<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, 1999
-------------------------------------------------
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 29, 1999
----- ----------------
Common Stock, $1.00 Par Value 106,506,835
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
($000's except share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
Assets 1999 1998 1998
- ------ --------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 663,136 $ 760,405 $ 596,478
Federal funds sold and
security resale agreements 105,847 34,616 51,498
Money market funds 70,711 111,717 280,952
------------- ------------- -------------
Total cash and cash equivalents 839,694 906,738 928,928
Investment securities:
Trading securities, at market value 65,780 34,046 57,219
Short-term investments, at cost which
approximates market value 6,453 51,971 49,796
Available for sale at market value 4,366,180 4,049,421 4,359,883
Held to maturity at amortized cost,
market value $1,178,562 ($1,095,048
December 31, and $1,099,744 September 30, 1998) 1,196,200 1,056,233 1,058,452
------------- ------------- -------------
Total investment securities 5,634,613 5,191,671 5,525,350
Loans and leases 15,576,702 13,996,166 13,729,765
Less: Allowance for loan and lease losses 226,461 226,052 218,706
------------- ------------- -------------
Net loans and leases 15,350,241 13,770,114 13,511,059
Premises and equipment 362,111 360,345 360,096
Intangible assets 362,824 335,533 340,283
Accrued interest and other assets 1,038,767 1,001,892 542,465
------------- ------------- -------------
Total Assets $ 23,588,250 $ 21,566,293 $ 21,208,181
============= ============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,789,554 $ 2,929,195 $ 2,629,976
Interest bearing 12,848,691 12,990,724 11,866,461
------------- ------------- -------------
Total deposits 15,638,245 15,919,919 14,496,437
Funds purchased and security
repurchase agreements 1,458,229 1,712,165 2,298,997
Other short-term borrowings 3,155,558 365,120 847,033
Accrued expenses and other liabilities 641,648 530,828 504,494
Long-term borrowings 569,419 794,482 866,563
------------- ------------- -------------
Total liabilities 21,463,099 19,322,514 19,013,524
Shareholders' equity:
Series A convertible preferred stock,
$1.00 par value; 336,370 shares issued
(685,314 December 31, and September 30,1998) 336 685 685
Common stock, $1.00 par value; 112,757,546
shares issued 112,757 112,757 112,757
Additional paid-in capital 447,901 621,795 610,577
Retained earnings 1,849,872 1,664,123 1,605,680
Net unrealized (losses) gains on securities
available for sale, net of related taxes (3,590) 58,102 66,971
Less: Treasury common stock, at cost;
6,190,336 shares (6,654,170 December 31,
and 6,581,090 September 30, 1998) 262,345 194,046 186,692
Deferred compensation 19,780 19,637 15,321
------------- ------------- -------------
Total shareholders' equity 2,125,151 2,243,779 2,194,657
------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 23,588,250 $ 21,566,293 $ 21,208,181
============= ============= =============
See notes to financial statements.
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
Interest income 1999 1998
- --------------- --------------------------------
<S> <C> <C>
Loans and leases $ 294,660 $ 274,529
Investment securities:
Taxable 67,915 71,421
Exempt from Federal income taxes 15,089 13,345
Trading securities 500 657
Short-term investments 2,313 2,557
------------- -------------
Total interest income 380,477 362,509
Interest expense
- ----------------
Deposits 152,751 142,183
Short-term borrowings 34,122 34,085
Long-term borrowings 15,801 16,774
------------- -------------
Total interest expense 202,674 193,042
------------- -------------
Net interest income 177,803 169,467
Provision for loan and lease losses 4,797 4,769
------------- -------------
Net interest income after
provision for loan and lease losses 173,006 164,698
Other income
- ------------
Data processing services
Processing 66,985 58,734
Software and consulting 20,459 22,698
E-commerce 40,823 20,773
------------- -------------
Total data processing services 128,267 102,205
Internet banking 434 --
Trust services 25,745 23,807
Service charges on deposits 18,177 15,636
Mortgage banking 4,857 12,026
Capital Markets revenue 8,606 (42)
Net investment securities gains 59 3,760
Other 36,102 26,309
------------- -------------
Total other income 222,247 183,701
Other expense
- -------------
Salaries and employee benefits 152,568 131,217
Net occupancy 12,722 11,271
Equipment 27,374 26,212
Software expenses 6,667 5,591
Processing charges 7,273 6,190
Supplies and printing 4,591 4,430
Professional services 8,352 6,049
Amortization of intangibles 8,120 10,845
Other 32,207 23,981
------------- -------------
Total other expense 259,874 225,786
------------- -------------
Income before income taxes 135,379 122,613
Provision for income taxes 44,543 42,458
------------- -------------
Net income $ 90,836 $ 80,155
============= =============
Net income per common share
- ---------------------------
Basic $ 0.86 $ 0.74
Diluted 0.81 0.70
Dividends paid per common share $ 0.24 $ 0.22
Weighted average common shares outstanding:
Basic 103,641 106,043
Diluted 112,198 115,329
See notes to financial statements.
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
Interest income 1999 1998
- --------------- -------------------------------
<S> <C> <C>
Loans and leases $ 846,178 $ 811,904
Investment securities:
Taxable 200,487 215,691
Exempt from Federal income taxes 42,980 38,516
Trading securities 1,280 1,684
Short-term investments 6,840 7,548
------------- -------------
Total interest income 1,097,765 1,075,343
Interest expense
- ----------------
Deposits 423,338 426,221
Short-term borrowings 98,932 96,806
Long-term borrowings 47,133 50,235
------------- -------------
Total interest expense 569,403 573,262
------------- -------------
Net interest income 528,362 502,081
Provision for loan and lease losses 14,481 14,502
------------- -------------
Net interest income after
provision for loan and lease losses 513,881 487,579
Other income
- ------------
Data processing services
Processing 193,219 170,972
Software and consulting 60,052 69,784
E-commerce 102,028 57,375
------------- -------------
Total data processing services 355,299 298,131
Internet banking 1,506 --
Trust services 74,676 67,314
Service charges on deposits 51,649 45,880
Mortgage banking 23,496 37,185
Capital Markets revenue 12,334 13,387
Net investment securities gains 414 5,966
Other 106,698 79,632
------------- -------------
Total other income 626,072 547,495
Other expense
- -------------
Salaries and employee benefits 436,357 387,204
Net occupancy 37,068 33,260
Equipment 80,754 76,148
Software expenses 19,556 15,659
Processing charges 22,697 18,443
Supplies and printing 14,288 13,722
Professional services 22,885 16,308
Amortization of intangibles 31,647 32,455
Merger/Restructuring -- 23,373
Other 76,800 81,370
------------- -------------
Total other expense 742,052 697,942
------------- -------------
Income before income taxes 397,901 337,132
Provision for income taxes 134,016 119,279
------------- -------------
Net income $ 263,885 $ 217,853
============= =============
Net income per common share
- ---------------------------
Basic $ 2.48 $ 2.01
Diluted 2.33 1.89
Dividends paid per common share $ 0.70 $ 0.64
Weighted average common shares outstanding:
Basic 104,403 105,758
Diluted 113,493 115,270
See notes to financial statements.
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 539,610 $ 259,838
Cash Flows From Investing Activities:
- -------------------------------------
Net (increase)/decrease in securities with
maturities of three months or less 21,400 (12,500)
Proceeds from sales of securities
available for sale 116,349 149,995
Proceeds from maturities of longer
term securities 795,350 1,098,190
Purchases of longer term securities (1,432,412) (987,206)
Net increase in loans (1,601,550) (893,358)
Purchases of assets to be leased (316,443) (207,141)
Principal payments on lease receivables 221,888 172,863
Fixed asset purchases, net (47,486) (48,705)
Acquisitions and investments in joint venture (84,408) --
Other 10,110 11,448
------------- -------------
Net cash used in investing activities (2,317,202) (716,414)
------------- -------------
Cash Flows From Financing Activities:
- -------------------------------------
Net decrease in deposits (277,507) (523,891)
Proceeds from issuance of commercial paper 1,382,699 542,348
Payments for maturity of commercial paper (1,171,752) (641,501)
Net increase in other short-term
borrowings 2,141,191 1,215,977
Proceeds from issuance of long-term debt 134,356 85,886
Payments of long-term debt (177,402) (139,539)
Dividends paid (78,118) (72,215)
Purchases of treasury stock (257,831) (13,296)
Other 14,912 13,672
------------- -------------
Net cash provided by financing activities 1,710,548 467,441
------------- -------------
Net increase (decrease) in cash
and cash equivalents (67,044) 10,865
Cash and cash equivalents, beginning of year 906,738 918,063
------------- -------------
Cash and cash equivalents, end of period $ 839,694 $ 928,928
============= =============
Supplemental cash flow information:
- -----------------------------------
Cash paid during the period for:
Interest $ 578,567 $ 577,029
Income taxes 23,690 101,812
See notes to financial statements.
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements
September 30, 1999 & 1998 (Unaudited)
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with Marshall & Ilsley Corporation's ("M&I" or
"Corporation") 1998 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 and nine months ended September 30, 1999 and 1998. The
results of operations for the three and nine months ended September 30,
1999 and 1998 are not necessarily indicative of results to be expected
for the entire year. Certain amounts in the 1998 consolidated financial
statements and analyses have been reclassified to conform with the 1999
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. On September 15, 1999, the holder of the Corporation's Series
A convertible preferred stock converted 348,944 shares of Series A into
3,832,957 shares of the Corporation's common stock. This is a noncash
transaction for purposes of the Consolidated Statements of Cash Flows.
The Corporation has 160,000,000 shares of its $1.00 par value common
stock authorized.
3. Acquisitions / Acquisition Update
In conjunction with the April 1, 1998 merger with Advantage Bancorp, Inc.
the Corporation recorded a merger/restructuring charge of $23.4 million.
During the third quarter the remaining obligation associated with a
closed facility was satisfied and the merger/restructuring has been
completed. There were no material adjustments to the initial amount
recorded.
In conjunction with the October 1, 1997 purchase acquisition of Security
Capital Corporation, $18.6 million of exit costs were recorded as
liabilities assumed in the acquisition. As of September 30, 1999, the
remaining liability amounted to $.8 million which consists of unpaid
severance. Periodic severance payments will continue through 2002.
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
4. A reconciliation of the numerators and denominators of the basic and
diluted per share computations are as follows (dollars and shares in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-------------------------------------
Per
Income Average Shares Share
(Numerator) (Denominator) Amount
-------------------------------------
<S> <C> <C> <C>
Net Income $ 90,836
Convertible Preferred Dividends (1,843)
-----------
Basic Earnings Per Share
Income Available to Common Shareholders $ 88,993 103,641 $ 0.86
========
Effect of Dilutive Securities
Convertible Preferred Stock 1,843 7,011
Stock Options and Restricted Stock Plans -- 1,546
----------- -------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 90,836 112,198 $ 0.81
========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
-------------------------------------
Per
Income Average Shares Share
(Numerator) (Denominator) Amount
-------------------------------------
<S> <C> <C> <C>
Net Income $ 80,155
Convertible Preferred Dividends (1,689)
-----------
Basic Earnings Per Share
Income Available to Common Shareholders $ 78,466 106,043 $ 0.74
========
Effect of Dilutive Securities
Convertible Preferred Stock 1,689 7,677
Stock Options and Restricted Stock Plans -- 1,609
----------- -------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 80,155 115,329 $ 0.70
========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------
Per
Income Average Shares Share
(Numerator) (Denominator) Amount
------------------------------------
<S> <C> <C> <C>
Net Income $ 263,885
Convertible Preferred Dividends (5,374)
-----------
Basic Earnings Per Share
Income Available to Common Shareholders $ 258,511 104,403 $ 2.48
========
Effect of Dilutive Securities
Convertible Preferred Stock 5,374 7,453
Stock Options and Restricted Stock Plans -- 1,637
----------- -------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 263,885 113,493 $ 2.33
========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Per
Income Average Shares Share
(Numerator) (Denominator) Amount
------------------------------------
<S> <C> <C> <C>
Net Income $ 217,853
Convertible Preferred Dividends (4,913)
-----------
Basic Earnings Per Share
Income Available to Common Shareholders $ 212,940 105,758 $ 2.01
========
Effect of Dilutive Securities
Convertible Preferred Stock 4,913 7,677
Stock Options and Restricted Stock Plans -- 1,835
----------- -------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 217,853 115,270 $ 1.89
========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
5. Selected investment securities, by type, held by the Corporation are as
follows ($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------------------------
<S> <C> <C> <C>
Other investment securities available for sale:
U.S. treasury and
government agencies $ 3,936,728 $ 3,723,703 $ 3,990,061
State and political subdivisions 31,029 148 1,434
Other 398,423 325,570 368,388
------------ ------------ ------------
Other available for sale $ 4,366,180 $ 4,049,421 $ 4,359,883
============ ============ ============
Investment securities held to maturity:
U.S. treasury and
government agencies $ 32 $ -- $ --
State and political subdivisions 1,191,149 1,051,565 1,054,152
Other 5,019 4,668 4,300
------------ ------------ ------------
Held to maturity $ 1,196,200 $ 1,056,233 $ 1,058,452
============ ============ ============
</TABLE>
6. The Corporation's loan and lease portfolio consists of the following
($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------------------------
<S> <C> <C> <C>
Commercial, financial
& agricultural $ 4,543,473 $ 4,077,837 $ 4,007,022
Real estate:
Construction 458,750 425,442 419,520
Residential mortgage 4,633,857 4,045,022 3,985,730
Commercial mortgage 3,939,669 3,667,924 3,591,558
------------ ------------ ------------
Total real estate 9,032,276 8,138,388 7,996,808
Personal 1,244,573 1,166,541 1,167,002
Lease financing 756,380 613,400 558,933
------------ ------------ ------------
$ 15,576,702 $ 13,996,166 $ 13,729,765
============ ============ ============
</TABLE>
7. The Corporation's deposit liabilities consists of the following ($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------------------------
<S> <C> <C> <C>
Noninterest bearing demand $ 2,789,554 $ 2,929,195 $ 2,629,976
Savings and NOW 6,910,873 6,768,523 6,348,829
CD's $100,000 and over 1,770,614 1,497,315 1,594,614
Other time deposits 3,438,373 3,544,614 3,674,751
Foreign Deposits 728,831 1,180,272 248,267
------------ ------------ ------------
$ 15,638,245 $ 15,919,919 $ 14,496,437
============ ============ ============
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
8. Comprehensive Income
The following table presents the Corporation's comprehensive income
($000's):
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 90,836 $ 80,155
Other comprehensive income
Unrealized gains (losses) on
securities, net of tax:
Arising during the period (18,222) 25,094
Reclassification for securities
transactions included in net income (125) (1,853)
------------ ------------
(18,347) 23,241
------------ ------------
Total comprehensive income $ 72,489 $ 103,396
============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30.
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 263,885 $ 217,853
Other comprehensive income
Unrealized gains (losses) on
securities, net of tax:
Arising during the period (60,692) 20,131
Reclassification for securities
transactions included in net income (1,000) (5,258)
------------ ------------
(61,692) 14,873
------------ ------------
Total comprehensive income $ 202,193 $ 232,726
============ ============
</TABLE>
Other comprehensive income as shown is net of deferred income tax
(benefits)/expenses of ($9,145) and $13,298 for the three months and
($34,927) and $8,464 for the nine months ended September 30, 1999 and
1998, respectively.
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
9. Segments
Generally, the Corporation organizes its segments based on legal entities
and segregates the Data Services Division of the Corporation. Each
entity offers a variety of products and services to meet the needs of its
customers and the particular market served. Each entity or division has
its own president and is separately managed subject to adherence to
Corporate policies. Discrete financial information is reviewed by senior
management to assess performance on a monthly basis. Certain segments
are combined and consolidated for purposes of assessing financial
performance. No changes have been made in the organization or reporting
of the Corporation's segments since the 1998 Annual Report.
The Corporation evaluates the profit or loss performance of its segments
based on operating income. Operating income is after-tax income
excluding nonrecurring charges and charges for services from the holding
company, excluding its Data Services Division. Operating income for the
banking entities and certain other entities also excludes certain assets,
liabilities, equity, revenues and expenses associated with adjustments,
charges or credits arising from acquisitions accounted for as purchases
(hereinafter called acquisition costs). The accounting policies of the
Corporation's segments are the same as those described in Note 1 to the
Corporation's Annual Report on Form 10K, Item 8. Intersegment revenues
may be based on cost, current market prices or negotiated prices between
the providers and receivers of services.
Based on the way the Corporation organizes its segments and the
requirements of Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
the Corporation has determined that it has two reportable segments.
Information with respect to M&I's segments is as follows:
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
Banking
-------
Banking represents the aggregation of twenty-six separately chartered
banks located in Wisconsin, one bank in Arizona, one federally chartered
thrift headquartered in Nevada and an operational support subsidiary.
Banking consists of accepting deposits, making loans and providing other
services such as cash management, foreign exchange and correspondent
banking to a variety of commercial and retail customers. Products and
services are provided through a variety of delivery channels including
traditional branches, supermarket branches, telephone centers, ATMs and
the internet. In addition, the Corporation's larger affiliate banks
provide numerous services such as cash management, regional credit, and
centralized accounting to M&I's community banking affiliates.
Intrasegment revenues, expenses and assets have been eliminated in the
following information.
($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Net interest income $ 177.1 $ 166.3 $ 524.7 $ 493.0
Other revenues:
Unaffiliated customers 45.1 41.8 138.8 122.8
Affiliated customers 3.9 3.4 11.6 10.5
----------- ----------- ----------- -----------
Total revenues 226.1 211.5 675.1 626.3
Expenses:
Intersegment charges 21.9 22.9 69.2 68.5
Other operating expense 79.3 70.8 235.0 221.2
----------- ----------- ----------- -----------
Total expenses 101.2 93.7 304.2 289.7
Provision for loan and lease losses 4.7 4.7 14.1 14.0
Income tax expense 37.4 38.4 113.1 109.4
----------- ----------- ----------- -----------
Operating income $ 82.8 $ 74.7 $ 243.7 $ 213.2
=========== =========== =========== ===========
Identifiable assets $ 22,275.8 $ 20,113.3 $ 22,275.8 $ 20,113.3
=========== =========== =========== ===========
Return on tangible equity 20.4 % 18.8 % 20.3 % 18.4 %
=========== =========== =========== ===========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
Banking (continued)
-------------------
The following tables present revenue and operating income by line of
business for Banking. This information is based on the Corporation's
product profitability measurement system and is an aggregation of the
revenues and expenses associated with the products and services within
each line of business. Net interest income is derived from the
Corporation's internal funds transfer pricing system, expenses are
allocated based on available transaction volumes and the provision for
loan and lease losses is allocated based on credit risk. Equity is
assigned to products and services on a basis that considers market,
operational and reputation risk. ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Banking revenues:
Commercial Banking $ 99.0 $ 97.4 $ 290.8 $ 284.0
Retail Banking 95.0 90.4 285.4 270.5
Investments and Other 32.1 23.7 98.9 71.8
----------- ----------- ----------- -----------
Total banking revenues $ 226.1 $ 211.5 $ 675.1 $ 626.3
=========== =========== =========== ===========
Percent of total banking revenue:
Commercial Banking 43.8 % 46.0 % 43.1 % 45.3 %
Retail Banking 42.0 42.7 42.3 43.2
Investments and Other 14.2 11.3 14.6 11.5
----------- ----------- ----------- -----------
Total banking revenues 100.0 % 100.0 % 100.0 % 100.0 %
=========== =========== =========== ===========
Operating banking income
Commercial Banking $ 43.0 $ 40.1 $ 121.6 $ 114.1
Retail Banking 24.4 22.2 69.8 64.7
Investments and Other 15.4 12.4 52.3 34.4
----------- ----------- ----------- -----------
Total operating banking income $ 82.8 $ 74.7 $ 243.7 $ 213.2
=========== =========== =========== ===========
Percent of total operating banking income:
Commercial Banking 51.9 % 53.7 % 49.9 % 53.5 %
Retail Banking 29.5 29.7 28.7 30.3
Investments and Other 18.6 16.6 21.4 16.2
----------- ----------- ----------- -----------
Total operating banking income 100.0 % 100.0 % 100.0 % 100.0 %
=========== =========== =========== ===========
Banking return on tangible equity
Commercial Banking 28.9 % 24.6 % 26.0 % 23.5 %
Retail Banking 23.7 19.5 21.9 18.6
----------- ----------- ----------- -----------
Total banking return on tangible equity 20.4 % 18.8 % 20.3 % 18.4 %
=========== =========== =========== ===========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
Data Services
-------------
Data Services includes the Data Services Division of the Corporation as
well as three nonbank subsidiaries. Data Services provides data
processing services, develops and sells software and provides consulting
services to M&I affiliates as well as banks, thrifts, credit unions,
trust companies and other financial services companies throughout the
world although its activities are primarily domestic. In addition, Data
Services derives revenue from the Corporation's credit card merchant
operations. The majority of Data Services revenue is derived from
internal and external processing. Intrasegment revenues, expenses and
assets have been eliminated in the following information.
($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Net interest expense $ (1.2) $ (0.6) $ (3.2) $ (1.9)
Other revenues:
Unaffiliated customers 132.0 105.5 365.8 307.0
Affiliated customers 22.2 21.2 65.6 63.6
----------- ----------- ----------- -----------
Total revenues 153.0 126.1 428.2 368.7
Expenses:
Intersegment charges 1.3 0.5 1.8 1.9
Other operating expense 130.2 108.6 365.4 321.2
----------- ----------- ----------- -----------
Total expenses 131.5 109.1 367.2 323.1
Income tax expense 9.0 7.1 26.0 19.1
----------- ----------- ----------- -----------
Operating income $ 12.5 $ 9.9 $ 35.0 $ 26.5
=========== =========== =========== ===========
Identifiable assets $ 479.7 $ 350.1 $ 479.7 $ 350.1
=========== =========== =========== ===========
Return on equity 20.9 % 20.0 % 20.5 % 18.7 %
=========== =========== =========== ===========
</TABLE>
Data Services revenue from unaffiliated customers consist of the
following ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Data Processing Services $ 128.3 $ 102.2 $ 355.3 $ 298.1
Merchant credit card and other
customer services 3.5 3.2 9.9 8.6
Other 0.2 0.1 0.6 0.3
----------- ----------- ----------- -----------
Total unaffiliated customer revenue $ 132.0 $ 105.5 $ 365.8 $ 307.0
=========== =========== =========== ===========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
All Others
----------
M&I's primary other operating segments includes Trust Services, Mortgage
Banking (residential and commercial), Capital Markets Group, Brokerage
and Insurance Services and Commercial Leasing. Trust Services provide
investment management and advisory services as well as personal,
commercial and corporate trust services in Wisconsin, Florida and
Arizona. Capital Markets Group provide venture capital and advisory
services. Intrasegment revenues, expenses and assets for the entities
that comprise Trust Services and Capital Markets Group have been
eliminated in the following information. ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Net interest income $ 6.0 $ 8.1 $ 18.0 $ 25.1
Other revenues:
Unaffiliated customers 43.7 34.3 117.0 113.7
Affiliated customers 3.1 5.4 12.4 16.8
----------- ----------- ----------- -----------
Total revenues 52.8 47.8 147.4 155.6
Expenses:
Intersegment charges 5.8 7.1 18.0 20.4
Other operating expense 25.8 26.8 76.6 78.7
----------- ----------- ----------- -----------
Total expenses 31.6 33.9 94.6 99.1
Provision for loan and lease losses 0.1 0.1 0.4 0.5
Income tax expense 8.4 5.5 20.8 22.2
----------- ----------- ----------- -----------
Operating income $ 12.7 $ 8.3 $ 31.6 $ 33.8
=========== =========== =========== ===========
Identifiable assets $ 682.1 $ 704.0 $ 682.1 $ 704.0
=========== =========== =========== ===========
Return on tangible equity 24.1 % 17.4 % 20.5 % 24.4 %
=========== =========== =========== ===========
</TABLE>
Total Revenues by type in All Others consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Trust Services $ 26.4 $ 24.4 $ 76.6 $ 68.6
Residential Mortgage Banking 8.3 11.7 28.7 35.8
Capital Markets 8.2 1.0 13.9 19.4
Brokerage and Insurance 5.0 4.5 15.3 14.2
Commercial Leasing 3.2 3.3 8.5 9.8
Commercial Mortgage Banking 0.5 1.9 1.1 5.0
Others 1.2 1.0 3.3 2.8
----------- ----------- ----------- -----------
Total revenues $ 52.8 $ 47.8 $ 147.4 $ 155.6
=========== =========== =========== ===========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 1999 & 1998 (Unaudited)
Segment information reconciled to the Consolidated Financial Statements
is as follows ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Banking $ 226.1 $ 211.5 $ 675.1 $ 626.3
Data Services 153.0 126.1 428.2 368.7
All Others 52.8 47.8 147.4 155.6
Corporate overhead (3.1) (0.5) (7.0) (4.6)
Acquisition costs 0.4 (1.7) (0.2) (6.2)
Intersegment eliminations (29.1) (30.0) (89.1) (90.2)
----------- ----------- ----------- -----------
Consolidated revenues $ 400.1 $ 353.2 $ 1,154.4 $ 1,049.6
=========== =========== =========== ===========
Expenses:
Banking $ 101.2 $ 93.7 $ 304.2 $ 289.7
Data Services 131.5 109.1 367.2 323.1
All Others 31.6 33.9 94.6 99.1
Corporate overhead 19.0 12.4 48.1 32.8
Acquisition costs 5.7 6.7 17.1 20.0
Merger / Restructuring -- -- -- 23.4
Intersegment eliminations (29.1) (30.0) (89.1) (90.2)
----------- ----------- ----------- -----------
Consolidated expenses $ 259.9 $ 225.8 $ 742.1 $ 697.9
=========== =========== =========== ===========
Net income (loss):
Operating income:
Banking $ 82.8 $ 74.7 $ 243.7 $ 213.2
Data Services 12.5 9.9 35.0 26.5
All Others 12.7 8.3 31.6 33.8
Corporate overhead (12.9) (6.4) (32.6) (20.0)
Acquisition costs (4.3) (6.3) (13.8) (19.3)
Merger / Restructuring -- -- -- (16.3)
----------- ----------- ----------- -----------
Consolidated net income $ 90.8 $ 80.2 $ 263.9 $ 217.9
=========== =========== =========== ===========
Assets:
Banking $ 22,275.8 $ 20,113.3 $ 22,275.8 $ 20,113.3
Data Services 479.7 350.1 479.7 350.1
All Others 682.1 704.0 682.1 704.0
Corporate overhead 203.7 125.1 203.7 125.1
Acquisition costs 274.5 297.7 274.5 297.7
Intersegment eliminations (327.5) (382.0) (327.5) (382.0)
----------- ----------- ----------- -----------
Consolidated assets $ 23,588.3 $ 21,208.2 $ 23,588.3 $ 21,208.2
=========== =========== =========== ===========
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
Assets 1999 1998
- ------ --------------------------------
<S> <C> <C>
Cash and due from banks $ 637,807 $ 640,704
Trading securities 39,441 51,050
Short-term investments 169,359 191,666
Other investment securities:
Taxable 4,237,305 4,461,150
Tax-exempt 1,257,039 1,107,902
------------- -------------
Total investment securities 5,703,144 5,811,768
Loans and leases:
Commercial 4,423,809 3,857,381
Real estate 8,778,791 7,863,491
Personal 1,221,193 1,153,680
Lease financing 734,107 541,679
------------- -------------
15,157,900 13,416,231
Less: Allowance for loan and lease losses 226,659 217,847
------------- -------------
Total loans and leases 14,931,241 13,198,384
Premises and equipment, net 361,304 357,903
Accrued interest and other assets 1,399,224 895,205
------------- -------------
Total Assets $ 23,032,720 $ 20,903,964
============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,688,853 $ 2,583,802
Interest bearing 13,959,810 12,205,667
------------- -------------
Total deposits 16,648,663 14,789,469
Funds purchased and security repurchase
agreements 2,112,603 2,278,791
Other short-term borrowings 535,798 168,448
Long-term borrowings 1,012,197 1,033,687
Accrued expenses and other liabilities 585,052 479,417
------------- -------------
Total liabilities 20,894,313 18,749,812
Shareholders' equity 2,138,407 2,154,152
------------- -------------
Total Liabilities and Shareholders' Equity $ 23,032,720 $ 20,903,964
============= =============
</TABLE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
Assets 1999 1998
- ------ -------------------------------
<S> <C> <C>
Cash and due from banks $ 641,079 $ 648,964
Trading securities 34,162 43,669
Short-term investments 182,050 184,724
Other investment securities:
Taxable 4,200,967 4,381,673
Tax-exempt 1,190,219 1,069,575
------------- -------------
Total investment securities 5,607,398 5,679,641
Loans and leases:
Commercial 4,290,413 3,658,059
Real estate 8,439,095 7,932,551
Personal 1,181,789 1,150,182
Lease financing 680,198 515,441
------------- -------------
14,591,495 13,256,233
Less: Allowance for loan and lease losses 228,772 215,227
------------- -------------
Total loans and leases 14,362,723 13,041,006
Premises and equipment, net 358,060 355,669
Accrued interest and other assets 1,353,094 889,042
------------- -------------
Total Assets $ 22,322,354 $ 20,614,322
============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest bearing $ 2,626,236 $ 2,490,592
Interest bearing 13,268,169 12,138,017
------------- -------------
Total deposits 15,894,405 14,628,609
Funds purchased and security repurchase
agreements 2,343,580 1,996,051
Other short-term borrowings 358,194 350,168
Long-term borrowings 1,014,817 1,046,196
Accrued expenses and other liabilities 525,709 487,338
------------- -------------
Total liabilities 20,136,705 18,508,362
Shareholders' equity 2,185,649 2,105,960
------------- -------------
Total Liabilities and Shareholders' Equity $ 22,322,354 $ 20,614,322
============= =============
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
----------------------------------------------
Net income for the third quarter of 1999 amounted to $90.8 million compared to
$80.2 million for the same period in the prior year. Basic and diluted earnings
per share were $.86 and $.81 respectively for the three months ended September
30, 1999, compared with $.74 and $.70, respectively for the three months ended
September 30, 1998. The return on average assets and average equity were 1.56%
and 16.85% for the quarter ended September 30, 1999 and 1.52% and 14.76% for the
quarter ended September 30, 1998.
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. "Cash
operating income" and related statistics is operating income before amortization
of intangibles. 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 OPERATING INCOME STATEMENTS AND FINANCIAL STATISTICS
-------------------------------------------------------------------------
(000's except per share data)
-----------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income $ 380,477 $ 364,702 $ 352,586 $ 358,701 $ 362,509
Interest expense (202,674) (186,960) (179,769) (184,712) (193,042)
--------- --------- --------- --------- ---------
Net interest income 177,803 177,742 172,817 173,989 169,467
Provision for loan and lease losses (4,797) (4,811) (4,873) (12,588) (4,769)
Net investment securities gains 59 355 -- 1,179 3,760
Other income 222,188 208,110 195,360 207,659 179,941
Other expense (259,874) (247,883) (234,295) (242,086) (225,786)
--------- --------- --------- --------- ---------
Income before taxes 135,379 133,513 129,009 128,153 122,613
Income tax provision (44,543) (45,995) (43,478) (44,683) (42,458)
--------- --------- --------- --------- ---------
Operating income $ 90,836 $ 87,518 $ 85,531 $ 83,470 $ 80,155
========= ========= ========= ========= =========
Cash operating income $ 95,796 $ 92,475 $ 94,372 $ 88,679 $ 85,354
========= ========= ========= ========= =========
Per Common Share
Operating income
Basic $ 0.86 $ 0.82 $ 0.79 $ 0.77 $ 0.74
Diluted 0.81 0.77 0.75 0.72 0.70
Cash Operating income
Basic $ 0.91 $ 0.86 $ 0.88 $ 0.82 $ 0.79
Diluted 0.85 0.81 0.82 0.77 0.74
Dividends 0.24 0.24 0.22 0.22 0.22
Return on Average Equity
Operating income 16.85 % 16.04 % 15.55 % 14.96 % 14.76 %
Cash Operating income 21.04 20.04 19.78 18.35 18.26
</TABLE>
<PAGE>
SUMMARY CONSOLIDATED OPERATING INCOME STATEMENT COMPONENTS
----------------------------------------------------------
AS A PERCENT OF AVERAGE TOTAL ASSETS
------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income (FTE) 6.68 % 6.68 % 6.75 % 6.81 % 7.01 %
Interest expense (3.49) (3.36) (3.38) (3.44) (3.67)
--------- --------- --------- --------- ---------
Net interest income 3.19 3.32 3.37 3.37 3.34
Provision for loan and lease losses (0.08) (0.09) (0.09) (0.23) (0.09)
Net investment securities gains -- 0.01 -- 0.02 0.07
Other income 3.83 3.74 3.67 3.87 3.42
Other expense (4.49) (4.46) (4.40) (4.51) (4.29)
--------- --------- --------- --------- ---------
Income before taxes 2.45 2.52 2.55 2.52 2.45
Income tax provision (0.89) (0.95) (0.94) (0.97) (0.93)
--------- --------- --------- --------- ---------
Return on average assets
based on operating income 1.56 % 1.57 % 1.61 % 1.55 % 1.52 %
========= ========= ========= ========= =========
Return on tangible
average assets based on
cash operating income 1.67 % 1.69 % 1.80 % 1.67 % 1.64 %
========= ========= ========= ========= =========
</TABLE>
Compared with the third quarter of 1998 operating income from Banking increased
$8.1 million or 11%. Operating income from Data Services, which includes the
effects of recent acquisitions and joint venture increased $2.6 million or 26%.
Operating income from all other segments increased $4.4 million or 53%. Lower
equity securities gains, adverse employee health benefit experience and the
effect of the Corporation's share repurchase program increased the operating
loss associated with Corporate overhead.
NET INTEREST INCOME
-------------------
Net interest income for the third quarter of 1999 amounted to $177.8 million,
an increase of $8.3 million or 4.9% from the $169.5 million reported for the
third quarter of 1998. On a FTE basis, interest income arising from the
increase in the volume of average earning assets contributed approximately $33.2
million which was partially offset by approximately $14.5 million due to the
decline in yield on earning assets. The decrease in the rate on interest
bearing liabilities reduced interest expense by approximately $17.4 million,
however, the increase in the volume of average interest bearing liabilities
contributed approximately $27.0 million of increase to interest expense.
Average earning assets in the third quarter of 1999 increased $1.6 billion or
8.5% compared to the same period a year ago. Average loans, including
securitized adjustable rate mortgage loans (ARMs), accounted for $1.3 billion
or 80% of the growth in earning assets compared to the third quarter of last
year. Average investment securities, excluding securitized ARMs, increased
$367.9 million while other earning assets decreased $33.9 million for the three
months ended September 30, 1999 compared with the same period in the prior year.
Average interest bearing liabilities increased $1.9 billion or 12.3% in the
third quarter of 1999 compared to the same period in 1998. Since the third
quarter of 1998, average interest bearing deposits which includes both wholesale
and bank issued deposits increased $1.8 billion while average total borrowings
which reflects, in part, the effect of the Corporation's repurchase program,
increased $179.7 million.
Beginning in September, 1999 certain of the Corporation's banking affiliates
began offering Bank Notes to institutional investors. Under the Bank Note
program, the aggregate principal amount of all the issuing banks will not exceed
$5.0 billion. Issuing banks may from time to time issue Short-term Senior Notes
and Medium-term Senior Notes as well as Subordinated Notes with maturities
ranging from seven days to thirty years and at fixed or floating rates. As of
September 30, 1999 Short-term Senior Notes in the amount of $300 million with
a fixed rate of 6.07% and term of one year were outstanding.
<PAGE>
Average noninterest bearing deposits increased $105.1 million or 4.1% in the
current quarter compared to the same period last year.
The growth and composition of the Corporation's quarterly average loan portfolio
for the current quarter and previous four quarters are reflected in the
following table. Securitized ARM loans which are classified in the consolidated
balance sheets as investment securities available for sale are included to
provide a more meaningful comparison ($ in millions):
CONSOLIDATED AVERAGE LOANS, LEASES AND SECURITIZED ARMs
-------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 Growth Pct.
------------------------- ---------------- -----------------
Third Second First Fourth Third Prior
Quarter Quarter Quarter Quarter Quarter Annual Quarter
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,424 $ 4,311 $ 4,133 $ 4,021 $ 3,857 14.7 % 2.6 %
Real Estate
Construction
Commercial 344 304 305 309 284 21.4 13.2
Residential 95 101 107 115 120 (21.1) (5.5)
------- ------- ------- ------- ------- ------- -------
Total Construction 439 405 412 424 404 8.7 8.6
Commercial Mortgages 3,884 3,792 3,717 3,616 3,544 9.6 2.4
Residential
Residential mortgages 2,474 2,334 2,333 2,423 2,410 2.7 6.0
Home equity loans and lines 1,982 1,845 1,694 1,609 1,505 31.6 7.4
Securitized ARM loans 490 560 649 792 933 (47.5) (12.5)
------- ------- ------- ------- ------- ------- -------
Total Residential 4,946 4,739 4,676 4,824 4,848 2.0 4.3
------- ------- ------- ------- ------- ------- -------
Total Real Estate 9,269 8,936 8,805 8,864 8,796 5.4 3.7
Personal
Student 254 255 264 259 259 (1.8) (0.3)
Credit card 139 137 137 137 133 4.1 1.1
Other 828 777 753 770 762 8.8 6.6
------- ------- ------- ------- ------- ------- -------
Total Personal 1,221 1,169 1,154 1,166 1,154 5.9 4.5
Lease financing
Commercial 337 333 335 330 331 1.9 1.1
Personal 397 345 293 251 211 88.3 15.2
------- ------- ------- ------- ------- ------- -------
Total Lease Financing 734 678 628 581 542 35.5 8.3
------- ------- ------- ------- ------- ------- -------
Total Consolidated Average
Loans, Leases and ARMs $ 15,648 $ 15,094 $ 14,720 $ 14,632 $ 14,349 9.1 % 3.7 %
======= ======= ======= ======= ======= ======= =======
Total Consolidated Average
Loans, Leases and ARMs
Commercial Banking $ 8,989 $ 8,740 $ 8,490 $ 8,276 $ 8,016 12.1 % 2.8 %
Retail Banking 6,659 6,354 6,230 6,356 6,333 5.1 4.8
------- ------- ------- ------- ------- ------- -------
Total Consolidated Average
Loans, Leases and ARMs $ 15,648 $ 15,094 $ 14,720 $ 14,632 $ 14,349 9.1 % 3.7 %
======= ======= ======= ======= ======= ======= =======
Total Consolidated Average
Loans and Leases $ 15,158 $ 14,534 $ 14,071 $ 13,840 $ 13,416 13.0 % 4.3 %
======= ======= ======= ======= ======= ======= =======
</TABLE>
Compared with the third quarter of 1998, total consolidated average loans,
leases and securitized ARMs increased $1.3 billion or 9.1%. Loan growth was
primarily attributable to commercial banking. Total loan growth in commercial
banking amounted to $973 million or 12.1% and was driven by commercial loan
growth of $567 million and commercial mortgage loan growth of $340 million.
Retail banking loan growth amounted to $326 million or 5.1% primarily due to
growth of $477 million in home equity loans and lines and $186 million in lease
financing receivables. Securitized ARMs declined $443 million. Residential
real estate mortgage loans increased 2.7% which reflects the slowdown and
reversal of the effect of increased prepayments associated with customer
refinancings to fixed rate loans throughout 1998 and early 1999. Compared to
the second quarter of 1999, residential real estate loans increased $140 million
or 6.0%. One to four family residential real estate loans sold to investors
amounted to $167 million in the third quarter of 1999 compared to $443 million
in the third quarter of 1998.
<PAGE>
The growth and composition of the Corporation's quarterly average deposits for
the current and prior year's quarters are as follows ($ in millions):
<TABLE>
<CAPTION>
1999 1998 Growth Pct.
------------------------- ---------------- -----------------
Third Second First Fourth Third Prior
Quarter Quarter Quarter Quarter Quarter Annual Quarter
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing deposits
Commercial $ 1,732 $ 1,682 $ 1,655 $ 1,779 $ 1,670 3.7 % 2.9 %
Personal 555 567 549 529 507 9.6 (1.9)
Other 402 372 364 401 407 (1.3) 8.0
------- ------- ------- ------- ------- ------- -------
Total noninterest
bearing deposits 2,689 2,621 2,568 2,709 2,584 4.1 2.6
Interest bearing deposits
Savings & NOW 2,019 2,054 2,082 2,118 2,152 (6.2) (1.7)
Money market 4,837 4,762 4,697 4,474 4,233 14.3 1.6
Other CDs & time deposits 3,444 3,398 3,476 3,600 3,733 (7.8) 1.4
CDs greater than $100,000 841 780 762 780 810 3.7 7.8
Foreign Time 1,887 1,273 946 703 498 278.8 48.3
Brokered CDs 932 845 755 755 779 19.7 10.3
------- ------- ------- ------- ------- ------- -------
Total interest
bearing deposits 13,960 13,112 12,718 12,430 12,205 14.4 6.5
------- ------- ------- ------- ------- ------- -------
Total consolidated
average deposits $ 16,649 $ 15,733 $ 15,286 $ 15,139 $ 14,789 12.6 % 5.8 %
======= ======= ======= ======= ======= ======= =======
Bank issued deposits $ 13,582 $ 13,326 $ 13,320 $ 13,445 $ 13,207 2.8 % 1.9 %
Wholesale deposits 3,067 2,407 1,966 1,694 1,582 93.8 27.4
------- ------- ------- ------- ------- ------- -------
Total consolidated
average deposits $ 16,649 $ 15,733 $ 15,286 $ 15,139 $ 14,789 12.6 % 5.8 %
======= ======= ======= ======= ======= ======= =======
</TABLE>
Compared with the third quarter of 1998, average deposit growth amounted to $1.9
billion or 12.6% and consisted of $1.5 billion of growth in higher cost
wholesale deposits and $0.4 billion of growth in bank issued deposits. Money
market, which exhibited the largest growth, along with noninterest bearing
accounted for approximately $700 million of the growth in average bank issued
deposits. Partially, offsetting this growth were declines in Savings and NOW
and other CDs & time deposits of $400 million. As previously reported, during
the second quarter of 1999, the Corporation divested six branches with deposits
aggregating $53.2 million. The growth in Foreign time and Brokered CDs reflects
the use of wholesale deposits to fund earning asset growth.
<PAGE>
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the current quarter
and prior year third quarter are presented in the following table. Securitized
ARM loans that are classified in the balance sheet as investment securities
available for sale are included with loans to provide a more meaningful
comparison ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
----------------------------- -----------------------------
Average Average
Average Yield or Average Yield or
Balance Interest Cost (b) Balance Interest Cost (b)
---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (a) $ 15,648.0 $ 304.2 7.72 % $ 14,348.9 $ 292.4 8.10 %
Investment securities:
Taxable 3,747.2 58.9 6.21 3,528.5 54.0 6.14
Tax Exempt (a) 1,257.0 21.9 7.03 1,107.9 19.4 7.05
Other short-term
investments (a) 208.8 2.8 5.35 242.7 3.3 5.39
---------- --------- -------- ---------- --------- --------
Total interest
earning assets $ 20,861.0 $ 387.8 7.38 % $ 19,228.0 $ 369.1 7.65 %
========== ========= ======== ========== ========= ========
Money market savings $ 4,836.7 $ 51.7 4.24 % $ 4,232.8 $ 48.6 4.55 %
Regular savings & NOW 2,019.1 8.5 1.66 2,151.9 10.5 1.94
Other CDs & time
deposits 5,331.2 68.6 5.11 4,231.6 59.9 5.61
CDs greater than
$100 & Brokered CDs 1,772.8 24.0 5.37 1,589.4 23.2 5.79
---------- --------- -------- ---------- --------- --------
Total interest
bearing deposits 13,959.8 152.8 4.34 12,205.7 142.2 4.62
Short-term borrowings 2,648.4 34.1 5.11 2,447.2 34.1 5.53
Long-term borrowings 1,012.2 15.8 6.19 1,033.7 16.8 6.44
---------- --------- -------- ---------- --------- --------
Total interest
bearing liabilities $ 17,620.4 $ 202.7 4.56 % $ 15,686.6 $ 193.1 4.88 %
========== ========= ======== ========== ========= ========
Net interest margin (FTE)
as a percent of average
earning assets $ 185.1 3.52 % $ 176.0 3.65 %
========= ======== ========= ========
Net interest spread (FTE) 2.82 % 2.77 %
======== ========
</TABLE>
(a) Fully taxable equivalent basis (FTE), assuming a Federal income tax rate
of 35%, and excluding disallowed interest expense.
(b) Based on average balances excluding fair value adjustments for available
for sale securities.
The yield on average earning assets decreased 27 basis points since the third
quarter of 1998. This decline in yield reflects, in part, the run-off
experienced throughout 1998 and early 1999 of higher yielding loans and
investment securities. The slowing of accelerated amortization of purchase
accounting premiums assigned to acquired loans and investment securities due to
prepayments and refinancings was somewhat of an offset to the yield decline in
the current quarter. Excluding amortization of purchase accounting adjustments,
the yield on earning assets was 7.41% in the current quarter compared to 7.72%
in the third quarter of the prior year. The yield on loans and securitized
ARMs, the largest earning asset, declined 38 basis points which had a negative
impact on net interest income of approximately $15 million compared with the
third quarter of 1998. The cost of interest bearing deposits decreased 28 basis
points from the same quarter of the previous year. Short-term borrowing costs
decreased 42 basis points and long-term borrowing costs decreased 25 basis
points, respectively, compared with the third quarter of 1998. The decrease in
borrowing costs compared to the prior year third quarter reflects the
refinancing of maturities at favorable rates. The increase in average
borrowings reflects funding of balance sheet growth and treasury stock
repurchases.
<PAGE>
At September 30, 1999, the Corporation had standard receive fixed/pay floating
interest rate swaps and interest rate caps and floors designated as hedges to
manage the interest rate volatility associated with variable rate loans and
variable rate debt. In addition, the Corporation had callable receive fixed /
pay floating interest rate swaps designated as hedges to offset callable CDs.
The Corporation's position with respect to interest rate swaps and interest rate
caps and floors designated as hedges at September 30, 1999 consisted of the
following ($ in millions):
<TABLE>
<CAPTION>
<S> <C>
Interest Rate Swaps
-------------------
Notional value $640
Weighted average receive rate 5.95%
Weighted average pay rate 5.42%
Weighted average remaining term (in years) 2.29
Estimated fair value ($5.85)
Callable Interest Rate Swaps
----------------------------
Notional value $372
Weighted average receive rate 6.10%
Weighted average pay rate 5.21%
Weighted average remaining term (in years) 7.50
Estimated fair value ($11.27)
Interest Rate Caps/Floors
-------------------------
Notional value $50
Strike rate 5.63%
Index 5.25%
Weighted average remaining term (in years) 1.13
Estimated fair value $0.05
Unamortized premium $0.13
</TABLE>
For the three months ended September 30, 1999, the effect on net interest income
resulting from the swaps, net of cap and floor premium amortization, was a
positive $1.9 million compared with a positive $1.2 million in the same period
in 1998.
Throughout 1999, the Corporation has been experiencing favorable loan growth and
has had to rely on wholesale deposits and borrowings to fund growth in excess
of core deposit growth. In order to maintain the desired level of liquidity as
well as manage interest rate sensitivity additional debt such as bank notes
may be employed. The higher cost nature of these funding sources may continue
to adversely affect the net interest margin.
<PAGE>
PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY
------------------------------------------------------
The following tables present comparative consolidated credit quality information
as of September 30, 1999 and the prior four quarters.
NONPERFORMING ASSETS
--------------------
($000's)
--------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 121,091 $ 122,561 $ 116,632 $ 101,346 $ 79,645
Renegotiated 725 746 878 978 1,129
Past due 90 days or more 7,630 6,525 7,275 7,631 7,249
--------- --------- --------- --------- ---------
Total nonperforming loans
and leases 129,446 129,832 124,785 109,955 88,023
Other real estate owned 6,660 6,766 9,245 8,751 12,212
--------- --------- --------- --------- ---------
Total nonperforming assets $ 136,106 $ 136,598 $ 134,030 $ 118,706 $ 100,235
========= ========= ========= ========= =========
Allowance for loan
and lease losses $ 226,461 $ 225,277 $ 229,669 $ 226,052 $ 218,706
========= ========= ========= ========= =========
</TABLE>
CONSOLIDATED STATISTICS
-----------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Charge-offs (Recoveries)
to average loans and
leases annualized 0.09 % 0.25 % 0.04 % 0.15 % 0.06
Total nonperforming loans
and leases to total loans
and leases 0.83 0.87 0.88 0.79 0.64
Total nonperforming assets to
total loans and leases and
other real estate owned 0.87 0.92 0.94 0.85 0.73
Allowance for loan and
lease losses to total
loans and leases 1.45 1.51 1.61 1.62 1.59
Allowance for loan and
lease losses to nonperforming
loans and leases 175 174 184 206 248
</TABLE>
<PAGE>
NONACCRUAL LOANS AND LEASES BY TYPE
-----------------------------------
($000's)
--------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial
Commercial, financial &
agricultural $ 60,627 $ 57,524 $ 51,472 $ 39,131 $ 14,506
Lease financing receivables 4,655 4,041 3,046 2,895 2,812
--------- --------- --------- --------- ---------
Total commercial 65,282 61,565 54,518 42,026 17,318
Real estate
Construction & land development 2,463 3,004 1,498 1,952 2,901
Commercial mortgage 22,911 25,763 24,865 21,586 22,244
Residential mortgage 28,651 30,154 33,517 33,117 34,797
--------- --------- --------- --------- ---------
Total real estate 54,025 58,921 59,880 56,655 59,942
Personal 1,784 2,075 2,234 2,665 2,385
--------- --------- --------- --------- ---------
Total nonaccrual loans and leases $ 121,091 $ 122,561 $ 116,632 $ 101,346 $ 79,645
========= ========= ========= ========= =========
</TABLE>
RECONCILIATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
-----------------------------------------------------
($000's)
--------
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Beginning balance $ 225,277 $ 229,669 $ 226,052 $ 218,706 $ 216,014
Provision for loan and lease losses 4,797 4,811 4,873 12,588 4,769
Loans and leases charged-off
Commercial 1,653 7,117 556 1,700 311
Real estate 1,198 1,475 1,250 2,178 1,568
Personal 1,794 1,544 1,697 1,978 1,714
Leases 300 686 196 701 131
--------- --------- --------- --------- ---------
Total charge-offs 4,945 10,822 3,699 6,557 3,724
Recoveries on loans and leases
Commercial 610 389 973 357 274
Real estate 195 405 561 285 717
Personal 472 611 704 653 633
Leases 55 214 205 20 23
--------- --------- --------- --------- ---------
Total Recoveries 1,332 1,619 2,443 1,315 1,647
--------- --------- --------- --------- ---------
Net loans and leases
charge-offs (recoveries) 3,613 9,203 1,256 5,242 2,077
--------- --------- --------- --------- ---------
Ending balance $ 226,461 $ 225,277 $ 229,669 $ 226,052 $ 218,706
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Nonperforming assets consist of nonperforming loans and other real estate owned
(OREO).
OREO is comprised of commercial and residential properties acquired in partial
or total satisfaction of problem loans and branch premises held for sale. At
September 30, 1999, OREO acquired in satisfaction of debts amounted to $5.8
million and branch premises held for sale amounted to $0.9 million.
Nonperforming loans and leases consist of nonaccrual, renegotiated or
restructured loans, and loans and leases that are delinquent 90 days or more and
still accruing interest. The balance of nonperforming loans and leases can
fluctuate widely based on the timing of cash collections, renegotiations and
renewals.
Maintaining nonperforming assets at an acceptable level is important to the
ongoing success of a financial services institution. The Corporation's
comprehensive credit review and approval process is critical to ensuring that
the amount of nonperforming assets on a long-term basis is minimized within the
overall framework of acceptable levels of credit risk. In addition to the
negative impact on net interest income and credit losses, nonperforming assets
also increase operating costs due to the expense associated with collection
efforts.
At September 30, 1999, nonperforming loans and leases amounted to $129.4 million
or 0.83% of consolidated loans and leases of $15.6 billion, relatively unchanged
since June 30, 1999 and an increase of $19.5 million since December 31, 1998.
Nonaccrual loans and leases, primarily commercial, have shown the largest
increases in the periods presented. Two larger commercial loans placed on
nonaccrual, one in the fourth quarter of 1998 and one in the second quarter of
1999, accounted for $35.8 million or 30% of nonaccrual loans at September 30,
1999.
Net charge-offs amounted to $3.6 million or 0.09% of average loans in the third
quarter of 1999 compared with $9.2 million or 0.25% of average loans in the
second quarter of 1999 and $2.1 million or 0.06% of average loans in the third
quarter of 1998. Approximately $6.5 million of second quarter net charge-offs
was due to a partial charge-off of one larger commercial loan. The remaining
balance was placed on nonaccrual as previously discussed.
The allowance for loan and lease losses represents management's estimate of
probable inherent losses which have occurred as of the date of the financial
statements. In determining the adequacy of the reserve the Corporation
evaluates the reserves necessary for specific nonperforming loans and also
estimates losses inherent in other loans and leases. As a result, the allowance
for loans and leases contains the following components:
Specific Reserve. The amount of specific reserves is determined through
a loan-by-loan analysis of nonperforming loans that considers expected
future cash flows, the value of collateral and other factors that may
impact the borrower's ability to make payments when due. Included in this
group are those nonaccrual or renegotiated loans which meet the criteria
as being "impaired" under the definition in SFAS 114. A loan is impaired
when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
Allocated inherent reserve. The amount of the allocated portion of the
inherent loss reserve is determined by reserving factors assigned to
loans and leases based on the Corporation's internal loan grading system.
Line officers and loan committees are responsible for continually
assigning grades to commercial loan types based on standards established
in the Corporation's loan policies and adherence to the standards is
closely monitored by the Corporation's Loan Review Group. Loan grades
are similar to, but generally more conservative than, regulatory
classifications. In addition, reserving factors are applied to retail
and smaller balance ungraded credits as well as specialty loan products
such as credit card, student loans and mortgages. Reserving factors are
derived and are determined based on such factors as historical charge-off
experience, remaining life, and industry practice for reserve levels. The
use of industry practice is intended to prevent an understatement of
reserves based upon an over-reliance on historical charge-offs during
favorable economic conditions.
Unallocated inherent reserve. Management determines the unallocated
portion of the inherent loss reserve based on factors that cannot be
associated with a specific credit or loan categories. These factors
include management's subjective evaluation of local, national and
international economic and business conditions, changes to underwriting
standards and marketing channels such as use of centralized retail and
small business credit centers, trends towards higher advance rates and
longer amortization periods and the impact of acquisitions on the
Corporation's credit risk profile. The unallocated portion of the
inherent loss reserve also reflects management's attempt to ensure that
the overall reserve appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.
<PAGE>
Management's evaluation of the factors described above resulted in an allowance
for loan and lease losses of $226.5 million at September 30, 1999 compared to
$225.3 million at June 30, 1999 and $226.1 million at December 31, 1998. The
level of reserve reflects management's belief that losses inherent in the loan
and lease portfolio were larger than would otherwise be suggested by the
Corporation's favorable charge-off experience in recent years; the Corporation's
experience, as most recently evidenced in the second quarter, of larger losses
in commercial and commercial real estate loans in brief periods at particular
points in economic cycles; and the view that the absolute level of the allowance
should not decline appreciably given continuing loan growth and the potential
for the unprecedented period of economic prosperity to come to an end.
The resulting provision for loan and lease losses amounted to $4.8 million for
the three months ended September 30, 1999, while net charge-offs totaled $3.6
million.
OTHER INCOME
------------
Total other income in the third quarter of 1999 amounted to $222.2 million, an
increase of $38.5 million or 21.0%, compared to $183.7 million in the same
period last year.
Total data processing services revenue increased $26.1 million or 25.5% from
$102.2 million in the third quarter of 1998 to $128.3 million in the current
quarter. Processing revenue which includes processing, conversions, contract
buyouts and equipment sales increased $8.3 million or 14.0% and amounted to
$67.0 million. Processing revenue increased $8.2 million of which approximately
$2.3 million relates to one-time fees. Conversion revenue, equipment sales and
buyout fees, which vary from period to period, were relatively unchanged.
Software and consulting revenue decreased $2.2 million in the current quarter
compared to the same period last year. Revenue growth levels for consulting and
software for the remainder of 1999 may be below historical patterns. E-commerce
revenue which includes electronic funds transfer, electronic banking, cash
management, home banking, internet banking, electronic payment services and
Customers Forever, a mortgage solution joint venture, increased $20 million or
97% from $20.8 million in the third quarter of 1998 to $40.8 million in the
current quarter. Revenue associated with recent acquisitions and the joint
venture accounted for $16.7 million of the increase.
Revenue from internet banking, primarily the Corporation's internet mortgage
activities which began in the fourth quarter of 1998, amounted to $0.4 million
compared to $0.6 million in the second quarter of 1999 and $0.5 million in the
first quarter of 1999. During the third quarter of 1999 the Corporation
expanded its internet offerings to include savings and in the fourth quarter
will be further expanding to include home equity loans.
Trust services revenue amounted to $25.7 million in the third quarter of 1999,
an increase of $1.9 million or 8.1% compared to $23.8 million in the third
quarter of 1998. Revenue growth in personal trust accounted for $1.4 million
of the increase.
For the three months ended September 30, 1999, service charges on deposits
amounted to $18.2 million, an increase of $2.6 million or 16.3% compared to
$15.6 million in the three months ended September 30, 1998. The increase was
attributable to service charges associated with commercial demand accounts.
Mortgage banking revenue amounted to $4.9 million in the third quarter of 1999
compared with $12.0 million in the third quarter of 1998. While all sources of
mortgage banking revenue decreased compared to the prior year, gains on the sale
of mortgages accounted for $5.4 million of the decline which reflects the
slowing of refinancing activity.
The increase in Capital Markets revenue is due to gains from the sale of
investments. Net securities gains from Capital Markets investments, which can
vary from period to period, amounted to $8.6 million in the current quarter
compared to a loss of $0.2 million in the comparative quarter of the prior year.
During the third quarter of 1998, the parent company sold equity securities and
realized a gain of $1.3 million and the Corporation's banking affiliates sold
available for sale treasury securities and realized a gain of $2.4 million in
anticipation of the fourth quarter 1998 purchase of bank-owned life insurance.
Other income in the third quarter of 1999 amounted to $36.1 million compared to
$26.3 million in the third quarter of 1998, an increase of $9.8 million or
37.2%. Revenue from bank-owned life insurance increased $5.7 million due to
additional purchases of insurance late in the fourth quarter of 1998. As
required by the Banking Regulators as part of the April 1998 merger with
Advantage Bancorp Inc., the Corporation disposed of a real estate investment and
realized a gain of $1.8 million during the third quarter of 1999. Other
commission and fee income increased $2.2 million of which card fees (credit
card, debit card and Tyme fees) accounted for $1.1 million.
<PAGE>
OTHER EXPENSE
-------------
Total other expense in the third quarter of 1999 amounted to $259.9 million
compared with $225.8 million in the third quarter of 1998 an increase of $34.1
million or 15.1%.
The Corporation's nonbanking businesses, especially its Data Services segment
("Data Services"), continue to be the primary contributors to operating expense
growth. Data Services expense growth represents approximately 63% of the
consolidated operating expense growth and reflects the cost of adding
processing capacity and other related costs associated with increased revenue
growth, costs associated with developing new products and services, operating
expenses associated with the Moneyline and ADP acquisitions and maintenance
activities for Year 2000.
Expense control is sometimes measured in the financial services industry by the
efficiency ratio statistic. The efficiency ratio is calculated by taking total
other expense (excluding nonrecurring charges) divided by the sum of total other
income (including Capital Markets revenue but excluding investment securities
gains or losses) and net interest income on a fully taxable equivalent basis.
The Corporation's efficiency ratios for the three months ended September 30,
1999 and 1998 and the year ended December 31, 1998 are:
<TABLE>
<CAPTION>
Three Months Year Three Months
Ended Ended Ended
September 30, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
Consolidated Corporation 63.8 % 63.2 % 63.4 %
Consolidated Corporation
Excluding Data Services
Including Intangible Amortization 53.0 % 53.1 % 53.4 %
Excluding Intangible Amortization 50.3 % 48.5 % 48.7 %
</TABLE>
Salaries and employee benefits expense amounted to $152.6 million in the third
quarter of 1999 compared to $131.2 million in the third quarter of 1998, an
increase of $21.4 million or 16.3%. Salaries and employee benefits expense of
Data Services increased $12.1 million which was offset by a decrease in contract
programmers of $1.3 million in the current quarter compared to the same period
last year. At September 30, 1999, Data Services had on average approximately
388 more full time equivalent employees when compared to September 30, 1998
which reflects increases in E-commerce (349 including acquisitions) and
technology services. Compared to the third quarter of 1998, expense growth in
the current quarter in salaries and employee benefits was $3.7 million or 8.2%
for the banking segment. All others increased $1.2 million largely due to
incentive compensation. Benefit plan expense largely due to adverse health
claims experience increased $3.0 million. Incentive compensation which includes
incentive compensation based on the Corporation's common stock performance
increased $1.3 million.
Data Services expense growth accounted for approximately $3.1 million or 62% of
the increase in net occupancy, equipment, software, supplies and printing and
processing expenses in the third quarter of 1999 compared to the third quarter
of 1998.
Data Services also accounted for approximately $1.8 million or 76% of the
increase in professional services expense which represents Year 2000 activity
and new product development initiatives.
Amortization of intangibles decreased $2.7 million. Approximately $2.3 million
of the decrease is due to lower amortization of mortgage servicing rights which
reflects the third quarter slowing of prepayments in the servicing portfolio.
Other expense amounted to $32.2 million in the third quarter of 1999, an
increase of $8.2 million or 34.3% compared to the third quarter of 1998. Other
expense is affected by the capitalization of costs, net of amortization and
write-downs associated with software development and customer data processing
conversions. During the third quarter of 1999, amortization, net of
capitalization, increased $1.1 million for conversions due to lower conversion
activity. Amortization, including software development expenses associated with
the start-up of the joint venture, and write-downs net of capitalization
increased $3.9 million for software development. These items increased other
expenses by $5.0 million compared to the third quarter of 1998. Advertising
expense increased $1.9 million in the current quarter compared to the same
period last year of which, Data Services accounted for $0.5 million of the
increase. During the third quarter of 1998, the Corporation reduced its
recourse obligations associated with securitized ARM's by $2.4 million.
<PAGE>
INCOME TAXES
------------
The provision for income taxes for the three months ended September 30, 1999
amounted to $44.5 million or 32.9% of pre-tax income compared to $42.5 million
or 34.6% of pre-tax income for the three months ended September 30, 1998. The
change in the effective tax rate is primarily due to the increase in tax-exempt
income in 1999 and an increase in income tax credits.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------
Net income for the nine months ended September 30, 1999 amounted to $263.9
million compared to $217.9 million in the first nine months of 1998. Basic and
diluted earnings per share were $2.48 and $2.33, respectively for the nine
months ended September 30, 1999 and $2.01 and $1.89, respectively, for the nine
months ended September 30, 1998. The year to date return on average equity was
16.14% in the current period and 13.83% for the comparable period in 1998.
Results of operations for the nine months ended September 30, 1998 include the
$23.4 million ($16.3 million after-tax) merger/restructuring charge associated
with the Advantage merger. Excluding this charge, operating income for the
first nine months of 1998 was $234.1 million.
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 nine months ended September 30, 1999 and 1998.
Operating income for the first nine months of 1998 excludes the
merger/restructuring charge previously discussed. "Cash operating income" and
related statistics is operating income before amortization of intangibles.
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.
<PAGE>
SUMMARY CONSOLIDATED OPERATING INCOME STATEMENTS AND STATISTICS
---------------------------------------------------------------
($000's, except per share data)
-------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income $1,097,765 $1,075,343
Interest expense (569,403) (573,262)
---------- ----------
Net interest income 528,362 502,081
Provision for loan
and lease losses (14,481) (14,502)
Net investment securities gains 414 5,966
Other income 625,658 541,529
Other expense (742,052) (674,569)
---------- ----------
Income before taxes 397,901 360,505
Income tax provision (134,016) (126,384)
---------- ----------
Operating income $ 263,885 $ 234,121
========== ==========
Cash operating income $ 282,643 $ 249,905
========== ==========
Per Common Share
Operating income
Basic $ 2.48 $ 2.17
Diluted 2.33 2.03
Cash Operating income
Basic $ 2.66 $ 2.32
Diluted 2.49 2.17
Dividends 0.70 0.64
Return on Average Equity
Operating income 16.14 % 14.86 %
Cash Operating income 20.28 18.52
</TABLE>
<PAGE>
CONSOLIDATED OPERATING INCOME STATEMENT COMPONENTS
--------------------------------------------------
AS A PERCENT OF AVERAGE TOTAL ASSETS
------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income (FTE) 6.70 % 7.10 %
Interest expense (3.41) (3.72)
---------- ----------
Net interest income 3.29 3.38
Provision for loan and
lease losses (0.09) (0.09)
Net investment securities gains 0.00 0.04
Other income 3.75 3.51
Other expense (4.44) (4.38)
---------- ----------
Income before taxes 2.51 2.46
Income tax provision (0.93) (0.94)
---------- ----------
Return on average assets
based on operating income 1.58 % 1.52 %
========== ==========
Return on tangible
average assets based on
cash operating income 1.67 % 1.60 %
========== ==========
</TABLE>
The increase in operating income is due to growth in noninterest revenues of
$78.6 million which includes revenue growth of $57.2 million by the Data
Services segment and growth in net interest income of $26.3 million primarily
due to loan growth which was offset by operating expense growth which is
primarily driven by the Data Services segment and lower securities gains.
CAPITAL RESOURCES
-----------------
Shareholders' equity was $2.13 billion at September 30, 1999 compared to $2.24
billion at December 31, 1998 and $2.19 billion at September 30, 1998.
The Corporation had net unrealized losses on securities available for sale at
September 30, 1999 of $3.6 million, a decrease in market value net of related
income tax effects of $61.7 million since December 31, 1998.
During the third quarter of 1999, M&I repurchased 0.9 million shares of its
Common Stock under the authorization by the Board of Directors to repurchase up
to 6.0 million common shares annually and has cumulatively repurchased 4.2
million shares in the first nine months of 1999. The aggregate cost of the
shares repurchased was $59.7 million in the third quarter and $257.7 million
since the beginning of 1999.
In September 1999, the holder of the Corporation's Series A convertible
preferred stock converted a portion of the Series A to the Corporation's common
stock which was issued from treasury common stock. See Note 2 of Notes to
Financial Statements for a description of the transaction.
<PAGE>
The Corporation continues to have a strong capital base and its regulatory
capital ratios are significantly above the minimum requirements as shown in the
following tables.
RISK-BASED CAPITAL RATIOS
-------------------------
($ in millions)
---------------
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
----------------------------------- -----------------------------------
Amount Ratio Amount Ratio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 1,974 11.42 % $ 2,060 12.78 %
Tier 1 Capital
Minimum Requirement 691 4.00 645 4.00
----------------- ----------------- ----------------- -----------------
Excess $ 1,283 7.42 % $ 1,415 8.78 %
================= ================= ================= =================
Total Capital $ 2,250 13.02 % $ 2,342 14.53 %
Total Capital
Minimum Requirement 1,383 8.00 1,290 8.00
----------------- ----------------- ----------------- -----------------
Excess $ 867 5.02 % $ 1,052 6.53 %
================= ================= ================= =================
Risk-Adjusted Assets $ 17,285 $ 16,121
================= =================
</TABLE>
LEVERAGE RATIOS
---------------
($ in millions)
---------------
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
----------------------------------- -----------------------------------
Amount Ratio Amount Ratio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 1,974 8.71 % $ 2,060 9.86 %
Minimum Leverage
Requirement 680 - 1,133 3.00 - 5.00 627 - 1,045 3.00 - 5.00
----------------- ----------------- ----------------- -----------------
Excess $ 1,294 - 841 5.71 - 3.71 % $ 1,433 - 1,015 6.86 - 4.86 %
================= ================= ================= =================
Adjusted Average
Total Assets $ 22,665 $ 20,896
================= =================
</TABLE>
<PAGE>
YEAR 2000 Update
- ----------------
The following is an update of the state of readiness, contingency plans and
estimated costs for addressing year 2000. This update should be read in
conjunction with the discussion on Year 2000 contained in the Corporation's 1998
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the three
months and six months ended March 31 and June 30, 1999, respectively. For
purposes of this discussion, the summary has been segregated between Data
Services and the remainder of the Corporation and Subsidiaries.
DATA SERVICES
-------------
The Federal Financial Institutions Examination Council (FFIEC) guidelines called
for a certain level of progress with respect to Y2K readiness to be made. The
following is a summary of progress for the nine months ended September 30, 1999:
March 31, 1999 Requirements
- ---------------------------
Testing with external parties and testing with customers is complete
Of 653 identified areas/products all Year 2000 Contingency Plans and Contingency
Test Plans have been documented.
June 30, 1999 Requirements
- --------------------------
Of 113 total products within the applications/open systems inventory 20xx
testing is completed and 112 have completed implementation of the Year 2000 -
ready code.
Of 653 identified areas/products all Year 2000 Contingency Test Plans have been
executed.
September 30, 1999 Requirements
- -------------------------------
Of 653 identified areas/products 636 Event Validation Plans have been
documented.
The Event Plan addresses all areas of Data Services and includes end-of-year
processing, customer support, employee and customer communication, services
continuity plans, contingency plans and validation plans. Continual review,
refinement, testing and communication of the contents of the plan will occur
through the remainder of 1999. Several tests are scheduled for November.
Data Services will continue testing to ensure other modifications and
enhancements implemented prior to Year 2000 are compliant. Because Data
Services is in a technology business, it is heavily reliant on software and
hardware products. Data Services is continuing to validate year 2000 compliance
for all third-party software and computer hardware including mainframe, open
systems, network and desktop equipment and is validating the risks and state of
readiness for year 2000 with respect to recently acquired businesses.
Data Services is also continuing to focus on the clean management process and
document retention, assessing its physical infrastructure, customer
communications and needs assessments, and continued work on contingency
strategies such as capacity plans.
Future data processing revenue is critically dependent upon successfully
implementing the necessary changes to ensure year 2000 compliance.
CORPORATION AND SUBSIDIARIES (Excluding Data Services)
------------------------------------------------------
Designated "Mission Critical" software has been renovated and validated.
The risk assessment phase of assessing vendor readiness and testing hardware has
been completed. Certification of "Non-Mission Critical" hardware, software,
office machines and building systems was completed in the second quarter of
1999.
The risk assessment for customer readiness has been completed. Customers who
have been assigned a moderate or high risk factor are being monitored on an
ongoing basis.
<PAGE>
Although M&I has had contingency plans (disaster recovery) in place covering
major business disruptions like power outages and communications or computer
system failures for some time, in January 1998, the Corporation began to revise
these plans to specifically include year 2000 issues. As a part of this process
the Corporation has identified a list of "most reasonably likely worst case
scenarios" and action plans to minimize business disruption if they were to
occur. The major scenarios identified take into account the Corporation's
dependency on utilities, government and customer behavior over which it has very
limited control. Reviews have been made of the year 2000 programs and
contingency plans for the Federal Reserve and major utilities. Periodic updates
of their progress in following their year 2000 readiness timetables are being
made. Contingency plans and business resumption plans are in place for each
affiliate. Testing of contingency plans was completed in the third quarter of
1999.
Event Plans have been documented. As is the case with Data Services, continual
review, refinement, testing and communication of the contents of the plan will
occur through the remainder of 1999.
YEAR 2000 RELATED COSTS
-----------------------
The majority of Data Services' contracts do not provide for additional
reimbursement over and above the previously contracted maintenance amounts. The
current estimate of the Corporation's total net direct cost for the year 2000
effort is approximately $45 million with Data Services representing
approximately 90% of that amount. Additional costs associated with desktop
renovation, router upgrades, security system upgrades, clean management and
document preparation and retention, capacity planning, and other infrastructure
and customer issues has resulted in an increase in the current estimate of
approximately $5 million since year-end 1998. Approximately $34.6 million has
been expensed through September 30, 1999 and the remainder is anticipated to be
incurred in the fourth quarter of 1999 and early 2000. The cost for the three
months ended September 30, 1999 and 1998 were $3.2 million and $5.2 million,
respectively. Replacement equipment and software are being capitalized or
expensed in accordance with the Corporation's normal accounting policies.
Write-offs of the net book value of equipment or software that is not Year 2000
compliant is included in the above estimates.
Forward-Looking Statements
--------------------------
This Management's Discussion and Analysis of Financial Position contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including, without limitation, statements
regarding M&I's risks, state of readiness, contingency plans and estimated costs
for addressing Year 2000 issues. Forward-looking statements are subject to
significant risks and uncertainties and M&I's actual results may differ
materially from the results discussed in such forward-looking statements.
Factors that might cause actual results to differ from the results discussed in
such forward-looking statements include, but are not limited to: (1)
unanticipated problems or delays encountered in making information systems Year
2000 compliant, (2) higher than anticipated costs in attaining Year 2000
compliance, (3) unanticipated litigation or other disputes with customers,
suppliers or others involving Year 2000 issues, (4) erroneous certifications
from third parties as to Year 2000 compliance, and (5) those factors set under
"Forward-Looking Statements" in Part I of M&I's Annual Report on Form 10-K for
the year ended December 31, 1998 which are incorporated herein by reference.
Recent Developments
- -------------------
On October 1, 1999, the Corporation through its Data Services Division acquired
certain assets of Cardpro Services, Inc., a provider of plastic card
personalization and procurement services located in Illinois. The assets will
be acquired for approximately $12.8 million in cash, subject to adjustments, in
a transaction to be accounted for using the purchase method of accounting.
On October 15, 1999, the Corporation announced it has filed an application to
list its shares of common stock on the New York Stock Exchange (NYSE). Pending
final approval from the NYSE, the Corporation anticipates that it will commence
trading its shares on the NYSE on November 12, 1999 under the ticker symbol
"MI". Presently and until November 12, 1999, the Corporation's stock is traded
on NASDAQ under the ticker symbol "MRIS".
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a detailed discussion of market risk, see Item 7A. Quantitative and
Qualitative Disclosures about Market Risk in the Corporation's Annual Report on
Form 10K for the year ended December 31, 1998. For additional information on
the Corporation's derivative financial instruments, see Management's Discussion
and Analysis of Financial Position and Results of Operations.
Interest Rate Risk
------------------
The Corporation's consolidated static gap position as of September 30, 1999 has
become more liability sensitive since December 31, 1998 due to the fact that
prepayment expectations associated with mortgage related assets have lengthened.
Along with the static gap analysis, determining the sensitivity of future
earnings to a hypothetical +/- 100 basis point parallel rate shock is
accomplished through the use of simulation modeling. The following table
illustrates these amounts as of September 30, June 30, and March 31, 1999 which
are within the limits established by the Corporation:
<TABLE>
<CAPTION>
Impact to Pretax Income
---------------------------------------------
September 30, June 30, March 31,
Hypothetical Change in Interest Rate 1999 1999 1999
- ------------------------------------ -------------- -------------- -------------
<S> <C> <C> <C>
100 basis point Shock Up (13.0) % (12.9) % (11.8)%
100 basis point Shock Down 11.7 % 11.1 % 9.2 %
</TABLE>
These results are based solely on the repricing characteristics of the balance
sheet, adjusted for expected prepayments, due to immediate and sustained
parallel changes in market rates and do not reflect the earnings sensitivity
that may arise from other factors such as changes in the shape of the yield
curve, the change in spread between key market rates, or accounting recognition
for impairment of certain intangibles. The above results are also considered
to be conservative estimates due to the fact that no management action to
mitigate potential income variances are included within the simulation process.
This action would include, but would not be limited to, adjustments to the
repricing characteristics of any on or off balance sheet item with regard to
short-term rate projections and current market value assessments.
Another component of interest rate risk, fair value at risk, is determined by
the Corporation through the technique of simulating the fair value of equity in
changing rate environments. This technique involves determining the present
value of all contractual asset and liability cash flows (adjusted for
prepayments) based on a predetermined discount rate. The net result of all
these balance sheet items determine the fair value of equity. The fair value
of equity resulting from the current flat rate scenario is compared to the fair
value of equity calculated using discount rates +/- 100 basis points from flat
rates to determine the fair value of equity at risk. The fair value of equity
at risk is approximately 4% of the market value of the Corporation as of
September 30, 1999.
In September 1998, the Corporation began acting as an intermediary for swap
agreements on behalf of its customers. These are derivative financial
instruments and are matched off by the Corporation to eliminate exposure to
market risk. Interest rate swaps held for trading included $47.5 million in
notional amount of receive fixed and $47.5 million in notional amount of pay
fixed at September 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibits:
Exhibit 10(a) - Marshall & Ilsley Corporation Amended and Restated
Executive Deferred Compensation Plan
Exhibit 10(b) - Marshall & Ilsley Corporation Amended and Restated 1997
Executive Stock Option and Restricted Stock Plan
Exhibit 10(c) - Marshall & Ilsley Corporation Amended and Restated 1994
Long-Term Incentive Plan for Executives
Exhibit 10(d) - Marshall & Ilsley Corporation Amended and Restated
Annual Executive Compensation Plan
Exhibit 11 - Statements - Computation of Earnings Per Share
Incorporated by Reference to NOTE 3 of Notes to
Financial Statements contained in Item 1-Financial
Statements (unaudited) of Part 1-Financial Information
herein.
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 15, 1999
<PAGE>
EXHIBIT 10(a)
<PAGE>
Amended August 12, 1999
MARSHALL & ILSLEY CORPORATION
AMENDED AND RESTATED
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
Establishment of Plan and Purpose
1.01. Establishment of Plan. Marshall & Ilsley Corporation has
established the Marshall & Ilsley Executive Deferred Compensation Plan,
effective as of January 1, 1997 (the "Plan").
1.02. Purpose of Plan. The Plan shall permit a select group of senior
management and highly compensated employees to enhance the security of
themselves and their beneficiaries following the termination of their employment
with the Companies (as defined herein) by deferring until that time a portion
of the compensation which may otherwise be payable to them at an earlier date.
By allowing key management employees to participate in the Plan, the Company
expects the Plan to benefit it in attracting and retaining the most capable
individuals to fill its executive positions in the Companies.
The parties intend that the arrangements described herein be
unfunded for purposes of Title I in the Employee Retirement Income Security Act
as amended from time to time.
ARTICLE II
Definitions and Construction
As used herein, the following words shall have the following meanings:
2.01. Definitions.
(a) Account. The account maintained for each Participant pursuant
to Article V, below.
(b) Administrator. The person or persons selected pursuant to
Article VIII below to control and manage the operation and administration of the
Plan.
(c) Beneficiaries. Those persons designated by a Participant to
receive benefits hereunder or, failing such a designation, the spouse or, if
none, the Estate of a Participant.
<PAGE>
(d) Change of Control. Change of Control means any of the
following: (a) the commencement by any person or group of persons, other than
one or more of the Companies, of a tender or exchange offer for twenty-five
percent (25%) or more of the outstanding shares of the common stock of the
Company; (b) the acceptance by the Board of Directors of the Company of, or the
public recommendation by the Board that the stockholders of the Company accept,
an offer from any person or group of persons, other than one or more of the
Companies, to acquire twenty-five percent (25%) or more of either the
outstanding shares of the common stock of the Company or the consolidated assets
of the Company; (c) the acquisition, by any person or group of persons, of the
beneficial ownership or the right to acquire beneficial ownership of twenty-five
percent (25%) or more of the outstanding shares of the common stock of the
Company (the term "group" and "beneficial ownership" as used in this paragraph
having the meanings assigned thereto in Section 13(d) of the 1934 Act and the
regulations promulgated thereunder); or (d) the Company (or any of the Companies
in the aggregate representing at least 25% of the consolidated assets of the
Companies), shall have entered into an agreement with any person, or any person
shall have filed a draft or final application or notice with the Board of
Governors of the Federal Reserve System or the Office of the Comptroller of the
Currency or any other federal or state regulatory agency for approval, to (i)
merge or consolidate with, or enter into any similar transaction with, the
Company or such Companies, in which the Company or one of the Companies is not
the survivor (ii) purchase, lease or otherwise acquire all or substantially all
of the assets of the Company or such Companies, or (iii) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange or any
similar transaction) or otherwise hold or own, securities representing twenty-
five percent (25%) or more of the voting power of the Company or such Companies.
(e) Companies. Marshall & Ilsley Corporation and any subsidiary
thereof now or hereinafter created.
(f) Company. Marshall & Ilsley Corporation, a Wisconsin
corporation, or a successor thereof.
(g) Company Contributions. The amount contributed or credited by
the Company to the account of the Participant pursuant to Section 4.03 hereof.
(h) Compensation. The total of the Participant's base salary,
commissions, bonuses, and incentive pay which shall include amounts deferred by
the Participant under this Plan or any other employee benefit plan of the
Company. In all cases, Compensation shall include only compensation paid while
an employee is a Participant in the Plan. Compensation shall not include any
severance or salary continuation payments.
(i) Disability. Disability as defined in the Company's Long-term
Disability Plan.
(j) Employee. An employee of any one or more of the Companies.
(k) Employment. Employment with any one or more of the Companies.
(l) Investment Election. The form filed by the Participant from
time to time, substantially in the form of Exhibit A hereto, which designates
the Participant's investment choices.
<PAGE>
(m) Participants. Such senior management and highly compensated
Employees whom the Administrator has identified as eligible to defer
Compensation hereunder and who elect to participate by deferring Compensation.
(n) Plan. The Marshall & Ilsley Corporation Executive Deferred
Compensation Plan, as stated herein and as amended from time to time.
(o) Plan Year. The period beginning on January 1, 1997 and ending
on December 31, 1997, and each 12-month period ending on each subsequent
December 31.
(p) Retirement. As to each Participant, the termination of his
employment on or after attaining age 55, other than by reason of death or
Disability, with at least 10 years of Service.
(q) Service. As to each Participant, the period during which he
has been employed by one or more of the Companies, including such period of time
that he was employed by a predecessor in interest to one of the Companies.
(r) Unforeseeable Emergency. An Unforeseeable Emergency is a
severe financial hardship to a Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Internal Revenue Code) of the Participant or loss of
the Participant's property due to casualty or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant.
2.02. Construction. The laws of the State of Wisconsin, as amended from
time to time, shall govern the construction and application of this Agreement.
Words used in the masculine gender shall include the feminine and words used in
the singular shall include the plural, as appropriate. The words "hereof,"
"herein," "hereunder" and other similar compounds of the word "here" shall refer
to the entire Agreement, not to a particular section. All references to
statutory sections shall include the section so identified as amended from time
to time or any other statute of similar import. If any provisions of the
Internal Revenue Code, Employee Retirement Income Security Act or other statutes
or regulations render any provisions of this Plan unenforceable, such provision
shall be of no force and effect only to the minimum extent required by such law.
ARTICLE III
Eligibility
3.01. Conditions of Eligibility. The Administrator shall, from time to
time, specify the senior management and highly compensated Employees eligible
to participate herein. Eligibility to participate in the Plan for one Plan Year
does not guarantee eligibility for a subsequent Plan Year.
<PAGE>
3.02. Commencement of Participation. An individual identified as eligible
to participate in the Plan for that Plan Year shall, by electing a deferral of
Compensation on the form provided by the Administrator, commence participation
as of (i) the first day of such Plan Year or (ii) such later date in that Plan
Year as he first becomes eligible to participate in the Plan.
3.03. Termination of Participation. An individual's right to defer
Compensation hereunder shall cease as of the earlier of the (i) the termination
of his Employment or (ii) failure of the Administrator to designate him as an
Employee eligible to participate herein.
ARTICLE IV
Deferral of Compensation and Company Contributions
4.01. Amount and Manner of Deferral. A Participant must return the
Deferral Election, substantially in the form of Exhibit B hereto, to the
Company, no later than the date specified by the Company, indicating the amount
of the Participant's salary or other Compensation for such Plan Year which he
elects to defer hereunder, which election shall become irrevocable immediately
upon commencement of such Plan Year. A Participant may defer (i) any portion
not to exceed eighty percent (80%) of his base salary or (ii) up to 100% of his
incentive or (iii) both, provided, however, that (a) the Participant may not
defer less than $5,000 in a Plan Year and (b) the Participant's deferral
election for a Plan Year shall relate to Compensation earned by him during such
Plan Year whether or not paid during that Plan Year.
If a Participant elects to defer a portion of his salary, the Company
shall reduce the Participant's regular salary by an equal amount in each pay
period during the Plan Year of deferral. If a Participant elects to defer all
or a portion of his incentive, the Company shall reduce each such Compensation
payment by the percentage or dollar amount elected by the Participant.
4.02. Cessation of Deferral. In the event of an Unforeseeable Emergency,
a Participant may request in writing that deferrals elected by that Participant
hereunder cease for the then current Plan Year. Such Unforeseeable Emergency
must inflict hardship upon the Participant and must arise from causes beyond the
Participant's control. The Administrator shall, in its reasonable judgment,
determine whether such an Unforeseeable Emergency exists. Circumstances that
will constitute an Unforeseeable Emergency shall depend on the facts of each
case, consistent with the provisions of Treasury Regulation Section 1.457-
2(h)(4) and (5). If the Administrator determines that such an Unforeseeable
Emergency exists, the deferrals for such Plan Year shall cease as to the
Participant. If the Administrator determines that no such emergency exists, the
deferrals shall continue as originally elected. If a Participant, consistent
with this paragraph, ceases deferrals in a Plan Year, the Participant may not
resume deferrals hereunder (if otherwise eligible therefore) until the second
Plan Year following the Plan Year in which such cessation occurred.
<PAGE>
4.03. Company Contributions. In the event that deferrals made by a
Participant pursuant to this Plan cause a reduction in the contributions by the
Company for the benefit of that Participant to any other qualified or
nonqualified retirement plan maintained by the Company, and such reduction is
not contributed or credited to any other nonqualified retirement plan, the
Company shall credit to the Participant's account under this Plan an amount
equal to such net reductions in benefits. If, as a result of limitations
contained in Sections 401(a)(17) and/or 415 of the Internal Revenue Code of
1986, as amended, or as a result of amounts deferred under the Plan, the
contributions made to the Retirement Growth component of the retirement program
of the Company on behalf of a person eligible to participate in the Plan are
reduced, the Company shall credit an amount equal to such reduction to an
account established for such person (the "SERP Account"). The SERP Account
shall be a separate bookkeeping account and shall vest once the person has five
years of vesting service as determined under the Retirement Growth component of
the retirement program of the Company, taking into account service prior to the
date hereof. Aside from the vesting requirement, the SERP Account shall be
treated for all purposes of the Plan in the same manner as other Accounts.
ARTICLE V
Account
5.01. Establishment of Account. Only for the purpose of measuring
payments due Participants hereunder, the Company shall maintain on behalf of
each Participant an Account to which the Company shall credit the amounts
deferred under Sections 4.01 and 4.03 hereof.
5.02. Nature of Account. The Account hereunder and assets, if any,
acquired by the Company to measure a Participant's benefits hereunder, shall not
constitute or be treated for any reason as a trust for, property of or a
security interest for the benefit of, a Participant, his Beneficiaries or any
other person. Participant and the Company acknowledge that the Plan constitutes
a promise by the Company to pay benefits to the Participants or their
Beneficiaries, that Participants' rights hereunder (by electing to defer
Compensation hereunder) are limited to those of general unsecured creditors of
the Company and that the establishment of the Plan, acquisition of assets to
measure Participant's benefits hereunder or deferral of all or any portion of
a Participants' Compensation hereunder does not prevent any property of the
Company from being subject to the right of all the Company's creditors. The
Company shall contribute all contributions hereunder to a trust created by the
Company which will conform in all material respects to the terms of the Internal
Revenue Service's model trust, as described in Revenue Procedure 92-64.
5.03. Maintenance of Account.
a. Accounts shall be reconciled on a quarterly basis. The
Company shall increase the Account of each Participant by (i) the amount, if
any, of his Compensation deferred during any calendar quarter , (ii) the amount,
if any, contributed by the Company pursuant to Section 4.03 hereof and (iii) any
income or gains resulting as if the Account, computed in accordance with
subsection b, below, were invested pursuant to the timely-filed Investment
Election in effect for such quarter and decrease the Account by (iv) any
withdrawals from the Account during any calendar quarter and (v) any losses
resulting as if the Account, computed in accordance with subsection b, below,
were invested pursuant to the timely-filed Investment Election in effect for
such calendar quarter.
<PAGE>
b. For purposes of computing the investment return on the Account
for any quarter, the principal balance as of the first day of the relevant
quarter shall equal the balance as of the end of the preceding quarter,
increased by 50% of the Participant's and the Company's contributions, if any,
made to the Account during the quarter pursuant to Sections 4.01 and 4.03
hereof, and decreased by any distributions made to the Participant or his
Beneficiaries during the quarter.
5.04. Investment Elections.
a. A Participant may file an Investment Election setting forth
his investment preferences used to value his Account. The
initial investment options available to Participants are (i)
the Moody's A Long-Term Corporate Bond Rate (the "fixed rate
investment option") adjusted annually to equal the average
yield for the month of September of the previous year and
(ii) the total return of the Standard & Poor's 500 Index for
the applicable quarter. All investment elections must be in
increments of 10%. If a Participant does not file an
Investment Election, the Account shall be deemed to be
invested in the fixed rate investment option. The
Participant may change his investment preferences as of
January 1 or July 1 in any year by delivering to the Company
a new Investment Election at least 15 days prior to such
effective date.
b. A Participant's Account shall reflect only the performance of
such investment indices and the Participant shall have no
property right or security interest in the actual investment
performance of any assets invested by the Company to provide
for the payment of benefits under this Plan.
c. Upon a Change of Control, the Company, the Administrator or
any successor thereto, may not change the investment choices
available to Participants hereunder without the consent of a
majority of the holders of Account balances under the Plan.
ARTICLE VI
Vesting
Subject to the rights of the Company's creditors as set forth in
Section 5.01 above, the Account of a Participant, including all earnings accrued
thereto, shall at all times be fully vested.
<PAGE>
ARTICLE VII
Distributions
7.01. For Reasons Other Than Death. In the event that the value of a
Participant's Account exceeds $25,000 as of the quarter-end preceding his
termination of employment, the Company shall pay an amount equal to the balance
of a Participant's Account to him in accordance with his choice on the form of
Payment Election, substantially in the form attached hereto as Exhibit C.
If a Participant's employment terminates on or after age 55, other
than because of death or Disability, and he has completed at least ten years of
Service, he may elect to have his Account balance distributed in accordance with
one of the following methods:
(a) In a lump sum on or before February 15 of the year after the
Participant's employment terminates.
(b) In monthly installments, starting on January 1st of the year
after the Participant's employment terminates, over 5 years
using the declining balance method, computed annually.
(c) In monthly installments, starting on January 1st of the year
after the Participant's employment terminates, over 10 years
using the declining balance method, computed annually.
(d) In monthly installments, starting on January 1st of the year
after the Participant's employment terminates, over 15 years
using the declining balance method, computed annually.
(e) In monthly installments, starting on January 1st of the sixth
year after the Participant's employment terminates, over 5
years using the declining balance method, computed annually.
(f) In monthly installments, starting on January 1st of the sixth
year after the Participant's employment terminates, over 10
years using the declining balance method, computed annually.
Notwithstanding the foregoing provisions of this Section 7.01, if
the Participant's employment terminates (i) prior to age 55, (ii) on or after
age 55 because of death or Disability, or (iii) on or after age 55 with less
than ten years of Service, and he has elected pay-out pursuant to one of the
monthly installment options above, his Account balance will be paid in monthly
installments, starting on January 1st of the year after his employment
terminates, over 5 years, regardless of his election.
<PAGE>
A Participant may change his Form of Payment Election at any time,
however the change will only be effective if filed at least one year prior to
his termination of Employment, except in the case of the initial election under
the Plan. Notwithstanding any other provision of this Section 7.01 and any
election previously made by the Participant, in the event that the value of the
Account of the Participant is less than $25,000 as of the quarter-end preceding
the termination of Employment, any distribution to a Participant shall be in the
form of a lump sum on or before February 15 of the year after the Participant's
employment terminates. If a Participant does not timely file a Form of Payment
Election, he will be deemed to have elected payment in a lump sum.
7.02. Upon Death.
a. Upon a Participant's death, any balance remaining in his
Account shall be paid by the Company in accordance with his
Form of Payment Election except that such payments shall be
made to the Beneficiary or Beneficiaries specified by the
Participant or, if none, to his surviving spouse or, if none,
to his Estate. Each Participant may designate a Beneficiary
or Beneficiaries to receive the unpaid balance of his Account
upon his death and may revoke or modify such designation at
any time and from time to time by submitting to the
Administrator a Beneficiary Designation substantially in the
form attached hereto as Exhibit D.
b. If a Participant's death occurs prior to the payment of any
amounts to him hereunder, other than payments for
emergencies, the Participant's Beneficiaries shall receive
payments in accordance with Section 7.01 hereof.
c. If a Participant designates multiple Beneficiaries as either
primary or contingent Beneficiaries, and one of the
Beneficiaries has predeceased the Participant, the deceased
Beneficiary's share shall go to the Beneficiary's Estate.
For example, if a Participant designates his spouse as the
sole primary beneficiary and his three children as equal
contingent beneficiaries, and if the spouse and one child
predecease the Participant, the two children would each get
one-third of the distributions from the Account and the
predeceased child's one-third share would go to his Estate.
The spouse's Estate would be entitled to nothing.
d. If a Beneficiary survives a Participant but dies prior to
receipt of the entire amount in the Account due him, the
Company shall make payments to the Estate of the Beneficiary
in accordance with the Form of Payment Election. For
example, if the Participant's spouse is his primary
Beneficiary and his three children are his contingent
Beneficiaries, and if the spouse survives the Participant
such that she is receiving distributions pursuant to the
terms of this Plan, but dies prior to the receipt of all
distributions to which she is entitled, any remaining
distributions shall be paid to the spouse's Estate and not to
the contingent beneficiaries.
<PAGE>
7.03. Emergencies. In the event of an Unforeseeable Emergency either
before or after the commencement of payments hereunder, a Participant or
Beneficiary may request in writing that all or any portion of the benefits due
him hereunder be paid prior to the normal time for payment of such amount. The
Administrator shall, in its reasonable judgment, determine whether the applicant
could not address the emergency through reimbursement or compensation by
insurance or otherwise, by liquidation of other assets (provided such
liquidation, in itself, would not create a financial hardship) or by ceasing
deferrals hereunder. Only if the Administrator determines that such an
Unforeseeable Emergency exists, the Company shall pay to the Participant or
Beneficiary, as the case may be, an amount equal to the lesser of (a) the amount
requested or (b) the amount reasonably necessary to alleviate the hardship. The
Administrator shall use its reasonable discretion to determine when the payments
shall be made and shall immediately reduce the balance in the recipient's
Account by the amount of such payment.
ARTICLE VIII
Administration of the Plan
8.01. Appointment of Separate Administrator. The Company shall, in
writing, appoint a separate Administrator. Any person including, but not
limited to, an Employee, shall be eligible to serve as Administrator. Two or
more persons may form a committee to serve as Administrator. Persons serving
as Administrator may resign by written notice to the Company and the Company may
appoint or remove such persons. An Administrator consisting of more than one
person shall act by a majority of its members at the time in office. An
Administrator consisting of more than one person may authorize any one or more
of its members to execute any document or documents on behalf of the
Administrator, in which event the Administrator shall notify the Company of the
member or members so designated. The Company shall accept and rely upon any
document executed by such member or members as written revocation of such
designation. No person serving as Administrator shall vote or decide upon any
matter relating solely to himself or solely to any of his rights or benefits
pursuant to the Plan.
8.02. Powers and Duties. The Administrator shall administer the Plan in
accordance with its terms. The Administrator shall have full and complete
authority and control with respect to Plan operations and administration unless
the Administrator allocates and delegates such authority or control pursuant to
the procedures stated in subsection b. or c. below. Any decisions of the
Administrator or its delegate shall be final and binding upon all persons
dealing with the Plan or claiming any benefit under the Plan. The Administrator
shall have all powers which are necessary to manage and control Plan operations
and administration including, but not limited to, the following:
a. To employ such accountants, counsel or other persons as it
deems necessary or desirable in connection with Plan
administration. The Company shall bear the costs of such
services and other administrative expenses.
b. To designate in writing persons other than the Administrator
to perform any of its powers and duties hereunder.
<PAGE>
c. The discretionary authority to construe and interpret the
Plan, including the power to construe disputed provisions.
d. To resolve all questions arising in the administration,
interpretation and application of the Plan including, but not
limited to, questions as to the eligibility or the right of
any person to a benefit.
e. To adopt such rules, regulations, forms and procedures from
time to time as it deems advisable and appropriate in the
proper administration of the Plan.
f. To prescribe procedures to be followed by any person in
applying for distributions pursuant to the Plan and to
designate the forms or documents, evidence and such other
information as the Administrator may reasonably deem
necessary, desirable or convenient to support an application
for such distribution.
8.03. Records and Notices. The Administrator shall maintain all books of
accounts, records and other data as may be necessary for proper plan
administration.
8.04. Compensation and Expenses. The expenses incurred by the
Administrator in the proper administration of the Plan shall be paid by the
Company. An Administrator who is an Employee shall not receive any additional
fee or compensation for services rendered as an Administrator.
8.05. Limitation of Authority. The Administrator shall not add to,
subtract from or modify any of the terms of the Plan, change or add to any
benefits prescribed by the Plan, or waive or fail to apply any Plan requirement
for benefit eligibility.
8.06. Appeal Procedure for Denial of Benefits. A Participant or a
Beneficiary ("Claimant") may file with the Administrator a written claim for
benefits, if the Participant or Beneficiary believes the distribution procedures
of the Plan have not provided him his proper benefit under this Plan. Such
claim must be filed by certified mail, return receipt requested, to the address
for notice contained in Section 9.04 hereof. The Administrator must render a
decision on the claim within 60 days of the receipt of the Claimant's written
claim for benefits. The Administrator must provide adequate notice in writing
to the Claimant whose claim for benefits under the Plan the Administrator has
denied. The Administrator's notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Administrator based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an
explanation of why the material or information is needed; and
<PAGE>
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Administrator within
75 days after receipt of the Administrator's notice of denial
of benefits and must be filed by certified mail, return
receipt requested. The Administrator's notice must further
advise the Claimant that his failure to appeal the action to
the Administrator in writing within the 75-day period will
render the Administrator's determination final, binding and
conclusive.
The Administrator's notice of denial of benefits must identify the
persons who serve as the Administrator and the name and address of the
Administrator to whom the Claimant may forward his appeal.
If the Claimant should appeal to the Administrator, he, or his duly
authorized representative, may submit in writing whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant,
or his duly authorized representative, may review pertinent documents. The
Administrator will re-examine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Administrator must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Administrator render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for appeal.
ARTICLE IX
General Provisions
9.01. Assignment. No Participant or Beneficiary may sell, assign,
transfer encumber or otherwise dispose of the right to receive payments
hereunder. A Participant's rights to benefit payments under the Plan are not
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of a Participant or
a Beneficiary.
9.02. Employment Not Guaranteed by Plan. The establishment of this Plan
and the designation of an Employee as a Participant, shall not give any
Participant the right to continued Employment or limit the right of the Company
to dismiss or impose penalties upon the Participant or modify the terms of
Employment of any Participant.
9.03. Termination and Amendment. The Company may at any time terminate,
suspend, alter or amend this Plan and no Participant or any other person shall
have any right, title, interest or claim against the Company, its directors,
officers or employees for any amounts, except that (i) the Participant shall be
fully vested in his Account hereunder as of the date on which the Plan is
terminated or suspended, (ii) no amendment shall eliminate the crediting of an
investment return on an Account prior to the complete distribution thereof or
provide for a distribution method which accelerates the timing of distributions
hereunder without the consent of a Participant and (iii) subsequent to a Change
of Control, unless a majority of the holders of Account balances agree to the
contrary, the Company or the Administrator may not alter (a) the choice of
investments in the Investment Election as in effect immediately before the
Change of Control and (b) the payout options contained in the Form of Payment
Election as in effect immediately before the Change of Control.
<PAGE>
9.04. Notice. Any and all notices, designations or reports provided for
herein shall be in writing and delivered personally or by certified mail, return
receipt requested, addressed, in the case of the Company to the Corporate
Secretary at 770 North Water Street, Milwaukee, Wisconsin 53202 and, in the
case of a Participant or Beneficiary, to his home address as shown on the
records of the Company. The addresses referenced herein may be changed by a
notice delivered in accordance with the requirement of this Section 9.04.
9.05. Limitation on Liability. In no event shall the Company,
Administrator or any employee, officer or director of the Company incur any
liability for any act or failure to act unless such act or failure to act
constitutes a lack of good faith, willful misconduct or gross negligence with
respect to the Plan or the trust established in connection with the Plan.
9.06. Indemnification. The Company shall indemnify the Administrator and
any employee, officer or director of the Company against all liabilities arising
by reason of any act or failure to act unless such act or failure to act is due
to such person's own gross negligence or willful misconduct or lack of good
faith in the performance of his duties to the Plan or the trust established
pursuant to the Plan. Such indemnification shall include, but not be limited
to, expenses reasonably incurred in the defense of any claim, including
reasonable attorney and legal fees, and amounts paid in any settlement or
compromise; provided, however, that indemnification shall not occur to the
extent that it is not permitted by applicable law. Indemnification shall not
be deemed the exclusive remedy of any person entitled to indemnification
pursuant to this section. The indemnification provided hereunder shall continue
as to a person who has ceased acting as a director, officer, member, agent or
employee of the Administrator or as an officer, director or employee of the
Company and such person's rights shall inure to the benefit of his heirs and
representatives.
9.07. Headings. All articles and section headings in this Plan are
intended merely for convenience and shall in no way be deemed to modify or
supplement the actual terms and provisions stated thereunder.
9.08. Severability. Any provision of this Plan prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof. The illegal or invalid provisions shall be fully
severable and this Plan shall be construed and enforced as if the illegal or
invalid provisions had never been inserted in this Plan.
MW85168_5.DOC
<PAGE>
EXHIBIT 10(b)
<PAGE>
Amended August 12, 1999
MARSHALL & ILSLEY CORPORATION
AMENDED AND RESTATED
1997 EXECUTIVE STOCK OPTION AND RESTRICTED STOCK PLAN
1. Objectives. The Marshall & Ilsley Corporation 1997 Executive Stock
Option and Restricted Stock Plan is designed to attract and retain certain
selected officers and key employees whose skills and talents are important to
the Company's operations, and reward them for making major contributions to the
success of the Company. These objectives are accomplished by making awards
under the Plan, thereby providing Participants with a proprietary interest in
the growth and performance of the Company.
2. Definitions.
(a) "Award" shall mean the grant of any form of stock
option or stock award to a Plan Participant pursuant to such terms,
conditions and limitations as the Board or Committee may establish
in order to fulfill the objectives of the Plan.
(b) "Award Agreement" shall mean an agreement between the
Company and a Participant that sets forth the terms, conditions and
limitations applicable to an Award.
(c) "Board" shall mean the Board of Directors of Marshall
& Ilsley Corporation.
(d) "Cause" shall mean the discharge of an employee on
account of fraud or embezzlement against the Company or serious and
willful acts of misconduct which, in the reasonable judgment of the
Committee, are detrimental to the business of the Company.
(e) "Change in Control" shall mean any of the following:
(i) The acquisition by any individual, entity or
"group" (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of thirty-
three percent (33%) or more of either (A) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions of common
stock shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege or by one person or a group of persons acting in
concert), (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any
corporation pursuant to a reorganization, merger, statutory
share exchange or consolidation which would not be a Change
in Control under paragraph (iii) of this Section 2(e); or
<PAGE>
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened "election contest" or other actual or
threatened "solicitation" (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
of proxies or consents by or on behalf of a person other than
the Incumbent Board; or
(iii) Consummation of a reorganization, merger,
statutory share exchange or consolidation, unless, following
such reorganization, merger, statutory share exchange or
consolidation, (A) more than two-thirds (2/3) of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger,
statutory share exchange or consolidation and the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such reorganization,
merger, statutory share exchange or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger, statutory
share exchange or consolidation, (B) no person (excluding the
Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such
reorganization, merger, statutory share exchange or
consolidation and any person beneficially owning, immediately
prior to such reorganization, merger, statutory share
exchange or consolidation, directly or indirectly, thirty-
three percent (33%) or more of the Outstanding Company Common
Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, thirty-three
percent (33%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger, statutory share exchange or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation, entitled
to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of
the corporation resulting from such reorganization, merger,
statutory share exchange or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation; or
<PAGE>
(iv) Consummation of (A) a complete liquidation or
dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which
following such sale or other disposition, (1) more than two-
thirds (2/3) of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(2) no person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation
and any person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, thirty-
three percent (33%) or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, thirty-
three percent (33%) or more of, respectively, the then
outstanding shares of common stock of such corporation or the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors and (C) at least a majority of the
members of the board of directors of such corporation were
members of the Incumbent Board at the time of the execution
of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
(f) "Common Stock" or "stock" shall mean the authorized and
issued or unissued $1.00 par value common stock of the Company.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Committee" shall mean the Executive Compensation
Committee of the Board of Directors of Marshall & Ilsley
Corporation. The Committee shall be comprised of at least two non-
employee directors all of whom are "disinterested" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 and "outside directors" within the meaning of Section
162(m) of the Code.
(i) "Company" shall mean Marshall & Ilsley Corporation and
its subsidiaries including subsidiaries of subsidiaries and
partnerships and other business ventures in which Marshall & Ilsley
Corporation has a significant equity interest, as determined in the
sole discretion of the Committee.
<PAGE>
(j) "Fair Market Value" shall mean the closing sale price
of Common Stock on the NASDAQ National Market System as reported
in the Midwest Edition of the Wall Street Journal for the date of
grant provided that, if no sales of Common Stock were made on said
exchange on that date, "Fair Market Value" shall mean the closing
sale price of Common Stock as reported for the most recent
preceding day on which sales of Common Stock were made on said
exchange, or, failing any such sales, such other market price as
the Board or the Committee may determine in conformity with
pertinent law and regulations of the Treasury Department.
(k) "Participant" shall mean an employee of the Company to
whom an Award has been made under the Plan.
(l) "Plan" shall mean the Marshall & Ilsley Corporation
1997 Executive Stock Option and Restricted Stock Plan.
(m) "Retirement" shall mean the termination of a
Participant's employment on or after age 65.
3. Eligibility. Employees of the Company eligible for an Award under
the Plan are those who hold positions of responsibility and whose performance,
in the judgment of the Board, the Committee or the management of the Company,
can have a significant effect on the success of the Company.
4. Common Stock Available for Awards. The number of shares that may
be issued under the Plan for Awards granted wholly or partly in stock during the
term of the Plan is 5,000,000, subject to adjustment as provided in Section 14
hereof, provided that not more than 1,000,000 shares may be subject to incentive
stock options. The Company shall take whatever actions are necessary to file
required documents with the U.S. Securities and Exchange Commission and any
other appropriate governmental authorities and stock exchanges to make shares
of Common Stock available for issuance pursuant to Awards. Common Stock related
to Awards that are forfeited, terminated or expire unexercised, shall
immediately become available for Awards. No employee shall be eligible to
receive Awards aggregating more than 1,000,000 shares of Common Stock reserved
under the Plan during the term of the Plan, subject to adjustment as provided
in Section 14 hereof.
5. Administration. The Plan shall be administered by the Committee,
which shall have full and exclusive power to interpret the Plan, to determine
which employees are Plan Participants, to grant waivers of Award restrictions,
and to adopt such rules, regulations and guidelines for carrying out the Plan
as it may deem necessary or proper, all of which powers shall be executed in the
best interests of the Company and in keeping with the objectives of the Plan.
<PAGE>
6. Delegation of Authority. The Committee may delegate to the chief
executive officer and to other senior officers of the Company its duties under
the Plan pursuant to such conditions or limitations as the Committee may
establish.
7. Awards. The Committee shall determine the type or types of Award(s)
to be made to each Participant and shall set forth in the related Award
Agreement the terms, conditions and limitations applicable to each Award
including any vesting requirements. The type of Awards available under the Plan
are those listed in this Section 7. In all events, upon the occurrence of a
Change in Control, all Awards will become fully vested and immediately
exercisable.
(a) Stock Option. A grant of a right to purchase a
specified number of shares of Common Stock the purchase price of
which shall be not less than 100% of Fair Market Value on the date
of grant, as determined by the Committee. A stock option may be in
the form of a nonqualified stock option or an incentive stock
option ("ISO"). An ISO, in addition to being subject to applicable
terms, conditions and limitations established by the Committee,
complies with Section 422 of the Code which, among other
limitations, provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Common Stock for
which ISOs are exercisable for the first time by a Participant
during any calendar year shall not exceed $100,000; that ISOs shall
be priced at not less than 100% of the Fair Market Value on the
date of the grant (110% in the case of a Participant who is a 10%
shareholder of the Company within the meaning of Section 422 of the
Code); and that ISOs shall be exercisable for a period of not more
than ten years (five years in the case of a Participant who is a
10% shareholder of the Company).
(b) Restricted Stock Award. An Award of stock for such
consideration as the Committee may specify may contain
transferability or forfeiture provisions including a requirement of
future services and such other restrictions and conditions as may
be established by the Committee and set forth in the Award
Agreement.
8. Deferred Payment of Awards. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Committee which are intended to
permit such deferrals to comply with applicable requirements of the Code
including, at the choice of Participants, the capability to make further
deferrals for payment after retirement. Dividends or dividend equivalent rights
may be extended to and made part of any Award denominated in stock or units of
stock, subject to such terms, conditions and restrictions as the Committee may
establish. The Committee may also establish rules and procedures for the
crediting of dividend equivalents for deferred payments denominated in stock or
units of stock.
9. Stock Option Exercise. The price at which shares of Common Stock
may be purchased under a Stock Option shall be paid in full at the time of the
exercise in cash or by means of tendering Common Stock, either directly or by
attestation, valued at Fair Market Value on the date of exercise, or any
combination thereof.
<PAGE>
10. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of delivery
or vesting of shares under the Plan, an appropriate number of shares for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Company may defer making delivery with respect to Common Stock obtained
pursuant to an Award hereunder until arrangements satisfactory to it have been
made with respect to any such withholding obligation. If Common Stock is used
to satisfy tax withholding, such stock shall be valued based on the Fair Market
Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Discontinuance of the Plan.
The Board may terminate the Plan or make such modifications or amendments
thereto as it shall deem advisable in order to conform to any law or regulation
applicable thereto; provided, however, that the Board may not, unless otherwise
permitted under applicable law, without further approval of the shareholders of
the Company, adopt any amendment to the Plan which would cause the Plan to no
longer comply with Section 162(m) of the Code, or any successor provision or
other regulatory requirements. No such termination, modification or amendment
of the Plan may, without the consent of a Participant, adversely affect the
rights of such Participant under an outstanding Award then held by the
Participant.
12. Termination of Employment. If the employment of a Participant
terminates, other than pursuant to paragraphs (a) through (c) of this Section
12, all unexercised, deferred and unpaid Awards shall terminate 90 days after
such termination of employment or service, unless the Award Agreement provides
otherwise, and during such 90-day period shall be exercisable only to the extent
provided in the Award Agreement. Notwithstanding the foregoing, if a
Participant's employment is terminated for Cause, to the extent the Award is not
effectively exercised or has not vested prior to such termination, it shall
lapse or be forfeited to the Company immediately upon termination. In all
events, an Award will not be exercisable after the end of its term as set forth
in the Award Agreement.
(a) Retirement. When a Participant's employment terminates
as a result of Retirement, or early retirement with the consent of
the Committee, the Committee (in the form of an Award Agreement or
otherwise) may permit Awards to continue in effect beyond the date
of Retirement, or early retirement, and the exercisability and
vesting of any Award may be accelerated.
(b) Resignation in the Best Interests of the Company. When
a Participant resigns from the Company and, in the judgment of the
chief executive officer or other senior officer designated by the
Committee, the acceleration and/or continuation of outstanding
Awards would be in the best interests of the Company, the Committee
may (i) authorize, where appropriate, the acceleration and/or
continuation of all or any part of Awards granted prior to such
termination and (ii) permit the exercise, vesting and payment of
such Awards for such period as may be set forth in the applicable
Award Agreement.
<PAGE>
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period
specified in the Award Agreement within which to receive or
exercise any outstanding Award held by the Participant under
such terms, and to the extent, as may be specified in the
applicable Award Agreement. Rights to any such outstanding
Awards shall pass by will or the laws of descent and
distribution in the following order: (a) to beneficiaries so
designated by the Participant; if none, then (b) to a legal
representative of the Participant; if none, then (c) to the
persons entitled thereto as determined by a court of
competent jurisdiction. Subject to subparagraph (iii) below,
Awards so passing shall be exercised or paid out at such
times and in such manner as if the Participant were living.
(ii) In the event a Participant is deemed by the
Company to be disabled within the meaning of Section 22(e)(3)
of the Code, the Award shall be exercisable for the period,
and to the extent, specified in the Award Agreement. Awards
and rights to any such Awards may be paid to or exercised by
the Participant, if legally competent, or a legally
designated guardian or representative if the Participant is
legally incompetent by virtue of such disability.
(iii) After the death or disability of a Participant,
the Committee may in its sole discretion at any time (1)
terminate restrictions in Award Agreements; (2) accelerate
any or all installments and rights; and (3) instruct the
Company to pay the total of any accelerated payments in a
lump sum to the Participant, the Participant's estate,
beneficiaries or representative, notwithstanding that, in the
absence of such termination of restrictions or acceleration
of payments, any or all of the payments due under the Awards
might ultimately have become payable to other beneficiaries.
(iv) In the event of uncertainty as to interpretation
of or controversies concerning this paragraph (c) of Section
12, the Committee's determinations shall be binding and
conclusive.
(d) No Employment Rights. The Plan shall not confer upon
any Participant any right with respect to continuation of
employment by the Company, nor shall it interfere in any way with
the right of the Company to terminate any Participant's employment
at any time.
13. Nonassignability. Except as provided in subsection (c) of Section
12 and this Section 13, no Award or any other benefit under the Plan shall be
assignable or transferable, or payable to or exercisable by anyone other than
the Participant to whom it was granted. Notwithstanding the foregoing, the
Committee (in the form of an Award Agreement or otherwise) may permit Awards to
be transferred to members of the Participant's immediate family, to trusts for
the benefit of the Participant and/or such immediate family members, and to
partnerships or other entities in which the Participant and/or such immediate
family members own all the equity interests. For purposes of the preceding
sentence, immediate family shall mean a Participant's spouse, issue and spouses
of his issue.
<PAGE>
14. Adjustments. In the event of any change in the outstanding Common
Stock of the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event, the
Committee may adjust proportionally (a) the number of shares of Common Stock (i)
reserved under the Plan, (ii) available for ISOs, (iii) for which Awards may be
granted to an individual Participant, and (iv) covered by outstanding Awards
denominated in stock, (b) the stock prices related to outstanding Awards; and
(c) the appropriate Fair Market Value and other price determinations for such
Awards. In the event of any other change affecting the Common Stock or any
distribution (other than normal cash dividends) to holders of Common Stock, such
adjustments as may be deemed equitable by the Committee, including adjustments
to avoid fractional shares, shall be made to give proper effect to such event.
In the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume Stock Options, whether or not in a transaction to
which Section 424(a) of the Code applies, by means of substitution of new Stock
Options for previously issued Stock Options or an assumption of previously
issued Stock Options.
15. Notice. Any notice to the Company required by any of the provisions
of the Plan shall be addressed to the director of human resources or to the
chief executive officer of the Company in writing, and shall become effective
when it is received by the office of either of them.
16. Unfunded Plan. The Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
Common Stock under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Company shall not be required to segregate any
Common Stock, nor shall the Plan be construed as providing for such segregation,
nor shall the Company nor the Board nor the Committee be deemed to be a trustee
of any Common Stock to be granted under the Plan. Any liability of the Company
to any Participant with respect to a grant of Common Stock or rights thereto
under the Plan shall be based solely upon any contractual obligations that may
be created by the Plan and any Award Agreement; no such obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by the Plan.
17. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the laws of the
United States, shall be governed by the laws of the State of Wisconsin and
construed accordingly.
18. Effective and Termination Dates. The effective date of the Plan is
February 13, 1997. The Plan shall terminate on February 12, 2007 subject to
earlier termination by the Board pursuant to Section 11, after which no Awards
may be made under the Plan, but any such termination shall not affect Awards
then outstanding or the authority of the Committee to continue to administer the
Plan.
19. Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant pursuant to an Award shall not be deemed a
part of such Participant's regular, recurring compensation for purposes of the
termination or severance plans of the Company and shall not be included in, nor
have any effect on, the determination of benefits under any other employee
benefit plan, contract or similar arrangement, unless the Committee expressly
determines otherwise.
MW213666_2.DOC
<PAGE>
EXHIBIT 10(c)
<PAGE>
Amended August 12, 1999
MARSHALL & ILSLEY CORPORATION
AMENDED AND RESTATED
1994 LONG-TERM INCENTIVE PLAN FOR EXECUTIVES
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the best interests of Marshall
& Ilsley Corporation and enhance shareholder value by attracting and retaining
key personnel and providing such employees with an incentive to put forth
maximum effort for the continued success and growth of the Company.
2. DEFINITIONS.
(a) "Account" shall mean the account established and administered
for the benefit of a Participant under the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the Committee of the Board of Directors
constituted as provided in Paragraph 3 of the Plan.
(d) "Company" shall mean Marshall & Ilsley Corporation, a
Wisconsin corporation.
(e) "Employees" shall mean those individuals who are executive
officers or senior managers of the Company or its Subsidiaries.
(f) "Market Price" shall mean the closing sale price of a Share
on the NASDAQ National Market System as reported in the Midwest Edition of the
Wall Street Journal, or such other market price as the Committee may determine
in conformity with pertinent law and regulations of the Treasury Department.
(g) "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Parent" shall mean a parent corporation of the Company as
defined in Section 424(e) of the Code.
(i) "Participant" shall mean an Employee designated by the
Committee to be a participant in the Plan.
<PAGE>
(j) "Plan" shall mean the 1994 Long-Term Incentive Plan for
Executives of the Company.
(k) "Share" or "Shares" shall mean the $ 1.00 par value common
stock of the Company.
(l) "Subsidiary" shall mean a subsidiary corporation of the
Company as defined in Section 424(f) of the Code.
(m) "Triggering Event" shall mean the first to occur of the
following:
(i) The acquisition by any individual, entity or "group"
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty-three percent (33%)
or more of either (A) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided, however,
that the following acquisitions of common stock shall not
constitute a Triggering Event: (A) any acquisition directly from
the Company (excluding an acquisition by virtue of the exercise of
a conversion privilege or by one person or a group of persons
acting in concert), (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any corporation
pursuant to a reorganization, merger, statutory share exchange or
consolidation which would not be a Triggering Event under paragraph
(iii) of this Section 2(m); or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
"election contest" or other actual or threatened "solicitation" (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) of proxies or consents by or on behalf of
a person other than the Incumbent Board; or
<PAGE>
(iii) Consummation of a reorganization, merger, statutory
share exchange or consolidation, unless, following such
reorganization, merger, statutory share exchange or consolidation,
(A) more than two-thirds (2/3) of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such reorganization, merger, statutory share exchange or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger,
statutory share exchange or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger, statutory share exchange or consolidation,
(B) no person (excluding the Company, any employee benefit plan (or
related trust) of the Company or such corporation resulting from
such reorganization, merger, statutory share exchange or
consolidation and any person beneficially owning, immediately prior
to such reorganization, merger, statutory share exchange or
consolidation, directly or indirectly, thirty-three percent (33%)
or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly
or indirectly, thirty-three percent (33%) or more of, respectively,
the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger, statutory share
exchange or consolidation or the combined voting power of the then
outstanding voting securities of such corporation, entitled to vote
generally in the election of directors and (C) at least a majority
of the members of the board of directors of the corporation
resulting from such reorganization, merger, statutory share
exchange or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement providing for
such reorganization, merger or consolidation; or
(iv) Consummation of (A) a complete liquidation or
dissolution of the Company or (B) the sale or other disposition of
all or substantially all of the assets of the Company, other than
to a corporation, with respect to which following such sale or
other disposition, (1) more than two-thirds (2/3) of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no
person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, thirty-three percent (33%) or
more of the Outstanding Company Common Stock or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly
or indirectly, thirty-three percent (33%) or more of, respectively,
the then outstanding shares of common stock of such corporation or
the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition of
assets of the Company.
(n) "Unit" shall mean a bookkeeping entry used by the Company to
record and account for the grant of an award under the Plan denominated in
Shares until such time as the award is paid, cancelled, forfeited or terminated,
as the case may be.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee. The
Committee shall consist of not less than three members of the Board of Directors
of the Company and shall be so constituted as to permit the Plan to comply with
Rule 16b-3 under the 1934 Act, as such rule is currently in effect or as
hereafter modified or amended ("Rule 16b-3"), Section 162(m) of the Code, or any
successor rule or other statutory or regulatory requirements. The members of
the Committee shall be appointed from time to time by the Board of Directors.
(b) The Committee shall have sole authority in its discretion, but
always subject to the express provisions of the Plan, to determine the Employees
who will be Participants, the number of Units which will be credited to each
Account, the performance criteria for earning the Units credited to each Account
and the period of time to which the performance criteria will be applied; to
interpret the plan; to prescribe, amend and rescind rules and regulations
pertaining to the Plan; to determine the terms and provisions of the respective
awards to Participants; and to make all other determinations and interpretations
deemed necessary or advisable for the administration of the Plan. The
Committee's determination of the foregoing matter shall be conclusive and
binding on the Company, all Employees, all Participants and all other persons.
4. ELIGIBILITY.
Only Employees shall be eligible to be Participants under the Plan.
In determining which Employees will be Participants and the amount of the award
hereunder, the Committee may take into account the nature of the services
rendered by the respective Employees, their present and potential contributions
to the success of the Company, and other such factors as the Committee in its
discretion shall deem relevant. An Employee who has been granted an award under
the Plan may be granted additional awards under the Plan if the Committee shall
so determine. The Company shall effect the granting of awards hereunder in such
manner as the Committee determines. No award may be granted under the Plan to
a member of the Committee.
<PAGE>
5. ESTABLISHMENT OF ACCOUNTS.
The Company shall establish on its books of account a separate
Account for each Participant, which shall be used for the purpose of determining
the compensation to which the Participant from time to time may be entitled
hereunder. There shall be recorded in each Participant's Account the number of
Units from time to time credited to the Participant by the Committee or pursuant
to Paragraph 8 hereof. In no event will more than 1,200,000 Units, subject to
adjustment under Paragraph 10 hereof, be granted under the Plan (excluding Units
credited in lieu of dividends under Paragraph 8 hereof). No more that 300,000
Units will be granted to any one individual (again excluding Units credited in
lieu of dividends and subject to adjustment under Paragraph 10). Accounts shall
be maintained solely for accounting purposes, and no assets of the Company shall
be segregated or subject to any trust for any Participant's benefit by reason
of the establishment of the Participant's Account. In addition, no Participant
shall acquire any rights as a shareholder of the Company, including the right
to vote with respect to any matter before the shareholders of the Company or to
receive dividends payable on the common stock, or, except as is specifically
provided otherwise herein, any other rights, by reason of the establishment of
the Participant's Account.
6. PERFORMANCE CRITERIA.
The Committee shall establish performance criteria which will govern
whether and to what extent Participants will receive a pay-out of their
Accounts. The criteria among which the Committee may choose in establishing
performance criteria are one or more of earnings per share, net income, return
on average assets, return on average equity, total shareholder return or cost
control of the Company and/or one or more of its Subsidiaries, or any other
entity in which the Company owns more than 50% of the interests entitled to
vote. The length of the performance period, the performance objectives to be
achieved during the performance period (including defining the above terms, and
if deemed appropriate, the exclusion of extraordinary items or any other
adjustments considered proper), and the measure of whether and to what degree
such objectives have been attained shall be conclusively determined by the
Committee. No payment of awards under this Plan shall be made until the
Committee certifies that the performance criteria to which such awards were
subject have been met.
<PAGE>
7. PAYMENT OF AWARDS.
The Committee, in its sole discretion, may pay awards earned under
the Plan in cash, Shares or a combination of cash or Shares. Any Shares paid
may be treasury Shares or authorized, but unissued Shares.
8. DIVIDENDS AND DIVIDEND EQUIVALENTS.
At such time as dividends are paid on Shares, an Account of a
Participant shall be credited with that number of additional Units equal to the
product of (a) the number of Units then in the Account times (b) the amount of
the dividend per Share divided by (c) the Market Price of a Share on the date
a dividend is paid.
9. TERMINATION OF EMPLOYMENT.
(a) Any Participant whose employment with the Company or a
Subsidiary is terminated due to retirement on such Participant's normal
retirement date (as defined in the M&I Retirement Growth Plan or any successor
thereto) or due to early retirement with the consent of the Committee shall
continue as a Participant in the Plan as to Units already awarded (and any
dividends or dividend equivalents earned in connection therewith), but shall not
be entitled to the award of any additional Units by the Committee.
(b) Any Participant whose employment with the Company or a
Subsidiary is terminated due to disability (as defined in Section 22(e)(3) of
the Code) or death, or any Participant who dies after retirement, as defined in
subparagraph (a), above, but while he still is a Participant in the Plan, shall
continue as a Participant in the Plan as to Units already awarded (and any
dividends or dividend equivalents earned in connection therewith) until the
close of the calendar year in which the Participant dies or is disabled. The
Committee will determine if and to what extent the performance criteria it
established have been met as of the close of the calendar year. Based on this
determination, a Participant, or, in the case of death, his beneficiary as
determined pursuant to Paragraph 12, hereof, shall receive a prorated award
within 90 days of the end of the calendar year based on a fraction, the
numerator of which is the number of days from the beginning of the award period
to the date of death or disability and the denominator of which is the total
number of days in the award period.
(c) If a Participant's employment is terminated for any reason
other than those specified in subparagraphs (a) and (b), above, his
participation in the Plan shall immediately cease and he shall not be entitled
to any award under the Plan, unless the Committee, in its sole discretion,
determines otherwise.
<PAGE>
(d) Notwithstanding the foregoing, if (i) a Participant's
employment is terminated as a result of, or in anticipation of, a Triggering
Event, or (ii) a Participant's employment is not terminated, but a Triggering
Event occurs, a Participant shall receive an amount equal to the amount he would
be entitled to receive at the close of the performance period based on the
extent to which the performance criteria set by the Committee have been met as
of the date of the Triggering Event. Payment of the amount to which the
Participant is entitled hereunder shall be made within 30 days after the
occurrence of the Triggering Event.
(e) The Plan does not confer upon any Participant any right with
respect to continuation of employment by the Company or a Subsidiary, nor shall
it interfere in any way with the right of the Company or any Subsidiary to
terminate any Participant's employment at any time.
10. ADJUSTMENT PROVISIONS.
If the Company shall effect a subdivision or consolidation of Shares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction in the number of Shares outstanding, or shall effect a
spin-off, split-off, or other distribution of assets to shareholders, without
receiving consideration therefor in money, services or property, the number of
Units in each Account and the number of Shares available for payment of awards
hereunder shall be appropriately adjusted by the Committee.
11. NONASSIGNABILITY.
No Accounts or any payment under the Plan shall be subject in any
manner to alienation, anticipation, sale, transfer (except by will or the laws
of descent and distribution), assignment, pledge, or encumbrance. Any attempt
to alienate, sell, transfer, assign, pledge or otherwise encumber any Account
or any payment under the Plan shall be void and of no legal effect.
12. BENEFICIARY DESIGNATION.
If a Participant dies prior to the distribution to him of all
amounts payable to him under the Plan, the amounts otherwise distributable to
the Participant if living, shall be distributed to his designated beneficiary
or beneficiaries. All beneficiary designations shall be made in the form
prescribed by the Committee from time to time and shall be delivered to the
Secretary of the Company. If there is no effective beneficiary designation on
file at the time of the Participant's death, distribution of amounts otherwise
payable to the deceased Participant under the Plan shall be made to his Estate.
If the beneficiary designated by the Participant shall survive the Participant
but die before receiving all distributions hereunder, all amounts otherwise
payable to the deceased beneficiary shall be paid to such deceased beneficiary's
Estate unless the Participant's beneficiary designation provides otherwise. The
Company shall have no responsibility with respect to the validity of any
beneficiary designation made by a Participant and shall be fully protected if
it acts thereon in good faith.
13. TAXES.
The Company shall be entitled to pay or withhold the amount of any
tax which it believes is required as a result of the payment of any amounts
under the Plan, and the Company may defer making payments hereunder until
arrangements satisfactory to it have been made with respect to any such
withholding obligations. A Participant may, at his election, satisfy his
obligation for payment of withholding taxes by having the Company retain a
number of Shares, if payment of the Account includes Shares, having an aggregate
Market Price on the date the Shares are withheld equal to the amount of the
withholding tax or by delivering to the Company Shares already owned by the
Participant having an aggregate Market Price on the date the Shares are
delivered equal to the amount of the withholding tax. The Company shall have
the right to rely on a written opinion of legal counsel, which may be
independent legal counsel or legal counsel regularly employed by the Company,
if any question should arise as to the payment or withholding of taxes.
14. REGULATORY APPROVALS AND RULE 16b-3.
(a) Notwithstanding anything contained in this Plan to the
contrary, the Company shall have no obligation to issue or deliver certificates
for Shares resulting from the payment of an Account hereunder prior to (i) the
obtaining of any approval from any governmental agency which the Company shall,
it its sole discretion, determine to be necessary or advisable, (ii) the
admission of such Shares to listing on the stock exchange on which the Shares
may be listed, and (iii) the completion of any registration or other
qualification of said Shares under any state or federal law or ruling of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
(b) It is intended that the Plan and any award made to a person
subject to Section 16 of the 1934 Act, and any transaction or election hereunder
by any such person, meet all of the requirements of Rule 16b-3. If any
provision of the Plan or any award hereunder would disqualify the Plan or such
award under, or would not comply with, Rule 16b-3, such provision or award shall
be construed or deemed to conform to Rule 16b-3.
<PAGE>
(c) Any election by a Participant subject to Section 16 of the
1934 Act, pursuant to Paragraph 13 hereof, may be made only during such times
as permitted by Rule 16b-3 and may be disapproved by the Committee at any time
after the election.
15. EFFECTIVENESS OF THE PLAN.
The Plan became effective upon approval by the Company's Executive
Compensation Committee and Board of Directors on March 30, 1994, subject to
ratification of the Plan by the vote of the holders of a majority of the Shares
present or represented and entitled to vote at an annual or special meeting of
the Company duly called and held which vote was received on August 23, 1994.
The amendments hereto were approved by the Board of Directors on February 12,
1998, subject to approval at the April 28, 1998 Annual Meeting of shareholders.
If shareholder approval is not obtained, any awards previously made at the
December 11, 1997 meeting of the Executive Compensation Committee will be void
and of no further effect.
16. TERMINATION AND AMENDMENT.
The Plan may be terminated, modified or amended by the Company's
Board of Directors, provided, however, that any modification or amendment which
would, under applicable law or other regulatory provisions require shareholder
approval and any amendment to increase the number of Units available for grant
under the Plan shall be subject to the affirmative vote of the holders of a
majority of the Shares of the Company present, or represented, and entitled to
vote at a meeting of the shareholders of the Company and provided, further, that
no termination, modification or amendment of the Plan may, without the consent
of a Participant, adversely affect the rights of such Participant in his
Account, other than a termination because the requisite shareholder approval is
not obtained. In such event, any awards made subject to the consent of the
shareholders shall be void and of no further effect..
17. GOVERNING LAW.
The Plan shall be construed, administered and governed in all
respects under and by the applicable laws of the State of Wisconsin.
MW80540_5.DOC
<PAGE>
EXHIBIT 10(d)
<PAGE>
Amended August 12, 1999
MARSHALL & ILSLEY CORPORATION
AMENDED AND RESTATED
ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purpose. The Executive Compensation Committee (the "Committee")
adopted on February 13, 1997 this Annual Executive Incentive Compensation Plan
(the "Plan"). The Plan is intended to establish a correlation between the
annual incentives awarded to the participants and the Corporation's financial
performance, thereby rewarding the participants with an incentive award if the
performance goals, as fixed by the Committee pursuant to the terms of the Plan,
are met. Subject to approval by the Marshall & Ilsley Corporation (the
"Corporation") shareholders, the Plan will be applicable to 1997 and subsequent
years unless and until terminated by the Committee. If shareholder approval is
not obtained, the Plan will not take effect. The Plan is intended to meet the
requirements of Section 162(m) of the Internal Revenue Code, and the regulations
thereunder, so that compensation received pursuant to the Plan will be
performance-based compensation excludable from the $1 million limitation on
deductible compensation.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Award Table" means a table similar in type to Exhibit
A, with changes necessary to adapt to the performance criteria
selected by the Committee for the Performance Year and to display
other objective factors necessary to determine the amount, if any,
of the incentive award for the Performance Year.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(d) "Committee" means the Executive Compensation Committee
of the Board.
(e) "Company" means Marshall & Ilsley Corporation and its
subsidiaries including subsidiaries of subsidiaries and
partnerships and other ventures in which Marshall & Ilsley
Corporation has a significant equity interest, as determined in the
sole discretion of the Committee.
(f) "Disability" means a condition that entitles the
Participant to disability payments under the terms of the Company's
long-term disability plan.
(g) "Earnings" means the after-tax consolidated net income
of the Company computed in accordance with generally accepted
accounting principles and adjusted to eliminate the following if
the impact on net income is material: (i) gain or loss
attributable to the disposition of investment in subsidiaries, and
(ii) extraordinary and nonrecurring items of income or loss.
<PAGE>
(h) "Earnings per Share" means the portion of the Company's
Earnings allocable to each outstanding share of common stock during
the accounting period, based on the average number of shares
outstanding, computed on a fully-diluted basis in accordance with
generally accepted accounting principles.
(i) "Participant" means any employee of the Company
designated to participate in the Plan.
(j) "Performance Goal" means one or more of Earnings Per
Share, Earnings, Return on Average Equity, or Return on Average
Assets, which may be used singularly or in combination, as the
Committee determines, to measure the performance of the Company for
the purpose of determining whether, and to what extent, an award
will be payable under the Plan for the Performance Year.
(k) "Performance Year" means the Company's fiscal year.
The initial Performance Year is 1997.
(l) "Plan" means the Marshall & Ilsley Corporation Annual
Executive Incentive Compensation Plan.
(m) "Retirement" or "Retires" means the termination of
employment of a Participant on or after attaining age 65, or due to
early retirement with the consent of the Committee.
(n) "Return on Average Assets" or "ROAA" means Earnings for
the accounting period divided by total average assets.
(o) "Return on Average Equity" or "ROAE" means Earnings for
the accounting period divided by total average equity.
(p) "Salary" means base salary earned for each Performance
Year determined in accordance with principles employed for
reporting salary to the Corporation's shareholders in the annual
Proxy Statement.
3. Participation. Participation in the Plan shall be limited to the
Chief Executive Officer, the President, the Chief Financial Officer and any
other Participants designated by senior management. A person who becomes a
Participant after the commencement of a Performance Year shall be eligible to
receive a pro rata award pursuant to Section 4, based on the number of full
months remaining in the Performance Year after he or she becomes a Participant.
<PAGE>
4. Determination of Awards.
(a) Before April 1, 1997, and thereafter, during the first
ninety days of each succeeding Performance Year, the Committee will
complete and adopt an Award Table substantially in the form
attached as Exhibit A. The Award Table will fix the objective
components for determining whether an award will be paid and, if
so, the amount of the award. Awards are based on a percentage of
each Participant's Salary for the Performance Year, if and to the
extent the Performance Goal is achieved. If the performance falls
between the Performance Goals set forth in the Award Table, the
amount of the award will be determined by interpolation. Once
fixed, the Performance Goals and targets for a Performance Year may
not be modified.
(b) Before any award may be paid for a Performance Year,
the Committee shall certify that the Performance Goals and other
requirements of the Plan have been satisfied for the Performance
Year. No payments shall be made unless and until the Committee
makes this certification.
(c) Even though the Performance Goals have been met, (i) no
award to a Participant with respect to a Performance Year shall
exceed $1,000,000, and (ii) the Committee expressly reserves the
right to reduce or eliminate entirely any award if it determines it
is in the best interests of the Company to do so. Such
determination shall be conclusive and binding.
5. Payment of Awards.
(a) If the Committee has made the certification required
pursuant to Section 4(b), subject to Section 4(c), awards shall be
payable not later than 60 days following the last day of the
Performance Year for which they are computed. Notwithstanding the
foregoing, a Participant may defer receipt of an award by filing a
timely election pursuant to the Company's 1997 Executive Deferred
Compensation Plan. All awards under the Plan are subject to
federal, state and local income and payroll tax withholding when
paid.
(b) A Participant shall receive no award for a year if the
Participant's employment with the Company terminates prior to the
last day of the Performance Year for any reason other than death,
Disability, Retirement, or a Change in Control as defined in the
Company's 1997 Executive Stock Option and Restricted Stock Plan, as
amended from time to time. A Participant who terminates employment
for one of the reasons described in the preceding sentence shall be
eligible to receive a pro rata award, if an award is otherwise
payable pursuant to Section 4, based on the number of full months
elapsed in the Performance Year ending with the date the event
occurred. A Participant shall not forfeit an award if the
participant's employment terminates after the end of the applicable
Performance Year, but prior to the distribution of the award for
such year.
(c) If a Participant dies and is subsequently entitled to
receive an award under the Plan, the award shall be paid to the
Participant's estate.
<PAGE>
6. Administration. The Plan shall be administered by the Committee.
The Committee may adopt rules and regulations for carrying out the Plan, and the
Committee may take such actions as it deems appropriate to ensure that the Plan
is administered in the best interests of the Company. The Committee has the
authority to construe and interpret the Plan, resolve any ambiguities, and make
determinations with respect to the eligibility for or amount of any award. The
interpretation, construction and administration of the Plan by the Committee
shall be final and conclusive. The Committee may consult with counsel, who may
be counsel to the Company, and shall not incur any liability for any action
taken in good faith in reliance upon the advice of counsel.
7. Rights. Participation in the Plan and the right to receive awards
under the Plan shall not give a Participant any proprietary interest in the
Company or any of its assets. A Participant shall for all purposes be a general
creditor of the Company. The interests of a Participant cannot be assigned,
anticipated, sold, encumbered or pledged and shall not be subject to the claims
of his creditors. Nothing in the Plan shall confer upon any Participant the
right to continue in the employ of the Company, or shall interfere with or
restrict in any way the right of the Company to discharge a Participant at any
time for any reason whatsoever, with or without cause.
8. Successors. The Plan shall be binding on the Participants and their
personal representatives. If the Company becomes a party to any merger,
consolidation, reorganization or other corporate transaction, the Plan shall
remain in full force and effect as an obligation of the Company or its successor
in interest.
9. Amendment and Termination. The Committee may amend or terminate the
Plan at any time as it deems appropriate; provided that to the extent required
to meet the requirements of Code Section 162(m) for performance-based
compensation, any amendment that makes a material change to the Plan must be
approved by the shareholders of the Corporation.
10. Interpretation. If any provision of the Plan would cause the Plan
to fail to meet the Code Section 162(m) requirements for performance-based
compensation, then that provision of the Plan shall be void and of no effect.
<PAGE>
Exhibit A
AWARD TABLE
PERFORMANCE YEAR 19__
A<------(-)------B------(+)------>C
___________________________________________________________________________
| |
| Threshold Target Maximum |
| Performance Performance Performance |
| Level Level Level |
| Specified: Specified: Specified: |
| _______ _______ _______ |
| Title % of Salary % of Salary % of Salary |
|---------------------------------------------------------------------------|
| Chairman __% __% __% |
| |
|---------------------------------------------------------------------------|
| President __% __% __% |
| |
|---------------------------------------------------------------------------|
| Chief Financial Officer __% __% __% |
| |
|___________________________________________________________________________|
During the first 90 days of each Performance Year, the Committee shall set
the Performance Goals using the following process.
Award Derivations
-----------------
1. Specify performance criteria to be used as the Performance Goals for the
Performance Year (i.e., one or more of Earnings per Share, Earnings,
Return on Average Equity or Return on Average Assets, which may be used
singularly or in combination, as the Committee determines, to measure the
performance of the Company for the purpose of determining whether an
award will be payable under the Plan for the Performance Year).
2. Fix the target Performance Goal and percentage of salary. (B)
3. Fix the threshold Performance Goal below which no award is payable and
percentage of salary. (A)
4. Fix maximum Performance Goal which results in maximum permitted award and
percentage of salary. (C)
5. If the result achieved for the Performance Year is less or greater than
the goal specified in B, but greater than the goal specified in A, the
percentage award payable will be determined by interpolating, as provided
in the Plan, between A and B and B and C, as the case may be with C being
the maximum.
MW363324_1.DOC
<PAGE>
EXHIBIT 12
<PAGE>
MARSHALL & ILSLEY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000's)
<TABLE>
<CAPTION>
Nine
Months
Ended Years Ended December 31,
September 30,----------------------------------------------------------
Earnings: 1999 1998 1997 1996 1995 1994
----------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary
items and cumulative effect of changes
in accounting principles $ 397,901 $ 465,285 $ 388,172 $ 317,949 $ 312,938 $ 179,762
Fixed charges, excluding interest on deposits 155,899 206,546 175,609 126,261 119,412 85,767
---------- ---------- ---------- ---------- ---------- ----------
Earnings including fixed charges but
excluding interest on deposits 553,800 671,831 563,781 444,210 432,350 265,529
Interest on deposits 423,338 564,540 460,418 392,473 363,488 274,211
---------- ---------- ---------- ---------- ---------- ----------
Earnings including fixed charges and
interest on deposits $ 977,138 $ 1,236,371 $ 1,024,199 $ 836,683 $ 795,838 $ 539,740
========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest Expense:
Short-term borrowings $ 98,932 $ 126,624 $ 111,193 $ 63,892 $ 48,390 $ 39,978
Long-term borrowings 47,133 66,810 54,175 53,615 63,701 38,870
One-third of rental expense for all operating
leases (the amount deemed representative
of the interest factor) 9,834 13,112 10,241 8,754 7,321 6,919
---------- ---------- ---------- ---------- ---------- ----------
Fixed charges excluding interest on deposits 155,899 206,546 175,609 126,261 119,412 85,767
Interest on deposits 423,338 564,540 460,418 392,473 363,488 274,211
---------- ---------- ---------- ---------- ---------- ----------
Fixed charges including interest on deposits $ 579,237 $ 771,086 $ 636,027 $ 518,734 $ 482,900 $ 359,978
========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 3.55 x 3.25 x 3.21 x 3.52 x 3.62 x 3.10 x
Including interest on deposits 1.69 x 1.60 x 1.61 x 1.61 x 1.65 x 1.50 x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 663,136
<INT-BEARING-DEPOSITS> 77,164
<FED-FUNDS-SOLD> 105,847
<TRADING-ASSETS> 65,780
<INVESTMENTS-HELD-FOR-SALE> 4,366,180
<INVESTMENTS-CARRYING> 1,196,200
<INVESTMENTS-MARKET> 1,178,562
<LOANS> 15,576,702
<ALLOWANCE> 226,461
<TOTAL-ASSETS> 23,588,250
<DEPOSITS> 15,638,245
<SHORT-TERM> 4,613,787
<LIABILITIES-OTHER> 641,648
<LONG-TERM> 569,419
0
336
<COMMON> 112,757
<OTHER-SE> 2,012,058
<TOTAL-LIABILITIES-AND-EQUITY> 23,588,250
<INTEREST-LOAN> 846,178
<INTEREST-INVEST> 243,467
<INTEREST-OTHER> 8,120
<INTEREST-TOTAL> 1,097,765
<INTEREST-DEPOSIT> 423,338
<INTEREST-EXPENSE> 569,403
<INTEREST-INCOME-NET> 528,362
<LOAN-LOSSES> 14,481
<SECURITIES-GAINS> 12,245
<EXPENSE-OTHER> 742,052
<INCOME-PRETAX> 397,901
<INCOME-PRE-EXTRAORDINARY> 263,885
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,885
<EPS-BASIC> 2.48
<EPS-DILUTED> 2.33
<YIELD-ACTUAL> 3.64
<LOANS-NON> 121,091
<LOANS-PAST> 7,630
<LOANS-TROUBLED> 725
<LOANS-PROBLEM> 129,446
<ALLOWANCE-OPEN> 226,052
<CHARGE-OFFS> 19,466
<RECOVERIES> 5,394
<ALLOWANCE-CLOSE> 226,461
<ALLOWANCE-DOMESTIC> 226,461
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
