<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 September 30, 1997
-------------------------------------------------
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 October 31, 1997
----- ----------------
Common Stock, $1.00 Par Value 101,383,805
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
($000's except share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
Assets 1997 1996 1996
- ------ ------------ ------------ -------------
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 794,947 $ 780,562 $ 769,509
Federal funds sold and
security resale agreements 72,550 123,880 80,149
Money market funds 45,693 63,482 38,128
------------ ------------ ------------
Total cash and cash equivalents 913,190 967,924 887,786
Trading securities 39,303 39,671 32,958
Other short-term investments 42,780 45,711 33,975
Investment securities available for sale at
market value 3,018,850 3,065,048 2,927,618
Investment securities held to maturity,
market value $898,060 ($776,750 December 31,
and $704,392 September 30, 1996) 882,446 773,804 707,603
------------ ------------ ------------
Total investment securities 3,901,296 3,838,852 3,635,221
Loans 10,240,513 9,301,884 9,309,436
Less: Allowance for loan losses 157,893 155,895 152,755
------------ ------------ ------------
Net loans 10,082,620 9,145,989 9,156,681
Premises and equipment, net 318,265 313,381 301,323
Accrued interest and other assets 417,662 411,785 396,393
------------ ------------ ------------
Total Assets $ 15,715,116 $ 14,763,313 $ 14,444,337
============ ============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,456,120 $ 2,470,882 $ 2,349,445
Interest bearing 8,823,962 8,481,476 8,217,943
------------ ------------ ------------
Total deposits 11,280,082 10,952,358 10,567,388
Funds purchased and security
repurchase agreements 1,642,591 1,337,940 1,537,551
Other short-term borrowings 602,592 496,609 511,129
Accrued expenses and other liabilities 416,348 379,100 324,802
Long-term borrowings 394,090 336,096 232,727
------------ ------------ ------------
Total liabilities 14,335,703 13,502,103 13,173,597
Shareholders' equity:
Series A convertible preferred stock,
$1.00 par value; 685,314 shares issued (517,129
December 31, and September 30, 1996) 685 517 517
Common stock, $1.00 par value; 99,494,335
shares issued 99,494 99,494 99,494
Additional paid-in capital 194,668 204,135 200,320
Retained earnings 1,326,360 1,209,167 1,165,163
Less: Treasury common stock, at cost;
10,621,925 shares (10,910,798 December 31,
and 8,457,461 September 30, 1996) 282,069 279,143 197,895
Deferred compensation 1,014 825 954
Net unrealized gains on securities
available for sale, net of related taxes 41,289 27,865 4,095
------------ ------------ ------------
Total shareholders' equity 1,379,413 1,261,210 1,270,740
------------ ------------ ------------
Total Liabilities and
Shareholders' Equity $ 15,715,116 $ 14,763,313 $ 14,444,337
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except per share data)
Three Months Ended September 30,
--------------------------------
Interest income 1997 1996
- --------------- ------------ ------------
Loans $ 211,182 $ 191,148
Investment securities:
Taxable 49,580 44,815
Exempt from Federal income taxes 11,232 8,366
Trading securities 506 308
Short-term investments 2,083 1,988
------------ ------------
Total interest income 274,583 246,625
Interest expense
- ----------------
Deposits 103,411 91,383
Short-term borrowings 26,666 19,421
Long-term borrowings 8,988 9,570
------------ ------------
Total interest expense 139,065 120,374
------------ ------------
Net interest income 135,518 126,251
Provision for loan losses 4,258 3,983
------------ ------------
Net interest income after
provision for loan losses 131,260 122,268
Other income
- ------------
Data processing services 86,653 69,741
Trust services 20,072 17,632
Other customer services 32,273 29,151
Net securities gains 137 15
Other 13,078 6,962
------------ ------------
Total other income 152,213 123,501
Other expense
- -------------
Salaries and employee benefits 111,107 96,541
Net occupancy 9,742 9,505
Equipment 21,741 19,412
Software expenses 5,037 3,710
Payments to regulatory agencies 618 3,434
Processing charges 6,388 5,046
Supplies and printing 3,694 3,621
Professional services 4,296 3,842
Other 27,526 33,360
------------ ------------
Total other expense 190,149 178,471
------------ ------------
Income before income taxes 93,324 67,298
Provision for income taxes 31,460 22,260
------------ ------------
Net income $ 61,864 $ 45,038
============ ============
Net income per common share
- ---------------------------
Primary $ 0.63 $ 0.46
Fully Diluted 0.63 0.45
Dividends paid per common share $ 0.200 $ 0.185
Weighted average common shares outstanding:
Primary 98,116 98,545
Fully diluted 98,259 100,649
See notes to financial statements.
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except per share data)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
Interest income
- ---------------
Loans $ 610,397 $ 561,887
Investment securities:
Taxable 148,923 124,579
Exempt from Federal income taxes 31,805 21,702
Trading securities 1,493 834
Short-term investments 7,168 7,079
------------ ------------
Total interest income 799,786 716,081
Interest expense
- ----------------
Deposits 296,450 266,498
Short-term borrowings 77,225 42,224
Long-term borrowings 27,711 34,538
------------ ------------
Total interest expense 401,386 343,260
------------ ------------
Net interest income 398,400 372,821
Provision for loan losses 12,875 11,108
------------ ------------
Net interest income after
provision for loan losses 385,525 361,713
Other income
- ------------
Data processing services 249,074 194,099
Trust services 57,801 51,953
Other customer services 91,339 86,797
Net securities gains 953 199
Other 29,228 23,776
------------ ------------
Total other income 428,395 356,824
Other expense
- -------------
Salaries and employee benefits 324,371 281,386
Net occupancy 29,764 29,143
Equipment 64,183 58,521
Software expenses 14,294 10,802
Payments to regulatory agencies 1,846 4,558
Processing charges 18,293 14,279
Supplies and printing 11,935 12,056
Professional services 12,429 12,297
Other 76,328 78,814
------------ ------------
Total other expense 553,443 501,856
------------ ------------
Income before income taxes 260,477 216,681
Provision for income taxes 87,192 75,120
------------ ------------
Net income $ 173,285 $ 141,561
============ ============
Net income per common share
- ---------------------------
Primary $ 1.78 $ 1.43
Fully Diluted 1.77 1.40
Dividends paid per common share $ 0.585 $ 0.535
Weighted average common shares outstanding:
Primary 97,384 98,714
Fully diluted 98,310 101,483
See notes to financial statements.
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($000's)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
Net Cash Provided by Operating Activities $ 222,718 $ 167,460
Cash Flows From Investing Activities:
- -------------------------------------
Net (increase)decrease in securities with
maturities of three months or less (200) 64,250
Proceeds from sales of securities
available for sale 428,429 217,245
Proceeds from maturities of longer
term securities 441,384 653,485
Purchases of longer term securities (905,217) (1,539,250)
Net increase in loans (881,477) (528,322)
Purchases of assets to be leased (191,029) (115,824)
Principal payments on lease receivables 131,865 105,178
Fixed asset purchases, net (42,470) (24,123)
Cash of companies acquired, net -- (25,741)
Other 7,969 4,649
------------ ------------
Net cash used in
investing activities (1,010,746) (1,188,453)
------------ ------------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase in deposits 331,318 286,611
Proceeds from issuance of commercial paper 299,710 478,178
Payments for maturity of commercial paper (208,507) (498,950)
Net increase in other short-term
borrowings 511,815 1,188,414
Proceeds from issuance of long-term debt 77,026 36,184
Payments of long-term debt (191,450) (350,384)
Dividends paid (56,092) (52,012)
Purchases of treasury stock (46,867) (85,917)
Other 16,341 9,166
------------ ------------
Net cash provided by financing
activities 733,294 1,011,290
------------ ------------
Net decrease in cash and cash equivalents (54,734) (9,703)
Cash and cash equivalents, beginning of year 967,924 897,489
------------ ------------
Cash and cash equivalents, end of period $ 913,190 $ 887,786
============ ============
Supplemental cash flow information:
- -----------------------------------
Cash paid during the period for:
Interest $ 389,646 $ 345,871
Income taxes 71,534 81,231
See notes to financial statements.
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements
September 30, 1997 & 1996 (Unaudited)
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with Marshall & Ilsley Corporation's ("Corporation")
1996 Annual Report on Form 10-K/A. 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 and nine months ended September 30, 1997 and 1996. The results of
operations for the three months and nine months ended September 30, 1997
and 1996 are not necessarily indicative of results to be expected for the
entire year. Certain amounts in the 1996 consolidated financial
statements and analyses have been reclassified to conform with the 1997
presentation.
2. The Corporation has 5,000,000 shares of preferred stock authorized, of
which the Board of Directors has designated 2,000,000 shares as Series A
convertible, with a $100 value per share for conversion 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):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
Commercial, financial & agricultural $ 3,249,972 $ 2,917,393 $ 3,026,750
Real estate:
Construction 354,095 323,420 304,908
Residential Mortgage 2,542,366 2,176,224 2,180,842
Commercial Mortgage 2,546,552 2,379,156 2,349,363
----------------------------------------
Total real estate 5,443,013 4,878,800 4,835,113
Personal 1,127,212 1,174,186 1,139,402
Lease financing 420,316 331,505 308,171
----------------------------------------
$ 10,240,513 $ 9,301,884 $ 9,309,436
=======================================
</TABLE>
4. Investment securities, by type, held by the Corporation are as follows
($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
Investment securities held to maturity:
State and political subdivisions $ 878,025 $ 769,748 $ 703,547
Other 4,421 4,056 4,056
----------------------------------------
Investment securities
held to maturity 882,446 773,804 707,603
Investment securities available for sale:
U.S. treasury and
government agencies 2,870,469 2,856,625 2,771,331
State and political subdivisions 298 719 893
Other 148,083 207,704 155,394
----------------------------------------
Investment securities
available for sale 3,018,850 3,065,048 2,927,618
----------------------------------------
Total investment securities $ 3,901,296 $ 3,838,852 $ 3,635,221
========================================
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1997 & 1996 (Unaudited)
5. On March 31, 1997 and April 1, 1996, $16.8 million of the Corporation's
8.5% convertible subordinated notes were converted by the holder into
1,922,114 shares of the Corporation's common stock each in separate
transactions. The common stock acquired by conversion of the notes were
each exchanged for 168,185 shares of the Corporation's Series A
convertible preferred stock. These are noncash transactions for purposes
of the Consolidated Statements of Cash Flows.
6. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." This statement establishes new standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15, "Earnings Per Share" and
purports to simplify the standards for computing EPS and makes them
comparable to international standards.
SFAS No. 128 replaces the presentation of primary EPS with a presentation
of basic EPS which excludes dilution and requires dual presentation of
basic and diluted EPS for all entities with complex capital structures.
Diluted EPS is computed similarly to fully diluted EPS pursuant to the
previous standard.
The Corporation is required to adopt the new standard in its year-end
1997 financial statements. All prior period EPS information (including
interim EPS) is required to be restated at that time. Early adoption is
not permitted.
The pro forma impact of adopting SFAS No. 128 is as follows:
1997 1996
--------------- ---------------
Pro Forma Earnings Per Share Basic Diluted Basic Diluted
------- ------- ------- -------
Three Months Ended September 30, $0.68 $0.63 $0.48 $0.45
======= ======= ======= =======
Nine Months Ended September 30, $1.91 $1.77 $1.51 $1.41
======= ======= ======= =======
7. The Corporation's deposit liabilities consists of the following ($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
Noninterest bearing demand $ 2,456,120 $ 2,470,882 $ 2,349,445
Savings and NOW 4,404,456 4,400,594 4,248,184
Other time deposits $100 and over 1,268,590 1,059,066 927,931
Other time deposits under $100 3,150,916 3,021,816 3,041,828
----------------------------------------
$ 11,280,082 $ 10,952,358 $ 10,567,388
========================================
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1997 & 1996 (Unaudited)
8. Interest Risk Management Instruments - The Securities and Exchange
Commission recently adopted new rules that require expanded disclosure of
accounting policies for derivative financial instruments. The following
accounting policy disclosures supplement the disclosures included in
Note 1 - Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements contained in Item 8 of the
Corporation's 1996 Annual Report on Form 10-K/A.
At the present time, interest rate swaps are the primary derivative
interest rate management instrument used for asset/liability management.
Options (caps and floors) are also used for asset/liability purposes
however, these contracts are not currently material to the Corporation's
financial condition or net income.
The hedge accounting method is applied to interest rate swaps that meet
the hedge criteria which is discussed below. Under this method, accrued
income or expense associated with the swap is recognized as a component
of the interest income or expense of the hedged asset or liability.
Unrealized gains and losses are recognized on a basis that is consistent
with the method of accounting for the hedged asset or liability.
Unrealized gains or losses are not recognized for hedged assets or
liabilities carried at amortized cost. Unrealized gains and losses on
hedged assets and liabilities which are carried at fair value are
reported as a component of shareholders' equity, net of applicable income
tax effects.
The criteria to qualify an interest rate swap for the hedge accounting
method is as follows:
1. The swap must be designated as a hedge and reduce the
interest rate risk of the designated asset or liability.
2. The notional amount of the swap must be less than or equal to
the amortized cost of the asset or liability to be hedged.
3. The swap must achieve its intended objective of converting
the yield on the hedged asset or liability to the desired
rate. This criteria is assumed to have been met if the
interest rate on the hedged asset or liability is identical
to the offsetting rate on the swap. If the two rates are not
identical, the correlation between the levels of the two
rates since inception of the swap must be measured to ensure
that the swap is meeting its intended objective.
If an interest risk management instrument is terminated or ceases to
qualify for the hedge accounting method, any realized or unrealized gain
or loss at that time is deferred and amortized over the remaining period
of the original hedge. Any subsequent realized or unrealized gains or
losses on instruments that no longer meet the hedge criteria are included
in the determination of net income. If the item being hedged is sold,
any deferred or unrealized gain or loss on the interest risk management
instrument at the time of sale is considered in the determination of the
gain or loss on the sale. If the interest risk management instrument is
not terminated, it must be carried at fair vale on a prospective basis,
with changes in fair value included in the determination of periodic net
income.
Cash flows from interest risk management instruments are reported in the
consolidated statement of cash flows as operating activities.
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1997 & 1996 (Unaudited)
9. On October 1, 1997, the Corporation acquired Security Capital Corporation
("Security") pursuant to an Agreement and Plan of Merger dated as of
March 14, 1997. Consideration for the outstanding shares of Security
Common Stock consisted of 12.3 million shares of the Corporation's
Common Stock and $376.3 million in cash. The acquisition of Security
will contribute approximately $2.4 billion and $2.3 billion of loans and
deposits, respectively and result in total combined assets of
approximately $19 billion. The transaction was accounted for using the
purchase method of accounting. Accordingly, the Corporation's financial
statements will include the effect of Security only for the period
subsequent to the October 1, 1997 acquisition date. Initial goodwill of
approximately $247 million and $37.4 million of core deposit intangible
were recorded in connection with this transaction. The goodwill is being
amortized on a straight-line basis over 25 years and the core deposit
intangible is being amortized on an accelerated basis.
The information below presents, on a pro forma basis, certain historical
financial information for the Corporation, adjusted for the Security
transaction as if the transaction had been consummated on the first of
January of the indicated year. ($ in thousands except per share data).
Nine Months Ended
September 30,
-------------------------
Pro Forma Corporation and Security 1997 1996
------------ ------------
Total Revenues (Interest Income
plus Other Income) $1,441,389 $1,251,834
Net Income 135,373 132,578
Net Income Per Share
Primary $1.23 $1.19
Fully Diluted 1.22 1.17
The pro forma net income shown above includes certain merger related
expenses incurred by Security during the nine months ended September 30,
1997. In addition, the Corporation and Security incurred certain one-time
special charges in 1996. The following table reconciles pro forma net
income and pro forma net income per share to pro forma operating income
and pro forma operating income per share.
<TABLE>
<CAPTION>
Pro Forma Nine Months Ended September 30,
($000's except per share data)
------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
Earnings Per Share Earnings Per Share
---------------------- ----------------------
After-Tax Fully After-Tax Fully
Amount Primary Diluted Amount Primary Diluted
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Net Income $135,373 $1.23 $1.22 $132,578 $1.19 $1.17
The Corporation
Write-off In-process Technology
EastPoint Acquisition 7,865 0.07 0.07
SAIF Assessment 1,746 0.02 0.01
Security
Merger Related Costs - Investment
Bankers, Legal & Accounting 7,669 0.07 0.07
Required Branch Divestitures (6,374) (0.06) (0.06)
Compensation for cash-out of
Stock Options 46,149 0.42 0.42
Lawsuit Settlement 1,920 0.02 0.02
SAIF Assessment 7,917 0.07 0.07
-------------------------------- --------------------------------
Total Pro Forma Operating Income $182,817 $1.66 $1.65 $152,026 $1.37 $1.34
================================ ================================
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
Three Months Ended September 30,
--------------------------------
Assets 1997 1996
- ------ ------------ ------------
Cash and due from banks $ 601,508 $ 569,502
Short-term investments 154,156 155,625
Trading securities 40,549 25,583
Investment securities:
Taxable 2,953,401 2,828,184
Tax-exempt 933,114 726,872
------------ ------------
Total investment securities 3,886,515 3,555,056
Loans:
Commercial 3,143,482 2,981,023
Real estate 5,341,948 4,678,969
Personal 1,120,636 1,132,014
Lease financing 401,019 295,412
------------ ------------
10,007,085 9,087,418
Less: Allowance for loan losses 157,299 164,079
------------ ------------
Total loans 9,849,786 8,923,339
Premises and equipment, net 321,227 303,055
Accrued interest and other assets 393,365 388,683
------------ ------------
Total Assets $ 15,247,106 $ 13,920,843
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,268,055 $ 2,109,407
Interest bearing 8,847,646 8,166,388
------------ ------------
Total deposits 11,115,701 10,275,795
Funds purchased and security repurchase
agreements 1,727,115 1,339,433
Other short-term borrowings 178,425 116,644
Long-term borrowings 485,565 584,581
Accrued expenses and other liabilities 377,603 322,501
------------ ------------
Total liabilities 13,884,409 12,638,954
Shareholders' equity 1,362,697 1,281,889
------------ ------------
Total Liabilities and Shareholders' Equity $ 15,247,106 $ 13,920,843
============ ============
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
Nine Months Ended September 30,
-------------------------------
Assets 1997 1996
- ------ ------------ ------------
Cash and due from banks $ 585,619 $ 568,703
Short-term investments 173,984 177,497
Trading securities 40,567 23,086
Investment securities:
Taxable 2,968,485 2,666,444
Tax-exempt 889,422 625,677
------------ ------------
Total investment securities 3,857,907 3,292,121
Loans:
Commercial 3,049,725 2,941,086
Real estate 5,141,526 4,516,344
Personal 1,135,484 1,137,170
Lease financing 371,080 285,067
------------ ------------
9,697,815 8,879,667
Less: Allowance for loan losses 156,962 163,255
------------ ------------
Total loans 9,540,853 8,716,412
Premises and equipment, net 318,865 303,571
Accrued interest and other assets 393,006 367,670
------------ ------------
Total Assets $ 14,910,801 $ 13,449,060
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,170,612 $ 2,044,277
Interest bearing 8,667,354 8,027,446
------------ ------------
Total deposits 10,837,966 10,071,723
Funds purchased and security repurchase
agreements 1,705,964 951,724
Other short-term borrowings 179,720 124,951
Long-term borrowings 512,360 712,742
Accrued expenses and other liabilities 358,336 313,055
------------ ------------
Total liabilities 13,594,346 12,174,195
Shareholders' equity 1,316,455 1,274,865
------------ ------------
Total Liabilities and Shareholders' Equity $ 14,910,801 $ 13,449,060
============ ============
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- ----------------------------------------------
Net income for the third quarter of 1997 amounted to $61.9 million compared to
$45.0 million for the same period in the prior year. Primary and fully diluted
earnings per share were both $.63 for the three months ended September 30, 1997,
compared with $.46 and $.45, respectively for the three months ended September
30, 1996. The return on average assets and average equity were 1.61% and 18.01%
for the quarter ended September 30, 1997 and 1.29% and 13.98% for the quarter
ended September 30, 1996.
During the third quarter of 1996, the Corporation completed the acquisition of
EastPoint Technology, Inc. In conjunction with the acquisition, research and
development costs relating to acquired in-process technology were written-off.
Also during the same quarter, the Corporation accrued the one-time assessment
associated with the SAIF recapitalization enacted into law on September 30,
1996.
The following table shows the impact of the special charges described above ($
in millions, except per share data):
Earnings Per Share
---------------------
Fully
Pre-tax After-tax Primary Diluted
---------- ---------- ---------- ----------
Net Income $67.3 $45.0 $0.46 $0.45
Special Charges
Write-off In-process Technology
EastPoint Acquisition 12.1 7.9 0.08 0.08
SAIF Assessment 2.8 1.7 0.01 0.02
---------- ---------- ---------- ----------
Total Special Charges 14.9 9.6 0.09 0.10
---------- ---------- ---------- ----------
Income Before Special Charges $82.2 $54.6 $0.55 $0.55
========== ========== ========== ==========
Excluding special charges, the increase in net income of $7.2 million or 13.2%
in the current quarter compared with the same quarter last year reflects the
growth in noninterest income and the increase in net interest income offset
somewhat by an increase in the provision for loan losses and the increase in
noninterest expense.
The following tables present a summary of each of the major elements of the
consolidated operating income statement, certain financial statistics and a
summary of the major operating 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.
Operating income excludes the third quarter 1996 special charges previously
discussed.
<PAGE>
SUMMARY CONSOLIDATED OPERATING INCOME STATEMENTS AND FINANCIAL STATISTICS
- -------------------------------------------------------------------------
($000's except per share data)
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest Income $ 274,583 $ 267,280 $ 257,923 $ 255,355 $ 246,625
Interest Expense (139,065) (134,040) (128,281) (122,457) (120,374)
----------- ----------- ----------- ----------- ----------
Net Interest Income 135,518 133,240 129,642 132,898 126,251
Provision for Loan Losses (4,258) (4,306) (4,311) (4,086) (3,983)
Net Securities Gains 137 13 803 14,677 15
Other Income 152,076 138,574 136,792 131,819 123,486
Other Expense (190,149) (182,527) (180,767) (178,849) (163,587)
----------- ----------- ----------- ----------- ----------
Income Before Taxes 93,324 84,994 82,159 96,459 82,182
Income Tax Provision (31,460) (28,372) (27,360) (34,590) (27,533)
----------- ----------- ----------- ----------- ----------
Operating Income $ 61,864 $ 56,622 $ 54,799 $ 61,869 $ 54,649
=========== =========== =========== =========== ==========
Per Common Share
Operating Income Per Share
Primary $ 0.63 $ 0.58 $ 0.57 $ 0.63 $ 0.55
Fully Diluted 0.63 0.58 0.56 0.62 0.55
Dividends 0.200 0.200 0.185 0.185 0.185
Return on Average Equity
Based on Operating Income 18.01 % 17.37 % 17.39 % 18.95 % 16.96 %
</TABLE>
CONSOLIDATED OPERATING INCOME STATEMENT COMPONENTS AS A PERCENT OF AVERAGE
- --------------------------------------------------------------------------
TOTAL ASSETS
- ------------
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest Income (FTE) 7.29 % 7.35 % 7.30 % 7.25 % 7.17 %
Interest Expense (3.62) (3.61) (3.56) (3.41) (3.44)
----------- ----------- ----------- ----------- ----------
Net Interest Income 3.67 3.74 3.74 3.84 3.73
Provision for Loan Losses (0.11) (0.12) (0.12) (0.11) (0.11)
Net Securities Gains 0.00 0.00 0.02 0.41 0.00
Other Income 3.96 3.74 3.80 3.67 3.53
Other Expense (4.95) (4.92) (5.02) (4.99) (4.68)
----------- ----------- ----------- ----------- ----------
Income Before Taxes 2.57 2.44 2.42 2.82 2.47
Income Tax Provision (0.96) (0.91) (0.90) (1.10) (0.91)
----------- ----------- ----------- ----------- ----------
Return on Average Assets
Based on Operating Income 1.61 % 1.53 % 1.52 % 1.72 % 1.56 %
=========== =========== =========== =========== ==========
</TABLE>
<PAGE>
The following table reconciles operating income to operating income before
amortization of intangibles ("tangible operating income"). Amortization includes
amortization of goodwill and core deposit premiums and is net of negative
goodwill accretion and the income tax expense or benefit, if any, related to
each component. These calculations were specifically formulated by the
Corporation and may not be comparable to similarly titled measures reported by
other companies.
SUMMARY CONSOLIDATED TANGIBLE OPERATING INCOME AND FINANCIAL STATISTICS
- -----------------------------------------------------------------------
($000's except per share data)
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Operating Income $ 61,864 $ 56,622 $ 54,799 $ 61,869 $ 54,649
Amortization, net of tax 876 874 874 872 839
----------- ----------- ----------- ----------- ----------
Tangible Operating Income $ 62,740 $ 57,496 $ 55,673 $ 62,741 $ 55,488
=========== =========== =========== =========== ==========
Tangible Operating Income Per Share
Primary $ 0.64 $ 0.59 $ 0.58 $ 0.64 $ 0.56
Fully Diluted 0.64 0.59 0.57 0.63 0.55
Return on Average
Tangible Assets 1.64 % 1.56 % 1.55 % 1.76 % 1.59 %
Tangible Equity 18.85 18.24 18.30 19.91 17.81
</TABLE>
NET INTEREST INCOME
- -------------------
Net interest income for the third quarter of 1997 amounted to $135.5 million,
an increase of $9.2 million or 7.3% from the $126.3 million reported for the
third quarter of 1996. The increase in the volume of average earning assets
contributed approximately $24.7 million while the increase in yield on earning
assets contributed approximately $3.2 million of the increase in interest
income. The increase in the volume of average interest bearing liabilities
contributed approximately $12.0 million and the increase in the cost of interest
bearing liabilities contributed approximately $6.7 million to the increase in
interest expense.
Average earning assets increased $1.3 billion or 9.9% in the third quarter of
1997 compared to the same period a year ago. Including securitized adjustable
rate mortgage loans (ARMS), average loans grew approximately $895.5 million or
9.4% compared to the third quarter of last year. Average securities, excluding
securitized ARMs, increased $355.6 million which reflects the Corporation's
intent, initiated in the prior year, to increase the portfolio size with higher
yielding and longer-term securities to adjust the rate sensitivity and leverage
the consolidated balance sheet. As previously reported, during the second
quarter of 1997, the Corporation's banking affiliates repositioned investment
securities through the sale and purchase of approximately $337 million of
securities available for sale.
Average interest bearing liabilities increased $1.0 billion or 10.1% in the
third quarter of 1997 compared to the same period in 1996. Average interest
bearing deposits increased $681.3 million or 8.3% ,average short-term borrowings
increased $449.5 million while average long-term borrowings decreased $99.0
million or 16.9%. Average noninterest bearing deposits increased $158.6
million or 7.5% during the third quarter of 1997 compared to the third quarter
of 1996.
<PAGE>
Since September 30, 1996, $175 million of the Corporation's banking
subsidiaries' Bank Notes matured and were refinanced primarily with short-term
borrowings and brokered certificates of deposit. Also during the second and
third quarter of 1997, the Corporation began issuing Series C and Series D
Medium Term Notes in order to refinance approximately $ 77 million of Series B
and Series C Medium Term Notes which will mature during the remainder of 1997
and 1998. During the third quarter of 1997 approximately $40.0 million of Medium
Term Notes were issued while $10.5 million of such notes matured.
The growth and composition of the Corporation's quarterly average loan portfolio
for the current quarter and previous four quarters are reflected below.
Securitized ARM loans which are classified in the consolidated balance sheets
as investment securities available for sale are included to provide a more
meaningful comparison ($ in millions):
Marshall & Ilsley Corporation's quarterly average loan portfolio
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------ Annual
Third Second First Fourth Third Growth
Quarter Quarter Quarter Quarter Quarter PCT
--------- --------- --------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans $ 3,143 $ 3,057 $ 2,946 $ 2,919 $ 2,981 5.4 %
Real Estate Loans
Construction 336 320 323 321 283 18.7
Commercial Mortgages 2,526 2,496 2,417 2,359 2,303 9.7
Residential Mortgages 2,480 2,329 2,193 2,201 2,093 18.5
Securitized ARM loans 436 512 550 487 460 (5.2)
--------- --------- --------- --------- -------- -------
Residential Mortgages 2,916 2,841 2,743 2,688 2,553 14.2
--------- --------- --------- --------- -------- -------
Total Real Estate Loans 5,778 5,657 5,483 5,368 5,139 12.4
Personal Loans
Personal Loans 854 850 872 871 851 0.3
Student Loans 267 277 288 283 281 (5.0)
--------- --------- --------- --------- -------- -------
Total Personal Loans 1,121 1,127 1,160 1,154 1,132 (1.0)
Lease Financing Receivables
Commercial 287 280 279 269 258 11.0
Personal 114 88 64 49 37 208.5
--------- --------- --------- --------- -------- -------
Lease Financing Receivables 401 368 343 318 295 35.7
--------- --------- --------- --------- -------- -------
Total Consolidated
Average Loans & ARMs $ 10,443 $ 10,209 $ 9,932 $ 9,759 $ 9,547 9.4 %
========= ========= ========= ========= ======== =======
Total Consolidated
Average Loans $ 10,007 $ 9,697 $ 9,382 $ 9,272 $ 9,087 10.1 %
========= ========= ========= ========= ======== =======
</TABLE>
During 1996 approximately $224 million of ARM loans were converted into
government guaranteed agency pool securities. There were no ARM loan
securitizations during the first three quarters of 1997. Including the
securitized ARMs, average residential mortgages increased by approximately
$362.2 million or 14.2% in the third quarter of 1997 compared with the third
quarter of 1996. Approximately $97.3 million of the increase is attributable to
home equity loans and lines of credit.
Lease financing receivables increased $105.6 million or 35.7% in the third
quarter of 1997 compared with the same period last year of which, approximately
$77.3 million is due to growth in automobile leasing.
<PAGE>
The growth and composition of the Corporation's quarterly average deposits for
the current and prior year's quarters are as follows ($ in millions):
Marshall & Ilsley Corporation's quarterly average deposits
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------ Annual
Third Second First Fourth Third Growth
Quarter Quarter Quarter Quarter Quarter PCT
--------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing
Commercial $ 1,476 $ 1,388 $ 1,362 $ 1,462 $ 1,368 7.9 %
Personal 341 343 331 329 384 (11.4)
Other 451 424 394 436 358 26.6
--------- --------- --------- --------- -------- -------
Total Noninterest
Bearing Deposits 2,268 2,155 2,087 2,227 2,110 7.5
Interest Bearing
Savings & NOW 1,753 1,732 1,753 1,787 1,803 (2.8)
Money Market 2,695 2,642 2,613 2,557 2,451 9.9
Other CDs & Time Deposits 3,122 3,032 3,027 3,054 3,048 2.4
CDs Greater than $100 678 672 662 643 643 5.4
Brokered CDs 600 559 458 369 221 172.0
--------- --------- --------- --------- -------- -------
Total Interest
Bearing Deposits 8,848 8,637 8,513 8,410 8,166 8.3
--------- --------- --------- --------- -------- -------
Total Consolidated
Average Deposits $ 11,116 $ 10,792 $ 10,600 $ 10,637 $ 10,276 8.2 %
========= ========= ========= ========= ======== =======
</TABLE>
Money market savings and brokered CDs exhibited the greatest growth when
comparing average deposits in the third quarter of 1997 to the third quarter
of 1996. The money market index account increased $339.9 million or 20.8% and
averaged $1.97 billion in the third quarter of 1997 compared with $1.63 billion
during the same period last year. During the second quarter of 1997, the
Corporation began issuing brokered CDs which are callable at the option of the
Corporation in addition to other brokered CDs. Concurrently with the callable
issue, the Corporation entered into receive fixed interest rate swaps which are
callable at the option of the counterparty. Callable CDs averaged approximately
$36 million in the third quarter of 1997 and amounted to $55 million at
September 30, 1997. The increase in brokered CDs represents the Corporation's
intent to acquire longer-term CDs with maturities of one year or more in order
to provide a stable source of funds that over time is less costly than Bank
Notes. The brokered callable CDs provide term liquidity at rates below LIBOR.
<PAGE>
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the current quarter
and comparative prior year quarter are presented in the following table.
Securitized ARM loans that are classified as investment securities available for
sale are included with loans to make the comparative information more
meaningful.
<TABLE>
<CAPTION>
YIELD & COST ANALYSIS THIRD QUARTER
($ in millions) -----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Average Average
Average Yield Average Yield
Balance Interest or Cost Balance Interest or Cost
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans (a) $ 10,443.3 $ 219.9 8.35 % $ 9,547.7 $ 199.9 8.33 %
Investment Securities:
Taxable 2,517.2 41.3 6.52 2,367.9 36.5 6.14
Tax Exempt (a) 933.1 16.4 6.97 726.9 12.2 6.70
Other Short-term
Investments (a) 194.7 2.6 5.29 181.2 2.3 5.05
---------------------------- ----------------------------
Total Interest
Earning Assets $ 14,088.3 $ 280.2 7.89 % $ 12,823.7 $ 250.9 7.78 %
============================ ============================
Money Market Savings $ 2,695.0 $ 29.7 4.38 % $ 2,451.2 $ 25.4 4.13 %
Regular Savings
& NOW 1,752.5 9.5 2.15 1,803.6 9.6 2.12
Other CDs & Time
Deposits 3,122.1 45.0 5.72 3,047.7 43.9 5.72
CDs Greater than
$100 & Brokered CDs 1,278.1 19.2 5.95 863.9 12.5 5.73
---------------------------- ----------------------------
Total Interest
Bearing Deposits 8,847.7 103.4 4.64 8,166.4 91.4 4.45
Short-term
Borrowings 1,905.5 26.7 5.55 1,456.1 19.4 5.31
Long-term
Borrowings 485.6 9.0 7.34 584.5 9.6 6.51
---------------------------- ----------------------------
Total Interest
Bearing Liabilities $ 11,238.8 $ 139.1 4.91 % $ 10,207.0 $ 120.4 4.69 %
============================ ============================
Net Interest Margin
(FTE) as a Percent
of Average Earning
Assets $ 141.1 3.97 % $ 130.5 4.05 %
================= =================
</TABLE>
(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 8 basis
points from 4.05% in the third quarter of 1996 to 3.97% in the current quarter.
The yield on average earning assets increased 11 basis points while the cost of
interest bearing liabilities increased 22 basis points. The cost of interest
bearing deposits increased 19 basis points while short-term borrowing costs
increased 24 basis points. The cost of long-term borrowings increased 83 basis
points which reflects, in part, the issuance of $200 million of 7.65% cumulative
preferred capital securities in December, 1996.
At September 30, 1997, the Corporation had standard receive fixed/pay floating
interest rate swaps and interest rate floors designated as hedges to manage the
interest rate volatility associated with variable rate loans and the convexity
risk associated with investments in collateralized mortgage obligations. In
addition, the Corporation had a callable receive fixed / pay floating interest
rate swap designated as a hedge to offset the brokered callable CDs previously
discussed.
<PAGE>
The Corporation's position with respect to interest rate swaps and interest rate
floors at September 30, 1997 consisted of the following ($ in millions):
Interest Rate Swaps
Notional Value $450
Weighted average receive rate 6.31%
Weighted average pay rate 5.74%
Weighted average remaining term (in years) 2.19
Estimated fair value $2.50
Callable Interest Rate Swaps
Notional Value $55
Weighted average receive rate 6.66%
Weighted average pay rate 5.53%
Weighted average remaining term (in years) 6.47
Estimated fair value ($0.24)
Interest Rate Floors
Notional Value $50
Strike Rate 5.13%
Index 5.72%
Weighted average remaining term (in years) 4.08
Estimated fair value $0.22
Unamortized premium $0.35
For the three months ended September 30, 1997, the effect on net interest income
resulting from the swaps, net of floor premium amortization, was a positive $.6
million compared with a positive $.3 million in the same period in 1996.
PROVISION FOR LOAN LOSSES AND CREDIT QUALITY
- --------------------------------------------
At September 30, 1997, nonperforming assets were $74.3 million compared to $71.4
million at June 30, 1997 and $82.0 million at September 30, 1996. Nonaccrual
loans, the largest component of nonperforming assets, increased $5.0 million
since the second quarter and decreased $3.7 million since September 30, 1996.
Other real estate owned decreased $2.0 million and renegotiated loans decreased
$.4 million since June 30, 1997 while loans past due 90 days or more increased
$.3 million since the second quarter of 1997. Compared to September 30, 1996,
renegotiated loans and loans past due 90 days or more each decreased $.6 million
respectively, while other real estate owned decreased $2.8 million.
Total nonaccrual commercial loans and leases increased $4.4 million since the
second quarter and decreased $4.0 million since September 30, 1996. Nonaccrual
commercial loans and leases are substantially responsible for the increase in
nonperforming assets at September 30, 1997 compared to nonperforming assets at
June 30, 1997. Since the second quarter, nonaccrual real estate loans increased
$.4 million and nonaccrual personal loans increased $.2 million.
Net charge-offs in the third quarter of 1997 amounted to $2.0 million or .08%
of average loans compared to $3.3 million or .14% of average loans in the second
quarter of 1997 and $15.1 million or .66% of average loans in the third quarter
of 1996.
The allowance for loan losses amounted to $157.9 million or 1.54% of total loans
at September 30, 1997 compared to $155.6 million or 1.57% at June 30, 1997 and
$152.8 million or 1.64% at September 30, 1996. The coverage ratio of the
allowance for loan losses to nonperforming loans was 223% at September 30, 1997
compared with 236% at June 30, 1997 and 202% at September 30, 1996.
<PAGE>
The provision for loan losses amounted to $4.3 million in the third quarter of
1997 compared to $4.0 million in the third quarter of 1996. The increase is
primarily due to loan growth.
CONSOLIDATED CREDIT QUALITY INFORMATION ($000's)
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
- --------------------
1997 1996
----------------------------- -------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 61,685 $ 56,723 $ 62,576 $ 60,176 $ 65,377
Renegotiated 1,242 1,636 1,736 1,819 1,878
Past Due 90 Days or More 7,721 7,461 7,517 7,366 8,329
--------- --------- --------- --------- ---------
Total Nonperforming Loans 70,648 65,820 71,829 69,361 75,584
Other Real Estate Owned 3,637 5,625 5,729 5,629 6,406
--------- --------- --------- --------- ---------
Total Nonperforming Assets $ 74,285 $ 71,445 $ 77,558 $ 74,990 $ 81,990
========= ========= ========= ========= =========
ALLOWANCE FOR LOAN LOSSES $ 157,893 $ 155,620 $ 154,599 $ 155,895 $ 152,755
========= ========= ========= ========= =========
CONSOLIDATED STATISTICS
- -----------------------
Net Charge-offs
to Average Loans
Annualized 0.08 % 0.14 % 0.24 % 0.04 % 0.66 %
Total Nonperforming Loans
to Total Loans 0.69 0.66 0.75 0.75 0.81
Total Nonperforming Assets
to Total Loans and Other
Real Estate Owned 0.73 0.72 0.81 0.81 0.88
Allowance for Loan Losses
to Total Loans 1.54 1.57 1.61 1.68 1.64
Allowance for Loan Losses
to Nonperforming Loans 223 236 215 225 202
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NONACCRUAL LOANS BY TYPE
- ------------------------
1997 1996
----------------------------- -------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial
Commercial, Financial &
Agricultural $ 17,229 $ 13,462 $ 17,945 $ 16,257 $ 21,902
Lease Financing
Receivables 2,073 1,430 2,290 1,624 1,393
--------- --------- --------- --------- ---------
Total Commercial 19,302 14,892 20,235 17,881 23,295
Real Estate
Construction and Land
Development 573 1,311 1,650 731 488
Commercial Mortgage 19,631 18,185 19,987 19,760 21,218
Residential Mortgage 18,848 19,203 17,286 18,284 17,212
--------- --------- --------- --------- ---------
Total Real Estate 39,052 38,699 38,923 38,775 38,918
Personal 3,331 3,132 3,418 3,520 3,164
--------- --------- --------- --------- ---------
Total Nonaccrual Loans $ 61,685 $ 56,723 $ 62,576 $ 60,176 $ 65,377
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF CONSOLIDATED ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------
1997 1996
----------------------------- ------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 155,620 $ 154,599 $ 155,895 $ 152,755 $ 163,866
Provision for Loan Losses 4,258 4,306 4,311 4,086 3,983
Allowance of Bank Acquired -- -- -- -- --
Allowance Transfer for Loan
Securitizations -- -- -- -- --
Loans Charged-off
Commercial 1,024 2,773 3,305 1,471 13,044
Real Estate 807 446 1,466 1,258 1,378
Personal 1,841 1,706 2,003 1,959 1,430
Leases 208 462 80 93 254
--------- --------- --------- --------- ---------
Total Charge-offs 3,880 5,387 6,854 4,781 16,106
Recoveries on Loans
Commercial 916 1,089 349 1,701 255
Real Estate 249 314 235 1,619 125
Personal 596 617 652 474 589
Leases 134 82 11 41 43
--------- --------- --------- --------- ---------
Total Recoveries 1,895 2,102 1,247 3,835 1,012
--------- --------- --------- --------- ---------
Net Loans Charged-off 1,985 3,285 5,607 946 15,094
--------- --------- --------- --------- ---------
Ending Balance $ 157,893 $ 155,620 $ 154,599 $ 155,895 $ 152,755
========= ========= ========= ========= =========
</TABLE>
<PAGE>
OTHER INCOME
- ------------
Total other income in the third quarter of 1997 amounted to $152.2 million, an
increase of $28.7 million or 23.2%, compared to $123.5 million in the same
period last year.
Data processing revenue increased $17 million or 24.2% from $69.7 million in
the third quarter of 1996 to $86.7 million in the current quarter. Processing
revenue increased $13.1 million or 27.8%. Software revenue increased $4.3
million which reflects, in part, the purchase acquisition of EastPoint
Technology, Inc. which occurred in the third quarter of 1996. Buyout fees,
which can vary from period to period, decreased $.4 million while conversion
fees were relatively unchanged. Revenues from unique services such as contract
programming and consulting decreased $.2 million. Compared to the second
quarter of 1997, revenue from data processing services increased $4.4 million
or 5.5% which includes a $.5 million decrease in buyout fees.
Trust services revenue amounted to $20.1 million in the third quarter of 1997,
an increase of $2.4 million or 13.8% compared to $17.6 million in the third
quarter of 1996. While all components of trust services revenue experienced an
increase, personal trust fees and corporate trust fees each increased $1.1
million respectively.
Other customer services increased $3.1 million or 10.7% and totaled $32.3
million in the third quarter of 1997 compared to $29.2 million in the same
period one year ago. Service charges on deposits of $13.9 million increased $.8
million. Credit card and ATM fees increased $.4 million. Commissions from
annuities and mutual fund sales increased $.9 million.
Net securities gains in the third quarter of 1997 and 1996 were not significant.
All other income amounted to $13.1 million in the third quarter of 1997 compared
to $7.0 million in the third quarter of 1996. Gains from the sale of
residential mortgage loans which includes the servicing rights increased $2.5
million. Gains from the sale of branch deposits and sale of former bank branch
facilities amounted to $3.2 million in the third quarter of 1997.
OTHER EXPENSE
- -------------
Total other expenses in the third quarter of 1997 amounted to $190.1 million,
an increase of $11.7 million or 6.5% compared to $178.5 million in the same
period last year. As previously discussed, expenses in the third quarter of 1996
include the one-time SAIF assessment of $2.8 million and the $12.1 million
write-off of acquired in-process technology associated with the EastPoint
acquisition. Excluding the third quarter 1996 special charges, total other
expenses in the third quarter of 1997 increased $26.6 million or 16.2%.
The increase in expenses is primarily attributable to the Corporation's
nonbanking businesses especially its Data Services segment ("Data Services").
Data Services expense growth reflects the impact of the acquisition of EastPoint
Technology, Inc., the cost of adding processing capacity and other related
costs associated with increased revenue growth and maintenance activities
associated with the Year 2000. It is estimated that the net cost to change
existing computer programs for both internal and external software to comply
with the Year 2000 will be approximately $30 million which represents an
increase of approximately $5 million from previous estimates. It is anticipated
that a substantial portion of the total cost will be incurred in 1997 and 1998
and will be expensed as incurred. Data Services incurred approximately $3.9
million of expense in the third quarter of 1997 and has incurred approximately
$9.6 million of expense in 1997 on a year-to-date basis related to the Year
2000. Total expense related to year 2000 in 1996 was approximately $3.4 million
and was incurred over the second half of the prior year. Both internal
processing and future data processing revenue are critically dependent upon the
successful implementation of the necessary changes.
<PAGE>
Expenses of the Corporation's banks throughout all 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.
Salaries and employee benefits expense amounted to $111.1 million in the third
quarter of 1997 compared to $96.5 million in the third quarter of 1996, an
increase of $14.6 million or 15.1%. Salaries and employee benefits expense of
Data Services increased $13.3 million or 31.4% in the current quarter compared
to the same period last year. At September 30, 1997 Data Services had
approximately 747 more employees when compared to September 30, 1996 which
reflects, in part, the addition of EastPoint Technology, Inc. as well as
additional processing and service centers. In addition, expense associated with
contract programmers and other temporary help increased $1.6 million over the
comparative periods.
Data Services expense growth accounted for approximately $4.2 million or 80% of
the increase in net occupancy, equipment, software expenses and processing
charges in the third quarter of 1997 compared to the third quarter of 1996.
Approximately $.2 million of the $.5 million increase in professional services
expense in the current quarter compared with the same period last year is
attributable to Data Services.
Other expense amounted to $27.5 million in the third quarter of 1997, an
increase of $6.3 million or 29.5% compared to the prior year excluding the
write-off of acquired in-process technology as previously discussed.
Advertising, promotion and development and other customer related expenses
increased $1.1 million. Credit card franchise and authorization fees increased
$.4 million . Travel expenses increased $1.3 million which was primarily
attributable to Data Services. Expense for deferred liabilities which are based
on the Corporation's Common Stock increased $1.9 million. In addition to the
above, this category of expense is affected by the capitalization of costs, net
of amortization, associated with software development and data processing
conversions. The amount of cost capitalized, net of amortization in the third
quarter of 1997 relating to software development was $1.4 million more while the
amount relating to data processing conversions was $1.0 million less than the
corresponding amounts recorded in the third quarter of the prior year.
INCOME TAXES
- ------------
The provision for income taxes for the three months ended September 30, 1997
amounted to $31.5 million compared to $22.3 million for the three months ended
September 30, 1996. The effective tax rate was relatively unchanged.
<PAGE>
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- ---------------------------------------------
Net income for the first nine months of 1997 amounted to $173.3 million compared
to $141.6 million in the same period of 1996. Primary and fully diluted
earnings per share were $1.78 and $1.77, respectively for the nine months ended
September 30, 1997 compared to $1.43 and $1.40, respectively for the same period
last year. The year to date return on average assets and return on average
equity were 1.55% and 17.60%, respectively in the current period and 1.41% and
14.83%, respectively for the nine months ended September 30, 1996.
Excluding the special charges previously discussed, income for the nine months
ended September 30, 1996 would have been $151.2 million or $1.53 and $1.50 per
share on a primary and fully diluted basis, respectively. The return on average
equity before special charges amounted to 15.84%.
The following table presents a summary of each of the major elements of the
consolidated income statement for the first nine months of 1997 and 1996 stated
as a percent of average consolidated assets - converted to a fully taxable
equivalent basis (FTE) where appropriate. Year to date data for the prior year
is before the special charges previously discussed.
ROA
1997 1996 Impact
--------- --------- ----------
Interest Income 7.32 % 7.23 % 0.09 %
Interest Expense (3.60) (3.41) (0.19)
--------- --------- ---------
Net Interest Income 3.72 3.82 (0.10)
Provision for Loan Losses (0.12) (0.11) (0.01)
Net Securities Gains 0.01 -- 0.01
Other Income 3.83 3.53 0.30
Other Expense (4.96) (4.83) (0.13)
--------- --------- ---------
Income Before Taxes 2.48 2.41 0.07
Income Taxes (0.93) (0.91) (0.02)
--------- --------- ---------
Return on Average Assets 1.55 % 1.50 % 0.05 %
=========== =========== ==========
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the nine months ended
September 30, 1997 and 1996 are presented in the following table. Securitized
ARM loans that are classified as investment securities available for sale are
included with loans to make the comparative information more meaningful.
<PAGE>
<TABLE>
<CAPTION>
YIELD & COST ANALYSIS Nine Months Ended September 30,
($ in millions) -----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Average Average
Average Yield or Average Yield or
Balance Interest Cost Balance Interest Cost
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans (a) $ 10,196.9 $ 639.4 8.38 % $ 9,362.0 $ 589.1 8.41 %
Investment Securities:
Taxable 2,469.4 121.2 6.56 2,184.1 98.7 6.04
Tax Exempt (a) 889.4 46.5 6.98 625.7 31.8 6.79
Other Short-term
Investments (a) 214.6 8.7 5.41 200.6 7.9 5.28
---------------------------- ----------------------------
Total Interest
Earning Assets $ 13,770.3 $ 815.8 7.92 % $ 12,372.4 $ 727.5 7.85 %
============================ ============================
Money Market Savings $ 2,650.4 $ 85.1 4.29 % $ 2,415.1 $ 74.3 4.11 %
Regular Savings
& NOW 1,745.8 27.8 2.12 1,820.8 28.8 2.11
Other CDs & Time
Deposits 3,060.8 130.5 5.70 3,040.3 131.1 5.76
CDs Greater than
$100 & Brokered CDs 1,210.3 53.1 5.86 751.3 32.3 5.74
---------------------------- ----------------------------
Total Interest
Bearing Deposits 8,667.3 296.5 4.57 8,027.5 266.5 4.43
Short-term
Borrowings 1,885.7 77.2 5.48 1,076.7 42.2 5.24
Long-term
Borrowings 512.4 27.7 7.23 712.7 34.5 6.47
---------------------------- ----------------------------
Total Interest
Bearing Liabilities $ 11,065.4 $ 401.4 4.85 % $ 9,816.9 $ 343.2 4.67 %
============================ ============================
Net Interest Margin
(FTE) as a Percent
of Average Earning
Assets $ 414.4 4.02 % $ 384.3 4.15 %
================= =================
</TABLE>
(a) Fully taxable equivalent basis (FTE), assuming a Federal income tax rate
of 35%, and excluding disallowed interest expense.
The increase in net income is due to growth in noninterest revenue, primarily
data processing services, and net interest income offset by an increased
provision for loan losses and growth in other expense which is driven primarily
by Data Services.
<PAGE>
CAPITAL RESOURCES
- -----------------
Shareholders' equity was $1.38 billion at September 30, 1997 compared to $1.26
billion at December 31, 1996 and $1.27 billion at September 30, 1996.
Net unrealized gains on securities available for sale at September 30, 1997
increased $13.4 million compared to December 31, 1996. As previously reported,
shareholders' equity increased by approximately $16.9 million since year-end
1996 due to the conversion of the Corporation's 8.5% convertible subordinated
notes.
The Corporation continued to acquire common shares in accordance with the Stock
Repurchase Program approved by its Board of Directors. During the third quarter
of 1997, 45,000 shares of common stock were acquired with an aggregate cost of
$1.9 million. Since inception of the program 19.3 million common shares have
been acquired with a cumulative cost of $484.5 million or $25.04 per share on
a weighted average basis. During the third quarter of 1997 the Corporation
settled the December 1996 forward contract to purchase 2.0 million shares of its
Common Stock. The Corporation elected to settle the contract in cash and charged
$11.9 million to additional paid-in capital.
The Corporation continues to have a strong capital base and its regulatory
capital ratios are significantly above the minimum requirements as shown in the
following tables.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS ($in millions)
------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
------------------------------------- ----------------------------------------
Amount Ratio Amount Ratio
------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 Capital $ 1,474.8 12.79 % $ 1,361.9 12.71 %
Tier 1 Capital Minimum Requirement 461.2 4.00 428.5 4.00
---------- -------- ---------- --------
Excess $ 1,013.6 8.79 % $ 933.4 8.71 %
========== ======== ========== ========
Total Capital $ 1,719.1 14.91 % $ 1,596.4 14.90 %
Total Capital Minimum Requirement 922.4 8.00 857.1 8.00
---------- -------- ---------- --------
Excess $ 796.7 6.91 % $ 739.3 6.90 %
========== ======== ========== ========
Risk-Adjusted Assets $ 11,530.0 $ 10,713.4
========== ==========
LEVERAGE RATIOS ($in millions)
--------------------------------------------------------------------------
Tier 1 Capital $ 1,474.8 9.74 % $ 1,361.9 9.61 %
Minimum Leverage Requirement 454.4 - 757.3 3.00 - 5.00 425.3 - 708.8 3.00 - 5.00
------------------- -------------- ------------------- ---------------
Excess $ 1,020.4 - 717.5 6.74 - 4.74 % $ 936.6 - 653.1 6.61 - 4.61 %
=================== ============== =================== ===============
Adjusted Average Total Assets $ 15,146.3 $ 14,175.4
========== ==========
</TABLE>
RECENT DEVELOPMENTS
- -------------------
On November 3, 1997, the Corporation announced that it will acquire Advantage
Bancorp, Inc. ("Advantage") a Kenosha, Wisconsin based savings and loan holding
company for 1.2 shares of the Corporation's Common Stock for each share of
Advantage. The transaction is expected to be completed in the first quarter of
1998, pending regulatory and shareholder approvals, and will be accounted for
as a pooling of interests.
Advantage, with approximately $1.1 billion in assets, is anchored by Advantage
Bank F.S.B. which has ten branches in the Racine / Kenosha area of Wisconsin and
five branch offices in northern Illinois.
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Not applicable
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibits:
Exhibit 11 - Statements - 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
November 14, 1997
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
($000's except per share data)
Three Months Ended September 30,
--------------------------------
PRIMARY 1997 1996
- ------- ------------ ------------
Earnings:
Net income $ 61,864 $ 45,038
============ ============
Shares:
Weighted average number of common shares
outstanding 88,813 91,520
Additional shares relating to:
Convertible preferred stock 7,677 5,755
Stock options outstanding at end
of each period and exercised
during each period (a) 1,626 1,270
------------ ------------
Total average primary shares outstanding 98,116 98,545
============ ============
EARNINGS PER SHARE:
Primary $ 0.63 $ 0.46
============ ============
FULLY DILUTED
- -------------
Earnings:
Net income $ 61,864 $ 45,038
Add: Interest on convertible notes,
net of income tax effect -- 232
------------ ------------
$ 61,864 $ 45,270
============ ============
Shares:
Weighted average number of common shares
outstanding 88,813 91,520
Additional shares relating to:
Convertible preferred stock 7,677 5,755
Stock options outstanding at end
of each period and exercised
during each period (b) 1,769 1,452
Assumed conversion of convertible notes -- 1,922
------------ ------------
Total average fully diluted shares outstanding 98,259 100,649
============ ============
EARNINGS PER SHARE:
Fully Diluted $ 0.63 $ 0.45
============ ============
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 11
COMPUTATION OF EARNINGS PER SHARE
($000's except per share data)
Nine Months Ended September 30,
-------------------------------
PRIMARY 1997 1996
- ------- ------------ ------------
Earnings:
Net income $ 173,285 $ 141,561
============ ============
Shares:
Weighted average number of common shares
outstanding 88,768 92,320
Additional shares relating to:
Convertible preferred stock 6,732 5,117
Stock options outstanding at end
of each period and exercised
during each period (a) 1,498 1,277
Stock Repurchase Program 275 --
------------ ------------
Total average primary shares outstanding 97,273 98,714
============ ============
EARNINGS PER SHARE:
Primary $ 1.78 $ 1.43
============ ============
FULLY DILUTED
- -------------
Earnings:
Net income $ 173,285 $ 141,561
Add: Interest on convertible notes,
net of income tax effect 232 929
------------ ------------
$ 173,517 $ 142,490
============ ============
Shares:
Weighted average number of common shares
outstanding 88,768 92,320
Additional shares relating to:
Convertible preferred stock 6,732 5,117
Stock options outstanding at end
of each period and exercised
during each period (b) 1,590 1,485
Assumed conversion of convertible notes 945 2,561
Stock Repurchase Program 275 --
------------ ------------
Total average fully diluted shares outstanding 98,310 101,483
============ ============
EARNINGS PER SHARE:
Fully Diluted $ 1.76 $ 1.40
============ ============
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>
EXHIBIT 12
<PAGE>
EXHIBIT 12
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000's)
<TABLE>
<CAPTION>
Nine
Months
Ended Years Ended December 31,
Sept.30, -----------------------------------------------------
Earnings: 1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary
items and cumulative effect of changes
in accounting principles $ 260,477 $ 313,141 $ 299,879 $ 167,803 $ 264,584 $ 231,792
Fixed charges, excluding interest on deposits 111,414 113,515 108,683 77,074 47,905 50,687
--------- --------- --------- --------- --------- ---------
Earnings including fixed charges but
excluding interest on deposits 371,891 426,656 408,562 244,877 312,489 282,479
Interest on deposits 296,449 360,838 331,734 255,861 272,100 334,443
--------- --------- --------- --------- --------- ---------
Earnings including fixed charges and
interest on deposits $ 668,340 $ 787,494 $ 740,296 $ 500,738 $ 584,589 $ 616,922
========= ========= ========= ========= ========= =========
Fixed Charges:
Interest Expense:
Short-term borrowings $ 77,226 $ 62,071 $ 47,740 $ 39,681 $ 18,010 $ 17,606
Long-term borrowings 27,711 42,808 53,709 30,537 23,088 26,439
One-third of rental expense for all operating
leases (the amount deemed representative
of the interest factor) 6,477 8,636 7,234 6,856 6,807 6,642
--------- --------- --------- --------- --------- ---------
Fixed charges excluding interest on deposits 111,414 113,515 108,683 77,074 47,905 50,687
Interest on deposits 296,449 360,838 331,734 255,861 272,100 334,443
--------- --------- --------- --------- --------- ---------
Fixed charges including interest on deposits $ 407,863 $ 474,353 $ 440,417 $ 332,935 $ 320,005 $ 385,130
========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 3.34 x 3.76 x 3.76 x 3.18 x 6.52 x 5.57 x
Including interest on deposits 1.64 x 1.66 x 1.68 x 1.50 x 1.83 x 1.60 x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 794,947
<INT-BEARING-DEPOSITS> 88,473
<FED-FUNDS-SOLD> 72,550
<TRADING-ASSETS> 39,303
<INVESTMENTS-HELD-FOR-SALE> 3,050,957
<INVESTMENTS-CARRYING> 850,339
<INVESTMENTS-MARKET> 860,213
<LOANS> 10,240,513
<ALLOWANCE> 157,893
<TOTAL-ASSETS> 15,715,116
<DEPOSITS> 11,280,082
<SHORT-TERM> 2,123,358
<LIABILITIES-OTHER> 416,347
<LONG-TERM> 362,752
0
685
<COMMON> 99,494
<OTHER-SE> 1,279,234
<TOTAL-LIABILITIES-AND-EQUITY> 15,715,116
<INTEREST-LOAN> 610,395
<INTEREST-INVEST> 180,728
<INTEREST-OTHER> 8,662
<INTEREST-TOTAL> 799,785
<INTEREST-DEPOSIT> 296,449
<INTEREST-EXPENSE> 401,386
<INTEREST-INCOME-NET> 398,399
<LOAN-LOSSES> 12,875
<SECURITIES-GAINS> 953
<EXPENSE-OTHER> 550,253
<INCOME-PRETAX> 260,476
<INCOME-PRE-EXTRAORDINARY> 173,285
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,285
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.02
<LOANS-NON> 61,685
<LOANS-PAST> 7,721
<LOANS-TROUBLED> 1,242
<LOANS-PROBLEM> 70,648
<ALLOWANCE-OPEN> 155,895
<CHARGE-OFFS> 16,121
<RECOVERIES> 5,244
<ALLOWANCE-CLOSE> 157,893
<ALLOWANCE-DOMESTIC> 157,893
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
