Loans (a) $ 9,231.8 $ 195.1 8.50% $ 8,852.9 $ 186.2 8.53%
Investment Securities:
Taxable 2,019.2 29.7 5.92 2,022.3 28.2 5.67
Tax Exempt (a) 523.4 8.7 6.65 314.5 5.8 7.48
Other Short-term
Investments (a) 212.9 2.9 5.45 249.2 3.7 6.00
-------------------------- --------------------------
Total Interest
Earning Assets $11,987.3 $ 236.4 7.93% $11,438.9 $ 223.9 7.94%
========================== ==========================
Money Market Savings $ 2,386.6 $ 24.5 4.13% $ 1,766.7 $ 17.1 3.93%
Regular Savings
& NOW 1,841.8 9.7 2.11 2,083.7 11.3 2.20
Other CDs & Time
Deposits 3,059.9 44.2 5.82 3,036.8 38.5 5.14
CD's Greater than
$100 634.0 9.2 5.81 485.3 6.6 5.48
-------------------------- --------------------------
Total Interest
Bearing Deposits 7,922.3 87.6 4.45 7,372.5 73.5 4.04
Short-term
Borrowings 768.9 10.0 5.24 1,040.1 14.8 5.77
Long-term
Borrowings 819.4 13.2 6.46 742.3 12.4 6.79
------------------------- ---------------------------
Total Interest
Bearing Liabilities $ 9,510.6 $ 110.8 4.69% $ 9,154.9 $ 100.7 4.46%
========================== ==========================
Net Interest Margin
(FTE) as a Percent
of Average Earning
Assets $ 125.6 4.21% $ 123.2 4.37%
================ ================
(a) Fully taxable equivalent basis (FTE), assuming a Federal income tax rate
of 35%, and excluding disallowed interest expense.
The net interest margin as a percent of average earning assets declined 16
basis points from 4.37% in the first quarter of 1995 to 4.21% in the current
quarter. The yield on average earning assets was relatively unchanged while
the cost of interest bearing liabilities increased 23 basis points. The cost
of short-term and long-term borrowings decreased 53 basis points and 33 basis
points, respectively which followed the general trends in interest rates
throughout 1995 and early 1996. The cost of interest bearing deposits increased
41 basis points in the first quarter of 1996 compared to the same period last
year. Each type of interest bearing deposit experienced an increase in average
cost except regular savings and NOW accounts. Money market accounts increased
20 basis points, other CDs and time deposits increased 68 basis points and CDs
greater than $100,000 increased 33 basis points compared to the same period
last year.
The possible continuing lack of earning asset growth, particularly loan
growth, and shift of deposit mix into higher cost categories may continue to put
pressure on the interest spreads and depress interest margin growth.
<PAGE>
At the end of the first quarter in 1996, the Corporation began entering into
interest rate swaps in order to manage its interest rate exposure.
Interest rate swaps are contractual agreements between counterparties to
exchange interest streams based on notional principal amounts over a set period
of time. Such swap agreements normally involve the exchange of fixed and
floating rate payment obligations without the exchange of the underlying
principal amounts. The notional or principal amount does not represent an
amount at risk, but is used only as a basis for determining the actual cash
flows related to the interest rate contracts. Market risk, due to potential
fluctuations in interest rates, is inherent in swap agreements. All interest
rate swap counterparties are formally evaluated and continually monitored for
credit-worthiness.
At March 31, 1996, the Corporation's quarter-end position in interest rate swaps
amounted to $50 million in notional amount. The swaps have terms which range
from 3 to 5 years and were designated against variable rate loans in order to
reduce interest rate volatility. The effect of the interest rate swaps on net
interest income in the first quarter of 1996 was not material.
PROVISION FOR LOAN LOSSES AND CREDIT QUALITY
- --------------------------------------------
At March 31, 1996, nonperforming assets were $90.8 million compared to $ 70.5
million at December 31, 1995 and $68.9 million at March 31, 1995. Nonaccrual
loans, the largest component of nonperforming assets, increased $21.0 million
since year-end 1995 and increased $27.4 million since March 31, 1995.
Renegotiated loans and other real estate owned were relatively unchanged since
year-end 1995 and loans past due 90 days or more decreased $.8 million or 9.3%
since December 31, 1995.
Compared to March 31, 1995, renegotiated loans decreased $.7 million, loans past
due 90 days or more decreased $2.2 million and other real estate owned decreased
$2.5 million.
Total nonaccrual commercial loans and leases increased $20.9 million since year-
end 1995 and increased $22.5 million since March 31, 1995. Nonaccrual
commercial loans and leases are substantially responsible for the increase in
nonperforming assets at March 31,1996. The increase reflects one commercial
credit (approximately $22.5 million) at the lead bank , M&I Marshall & Ilsley
Bank, which was placed on nonaccrual near the end of the quarter due to future
collectability concerns. Payments were current and therefore net interest
income was not adversely affected. Since year end 1995, nonaccrual real estate
loans decreased $.5 million while nonaccrual personal loans increased $.6
million. Excluding the effect of the larger commercial loan described above,
total nonaccrual loans would have been approximately $49.1 million which is
comparable with the level of nonaccruals in the second, third and fourth
quarters of 1995.
Net charge-offs in the first quarter of 1996 amounted to $2.7 million or .13%
of average loans compared to $5.3 million or .24% of average loans in the fourth
quarter of 1995 and $2.0 million or .09% of average loans in the first quarter
of 1995. Leasing net charge-offs of approximately $2.0 million accounted for
the majority of net charge-off activity in the first quarter of 1996 of which,
$1.9 million related to one lease customer.
<PAGE>
The allowance for loan losses amounted to $161.8 million or 1.84% of total
loans at March 31, 1996 compared to $161.4 million or 1.82% at December 31, 1995
and $157.7 million or 1.76% at March 31, 1995. The coverage ratio of the
allowance for loan losses to nonperforming loans declined from 273% at March
31, 1995 and 261% at December 31, 1995 to 197% at March 31, 1996 largely due to
the increase in nonaccrual commercial loans described above. As previously
discussed approximately $88 million of ARM loans were securitized and
transferred to the Corporation's security portfolio during the first quarter of
1996. In conjunction with this securitization, approximately $.4 million of the
allowance for loan losses was transferred to a specific reserve for estimated
losses based on the Corporation's experience with these types of financial
instruments. The Corporation has agreed to guarantee the first 4% of the loan
pools securitized against potential loss. Since inception of the program in the
third quarter of 1995, approximately $2.7 million of the allowance has been
transferred to the specific reserve and approximately $542 million of ARM loans
have been securitized. There have not been any losses through the first quarter
of 1996.
While net charge-offs and nonperforming assets were adversely impacted in the
first quarter of 1996, the Corporation believes that the current reserve and
provision levels are adequate. The provision for loan losses amounted to $3.6
million in the first quarter of 1996 compared to $4.0 million in the first
quarter of 1995.
CONSOLIDATED CREDIT QUALITY INFORMATION ($000's)
- -------------------------------------------------
1996 1995
--------- -------------------------------------
First Fourth Third Second First
NONPERFORMING ASSETS Quarter Quarter Quarter Quarter Quarter
- -------------------- --------- -------------------------------------
Nonaccrual $ 71,567 $ 50,598 $ 50,643 $ 48,359 $ 44,210
Renegotiated 3,093 3,087 3,298 3,424 3,826
Past Due 90 Days or More 7,422 8,184 7,106 7,879 9,653
--------- --------- -------- --------- --------
Total Nonperforming Loans 82,082 61,869 61,047 59,662 57,689
Other Real Estate Owned 8,744 8,648 8,587 8,510 11,209
--------- --------- -------- --------- --------
Total Nonperforming Assets $ 90,826 $ 70,517 $ 69,634 $ 68,172 $ 68,898
========= ========= ======== ========= ========
ALLOWANCE FOR LOAN LOSSES $ 161,841 $ 161,430 $164,287 $ 160,565 $157,689
========= ========= ======== ========= ========
CONSOLIDATED STATISTICS
- -----------------------
Net Charge-offs
to Average Loans
Annualized 0.13% 0.24% 0.03% 0.05% 0.09%
Total Nonperforming Loans
to Total Loans 0.93 0.70 0.67 0.65 0.64
Total Nonperforming Assets
to Total Loans and Other
Real Estate Owned 1.03 0.79 0.76 0.74 0.77
Allowance for Loan Losses
to Total Loans 1.84 1.82 1.80 1.75 1.76
Allowance for Loan Losses
to Nonperforming Loans 197 261 269 269 273
<PAGE>
1996 1995
--------- ------------------------------------
First Fourth Third Second First
NONACCRUAL LOANS BY TYPE Quarter Quarter Quarter Quarter Quarter
- ------------------------ --------- ------------------------------------
Commercial
Commercial, Financial &
Agricultural $ 33,608 $ 13,527 $ 14,449 $ 13,703 $ 11,134
Lease Financing
Receivables 2,069 1,244 2,323 2,246 2,086
--------- -------- -------- -------- --------
Total Commercial 35,677 14,771 16,772 15,949 13,220
Real Estate
Construction and Land
Development 630 618 242 666 731
Commercial Mortgage 17,063 16,653 17,407 17,626 16,227
Residential Mortgage 14,785 15,701 13,010 11,590 11,378
--------- -------- -------- -------- --------
Total Real Estate 32,478 32,972 30,659 29,882 28,336
Personal 3,412 2,855 3,212 2,528 2,654
--------- -------- -------- -------- --------
Total Nonaccrual Loans $ 71,567 $ 50,598 $ 50,643 $ 48,359 $ 44,210
========= ======== ======== ======== ========
1996 1995
RECONCILIATION OF --------- -------------------------------------
CONSOLIDATED ALLOWANCE First Fourth Third Second First
FOR LOAN LOSSES Quarter Quarter Quarter Quarter Quarter
- ------------------------ --------- -------------------------------------
Beginning Balance $161,430 $164,287 $160,565 $157,689 $153,961
Provision for Loan Losses 3,577 4,100 4,070 4,005 3,983
Allowance of Bank Acquire -- -- 1,096 -- 1,747
Allowance Transfer for Loan
Securitizations (440) (1,615) (660) -- --
Loans Charged-off
Commercial 763 3,465 502 354 809
Real Estate 455 896 466 161 1,328
Personal 1,336 1,779 1,250 1,402 1,328
Leases 1,989 380 104 258 133
--------- -------- -------- -------- --------
Total Charge-offs 4,543 6,520 2,322 2,175 3,598
Recoveries on Loans
Commercial 828 457 514 256 890
Real Estate 323 144 483 208 225
Personal 665 573 530 576 479
Leases 1 4 11 6 2
--------- -------- -------- -------- --------
Total Recoveries 1,817 1,178 1,538 1,046 1,596
--------- -------- -------- -------- --------
Net Loans Charged-off 2,726 5,342 784 1,129 2,002
--------- -------- -------- -------- --------
Ending Balance $161,841 $161,430 $164,287 $160,565 $157,689
========= ======== ======== ======== ========
OTHER INCOME
- ------------
Total other income in the first quarter of 1996 amounted to $112.7 million, an
increase of $15.0 million or 15.4%, compared to $97.7 million in the same
period last year.
<PAGE>
Data processing revenue increased $10.5 million or 22.0% from $47.8 million in
the first quarter of 1995 to $58.4 million in the current quarter. Processing
revenue increased $6.8 million or 18.8% while software revenue remained
relatively unchanged. Buyout fees, which can vary from period to period,
decreased $1.8 million. Revenues from unique services such as contract
programming and consulting increased $4.7 million. Compared to the fourth
quarter of 1995, total data processing revenue decreased $.3 million. Due to
the timing of conversions and contract signings no significant customer(s) began
their processing cycles during the first quarter of 1996. However, based on the
increase in new signed contracts, the Corporation anticipates that processing
revenue from new customers will be somewhat in line with past quarters.
Trust services revenue amounted to $16.8 million in the first quarter of 1996,
an increase of $1.6 million or 10.5% compared to $15.2 million in the first
quarter of 1995 and remained relatively unchanged from the fourth quarter of the
prior year.
Other customer services increased $1.3 million or 4.7% and totaled $28.9
million in the first quarter of 1996 compared to $27.6 million in the same
period one year ago. Service charges on deposits of $12.9 million was
relatively unchanged from the prior year. Corporate finance and management
service fees from the Corporation's Capital Markets Group increased $.4
million . Mutual fund commissions and trailor fees increased $.8 million.
The effect of net securities transactions in the first quarters of 1996 and 1995
were not significant.
Other income amounted to $8.6 million in the first quarter of 1996 compared to
$7.0 million in the first quarter of 1995, an increase of $1.5 million or 22%.
Gains from the sale of residential mortgage loans which includes the servicing
rights increased $2.7 million.
OTHER EXPENSE
- -------------
Total other expenses in the first quarter of 1996 amounted to $159.2 million,
an increase of $16.5 million or 11.6% compared to $142.7 million in the same
period last year.
The increase in expenses is primarily attributable to the Corporation's
nonbanking businesses especially its Data Services Division. Data Services
expense growth reflects the impact of recent acquisitions, the cost of
adding processing capacity and certain costs associated with developing new
products and technology, which do not qualify for capitalization, in order to
meet the ever-changing needs of its new and existing customers as efficiently
and effectively as possible.
<PAGE>
Expenses of the Corporation's banks in the first quarter of 1996 include costs
of implementing certain initiatives in the areas of retail and small business
lending, loan and deposit operational support and product and service
distribution networks which are intended to improve customer service, enable
more competitive pricing and achieve improved cost efficiencies. Total operating
expenses for the Corporation's combined banks and support services group
excluding costs of initiatives and the effect of lower deposit insurance
premiums increased 2.4 % in the first quarter of 1996 compared to the first
quarter of 1995 and decreased .7 % from the fourth quarter of 1995.
Salaries and employee benefits expense which accounts for over one-half of total
other expenses, amounted to $91.6 million in the first quarter of 1996 compared
to $80.9 million in the first quarter of 1995, an increase of $10.8 million or
13.3%. Approximately, $0.7 million of the increase reflects severance and other
related costs associated with the implementation of the banking initiatives
described above. Total salaries and benefits expense for the Corporation's banks
and support services group decreased in the first quarter compared to the same
period last year. Salaries and employee benefits expense of Data Services
increased $8.0 million or 27.1% in the current quarter compared to the same
period last year. At March 31, 1996 Data Services had approximately 2,643
employees compared to 2,268 at March 31, 1995. Approximately 25% of the employee
increase relates to a New England data center which was acquired in late June,
1995.
Net occupancy expense increased $1.0 million or 11.6% , equipment expense
increased $4.6 million or 30.7% , processing charges increased $.4 million or
10% and supplies and printing increased $1.2 million or 34.4% in the first
quarter of 1996 compared to the same period last year. Data Services expense
growth accounted for approximately $6.4 million or 89% of the combined expense
growth of $7.2 million in these categories.
The decrease in payments to regulatory agencies reflects the decrease in
insurance premium rates on deposits insured through the FDIC which went into
effect June 1, 1995.
The increase in professional services of $.3 million or 8.4% is attributable to
fees to consultants utilized in conjunction with the Corporation's banking
initiatives.
Other expense increased 15% or $3.1 million from $21.0 million in the first
quarter of 1995 to $24.1 million in the first quarter of 1996. Data Services
contributed $1.9 million or 61% of the expense growth.
INCOME TAXES
- ------------
The provision for income taxes for the three months ended March 31, 1996
amounted to $26.4 million compared to $25.8 million for the three months ended
March 31, 1995. The effective tax rate remained relatively unchanged.
CAPITAL RESOURCES
- -----------------
Shareholders' equity was $1.26 billion or 9.39% of total consolidated assets
at March 31, 1996 compared to $1.26 billion and 9.43% at December 31, 1995 and
$1.13 billion and 8.91% at March 31,1995.
<PAGE>
Net unrealized gains and losses on securities available for sale decreased $6.9
million since December 31, 1995 and increased $29.3 million from a net
unrealized loss of $14.9 million at March 31, 1995 to a net unrealized gain of
$14.4 million at March 31, 1996.
The Corporation continued to acquire common shares in accordance with the Stock
Repurchase Program approved by its Board of Directors. During the first quarter
of 1996 1.1 million shares of common stock were acquired with an aggregate cost
of $26.9 million . Since inception of the program in April, 1993, 13.6 million
common shares have been acquired with a cumulative cost of $305.5 million.
In April, 1996 the Corporation's Board of Directors reaffirmed the Stock
Repurchase Program and increased the authorization for repurchase to 21.5
million shares from the previous authorization of 15.1 million shares. In
addition the Board of Directors approved a 12% increase in the quarterly cash
dividend on common stock to $0.185 per share from the $0.165 per share paid in
the first quarter.
On April 1, 1996 the holder of the Corporation's 8.5% convertible subordinated
notes converted $16.8 million of the notes into 1.9 million shares of the
Corporation's common stock. The common stock acquired through the conversion
of the notes was exchanged for .17 million shares of the Corporation's Series
A convertible preferred stock.
The Corporation continues to have a strong capital base and its regulatory
capital ratios are significantly above the minimum requirements as shown in the
following tables as of March 31, 1996.
<PAGE>
The Corporation's risk-based capital and leverage ratios are as follows:
RISK-BASED CAPITAL RATIOS
As of March 31, 1996
($ in millions)
-------------------------
Amount Ratio
---------- ---------
Tier 1 capital $ 1,174.5 11.81 %
Tier 1 capital
minimum requirement 397.9 4.00
---------- ---------
Excess $ 776.6 7.81 %
========== =========
Total capital $ 1,406.1 14.13 %
Total capital
minimum requirement 795.8 8.00
---------- ---------
Excess $ 610.3 6.13 %
========== =========
Risk-adjusted assets $ 9,947.8
==========
LEVERAGE RATIO
As of March 31, 1996
($ in millions)
-----------------------
Amount Ratio
---------- ---------
Tier 1 capital to
adjusted total assets $ 1,174.5 9.03 %
Minimum leverage
requirement 390.3-650.5 3.00-5.00
----------- ---------
Excess $784.2-524.0 6.03-4.03 %
=========== =========
Adjusted average total assets $ 13,010.1
==========
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
_________________________________________
A. Exhibits:
Exhibit 11 - Statement - Computation of Earnings Per Share
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARSHALL & ILSLEY CORPORATION
(Registrant)
/s/ P.R. Justiliano
______________________________________
P.R. Justiliano
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
/s/ J.E. Sandy
______________________________________
J.E. Sandy
Vice President
May 14, 1996
<PAGE>
MARSHALL & ILSLEY CORPORATION EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
($000's except per share data)
Three Months Ended March 31,
----------------------------
PRIMARY 1996 1995
- ------- ------------ ------------
Earnings:
Net income $ 46,155 $ 46,135
============ ============
Shares:
Weighted average number of common shares
outstanding 93,077 93,542
Additional shares relating to:
Convertible preferred stock 3,833 3,833
Stock options outstanding at end
of each period and exercised
during each period (a) 1,282 1,117
------------ ------------
Total average primary shares outstanding 98,192 98,492
============ ============
EARNINGS PER SHARE:
Primary $ 0.47 $ 0.47
============ ============
FULLY DILUTED
- -------------
Earnings:
Net income $ 46,155 $ 46,135
Add: Interest on convertible notes,
net of income tax effect 465 465
------------ ------------
$ 46,620 $ 46,600
============ ============
Shares:
Weighted average number of common shares
outstanding 93,077 93,542
Additional shares relating to:
Convertible preferred stock 3,833 3,833
Stock options outstanding at end
of each period and exercised
during each period (b) 1,335 1,188
Assumed conversion of convertible notes 3,844 3,844
------------ ------------
Total average fully diluted shares outstanding 102,089 102,407
============ ============
EARNINGS PER SHARE:
Fully Diluted $ 0.46 $ 0.46
============ ============
Notes:
- ------
(a) Based on the treasury stock method using average market price.
(b) Based on the treasury stock method using period-end market price, if higher
than average market price for options outstanding at end of each period and
market price at date of exercise for options exercised during each period.
<PAGE>
MARSHALL & ILSLEY CORPORATION EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
($000's)
<TABLE>
<CAPTION>
Three
Months
Ended Years Ended December 31,
March 31, -------------------------------------------------
Earnings: 1996 1995 1994 1993 1992 1991
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary
items and cumulative effect of changes
in accounting principles $ 72,584 $ 299,879 $ 167,803 $ 264,584 $ 231,792 $ 186,738
Fixed charges, excluding interest
on deposits 24,999 108,683 77,074 47,905 50,687 66,641
--------- ---------- --------- --------- --------- ---------
Earnings including fixed charges but
excluding interest on deposits 97,583 408,562 244,877 312,489 282,479 253,379
Interest on deposits 87,602 331,734 255,861 272,100 334,443 448,757
--------- ---------- --------- --------- --------- ---------
Earnings including fixed charges and
interest on deposits $ 185,185 $ 740,296 $ 500,738 $ 584,589 $ 616,922 $ 702,136
========= ========== ========= ========= ========= =========
Fixed Charges:
Interest Expense:
Short-term borrowings $ 10,026 $ 47,740 $ 39,681 $ 18,010 $ 17,606 $ 32,065
Long-term borrowings 13,164 53,709 30,537 23,088 26,439 27,770
One-third of rental expense for all operating
leases (the amount deemed representative
of the interest factor) 1,809 7,234 6,856 6,807 6,642 6,806
--------- ---------- --------- --------- --------- ---------
Fixed charges excluding
interest on deposits 24,999 108,683 77,074 47,905 50,687 66,641
Interest on deposits 87,602 331,734 255,861 272,100 334,443 448,757
--------- ---------- --------- --------- --------- ---------
Fixed charges including
interest on deposits $ 112,601 $ 440,417 $ 332,935 $ 320,005 $ 385,130 $ 515,398
========= ========== ========= ========= ========= =========
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 3.90 x 3.76 x 3.18 x 6.52 x 5.57 x 3.80 x
Including interest on deposits 1.64 x 1.68 x 1.50 x 1.83 x 1.60 x 1.36 x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 617,746
<INT-BEARING-DEPOSITS> 7,982,109
<FED-FUNDS-SOLD> 91,878
<TRADING-ASSETS> 31,211
<INVESTMENTS-HELD-FOR-SALE> 2,699,621
<INVESTMENTS-CARRYING> 509,487
<INVESTMENTS-MARKET> 509,557
<LOANS> 8,782,236
<ALLOWANCE> 161,841
<TOTAL-ASSETS> 13,376,572
<DEPOSITS> 10,061,274
<SHORT-TERM> 1,419,841
<LIABILITIES-OTHER> 329,197
<LONG-TERM> 310,036
0
349
<COMMON> 99,494
<OTHER-SE> 1,156,381
<TOTAL-LIABILITIES-AND-EQUITY> 13,376,572
<INTEREST-LOAN> 185,816
<INTEREST-INVEST> 44,729
<INTEREST-OTHER> 2,884
<INTEREST-TOTAL> 233,429
<INTEREST-DEPOSIT> 87,602
<INTEREST-EXPENSE> 23,190
<INTEREST-INCOME-NET> 122,637
<LOAN-LOSSES> 3,577
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 159,189
<INCOME-PRETAX> 72,584
<INCOME-PRE-EXTRAORDINARY> 46,155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,155
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 4.20
<LOANS-NON> 71,567
<LOANS-PAST> 7,422
<LOANS-TROUBLED> 3,093
<LOANS-PROBLEM> 82,082
<ALLOWANCE-OPEN> 161,430
<CHARGE-OFFS> 4,543
<RECOVERIES> 1,817
<ALLOWANCE-CLOSE> 161,841
<ALLOWANCE-DOMESTIC> 161,841
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
