<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(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, 2000
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)
Registrant's telephone number, including area code: (414) 765-7801
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class October 31, 2000
----- ----------------
Common Stock, $1.00 Par Value 104,033,358
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
($000's except share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 644,425 $ 705,293 $ 663,136
Federal funds sold and security resale agreements 66,002 101,922 105,847
Money market funds 176,793 72,641 70,711
------------ ------------ -------------
Total cash and cash equivalents 887,220 879,856 839,694
Investment securities:
Trading securities, at market value 21,769 40,334 65,780
Short-term investments, at cost which
approximates market value 26,403 6,828 6,453
Available for sale at market value 4,242,296 4,357,196 4,366,180
Held to maturity at amortized cost,
market value $1,121,228 ($1,137,126 December 31,
and $1,178,562 September 30, 1999) 1,128,203 1,170,734 1,196,200
------------ ------------ -------------
Total investment securities 5,418,671 5,575,092 5,634,613
Loans and leases 17,305,892 16,335,061 15,576,702
Less: Allowance for loan and lease losses 232,690 225,862 226,461
------------ ------------ -------------
Net loans and leases 17,073,202 16,109,199 15,350,241
Premises and equipment 379,277 370,534 362,111
Intangible assets 343,757 366,416 362,824
Accrued interest and other assets 1,147,147 1,068,626 1,038,767
------------ ------------ -------------
Total Assets $ 25,249,274 $ 24,369,723 $ 23,588,250
============ ============ =============
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing $ 2,787,256 $ 2,830,960 $ 2,789,554
Interest bearing 15,302,144 13,604,222 12,848,691
------------ ------------ -------------
Total deposits 18,089,400 16,435,182 15,638,245
Funds purchased and security repurchase agreements 1,756,392 1,402,077 1,458,229
Other short-term borrowings 1,520,610 3,138,178 3,155,558
Accrued expenses and other liabilities 695,998 612,336 641,648
Long-term borrowings 981,427 665,024 569,419
------------ ------------ -------------
Total liabilities 23,043,827 22,252,797 21,463,099
Shareholders' equity:
Series A convertible preferred stock,
$1.00 par value; 336,370 shares issued 336 336 336
Common stock, $1.00 par value;
112,757,546 shares issued 112,757 112,757 112,757
Additional paid-in capital 453,710 457,097 447,901
Retained earnings 2,063,834 1,914,128 1,849,872
Net unrealized gains (losses) on securities
available for sale, net of related taxes 1,812 (32,749) (3,590)
Less: Treasury common stock, at cost:
8,773,349 shares (6,941,684 December 31,
and 6,190,336 September 30, 1999) 406,768 314,513 262,345
Deferred compensation 20,234 20,130 19,780
------------ ------------ -------------
Total shareholders' equity 2,205,447 2,116,926 2,125,151
------------ ------------ -------------
Total Liabilities and Shareholders' Equity $ 25,249,274 $ 24,369,723 $ 23,588,250
============ ============ =============
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except share data)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Interest income
Loans and leases $ 356,670 $ 294,660
Investment securities:
Taxable 65,071 67,915
Exempt from federal income taxes 16,213 15,089
Trading securities 313 500
Short-term investments 4,998 2,313
--------------- ---------------
Total interest income 443,265 380,477
Interest expense
Deposits 201,869 152,751
Short-term borrowings 55,425 34,122
Long-term borrowings 21,906 15,801
--------------- ---------------
Total interest expense 279,200 202,674
Net interest income 164,065 177,803
Provision for loan and lease losses 5,938 4,797
--------------- ---------------
Net interest income after provision
for loan and lease losses 158,127 173,006
Other income
Data processing services:
Processing 60,685 59,619
Software and consulting 18,456 19,991
E-commerce 60,239 41,397
Other 6,041 7,550
--------------- ---------------
Total data processing services 145,421 128,557
Item processing 13,062 9,937
Internet banking 719 434
Trust services 29,859 25,745
Service charges on deposits 18,644 18,177
Mortgage banking 4,654 4,857
Capital Markets revenue (expense) (156) 8,606
Net investment securities gains (losses) (50,205) 59
Life insurance revenue 6,934 6,538
Other 28,829 26,467
--------------- ---------------
Total other income 197,761 229,377
Other expense
Salaries and employee benefits 161,247 152,568
Net occupancy 13,904 12,722
Equipment 28,125 27,374
Software expenses 7,653 6,667
Processing charges 8,351 7,273
Supplies and printing 4,934 4,591
Professional services 8,408 8,352
Shipping and handling 10,680 8,375
Amortization of intangibles 8,866 8,120
Single charter/IPO/ARM loan sales 9,306 --
Other 19,520 30,962
--------------- ---------------
Total other expense 280,994 267,004
Income before income taxes 74,894 135,379
Provision for income taxes 23,135 44,543
--------------- ---------------
Net income $ 51,759 $ 90,836
=============== ===============
Net income per common share
Basic $ 0.49 $ 0.86
Diluted 0.48 0.81
Dividends paid per common share $ 0.265 $ 0.240
Weighted average common shares outstanding:
Basic 103,904 103,641
Diluted 108,768 112,198
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($000's except share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Interest income
Loans and leases $ 1,027,833 $ 846,178
Investment securities:
Taxable 199,186 200,487
Exempt from federal income taxes 49,183 42,980
Trading securities 1,323 1,280
Short-term investments 12,954 6,840
--------------- ---------------
Total interest income 1,290,479 1,097,765
Interest expense
Deposits 560,053 423,338
Short-term borrowings 173,044 98,932
Long-term borrowings 59,141 47,133
--------------- ---------------
Total interest expense 792,238 569,403
Net interest income 498,241 528,362
Provision for loan and lease losses 21,373 14,481
--------------- ---------------
Net interest income after provision
for loan and lease losses 476,868 513,881
Other income
Data processing services:
Processing 180,521 173,641
Software and consulting 58,352 58,552
E-commerce 143,017 104,778
Other 21,051 19,448
--------------- ---------------
Total data processing services 402,941 356,419
Item processing 38,175 29,836
Internet banking 1,743 1,506
Trust services 87,634 74,676
Service charges on deposits 55,707 51,649
Mortgage banking 11,471 23,496
Capital Markets revenue 17,111 12,334
Net investment securities gains (losses) (48,924) 414
Life insurance revenue 20,966 19,144
Other 97,809 78,981
--------------- ---------------
Total other income 684,633 648,455
Other expense
Salaries and employee benefits 475,335 436,357
Net occupancy 40,951 37,068
Equipment 83,223 80,754
Software expenses 21,551 19,556
Processing charges 23,334 22,697
Supplies and printing 14,885 14,288
Professional services 25,565 22,885
Shipping and handling 31,707 25,642
Amortization of intangibles 23,729 31,647
Single charter/IPO/ARM loan sales 9,306 --
Other 67,444 73,541
--------------- ---------------
Total other expense 817,030 764,435
Income before income taxes 344,471 397,901
Provision for income taxes 111,845 134,016
--------------- ---------------
Net income $ 232,626 $ 263,885
=============== ===============
Net income per common share
Basic $ 2.21 $ 2.48
Diluted 2.13 2.33
Dividends paid per common share $ 0.770 $ 0.700
Weighted average common shares outstanding:
Basic 104,151 104,403
Diluted 109,028 113,493
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 837,532 $ 539,610
Cash Flows From Investing Activities:
Net decrease in securities with
maturities of three months or less -- 21,400
Proceeds from sales of securities available for sale 1,526,794 116,349
Proceeds from maturities of longer term securities 551,124 795,350
Purchases of longer term securities (1,911,200) (1,432,412)
Net increase in loans (1,317,170) (1,601,550)
Purchases of assets to be leased (439,748) (316,443)
Principal payments on lease receivables 266,073 221,888
Fixed asset purchases, net (51,308) (47,486)
Acquisitions and investments in joint ventures (265) (84,408)
Other 8,205 10,110
--------------- ---------------
Net cash used in investing activities (1,367,495) (2,317,202)
Cash Flows From Financing Activities:
Net increase /(decrease) in deposits 1,664,451 (277,507)
Proceeds from issuance of commercial paper 2,606,476 1,382,699
Payments for maturity of commercial paper (2,414,696) (1,171,752)
Net increase /(decrease) in other short-term borrowings (1,366,771) 2,141,191
Proceeds from issuance of long-term debt 534,663 134,356
Payments of long-term debt (308,582) (177,402)
Dividends paid (82,889) (78,118)
Purchases of treasury stock (98,304) (257,831)
Other 2,979 14,912
--------------- ---------------
Net cash provided by financing activities 537,327 1,710,548
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 7,364 (67,044)
Cash and cash equivalents, beginning of year 879,856 906,738
--------------- ---------------
Cash and cash equivalents, end of period $ 887,220 $ 839,694
=============== ===============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 726,733 $ 578,567
Income taxes 104,217 23,690
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements
September 30, 2000 & 1999 (Unaudited)
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with Marshall & Ilsley Corporation's ("M&I" or
"Corporation") 1999 Annual Report on Form 10-K. The unaudited
financial information included in this report reflects all adjustments
(consisting only of normal recurring accruals) which are necessary for
a fair statement of the financial position and results of operations as
of and for the three months and nine months ended September 30, 2000
and 1999. The results of operations for the three months and nine
months ended September 30, 2000 and 1999 are not necessarily indicative
of results to be expected for the entire year. Certain amounts in the
1999 consolidated financial statements and analyses have been
reclassified to conform with the 2000 presentation.
2. The Corporation has 5,000,000 shares of preferred stock authorized, of
which the Board of Directors has designated 2,000,000 shares as Series
A convertible, with a $100 value per share for conversion and
liquidation purposes.
The Corporation has 320,000,000 shares of its $1.00 par value common
stock authorized.
New Accounting Pronouncements
Derivatives - In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. The Statement requires that changes in the derivatives fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related
results on the hedged item in the income statement, and requires that
a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
Statement 133, as amended, is effective for fiscal years beginning
after June 15, 2000. A company may also implement the Statement as of
the beginning of any quarter after issuance. Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid
contracts.
The Corporation will adopt SFAS 133 effective January 1, 2001.
Presented in Item 2, Management's Discussion and Analysis of Financial
Position and Results of Operations, is the fair value of the
freestanding derivatives held by the Corporation as of September 30,
2000. Statement 133 would require that those derivative instruments be
recognized in the Corporation's Consolidated Balance Sheets as assets
or liabilities at their fair value. The Corporation has not yet
completed quantifying the other effects of adopting Statement 133 on
its consolidated financial statements nor has it completed its
determination of which of the freestanding derivatives qualify for
hedge accounting prescribed by the statement. However, the Statement
could increase volatility in earnings and other comprehensive income.
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
Revenue Recognition - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on a variety of revenue recognition matters and must be
adopted no later than the fourth quarter of 2000. The Corporation does
not believe that the adoption of SAB 101 will have a material impact
on its consolidated financial statements.
Shipping and Handling Costs - Beginning in the second quarter of 2000,
the Corporation began classifying shipping and handling costs
associated with the income producing activities of its Data Services
segment as revenue in accordance with the provisions of Emerging Issues
Task Force Issue No. 00-10, ("EITF 00-10"), "Accounting for Shipping
and Handling Fees and Costs". Previously, amounts charged to customers
for shipping and handling were netted against the related cost for
financial statement purposes. Consolidated Statements of Income for
the three months and nine months ended September 30, 1999, have been
restated in accordance with EITF 00-10.
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, 2000
-------------------------------------------
Income Average Shares Per Share
(Numerator) (Denominator) Amount
--------------- --------------- -----------
<S> <C> <C> <C>
Net Income $ 51,759
Convertible Preferred Dividends (1,019)
---------------
Basic Earnings Per Share
Income Available to Common Shareholders $ 50,740 103,904 $ 0.49
===========
Effect of Dilutive Securities
Convertible Preferred Stock 1,019 3,844
Stock Options and Restricted Stock Plans -- 1,020
--------------- ---------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 51,759 108,768 $ 0.48
===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-------------------------------------------
Income Average Shares Per 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>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
4. Earnings Per Share - (dollars and shares in thousands, except per share
data):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
-------------------------------------------
Income Average Shares Per Share
(Numerator) (Denominator) Amount
--------------- --------------- -----------
<S> <C> <C> <C>
Net Income $ 232,626
Convertible Preferred Dividends (2,960)
---------------
Basic Earnings Per Share
Income Available to Common Shareholders $ 229,666 104,151 $ 2.21
===========
Effect of Dilutive Securities
Convertible Preferred Stock 2,960 3,844
Stock Options and Restricted Stock Plans -- 1,033
--------------- ---------------
Diluted Earnings Per Share
Income Available to Common Shareholders
Plus Assumed Conversions $ 232,626 109,028 $ 2.13
===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-------------------------------------------
Income Average Shares Per 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>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
5. Selected investment securities, by type, held by the Corporation are as
follows ($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Other investment securities available for sale:
U.S. treasury and government agencies $ 3,411,285 $ 3,852,731 $ 3,936,728
State and political subdivisions 149,706 109,971 31,029
Other 681,305 394,494 398,423
--------------- --------------- ---------------
Total $ 4,242,296 $ 4,357,196 $ 4,366,180
=============== =============== ===============
Investment securities held to maturity:
U.S. treasury and government agencies $ -- $ 9 $ 32
State and political subdivisions 1,123,057 1,165,756 1,191,149
Other 5,146 4,969 5,019
--------------- --------------- ---------------
Total $ 1,128,203 $ 1,170,734 $ 1,196,200
=============== =============== ===============
</TABLE>
6. The Corporation's loan and lease portfolio consists of the following
($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Commercial, financial & agricultural $ 5,024,258 $ 4,754,857 $ 4,543,473
Real estate:
Construction 582,853 494,558 458,750
Residential mortgage 5,204,020 4,941,450 4,633,857
Commercial mortgage 4,269,435 4,034,771 3,939,669
Total real estate 10,056,308 9,470,779 9,032,276
Personal 1,183,369 1,299,416 1,244,573
Lease financing 1,041,957 810,009 756,380
--------------- --------------- ---------------
Total $ 17,305,892 $ 16,335,061 $ 15,576,702
=============== =============== ===============
</TABLE>
7. The Corporation's deposit liabilities consists of the following
($000's):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Noninterest bearing demand $ 2,787,256 $ 2,830,960 $ 2,789,554
Savings and NOW 7,148,368 6,966,423 6,910,873
CD's $100,000 and over 2,636,210 1,885,933 1,770,614
Other time deposits 3,395,737 3,419,333 3,438,373
Foreign Deposits 2,121,829 1,332,533 728,831
--------------- --------------- ---------------
$ 18,089,400 $ 16,435,182 $ 15,638,245
=============== =============== ===============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
8. Comprehensive Income
The following table presents the Corporation's comprehensive income
($000's):
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net income $ 51,759 $ 90,836
Other comprehensive income
Unrealized gains (losses) on securities, net of tax:
Arising during the period 9,882 (18,222)
Reclassification for securities
transactions included in net income 42,176 (125)
--------------- ---------------
52,058 (18,347)
--------------- ---------------
Total comprehensive income $ 103,817 $ 72,489
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net income $ 232,626 $ 263,885
Other comprehensive income
Unrealized losses on securities, net of tax:
Arising during the period (1,420) (60,692)
Reclassification for securities
transactions included in net income 35,981 (1,000)
--------------- ---------------
34,561 (61,692)
--------------- ---------------
Total comprehensive income $ 267,187 $ 202,193
=============== ===============
</TABLE>
Other comprehensive income as shown is net of deferred income tax
expenses/(benefits) of $28,856 and ($9,145) for the three months and
$19,424 and ($34,927) for the nine months ended September 30, 2000 and
1999, respectively.
9. Segments
Generally, the Corporation organizes its segments based on legal
entities. Each entity offers a variety of products and services to
meet the needs of its customers and the particular market served. Each
entity 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.
The Metavante Corporation ("Metavante") subsidiary, (formerly the Data
Services Division of the Corporation), was created in contemplation of
an initial public offering ("IPO"). See Recent Developments for
further discussion regarding the IPO. Certain assets and liabilities
of the Data Services Division which represent the payment services or
item processing line of business, were transferred to the Banking
segment at the beginning of the third quarter. Year to date and prior
period segment information for the Banking segment and Data Services
segment have been restated for the transfer.
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
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. 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:
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 which, beginning in the third quarter of 2000, includes item
processing. 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 and prior
periods have been restated to include the item processing line of
business. ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net interest income $ 166.0 $ 177.1 $ 504.3 $ 524.6
Other revenues:
Unaffiliated customers 61.0 55.1 191.4 168.7
Affiliated customers 5.4 4.1 15.1 12.6
------------ ------------ ------------ ------------
Total revenues 232.4 236.3 710.8 705.9
Expenses:
Intersegment charges 16.2 13.9 43.7 46.3
Other operating expense 97.8 96.4 295.6 281.1
------------ ------------ ------------ ------------
Total expenses 114.0 110.3 339.3 327.4
Provision for loan and lease losses 5.8 4.7 21.1 14.1
Income tax expense 33.9 38.4 107.3 116.1
------------ ------------ ------------ ------------
Operating income $ 78.7 $ 82.9 $ 243.1 $ 248.3
============ ============ ============ ============
Identifiable assets $ 24,228.2 $ 22,295.3 $ 24,228.2 $ 22,295.3
============ ============ ============ ============
Return on tangible equity 17.9% 20.3% 19.0% 20.6%
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (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,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Banking revenues:
Commercial Banking $ 100.1 $ 99.0 $ 299.5 $ 290.8
Retail Banking 93.3 95.0 292.5 285.4
Investments and Other 39.0 42.3 118.8 129.7
------------ ------------ ------------ ------------
Total banking revenues $ 232.4 $ 236.3 $ 710.8 $ 705.9
============ ============ ============ ============
Percent of total banking revenue:
Commercial Banking 43.1% 41.9% 42.1% 41.2%
Retail Banking 40.1 40.2 41.1 40.4
Investments and Other 16.8 17.9 16.8 18.4
------------ ------------ ------------ ------------
Total banking revenues 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ============
Operating banking income
Commercial Banking $ 40.7 $ 43.0 $ 120.9 $ 121.6
Retail Banking 22.9 24.4 74.6 69.8
Investments and Other 15.1 15.5 47.6 56.9
------------ ------------ ------------ ------------
Total operating banking income $ 78.7 $ 82.9 $ 243.1 $ 248.3
============ ============ ============ ============
Percent of total operating banking income:
Commercial Banking 51.6% 51.9% 49.7% 49.0%
Retail Banking 29.2 29.5 30.7 28.1
Investments and Other 19.2 18.6 19.6 22.9
------------ ------------ ------------ ------------
Total operating banking income 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ============
Banking return on tangible equity
Commercial Banking 20.7% 28.9% 21.3% 26.0%
Retail Banking 18.1 23.7 19.5 21.9
------------ ------------ ------------ ------------
Total banking return on tangible equity 17.9% 20.3% 19.0% 20.6%
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (Unaudited)
Data Services
-------------
Data Services includes Metavante and its two nonbank subsidiaries.
Metavante 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, Metavante derives revenue from the
Corporation's credit card merchant operations. The majority of
Metavante revenue is derived from internal and external processing.
See Recent Developments. Intrasegment revenues, expenses and assets
have been eliminated in the following information and prior periods
have been restated to exclude the item processing business. ($ in
millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net interest expense $ (0.9) $ (1.2) $ (3.3) $ (3.1)
Other revenues:
Unaffiliated customers 146.6 129.2 405.4 358.4
Affiliated customers 16.2 14.2 46.4 42.2
------------ ------------ ------------ ------------
Total revenues 161.9 142.2 448.5 397.5
Expenses:
Intersegment charges 2.2 1.5 4.3 2.2
Other operating expense 127.6 120.0 374.9 341.5
------------ ------------ ------------ ------------
Total expenses 129.8 121.5 379.2 343.7
Income tax expense 13.1 8.0 28.7 23.1
------------ ------------ ------------ ------------
Operating income $ 19.0 $ 12.7 $ 40.6 $ 30.7
============ ============ ============ ============
Identifiable assets $ 549.9 $ 459.8 $ 549.9 $ 459.8
============ ============ ============ ============
Return on equity 28.7% 22.3% 21.2% 19.0%
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (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,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net interest income $ 5.2 $ 6.0 $ 15.5 $ 18.0
Other revenues:
Unaffiliated customers 38.6 43.7 132.8 117.0
Affiliated customers 3.4 2.4 10.0 12.4
------------ ------------ ------------ ------------
Total revenues 47.2 52.1 158.3 147.4
Expenses:
Intersegment charges 6.5 5.2 21.2 18.2
Other operating expense 26.5 26.0 79.0 76.7
------------ ------------ ------------ ------------
Total expenses 33.0 31.2 100.2 94.9
Provision for loan and lease losses 0.1 0.1 0.2 0.4
Income tax expense 5.5 8.3 23.0 20.7
------------ ------------ ------------ ------------
Operating income $ 8.6 $ 12.5 $ 34.9 $ 31.4
============ ============ ============ ============
Identifiable assets $ 939.0 $ 682.8 $ 939.0 $ 682.8
============ ============ ============ ============
Return on tangible equity 15.1% 23.7% 21.1% 20.3%
============ ============ ============ ============
</TABLE>
Total Revenues by type in All Others consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
All Others Revenues:
Trust Services $ 30.4 $ 26.4 $ 89.5 $ 76.6
Residential Mortgage Banking 6.5 7.8 19.0 27.1
Capital Markets (0.1) 7.5 18.2 13.9
Brokerage and Insurance 5.2 5.0 17.2 15.3
Commercial Leasing 2.6 3.2 7.6 8.5
Commercial Mortgage Banking 0.6 0.5 1.4 1.1
Others 2.0 1.7 5.4 4.9
------------ ------------ ------------ ------------
Total All Others revenues $ 47.2 $ 52.1 $ 158.3 $ 147.4
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
Notes to Financial Statements - Continued
September 30, 2000 & 1999 (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,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Banking $ 232.4 $ 236.3 $ 710.8 $ 705.9
Data Services 161.9 142.2 448.5 397.5
All Others 47.2 52.1 158.3 147.4
Corporate overhead (5.0) (3.1) (14.3) (7.0)
Acquisition costs 0.4 0.4 1.1 (0.2)
Nonrecurring securities losses (50.1) -- (50.1) --
Intersegment eliminations (25.0) (20.7) (71.4) (66.8)
------------ ------------ ------------ ------------
Consolidated revenues $ 361.8 $ 407.2 $ 1,182.9 $ 1,176.8
============ ============ ============ ============
Expenses:
Banking $ 114.0 $ 110.3 $ 339.3 $ 327.4
Data Services 129.8 121.5 379.2 343.7
All Others 33.0 31.2 100.2 94.9
Corporate overhead 15.1 19.0 45.8 48.1
Acquisition costs 4.8 5.7 14.6 17.1
Single charter/IPO/ARM loan sales 9.3 -- 9.3 --
Intersegment eliminations (25.0) (20.7) (71.4) (66.8)
------------ ------------ ------------ ------------
Consolidated expenses $ 281.0 $ 267.0 $ 817.0 $ 764.4
============ ============ ============ ============
Net income (loss):
Operating income:
Banking $ 78.7 $ 82.9 $ 243.1 $ 248.3
Data Services 19.0 12.7 40.6 30.7
All Others 8.6 12.5 34.9 31.4
Corporate overhead (11.9) (12.9) (35.6) (32.7)
Nonrecurring (38.8) -- (38.8) --
Acquisition costs (3.8) (4.4) (11.6) (13.8)
------------ ------------ ------------ ------------
Consolidated net income $ 51.8 $ 90.8 $ 232.6 $ 263.9
============ ============ ============ ============
Assets:
Banking $ 24,228.2 $ 22,295.3 $ 24,228.2 $ 22,295.3
Data Services 549.9 459.8 549.9 459.8
All Others 939.0 682.8 939.0 682.8
Corporate overhead 391.9 203.4 391.9 203.4
Acquisition costs 254.5 274.5 254.5 274.5
Intersegment eliminations (1,114.2) (327.5) (1,114.2) (327.5)
------------ ------------ ------------ ------------
Consolidated assets $ 25,249.3 $ 23,588.3 $ 25,249.3 $ 23,588.3
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Assets
Cash and due from banks $ 605,934 $ 637,807
Investment securities:
Trading securities 26,255 39,441
Short-term investments 307,222 169,359
Other investment securities:
Taxable 3,875,469 4,237,305
Tax-exempt 1,323,791 1,257,039
--------------- ---------------
Total investment securities 5,532,737 5,703,144
Loans and leases:
Commercial 4,949,715 4,423,809
Real estate 10,215,725 8,778,791
Personal 1,161,966 1,221,193
Lease financing 975,504 734,107
--------------- ---------------
Total loans and leases 17,302,910 15,157,900
Less: Allowance for loan and lease losses 236,043 226,659
--------------- ---------------
Net loans and leases 17,066,867 14,931,241
Premises and equipment, net 376,525 361,304
Accrued interest and other assets 1,442,407 1,399,224
--------------- ---------------
Total Assets $ 25,024,470 $ 23,032,720
=============== ===============
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing $ 2,638,611 $ 2,688,853
Interest bearing 14,946,173 13,959,810
--------------- ---------------
Total deposits 17,584,784 16,648,663
Funds purchased and security repurchase agreements 2,107,345 2,112,603
Other short-term borrowings 1,263,623 535,798
Long-term borrowings 1,235,052 1,012,197
Accrued expenses and other liabilities 660,127 585,052
--------------- ---------------
Total liabilities 22,850,931 20,894,313
Shareholders' equity 2,173,539 2,138,407
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 25,024,470 $ 23,032,720
=============== ===============
</TABLE>
<PAGE>
<PAGE>
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS (Unaudited)
($000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Assets
Cash and due from banks $ 616,892 $ 641,079
Investment securities:
Trading securities 35,527 34,162
Short-term investments 273,928 182,050
Other investment securities:
Taxable 4,008,427 4,200,967
Tax-exempt 1,332,971 1,190,219
--------------- ---------------
Total investment securities 5,650,853 5,607,398
Loans and leases:
Commercial 4,953,253 4,290,413
Real estate 9,912,454 8,439,095
Personal 1,275,108 1,181,789
Lease financing 892,721 680,198
--------------- ---------------
Total loans and leases 17,033,536 14,591,495
Less: Allowance for loan and lease losses 232,978 228,772
--------------- ---------------
Net loans and leases 16,800,558 14,362,723
Premises and equipment, net 373,589 358,060
Accrued interest and other assets 1,417,375 1,353,094
--------------- ---------------
Total Assets $ 24,859,267 $ 22,322,354
=============== ===============
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing $ 2,622,238 $ 2,626,236
Interest bearing 14,648,660 13,268,169
--------------- ---------------
Total deposits 17,270,898 15,894,405
Funds purchased and security repurchase agreements 2,239,946 2,343,580
Other short-term borrowings 1,449,783 358,194
Long-term borrowings 1,185,304 1,014,817
Accrued expenses and other liabilities 595,045 525,709
--------------- ---------------
Total liabilities 22,740,976 20,136,705
Shareholders' equity 2,118,291 2,185,649
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 24,859,267 $ 22,322,354
=============== ===============
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------------------------------------
Net income for the third quarter of 2000 amounted to $51.8 million compared
to $90.8 million for the same period in the prior year. Basic and diluted
earnings per share were $.49 and $.48 respectively for the three months
ended September 30, 2000, compared with $.86 and $.81 respectively for the
three months ended September 30, 1999. The return on average assets and
average equity were 0.82% and 9.47% for the quarter ended September 30,
2000 and 1.56% and 16.85% for the quarter ended September 30, 1999.
Net income for the current quarter includes certain expenses and losses
incurred in connection with the previously announced IPO of its Metavante
Corporation subsidiary, the plan to begin to reduce the number of banking
charters under which it operates and the planned sale of lower yielding
assets and investment portfolio realignment. The impact of these items in
the current quarter is shown in the following table:
<TABLE>
<CAPTION>
Diluted
Pretax After tax EPS
------------- ------------- -------------
<S> <C> <C> <C>
Income as Reported $ 74,894 $ 51,759 $ 0.48
Non Operating Expenses and Losses:
Metavante IPO 1,996 1,476 0.01
Charter Consolidations 4,250 2,820 0.02
Balance Sheet Management:
Investment Securities Losses 50,095 32,562
ARM Loan Sale Losses 3,060 1,989
------------- -------------
Total Balance Sheet Management 53,155 34,551 0.32
------------- ------------- -------------
Total Non Operating 59,401 38,847 0.35
------------- ------------- -------------
Operating Income $ 134,295 $ 90,606 $ 0.83
============= ============= =============
</TABLE>
The following tables present a summary of each of the major elements of the
consolidated operating income statement, certain financial statistics and a
summary of the major operating income statement elements stated as a
percent of average consolidated assets converted to a fully taxable
equivalent basis (FTE) where appropriate for the current quarter and
previous four quarters. Operating income for the third quarter of 2000
excludes the items discussed above. "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>
<PAGE>
Summary Consolidated Operating Income Statements
------------------------------------------------
and Financial Statistics
------------------------
($000's except per share data)
------------------------------
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 443,265 $ 432,589 $ 414,625 $ 398,819 $ 380,477
Interest expense (279,200) (267,534) (245,504) (221,900) (202,674)
---------- ----------- ----------- ----------- -----------
Net interest income 164,065 165,055 169,121 176,919 177,803
Provision for loan and lease losses (5,938) (9,616) (5,819) (10,938) (4,797)
Net investment securities
gains (losses) (110) 1,281 -- (4,513) 59
Other income 247,966 245,714 239,877 234,603 229,318
Other expense (271,688) (269,356) (266,680) (266,033) (267,004)
---------- ----------- ----------- ----------- -----------
Income before taxes 134,295 133,078 136,499 130,038 135,379
Income tax provision (43,689) (42,793) (45,917) (39,412) (44,543)
---------- ----------- ----------- ----------- -----------
Operating income $ 90,606 $ 90,285 $ 90,582 $ 90,626 $ 90,836
========== =========== =========== =========== ===========
Cash operating income $ 95,755 $ 94,845 $ 95,071 $ 95,664 $ 95,796
========== =========== =========== =========== ===========
Per Common Share
Operating income
Basic $ 0.86 $ 0.86 $ 0.86 $ 0.84 $ 0.86
Diluted 0.83 0.83 0.83 0.81 0.81
Cash Operating income
Basic $ 0.89 $ 0.90 $ 0.90 $ 0.89 $ 0.91
Diluted 0.88 0.87 0.87 0.86 0.85
Dividends 0.265 0.265 0.240 0.240 0.240
Return on Average Equity
Operating income 16.58 % 17.29 % 17.51 % 16.86 % 16.85 %
Cash Operating income 20.46 21.40 21.86 21.14 21.04
</TABLE>
<PAGE>
<PAGE>
Summary Consolidated Operating Income Statement Components
----------------------------------------------------------
as a Percent of Average Total Assets
------------------------------------
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income (FTE) 7.17 % 7.09 % 6.92 % 6.77 % 6.68 %
Interest expense (4.44) (4.31) (4.02) (3.70) (3.49)
---------- ----------- ----------- ----------- -----------
Net interest income 2.73 2.78 2.90 3.07 3.19
Provision for loan and lease losses (0.09) (0.15) (0.10) (0.18) (0.08)
Net investment securities
gains (losses) -- 0.02 -- (0.08) --
Other income 3.94 3.95 3.93 3.91 3.95
Other expense (4.33) (4.33) (4.37) (4.43) (4.61)
---------- ----------- ----------- ----------- -----------
Income before taxes 2.25 2.27 2.36 2.29 2.45
Income tax provision (0.81) (0.82) (0.88) (0.78) (0.89)
---------- ----------- ----------- ----------- -----------
Return on average assets
based on operating income 1.44 % 1.45 % 1.48 % 1.51 % 1.56 %
========== =========== =========== =========== ===========
Return on tangible average assets
based on cash operating income 1.53 % 1.55 % 1.58 % 1.62 % 1.67 %
========== =========== =========== =========== ===========
</TABLE>
NET INTEREST INCOME
-------------------
Net interest income for the third quarter of 2000 amounted to $164.1
million compared to $177.8 million reported for the third quarter of 1999.
The inability of bank issued deposit growth to keep pace with strong loan
growth, reduced spreads in loan and deposit products, the continued use of
higher-cost borrowings and wholesale deposits, in the recent rising
interest rate environment and the costs associated with treasury share
buybacks and recent acquisitions all contributed to the $13.7 million
decline in net interest income.
Average earning assets in the third quarter of 2000 increased $2.0 billion
or 9.5% compared to the same period a year ago. Average loans, including
securitized adjustable rate mortgage loans (ARMs), accounted for $2.0
billion or all of the growth in earning assets compared to the third
quarter of last year. Average investment securities, excluding securitized
ARMs, declined $179.6 million while other earning assets increased $124.6
million for the three months ended September 30, 2000 compared with the
same period in the prior year.
During August and September of 2000, the Corporation realigned its
available for sale investment securities portfolio through the sale and
purchase of approximately $1.6 billion of U.S. Government Agency
securities. Compared to the second quarter of 2000, the quarterly average
yield on taxable investment securities increased 13 basis points. The full
benefit of these transactions will not be realized until the fourth
quarter.
Average interest bearing liabilities increased $1.9 billion or 11.0% in the
third quarter of 2000 compared to the same period in 1999. Since the third
quarter of 1999, average interest bearing deposits increased $1.0 billion.
Over 80% of the growth in interest bearing deposits was attributable to
higher-cost wholesale deposits. Average total borrowings increased $0.9
billion which reflects, in part, the effect of the Corporation's repurchase
program.
Average noninterest bearing deposits decreased $50.2 million or 1.9%
compared to the same period last year.
<PAGE>
<PAGE>
The growth and composition of the Corporation's quarterly average loan
portfolio for the current quarter and previous four quarters are reflected in
the following table. Securitized ARM loans which are classified in the
consolidated balance sheets as investment securities available for sale are
included to provide a more meaningful comparison ($ in millions):
Consolidated Average Loans, Leases and Securitized ARMs
-------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 Growth Pct.
----------------------------- ------------------- ---------------------
Third Second First Fourth Third Prior
Quarter Quarter Quarter Quarter Quarter Annual Quarter
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,950 $ 5,013 $ 4,897 $ 4,566 $ 4,424 11.9 % (1.3)%
Real Estate
Construction
Commercial 450 407 407 365 344 30.8 10.7
Residential 117 112 106 98 95 23.1 5.0
--------- --------- --------- --------- --------- ---------- ----------
Total Construction 567 519 513 463 439 29.1 9.5
Commercial Mortgages 4,219 4,159 4,050 3,985 3,884 8.6 1.5
Residential
Residential mortgages 3,168 3,011 2,862 2,701 2,474 28.1 5.2
Home equity loans and lines 2,261 2,230 2,174 2,084 1,982 14.1 1.4
Securitized ARM loans 375 403 424 450 490 (23.6) (7.1)
--------- --------- --------- --------- --------- ---------- ----------
Total Residential 5,804 5,644 5,460 5,235 4,946 17.4 2.8
--------- --------- --------- --------- --------- ---------- ----------
Total Real Estate 10,590 10,322 10,023 9,683 9,269 14.3 2.6
Personal
Student 108 254 262 258 254 (57.4) (57.3)
Credit card 171 153 151 144 139 23.6 11.6
Other 883 944 901 872 828 6.5 (6.5)
--------- --------- --------- --------- --------- ---------- ----------
Total Personal 1,162 1,351 1,314 1,274 1,221 (4.8) (14.0)
Lease financing
Commercial 360 341 335 335 337 6.6 5.3
Personal 616 536 490 444 397 55.2 15.1
--------- --------- --------- --------- --------- ---------- ----------
Total Lease Financing 976 877 825 779 734 32.9 11.3
--------- --------- --------- --------- --------- ---------- ----------
Total Consolidated Average
Loans, Leases and ARMs $ 17,678 $ 17,563 $ 17,059 $ 16,302 $ 15,648 13.0 % 0.7 %
========= ========= ========= ========= ========= ========== ==========
Total Consolidated Average
Loans, Leases and ARMs
Commercial Banking $ 9,979 $ 9,920 $ 9,689 $ 9,251 $ 8,989 11.0 % 0.6 %
Retail Banking 7,699 7,643 7,370 7,051 6,659 15.6 0.7
--------- --------- --------- --------- --------- ---------- ----------
Total Consolidated Average
Loans, Leases and ARMs $ 17,678 $ 17,563 $ 17,059 $ 16,302 $ 15,648 13.0 % 0.7 %
========= ========= ========= ========= ========= ========== ==========
Total Consolidated Average
Loans and Leases $ 17,303 $ 17,160 $ 16,635 $ 15,852 $ 15,158 14.2 % 0.8 %
========= ========= ========= ========= ========= ========== ==========
</TABLE>
<PAGE>
<PAGE>
Compared with the third quarter of 1999, total consolidated average loans,
leases and securitized ARMs increased $2.0 billion or 13.0%. Loan growth was
evenly distributed between commercial and retail banking. Total loan growth
in commercial banking amounted to $990 million or 11.0% and was driven by
commercial loan growth of $526 million and commercial real estate loan growth
of $441 million of which, $106 million was attributable to commercial
construction loan growth. Retail banking loan growth amounted to $1.0 billion
or 15.6%. Home equity loans and lines increased $279 million and personal
lease financing receivables increased $219 million. Residential mortgages
increased $694 million or 28.1 %. In addition to the ongoing sale of fixed
rate residential mortgages and ARM loan production in the secondary market,
late in the third quarter of 2000, the Corporation sold $300.8 million of
portfolio ARM loans which will have a negative impact on residential mortgage
loan growth in future quarters. The decline in average student loans of $146
million reflects the sale of approximately $150 million of such loans late in
the second quarter of 2000. Average other personal loans increased $55
million or 6.5%. Beginning in the third quarter of 2000, the Corporation
began securitizing indirect auto loans. Indirect auto loans securitized and
sold in the three months ended September 30, 2000, amounted to $144.7 million.
The Corporation anticipates that indirect auto loan originations will continue
to be securitized and sold in future quarters.
The growth and composition of the Corporation's quarterly average deposits
for the current and prior year's quarters are as follows ($ in millions):
<TABLE>
<CAPTION>
2000 1999 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 $ 1,694 $ 1,677 $ 1,668 $ 1,791 $ 1,732 (2.2)% 1.0 %
Personal 572 591 576 564 555 2.9 (3.3)
Other 373 351 365 420 402 (7.1) 6.3
--------- --------- --------- --------- --------- ---------- ----------
Total noninterest
bearing deposits 2,639 2,619 2,609 2,775 2,689 (1.9) 0.8
Interest bearing deposits
Savings & NOW 1,826 1,880 1,919 1,957 2,019 (9.6) (2.9)
Money market 5,248 5,092 5,065 5,021 4,837 8.5 3.1
Other CDs & time deposits 3,394 3,399 3,428 3,430 3,444 (1.4) (0.1)
CDs greater than $100,000 874 852 909 887 841 4.0 2.5
Foreign Time 1,951 2,112 2,057 1,896 1,887 3.4 33.5
Brokered CDs 1,653 1,239 1,045 970 932 77.3 (7.6)
--------- --------- --------- --------- --------- ---------- ----------
Total interest
bearing deposits 14,946 14,574 14,423 14,161 13,960 7.1 2.6
--------- --------- --------- --------- --------- ---------- ----------
Total consolidated
average deposits $ 17,585 $ 17,193 $ 17,032 $ 16,936 $ 16,649 5.6 % 2.3 %
========= ========= ========= ========= ========= ========== ==========
Bank issued deposits $ 13,715 $ 13,572 $ 13,688 $ 13,819 $ 13,582 1.0 % 1.1 %
Wholesale deposits 3,870 3,621 3,344 3,117 3,067 26.2 6.9
--------- --------- --------- --------- --------- ---------- ----------
Total consolidated
average deposits $ 17,585 $ 17,193 $ 17,032 $ 16,936 $ 16,649 5.6 % 2.3 %
========= ========= ========= ========= ========= ========== ==========
</TABLE>
Due to continued strong loan growth and slow core deposit growth, the
Corporation continued to rely on wholesale deposits for funding. Compared
with the third quarter of 1999, average wholesale deposit growth amounted
to $0.8 billion or 26.2%. The increase in Brokered CDs accounted for $0.7
billion of the increase.
By comparison, average bank issued deposits increased $0.1 billion or 1.0 %
in the third quarter of 2000 compared to the third quarter of 1999. Money
market, primarily money market index accounts, accounted for approximately
$400 million of the growth while less costly Savings and NOW declined $193
million and noninterest bearing deposits declined $50 million. Average
bank issued deposits were negatively impacted by the sale of two bank
branches in the second quarter and one bank branch during the third quarter
of 2000 all located in Illinois. Total deposits sold amounted to
approximately $111.1 million.
<PAGE>
<PAGE>
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the current
quarter and prior year third quarter are presented in the following table.
Securitized ARM loans that are classified in the balance sheet as
investment securities available for sale are included with loans to provide
a more meaningful comparison ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
-------------------------------- --------------------------------
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) $ 17,677.6 $ 364.5 8.20% $ 15,648.0 $ 304.2 7.72%
Investment securities:
Taxable 3,500.8 57.8 6.47 3,747.2 58.9
6.21
Tax Exempt (a) 1,323.8 23.3 7.06 1,257.0 21.9
7.03
Other short-term investments (a) 333.4 5.3 6.34 208.8 2.8 5.35
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets $ 22,835.6 $ 450.9 7.84% $ 20,861.0 $ 387.8 7.38%
========== ========== ========== ========== ========== ==========
Money market savings $ 5,248.2 $ 72.8 5.52% $ 4,836.7 $ 51.7 4.24%
Regular savings & NOW 1,826.0 7.1 1.55 2,019.1 8.5 1.66
Other CDs & time deposits 5,345.1 80.3 5.98 5,331.2 68.6 5.11
CDs greater than $100
& Brokered CDs 2,526.9 41.7 6.56 1,772.8 24.0 5.38
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing deposits 14,946.2 201.9 5.37 13,959.8 152.8 4.34
Short-term borrowings 3,371.0 55.4 6.54 2,648.4 34.1 5.11
Long-term borrowings 1,235.0 21.9 7.06 1,012.2 15.8 6.19
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities $ 19,552.2 $ 279.2 5.68% $ 17,620.4 $ 202.7 4.56%
========== ========== ========== ========== ========== ==========
Net interest margin (FTE) as a
percent of average earning assets $ 171.7 2.99% $ 185.1 3.52%
========== ========== ========== ==========
Net interest spread (FTE) 2.16% 2.82%
========== ==========
</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 increased 46 basis points since the
third quarter of 1999 which had a positive impact on interest income (FTE)
of approximately $23.9 million. The increase in the volume of earning
assets, primarily loans and securitized ARMs, increased interest income by
approximately $39.2 million compared with the third quarter of 1999. The
cost of interest bearing deposits increased 103 basis points from the same
quarter of the previous year. Short-term borrowing costs increased 143
basis points and long-term borrowing costs increased 87 basis points,
respectively, compared with the third quarter of 1999. The overall
increase in the cost of interest bearing liabilities of 112 basis points
increased interest expense by approximately $49.8 million while the
increase in the volume of interest bearing liabilities increased interest
expense by approximately $26.7 million. The Corporation estimates that
approximately $5.1 million of the increase in interest expense is
attributable to the treasury shares repurchased in 1999 and in the first
half of 2000.
<PAGE>
<PAGE>
The Corporation's positions with respect to derivative financial
instruments consisted of the following at September 30, 2000, ($ in
millions):
<TABLE>
<CAPTION>
<S> <C>
Interest Rate Swaps - Loans
Notional value $ 520
Weighted average receive rate 5.92 %
Weighted average pay rate 6.68 %
Weighted average remaining term (in years) 1.76
Estimated fair value $ (8.34)
Interest Rate Swaps - Callable Deposits
Notional value $ 622
Weighted average receive rate 6.70 %
Weighted average pay rate 6.55 %
Weighted average remaining term (in years) 6.57
Estimated fair value $ (9.73)
Interest Rate Swaps - Equity Indexed Deposits
Notional value $ 15
Receive - Index interest upon maturity or call
Weighted average pay rate 6.33 %
Weighted average remaining term (in years) 4.51
Estimated fair value $ (0.88)
Interest Rate Swaps - Short-term Borrowings
Notional value $ 200
Weighted average receive rate 6.56 %
Weighted average pay rate 7.27 %
Weighted average remaining term (in years) 6.17
Estimated fair value $ (8.97)
Interest Rate Swaps - Long-term Borrowings
Notional value $ 200
Weighted average receive rate 7.65 %
Weighted average pay rate 6.37 %
Weighted average remaining term (in years) 26.19
Estimated fair value $ 8.03
Interest Rate Floors - Loans
Notional value $ 275
Strike rate 6.39 %
Index 7.33 %
Weighted average remaining term (in years) 5.63
Estimated fair value $ 4.66
Unamortized premium $ 4.78
</TABLE>
For the three months ended September 30, 2000, there was a $1.3 million
negative effect on net interest income resulting from derivative financial
instruments compared with a positive effect of $1.9 million in the same
period in 1999.
Throughout 1999 and the first nine months of 2000, 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.
As previously discussed, the use of higher cost funding sources in lieu of
core deposit growth contributed to the decline in net interest income.
Based on the Corporation's existing balance sheet, the net interest margin
will continue to be adversely affected by rising interest rates in the near
term. In addition to continuing to seek less costly funding sources, the
Corporation may, among other things, continue to divest of lower yielding
assets through sale or securitization in the future.
<PAGE>
<PAGE>
PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY
------------------------------------------------------
The following tables present comparative consolidated credit quality
information as of September 30, 2000 and the prior four quarters.
NONPERFORMING ASSETS
--------------------
($000's)
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 116,682 $ 119,584 $ 111,642 $ 106,387 $ 121,091
Renegotiated 658 421 688 708 725
Past due 90 days or more 7,295 10,069 9,334 9,975 7,630
---------- ----------- ----------- ----------- -----------
Total nonperforming loans and leases 124,635 130,074 121,664 117,070 129,446
Other real estate owned 3,804 4,592 6,247 6,230 6,660
---------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 128,439 $ 134,666 $ 127,911 $ 123,300 $ 136,106
========== =========== =========== =========== ===========
Allowance for loan and lease losses $ 232,690 $ 234,119 $ 232,471 $ 225,862 $ 226,461
========== =========== =========== =========== ===========
</TABLE>
CONSOLIDATED STATISTICS
-----------------------
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
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 0.17 % 0.19 % (0.02)% 0.29 % 0.09 %
Total nonperforming loans and leases
to total loans and leases 0.72 0.75 0.72 0.72 0.83
Total nonperforming assets to total loans
and leases and other real estate owned 0.74 0.77 0.75 0.75 0.87
Allowance for loan and lease losses
to total loans and leases 1.34 1.35 1.37 1.38 1.45
Allowance for loan and lease losses
to nonperforming loans and leases 187 180 191 193 175
</TABLE>
<PAGE>
<PAGE>
NONACCRUAL LOANS AND LEASES BY TYPE
-----------------------------------
($000's)
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial
Commercial, financial & agricultural $ 39,203 $ 51,505 $ 49,006 $ 52,563 $ 60,627
Lease financing receivables 2,046 2,271 3,929 4,243 4,655
---------- ----------- ----------- ----------- -----------
Total commercial 41,249 53,776 52,935 56,806 65,282
Real estate
Construction & land development 2,929 2,915 5,284 2,609 2,463
Commercial mortgage 42,246 36,159 28,069 19,668 22,911
Residential mortgage 28,155 25,198 23,715 25,901 28,651
---------- ----------- ----------- ----------- -----------
Total real estate 73,330 64,272 57,068 48,178 54,025
Personal 2,103 1,536 1,639 1,403 1,784
---------- ----------- ----------- ----------- -----------
Total nonaccrual loans and leases $ 116,682 $ 119,584 $ 111,642 $ 106,387 $ 121,091
========== =========== =========== =========== ===========
</TABLE>
RECONCILIATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
-----------------------------------------------------
($000's)
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Beginning balance $ 234,119 $ 232,471 $ 225,862 $ 226,461 $ 225,277
Provision for loan and lease losses 5,938 9,616 5,819 10,938 4,797
Loans and leases charged-off
Commercial 5,210 2,711 449 7,949 1,653
Real estate 943 4,989 653 1,953 1,198
Personal 2,285 1,758 1,544 2,086 1,794
Leases 193 539 198 1,103 300
---------- ----------- ----------- ----------- -----------
Total charge-offs 8,631 9,997 2,844 13,091 4,945
Recoveries on loans and leases
Commercial 436 1,020 2,811 724 610
Real estate 291 373 206 258 195
Personal 508 539 525 457 472
Leases 29 97 92 115 55
---------- ----------- ----------- ----------- -----------
Total Recoveries 1,264 2,029 3,634 1,554 1,332
---------- ----------- ----------- ----------- -----------
Net loans and leases
charge-offs (recoveries) 7,367 7,968 (790) 11,537 3,613
---------- ----------- ----------- ----------- -----------
Ending balance $ 232,690 $ 234,119 $ 232,471 $ 225,862 $ 226,461
========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<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, 2000, OREO acquired in satisfaction of debts
amounted to $2.5 million and branch premises held for sale amounted to $1.3
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, 2000, nonperforming loans and leases amounted to $124.6
million or 0.72% of consolidated loans and leases of $17.3 billion, a
decrease of $5.4 million or 4.2% since June 30, 2000. Nonaccrual loans and
leases accounted for $2.9 million of the decrease compared to the prior
quarter. Nonaccrual commercial loans decreased $12.5 million which was
primarily attributable to one larger loan that paid down throughout the
quarter. The decline in nonaccrual commercial loans was offset by an
increase in nonaccrual real estate loans of $9.1 million and an increase in
nonaccrual personal loans. Nonaccrual commercial mortgages increased $6.1
million since June 30, 2000. Approximately $17.7 million or 15.1% of
nonaccrual loans at September 30, 2000 are attributable to loans associated
with the cranberry industry.
Net charge-offs amounted to $7.4 million or 0.17% of average loans in the
third quarter of 2000 compared with net charge-offs of $8.0 million or
0.19% of average loans in the second quarter of 2000 and net charge-offs of
$3.6 million or 0.09% of average loans in the third quarter of 1999. One
larger commercial loan accounted for $1.1 million of net charge-offs in the
current quarter and a loan associated with the cranberry industry accounted
for $3.0 million of net charge-offs in the current quarter. Over the past
two quarters, net charge-offs associated with the cranberry industry
amounted to $6.2 million.
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.
<PAGE>
<PAGE>
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.
Management's evaluation of the factors described above resulted in an
allowance for loan and lease losses of $232.7 million at September 30, 2000
compared to $234.1 million at June 30, 2000. 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 last two quarters, 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 $5.9 million for
the three months ended September 30, 2000.
OTHER INCOME
------------
Total other income in the third quarter of 2000 amounted to $197.8 million and
includes net investment securities losses of $50.1 million associated with the
investment portfolio realignment previously discussed. Excluding that item,
total other income in the three months ended September 30, 2000 amounted to
$247.9 million, an increase of $18.5 million or 8.1%, compared to $229.4
million in the same period last year.
Total data processing services revenue increased $16.8 million or 13.1% from
$128.6 million in the third quarter of 1999 to $145.4 million in the current
quarter. Processing revenue which includes processing, conversions, and
contract buyouts increased $1.1 million or 1.8% and amounted to $60.7 million.
Buyout fees, which vary from period to period, decreased $1.2 million compared
with the third quarter of the prior year. Software and consulting revenue
decreased $1.5 million in the current quarter compared to the same period last
year primarily due to lower software sales. E-commerce revenue which includes
electronic funds transfer, electronic banking, cash management, home banking,
internet banking, electronic payment services and a mortgage solution joint
venture, increased $18.8 million or 45.5% from $41.4 million in the third
quarter of 1999 to $60.2 million in the current quarter. Revenues associated
with electronic funds transfer and internet banking accounted for $5.9 million
of the revenue growth. Buyout fees in electronic payment services, due to an
acquisition, amounted to $13.7 million. Other data processing services revenue
which consists of merchant credit card fees, credit card plastics sales and
equipment sales decreased $1.5 million primarily due to lower equipment sales.
<PAGE>
Item processing revenue increased due to the addition of a large customer
which converted its item processing in the fourth quarter of 1999.
Trust services revenue amounted to $29.9 million in the third quarter of 2000,
an increase of $4.2 million or 16.0% compared to $25.7 million in the third
quarter of 1999. Net new business growth in personal trust and commercial
trust and increased balances in proprietary mutual fund balances resulted in
favorable revenue growth in major product lines. Total assets under
management were approximately $1.6 billion or 15.3% greater in the current
year compared to the prior year.
There were no sales of investments, which can vary period to period, by
Capital Markets in the current quarter.
Other income in the third quarter of 2000 amounted to $28.8 million compared
to $26.5 million in the third quarter of 1999, an increase of $2.3 million or
8.9%. Gains from the sale of branches, as previously discussed, amounted to
$1.7 million in the third quarter of 2000. Gains and income from indirect auto
securitizations, also previously discussed amounted to $1.0 million in the
current quarter.
OTHER EXPENSE
-------------
Total other expense for the three months ended September 30 2000, amounted to
$281.0 million, of which $9.3 million was attributable to the Metavante IPO,
single charter initiative and losses from the sale of ARM loans.
As previously discussed, late in the current quarter the Corporation sold
$300.8 million of portfolio ARM loans as part of its balance sheet management
strategy and realized losses of $3.1 million.
Organizational costs, which can not be netted from the proceeds of Metvante's
planned IPO amounted to $2.0 million in the current quarter. Such costs
include professional fees incurred in conjunction with tax and benefit plan
consulting, market assessments and other strategic consulting and name change.
Single Charter related expenses incurred in the current quarter amounted to
$4.2 million. Approximately $2.6 million represents the costs of programming
changes required to support operations and processes to achieve the scale
required in the single charter environment. Approximately $1.2 million
represents consulting fees and other professional fees. The remaning costs
of approximately $0.4 million represents costs associated with eliminating
duplicate customer accounts and severance.
Excluding these items, total other expense amounted to $271.7 million in the
third quarter of 2000 compared to $267.0 million in the third quarter of 1999
an increase of $4.7 million or 1.8%.
The Corporation's nonbanking businesses, especially its Data Services segment
("Metavante"), continue to be the primary contributors to operating expense
growth. Metavante expense growth represents approximately all 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 and
operating expenses associated with the recent acquisitions.
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, 2000 and 1999 and the year ended December 31, 1999 are:
<TABLE>
<CAPTION>
Three Months Year Three Months
Ended Ended Ended
September 30, December 31, September 30,
2000 1999 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated Corporation 64.7 % 63.7 % 64.4 %
Consolidated Corporation Excluding Metavante
Including Intangible Amortization 56.1 % 53.5 % 54.9 %
Excluding Intangible Amortization 53.8 % 50.8 % 52.3 %
</TABLE>
<PAGE>
Salaries and employee benefits expense amounted to $161.2 million in the third
quarter of 2000 compared to $152.6 million in the third quarter of 1999, an
increase of $8.6 million or 5.7%. Salaries and employee benefits expense of
Metavante increased $10.2 million. At September 30, 2000, Metavante had on
average approximately 400 more full time equivalent employees when compared
to September 30, 1999 which reflects increases in E-commerce and increases due
to the Cardpro acquisition. Compared to the third quarter of 1999, expense
growth in the current quarter in salaries and employee benefits was $1.6
million or 2.8% for the banking segment. All other segments increased $0.3
million primarily due to growth in the trust business. During the third
quarter of 1999, adverse health experience resulted in an expense accrual of
approximately $2.1 million.
Data Services expense growth accounted for approximately $4.2 million or 96%
of the increase in net occupancy, equipment, software, supplies and printing
and processing expenses in the third quarter of 2000 compared to the third
quarter of 1999.
The increase in shipping and handling is primarily associated with the
increase in item processing revenue.
Amortization of intangibles increased $0.7 million. Approximately $1.8
million of the increase is due to the reduction of the goodwill amortization
period of Metavante's acquisition of Electronic Banking Services from 25
years, as previously reported, to 15 years. Offsetting this increase was
approximately $0.1 million of lower amortization of mortgage servicing rights
and $0.8 million of lower core deposit premium amortization.
Other expense amounted to $19.5 million in the third quarter of 2000, a
decrease of $11.4 million or 37.0% compared to the third quarter of 1999.
Lower cost of sales associated with equipment sales revenue was $1.9 million.
Recourse obligations associated with securitized ARMs were reduced by $1.4
million. Advertising and promotion was $1.0 million lower in the third
quarter of 2000 compared to the same period last year.
Other expense is affected by the capitalization of costs, net of amortization
and write-downs associated with software development and customer data
processing conversions. Net software capitalization was $0.4 million in the
third quarter of 1999 and in the current quarter amounted to $6.6 million
resulting in a decline of $6.2 million in other expense in the third quarter
of 2000 compared to third quarter of 1999.
INCOME TAXES
------------
The provision for income taxes for the three months ended September 30, 2000
amounted to $23.1 million or 30.9% of pre-tax income compared to $44.5 million
or 32.9% of pre-tax income for the three months ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
---------------------------------------------
Net income for the nine months ended September 30, 2000 amounted to $232.6
million compared to $263.9 million in the same period of 1999. Basic and
diluted earnings per share were $2.21 and $2.13, respectively for the nine
months ended September 30, 2000 compared to $2.48 and $2.33, respectively for
the same period last year. The year to date return on average equity was
14.67% in the current period and 16.14% for the nine months ended September
30, 1999.
Net income excluding the effect of the security losses, IPO expenses, single
charter expenses and losses from the sale of ARM loans as previously discussed
would have been $271.5 million. Basic and diluted earnings per share would
have been $2.58 and $2.49, respectively and the return on average equity would
have been 17.12%
<PAGE>
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, 2000 and 1999,
respectively. Operating income for the nine months ended September 30, 2000,
excludes the nonrecurring items 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.
Summary Consolidated Operating Income Statements
------------------------------------------------
and Financial Statistics
------------------------
($000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Interest income $ 1,290,479 $ 1,097,765
Interest expense (792,238) (569,403)
-------------- ----------------
Net interest income 498,241 528,362
Provision for loan and lease losses (21,373) (14,481)
Net investment securities gains 1,171 414
Other income 733,557 648,041
Other expense (807,724) (764,435)
-------------- ----------------
Income before taxes 403,872 397,901
Income tax provision (132,399) (134,016)
-------------- ----------------
Operating income $ 271,473 $ 263,885
============== ================
Cash operating income $ 285,671 $ 282,643
============== ================
Per Common Share
Operating income
Basic $ 2.58 $ 2.48
Diluted 2.49 2.33
Cash Operating income
Basic $ 2.71 $ 2.66
Diluted 2.62 2.49
Dividends 0.77 0.70
Return on Average Equity
Operating income 17.12 % 16.14 %
Cash Operating income 21.22 20.28
</TABLE>
<PAGE>
<PAGE>
Summary Consolidated Operating Income Statement Components
----------------------------------------------------------
as a Percent of Average Total Assets
------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Interest income (FTE) 7.06 % 6.70 %
Interest expense (4.26) (3.41)
-------------- ---------------
Net interest income 2.80 3.29
Provision for loan and lease losses (0.11) (0.09)
Net investment securities gains 0.01 0.00
Other income 3.94 3.88
Other expense (4.34) (4.57)
-------------- ---------------
Income before taxes 2.30 2.51
Income tax provision (0.84) (0.93)
-------------- ---------------
Return on average assets
based on operating income 1.46 % 1.58 %
============== ================
Return on tangible average assets
based on cash operating income 1.56 % 1.67 %
============== ================
</TABLE>
The increase in operating income is largely due to growth in noninterest
revenue of $86.3 million, including $46.5 million in data processing services,
$4.8 million in Capital Markets revenue and $13.0 million in Trust services.
Net interest income decreased $30.1 million and the provision for loan and
lease losses increased $6.9 million as previously discussed. Growth in other
expense, which is driven primarily by Data Services, was $43.3 million.
<PAGE>
<PAGE>
The Corporation's consolidated average interest earning assets and interest
bearing liabilities, interest earned and interest paid for the current nine
months and prior year nine months are presented in the following table.
Securitized ARM loans that are classified in the balance sheet as investment
securities available for sale are included with loans to provide a more
meaningful comparison ($ in millions):
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
-------------------------------- --------------------------------
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) $ 17,434.1 $ 1,052.4 8.07 % $ 15,157.3 $ 879.0 7.76
%
Investment securities:
Taxable 3,607.8 176.2 6.38 3,635.2 169.1 6.24
Tax Exempt (a) 1,333.0 71.0 7.16 1,190.2 62.6 7.14
Other short-term investments (a) 309.5 14.3 6.17 216.2 8.1 5.03
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets $ 22,684.4 $ 1,313.9 7.71 % $ 20,198.9 $ 1,118.8 7.42
%
========== ========== ========== ========== ========== ==========
Money market savings $ 5,135.6 $ 200.0 5.20 % $ 4,766.1 $ 147.5 4.14
%
Regular savings & NOW 1,874.7 23.8 1.69 2,051.4 25.4 1.66
Other CDs & time deposits 5,446.6 234.3 5.75 4,811.3 184.3 5.12
CDs greater than $100 & Brokered CDs 2,191.8 102.0 6.22 1,639.4 66.2 5.40
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing deposits 14,648.7 560.1 5.11 13,268.2 423.4 4.27
Short-term borrowings 3,689.7 173.0 6.26 2,701.8 98.9 4.90
Long-term borrowings 1,185.3 59.1 6.66 1,014.8 47.1 6.21
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities $ 19,523.7 $ 792.2 5.42 % $ 16,984.8 $ 569.4 4.48
%
========== ========== ========== ========== ========== ==========
Net interest margin (FTE) as a
percent of average earning assets $ 521.7 3.06 % $ 549.4 3.65
%
========== ========== ========== ==========
Net interest spread (FTE) 2.29 % 2.94
%
========== ==========
</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.
CAPITAL RESOURCES
-----------------
Shareholders' equity was $2.21 billion at September 30, 2000 compared to $2.12
billion at December 31, 1999 and $2.13 billion at September 30, 1999.
The Corporation had net unrealized gains on securities available for sale at
September 30, 2000 of $1.8 million, an increase in market value net of related
income tax effects of $34.6 million since December 31, 1999 which reflects in
part the effect of the investment securities portfolio realignment previously
discussed.
For the nine months ended September 30, 2000, M&I repurchased 2.0 million
shares of its Common Stock, primarily in the first quarter. The aggregate
cost of the shares repurchased was $98.3 million.
<PAGE>
<PAGE>
The Corporation continues to have a strong capital base and its regulatory
capital ratios are significantly above the minimum requirements as shown in
the following tables.
RISK-BASED CAPITAL RATIOS
-------------------------
($ in millions)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
Amount Ratio Amount Ratio
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 2,072 10.61 % $ 1,993 11.11 %
Tier 1 Capital
Minimum Requirement 781 4.00 718 4.00
-------------------------------- --------------------------------
Excess $ 1,291 6.61 % $ 1,275 7.11 %
================================ ================================
Total Capital $ 2,463 12.62 % $ 2,277 12.69 %
Total Capital
Minimum Requirement 1,562 8.00 1,435 8.00
-------------------------------- --------------------------------
Excess $ 901 4.62 % $ 842 4.69 %
================================ ================================
Risk-Adjusted Assets $ 19,528 $ 17,937
================= =================
</TABLE>
LEVERAGE RATIOS
---------------
($ in millions)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
Amount Ratio Amount Ratio
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 Capital $ 2,072 8.38 % $ 1,993 8.49 %
Minimum Leverage
Requirement 741 - 1,236 3.00 - 5.00 705 - 1,174 3.00 - 5.00
-------------------------------- --------------------------------
Excess $ 1,331 - 836 5.38 - 3.38 % $ 1,288 - 819 5.49 - 3.49 %
================================ ================================
Adjusted Average
Total Assets $ 24,719 $ 23,481
================= =================
</TABLE>
RECENT DEVELOPMENTS
-------------------
On November 1, 2000, the Corporation withdrew the IPO of its Metavante
Corporation subsidiary. A combination of adverse market conditions and the
near term slow down in financial account processing markets were the primary
reasons for withdrawing the offering. The Corporation expects to continue to
invest in and grow Metavante's business, and will evaluate future growth
strategies for Metavante as circumstances permit.
Certain information contained in this Form 10-Q contains forward-looking
statements concerning M&I's future financial results. Such statements are
subject to important factors which could cause M&I's actual results to differ
materially from those anticipated by the forward-looking statements. These
factors include those referenced in M&I's Annual Report on Form 10-K for the
year ended December 31, 1999 and as may be described from time to time in
M&I's subsequent Securities and Exchange Commission filings.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following updated information should be read in conjunction with the
Corporation's 1999 Annual Report on Form 10-K. Updated information regarding
the Corporation's use of derivative financial instruments is contained in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS."
Market risk arises from exposure to changes in interest rates, exchange rates,
commodity prices, and other relevant market rate or price risk. The
Corporation faces market risk through trading and other than trading
activities. While market risk that arises from trading activities in the form
of foreign exchange and interest rate risk is immaterial to the Corporation,
market risk from other than trading activities in the form of interest rate
risk is measured and managed through a number of methods.
Interest Rate Risk
-------------------
The Corporation uses financial modeling techniques to identify potential
changes in income under a variety of possible interest rate scenarios.
Financial institutions, by their nature, bear interest rate and liquidity risk
as a necessary part of the business of managing financial assets and
liabilities. The Corporation has designed strategies to confine these risks
within prudent parameters and identify appropriate risk/reward tradeoffs in
the financial structure of the balance sheet.
The financial models identify the specific cash flows, repricing timing and
embedded option characteristics across the array of assets and liabilities
held by the Corporation. Policies are in place to assure that neither
earnings nor fair value at risk exceed appropriate limits. The use of a
limited array of derivative financial instruments has allowed the Corporation
to achieve the desired balance sheet repricing structure while simultaneously
meeting the desired objectives of both its borrowing and depositing customers.
The models used include measures of the expected repricing characteristics of
administered rate (NOW, savings and money market accounts) and non-rate
related products (demand deposit accounts, other assets and other
liabilities). These measures recognize the relative insensitivity of these
accounts to changes in market interest rates, as demonstrated through current
and historical experiences. In addition to information about contractual
payment information for most other assets and liabilities, the models also
include estimates of expected prepayment characteristics for those items that
are likely to materially change their payment structures in different rate
environments, including residential mortgage products, certain commercial and
commercial real estate loans and certain mortgage-related securities.
Estimates for these sensitivities are based on industry assessments and are
substantially driven by the differential between the contractual coupon of the
item and current market rates for similar products.
This information is incorporated into a model that allows the projection of
future income levels in several different interest rate environments.
Earnings at risk are calculated by modeling income in an environment where
rates remain constant, and comparing this result to income in a different rate
environment, and then dividing this result into the Corporation's budgeted
/ forecasted pre-tax income for the ensuing twelve months. Since future
interest rate moves are difficult to predict, the following table presents two
potential scenarios - a gradual increase of 100bp across the entire yield
curve over the course of a year (+25bp per quarter), and a gradual decrease
of 100bp across the entire yield curve over the course of a year (-25bp per
quarter) for the balance sheet as of September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Impact to Annual Pretax Income as of
--------------------------------------------------------------
September 30, June 30, March 31, December 31,
2000 2000 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Hypothetical Change in Interest Rate
100 basis point gradual:
Rise in rates (7.2)% (7.3)% (7.8)% (8.6)%
Decline in rates 6.6 % 7.2 % 7.7 % 8.6 %
</TABLE>
<PAGE>
<PAGE>
These results are based solely on the modeled 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 changes in spread
between key market rates, or accounting recognition for impairment of certain
intangibles. These results are also considered to be conservative estimates
due to the fact that they do not include any management action to mitigate
potential income variances within the simulation process. Such action could
potentially 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.
Actual results will differ from simulated results due to timing, magnitude,
and frequency of interest rate changes as well as changes in market conditions
and management strategies.
Another component of interest rate risk is measuring the fair value at risk
for a given change in market interest rates. The Corporation also uses
computer modeling techniques to determine the present value of all asset and
liability cash flows (both on- and off-balance sheet), adjusted for prepayment
expectations, using a market discount rate. The net change in the present
value of the assets and liability cash flows in different market rate
environments is the amount of fair value at risk from those rate movements.
As of September 30, 2000 the fair value of equity at risk for a gradual 100bp
shift in rates was less than 1.0% of the market value of the Corporation.
In addition to using derivatives to manage interest rate exposure, the
Corporation also uses derivatives to create synthetic financial instruments
that more closely match desired rate and liquidity characteristics than would
otherwise be available on cash instruments directly. A small amount of
derivatives are sold to customers where the Corporation acts as an
intermediary. These instruments are matched off by the Corporation through
its trading accounts in order to minimize exposure to market risks. Customer
interest rate derivatives held for trading amounted to $121.0 million of
notional value, consisting of $60.5 million in notional value of received
fixed and $60.5 million in notional value of pay fixed interest rate swaps as
of September 30, 2000.
Equity Risk
-----------
In addition to interest rate risk, the Corporation incurs market risk in the
form of equity risk. M&I's Capital Markets Group invests in private, medium-
sized companies to help establish new businesses or recapitalize existing
ones. Exposure to the change in equity values for the companies that are held
in their portfolio exists, but due to the nature of the investments, cannot
be quantified within acceptable levels of precision.
M&I Trust Services administers $59.7 billion in assets and directly manages
a portfolio of $11.8 billion. Exposure exists to changes in equity values
due to the fact that fee income is partially based on equity balances. While
this exposure is present, quantification remains difficult due to the number
of other variables affecting fee income. Interest rate changes can also have
an effect on fee income for the above stated reasons.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
A. Exhibits:
Exhibit 10 - Early Retirement and Consulting Agreements dated as of
September 18, 2000 between the Corporation and
G.H. Gunnlaugsson.
Exhibit 11 - Statements - Computation of Earnings Per Share
Incorporated by Reference to NOTE 4 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:
On July 13, 2000, a Report on Form 8-K was filed with the Securities
and Exchange Commission in connection with the issuance of a press
release announcing the filing of a Registration Statement for the
initial public offering of its Metavante Corporation subsidiary, it's
plan to reduce the number of banking charters under which it operates
and it's second quarter earnings.
On September 28, 2000, a Report on Form 8-K was filed with the
Securities and Exchange Commission in connection with the issuance of
a press release announcing the retirement of Gordon H. Gunnlaugsson as
Executive Vice President and Chief Financial Officer and as a Director
of M&I effective December 31, 2000.
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARSHALL & ILSLEY CORPORATION
(Registrant)
/s/ P.R. Justiliano
______________________________________
P.R. Justiliano
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
/s/ J.E. Sandy
______________________________________
J.E. Sandy
Vice President
November 14, 2000
