Add
MI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MI > SEC Filings for MI > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS
($000's)
Three Months Ended September 30,
2009 2008
Assets
Cash and due from banks $ 738,614 $ 892,191
Trading assets 250,721 144,359
Short-term investments 1,791,184 386,349
Investment securities:
Taxable 5,267,613 6,386,679
Tax-exempt 987,665 1,122,791
Total investment securities 6,255,278 7,509,470
Loans and leases:
Loans and leases, net of
unearned income 47,137,444 50,032,072
Allowance for loan and lease
losses (1,358,629 ) (1,083,283 )
Net loans and leases 45,778,815 48,948,789
Premises and equipment, net 573,302 532,728
Accrued interest and other
assets 3,856,743 4,650,044
Total Assets $ 59,244,657 $ 63,063,930
Liabilities and Equity
Deposits:
Noninterest bearing $ 7,861,948 $ 5,908,790
Interest bearing 33,474,035 33,779,664
Total deposits 41,335,983 39,688,454
Federal funds purchased and
security repurchase
agreements 1,038,750 3,156,595
Other short-term borrowings 835,738 3,257,868
Long-term borrowings 8,387,033 9,653,290
Accrued expenses and other
liabilties 993,907 773,337
Total Liabilities 52,591,411 56,529,544
Equity
Marshall & Ilsley
Corporation shareholders'
equity 6,642,447 6,524,471
Noncontrolling interest in
subsidiaries 10,799 9,915
Total Equity 6,653,246 6,534,386
Total Liabilities and Equity $ 59,244,657 $ 63,063,930
|
MARSHALL & ILSLEY CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS
($000's)
Nine Months Ended September 30,
2009 2008
Assets
Cash and due from banks $ 762,948 $ 908,065
Trading assets 471,053 161,509
Short-term investments 944,544 363,150
Investment securities:
Taxable 6,038,210 6,534,247
Tax-exempt 1,042,590 1,183,490
Total investment securities 7,080,800 7,717,737
Loans and leases:
Loans and leases, net of
unearned income 48,599,744 49,526,053
Allowance for loan and lease
losses (1,322,163 ) (775,375 )
Net loans and leases 47,277,581 48,750,678
Premises and equipment, net 571,603 521,133
Accrued interest and other
assets 3,755,068 4,546,792
Total Assets $ 60,863,597 $ 62,969,064
Liabilities and Equity
Deposits:
Noninterest bearing $ 7,237,883 $ 5,788,737
Interest bearing 33,055,263 33,037,533
Total deposits 40,293,146 38,826,270
Federal funds purchased and
security repurchase
agreements 1,571,369 3,238,550
Other short-term borrowings 2,349,554 3,303,824
Long-term borrowings 9,128,171 9,770,371
Accrued expenses and other
liabilties 1,051,938 981,861
Total Liabilities 54,394,178 56,120,876
Equity
Marshall & Ilsley
Corporation shareholders'
equity 6,458,849 6,838,276
Noncontrolling interest in
subsidiaries 10,570 9,912
Total Equity 6,469,419 6,848,188
Total Liabilities and Equity $ 60,863,597 $ 62,969,064
|
For the three months ended September 30, 2009, the net loss attributable to the Corporation's common shareholders amounted to $248.4 million or $0.68 per diluted common share compared to net income attributable to the Corporation's common shareholders of $83.1 million or $0.32 per diluted common share for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the net loss attributable to common shareholders amounted to $599.3 million or $1.97 per diluted common share compared to the net loss attributable to common shareholders of $164.4 million or $0.63 per diluted common share for the nine months ended September 30, 2008.
The net loss attributable to the Corporation's common shareholders for the three and nine months ended September 30, 2009 includes $25 million and $75 million, or $0.07 and $0.25 per diluted common share, respectively, for dividends on the Senior Preferred Stock, Series B (the "Senior Preferred Stock") issued to the United States Department of the Treasury (the "UST") in the fourth quarter of 2008 under the UST's Capital Purchase Program (the "CPP").
Consistent with recent quarters, credit quality-related charges were the primary driver of the Corporation's financial performance. For the three months ended September 30, 2009, the provision for loan and lease losses amounted to $578.7 million, which on an after-tax basis was approximately $370.1 million or $1.01 per diluted common share. For the nine months ended September 30, 2009, the provision for loan and lease losses amounted to $1,675.6 million, which on an after-tax basis was approximately $1,061.2 million or $3.49 per diluted common share. For the three months ended September 30, 2008, the provision for loan and lease losses amounted to $155.0 million, which on an after-tax basis was approximately $99.1 million or $0.38 per diluted common share. For the nine months ended September 30, 2008, the provision for loan and lease losses amounted to $1,187.3 million, which on an after-tax basis was approximately $759.4 million or $2.93 per diluted common share. Post-transfer write-downs associated with loans available for sale (other than mortgage loans originated for sale) are reported as a reduction of other income in the Consolidated Statements of Income and amounted to $18.1 million which on an after-tax basis was approximately $11.4 million or $0.03 per diluted common share for the three months ended September 30, 2009. For the nine months ended September 30, 2009, post-transfer write-downs associated with loans available for sale amounted to $29.7 million which on an after-tax basis was approximately $18.7 million or $0.06 per diluted common share.
The provision for loan and lease losses for the three and nine months ended September 30, 2009 included approximately $185.0 million for loans to certain bank holding companies. Charge-offs related to those loans to bank holding companies amounted to $157.8 million for the three and nine months ended September 30, 2009. Approximately 75% of these loans were current as of September 30, 2009.
Nonaccrual loans and leases at September 30, 2009, which the Corporation refers to as nonperforming loans, increased $723.1 million since December 31, 2008 and amounted to $2,250.1 million at September 30, 2009. However, nonperforming loans at September 30, 2009 decreased by $166.0 million or 6.9% from June 30, 2009. This is the first linked-quarter decline in nonperforming loans in four years. The elevated levels of nonperforming loans reflects the recessionary economy, which includes higher levels of unemployment, and the weak national real estate markets. In addition, the amount of impairment, which affects charge-offs and the level of the allowance for loans and leases, remained elevated due to the depressed state of underlying real estate collateral values. The decrease in nonperforming loans at September 30, 2009 reflects the effects of the Corporation's actions taken to reduce the levels of nonperforming loans and the decline in new nonperforming loans during the third quarter of 2009. Compared to the second quarter of 2009, the amount of new loans and leases that went into nonperforming status in the third quarter of 2009 decreased by approximately $463 million or 35.5%. As a result, the ratio of nonperforming loans and leases to total loans and leases declined to 4.88% at September 30, 2009. In addition, early stage loan delinquencies (those loans delinquent 30-89 days) decreased by $217.7 million or 20.5%, from June 30, 2009 to September 30, 2009. While the direction of these credit quality metrics this quarter may be an indication of stabilization in some geographies and markets, management recognizes the economy remains fragile and that it may be too early to expect that this quarter's experience is indicative of the start of a longer-term trend.
The Corporation continued to employ a variety of strategies to mitigate and reduce its loan loss exposures such as loan sales and restructuring loan terms to lessen the financial stress and the probability of foreclosure for qualifying customers that have demonstrated the capacity and ability to repay their debt obligations in a manner that serves the best interests of both the customer and the Corporation. Troubled debt restructurings, which the Corporation refers to as renegotiated loans, increased $116.7 million since June 30, 2009 and amounted to $935.3 million at September 30, 2009. At September 30, 2009, renegotiated residential real estate, residential construction by individuals, residential land and other consumer-related renegotiated loans amounted to $619.3 million or 66.2% of total renegotiated loans.
The allowance for loans and leases amounted to $1,413.7 million or 3.07% of total loans and leases outstanding at September 30, 2009 compared to $1,367.8 million or 2.84% at June 30, 2009 and $1,031.5 million or 2.05% at September 30, 2008. Net charge-offs amounted to $532.7 million or 4.48% of average loans and leases for the three months ended September 30, 2009 compared to $152.3 million or 1.21% of average loans and leases for the three months ended September 30, 2008. For the nine months ended September 30, 2009, net charge-offs amounted to $1,464.0 million or 4.03% of average loans and leases compared to $684.1 million or 1.85% of average loans and leases for the nine months ended September 30, 2008. As previously discussed, net charge-offs for the three and nine months ended September 30, 2009 include the charge-offs related to loans to certain bank holding companies.
The Corporation continued to experience elevated levels of expenses due to the increase in operating costs associated with collection efforts and carrying nonperforming assets. The estimated expense associated with collection efforts and carrying nonperforming assets, net of related revenue, amounted to $66.0 million for the third quarter of 2009 compared to $16.6 million for the third quarter of 2008, an increase of $49.4 million. On an after-tax basis that net expense increase was approximately $31.1 million or $0.08 per diluted common share. For the nine months ended September 30, 2009, the estimated expense associated with collection efforts and carrying nonperforming assets, net of related revenue, amounted to $149.4 million compared to $60.2 million for the nine months ended September 30, 2008, an increase of $89.2 million. On an after-tax basis that net expense increase over the comparative nine months was approximately $56.2 million or $0.18 per diluted common share.
Slowing loan growth, declining asset yields, competitive deposit pricing in the low interest rate environment, elevated levels of nonperforming loans and the decision to maintain higher levels of liquid assets, resulted in lower net interest income in the third quarter and nine months ended September 30, 2009 compared to the third quarter and nine months ended September 30, 2008. Equity market volatility along with downward pressure in the equity markets resulted in lower wealth management revenue in the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008. Mortgage loan closings, primarily due to re-financings, and increased sales of those loans to the secondary market resulted in mortgage banking revenue growth in the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008. During the third quarter of 2009, the Corporation continued to re-acquire and extinguish both bank holding company and banking affiliate long-term borrowings. Gain on termination of debt contributed $0.10 per diluted common share in the third quarter of 2009 and contributed $0.14 per diluted common share for the nine months ended September 30, 2009.
Net investment securities gains and losses were not significant in the three months ended September 30, 2009 and 2008. During the second quarter of 2009, the Corporation sold United States government agency investment securities and sold its Visa, Inc. ("Visa") Series B common stock. During the first quarter of 2008, the Corporation also recognized gains related to Visa Series B common stock.
As previously discussed, operating expense growth for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008 was predominantly driven by the increases in the costs associated with collection efforts and carrying nonperforming assets as well as other credit-related expenses. Operating expenses for the nine months ended September 30, 2009 include the Federal Deposit Insurance Corporation ("FDIC") special assessment related to insurance on deposits that was levied in the second quarter of 2009 in addition to the increase related to regular insurance premiums for insurance on deposits experienced throughout 2009. Operating expenses for the three and nine months ended September 30, 2008 included approximately $15.0 million of expenses and losses associated with securities lending. Operating expenses for the nine months ended September 30, 2008 included approximately $12.2 million of expense reversal associated with the Corporation's indemnification obligations in connection with the Visa litigation. Operating expenses, excluding the expenses associated with collection efforts and carrying nonperforming assets and other credit-related costs, expenses and losses associated with securities lending, FDIC insurance expense, and the reversal of the Visa litigation accrual in the first quarter of 2008, declined approximately 3.5% in the nine months ended September 30, 2009 compared to the same period in 2008. That decline reflects lower incentive compensation and the impact of the expense reduction initiatives announced in the Corporation's fourth quarter 2008 earnings release.
For the nine months ended September 30, 2009, tax benefits that reduced the Corporation's reported loss amounted to $69.0 million, or $0.23 per diluted common share. For the nine months ended September 30, 2008, tax benefits that reduced the Corporation's reported loss amounted to $20.0 million, or $0.08 per diluted common share.
At September 30, 2009, the Corporation's Tier 1 regulatory capital ratio was 9.61% or $1,847.0 million in excess of well capitalized under the Federal Reserve Board's regulatory framework. To be well capitalized under the regulatory framework, the Tier 1 capital ratio must meet or exceed 6%.
On October 27, 2009, the Corporation announced the closing of its public offering of 156.4 million shares of its $1.00 par value common stock at $5.75 per share. The 156.4 million shares included 20.4 million shares issued pursuant to an option granted to the underwriters by the Corporation, which was exercised in full. The proceeds, net of underwriting discounts and commissions and offering expenses, from the offering amounted to $863.3 million.
With regard to the outlook for the remainder of 2009, the low interest rate environment together with the numerous other factors that impact net interest income and the net interest margin have made it very difficult to project the net interest margin with a reasonable degree of certainty. Management believes that the net interest margin will be relatively stable and comparable with the net interest margin reported for the third quarter of 2009 in the near term with potential opportunities for longer-term net interest margin growth.
Commercial and industrial loans continued to contract in the third quarter of 2009 compared to the second quarter of 2009. Commercial and industrial loan balances are expected to decrease in 2009 compared to 2008. Construction and development loans are expected to continue to contract as the Corporation reduces its concentration in these types of loans to its corporate goal of 10% of total loans and leases. At September 30, 2009, construction and development loans were 13.7% of total loans and leases outstanding, which is down from the peak at September 30, 2007, when construction and development loans were 22.6% of total loans and leases outstanding. Commercial real estate loan balances in 2009 compared to 2008 is expected to be unchanged. Wealth management revenue will continue to be affected by market volatility and direction.
Management expects the prevailing economic and difficult real estate market conditions will last well into 2010 in many of the Corporation's markets. The Corporation expects that the bulk of the credit quality issues related to Florida have been realized and that the level of new larger construction loans placed on nonaccrual are likely to have peaked in Arizona. A weak and unstable economy and elevated levels of unemployment have resulted in increased stress in consumer loans, particularly residential real estate loans and home equity loans and lines of credit. Based on these factors, nonaccrual consumer loans are expected to increase. As a result of these offsetting trends, total nonperforming loans and leases may continue to stabilize or decrease. Management expects the provision for loan and lease losses will continue to be at elevated levels due to the recessionary economy and weak national real estate markets. The credit environment and underlying collateral values continue to be rapidly changing and as a result, there are numerous unknown factors at this time that will ultimately affect the timing and amount of nonperforming loans and leases, net charge-offs and the provision for loan and lease losses that will be recognized in the remainder of 2009. The timing and amount of charge-offs will continue to be influenced by the Corporation's strategies for managing its nonperforming loans and leases.
The Corporation's actual results for the remainder of 2009 could differ materially from those expected by management. See "Forward-Looking Statements" in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2008 and Item 1A in Part II of this Report for a discussion of the various risk factors that could cause actual results to differ materially from expected results.
Subsequent Event
On October 27, 2009, the Corporation announced the closing of its public offering of 156.4 million shares of its $1.00 par value common stock at $5.75 per share. The 156.4 million shares included 20.4 million shares issued pursuant to an option granted to the underwriters by the Corporation, which was exercised in full. The proceeds, net of underwriting discounts and commissions and offering expenses, from the offering amounted to $863.3 million. The Corporation intends to use the net proceeds of this offering for general corporate purposes and may contribute some portion of the net proceeds to the capital of its subsidiaries, which will use these contributions for their general corporate purposes. The Corporation may also use a portion of the net proceeds of this offering to repurchase portions of its outstanding indebtedness from time to time in the future, to the extent the Corporation determines that market conditions are favorable for doing so. In addition, to the extent that the Corporation's Board of Directors determines at a future date that it is in the best interests of the Corporation and its shareholders, the Corporation may elect to repurchase a portion of the Senior Preferred Stock which repurchase may be funded in whole or in part by the remaining net proceeds of the offering. Any repurchase of the Senior Preferred Stock would be subject to consultation with and approval by the Corporation's banking regulators.
Some of the other more noteworthy transactions and events that occurred in the nine months ended September 30, 2009 and 2008, by quarter, consisted of the following:
Third Quarter 2009
The Corporation continued to re-acquire and extinguish both bank holding company and banking affiliate long-term borrowings. During the third quarter of 2009, the Corporation re-acquired and extinguished long-term borrowings with a par value of $548.4 million. The gain on termination of debt amounted to $56.1 million. On an after-tax basis, the gain on termination of debt amounted to $35.4 million or $0.10 per diluted common share.
Second Quarter 2009
During the second quarter of 2009, the Corporation recognized a gain of $35.4 million in conjunction with the sale of its Visa Class B common stock. Also during the second quarter, the Corporation realized a gain of $43.6 million from the sale of approximately $1.1 billion in aggregate principal amount of United States government agency investment securities. These gains are included in Net investment securities gains in the Consolidated Statements of Income. On an after-tax basis, these gains amounted to $49.8 million or $0.18 per diluted common share.
In the second quarter of 2009, the Corporation recognized a tax benefit of $18.0 million or $0.06 per diluted common share from a favorable resolution of a tax matter associated with a 2002 stock issuance.
During the second quarter of 2009, the Corporation recorded a special FDIC insurance assessment charge of $29.3 million. On an after-tax basis, the assessment amounted to $18.5 million or $0.07 per diluted common share.
On June 17, 2009, the Corporation announced the closing of its public offering of 100.0 million shares of its $1.00 par value common stock at $5.75 per share. The 100.0 million shares include 13.0 million shares issued pursuant to an option granted to the underwriters by the Corporation, which was exercised in full. The proceeds, net of underwriting discounts and commissions and offering expenses, from the offering amounted to $551.8 million. In addition, under the initial shelf registration, the Corporation issued 670,300 shares of its common stock valued at $4.5 million, net of underwriting discounts and commissions and offering expenses, during the quarter.
On May 27, 2009, the Corporation acquired the investment team and managed accounts of Delta Asset Management ("Delta"), an institutional large-cap core equity money manager based in Los Angeles, California. Delta, an operating division of Berkeley Capital Management LLC, had approximately $1.2 billion in assets under management as of April 30, 2009.
First Quarter 2009
The State of Wisconsin enacted legislation that requires combined reporting for state income tax purposes. As a result, the Corporation recorded an additional income tax benefit of $51.0 million, or $0.19 per diluted common share to recognize certain state deferred tax assets, which included the reduction of a valuation allowance for Wisconsin net operating losses. The Corporation expects that income tax expense will increase in future periods due to the enacted legislation.
Third Quarter 2008
During the third quarter of 2008, the Corporation's wealth management segment recognized a loss associated with its securities lending activities. During the third quarter of 2008, Lehman Brothers declared bankruptcy and failed to return loaned securities when due. Due to volatile market conditions, the cost of the replacement securities exceeded the amount of collateral available to purchase the replacement securities. The loss amounted to $8.4 million and is reported in the line Other within Other Expense in the Consolidated Statements of Income.
Certain entities within the wealth management segment are the investment advisor and trustee of the M&I Employee Benefit Stable Principal Fund ("SPF"). The SPF periodically participates in securities lending activities. Although not obligated to do so, during the third quarter of 2008, M&I Trust entered into a capital support agreement with SPF due to volatile market conditions. At September 30, 2008, the estimated fair value of the contingent liability under the agreement that was recorded within other liabilities in the consolidated balance sheet and corresponding expense which was reported in the line Other within Other Expense in the Consolidated Statements of Income amounted to $6.6 million.
On an after-tax basis, these losses and charges in the aggregate amounted to $9.1 million or $0.04 per diluted common share.
First Quarter 2008
On January 2, 2008, the Corporation completed its acquisition of First Indiana Corporation.
During the first quarter of 2008, the Corporation recognized income of $39.1 million due to the completion of the initial public offering ("IPO") by Visa. As a result of the IPO, Visa redeemed 38.7% of the Class B Visa common stock owned by the Corporation. The gain from the redemption amounted to $26.9 million and is reported in Net investment securities gains in the Consolidated Statements of Income. In addition, Visa established an escrow for certain litigation matters from the proceeds of the IPO. As a result of the funded escrow, the Corporation reversed $12.2 million of the litigation accruals that were originally recorded due to the Corporation's membership interests in Visa which is reported in Other expense in the Consolidated Statements of Income. On an after-tax basis, these two Visa-related items increased net income by approximately $25.4 million or $0.10 per diluted common share.
. . .
|
|