MI Marshall & Ilsley Corp

MILWAUKEE, Oct. 16 /PRNewswire-FirstCall/ -- Marshall & Ilsley Corporation (NYSE:MI) today reported 2006 third quarter core operating income of $210.9 million, or $0.81 per diluted share, as compared to $179.7 million, or $0.75 per diluted share, in the third quarter of 2005. The Corporation reported 2006 third quarter net income of $238.9 million, or $0.92 per diluted share. The $0.11 per diluted share difference between core operating income and net income as reported reflects an adjustment in the accounting treatment of derivatives used to manage interest rate risk as described in more detail below. Third quarter core operating income increased 17.4 percent over the same period in 2005. Core operating income for the nine months ended September 30, 2006 was $601.4 million, or $2.38 per diluted share, compared to $528.7 million, or $2.25 per diluted share, in the nine months ended September 30, 2005. Net income for the nine months ended September 30, 2006 was $602.5 million, or $2.38 per diluted share. Return on average assets based on core operating income for the third quarter was 1.53 percent, as compared to 1.62 percent for the same period in 2005. Return on average equity based on core operating income was 14.22 percent this quarter as compared to 15.85 percent for the third quarter of 2005. The Corporation's provision for loan and lease losses was $10.3 million in the third quarter of 2006, versus $9.9 million in the same period last year. Net charge-offs for the period were $8.1 million, or 0.08 percent of total average loans and leases outstanding this quarter, and $7.8 million a year ago or 0.10 percent of total average loans and leases. At September 30, 2006, the allowance for loan and lease losses was 1.01 percent of total loans and leases, compared to 1.09 percent a year earlier. Nonperforming loans and leases were 0.53 percent of total loans and leases at September 30, 2006, and 0.44 percent at September 30, 2005. Assets at September 30, 2006 were $55.5 billion, compared to $45.0 billion at September 30, 2005. Book value per share was $23.51 at September 30, 2006, compared to $19.81 for the same date a year ago. Total loans and leases were $41.3 billion, compared to $33.1 billion at September 30, 2005. Accounting Adjustment for Derivatives The Corporation has elected early application of Staff Accounting Bulletin 108, and, as a result, has adjusted its opening financial position for 2006 and the financial results for the first two quarters of 2006 to reflect a change in its hedge accounting under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The Corporation utilizes interest rate swaps to hedge its risk in connection with certain financial instruments, and the Corporation had applied hedge accounting under SFAS 133 to these transactions from inception. Due to the recent expansion of certain highly technical interpretations of SFAS 133, specifically hedge designation under the "matched-term" method, certain of the derivative transactions entered into by the Corporation do not qualify for hedge accounting. As a result, any fluctuation in the market value of the derivatives should have been recorded through the income statement with no corresponding offset to the hedged items, or accumulated other comprehensive income. This adjustment results in Shareholders' Equity at January 1, 2006 being reduced by $18.0 million, and earnings per diluted share for the first and second quarters of 2006 being reduced by $0.06 and $0.05, respectively. The Corporation is taking various actions, including terminating existing swaps that no longer qualify for hedge accounting, such that the Corporation believes its financial results going forward will not be materially impacted by fluctuations in the market value of derivatives used to hedge interest rate risk. The Corporation expects that these actions will result in fourth quarter 2006 charges of approximately $0.03 per diluted share. "Our issue relates strictly to the evolving accounting interpretations related to hedge accounting. It is important to understand that this adjustment does not impact our growth trends, our underlying credit quality, or our key performance ratios in any significant manner," said Greg Smith, the Corporation's chief financial officer. Marshall & Ilsley Corporation (NYSE:MI) is a diversified financial services corporation headquartered in Milwaukee, Wis., with $55.5 billion in assets. Founded in 1847, M&I Marshall & Ilsley Bank is the largest Wisconsin- based bank. M&I Bank has 195 offices throughout the state. In addition, M&I has 42 locations throughout Arizona; 17 offices in Kansas City and nearby communities; 17 offices on Florida's west coast; 16 offices in metropolitan Minneapolis/St. Paul, and one in Duluth, Minn.; three offices in Tulsa, Okla.; and one office in Las Vegas, Nev. M&I's Southwest Bank subsidiary has 15 offices in the greater St. Louis area. Metavante Corporation, Marshall & Ilsley Corporation's wholly owned technology subsidiary, provides virtually all of the technology an organization needs to offer financial services. M&I also provides trust and investment management, equipment leasing, mortgage banking, asset-based lending, financial planning, investments, and insurance services from offices throughout the country and on the Internet (http://www.mibank.com/ or http://www.micorp.com/). M&I's customer-based approach, internal growth, and strategic acquisitions have made M&I a nationally recognized leader in the financial services industry. This press release contains non-GAAP financial measures. For a reconciliation of the non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP, please see the reconciliation table included in the attachment to this press release. This press release contains forward-looking statements concerning M&I's future operations and financial results. Such statements are subject to important factors that could cause M&I's actual results to differ materially from those anticipated by the forward-looking statements. These factors include (i) the Risk Factors identified in Item 1A of M&I's Annual Report on Form 10-K for the year ended December 31, 2005, which factors are incorporated herein by reference, and (ii) such other factors as may be described from time to time in M&I's SEC filings. Note: Marshall & Ilsley Corporation will hold a conference call at 11:00 a.m. Central Daylight Time Monday, October 16, regarding third quarter earnings. For those interested in listening, please call 1-800-946-0720 and ask for M&I's quarterly earnings release conference call. If you are unable to join us at this time, a replay of the call will run through October 23, 5:00 p.m. Central Daylight Time by calling 1-888-203-1112 and entering pass code 652 55 74 to listen. Supplemental financial information referenced in the conference call can be found at http://www.micorp.com/, Investor Relations, after 8:00 a.m. on October 16. Marshall & Ilsley Corporation Financial Information (unaudited) Three Months Ended Nine Months Ended September September Percent September September Percent 30, 2006 30, 2005 Change 30, 2006 30, 2005 Change PER SHARE DATA Diluted: Net Income $0.92 $0.75 22.7% $2.38 $2.25 5.8% Core Operating Income $0.81 $0.75 8.0% $2.38 $2.25 5.8% Basic: Net Income 0.94 0.77 22.1 2.44 2.30 6.1 Core Operating Income 0.83 0.77 7.8 2.43 2.30 5.7 Dividend Declared 0.27 0.24 12.5 0.78 0.69 13.0 Book Value 23.51 19.81 18.7 23.51 19.81 18.7 Shares Outstanding (millions): Average - Diluted 259.7 238.2 9.0 252.8 234.8 7.7 End of Period 254.8 234.4 8.7 254.8 234.4 8.7 INCOME STATEMENT ($millions) Net Interest Income (FTE) $400.5 $330.3 21.3% $1,118.1 $958.7 16.6% Provision for Loan and Lease Losses 10.3 9.9 4.0 32.3 31.8 1.6 Data Processing Services 339.5 296.0 14.7 1,027.5 861.3 19.3 Wealth Management 54.6 48.3 13.0 163.7 143.5 14.1 Service Charge on Deposits 25.7 23.6 8.9 73.3 70.7 3.7 Mortgage Banking 13.4 15.8 -15.2 38.1 35.1 8.5 Net Investment Securities Gains (Losses) 4.5 7.4 -39.2 6.6 42.6 -84.5 Mark to Market Adjustments 43.8 - n.m. 1.8 - n.m. All Other 39.6 39.0 1.5 122.0 113.7 7.3 Total Non-Interest Revenues 521.1 430.1 21.2 1,433.0 1,266.9 13.1 Salaries and Employee Benefits 314.3 278.0 13.1 898.8 792.1 13.5 Occupancy and Equipment 61.8 54.6 13.2 183.5 158.8 15.6 Intangible Amortization 12.1 6.1 98.4 33.0 22.3 48.0 Other 158.4 131.8 20.2 480.7 400.2 20.1 Total Non-Interest Expenses 546.6 470.5 16.2 1,596.0 1,373.4 16.2 Tax Equivalent Adjustment 7.3 8.5 -14.1 23.0 25.1 -8.4 Pre-Tax Earnings 357.4 271.5 31.6 899.8 795.3 13.1 Income Taxes 118.5 91.8 29.1 297.3 266.6 11.5 Net Income $238.9 $179.7 32.9% $602.5 $528.7 14.0% Core Operating Income $210.9 $179.7 17.4% $601.4 $528.7 13.8% KEY RATIOS Net Interest Margin (FTE) / Avg. Earning Assets 3.29% 3.36% 3.27% 3.41% Interest Spread (FTE) 2.67 2.87 2.67 2.97 Efficiency Ratio 59.6 62.5 62.7 62.1 Efficiency Ratio without Metavante 48.5 50.8 50.8 50.4 Return on Assets 1.74 1.62 1.56 1.66 Return on Equity 16.17 15.85 14.78 16.63 Equity / Assets (End of Period) 10.73 10.25 10.73 10.25 Reconciliation of Core Operating Income to Net Income Three Months Ended Nine Months Ended September 30, 2006 September 30, 2006 Amount Per Amount Per ($ in millions) Diluted Share ($ in millions) Diluted Share Net Income $238.9 $0.92 $602.5 $2.38 Mark to Market Adjustments (after-tax) (28.0) (0.11) (1.1) 0.00 Core Operating Income $210.9 $0.81 $601.4 $2.38 Average Shareholders' Equity $5,860 $5,450 Cumulative Mark to Market Adjustments (after-tax) 23 23 Adjusted Average Shareholders' Equity $5,883 $5,473 Based on Core Operating Income Return on Assets 1.53% 1.56% Return on Equity 14.22 14.69 Efficiency Ratio 62.6 62.8 Efficiency Ratio without Metavante 52.4 50.9 Marshall & Ilsley Corporation Financial Information (unaudited) As of September 30, September 30, Percent ASSETS ($millions) 2006 2005 Change Cash & Due From Banks $1,250 $1,080 15.7% Trading Securities 45 28 60.7 Short - Term Investments 254 306 -17.0 Investment Securities 7,349 6,330 16.1 Loans and Leases: Commercial Loans & Leases 12,327 9,721 26.8 Commercial Real Estate 14,284 10,259 39.2 Residential Real Estate 8,611 6,491 32.7 Home Equity Loans & Lines 4,416 4,916 -10.2 Personal Loans and Leases 1,627 1,719 -5.4 Total Loans and Leases 41,265 33,106 24.6 Reserve for Loan & Leases Losses (417) (362) 15.2 Premises and Equipment, net 568 469 21.1 Goodwill and Intangibles 3,221 2,388 34.9 Other Assets 1,948 1,650 18.1 Total Assets $55,483 $44,995 23.3% LIABILITIES & SHAREHOLDERS' EQUITY ($millions) Deposits: Noninterest Bearing $5,566 $5,224 6.5% Bank Issued Interest Bearing Activity 12,141 10,075 20.5 Bank Issued Time 8,007 4,790 67.2 Total Bank Issued Deposits 25,714 20,089 28.0 Wholesale Deposits 7,746 6,902 12.2 Total Deposits 33,460 26,991 24.0 Short - Term Borrowings 7,006 5,497 27.5 Long - Term Borrowings 7,489 6,375 17.5 Other Liabilities 1,572 1,520 3.4 Shareholders' Equity 5,956 4,612 29.1 Total Liabilities & Shareholders' Equity $55,483 $44,995 23.3% Three Months Ended Nine Months Ended September September Percent September September Percent 30, 2006 30, 2005 Change 30, 2006 30, 2005 Change AVERAGE ASSETS ($millions) Cash & Due From Banks $1,039 $993 4.6% $1,017 $950 7.1% Trading Securities 54 26 107.7 46 25 84.0 Short - Term Investments 302 273 10.6 331 244 35.7 Investment Securities 7,167 6,209 15.4 6,877 6,158 11.7 Loans and Leases: Commercial Loans & Leases 12,088 9,588 26.1 11,474 9,270 23.8 Commercial Real Estate 14,065 10,145 38.6 12,755 9,846 29.5 Residential Real Estate 8,395 6,170 36.1 7,890 5,427 45.4 Home Equity Loans and Lines 4,474 4,905 -8.8 4,591 5,044 -9.0 Personal Loans and Leases 1,586 1,671 -5.1 1,640 1,642 -0.1 Total Loans and Leases 40,608 32,479 25.0 38,350 31,229 22.8 Reserve for Loan & Leases Losses (420) (364) 15.4 (402) (362) 11.0 Premises and Equipment, net 570 459 24.2 544 452 20.4 Goodwill and Intangibles 3,169 2,317 36.8 2,937 2,205 33.2 Other Assets 2,095 1,743 20.2 1,990 1,720 15.7 Total Assets $54,584 $44,135 23.7% $51,690 $42,621 21.3% Memo: Average Earning Assets $48,131 $38,987 $45,604 $37,656 Average Earning Assets Excluding Investment Securities Unrealized Gains/Losses $48,250 $38,979 $45,699 $37,636 AVG LIABILITIES & SHAREHOLDERS' EQUITY ($millions) Deposits: Noninterest Bearing $5,462 $5,049 8.2% $5,271 $4,858 8.5% Bank Issued Interest Bearing Activity 12,027 10,028 19.9 11,383 9,919 14.8 Bank Issued Time 7,980 4,516 76.7 7,066 4,192 68.6 Total Bank Issued Deposits 25,469 19,593 30.0 23,720 18,969 25.0 Wholesale Deposits 7,452 6,759 10.3 7,347 6,720 9.3 Total Deposits 32,921 26,352 24.9 31,067 25,689 20.9 Short - Term Borrowings 3,664 2,859 28.2 3,485 3,048 14.3 Long - Term Borrowings 10,366 8,686 19.3 9,944 7,943 25.2 Other Liabilities 1,773 1,740 1.9 1,744 1,691 3.1 Shareholders' Equity 5,860 4,498 30.3 5,450 4,250 28.2 Total Liabilities & Shareholders' Equity $54,584 $44,135 23.7% $51,690 $42,621 21.3% Memo: Average Interest Bearing Liabilities $41,489 $32,848 $39,225 $31,822 Marshall & Ilsley Corporation Financial Information (unaudited) Three Months Ended Nine Months Ended September September Percent September September Percent 30, 2006 30, 2005 Change 30, 2006 30, 2005 Change CREDIT QUALITY (a) Net Charge-Offs ($millions) $8.1 $7.8 3.8% $24.0 $27.7 -13.4% Net Charge-Offs / Average Loans & Leases 0.08% 0.10% 0.08% 0.12% Loan and Lease Loss Reserve ($millions) $417.4 $362.3 15.2% $417.4 $362.3 15.2% Loan and Lease Loss Reserve / Period-End Loans & Leases 1.01% 1.09% 1.01% 1.09% Non-Performing Loans & Leases (NPL) ($millions) $219.2 $147.3 48.8% $219.2 $147.3 48.8% NPL's / Period-End Loans & Leases 0.53% 0.44% 0.53% 0.44% Loan and Lease Loss Reserve / Non-Performing Loans & Leases 190% 246% 190% 246% MARGIN ANALYSIS (b) Loans and Leases: Commercial Loans & Leases 7.62% 6.17% 7.31% 5.86% Commercial Real Estate 7.63 6.33 7.34 6.14 Residential Real Estate 7.12 6.18 7.00 5.99 Home Equity Loans and Lines 7.49 6.32 7.22 6.16 Personal Loans and Leases 7.40 6.21 7.11 5.91 Total Loans and Leases 7.49 6.25 7.24 6.02 Investment Securities 5.20 4.99 5.19 5.01 Short - Term Investments 5.12 3.60 4.78 3.21 Interest Income (FTE) / Avg. Interest Earning Assets 7.13% 6.03% 6.90% 5.84% Interest Bearing Deposits: Bank Issued Interest Bearing Activity 3.47% 2.06% 3.22% 1.72% Bank Issued Time 4.55 3.29 4.27 3.03 Total Bank Issued Deposits 3.90 2.44 3.62 2.11 Wholesale Deposits 5.00 3.29 4.74 2.97 Total Interest Bearing Deposits 4.20 2.71 3.94 2.39 Short - Term Borrowings 5.39 3.88 5.07 3.43 Long - Term Borrowings 4.84 4.04 4.69 3.94 Interest Expense / Avg. Interest Bearing Liabilities 4.46% 3.16% 4.23% 2.87% Net Interest Margin(FTE) / Avg. Earning Assets 3.29% 3.36% 3.27% 3.41% Interest Spread (FTE) 2.67% 2.87% 2.67% 2.97% Notes: (a) Includes Loans past due 90 days or more. (b) Based on average balances excluding fair value adjustments for available for sale securities. DATASOURCE: Marshall & Ilsley Corporation CONTACT: Greg Smith, senior vice president, chief financial officer, +1-414-765-7727, or Dave Urban, vice president, director of investor relations, +1-414-765-7853, both of Marshall & Ilsley Corporation Web site: http://www.micorp.com/ http://www.mibank.com/

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